<PAGE>
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SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_]Preliminary Proxy Statement
[_]CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY
(AS PERMITTED BY RULE 14A-6(e)(2))
[X]Definitive Proxy Statement
[_]Definitive Additional Materials
[_]Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
INFOSEEK CORPORATION
------------------------------------------------------------------------
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------------------------------------------------------
(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)
Payment of Filing Fee (Check the appropriate box):
[_]No fee required.
[X]Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1)Title of each class of securities to which transaction applies:
Common Stock, $0.01 par value per share, of Starwave Corporation
------------------------------------------------------------------------
(2)Aggregate number of securities to which transaction applies:
107,133,110
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
$.003 (one-third of the par value of the securities pursuant to
Exchange Act Rule 0-11(a)(4))
------------------------------------------------------------------------
(4)Proposed maximum aggregate value of transaction:
$321,339.33
------------------------------------------------------------------------
(5)Total fee paid:
$64.28
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[_]Fee paid previously with preliminary materials.
[X]Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1)Amount Previously Paid:
$64.28
------------------------------------------------------------------------
(2)Form, Schedule or Registration Statement No.:
Preliminary Schedule 14A
------------------------------------------------------------------------
(3)Filing Party:
Infoseek Corporation (the Registrant)
------------------------------------------------------------------------
(4)Date Filed:
July 30, 1998
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<PAGE>
[LOGO OF INFOSEEK CORPORATION]
1399 MOFFETT PARK DRIVE
SUNNYVALE, CALIFORNIA 94089
October 14, 1998
Dear Shareholder:
Enclosed with this letter is the Joint Proxy Statement/Prospectus relating
to our previously announced agreements with The Walt Disney Company and
certain of its subsidiaries, including Starwave Corporation, that are subject
to shareholder approval. As you may be aware, Infoseek is proposing to acquire
Starwave, which is currently approximately 91% owned (excluding shares
underlying options outstanding under Starwave stock option plans) by a Disney
subsidiary. In addition, Infoseek and Disney have proposed to establish a
strategic relationship concerning the development, launch and promotion of a
planned new Internet portal service to be named Go Network(TM) (the "New
Portal Service") that would combine certain content, promotion, brands and
technologies of Infoseek, Starwave and its joint ventures relating to ESPN
SportsZone and ABCNews.com, and Disney, and, as currently planned, would
provide for universal navigation, registration, community and commerce
services across the web sites comprising the service, including not only
Infoseek and Starwave sites but also ESPN SportsZone, ABCNews.com and certain
Disney web sites. In an effort to outline a number of the material terms of
the proposed transactions, I have prepared this summary letter that should be
read in conjunction with the more detailed descriptions appearing in the Joint
Proxy Statement/Prospectus. Please take the time to read through the Joint
Proxy Statement/Prospectus and call our investor relations department at (408)
543-6000, or our proxy solicitor, Morrow & Co., Inc. at (800) 566-9061 if you
have any questions.
The Boards of Directors of each of Infoseek and Starwave have unanimously
approved the several proposed transactions described in the Joint Proxy
Statement/Prospectus and have unanimously recommended their approval by the
shareholders of Infoseek and Starwave, respectively. Infoseek and Starwave
believe that, through the acquisition of Starwave and the related transactions
with Disney, including the planned development, launch and promotion of the
New Portal Service, the combined companies will be better positioned to
compete more effectively in the rapidly developing and changing Internet
market. Infoseek also believes that an alliance with a major media company,
such as Disney, with its strong brand recognition and promotional
capabilities, rich content assets and other resources, will better enable
Infoseek to achieve its long-term strategic objectives in an Internet market
that Infoseek believes increasingly will require portal services to integrate
a more robust array of multimedia content and services. As such, Infoseek
believes that its future success in part will depend upon its ability to
leverage the promotional capabilities of Disney and to effectively and timely
integrate such content and services, including but not limited to further
advancements in search and directory and other technologies and functionality,
development of on-line communities, implementation of electronic commerce, and
provision of rich and diverse multimedia content. Infoseek, Starwave and
Disney believe that the planned New Portal Service offers an attractive
opportunity to address the emerging demands of the Internet market, its users
and advertisers.
<PAGE>
The specifics of the several proposed transactions are as follows:
. Infoseek would acquire 100% of the outstanding shares of Starwave common
stock for approximately 25,512,000 shares of Infoseek common stock and
would assume options outstanding under Starwave stock option plans, which
would thereafter be exercisable subject to vesting, for an aggregate of
approximately 2,626,000 shares of Infoseek common stock. Starwave is a
producer of Internet-based sports, news and entertainment services.
Through its joint ventures with Disney, Starwave produces such online
services as ESPN SportsZone, ABCNews.com and additional sports sites,
including NBA.com, NFL.com, NASCAR Online and Outside Online. As a result
of Disney's ownership position in Starwave, Disney would receive
approximately 23,200,000 shares of Infoseek common stock in the Starwave
acquisition.
. Disney would purchase an additional 2,642,000 shares of Infoseek common
stock and receive a warrant to purchase 15,720,000 shares of Infoseek
common stock in exchange for $70 million in cash and a five-year $139
million promissory note. The warrant generally will vest and be
exercisable as to one-third of the shares subject to the warrant on each
of the three anniversary dates following the closing of the Starwave
acquisition. The exercise price for the warrants will be 120% of the
thirty-day average closing price preceding each anniversary date, subject
to a $50 maximum exercise price.
. Disney's 25.8 million shares of Infoseek common stock would represent
approximately 43% of the total outstanding shares of Infoseek. The
warrant would enable Disney to achieve a majority shareholder position
over time, but Disney has agreed to a three-year standstill whereby its
ownership position in Infoseek will not exceed 49.9%, subject to certain
exceptions.
. Disney will receive three of an expanded eight seats on the Infoseek
Board of Directors, with the other five seats filled by current Infoseek
directors. If Disney elects to achieve a majority shareholder position,
any Disney tender offer for the remaining shares of Infoseek made during
the standstill period would require approval from the non-Disney Board
members, subject to certain exceptions. Any Disney tender offer, whether
during or after the standstill period, would also have to be conditioned
on tenders by a majority of shares of Infoseek common stock not held by
Disney.
. The planned New Portal Service will incorporate Infoseek's proprietary
and Starwave's joint venture properties and certain Disney-licensed
properties. The planned New Portal Service will be operated by Infoseek
and governed by a joint Infoseek/Disney advisory committee.
. Infoseek has agreed to purchase, and Disney's wholly-owned subsidiary
ABC, Inc. has agreed to provide, $165 million in promotional support for
the New Portal Service over five years. As part of such promotion, Disney
has agreed to co-brand all ABCNews.com and ESPN SportsZone owned non-
traditional media promotion with promotions for the New Portal Service.
Disney has also agreed to integrate Infoseek's search and directory
technology into its own Internet-based services.
. As a result of its acquisition of Starwave, Infoseek will assume
Starwave's joint venture interests in ESPN SportsZone and ABCNews.com.
Additionally, Disney has agreed to amend the joint venture terms to
extend for ten years from the date of the Starwave acquisition.
. In connection with the proposed transactions, Infoseek would establish a
new holding company structure which involves a reincorporation into
Delaware, the result of which would be that each of Starwave and Infoseek
(which is currently incorporated in California) would become wholly-owned
subsidiaries of a new Infoseek Corporation (which is incorporated in
Delaware). Infoseek, a Delaware corporation, would thereafter be the
registered public company, the shares of which would be traded on Nasdaq
and would be held by the former shareholders of Infoseek and Starwave.
<PAGE>
I ask you to take the time to read through the enclosed Joint Proxy
Statement/Prospectus in order to fully understand the terms of the proposed
transactions, and I encourage you to return your proxy card promptly. On
behalf of the Board of Directors, I thank you for your support and ask you to
vote in favor of the proposals described in the Joint Proxy
Statement/Prospectus.
Sincerely,
/s/ Harry M. Motro
Harry M. Motro
President and Chief Executive
Officer
This letter contains forward-looking statements regarding the planned New
Portal Service to be named Go Network and the timing of its development and
launch and the proposed Infoseek acquisition of Starwave and related
transactions with Disney, both of which are subject to risks and
uncertainties. Actual results may differ materially from those set forth in
such statements as a result of a number of factors, including, but not limited
to, the progress and timing of development and launch of the planned New
Portal Service, consumer acceptance and use of the new service, and the
increasingly competitive nature of the Internet market. In addition, launch of
the planned New Portal Service is conditioned upon and subject to the
consummation of the Infoseek acquisition of Starwave and related transactions
with Disney, that are subject to customary closing conditions, including
shareholder approval.
<PAGE>
[LOGO OF INFOSEEK CORPORATION]
1399 MOFFETT PARK DRIVE
SUNNYVALE, CALIFORNIA 94089
October 14, 1998
Dear Shareholder:
As you may be aware, Infoseek Corporation, a California corporation
("Infoseek California"), has entered into an Agreement and Plan of
Reorganization, dated as of June 18, 1998 (the "Reorganization Agreement"),
among Infoseek California, Infoseek Corporation, a newly organized Delaware
corporation ("Infoseek Delaware"), Starwave Corporation, a Washington
corporation ("Starwave"), and Disney Enterprises, Inc., a Delaware corporation
("DEI"). Pursuant to the Reorganization Agreement, Infoseek is proposing to
acquire Starwave, which is currently approximately 91% owned by DEI (excluding
shares underlying options outstanding under Starwave stock option plans), and
to establish a new holding company structure which involves a reincorporation
into Delaware, the result of which would be that each of Starwave and Infoseek
California would be wholly-owned subsidiaries of Infoseek Delaware. Infoseek
Delaware would thereafter be the registered public company, the shares of
which would be traded on The Nasdaq Stock Market and would be held by the
former shareholders of Infoseek California and Starwave. In addition, Infoseek
and The Walt Disney Company, including certain of its subsidiaries, including
DEI (collectively, "Disney"), have proposed to establish a strategic
relationship concerning the development, launch and promotion of a planned new
Internet portal service to be named Go Network(TM) that would combine certain
content, promotion, brands and technologies of Infoseek, Starwave, ESPN
SportsZone, ABCNews.com, and Disney, and would provide for universal
navigation, registration, community and commerce services across the web sites
comprising the service, including not only Infoseek and Starwave sites but
also ESPN SportsZone, ABCNews.com and certain Disney web sites.
In addition, as part of the strategic transaction and conditioned upon and
subject to consummation of the several transactions contemplated by the
Reorganization Agreement, Disney has agreed to purchase pursuant to a Common
Stock and Warrant Purchase Agreement (the "Securities Purchase Agreement") an
additional 2,642,000 unregistered shares of Infoseek common stock and a
warrant, subject to vesting, to purchase an additional 15,720,000 unregistered
shares of Infoseek common stock (the "Warrant") in exchange for approximately
$70 million in cash and a $139 million five-year promissory note. The Warrant
vests, subject to certain acceleration events, and becomes exercisable as to
one-third of the shares subject to the Warrant on each of the first three
anniversaries of the effective time of the proposed mergers at an exercise
price equal to 120% of the average of the closing sale prices of Infoseek
common stock on Nasdaq for the thirty trading days prior to each such vesting
date, subject to a $50 per share maximum exercise price.
Based upon the capitalization of Infoseek California and Starwave as of
October 9, 1998, upon consummation of the several transactions contemplated by
the Reorganization Agreement and the Securities Purchase Agreement, Disney
would hold approximately 43% of Infoseek Delaware's outstanding common stock
on a primary shares basis and would have the right to acquire through the
Warrant exercisable over time additional shares that, when aggregated with
those owned by Disney, would result in Disney's ownership of approximately
50.1% of outstanding Infoseek Delaware common stock on a fully diluted basis
assuming exercise of all outstanding options, warrants and other rights to
acquire Infoseek Delaware common stock. Pursuant to the Reorganization
Agreement, a special meeting of shareholders of Infoseek (the "Infoseek
Shareholders Meeting") will be held at the offices of Infoseek, 1399 Moffett
Park Drive, Sunnyvale, California 94089, on November 18, 1998 at 10:00 a.m.
local time.
At the Infoseek Shareholders Meeting you will be asked to consider and vote
upon the following proposals, both of which are conditions to consummating the
strategic transaction:
(1) approval and adoption of the Reorganization Agreement and approval of
a reincorporation transaction, as contemplated by the Reorganization
Agreement, pursuant to an Agreement and Plan of Merger by and among
<PAGE>
Infoseek California, Infoseek Delaware and ICO Acquisition Corp., a newly
formed California corporation and wholly-owned subsidiary of Infoseek
Delaware ("Infoseek Merger Sub"), whereby Infoseek Merger Sub will be
merged with and into Infoseek California and each outstanding share of
Infoseek common stock will be converted into the right to receive one share
of Infoseek Delaware common stock (the "Infoseek Merger"), with the result
that Infoseek California will become a wholly- owned subsidiary of Infoseek
Delaware; and
(2) the issuance of 28,138,000 shares of Infoseek Delaware common stock
to the shareholders of Starwave in connection with the acquisition of
Starwave, as contemplated by the Reorganization Agreement, pursuant to an
Agreement and Plan of Merger by and among Infoseek Delaware, Starwave and
Starwave Acquisition Corp., a newly formed Washington corporation and
wholly-owned subsidiary of Infoseek Delaware ("Starwave Merger Sub"),
whereby Starwave Merger Sub will be merged with and into Starwave and each
outstanding share of Starwave common stock will be converted into the right
to receive approximately 0.26 shares of Infoseek Delaware common stock (the
"Starwave Merger"), with the result that Starwave will become a wholly-
owned subsidiary of Infoseek Delaware, and the issuance to Disney of
2,642,000 shares of Infoseek Delaware common stock and a Warrant to
purchase an additional 15,720,000 shares of Infoseek Delaware common stock
pursuant to the Securities Purchase Agreement (and the shares underlying
such Warrant).
After careful consideration, the Infoseek Board of Directors has unanimously
approved the Reorganization Agreement, the Securities Purchase Agreement and
the transactions contemplated thereby, and has concluded they are fair to, and
in the best interests of, Infoseek and its shareholders. Your Board of
Directors unanimously recommends a vote in favor of approval of the
Reorganization Agreement and the Infoseek Merger, and in favor of the issuance
of shares of Infoseek Delaware common stock in connection with the Starwave
Merger, and the issuance of shares of Infoseek Delaware common stock and the
Warrant to Disney pursuant to the Securities Purchase Agreement.
In the materials accompanying this letter, you will find a Notice of Special
Meeting of Shareholders, a Joint Proxy Statement/Prospectus relating to the
proposals to be voted upon at the Infoseek Shareholders Meeting and a Proxy
card. The Joint Proxy Statement/Prospectus more fully describes the proposed
transactions. Shareholders are urged to review carefully the information
contained in the accompanying Joint Proxy Statement/Prospectus prior to voting
on the proposals.
All shareholders are cordially invited to attend the Infoseek Shareholders
Meeting in person. If you attend the Infoseek Shareholders Meeting, you may
vote in person if you wish even though you have previously returned your
completed Proxy. Whether or not you plan to attend the Infoseek Shareholders
Meeting, it is important that your shares be represented and voted at the
Infoseek Shareholders Meeting, regardless of the number of shares you hold.
Approval of the Reorganization Agreement and the Infoseek Merger requires the
affirmative vote of the holders of a majority of the outstanding shares of
Infoseek common stock. Approval of the issuance of shares of Infoseek Delaware
common stock in connection with the Starwave Merger, and the issuance of
shares of Infoseek Delaware common stock and the Warrant to Disney pursuant to
the Securities Purchase Agreement requires the affirmative vote of the holders
of a majority of shares of Infoseek common stock, present in person or
represented by proxy, at the Infoseek Shareholders Meeting. Therefore, please
complete, sign, date and return your Proxy in the enclosed envelope. Stock
certificate(s) will not be exchanged in connection with the Infoseek Merger.
Your Infoseek California stock certificate will automatically represent an
equal number of shares of Infoseek Delaware common stock upon consummation of
the Infoseek Merger, so please do not send stock certificate(s) representing
your Infoseek California shares with your proxy.
On behalf of the Board, I thank you for your support and ask you to vote in
favor of the foregoing proposals.
Sincerely,
/s/ Harry M. Motro
Harry M. Motro
President and Chief Executive Officer
YOUR VOTE IS IMPORTANT--PLEASE RETURN YOUR PROXY PROMPTLY
<PAGE>
INFOSEEK CORPORATION
(A CALIFORNIA CORPORATION)
1399 MOFFETT PARK DRIVE
SUNNYVALE, CALIFORNIA 94089
----------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON NOVEMBER 18, 1998
----------------
TO THE SHAREHOLDERS OF INFOSEEK CORPORATION:
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders (the "Infoseek
Shareholders Meeting") of Infoseek Corporation, a California corporation
("Infoseek California" or "Infoseek"), will be held on November 18, 1998 at
10:00 a.m., local time, at the offices of Infoseek located at 1399 Moffett
Park Drive, Sunnyvale, California 94089 to consider and vote upon the
following proposals:
(1) approval and adoption of an Agreement and Plan of Reorganization (the
"Reorganization Agreement"), dated as of June 18, 1998, among Infoseek
California, Infoseek Delaware, a newly-formed Delaware corporation
("Infoseek Delaware"), Starwave Corporation, a Washington corporation
("Starwave") and Disney Enterprises, Inc., a Delaware corporation ("DEI"),
and approval of a reincorporation transaction, as contemplated by the
Reorganization Agreement, pursuant to an Agreement and Plan of Merger by
and among Infoseek California, Infoseek Delaware and ICO Acquisition Corp.,
a newly formed California corporation and wholly-owned subsidiary of
Infoseek Delaware ("Infoseek Merger Sub"), whereby Infoseek Merger Sub will
be merged with and into Infoseek California and each outstanding share of
Infoseek common stock will be converted into the right to receive one share
of Infoseek Delaware common stock (the "Infoseek Merger"), with the result
that Infoseek California will become a wholly-owned subsidiary of Infoseek
Delaware; and
(2) the issuance of 28,138,000 shares of Infoseek Delaware common stock
to the shareholders of Starwave in connection with the acquisition of
Starwave, as contemplated by the Reorganization Agreement, pursuant to an
Agreement and Plan of Merger by and among Infoseek Delaware, Starwave, and
Starwave Acquisition Corp., a newly formed Washington corporation and
wholly-owned subsidiary of Infoseek Delaware ("Starwave Merger Sub"),
whereby Starwave Merger Sub will be merged with and into Starwave and each
outstanding share of Starwave common stock will be converted into the right
to receive approximately 0.26 shares (the "Exchange Ratio") of Infoseek
Delaware common stock (the "Starwave Merger"), with the result that
Starwave will become a wholly-owned subsidiary of Infoseek Delaware, and
the issuance to The Walt Disney Company, a Delaware corporation (including
certain of its subsidiaries, including DEI, "Disney") of 2,642,000 shares
of Infoseek Delaware common stock and a Warrant to purchase an additional
15,720,000 shares of Infoseek Delaware common stock (and the shares
underlying such Warrant) pursuant to a Common Stock and Warrant Purchase
Agreement (the "Securities Purchase Agreement"). In light of the fixed
number of shares of Infoseek Delaware common stock issuable in connection
with the Starwave Merger, the issuance of shares of Starwave capital stock
(not subject to outstanding options, warrants, or other rights to acquire
Starwave capital stock) or the grant or issuance of additional options,
warrants or other rights to acquire Starwave capital stock subsequent to
the date hereof will result in a proportional adjustment to the Exchange
Ratio.
Information relating to the above proposals is set forth in the attached
Joint Proxy Statement/Prospectus. Infoseek shareholders of record at the close
of business on October 9, 1998 (the "Record Date") are entitled to
<PAGE>
notice of, and to vote at, the Infoseek Shareholders Meeting and any
adjournments or postponements thereof. Approval and adoption of the
Reorganization Agreement and approval of the Infoseek Merger described above
will require the affirmative vote of the holders of a majority of the shares
of Infoseek common stock outstanding on the Record Date. Approval of the
issuance of shares of Infoseek Delaware common stock in connection with the
Starwave Merger, and the issuance of shares of Infoseek Delaware common stock
and the Warrant to Disney pursuant to the Securities Purchase Agreement will
require the affirmative vote of the holders of a majority of shares of
Infoseek common stock, present in person or represented by proxy, at the
Infoseek Shareholders Meeting. All shareholders are cordially invited to
attend the Infoseek Shareholders Meeting in person.
By order of the Board of Directors
/s/ Harry M. Motro
Harry M. Motro
President and Chief Executive
Officer
Sunnyvale, California
October 14, 1998
WHETHER OR NOT YOU EXPECT TO ATTEND THE INFOSEEK SHAREHOLDERS MEETING,
PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND MAIL IT PROMPTLY IN
THE ENCLOSED ENVELOPE IN ORDER TO ASSURE REPRESENTATION OF YOUR SHARES. NO
POSTAGE NEED BE AFFIXED IF THE PROXY CARD IS MAILED IN THE UNITED STATES.
<PAGE>
[LOGO OF INFOSEEK CORPORATION] [LOGO OF STARWAVE CORPORATION]
JOINT PROXY STATEMENT
FOR SPECIAL MEETINGS
OF
SHAREHOLDERS OF INFOSEEK CORPORATION, A CALIFORNIA CORPORATION
AND
SHAREHOLDERS OF STARWAVE CORPORATION, A WASHINGTON CORPORATION
TO BE HELD ON NOVEMBER 18, 1998
----------------
INFOSEEK CORPORATION
(A DELAWARE CORPORATION)
----------------
PROSPECTUS
THE BELOW MATTERS ARE DISCUSSED IN DETAIL IN THIS JOINT PROXY
STATEMENT/PROSPECTUS. THE PROPOSED MERGERS ARE COMPLEX TRANSACTIONS. THE
SHAREHOLDERS OF EACH OF INFOSEEK AND STARWAVE ARE URGED TO READ AND CONSIDER
CAREFULLY THIS JOINT PROXY STATEMENT/PROSPECTUS IN ITS ENTIRETY, INCLUDING THE
MATTERS REFERRED TO BEGINNING ON PAGE 21 UNDER "RISK FACTORS."
----------------
THE SECURITIES TO BE ISSUED PURSUANT TO THIS JOINT PROXY STATE-
MENT/PROSPECTUS HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION (THE "SEC") OR ANY STATE SECURITIES COMMISSION, NOR HAS
THE SEC OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADE-
QUACY OF THIS JOINT PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CON-
TRARY IS A CRIMINAL OFFENSE.
----------------
No person has been authorized to give any information or to make any
representation other than those contained in this Joint Proxy
Statement/Prospectus in connection with the solicitation of proxies or the
offering of securities made hereby, and, if given, any such information or
representation must not be relied upon as having been authorized by Infoseek,
Starwave or any other person. This Joint Proxy Statement/Prospectus does not
constitute an offer to sell or a solicitation of an offer to buy any
securities or the solicitation of a proxy in any jurisdiction to or from any
person to or from whom it is not lawful to make any such offer or solicitation
in such jurisdiction. Neither the delivery of this Joint Proxy
Statement/Prospectus nor any distribution of securities hereunder shall create
under any circumstances any implication that there has been no change in the
affairs of Infoseek or Starwave since the date hereof, or that any information
herein is correct as of any time subsequent to the date as of which such
information is provided.
----------------
For purposes of this Joint Proxy Statement/Prospectus, (i) references to
"Infoseek" without further modification shall be deemed to refer to Infoseek
Corporation, a California corporation ("Infoseek California"), prior to the
Infoseek Merger (as defined below), and to Infoseek Corporation, a Delaware
corporation ("Infoseek Delaware") and its subsidiaries, after the Infoseek
Merger (as defined below); (ii) references to "Disney" shall be deemed to
refer to The Walt Disney Company, a Delaware corporation (as a single entity,
"The Walt Disney Company"), and, unless the context otherwise requires, its
subsidiaries, including Disney Enterprises, Inc., a Delaware corporation
("DEI") and the principal operating subsidiary of The Walt Disney Company; and
(iii) references to "Starwave" shall be deemed to refer to Starwave
Corporation, a Washington corporation.
(Continued on next page)
----------------
This Joint Proxy Statement/Prospectus and the accompanying proxy card are
first being mailed to shareholders of Infoseek and Starwave on or about
October 14, 1998.
The date of this Joint Proxy Statement/Prospectus is October 14, 1998.
<PAGE>
(Continued from previous page)
This Joint Proxy Statement/Prospectus is being furnished to the holders of
common stock of Infoseek California in connection with the solicitation of
proxies by the Board of Directors of Infoseek for use at the Special Meeting
of Shareholders of Infoseek (the "Infoseek Shareholders Meeting") to be held
on November 18, 1998, or any adjournment or postponement thereof, for the
purposes set forth herein and in the accompanying Notice of Special Meeting of
Shareholders of Infoseek. The Infoseek Shareholders Meeting will be held at
the principal offices of Infoseek, 1399 Moffett Park Drive, Sunnyvale,
California 94089.
This Joint Proxy Statement/Prospectus is also being furnished to the holders
of common stock of Starwave in connection with the solicitation of proxies by
the Board of Directors of Starwave for use at the Special Meeting of
Shareholders of Starwave (the "Starwave Shareholders Meeting") to be held on
November 18, 1998, or any adjournment or postponement thereof for the purposes
set forth in the accompanying Notice of Special Meeting of Shareholders of
Starwave. The Starwave Shareholders Meeting will be held at the Bellevue
Hilton, 100-112th Avenue N.E., Bellevue, Washington 98004.
This Joint Proxy Statement/Prospectus also constitutes the Prospectus of
Infoseek Delaware with respect to the issuance of shares of common stock of
Infoseek Delaware to be issued to holders of outstanding shares of Starwave
Class A Common Stock and Class B Common Stock (all such Class A and Class B
shares are referred to collectively herein as "Starwave common stock") upon
consummation of the Starwave Merger (as defined below) and with respect to the
issuances of shares of common stock of Infoseek Delaware to be issued to
holders of outstanding shares of Infoseek California common stock upon
consummation of the Infoseek Merger (as defined below). See "Terms of the
Mergers." Infoseek Delaware is a newly formed Delaware corporation and
presently is a wholly-owned subsidiary of Infoseek California. Infoseek
Delaware has not conducted business activities to date.
Infoseek California, Infoseek Delaware, Starwave and DEI have entered into
an Agreement and Plan of Reorganization, dated as of June 18, 1998 (the
"Reorganization Agreement"). Pursuant to the Reorganization Agreement,
Infoseek is proposing to acquire Starwave, which is currently approximately
91% owned by DEI (excluding shares underlying options outstanding under
Starwave stock option plans), and to establish a new holding company structure
which involves a reincorporation into Delaware, the result of which would be
that each of Starwave and Infoseek California would be wholly-owned
subsidiaries of Infoseek Delaware. Infoseek Delaware would thereafter be the
registered public company, the shares of which would be traded on The Nasdaq
Stock Market ("Nasdaq") and would be held by the former shareholders of
Infoseek California and Starwave. Accordingly, initially the business of
Infoseek Delaware will consist primarily of holding the capital stock of
Infoseek California and Starwave, and each of Infoseek California and Starwave
will continue to operate their current businesses. In addition, Infoseek and
Disney have proposed to establish a strategic relationship concerning the
development, launch and promotion of a planned new Internet portal service to
be named Go Network(TM) that would combine certain content, promotion, brands
and technologies of Infoseek, Starwave, and its joint ventures relating to
ESPN SportsZone and ABCNews.com, and Disney, and would provide for universal
navigation, registration, community and commerce services across the web sites
comprising the service, including not only Infoseek and Starwave sites but
also ESPN SportsZone, ABCNews.com and certain Disney web sites.
The Reorganization Agreement, among other things, provides for: (i) a
reincorporation transaction pursuant to an Agreement and Plan of Merger by and
among Infoseek California, Infoseek Delaware and ICO Acquisition Corp., a
newly formed California corporation and wholly-owned subsidiary of Infoseek
Delaware ("Infoseek Merger Sub"), whereby Infoseek Merger Sub will be merged
with and into Infoseek California and each outstanding share of Infoseek
California common stock will be converted into the right to receive one share
of Infoseek Delaware common stock (the "Infoseek Merger"); and (ii) the
acquisition of Starwave pursuant to an Agreement and Plan of Merger by and
among Infoseek Delaware, Starwave and Starwave Acquisition Corp., a newly
formed Washington corporation and wholly-owned subsidiary of Infoseek Delaware
("Starwave Merger Sub"), whereby Starwave Merger Sub will be merged with and
into Starwave and each outstanding share of Starwave common stock will be
converted into the right to receive approximately 0.26 shares of Infoseek
<PAGE>
(Continued from previous page)
Delaware common stock (the "Starwave Merger"), subject to adjustment under
certain circumstances (the "Exchange Ratio"). The Exchange Ratio for the
Starwave Merger is equal to the quotient obtained by dividing: (x) 28,138,000
shares by (y) the aggregate number of shares of Starwave capital stock
outstanding and issuable upon exercise of options, warrants, or other rights
to acquire Starwave capital stock as of the effective time of the Starwave
Merger. Based on the outstanding capitalization of Starwave as of October 9,
1998, the applicable Exchange Ratio would be approximately 0.26 shares as
indicated above. Issuance of shares of Starwave capital stock (not subject to
outstanding options, warrants or other rights to acquire Starwave capital
stock) or the grant or issuance of additional options, warrants or other
rights to acquire Starwave capital stock subsequent to the Record Date shall
result in a proportional adjustment to the Exchange Ratio based upon the
foregoing formula. The Reorganization Agreement does not provide for a minimum
Exchange Ratio or a right of termination based upon any reductions in the
Exchange Ratio that may arise from any issuance of additional shares of
capital stock or rights to acquire capital stock by Starwave. Starwave
management does not currently anticipate any material increase in the
outstanding shares of Starwave capital stock prior to the consummation of the
Mergers (other than issuance of shares upon exercise of outstanding stock
options). Should Starwave issue additional capital stock (or rights to acquire
such capital stock) in excess of 10% of the total outstanding capital stock of
Starwave as of October 9, 1998, shareholders of Infoseek and Starwave will
receive a revised solicitation relating to the transactions described herein.
The Infoseek Merger and the Starwave Merger are collectively referred to in
this Joint Proxy Statement/Prospectus as the "Mergers."
Infoseek common stock is listed for quotation on Nasdaq under the symbol
"SEEK." On June 17, 1998, the last full trading day prior to the public
announcement of the execution and delivery of the Reorganization Agreement,
the high and low sales prices of Infoseek common stock on Nasdaq were $35 1/8
and $33 3/8 per share, respectively. On October 9, 1998, the high and low
sales prices of Infoseek common stock were $20 1/8 and $17 7/8 per share,
respectively. Because the number of shares of Infoseek to be issued to the
holders of Starwave common stock and in respect of outstanding options to
acquire Starwave common stock is fixed at 28,138,000, changes in the market
price of Infoseek common stock will affect the dollar value of Infoseek common
stock to be received by shareholders of Starwave in the Starwave Merger.
Because shareholders of Infoseek California will receive one share of Infoseek
Delaware common stock for each share of Infoseek California common stock,
changes in market price will not affect the number of shares of Infoseek
California common stock issued in the Infoseek Merger. Shareholders of
Starwave are encouraged to obtain current market quotations for Infoseek
common stock prior to the Starwave Shareholders Meeting. It is a condition of
the obligations of Infoseek and Starwave to consummate the Mergers that the
shares of Infoseek Delaware common stock to be issued in the Mergers be
approved for listing on Nasdaq, subject only to official notice of issuance.
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TABLE OF CONTENTS
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FORWARD-LOOKING STATEMENTS............................................... 1
AVAILABLE INFORMATION.................................................... 1
PROSPECTUS DELIVERY...................................................... 1
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE.......................... 2
TRADEMARKS............................................................... 2
SUMMARY.................................................................. 3
Overview of Mergers and Related Transactions........................... 3
Description of Reorganization Agreement and Related Agreements......... 4
The Companies.......................................................... 6
Date and Place of the Meetings......................................... 7
Purpose of the Meetings; The Mergers................................... 7
Record Date............................................................ 8
Infoseek California Shareholders Entitled to Vote...................... 8
Starwave Shareholders Entitled to Vote................................. 8
Votes Required......................................................... 9
Solicitation of Proxies................................................ 9
Appraisal Rights of Dissenting Infoseek California Shareholders........ 9
Appraisal Rights of Dissenting Starwave Shareholders................... 10
The Reorganization Agreement........................................... 10
Stock Ownership Following the Mergers and Related Transactions......... 11
Recommendations; Fairness Opinion...................................... 12
Governmental and Regulatory Matters.................................... 12
Certain Federal Income Tax Consequences................................ 12
Anticipated Accounting Treatment....................................... 13
Additions to Infoseek's Board of Directors; Interests of Certain
Persons in the Merger................................................. 13
Nasdaq Listing......................................................... 13
Stock Options.......................................................... 13
Anti-takeover Provisions of Delaware Law and Infoseek Delaware's
Charter Documents..................................................... 14
Market Price Information............................................... 14
SELECTED HISTORICAL COMBINED CONDENSED FINANCIAL INFORMATION AND
COMPARATIVE PER SHARE DATA.............................................. 15
Infoseek California Selected Financial Information..................... 15
Starwave Selected Financial Information................................ 16
SELECTED UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION.... 17
Selected Unaudited Pro Forma Combined Condensed Financial Data......... 18
COMPARATIVE PER SHARE DATA............................................... 19
MARKET PRICE INFORMATION................................................. 20
RISK FACTORS............................................................. 21
Risks Related to the Combined Companies, the Mergers and Related
Transactions.......................................................... 21
Risks Related to Starwave's Business................................... 28
Risks Related to Infoseek's Business................................... 34
INFOSEEK SHAREHOLDERS MEETING............................................ 43
Date, Time and Place of Infoseek Shareholders Meeting.................. 43
Purpose................................................................ 43
Record Date and Outstanding Shares..................................... 43
Vote Required.......................................................... 43
Proxies................................................................ 44
Recommendation of Infoseek Board of Directors.......................... 44
</TABLE>
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STARWAVE SHAREHOLDERS MEETING............................................ 45
Date, Time and Place of Starwave Shareholders Meeting.................. 45
Purpose................................................................ 45
Record Date and Outstanding Shares..................................... 45
Vote Required.......................................................... 45
Proxies................................................................ 45
Recommendation of Starwave Board of Directors.......................... 46
THE MERGERS AND RELATED TRANSACTIONS..................................... 47
Background of the Mergers and Related Agreements....................... 47
Recommendation of Infoseek Board of Directors and Reasons for the
Mergers............................................................... 50
Recommendation of Starwave Board of Directors and Reasons for the
Merger................................................................ 53
Opinion of Infoseek's Financial Advisor................................ 54
Additions to Infoseek's Board of Directors; Interests of Certain
Persons in the Mergers................................................ 59
Certain Federal Income Tax Consequences................................ 60
Governmental and Regulatory Matters.................................... 61
Accounting Treatment................................................... 62
Stock Exchange Listing................................................. 62
Rights of Dissenting Infoseek Shareholders............................. 62
Rights of Dissenting Starwave Shareholders............................. 64
TERMS OF THE MERGERS..................................................... 66
Terms of the Mergers................................................... 66
Consideration in the Mergers........................................... 68
Representations and Warranties......................................... 69
Conduct of Business of Starwave Pending the Mergers.................... 69
Conduct of Infoseek California's Business Pending the Mergers.......... 71
Solicitation of Alternative Transactions............................... 71
Conditions to the Mergers.............................................. 73
Termination of the Reorganization Agreement............................ 74
Termination Fees....................................................... 77
Indemnification of Officers and Directors.............................. 78
Other Covenants........................................................ 78
Shareholder Agreements................................................. 79
DESCRIPTION OF RELATED AGREEMENTS........................................ 81
Equity and Governance Agreements....................................... 81
Licensing and Commercial Agreements.................................... 87
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS.............. 91
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS..... 95
INFOSEEK SELECTED CONSOLIDATED FINANCIAL DATA............................ 103
INFOSEEK MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS................................................... 105
INFOSEEK BUSINESS........................................................ 117
INFOSEEK MANAGEMENT...................................................... 125
SECURITY OWNERSHIP OF MANAGEMENT AND PRINCIPAL SHAREHOLDERS OF INFOSEEK.. 129
STARWAVE MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS................................................... 131
STARWAVE BUSINESS........................................................ 142
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SECURITY OWNERSHIP OF MANAGEMENT AND PRINCIPAL SHAREHOLDERS OF
STARWAVE............................................................... 145
MANAGEMENT OF STARWAVE.................................................. 147
STARWAVE EXECUTIVE COMPENSATION......................................... 148
CERTAIN TRANSACTIONS OF STARWAVE........................................ 152
REASONS FOR INCORPORATION OF THE HOLDING COMPANY IN DELAWARE............ 154
Principal Reasons for Reincorporation................................ 154
No Change in the Name, Business, Management, Employee Benefit Plans
or Location of Principal Facilities of Infoseek..................... 155
Antitakeover Implications............................................ 155
COMPARISON OF CAPITAL STOCK............................................. 158
Description of Infoseek Delaware Capital Stock....................... 158
Description of Infoseek California Capital Stock..................... 158
Description of Starwave Capital Stock................................ 159
Comparison of Capital Stock of Infoseek California and Infoseek
Delaware............................................................ 160
Comparison of Capital Stock of Starwave and Infoseek Delaware........ 166
LEGAL MATTERS........................................................... 172
EXPERTS................................................................. 172
STARWAVE CORPORATION INDEX TO FINANCIAL STATEMENTS...................... F-1
ESPN JOINT VENTURE INDEX TO FINANCIAL STATEMENTS........................ F-17
ABC NEWS JOINT VENTURE INDEX TO FINANCIAL STATEMENTS.................... F-26
QUANDO, INC. INDEX TO FINANCIAL STATEMENTS.............................. F-35
ANNEX A-1 Agreement and Plan of Reorganization, dated as of June 18,
1998, by and among Infoseek Delaware, Infoseek California,
Starwave and DEI............................................ A-1
ANNEX A-2 Agreement and Plan of Merger by and among Infoseek Delaware,
Infoseek California and Infoseek Merger Sub................. A-2-1
ANNEX A-3 Agreement and Plan of Merger by and among Infoseek Delaware,
Starwave, and Starwave Merger Sub........................... A-3-1
ANNEX B-1 Chapter 13 of the California General Corporation Law......... B-1-1
ANNEX B-2 Chapter 23B.13 of the Washington Business Corporation Act.... B-2-1
ANNEX C Opinion of Merrill Lynch, Pierce, Fenner & Smith,
Incorporated................................................ C-1
ANNEX D-1 Amended and Restated Certificate of Incorporation of Infoseek
Delaware.................................................... D-1-1
ANNEX D-2 Bylaws of Infoseek Delaware.................................. D-2-1
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FORWARD-LOOKING STATEMENTS
This Joint Proxy Statement/Prospectus contains certain forward-looking
statements, including without limitation, statements with respect to the
expected financial and operating impact of the Mergers and with respect to the
planned New Portal Service (as defined under the caption "Summary") that
involve risks and uncertainties. For this purpose, the reasons for the Mergers
discussed under the caption "The Mergers and Related Transactions" and
statements about the expected impact of the Mergers on Infoseek's or
Starwave's business, operations and financial performance and condition,
accounting and tax treatment of the Mergers are forward-looking statements.
Further, any statements contained herein that are not statements of historical
fact may be deemed to be forward-looking statements. Forward-looking
statements made herein are not guarantees of future performance and are
subject to risks and uncertainties that could cause actual results to differ
materially. Without limiting the foregoing, the words "projects," "believes,"
"anticipates," "plans," "expects," "intends" and similar words or expressions
are intended to identify forward-looking statements. There are a number of
important factors that could cause results to differ materially from those
indicated by such forward-looking statements, including among others those
factors set forth in this Joint Proxy Statement/Prospectus under the caption
"Risk Factors." Neither Infoseek nor Starwave undertakes any obligation to
update any forward-looking statements.
To the extent that statements contained in a document incorporated or deemed
incorporated by reference herein are made by Infoseek California and refer to
the safe harbor provisions of Section 27A of the Securities Act of 1933, as
amended (the "Securities Act") and/or Section 21E of the Securities Act of
1934, as amended (the "Exchange Act"), such statements, to the extent
incorporated or deemed incorporated by reference in this Joint Proxy
Statement/Prospectus, shall not be deemed to be incorporated with such
reference to the safe harbor provisions of Section 27A of the Securities Act
and/or Section 21E of the Exchange Act.
AVAILABLE INFORMATION
Infoseek California is and at closing of the Mergers (as defined herein)
Infoseek Delaware will be subject to the information reporting requirements of
the Exchange Act, and in accordance therewith, file reports, proxy statements
and other information with the Securities and Exchange Commission (the "SEC").
Such reports, proxy statements and other information may be inspected and
copied at the public reference facilities maintained by the SEC at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
SEC's regional offices located at Seven World Trade Center, Suite 1300, New
York, New York 10048, and at Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661-2511. Copies of such material may be obtained by
mail from the Public Reference Section of the SEC at Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The SEC also
maintains a Web site that contains reports, proxy and information statements
and other information regarding registrants that file electronically with the
SEC at the address http://www.sec.gov. Infoseek common stock is listed on
Nasdaq, and such reports, proxy statements and other information can also be
inspected at the offices of The Nasdaq Stock Market, 1735 K Street, N.W.,
Washington, D.C. 20006.
Infoseek Delaware has filed with the SEC a Registration Statement on Form S-
4 (herein referred to, together with all amendments and exhibits, as the
"Registration Statement") under the Securities Act. This Joint Proxy
Statement/Prospectus does not contain all of the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the SEC. For further information, reference is
hereby made to the Registration Statement. Copies of the Registration
Statement and the exhibits and schedules thereto are available as described
above.
PROSPECTUS DELIVERY
UNTIL TWENTY FIVE DAYS FOLLOWING THIS OFFERING, ALL DEALERS EFFECTING
TRANSACTIONS IN THE REGISTERED SECURITIES MAY BE REQUIRED TO DELIVER A
PROSPECTUS.
1
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed with the SEC by Infoseek California
pursuant to the Exchange Act are incorporated by reference in this Joint Proxy
Statement/Prospectus:
1. Annual Report on Form 10-K for the fiscal year ended December 31, 1997;
2. Quarterly Reports on Form 10-Q for the quarters ended March 31, 1998 and
June 30, 1998;
3. Current Report on Form 8-K filed on January 28, 1998;
4. Current Report on Form 8-K filed on May 22, 1998, as amended on August
10, 1998; and
5. The description of Infoseek common stock contained in the Registration
Statement on Form 8-A filed with the SEC on or about June 5, 1996.
All documents and reports filed by Infoseek California pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act between the date of this Joint
Proxy Statement/Prospectus and the date of the Infoseek Shareholders Meeting
shall be deemed to be incorporated by reference in this Joint Proxy
Statement/Prospectus and to be part hereof from the dates of filing of such
documents and reports. Statements contained in this Joint Proxy
Statement/Prospectus as to the contents of any contract or other document
referred to herein are not necessarily complete and, in each instance,
reference is made to the copy of such contract or other documents filed as an
exhibit to the Registration Statement or incorporated by reference therein, or
attached as an annex hereto, each such statement being qualified in all
respects by such reference.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes hereof to the extent that a statement contained herein (or in any
other subsequently filed document that is or is deemed to be incorporated by
reference herein) modifies or supersedes such previous statement. Any
statement so modified or superseded shall not be deemed to constitute a part
hereof except as so modified or superseded.
All information contained or incorporated by reference in this Joint Proxy
Statement/Prospectus relating to Infoseek California or Infoseek Delaware has
been supplied by Infoseek and all information relating to Starwave has been
supplied by Starwave.
THIS JOINT PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE
RELATING TO INFOSEEK CALIFORNIA THAT ARE NOT PRESENTED HEREIN OR DELIVERED
HEREWITH. THESE DOCUMENTS (OTHER THAN EXHIBITS TO SUCH DOCUMENTS, UNLESS SUCH
EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE HEREIN) ARE AVAILABLE,
WITHOUT CHARGE, UPON ORAL OR WRITTEN REQUEST BY ANY PERSON TO WHOM THIS JOINT
PROXY STATEMENT/PROSPECTUS HAS BEEN DELIVERED FROM INFOSEEK CORPORATION, 1399
MOFFETT PARK DRIVE, SUNNYVALE, CALIFORNIA 94089, ATTENTION: INVESTOR
RELATIONS; TELEPHONE NUMBER: (408) 543-6000. IN ORDER TO ASSURE TIMELY
DELIVERY OF THE DOCUMENTS PRIOR TO THE INFOSEEK SHAREHOLDERS MEETING, ANY SUCH
REQUEST SHOULD BE MADE PRIOR TO NOVEMBER 11, 1998.
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TRADEMARKS
Infoseek(R), the Infoseek logo, Ultraseek(R) and Ultramatch(R) are among the
registered trademarks of Infoseek and Starwave(R), SportsZone(R) and Mr.
Showbiz(R) are among the registered trademarks of Starwave. Go Network(TM) is
a trademark of Disney. This Joint Proxy Statement/Prospectus also refers to
trademarks held by other corporations.
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SUMMARY
The following contains a summary of certain information contained elsewhere
in this Joint Proxy Statement/Prospectus and the Annexes hereto. This summary
does not contain a complete statement of all material elements of the
Reorganization Agreement and the other agreements executed in connection with
the transaction described under "Description of Related Agreements" below (the
"Related Agreements") and the various transactions contemplated thereby,
including the Mergers (as defined below) and is subject to, and is qualified
by, the more detailed information appearing elsewhere in this Joint Proxy
Statement/Prospectus and in the information and documents annexed hereto or
attached as exhibits to the Registration Statement of which this Joint Proxy
Statement/Prospectus is a part.
OVERVIEW OF MERGERS AND RELATED TRANSACTIONS
Infoseek California, Infoseek Delaware, Starwave and DEI entered into the
Reorganization Agreement on June 18, 1998. Pursuant to the Reorganization
Agreement, Infoseek is proposing to acquire Starwave, which is currently
approximately 91% owned by DEI (excluding shares underlying options outstanding
under Starwave stock option plans), and to establish a new holding company
structure which involves a reincorporation into Delaware, the result of which
would be that each of Starwave and Infoseek California would be wholly-owned
subsidiaries of Infoseek Delaware. Infoseek Delaware would thereafter be the
registered public company, the shares of which would be traded on Nasdaq and
would be held by the former shareholders of Infoseek California and Starwave.
Accordingly, the business of Infoseek Delaware will initially consist primarily
of holding the capital stock of Infoseek California and Starwave, and each of
Infoseek California and Starwave will continue to operate their current
businesses. In addition, Infoseek and Disney have proposed to establish a
strategic relationship concerning the development, launch and promotion of a
planned new Internet portal service to be named Go Network(TM) (the "New Portal
Service") that would combine certain content, promotion, brands and
technologies of Infoseek, Starwave and its joint ventures relating to ESPN
SportsZone, ABCNews.com, and Disney, and, as currently planned, would provide
for universal navigation, registration, community and commerce services across
the web sites comprising the service, including not only Infoseek and Starwave
sites but also ESPN SportsZone, ABCNews.com and certain Disney web sites.
The Boards of Directors of each of Infoseek California and Starwave have
unanimously approved the Reorganization Agreement, the Mergers and the several
transactions contemplated thereby and by the Related Agreements and have
unanimously recommended their approval by the shareholders of Infoseek
California and Starwave, respectively. Infoseek and Starwave believe that,
through the Mergers and the related transactions with Disney, including the
planned development, launch and promotion of the planned New Portal Service,
the combined companies will be better positioned to compete more effectively in
the rapidly developing and changing Internet market. Infoseek also believes
that an alliance with a major media company, such as Disney, with its strong
brand recognition and promotional capabilities, rich content assets and other
resources will better enable Infoseek to achieve its long-term strategic
objectives in an Internet market that Infoseek believes increasingly will
require portal services to integrate a more robust array of multimedia content
and services. As such, Infoseek believes that its future success in part will
depend upon its ability to leverage the promotional capabilities of Disney and
to effectively and timely integrate such content and services, including but
not limited to further advancements in search and directory and other
technologies and functionality, development of on-line communities,
implementation of electronic commerce, and provision of rich and diverse
multimedia content. Infoseek and Starwave believe that the planned New Portal
Service offers a potentially unique opportunity to address the emerging demands
of the Internet market, its users and advertisers. See "Risk Factors--Risks
Related to the Combined Companies, the Mergers and Related Transactions--Risks
Related to Development, Launch and Acceptance of Planned New Portal Service."
3
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The Mergers contemplated by the Reorganization Agreement are illustrated by
the first diagram below and the holding company structure of Infoseek following
the Mergers is illustrated by the second diagram below.
[DIAGRAM]
----------------------------------------
[DIAGRAM]
DESCRIPTION OF REORGANIZATION AGREEMENT AND RELATED AGREEMENTS
The Reorganization Agreement, among other things, provides for: (i) a
reincorporation transaction pursuant to an Agreement and Plan of Merger by and
among Infoseek California, Infoseek Delaware and Infoseek Merger Sub, whereby
Infoseek Merger Sub will be merged with and into Infoseek California and each
outstanding share of Infoseek California common stock will be converted into
the right to receive one share of Infoseek Delaware common stock (the "Infoseek
Merger"); and (ii) the acquisition of Starwave pursuant to an Agreement and
Plan of Merger by and among Infoseek Delaware, Starwave, and Starwave Merger
Sub, whereby Starwave Merger Sub will be merged with and into Starwave and each
outstanding share of Starwave common stock will be converted into the right to
receive approximately 0.26 shares of Infoseek Delaware common stock (the
"Starwave Merger"), subject to adjustment under certain circumstances. The
Exchange Ratio for the Starwave Merger is equal to the quotient obtained by
dividing: (x) 28,138,000 shares by (y) the aggregate number of shares
4
<PAGE>
of Starwave capital stock outstanding and issuable upon exercise of options,
warrants, or other rights to acquire Starwave capital stock as of the effective
time of the Starwave Merger. Based on the outstanding capitalization of
Starwave as of October 9, 1998, the applicable Exchange Ratio would be
approximately 0.26 shares as indicated above. Issuance of shares of Starwave
capital stock (not subject to outstanding options, warrants or other rights to
acquire Starwave capital stock) or the grant or issuance of additional options,
warrants or other rights to acquire Starwave capital stock subsequent to such
date will result in a proportional decrease in the Exchange Ratio based upon
the foregoing formula (except to the extent such issuances are offset by any
cancellations of outstanding stock options). Accordingly, in light of potential
adjustments in the Exchange Ratio and potential variations in the market price
of Infoseek common stock, Starwave shareholders cannot be certain of the exact
amount of consideration that they will receive upon consummation of the
Starwave Merger, and such consideration may be less than Starwave shareholders
may anticipate based on the Exchange Ratio and the information regarding
historical market prices of Infoseek common stock as set forth in this Joint
Proxy Statement/Prospectus. Starwave management anticipates that, prior to
consummation of the Mergers, options to acquire Starwave common stock will be
issued to new or current employees of Starwave in the ordinary course of
business consistent with past practice, which issuances are not expected to
have a material impact on the Exchange Ratio. Starwave management does not
currently anticipate any material increase in the outstanding shares of
Starwave capital stock prior to the consummation of the Mergers (other than
issuance of shares upon exercise of outstanding stock options). Should Starwave
issue additional capital stock (or rights to acquire such capital stock) in
excess of 10% of the total outstanding capital stock of Starwave as of October
9, 1998, shareholders of Infoseek and Starwave will receive a revised
solicitation relating to the transactions described herein. Pursuant to the
Reorganization Agreement, unless Infoseek otherwise consents, Starwave is
prohibited from redeeming shares of its capital stock or any options or other
rights to acquire its capital stock, which redemptions would have the effect of
increasing the Exchange Ratio. The Infoseek Merger and the Starwave Merger are
collectively referred to in this Joint Proxy Statement/Prospectus as the
"Mergers."
In light of Disney's ownership interest in Starwave, Disney will receive
approximately 23,200,000 shares of Infoseek common stock as a result of the
Starwave Merger based upon the Exchange Ratio applicable as of October 9, 1998.
In addition, as part of the strategic transaction, and conditioned upon and
subject to consummation of the proposed Mergers, Disney has agreed to purchase
pursuant to a Common Stock and Warrant Purchase Agreement (the "Securities
Purchase Agreement") an additional 2,642,000 unregistered shares of Infoseek
common stock at a price of $26.50 per share and a warrant, subject to vesting,
to purchase an additional 15,720,000 unregistered shares of Infoseek common
stock (the "Warrant") at certain times, at certain prices and on certain
conditions, in exchange for approximately $70 million in cash and a $139
million five-year promissory note. The Warrant vests, subject to certain
acceleration events, and becomes exercisable as to one-third of the shares
subject to the Warrant on each of the first three anniversaries of the
effective time of the proposed Mergers at an exercise price equal to 120% of
the average of the closing sale prices of Infoseek common stock on Nasdaq for
the thirty trading days prior to each such vesting date, subject to a $50.00
per share maximum exercise price. See "Description of Related Agreements--
Equity and Governance Agreements."
Based on the capitalization of Infoseek California and Starwave as of the
Record Date (as defined below), upon consummation of the Mergers and the
additional stock and warrant issuances described above, Disney and its
affiliates would hold approximately 43% of Infoseek Delaware's outstanding
common stock and would have the right to acquire through the Warrant
exercisable over time an additional 15,720,000 shares of Infoseek Delaware
common stock or, on an aggregate basis together with the shares owned by
Disney, approximately 50.1% of the outstanding Infoseek common stock on a
fully-diluted basis assuming exercise of all outstanding options, warrants and
other rights to acquire Infoseek common stock (including those to be assumed or
issued in connection with the Mergers). Subject to consummation of the Mergers,
Disney would also have certain contractual rights to maintain its initial
percentage stock and warrant ownership through direct purchases from Infoseek
in the event of dilutive issuances. Further, upon closing of the Mergers, the
Infoseek Board of Directors would be expanded from five to eight members, with
three Disney designees being appointed to the Board.
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In contemplation of the substantial ownership position that Disney would hold
in Infoseek upon completion of the Mergers and the other equity issuances
described above, Infoseek and Disney have entered into a governance agreement
(the "Governance Agreement") with respect to a number of matters. Under the
Governance Agreement, for a period of three years following consummation of the
Mergers, subject to earlier termination under certain circumstances, Disney has
agreed, among other things, to standstill provisions to not acquire over 49.9%
of Infoseek's outstanding voting stock, to not solicit proxies or act with
another party for purposes of voting or acquiring shares of Infoseek voting
stock, and to not transfer its Infoseek shares except under certain
circumstances. The Governance Agreement also provides, among other things, for
supermajority Board approvals with respect to certain matters and, together
with Infoseek Delaware's charter, during the standstill period restricts
Disney's ability to proceed with a tender offer for or merger with Infoseek in
certain cases without the approval of members of the Infoseek Board not
designated by Disney, and during and following the standstill period requires
any Disney tender offer for Infoseek to be conditioned upon a majority of
disinterested Infoseek shareholders tendering their shares. See "Description of
Related Agreements--Equity and Governance Agreements."
Infoseek and Disney have also entered into a number of licensing and
commercial agreements contemplating the development, launch and promotion of
the planned New Portal Service, which agreements are to be effective upon and
subject to the consummation of the proposed Mergers. The planned New Portal
Service would be based, in part, upon certain intellectual property owned by
Disney to be licensed to Infoseek pursuant to the terms of a royalty-bearing
license agreement (the "License Agreement"). While owned and operated by
Infoseek, the planned New Portal Service would also be subject to an advisory
committee (consisting of one Infoseek representative and one Disney
representative) for oversight of activities relating to the service. In
connection with the New Portal Service, Disney's wholly-owned subsidiary, ABC,
Inc. ("ABC") has agreed to provide, and Infoseek has agreed to purchase, $165
million in promotional support and activities over five years. As part of such
promotion, Disney has agreed to co-brand all ABCNews.com and ESPN SportsZone
owned non-traditional media promotion with promotions for the New Portal
Service. Disney has also agreed to integrate Infoseek's search and directory
technology into its own Internet-based services. See "Description of Related
Agreements--Licensing and Commercial Agreements."
In connection with and subject to consummation of the Starwave Merger, Disney
has also agreed to amend certain aspects of the partnership agreements between
Starwave Ventures, a Washington corporation and a wholly owned subsidiary of
Starwave ("Starwave Partner"), and ESPN Online Investments, Inc.
("ESPN Partner") and the partnership agreements between Starwave Partner and
DOL Online Investments, Inc. ("ABC Partner") relating primarily to ESPN
SportsZone and ABC News.com, respectively (such partnerships being hereinafter
referred to respectively as the "ESPN Joint Venture" and the "ABC News Joint
Venture" and, collectively, as the "Joint Ventures"). Starwave has also agreed
to act pursuant to representation agreements (the "ESPN Representation
Agreement" and the "ABC Representation Agreement," respectively), as the
representative of the ESPN Joint Venture and the ABCNews Joint Venture for the
sale of advertising services. See "Description of Related Agreements--Licensing
and Commercial Agreements".
THE COMPANIES
Infoseek California. Infoseek Corporation, a California corporation, provides
leading Internet search and navigation technology, products and services that
use the Web to connect its viewers' personal, work and community lives. As a
"connected" media company, Infoseek is able to segment viewers by interest
area, providing advertisers with focused and targeted audiences. The Infoseek
Service (as defined below) is a comprehensive Internet gateway that combines
search and navigation with directories of relevant information sources and
content sites, offers chat and instant messaging for communicating shared
interests and facilitates the purchase of related goods and services. The
mailing address of Infoseek California's principal executive offices is 1399
Moffett Park Drive, Sunnyvale, California 94089; its telephone number at that
address is (408) 543-6000. See "Infoseek Business."
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Starwave. Starwave Corporation, a Washington corporation, is a producer of
Internet-based online services in specific content areas with broad consumer
appeal. Starwave is recognized for its prominent role in sports, news and
entertainment services. Through its partnerships with Disney, Starwave produces
such services as ESPN SportsZone and ABC News.com, as well as additional news-
and sports-related services such as Mr. Showbiz, Wall of Sound, CelebSite,
MoneyScope, NBA.com, NFL.com, NASCAR Online and Outside Online. Starwave was
incorporated in 1991 under the laws of the State of Washington and has its
principal executive offices at 13810 S.E. Eastgate Way, Suite 400, Bellevue,
Washington 98005, and its telephone number at that address is (425) 957-2000.
See "Starwave Business."
Infoseek Delaware. Infoseek Corporation, a Delaware corporation, is currently
a wholly-owned subsidiary of Infoseek California and has been formed for the
purpose of effecting the reincorporation of Infoseek California in connection
with the Infoseek Merger and has not conducted business activities to date. As
a result of both Mergers, Starwave and Infoseek California will become wholly-
owned subsidiaries of Infoseek Delaware. Accordingly, the business of Infoseek
Delaware will consist primarily of holding the capital stock of Infoseek
California and Starwave. The mailing address and telephone number of Infoseek
Delaware's principal executive offices are the same as those of Infoseek
California. See "Reasons for Incorporation of the Holding Company in Delaware."
ICO Acquisition Corp. ICO Acquisition Corp. is a newly organized California
corporation formed solely for the purpose of effecting the Infoseek Merger and
is occasionally referred to herein as "Infoseek Merger Sub." The mailing
address and telephone number of ICO Acquisition Corp.'s offices are the same as
those of Infoseek California.
Starwave Acquisition Corp. Starwave Acquisition Corp. is a newly organized
Washington corporation formed solely for the purpose of effecting the Starwave
Merger and is occasionally referred to herein as "Starwave Merger Sub." The
mailing address and telephone number of Starwave Acquisition Corp.'s offices
are the same as those of Infoseek California.
DATE AND PLACE OF THE MEETINGS
A special meeting of the shareholders of Infoseek California (the "Infoseek
Shareholders Meeting") will be held on November 18, 1998, at 10:00 a.m., local
time, at the offices of Infoseek, 1399 Moffett Park Drive, Sunnyvale,
California 94089. See "Infoseek Shareholders Meeting."
A special meeting of the shareholders of Starwave (the "Starwave Shareholders
Meeting") will be held on November 18, 1998 at 10:00 a.m., local time, at the
Bellevue Hilton, located at 100-112th Avenue, N.E., Bellevue, Washington 98004.
See "Starwave Shareholders Meeting."
PURPOSE OF THE MEETINGS; THE MERGERS
The Infoseek Shareholders Meeting. At the Infoseek Shareholders Meeting, the
shareholders of Infoseek California will be asked to consider and vote upon the
following proposals, approval of both of which are conditions to the Mergers:
(1) approval and adoption of the Reorganization Agreement and approval of
a reincorporation transaction, as contemplated by the Reorganization
Agreement, pursuant to an Agreement and Plan of Merger by and among
Infoseek California, Infoseek Delaware and Infoseek Merger Sub, whereby
Infoseek Merger Sub will be merged with and into Infoseek California and
each outstanding share of Infoseek California common stock will be
converted into the right to receive one share of Infoseek Delaware common
stock, with the result that Infoseek California will become a wholly-owned
subsidiary of Infoseek Delaware; and
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(2) the issuance of 28,138,000 shares of Infoseek Delaware common stock
to the shareholders of Starwave in connection with the acquisition of
Starwave, as contemplated by the Reorganization Agreement, pursuant to an
Agreement and Plan of Merger by and among Infoseek Delaware, Starwave and
Starwave Merger Sub, whereby Starwave Merger Sub will be merged with and
into Starwave and each outstanding share of Starwave common stock will be
converted into the right to receive approximately 0.26 shares of Infoseek
Delaware common stock, subject to adjustment as described herein, with the
result that Starwave will become a wholly-owned subsidiary of Infoseek
Delaware, and the issuance to Disney of 2,642,000 shares of Infoseek
Delaware common stock and a Warrant to purchase an additional 15,720,000
shares of Infoseek Delaware common stock pursuant to the Securities
Purchase Agreement (and the shares underlying such Warrant).
The Starwave Shareholders Meeting. At the Starwave Shareholders Meeting, the
shareholders of Starwave will be asked to consider and vote upon the following
proposal, approval of which is a condition to the Merger:
Approval and adoption of the Reorganization Agreement and the acquisition
of Starwave, pursuant to an Agreement and Plan of Merger contemplated by
the Reorganization Agreement by and among Infoseek Delaware, Starwave and
Starwave Merger Sub, whereby Starwave Merger Sub will be merged with and
into Starwave and each outstanding share of Starwave common stock will be
converted into the right to receive approximately 0.26 shares of Infoseek
Delaware common stock, subject to potential adjustment as described herein,
with the result that Starwave will become a wholly-owned subsidiary of
Infoseek Delaware.
No fractional shares of Infoseek Delaware common stock will be issued, and
cash will be paid in lieu of such fractional shares to the shareholders of
Starwave.
RECORD DATE
The close of business on October 9, 1998 is the record date for determination
of (1) holders of Infoseek California common stock entitled to vote at the
Infoseek Shareholders Meeting as well as (2) holders of Starwave common stock
entitled to vote at the Starwave Shareholders Meeting (the "Record Date").
INFOSEEK CALIFORNIA SHAREHOLDERS ENTITLED TO VOTE
As of October 9, 31,508,312 shares of Infoseek California common stock were
outstanding. As of such date the Infoseek California common stock was held by
approximately 570 holders of record. As of such date, directors and executive
officers of Infoseek California and their affiliates may be deemed to be
beneficial owners of shares of Infoseek California common stock representing
approximately 26% of the outstanding voting power of Infoseek California. In
connection with the Mergers, certain directors and officers of Infoseek
California, together holding approximately 22% of the outstanding voting power
of Infoseek California as of the Record Date, have agreed, among other things,
to vote their shares in favor of the Reorganization Agreement and the Mergers
and against any competing proposals, and, for a period of time, to vote their
shares in favor of the nominees to the Board of Directors presented by
management. See "Terms of the Mergers--Shareholder Agreements--Infoseek
California."
STARWAVE SHAREHOLDERS ENTITLED TO VOTE
As of October 9, 97,535,287 shares of Starwave common stock were outstanding.
As of such date, the Starwave common stock was held by approximately 280
holders of record. As of such date, directors and executive officers of
Starwave and their affiliates, including Disney, may be deemed to be beneficial
owners of approximately 94% of the outstanding shares of Starwave common stock.
In connection with the Mergers, certain directors and officers of Starwave and
their affiliates, including Disney, collectively holding approximately 94% of
the outstanding voting power of Starwave as of the Record Date, have agreed,
among other things, to vote
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their shares in favor of the Reorganization Agreement and the Starwave Merger
and against any competing proposals. See "Terms of the Mergers--Shareholder
Agreements--Starwave." Accordingly, holders of a number of shares of Starwave
common stock sufficient to approve the Reorganization Agreement and the
Starwave Merger have already agreed to vote in favor of the proposal.
VOTES REQUIRED
Infoseek California. Approval and adoption of the Reorganization Agreement
and approval of the Infoseek Merger will require the affirmative vote of the
holders of a majority of the voting shares of Infoseek California common stock
entitled to vote thereon. Because the issuance of Infoseek Delaware common
stock pursuant to the Starwave Merger and the issuance of Infoseek Delaware
common stock and the Warrant to Disney pursuant to the Securities Purchase
Agreement involve the issuance of Infoseek Delaware common stock in excess of
20% of the total number of shares of Infoseek California currently outstanding,
the National Association of Securities Dealers, Inc. (the "NASD") requires that
such transactions be approved by the affirmative vote of the holders of a
majority of the common stock present (in person or by proxy) at the Infoseek
Shareholders Meeting and entitled to vote thereon.
Starwave. Approval and adoption of the Reorganization Agreement and approval
of the Starwave Merger will require the affirmative vote of the holders of a
majority of the outstanding shares of Starwave common stock entitled to vote
thereon voting together without regard to class.
SOLICITATION OF PROXIES
The expenses of the respective solicitations (including mailing costs) for
the Infoseek Shareholders Meeting and the Starwave Shareholders Meeting will be
equally borne by Infoseek and Starwave, respectively, and Infoseek and Disney
will share equally the cost of the filing and printing of this Joint Proxy
Statement/Prospectus and the forms of proxy to the Infoseek shareholders and
the Starwave shareholders. In addition to solicitation by mail, directors,
officers and employees of Infoseek may solicit proxies by telephone, telegram
or otherwise. Such directors, officers and employees of Infoseek will not be
additionally compensated for such solicitation but may be reimbursed by
Infoseek for out-of-pocket expenses incurred in connection therewith. Infoseek
will request that brokerage firms, fiduciaries and other custodians forward
copies of the proxies and this Joint Proxy Statement/Prospectus to the
beneficial owners of shares of Infoseek California common stock held of record
by them and Infoseek will reimburse them for their reasonable expenses incurred
in forwarding such material. Infoseek has retained a proxy solicitation firm,
Morrow & Co., Inc. to aid it in the solicitation process for Infoseek
shareholders. Infoseek will pay fees of $17,500 to such firm, plus expenses,
with total costs anticipated to be approximately $100,000.
APPRAISAL RIGHTS OF DISSENTING INFOSEEK CALIFORNIA SHAREHOLDERS
Under Chapter 13 of the California General Corporation Law, Infoseek
California shareholders who vote against or abstain from voting on the Infoseek
Merger and file a demand for appraisal prior to the shareholder vote on the
Infoseek Merger have the right to obtain cash payment for the "fair value" of
their shares (exclusive of any appreciation or depreciation in anticipation of
the Starwave Merger); provided that holders of at least five percent of all
outstanding shares file demands for payment in accordance with the provisions
of Chapter 13. In order to exercise such rights, an Infoseek California
shareholder must comply with all the procedural requirements of Chapter 13, a
description of which is provided under "The Mergers and Related Transactions--
Rights of Dissenting Infoseek Shareholders," the full text of which is attached
to this Joint Proxy Statement/Prospectus as Annex B-1. Such "fair value" would
be determined in judicial proceedings, the result of which cannot be predicted.
Failure to take any of the steps required under Chapter 13 may result in loss
of such statutory appraisal rights. See "The Mergers and Related Transactions--
Rights of Dissenting Infoseek Shareholders."
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APPRAISAL RIGHTS OF DISSENTING STARWAVE SHAREHOLDERS
Under Chapter 23B.13 of the Washington Business Corporation Act, Starwave
shareholders who do not vote in favor of approval and adoption of the
Reorganization Agreement and approval of the Starwave Merger and who file a
written notice with Starwave prior to the shareholder vote on the Starwave
Merger have the right to obtain cash payment for the "fair value" of shares
(exclusive of any appreciation or depreciation in anticipation of the Starwave
Merger). In order to exercise such rights, a Starwave shareholder must comply
with all the procedural requirements of Chapter 23B.13, a description of which
is provided under "The Mergers and Related Transactions--Rights of Dissenting
Starwave Shareholders," and the full text of which is attached to this Joint
Proxy Statement/Prospectus as Annex B-2. Failure to take any of the steps
required under Chapter 23B.13 may result in loss of such statutory appraisal
rights. See "The Mergers and Related Transactions--Rights of Dissenting
Starwave Shareholders."
THE REORGANIZATION AGREEMENT
General. The Reorganization Agreement provides, among other things, for: (i)
the merger of Infoseek Merger Sub with and into Infoseek California, which will
result in Infoseek California, as the surviving corporation of the Infoseek
Merger, becoming a wholly owned subsidiary of Infoseek Delaware, and (ii) the
merger of Starwave Merger Sub with and into Starwave, which will result in
Starwave, as the surviving corporation of the Starwave Merger, becoming a
wholly owned subsidiary of Infoseek Delaware.
Conversion of Shares; Exchange Ratio. Upon consummation of the Mergers, each
outstanding share of Infoseek California common stock will be converted into
one share of Infoseek Delaware common stock, and each outstanding Starwave
share will be converted into the right to receive that number of shares of
Infoseek Delaware common stock equal to the Exchange Ratio. For a description
of Infoseek Delaware common stock, see "Comparison of Capital Stock--
Description of Infoseek Delaware Capital Stock." For summaries of the principal
differences between the rights of holders of Infoseek Delaware common stock, on
the one hand, and Infoseek California common stock and Starwave common stock,
on the other, see "Comparison of Capital Stock--Comparison of Capital Stock of
Infoseek California and Infoseek Delaware" and "--Comparison of Capital Stock
of Starwave and Infoseek Delaware."
No fractional shares of Infoseek Delaware common stock will be issued
pursuant to the Starwave Merger. In lieu of the issuance of any fractional
shares of Infoseek Delaware common stock, cash equal to the product of such
fractional share amount and the average closing sale price of Infoseek
California common stock on Nasdaq for the ten trading days prior to the closing
date of the Starwave Merger will be paid to holders in respect of any
fractional share of Infoseek Delaware common stock that would otherwise be
issuable.
AT THE EFFECTIVE TIME, EACH CERTIFICATE REPRESENTING SHARES OF INFOSEEK
CALIFORNIA COMMON STOCK (EXCEPT DISSENTING SHARES, IF ANY) SHALL, WITHOUT ANY
ACTION ON THE PART OF THE HOLDER THEREOF, BE DEEMED TO REPRESENT AN EQUIVALENT
NUMBER OF SHARES OF INFOSEEK DELAWARE COMMON STOCK. HOLDERS OF INFOSEEK
CALIFORNIA COMMON STOCK SHOULD NOT SEND ANY CERTIFICATES REPRESENTING INFOSEEK
CALIFORNIA COMMON STOCK WITH THE ENCLOSED PROXY CARD. AS A RESULT, NO
CERTIFICATES REPRESENTING INFOSEEK CALIFORNIA COMMON STOCK WILL BE EXCHANGED IN
THE INFOSEEK MERGER.
AT THE EFFECTIVE TIME, EACH CERTIFICATE REPRESENTING SHARES OF STARWAVE
COMMON STOCK (EXCEPT DISSENTING SHARES, IF ANY) SHALL, WITHOUT ANY ACTION ON
THE PART OF THE HOLDER THEREOF, BE DEEMED TO REPRESENT THAT NUMBER OF SHARES OF
INFOSEEK DELAWARE COMMON STOCK EQUAL TO THE EXCHANGE RATIO MULTIPLIED BY THE
NUMBER OF SHARES REPRESENTED BY SUCH CERTIFICATE. HOLDERS OF STARWAVE COMMON
STOCK SHOULD NOT SEND ANY CERTIFICATES REPRESENTING STARWAVE COMMON
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STOCK WITH THE ENCLOSED PROXY CARD. IF THE TRANSACTION IS APPROVED, A LETTER OF
TRANSMITTAL WILL BE MAILED AFTER THE EFFECTIVE TIME TO EACH PERSON WHO WAS A
HOLDER OF OUTSTANDING SHARES OF STARWAVE COMMON STOCK IMMEDIATELY PRIOR TO THE
EFFECTIVE TIME. STARWAVE SHAREHOLDERS SHOULD SEND CERTIFICATES REPRESENTING
STARWAVE COMMON STOCK TO THE EXCHANGE AGENT ONLY AFTER THEY RECEIVE, AND IN
ACCORDANCE WITH, THE INSTRUCTIONS CONTAINED IN THE LETTER OF TRANSMITTAL.
Conditions to the Mergers. The obligations of Infoseek California and
Starwave to consummate the Mergers are subject to the fulfillment of various
conditions, including, among others: (i) the requirement that no temporary
restraining order, preliminary or permanent injunction or other order issued by
a court of competent jurisdiction or other legal restraint or prohibition
preventing the consummation of the Mergers shall be in effect; (ii) the
approval of the Reorganization Agreement and the Mergers by the shareholders of
Infoseek California and Starwave; (iii) listing of the Infoseek Delaware common
stock on Nasdaq; (iv) effectiveness of the Form S-4 Registration Statement of
which this Joint Proxy Statement/Prospectus is a part; and (v) effectiveness of
the Related Agreements described in "Description of Related Agreements" below.
See "Terms of the Mergers-- Conditions to the Mergers." Consummation of the
Mergers is also a condition to the several transactions contemplated by the
Securities Purchase Agreement and the Related Agreements.
Termination and Termination Fees. The Reorganization Agreement may be
terminated and the Mergers may be abandoned prior to the effective time either
before or after the approval by the shareholders of Infoseek California and
Starwave, or both, under the circumstances specified in the Reorganization
Agreement, including by mutual written agreement of Infoseek California and
Starwave and termination by either party if the Effective Time has not occurred
by December 31, 1998.
The Reorganization Agreement may also be terminated upon the occurrence of
certain circumstances, although such termination of the Reorganization
Agreement by Infoseek or Starwave in certain instances will result in payment
of the sum of $17 million (plus documented expenses up to $1.5 million) to the
other party. In addition, in certain circumstances the termination of the
Reorganization Agreement will give rise to the right of Disney to exercise one
or both of two options, consisting of the ability to obtain a nonexclusive
worldwide license, with certain rights to sublicense, to use the Infoseek
search technology and Infoseek communication technology in connection with the
development, operation and exploitation of Disney's and its affiliates' online
services, and the ability to have links to certain Disney online services
prominently placed within Infoseek's online services in exchange for an annual
fee to be paid by Disney. See "Terms of the Mergers--Termination of the
Reorganization Agreement" and "--Termination Fees."
STOCK OWNERSHIP FOLLOWING THE MERGERS AND RELATED TRANSACTIONS
Immediately following the Mergers and the consummation of the transactions
contemplated by the Securities Purchase Agreement, (i) the former holders of
Infoseek California common stock will collectively hold approximately 53% of
the issued and outstanding shares of Infoseek Delaware common stock; (ii) the
former holders of Starwave common stock, other than Disney, will collectively
hold approximately 4% of the issued and outstanding shares of Infoseek Delaware
common stock; and (iii) Disney will hold approximately 43% of the issued and
outstanding shares of Infoseek Delaware common stock, in each case on a primary
shares basis, based upon the capitalization of Infoseek California and Starwave
as of October 9, 1998. In addition, Disney will have the right to acquire
through the Warrant exercisable over time additional shares that, when
aggregated with those already owned by Disney, would result in Disney's
ownership of approximately 50.1% of outstanding Infoseek Delaware common stock
on a fully diluted basis assuming exercise of all outstanding options, warrants
and other rights to acquire Infoseek Delaware common stock.
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RECOMMENDATIONS; FAIRNESS OPINION
The Board of Directors of Infoseek California has unanimously approved the
Reorganization Agreement and the Related Agreements and unanimously recommends
that holders of Infoseek California common stock vote for the approval and
adoption of the Reorganization Agreement and approval of the Infoseek Merger
and the issuance of Infoseek Delaware common stock in the Starwave Merger. In
making its recommendation with respect to the Starwave Merger, the Infoseek
Board has considered, among other things, the opinion of Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("Merrill Lynch"), Infoseek's financial advisor,
delivered orally on June 17, 1998 and in writing on June 18, 1998, to the
effect that the consummation of the Mergers and the transactions contemplated
by the Securities Purchase Agreement, the License Agreement and the Governance
Agreement, are fair to Infoseek and its shareholders from a financial point of
view.
The Board of Directors of Starwave has unanimously approved the
Reorganization Agreement and unanimously recommends that holders of Starwave
common stock vote for the approval and adoption of the Reorganization Agreement
and approval of the Starwave Merger. In making its recommendation, the Starwave
Board has not relied upon any written opinions of outside financial advisors.
A copy of the opinion of Merrill Lynch, which sets forth the assumptions
made, matters considered and scope of their review, is attached to this Joint
Proxy Statement/Prospectus as Annex C, and should be read in its entirety. The
Reorganization Agreement does not require that such opinion be updated prior to
the effective time. See "The Mergers and Related Transactions--Opinion of
Infoseek's Financial Advisor," which also contains a discussion of the fees to
be paid to Merrill Lynch. The fees to be paid to Merrill Lynch are generally
contingent upon the consummation of the Mergers.
GOVERNMENTAL AND REGULATORY MATTERS
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
(the "HSR Act"), and the rules promulgated thereunder by the Federal Trade
Commission ("FTC"), the Starwave Merger and the transactions contemplated by
the Related Agreements cannot be consummated until notifications have been
given to the FTC and the Antitrust Division of the Department of Justice (the
"Antitrust Division") and the specified waiting periods have expired or
terminated early. The specified waiting periods under the HSR Act for the
Starwave Merger and the transactions contemplated by the Related Agreements
were terminated early as of July 13, 1998. While the waiting periods were
terminated, any state or foreign governmental authority could take such action
under the antitrust laws as it deems necessary or desirable in the public
interest. See "The Mergers and Related Transactions--Governmental and
Regulatory Matters."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
It is a condition to the consummation of the Infoseek Merger that Infoseek
California receive an opinion from Wilson Sonsini Goodrich & Rosati,
Professional Corporation, counsel to Infoseek, based upon reasonably requested
representation letters, that the Infoseek Merger will be treated as a
reorganization described in Section 368(a) of the Internal Revenue Code of
1986, as amended (the "Code") and/or, when taken together with the Starwave
Merger, as a transfer of property to Infoseek Delaware by holders of Infoseek
California common stock governed by Section 351 of the Code. It is also a
condition to the consummation of the Starwave Merger that DEI receive an
opinion from Dewey Ballantine LLP, based upon reasonably requested
representation letters, that the Starwave Merger will be treated as a
reorganization described in Section 368(a) of the Code and/or, when taken
together with the Infoseek Merger, as a transfer of property to Infoseek
Delaware by DEI governed by Section 351 of the Code. Accordingly, no gain or
loss will generally be recognized for federal income tax purposes by a
shareholder of Infoseek or Starwave upon the receipt of Infoseek Delaware
common stock in the Mergers (other than with respect to any cash received in
lieu of fractional shares). See "The Mergers and Related Transactions--Certain
Federal Income Tax Consequences."
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ANTICIPATED ACCOUNTING TREATMENT
The Starwave Merger will be accounted for under the "purchase" method of
accounting in accordance with generally accepted accounting principles. Under
the "purchase" method of accounting, the aggregate consideration paid by the
acquiring company, which is deemed to be Infoseek Delaware, is allocated to the
acquired assets and liabilities (in this instance, the business of Starwave)
based on the fair market values at the Effective Time with any excess being
treated as goodwill. Results of operations of Starwave, including the related
amortization of intangible assets and write-off of in-process research and
development associated with the Starwave Merger, will be included in the
results of operations of Infoseek Delaware subsequent to the Effective Time.
The conversion of Infoseek California common stock into shares of Infoseek
Delaware common stock will be treated as a reorganization with no change in the
recorded amount of Infoseek California's recorded assets and liabilities. The
financial statements of Infoseek California will be consolidated with the
financial statements of Infoseek Delaware.
ADDITIONS TO INFOSEEK'S BOARD OF DIRECTORS; INTERESTS OF CERTAIN PERSONS IN THE
MERGER
In accordance with the terms of the Governance Agreement, three
representatives of Disney, one of whom currently serves on the Board of
Directors of Starwave, will become members of the Board of Directors of
Infoseek Delaware. The Infoseek Delaware Board of Directors will be comprised
of eight members, with the other five seats filled by current Infoseek
California directors. See "Infoseek Management." Starwave is currently in the
process of negotiating with certain of its executive officers (each of whom has
an employment agreement) regarding severance or retention arrangements in light
of their potential roles in the combined companies. Starwave does not
anticipate that any such arrangements or any failure to retain its executive
officers will have a material adverse effect on the business, financial
condition, operating results or prospects of the combined companies.
NASDAQ LISTING
Infoseek Delaware will apply for the listing of its common stock on Nasdaq
under the symbol "SEEK." It is a condition to the Mergers that the shares of
Infoseek Delaware common stock to be issued in connection with the Mergers
shall have been approved for listing on Nasdaq, subject only to official notice
of issuance.
STOCK OPTIONS
Pursuant to the Mergers, outstanding options or other rights to purchase
Infoseek or Starwave common stock will be treated as indicated below.
Upon the consummation of the Mergers, the stock option and employee stock
purchase plans of Infoseek California will be assumed and continued by Infoseek
Delaware. Shareholders should note that approval of the Infoseek Merger will
also constitute approval of the assumption of these plans by Infoseek Delaware.
Accordingly, each outstanding option or right to purchase shares of Infoseek
California common stock (each, an "Infoseek California Option") shall be
converted into an option to acquire the same number of shares of Infoseek
Delaware common stock and will continue to have, and be subject to, the same
terms and conditions (including vesting restrictions) as set forth in the stock
option or other agreement by which it is evidenced, except that each option or
right will become exercisable for Infoseek Delaware common stock rather than
Infoseek California common stock. See "Terms of the Mergers--Terms of the
Mergers--Infoseek California Stock Options."
Each outstanding option or right to purchase shares of Starwave common stock
(each, a "Starwave Option") shall be assumed by Infoseek Delaware and be
converted into an option or right to purchase that number of shares of Infoseek
Delaware common stock equal to the number of shares of Starwave common stock
subject to such Starwave Option immediately prior to the effective time of the
Starwave Merger multiplied by the Exchange Ratio, rounded down to the nearest
whole share, and the per share exercise price for the shares of Infoseek
Delaware common stock issuable upon exercise of such assumed Starwave Option
shall be equal to the quotient obtained by dividing the exercise price per
share of Starwave common stock at which such Starwave
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Option was exercisable immediately prior to the Effective Time by the Exchange
Ratio, rounded up to the nearest whole cent. Such option or right to purchase
Infoseek Delaware common stock will otherwise continue to have, and be subject
to, the same terms and conditions (including vesting restrictions) set forth in
the Starwave option plan and/or the stock option or other agreement by which it
is evidenced. See "Terms of the Mergers--Terms of the Mergers--Starwave Stock
Options."
ANTI-TAKEOVER PROVISIONS OF DELAWARE LAW AND INFOSEEK DELAWARE'S CHARTER
DOCUMENTS
Upon consummation of the Mergers, the shareholders of Infoseek California and
Starwave will become shareholders of Infoseek Delaware, a corporation organized
under the laws of Delaware. Certain provisions of Delaware law applicable to
Infoseek Delaware may have the effect of delaying, deterring or preventing
changes in control or management of Infoseek Delaware. The charter documents of
Infoseek Delaware will contain certain additional provisions which may further
this effect. Infoseek Delaware will be subject to the provisions of Section 203
of the Delaware General Corporation Law, which restricts the corporation from
entering into certain "business combinations" with an "interested stockholder"
for a period of three years. An interested person is generally defined to mean
a person or entity that has acquired in excess of 15% of Infoseek Delaware's
voting stock without the approval of the Infoseek Delaware Board of Directors.
Infoseek Delaware has adopted a "poison pill" share purchase rights plan (the
"Rights Plan"). Pursuant to the Rights Plan, effective as of the closing of the
Mergers, each share of Infoseek Delaware common stock will have associated with
it certain rights to acquire shares of Infoseek Delaware's Series A
Participating Preferred Stock, par value $0.01 (the "Rights"). The Rights are
triggered and become exercisable upon the occurrence of either (i) the date of
a public announcement of the acquisition of 15% or more beneficial ownership of
Infoseek Delaware's common stock by a person or group (an "Acquiring Person"),
or (ii) ten business days after a public announcement of a tender or exchange
offer for 15% or more beneficial ownership of Infoseek Delaware's common stock
by an Acquiring Person. If the Rights are triggered because an Acquiring Person
beneficially owns 15% or more of Infoseek Delaware's Common Stock, each Right
will provide its holder, other than a holder who is an Acquiring Person, the
right to purchase that number of shares of Infoseek Delaware common stock
having a market value at the time equal to twice the exercise price, upon
payment of the exercise price of $150 per Right. In addition, in the event of
certain business combinations, the Rights permit the purchase of shares of
common stock of an acquiror at a 50% discount from the market price at the
time. These provisions may have the effect of deterring hostile takeovers or
delaying changes in control or management of Infoseek Delaware. For purposes of
the Rights Plan, Disney shall not be deemed to be an Acquiring Person, so long
as Disney has not breached the standstill provisions of the Governance
Agreement. In addition, the Infoseek Delaware Board will have authority to
issue up to 25 million shares of Preferred Stock and to fix the rights,
preferences, privileges and restrictions, including voting rights, of such
shares without any further vote or action by the shareholders and has initially
reserved 100,000 shares of Series A Participating Preferred Stock, par value
$.001 per share, for potential issuance pursuant to the exercise of Rights
under the Rights Plan. The issuance of such Preferred Stock could discourage an
unsolicited attempt to take over Infoseek Delaware. See "Comparison of Capital
Stock--Description of Infoseek Delaware Capital Stock", "Comparison of Capital
Stock--Comparison of Capital Stock of Infoseek California and Infoseek
Delaware--Share Purchase Rights Plan" and "Comparison of Capital Stock--
Comparison of Capital Stock of Starwave and Infoseek Delaware."
MARKET PRICE INFORMATION
Infoseek California common stock is traded on Nasdaq under the symbol "SEEK."
On June 17, 1998, the last full trading day before announcement of the
execution and delivery of the Reorganization Agreement, the high and low sales
prices of Infoseek California common stock as reported on Nasdaq were $35 1/8
and $33 3/8 per share, respectively. On October 9, 1998, the high and low sales
prices of Infoseek California common stock as reported on Nasdaq were $20 1/8
and $17 7/8 per share, respectively. There can be no assurance as to the actual
price of Infoseek common stock prior to, at or at any time following the
effective time of, the Mergers. See "Market Price Information."
14
<PAGE>
SELECTED HISTORICAL COMBINED CONDENSED FINANCIAL
INFORMATION AND COMPARATIVE PER SHARE DATA
The following tables present selected historical combined condensed financial
information and comparative per share data for Infoseek California and
Starwave. This information has been derived from their respective consolidated
financial statements and notes thereto, certain of which are incorporated by
reference or included in this Joint Proxy Statement/Prospectus. The audited
financial statements and notes thereto of Infoseek California for each of the
years ended and as of December 31, 1997, 1996 and 1995 and the unaudited
financial statements for the six months ended and as of June 30, 1998 and 1997
are incorporated by reference in this Joint Proxy Statement/Prospectus. The
audited financial statements and notes thereto of Starwave for the nine months
ended September 28, 1997, the fiscal years ended December 31, 1996 and 1995,
and the unaudited financial statements for the nine months ended June 28, 1998
and June 29, 1997 are included in this Joint Proxy Statement/Prospectus. The
audited financial statements and notes thereto of Infoseek California for the
year ended and as of December 31, 1994 and for the period from August 30, 1993
(Inception), to December 31, 1993 are not included in this Joint Proxy
Statement/Prospectus. The selected historical financial information of Infoseek
California for the six months ended June 30, 1998 and 1997 and of Starwave for
the nine months ended June 28, 1998 and June 29, 1997, for the nine months
ended September 30, 1996 and for the fiscal years ended December 31, 1994 and
1993 has been derived from the unaudited financial statements of Infoseek
California and Starwave, respectively, and, in the opinion of Infoseek
California's and Starwave's management, respectively, reflects all adjustments
necessary for the fair presentation of such unaudited interim financial
information.
INFOSEEK CALIFORNIA SELECTED FINANCIAL INFORMATION
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PERIOD FROM
AUGUST 30, 1993 SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, (INCEPTION) TO JUNE 30,
------------------------------------ DECEMBER 31, ------------------
1997 1996 1995 1994 1993 1998 1997
-------- -------- ------- ------- --------------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA(1):
Total revenues......... $ 35,082 $ 15,095 $ 1,032 $ -- $-- $ 31,519 $ 14,026
Total costs and
expenses.............. 62,930 32,376 4,425 1,520 27 35,838 31,767
Operating loss......... (27,848) (17,281) (3,393) (1,520) (27) (4,319) (17,741)
Interest income, net... 1,286 1,343 97 10 -- 1,252 779
Net loss............... (26,562) (15,938) (3,296) (1,510) (27) (3,067) (16,962)
Basic and diluted net
loss per share (pro
forma in 1995)(2)..... $ (1.00) $ (0.72) $ (0.21) $ (0.10) $ (0.64)
Shares used in
computing basic and
diluted net loss per
share................. 26,627 22,120 15,535 30,058 26,329
BALANCE SHEET DATA (AT
END OF PERIOD)(1):
Total assets........... $ 51,489 $ 58,332 $ 5,123 $ 859 $318 $ 94,646
Total shareholders'
equity (deficit)...... 27,006 48,985 2,142 520 (27) 68,743
</TABLE>
- --------
(1) Infoseek's financial statements have been restated to reflect the
acquisition of WebChat Communications Inc., which has been accounted for
as a pooling-of-interests.
(2) The earnings per share amounts prior to 1997 and for the six months ended
June 30, 1997 have been restated to comply with Statement of Financial
Accounting Standards No. 128, Earnings per Share and Staff Accounting
Bulletin No. 98, Earnings per Share.
15
<PAGE>
STARWAVE SELECTED FINANCIAL INFORMATION
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
NINE MONTHS ENDED DECEMBER 31, NINE MONTHS ENDED
--------------------------- ------------------------------------------- ------------------
SEPTEMBER 28, SEPTEMBER 30, JUNE 28, JUNE 29,
1997 1996 1996 1995 1994 1993 1998 1997
------------- ------------- -------- -------- ----------- ----------- -------- --------
TATEMENT OF OPERATIONS DATA(1):S (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues.............. $ 4,892 $ 4,583 $ 8,302 $ 1,111 $ -- $ -- $ 3,496 $ 7,960
Cost of online
services............. 7,185 11,046 18,170 6,577 -- -- 2,147 12,122
Total operating
expenses............. 12,906 22,893 34,645 17,525 7,469 4,895 4,814 23,049
Loss from joint
ventures............. (8,209) -- -- -- -- -- (9,073) (3,924)
Net other expense..... (1,350) (3,239) (5,333) ( 3,015) (6,079) (296) 793 (3,362)
Loss from continuing
operations........... (17,573) (21,549) (31,676) (19,429) (8,848) (4,942) (9,598) (22,375)
Loss from discontinued
operations........... -- (4,289) (4,289) (7,474) (4,700) (249) -- --
Net loss.............. (17,573) (25,838) (35,965) (26,903) (13,548) (5,191) (9,598) (22,375)
Basic and diluted net
loss per share from
continuing
operations........... $ (0.25) $ (.69) $ (0.99) $ (0.68) $ (0.50) $ (1.24) $ (0.10) $ (0.43)
Basic and diluted net
loss per share from
discontinued
operations........... $ -- $ (.14) $ (0.14) $ (0.27) $ (0.27) $ (0.06) $ -- $ --
Basic and diluted net
loss per share....... $ (0.25) $ (.83) $ (1.13) $ (0.95) $ (0.77) $ (1.30) $ (0.10) $ (0.43)
Shares used in
computing basic and
diluted net loss per
share................ 71,691 31,139 31,958 28,412 17,502 4,000 96,260 51,579
BALANCE SHEET DATA (AT
END OF PERIOD):
Total assets.......... $ 29,461 18,874 $ 9,713 $ 6,354 $ 5,955 $ 2,597 $18,789 $33,465
Loans from
shareholder.......... -- 76,388 84,888 51,025 22,950 7,950 -- --
Total shareholders'
equity (deficit)..... 23,614 (72,340) (82,456) (46,653) (19,751) (6,203) 14,409 32,375
</TABLE>
- --------
(1) In April 1997 Starwave entered into the ESPN Joint Venture and the ABCNews
Joint Venture. Subsequently, Starwave continued its business of web site
hosting, software development and research activities while revenue and
expenses associated with sites operated under contract with ESPN, ABC and
others were assumed by these Joint Ventures. As a result, periods prior to
and following April 1997 are not comparable.
16
<PAGE>
SELECTED UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
The following unaudited pro forma combined condensed financial information
for Infoseek Delaware consists of the Unaudited Pro Forma Combined Condensed
Statements of Operations for the six months ended June 30, 1998 and for the
year ended December 31, 1997 and the Unaudited Pro Forma Combined Condensed
Balance Sheet as of June 30, 1998 (collectively, the "Pro Forma Statements").
The Pro Forma Statements give effect to Infoseek Delaware's acquisition of
Starwave through a merger and exchange of shares and Infoseek Delaware's
acquisition of Infoseek California through a merger and exchange of shares. In
addition, conditioned upon and subject to consummation of the proposed Mergers,
Disney has agreed to purchase an additional 2,642,000 unregistered shares of
Infoseek Delaware common stock and a warrant to purchase an additional
15,720,000 unregistered shares of Infoseek Delaware common stock (the
"Warrant") in exchange for approximately $70 million in cash and a $139 million
five-year promissory note. The Warrant vests, subject to certain acceleration
events, and becomes exercisable as to one-third of the shares subject to the
Warrant on each of the first three anniversaries of the effective time of the
proposed Mergers at an exercise price equal to 120% of the average of the
closing sale prices of Infoseek common stock on Nasdaq for the thirty trading
days prior to each such vesting date, subject to a maximum $50.00 per share
exercise price. Further, ABC has agreed to provide, and Infoseek has agreed to
purchase over a 5 year period, $165 million in promotional support from ABC for
the planned New Portal Service. The Unaudited Pro Forma Combined Condensed
Statement of Operations for the year ended December 31, 1997 and the six months
ended June 30, 1998 reflect these transactions as if they had taken place on
January 1, 1997. The Unaudited Pro Forma Combined Condensed Balance Sheet gives
effect to these transactions as if they had taken place on June 30, 1998.
On July 24, 1998, Infoseek entered into an agreement to acquire Quando, Inc.,
an Oregon corporation ("Quando"), in exchange for approximately $17 million,
subject to adjustment, in shares of Infoseek common stock. The transaction is
subject to customary closing conditions, including shareholder approval by
Quando and is expected to close on or about the closing of the Mergers. The
Unaudited Pro Forma Combined Condensed Statements of Operations for the year
ended December 31, 1997 and the six months ended June 30, 1998 reflect the
Quando acquisition as if it had taken place on January 1, 1997. The Unaudited
Pro Forma Combined Condensed Balance Sheet gives effect to the Quando
acquisition as if it had taken place on June 30, 1998.
The Unaudited Pro Forma Combined Condensed Statements of Operations combine
Infoseek's historical results of operations for the year ended December 31,
1997 and the six months ended June 30, 1998 with Starwave's historical results
of operations for the year ended December 31, 1997 and the six months ended
June 28, 1998, and Quando's historical results of operations for the year ended
December 31, 1997 and the six months ended June 30, 1998, respectively. In
addition, the unaudited Pro Forma Combined Condensed Statements of Operations
include the impact of certain of the Related Agreements which become effective
with the Mergers. These agreements are described more fully in the notes to
these Pro Forma Combined Condensed Statements of Operations. See "Description
of Related Agreements--Licensing and Commercial Agreements." The Pro Forma
Statements are not necessarily indicative of what the actual financial results
would have been had the transaction taken place on January 1, 1997 or June 30,
1998 and do not purport to indicate the results of future operations.
The acquisition of Starwave pursuant to the Starwave Merger and Quando
pursuant to the Quando acquisition will be accounted for using the purchase
method of accounting. The Pro Forma Statements have been prepared on the basis
of assumptions described in the notes thereto and includes assumptions relating
to the allocation of the consideration paid for the assets and liabilities of
Starwave based on preliminary estimates of their fair value. The actual
allocation of such consideration may differ from that reflected in the Pro
Forma Statements after valuations and other procedures to be performed after
the closing of the Starwave acquisition have been performed. Infoseek does not
expect that the final allocation of the purchase price will differ materially
from the preliminary allocations. In the opinion of Infoseek, all adjustments
necessary to present fairly such Pro Forma Statements have been made on the
proposed terms and structure of the Starwave acquisition.
17
<PAGE>
As a result of the Starwave Merger and the Quando acquisition, Infoseek
expects to incur one-time expenses, including a write-off related to in-process
research and development, currently estimated at $74.4 million and $9.4
million, respectively. In addition, Infoseek expects to incur costs of
integration of up to $5.0 million. The Pro Forma Statements do not include the
costs of integration as these costs will affect future operations and do not
qualify as liabilities in connection with a purchase business combination under
EITF 95-3, "Recognition of Liabilities in Connection with a Purchase Business
Combination."
The Pro Forma Statements should be read in conjunction with the notes thereto
and the audited financial statements of Starwave and Quando, including the
notes thereto, included elsewhere in this Joint Proxy Statement/Prospectus, and
the audited financial statements of Infoseek and the notes thereto, included in
Infoseek California's Current Report on Form 8-K filed on May 22, 1998, as
amended on August 10, 1998 and incorporated by reference in this Joint Proxy
Statement/Prospectus.
SELECTED UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL DATA
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1997 JUNE 30, 1998
----------------- -------------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues..................................... $ 57,517 $ 48,433
Total costs and expenses..................... 240,621 127,131
Operating loss............................... (183,104) (78,698)
Net loss..................................... (193,951) (83,341)
Basic and diluted net loss per share......... $ (3.35) $ (1.36)
Shares used in computing basic and diluted
net loss per share.......................... 57,928 61,359
BALANCE SHEET DATA (AT END OF PERIOD):
Total assets................................. $1,070,892
Total stockholders' equity................... 969,770
Book value per share......................... 15.46
</TABLE>
18
<PAGE>
COMPARATIVE PER SHARE DATA
Set forth below are historical earnings per share and book value per share
data of Infoseek California, Starwave, and Quando, unaudited pro forma combined
condensed per share data of Infoseek Delaware and pro forma equivalent per
share data of Starwave. The data set forth below should be read in conjunction
with the Infoseek California and Starwave audited financial statements,
unaudited interim consolidated financial statements, and the Unaudited Pro
Forma Combined Condensed Financial Statements, including the notes thereto,
which are included and/or incorporated by reference in this Joint Proxy
Statement/Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
OR AS OF OR AS OF
DECEMBER 31, 1997 JUNE 30, 1998
------------------ -----------------
<S> <C> <C>
Historical - Infoseek California
Basic and diluted net loss per share..... $ (1.00) $ (0.10)
Book value per share (1)................. $ 0.98 $ 2.19
<CAPTION>
NINE MONTHS ENDED NINE MONTHS ENDED
OR AS OF OR AS OF
SEPTEMBER 28, 1997 JUNE 28, 1998
------------------ -----------------
<S> <C> <C>
Historical - Starwave
Basic and diluted net loss per share..... $ (0.25) $ (0.10)
Book value per share (1)................. $ 0.25 $ 0.15
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
OR AS OF OR AS OF
DECEMBER 31, 1997 JUNE 30, 1998
------------------ -----------------
<S> <C> <C>
Historical - Quando
Basic and diluted net loss per share..... $(0.08) $(0.09)
Book value per share (1)................. $(0.08) $(0.15)
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
OR AS OF OR AS OF
DECEMBER 31, 1997 JUNE 30, 1998
------------------ -----------------
<S> <C> <C>
Pro forma combined net loss per share (3)
Pro forma combined net loss per Infoseek
Delaware share.......................... $ (3.35) $ (1.36)
Equivalent pro forma net loss per
Starwave share (2)...................... $ (0.87) $ (0.35)
Pro forma combined book value per share
(4)
Pro forma book value per Infoseek
Delaware share.......................... $ 15.46
Equivalent pro forma book value per
Starwave share (2)...................... $ 4.02
</TABLE>
- --------
(1) The historical book value per share is computed by dividing total
shareholders' equity by the number of shares of common and preferred stock
outstanding at the end of the period.
(2) The equivalent Starwave pro forma share amounts are calculated by
multiplying the combined pro forma per share amounts by the estimated
Exchange Ratio of 0.26 shares of Infoseek Delaware common stock for each
share of Starwave common stock.
(3) Pro forma combined net loss per share reflects Infoseek California's,
Starwave's, and Quando's net loss for the year ended December 31, 1997 and
the six months ended June 30, 1998 and is based upon (i) Infoseek's
weighted average common shares outstanding for the periods presented, (ii)
28,138,000 shares of Infoseek common stock assumed to be issued for all of
the outstanding shares of Starwave, (iii) 2,642,000 shares of Infoseek
Delaware common stock purchased by Disney and (iv) approximately 521,000
shares of Infoseek common stock assumed to be issued for all of the
outstanding shares of Quando.
(4) The pro forma combined book value per Infoseek Delaware shares is computed
by dividing total pro forma shareholders' equity by the number of shares of
common and preferred stock outstanding at the end of the period.
19
<PAGE>
MARKET PRICE INFORMATION
There is no established trading market for Starwave common stock. Infoseek
California's common stock has been traded on Nasdaq under the symbol "SEEK"
since June 11, 1996, the date of its initial public offering. Infoseek
Delaware common stock is not currently traded on a market, but is expected to
trade on Nasdaq under the symbol "SEEK" in place of Infoseek California upon
closing of the Mergers. The following table sets forth, for the periods
indicated, the high and low sales prices for Infoseek California common stock
as reported by Nasdaq:
<TABLE>
<CAPTION>
INFOSEEK CALIFORNIA
COMMON STOCK
---------------------
HIGH LOW
---------- ----------
<S> <C> <C>
1996 CALENDAR YEAR
Second Quarter (from June 11, 1996)..................... $ 16 1/2 $ 8 7/8
Third Quarter........................................... 10 5 1/4
Fourth Quarter.......................................... 11 1/2 7 3/8
1997 CALENDAR YEAR
First Quarter........................................... $ 11 $ 6 1/4
Second Quarter.......................................... 8 1/2 4 3/8
Third Quarter........................................... 9 11/16 4 11/16
Fourth Quarter.......................................... 14 1/2 7 1/8
1998 CALENDAR YEAR
First Quarter........................................... $ 22 7/8 $ 8 7/16
Second Quarter.......................................... 45 18 1/16
Third Quarter........................................... 39 5/8 14 7/8
Fourth Quarter (through October 9, 1998)................ 26 1/8 16 5/8
</TABLE>
As of October 9, 1998, Infoseek California estimates that there were
approximately 570 holders of record and over 53,369 beneficial owners of
Infoseek California common stock. As of October 9, 1998, there were
approximately 280 holders of record of Starwave common stock.
To date, Infoseek California and Infoseek Delaware have not declared or paid
dividends on their respective common stock. The Board of Directors of Infoseek
presently intends to retain all earnings for use in Infoseek's business and
therefore does not anticipate declaring or paying any cash dividends in the
foreseeable future. In addition, Infoseek's equipment term loan facility
restricts the payment of dividends when borrowings are outstanding. To date,
Starwave has not declared or paid dividends on its common stock. The Board of
Directors of Starwave presently intends to retain all earnings for use in
Starwave's business and therefore does not anticipate declaring or paying any
cash dividends in the foreseeable future.
The table below sets forth the high and low sales prices per share of
Infoseek California common stock on Nasdaq on June 17, 1998, the last full
trading date prior to the public announcement of the signing of the
Reorganization Agreement, and on October 9, 1998, the Record Date, together
with, in each case, the implied equivalent value of one share of Starwave
common stock on each such date assuming an Exchange Ratio of approximately
0.26.
<TABLE>
<CAPTION>
INFOSEEK APPROXIMATE
CALIFORNIA STARWAVE
COMMON STOCK EQUIVALENT(1)
--------------- -------------
HIGH LOW HIGH LOW
------- ------- ------ ------
<S> <C> <C> <C> <C>
June 17, 1998.................................. $35 1/8 $33 3/8 $9 1/8 $8 2/3
October 9, 1998................................ $20 1/8 $17 7/8 $5 1/5 $4 3/5
</TABLE>
- --------
(1) Based upon an Exchange Ratio of approximately 0.26, reflecting the
capitalization of Starwave as of October 9, 1998.
Because the number of shares of Infoseek to be issued to the holders of
Starwave common stock and in respect of outstanding options to acquire common
stock is fixed at 28,138,000, changes in the market price of Infoseek
California common stock will affect the dollar value of Infoseek Delaware
common stock to be received by shareholders of Starwave in the Starwave
Merger. Starwave shareholders are urged to obtain current market quotations
for Infoseek California common stock prior to the Starwave Shareholders
Meeting.
20
<PAGE>
RISK FACTORS
This Joint Proxy Statement/Prospectus contains forward-looking statements
that involve risks and uncertainties. Actual results could differ materially
from those projected in the forward-looking statements as a result of the risk
factors set forth below and elsewhere in this Joint Proxy
Statement/Prospectus. The following factors should be considered carefully in
evaluating whether to approve and adopt the Reorganization Agreement, and
approve the Mergers, the issuance of Infoseek Delaware common stock in
connection with the Starwave Merger and the issuance of Infoseek Delaware
common stock and the Warrant pursuant to the Securities Purchase Agreement at
the Infoseek Shareholders Meeting and the Starwave Shareholders Meeting. These
factors should be considered in conjunction with the other information
included or incorporated by reference in this Joint Proxy
Statement/Prospectus, including in conjunction with forward-looking statements
made herein. For periods prior to the Mergers, references to Infoseek shall be
deemed to refer to Infoseek California. For periods following the Mergers,
references to Infoseek should be considered to refer to Infoseek Delaware and
its subsidiaries, including Infoseek California and Starwave, unless the
context otherwise requires. As used in this section, unless the context
otherwise requires, "Starwave" refers to Starwave as well as that portion of
Starwave's business that is conducted through the Joint Ventures.
RISKS RELATED TO THE COMBINED COMPANIES, THE MERGERS AND RELATED TRANSACTIONS
Uncertainties Relating to Integration of Operations. Infoseek and Starwave
have entered into the Reorganization Agreement with the expectation that the
proposed Mergers will result in long-term strategic benefits. These
anticipated benefits will depend in part on whether the companies' respective
operations, including the Joint Ventures, can be integrated in an efficient
and effective manner and there can be no assurance that this will occur. The
combination of the companies will require, among other things, integration of
Infoseek's and Starwave's respective product and service offerings and
coordination of the companies' sales, marketing and research and development
efforts. There can be no assurance that the combined companies will be able to
take full advantage of the combined sales force's efforts. The different
geographic locations of the principal operations of each of Infoseek
California, Starwave and the Joint Ventures will also render such integration
more difficult. Further, the combined companies will have a substantially
expanded employee base which will require substantial dedication of management
and other resources. At June 30, 1998, Infoseek employed approximately 280
persons and Starwave employed approximately 330 persons, including employees
of Starwave related to the Joint Ventures. In addition, given the expanded
operations of the combined companies, the combined companies' business will be
increasingly influenced by its ability to retain and recruit qualified
management, engineering, and sales and marketing personnel. The failure to
effectively recruit and retain sufficient and qualified personnel for the
combined companies' operations would have a material adverse effect on the
business, results of operations, financial condition and prospects of the
combined companies. There is no assurance that the foregoing will be
accomplished smoothly or successfully. The integration of operations following
the Mergers will require the dedication of management resources, which may
distract attention from the day-to-day operations of the combined companies.
The inability of management to successfully integrate the operations of the
companies could have a material adverse effect upon the business, operating
results and financial condition of the combined companies.
Risks Related to Development, Launch and Acceptance of Planned New Portal
Service. Infoseek believes that development, launch and promotion of the New
Portal Service combining certain of the content, promotion, brands and
technologies of Infoseek, Starwave, ABCNews.com, ESPN SportsZone.com and
Disney, among other things, is a critical aspect of the combined companies'
efforts to attract and expand their Internet audience and to differentiate the
combined companies from their competitors and that the importance of this
strategy will increase due to the growing number of Internet sites and the
relatively low barriers to entry in providing Internet content. While Infoseek
currently plans to launch the New Portal Service by the end of calendar year
1998, there can be no assurance that the service can be successfully developed
and launched in such time frame and the New Portal Service, as initially
launched, may not have all of the functionality and services currently planned
for such service. The foregoing estimate of the timing of the launch of the
planned New Portal Service is a forward-looking statement that is subject to
risks and uncertainties. Actual results may vary materially as a result of a
21
<PAGE>
number of factors, including but not limited to those set forth below in this
paragraph, and under "--Uncertainties Related to Integration of Operations"
and "--Dependence on Joint Ventures and Third Party Relationships." If
consumers do not perceive the New Portal Service content and experience to be
of high quality, or if the combined companies introduce new Internet sites or
enter into new business ventures that are not favorably received by consumers,
the combined companies will be unsuccessful in expanding their Internet
audience. There can be no assurance that Infoseek and Starwave will be able to
successfully develop and launch the planned New Portal Service on a timely
basis, or at all, and the combined companies are dependent, in part, upon
Disney and the Joint Ventures for successful development and launch of the New
Portal Service. In addition, the New Portal Service will be promoted, in part,
by Disney and the quality and medium of such promotion will be in large part
at Disney's discretion. In this connection, Infoseek has agreed to purchase
$165 million of promotional services over a five year period from ABC for the
New Portal Service and there can be no assurance that Infoseek will be able to
offset the costs of these promotional activities through increased cash flows
from operations. Furthermore, in order to attract users to the planned New
Portal Service, and to promote and maintain awareness of the Go Network brand
in response to competitive pressures, the combined companies will be required
to increase their budget for Internet content and promotion and to increase
substantially their financial commitment to creating and maintaining a
distinct brand loyalty among consumers. If the combined companies are unable
to successfully develop, launch and promote the planned New Portal Service in
a timely manner, or if the combined companies incur excessive expenses in this
connection or in an attempt to improve the New Portal Service or promote and
maintain their brands, the combined companies' businesses, financial condition
and operating results will be materially adversely affected. The Go Network
name is a trademark of Disney that is the subject of a license agreement
between Disney and Infoseek, and Infoseek is dependent upon Disney to enforce
the intellectual property in such trademark against third parties and there
can be no assurance that Disney will take adequate steps to enforce such
intellectual property rights or that, if it takes such steps, it will prevail
in such enforcement. See "--Risks Related to Infoseek's Business--Intellectual
Property and Proprietary Rights." In addition, although under the
Reorganization Agreement Disney has agreed for a period of fifteen years
following the effective time of the Mergers or the earlier termination of the
License Agreement not to compete with Infoseek in the United States with
respect to a broadbased Internet portal service for narrowband delivery and
Disney and the ESPN Partner and ABCNews Partner (and their respective
affiliates) pursuant to the Joint Ventures have agreed not to develop or
commercialize narrowband sports- or general news-related products or services
in the United States or Canada, none of the licensing or commercial agreements
legally prohibits Disney from entering into strategic transactions with any of
Infoseek's competitors or from providing Disney content to Infoseek's
competitors, and Disney currently provides certain of its content, subject to
the restrictions noted above, to competitors of Infoseek and maintains a
number of web sites not expected to be linked to the New Portal Service. There
can be no assurance that Disney will not enter into any such agreements which,
if competitive to the planned New Portal Service, could have a material
adverse effect upon the success of the New Portal Service. See "Description of
Related Agreements--Licensing and Commercial Agreements."
Effect of Mergers and Planned Launch of New Portal Service on Service Users
and Customers. There can be no assurance that the present and potential
customers of Starwave and Infoseek will continue their current usage and
buying patterns without regard to the proposed Mergers and related
transactions between Infoseek and Disney. For example, there can be no
assurance that large media companies and certain other competitors of Disney
will elect to advertise or provide content to Infoseek's present Internet
service (the "Infoseek Service") or the New Portal Service. Any significant
delay or reduction in sales or orders could have an adverse effect on the
near-term business and results of operations of the combined companies. In
addition, there can be no assurance that the launch and promotion of the
planned New Portal Service will not result in potential confusion or a decline
in loyalty among users or customers of the Infoseek Service or the websites of
Starwave or the Joint Ventures.
Potential Ownership Control By Disney. Upon completion of the proposed
Mergers and related transactions by and between Infoseek and Disney, Disney
will own approximately 43% of the outstanding shares of Infoseek common stock
and warrants (generally vesting over a three-year period) to increase its
ownership to 50.1% with rights to maintain such percentage ownership as well
as its warrant ownership through purchases
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from Infoseek in the event of dilutive issuances. However, during a standstill
period of three years under the Governance Agreement (subject to early
termination under certain circumstances), Disney may not increase its
percentage ownership to more than 49.9%. As a result of its current and future
ownership stake, Disney may be able to exercise effective control over many
matters requiring stockholder approval, and has supermajority Board approval
rights for certain Infoseek transactions, including charter or bylaw
amendments, change of control transactions, sales of 15% or more of Infoseek's
assets, issuances of securities representing 15% or more of Infoseek's
outstanding shares or for consideration of $200 million or more, the
incurrence of indebtedness or cash expenditures of $200 million or more, or
any appointment of a new Chief Executive Officer. The Governance Agreement
also provides that so long as Disney maintains an ownership interest in
Infoseek of 25% or more, Disney will be entitled to have its nominees for
director submitted to a vote of stockholders of Infoseek in a number
(initially three of an expanded eight Board seats) sufficient to require the
approval of the Disney nominees for those transactions requiring supermajority
Board approval. Further, since the standstill provisions of the Governance
Agreement terminate on certain occurrences, including a third party tender
offer or a tender offer by Disney for all Infoseek shares, such termination
would permit Disney to acquire greater than 49.9% voting power prior to the
expiration of the three-year period. These provisions, as well as the terms of
Disney's license of certain intellectual property underlying the New Portal
Service that trigger termination of such license in the event a third party
acquires 25% or more of Infoseek's outstanding voting stock, may prevent or
discourage tender offers for Infoseek's common stock or changes in the control
of Infoseek unless the terms are approved by Disney, and thus may preclude any
person other than Disney from acquiring all or substantially all of the
outstanding shares of Infoseek common stock that Disney does not own following
completion of the Mergers and related transactions. See "Description of
Related Agreements--Equity and Governance Agreements" and "--Licensing and
Commercial Agreements."
Amortization of Goodwill and Increased Operating Expenditures Will Delay
Profitability of Combined Companies. Because the acquisition of Starwave will
be accounted for under the "purchase" method of accounting, the purchase price
will be allocated to the acquired assets and liabilities of Starwave. An in-
process research and development charge, preliminarily estimated to be
approximately $74.4 million, will be recorded in the quarter the Starwave
Merger is consummated. In addition, intangible assets related to developed
technology and assembled workforce are preliminarily estimated at
approximately $49.4 million and will be amortized over two years. Intangible
assets related to goodwill, Joint Ventures and other intangibles were
preliminarily estimated to be approximately $645.8 and $179.5 million,
respectively, which will be amortized over ten years. In addition, the
combined companies expect to incur increased operating expenditures associated
with the expanded operations of the combined companies' business and the
development, launch and promotion of the planned New Portal Service. As a
result, the combined companies' profitability is expected to be delayed beyond
the time frame in which Infoseek California or Starwave, as independent
entities, may have otherwise achieved profitability. Management currently
estimates that the combined companies would not achieve profitability until at
least 2002 and, excluding the amortization of goodwill and other intangibles
associated with the Starwave Merger, until at least 2000. The foregoing
estimates of the time period in which the combined companies would not achieve
profitability are forward-looking-statements that are subject to risks and
uncertainties. Actual results may vary materially as a result of a number of
factors, including but not limited to those set forth under "--Uncertainties
Relating to Integration of Operations," "--Risks Related to Development,
Launch and Acceptance of Planned New Portal Service," "--Dependence on Joint
Ventures and Third Party Relationships," and "--Risks of Acquisition
Strategy." See "Unaudited Pro Forma Combined Condensed Financial Statements."
Future Capital Needs; Uncertainty of Additional Financing. Infoseek
currently anticipates that its cash, cash equivalents, short-term investments,
available funds under its equipment term loan facility, approximately $70
million of cash proceeds and the Note in principal amount of $139 million from
the sale of Infoseek Delaware common stock and the Warrant to Disney in
connection with the Mergers, and cash flows generated from advertising
revenues, will be sufficient to meet its anticipated needs for working capital
and other cash requirements, assuming completion of the proposed Mergers,
through at least September 30, 1999. Thereafter, Infoseek may need to raise
additional funds. Infoseek may need to raise additional funds sooner, however,
in order to fund more rapid expansion, to develop new or enhance existing
services or products, to respond to competitive pressures or to acquire
complementary products, businesses or technologies. If additional funds are
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raised through the issuance of equity or convertible debt securities, the
percentage ownership of the shareholders of Infoseek will be reduced,
shareholders may experience additional dilution and such securities may have
rights, preferences or privileges senior to those of the holders of Infoseek's
common stock. There can be no assurance that additional financing will be
available on terms favorable to Infoseek, or at all. If adequate funds are not
available or are not available on acceptable terms, Infoseek's ability to fund
its expansion, take advantage of acquisition opportunities, develop or enhance
services or products or respond to competitive pressures would be
significantly limited. Such limitation could have a material adverse effect on
Infoseek's business, results of operations, financial condition and prospects.
See "Infoseek Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources."
Risk of Future Dilution Related to Disney's Right to Maintain its Ownership
Position. The issuance and sale of additional shares of Infoseek common stock
following the Mergers to Disney pursuant to Disney's contractual right to
maintain its percentage ownership of Infoseek common stock and, under certain
circumstances, to obtain additional warrants may have dilutive effects on
Infoseek's earnings per share and will result in share ownership dilution to
Infoseek stockholders. The shares acquired by Disney pursuant to its right to
maintain must be purchased by Disney at a price equal to the price paid in the
transaction giving rise to such right to maintain. See "Description of Related
Agreements--Equity and Governance Agreements."
Dependence on Joint Ventures and Third Party Relationships. The success of
the combined companies will be significantly influenced by the continuation
and integration of Starwave's joint ventures and third party relationships,
especially the ESPN Joint Venture and the ABCNews Joint Venture. The vast
majority of Starwave's economic value is derived from its ESPN SportsZone web
site, which is produced under its joint venture with the ESPN Partner, and its
ABCNews.com web site, which is produced under its joint venture with the ABC
Partner. On a pro forma basis for the twelve months ended December 31, 1997
and the six months ended June 30, 1998 (assuming that the Representation
Agreements had been in place during such periods), revenues of these Joint
Ventures would have represented 29% of the total corresponding period revenues
of the combined companies. The combined companies' future success will depend
to a large extent on their ability to maintain their relationships with
existing co-branding partners such as ESPN and ABC, and to establish
relationships with new partners for the development of co-branded Internet web
sites. A failure to maintain its relationships with existing co-branding
partners, or to develop new relationships, would significantly curtail the
combined companies' ability to maintain or create interactive services and
products that are attractive to users and advertisers, and could have a
material adverse effect on the combined companies' business, results of
operations and financial condition.
Risk of Inability to Achieve Revenue Minimums Under Representation
Agreements. Under the ESPN Representation Agreement and the ABC News
Representation Agreement, Starwave has agreed to act as the representative of
the ESPN Joint Venture and the ABCNews Joint Venture in the sale of
advertising and related services for such Joint Ventures. Pursuant to these
agreements, Starwave has agreed to make quarterly payments to the Joint
Ventures equal to the greater of (i) a guaranteed minimum amount or (ii)
revenues actually billed to third parties (whether or not collected) in the
performance of such services, in each case less Starwave's costs of providing
the services and a profit margin. There can be no assurance that Starwave will
be able to sell the guaranteed minimum amount in any quarterly period or be
able to collect the receivables resulting from such revenue related
activities, which could have a material adverse effect on the combined
companies' business, results of operations and financial condition. See
"Description of Related Agreements--Licensing and Commercial Agreements."
Exchange Ratio Does Not Adjust For Variations in Trading Price of Infoseek
California Common Stock. Under the terms of the Reorganization Agreement, the
shares of Starwave common stock issued and outstanding, as well as those
subject to outstanding options, warrants or other rights to purchase Starwave
common stock at the effective time will be converted into the right to receive
an aggregate of 28,138,000 shares of Infoseek common stock pursuant to the
Exchange Ratio. Thus, the Exchange Ratio does not adjust for fluctuations in
the price of Infoseek common stock on Nasdaq. Accordingly, the value of the
consideration to be received by shareholders of Starwave upon consummation of
the Starwave Merger will depend on the trading
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price of the Infoseek common stock on Nasdaq at and following the Effective
Time, which trading price is subject to substantial volatility. In addition,
Infoseek is the only entity that has obtained an opinion of a financial
advisor as to the fairness of the Mergers and the transactions contemplated by
the Securities Purchase Agreement, the Governance Agreement and the License
Agreement, and such opinion speaks only to the fairness, from a financial
point of view, to Infoseek and the shareholders of Infoseek. See "--Risks
Related to Infoseek's Business--Volatility of Stock Price" and "Market Price
Information."
Costs of Integration; Transaction Expenses. Infoseek estimates that it will
incur costs of $22.0 million associated with the Mergers, which will be
accounted for as part of the purchase price of the transactions. The $22.0
million includes approximately $5.0 million for liabilities related to
involuntary employee termination benefits (relocations) of Starwave employees
and $5.0 million for costs to exit other Starwave activities, primarily
operating leases of Starwave. The combined companies expect to incur
additional integration costs of up to $5.0 million. These costs will affect
future operations and do not qualify as liabilities in connection with a
purchase business combination under EITF 95-3, "Recognition of Liabilities in
Connection with a Purchase Business Combination." There can be no assurance
that the combined companies will not incur additional material charges in
subsequent quarters to reflect additional costs associated with the Starwave
Merger.
Dependence on Continued Growth in Use of the Internet. Future growth in the
combined companies' revenues will depend on the widespread acceptance and use
of the Internet and other interactive online platforms as a source of
information and entertainment and as a vehicle for commerce in goods and
services. Rapid growth in the use of and interest in the Internet is a recent
phenomenon, and there can be no assurance that acceptance and use of the
Internet will continue to develop or that a sufficient base of users will
emerge to support the combined companies' businesses. Moreover, critical
issues concerning the commercial use of the Internet (including security,
reliability, cost, ease of use and access, quality of service and acceptance
of advertising) remain unresolved and may negatively affect the growth of
Internet use or the attractiveness of the Internet for advertising and online
transactions. The Internet may not be accepted as a viable commercial medium
for a number of reasons, including potentially inadequate development of the
necessary network infrastructure, failure to develop or untimely development
of critical enabling technologies, or inadequate commercial support for
Internet-based advertising. To the extent that the Internet continues to
experience an increase in users, an increase in frequency of use or an
increase in the bandwidth requirements of users, there can be no assurance
that the Internet infrastructure will be able to support the demands placed
upon it. The widespread deployment of cable modems and other higher bandwidth
enabling technologies has to date experienced delays, and continuing delays in
the development and deployment of such technologies could slow the growth in
the use of the Internet. In addition, the Internet could lose its viability as
a commercial medium due to delays in the development or adoption of new
standards and protocols required to handle increased levels of Internet
activity, or as the result of increased government regulation. Changes in or
insufficient availability of telecommunications services to support the
Internet also could result in slower response times and could adversely affect
use of the Internet generally and of the combined companies' Internet services
in particular. In addition, corporations and other networks providing access
to the Internet may restrict access to certain sites or hours of usage, which
could limit access to and reduce traffic on the combined companies' services.
If use of the Internet does not continue to grow or grows more slowly than
expected, the Internet infrastructure does not effectively support growth that
may occur, or access to the Internet or the combined companies' services is
otherwise restricted, the combined companies' business, financial condition
and operating results would be materially adversely affected.
Risks of Acquisition Strategy. The combined companies believe that it may be
necessary to enter into joint ventures or other strategic relationships in
addition to those contemplated by the proposed Starwave Merger and the Related
Agreements, or to make acquisitions of complementary products, technologies or
businesses in order to remain competitive. The failure of Infoseek to execute
such a strategy may lead to decreased market share, viewer traffic or brand
loyalty, which may have a material adverse effect on Infoseek's business,
results of operations, financial condition and prospects. Pursuant to this
strategy, on July 24, 1998, Infoseek agreed to acquire Quando, an Internet
company with electronic commerce capabilities, to complement Infoseek's
existing technologies. Infoseek expects to account for the Quando acquisition
as a purchase transaction and expects to incur write-offs related to in-
process research and development of approximately $9.4 million in the quarter
ending December 31, 1998 in connection with the Quando acquisition. In
addition, intangible assets related to
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goodwill, developed technology and assembled workforce are preliminarily
estimated at approximately $12.6 million and will be amortized over two years.
In addition, acquisition transactions are accompanied by a number of risks,
including, among other things, the difficulty of integrating the operations
and personnel of the acquired companies, the potential disruption of the
combined companies' ongoing businesses, the inability of management to
maximize the financial and strategic position of the combined companies
through the successful incorporation of acquired technology or content and
rights into the combined companies' products and media properties, expenses
associated with the transactions, additional expenses associated with
amortization of acquired intangible assets, the maintenance of uniform
standards, controls, procedures and policies, the impairment of relationships
with employees and customers as a result of any integration of new management
personnel, and the potential unknown liabilities associated with acquired
businesses. There can be no assurance that the combined companies would be
successful in overcoming these risks or any other problems encountered in
connection with such acquisitions. In addition, no assurance can be given that
any other acquisitions will or will not occur, that if an acquisition does
occur it will not materially and adversely affect the combined companies or
that any such acquisition will be successful in enhancing the combined
companies' businesses. If the combined companies proceed with additional
significant acquisitions in which the consideration consists of cash, a
substantial portion of the combined companies' available cash could be used to
consummate the acquisitions. If the combined companies were to consummate one
or more acquisitions in which the consideration consisted of stock,
stockholders of Infoseek could suffer dilution of their interests in Infoseek.
In addition, following the Mergers and related transactions with Disney,
Infoseek may not (and, if Disney elects to obtain control when eligible to do
so, will not) be able to account for subsequent acquisitions as pooling- of-
interests and, as a result, may have to recognize significant goodwill related
to the acquisition of intangibles, the amortization of which would adversely
affect Infoseek's subsequent results of operations, and may incur charges for
acquired in-process technology in the period in which the acquisition occurs
that would adversely affect Infoseek's results of operations in such period.
Internet Security and Electronic Commerce Risks. Concerns over the security
of online transactions and the privacy of users may inhibit the growth of the
Internet generally, particularly as a means of conducting commercial
transactions. A party who is able to circumvent either of the combined
companies' security measures could misappropriate confidential or proprietary
information or cause interruptions in the combined companies' online
operations. The combined companies expect to expend significant capital and
resources to protect against the threat of such security breaches or to
alleviate problems caused by such breaches, but there can be no assurance that
the combined companies' efforts in this regard will be successful. To the
extent that activities of the combined companies or third party contractors
involve the storage and transmission of confidential or proprietary
information, such as computer software or credit card numbers, security
breaches could expose the combined companies to a risk of loss or litigation
and possible liability. There can be no assurance that contractual provisions
attempting to limit the combined companies' liability in such areas will be
successful or enforceable, or that other parties will accept such contractual
provisions as part of the combined companies' agreements. Neither Infoseek nor
Starwave currently maintains insurance against the foregoing risks (other than
standard business interruption and crime insurance, to the extent applicable).
To the extent that the combined companies derive a material portion of revenue
from electronic commerce in the future, the combined companies will evaluate
obtaining additional insurance for these risks. To the extent the combined
companies do not or are unable to obtain adequate insurance at such time,
security breaches into the combined companies' systems, if substantial or
repeated, could have a material adverse effect on the combined companies'
business, results of operations and financial condition.
Developing Market; Unproven Acceptance of Internet Advertising and of the
Combined Companies' Products and Services. The combined companies' future
success is highly dependent upon the increased use of the Internet and
intranets for information publication, distribution and commerce. The market
for the combined companies' products and services has only recently begun to
develop, is rapidly evolving and is characterized by an increasing number of
market entrants with products and services for use on the Internet and
intranets. Most of Infoseek's and Starwave's advertising customers have only
limited experience with the Internet as an advertising medium, have not yet
devoted a significant portion of their advertising expenditures to Internet-
based advertising,
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and may not find such advertising to be effective for promoting their products
and services relative to traditional print and broadcast media. No standards
have been widely accepted for the measurement of the effectiveness of Internet
based advertising, and there can be no assurance that such standards will
develop sufficiently to support the Internet as a significant advertising
medium. The Internet industry is young and has few proven products and
services. In particular, because the combined companies expect to derive
substantially all of their revenues in the foreseeable future from sales of
Internet advertising, the future success of the combined companies is highly
dependent on the development of the Internet as an advertising medium. If the
market fails to continue to develop, develops more slowly than expected or
becomes saturated with competitors, or if the combined companies' products and
services do not achieve or sustain acceptance by Internet users or
advertisers, the combined companies' business, results of operations,
financial condition and prospects would be materially adversely affected. The
combined companies believe that advertising sales in traditional media, such
as television, are generally lower in the first and third calendar quarters of
each year as compared with the respective preceding quarters and that
advertising expenditures fluctuate significantly with economic cycles.
Depending on the extent to which the Internet is accepted as an advertising
medium, seasonality and cyclicality in the level of advertising expenditures
generally could become more pronounced for this medium. Seasonality and
cyclicality in advertising expenditures generally, or with respect to
Internet-based advertising specifically, could have a material adverse effect
on the combined companies' business, financial condition and operating
results.
Government Regulation and Legal Uncertainties. Infoseek and Starwave are not
currently subject to direct regulation by any government agency, other than
regulations generally applicable to businesses, and there are currently few
laws or regulations directly applicable to access to or commerce on the
Internet. A number of legislative and regulatory proposals are under
consideration by federal, state and foreign governmental organizations, and it
is possible that a number of laws or regulations may be adopted with respect
to the Internet covering issues such as user privacy, pricing and
characteristics and quality of products and services. The adoption of any such
laws or regulations may decrease the growth of the Internet, which could in
turn decrease the demand for the combined companies' products, increase the
combined companies' cost of doing business, or otherwise have an adverse
effect on the combined companies' business, results of operations, financial
condition and prospects. Moreover, the applicability to the Internet of
existing laws governing issues such as property ownership, copyright, trade
secret, libel and personal privacy is uncertain and developing. Any such new
legislation or regulation, or application or interpretation of existing laws,
could have a material adverse effect on the combined companies' business,
results of operations, financial condition and prospects.
Because materials may be downloaded by the online or Internet services
operated or facilitated by the combined companies and may be subsequently
distributed to others, there is a potential that claims will be made against
the combined companies for defamation, negligence, copyright or trademark
infringement, personal injury or other theories based on the nature, content,
publication and distribution of such materials. Such claims have been brought,
and sometimes successfully pursued, against online service providers in the
past. In addition, Infoseek or Starwave could be exposed to liability with
respect to the selection of listings that may be accessible through content
and materials that may appear in chat room, instant messaging, hosted web
pages or other services offered by Infoseek or Starwave. Such claims might
include, among others, that by hosting or providing hypertext links to web
sites operated by third parties, Infoseek or Starwave is liable for copyright
or trademark infringement or other wrongful actions by such third parties
through such web sites. It is also possible that if any information provided
through the combined companies' services, such as stock quotes, analyst
estimates or other trading information, contains errors, third parties could
make claims against the combined companies for losses incurred in reliance on
such information. The combined companies expect to offer web-based e-mail
services in the near future, which may expose the combined companies to
potential risks, such as liabilities or claims resulting from unsolicited e-
mail (spamming), lost or misdirected messages, illegal or fraudulent use of e-
mail, harassment or interruptions or delays in e-mail service.
From time to time, the combined companies will enter into agreements with
sponsors, content providers, service providers and merchants under which the
combined companies are entitled to receive a share of revenue from the
purchase of goods and services by users of the combined companies' online
properties. Such
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arrangements may expose the combined companies to additional legal risks and
uncertainties, including (without limitation) potential liabilities to
consumers of such products and services. Although Infoseek and Starwave carry
general liability insurance, such insurance may not cover potential claims of
this type or may not be adequate to indemnify the combined companies for all
liability that may be imposed.
Year 2000 Compliance. Infoseek and Starwave are aware of the issues
associated with the programming code in existing computer systems as the year
2000 approaches. The "year 2000 problem" is pervasive and complex as virtually
every computer operation will be affected in some way by the rollover of the
two-digit year value to 00. The issue is whether computer systems will
properly recognize date sensitive information when the year changes to 2000.
Systems that do not properly recognize such information could generate
erroneous data or cause a system to fail.
Infoseek management has conducted a review of Infoseek's exposure to the
year 2000 problem, including working with computer systems and software
vendors to assure that they are prepared for the year 2000. Based on this
review and discussions with such vendors, Infoseek currently believes that its
internal systems are year 2000 compliant (with the exception of a single
system, which is scheduled to be replaced as part of a regular upgrade program
and is not material to Infoseek's operations). Infoseek does not expect to
further incur any significant operating expenses or invest in additional
computer systems to resolve issues relating to the year 2000 problem, with
respect to both its information technology and product and service functions.
Starwave Management is conducting a review of Starwave's exposure to the
year 2000 problem, including working with computer system, data feed and
software vendors to assure that they are prepared for the year 2000. Based on
this review and discussions with such vendors, Starwave currently believes
that its internally developed systems are year 2000 compliant (with the
exception of two systems, which are scheduled to be replaced as part of a
regular upgrade program). Starwave does not expect to further incur any
significant operating expenses or significant investment in additional
computer systems to resolve issues relating to the year 2000 problem, with
respect to both its information technology and product and service functions.
Starwave has also inventoried, and is in the process of contacting, third
party software and data feed vendors to assure their systems are year 2000
compliant.
Notwithstanding the foregoing, significant uncertainty exists concerning the
effects of the year 2000 problem, including uncertainty with respect to
assurances made by Infoseek's and Starwave's vendors. Further, neither
Infoseek nor Starwave has investigated year 2000 compliance of third parties
who are not vendors of Infoseek or Starwave, respectively, and neither
Infoseek nor Starwave has control over such third parties' compliance. For
example, the failure of any site to which a link appears on the Infoseek
Service or a Starwave website could result in the loss of such link and
therefore reduce the breadth of services offered through links from the
Infoseek Service or the Starwave website, respectively, which may in turn
materially adversely affect the Infoseek Service or the Starwave website and
the value of user traffic and advertisers using such service or website. Any
failure of Infoseek, Starwave or their respective viewers, customers, linked
sites, advertisers or other third parties to be year 2000 compliant could
materially affect the business, results of operations, financial conditions
and prospects of Infoseek and/or Starwave.
RISKS RELATED TO STARWAVE'S BUSINESS
In evaluating Starwave's business, Infoseek and Starwave shareholders should
carefully consider the following risk factors in addition to those set forth
above under "Risks Related to the Combined Companies, the Mergers and Related
Transactions" and the other information set forth herein or incorporated
herein by reference.
Limited Operating History; Accumulated Deficit; Anticipated Losses. Starwave
was founded in December 1991 and first recognized revenues from Internet
products and services in the second quarter of 1995. Accordingly, Starwave has
an extremely limited operating history upon which an evaluation of Starwave
and its prospects can be based. Starwave's future success will depend on its
ability to increase revenues from its Internet
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businesses, which cannot be assured. Starwave's prospects must be considered
in light of the risks, expenses and difficulties frequently encountered in the
new and rapidly evolving market for Internet products, content and services.
To address these risks, Starwave must, among other things, effectively develop
and enhance its technology and respond to competitive developments. There can
be no assurance that Starwave will succeed in addressing such risks, and the
failure to do so could have a material adverse effect on Starwave's business,
financial condition and operating results. There can also be no assurance that
Starwave's revenues will increase or even continue at their current level or
that Starwave will achieve or maintain profitability or generate cash from
operations in future periods.
Since inception, Starwave has incurred significant losses and, as of June
28, 1998, had an accumulated deficit of $109.9 million. For the nine months
ended September 28, 1997 and the nine month period ending June 28, 1998,
Starwave recorded net operating losses of $17.6 million and $9.6 million,
respectively. It is anticipated that Starwave's cash requirements will
continue to be funded by Disney through the consummation of the Mergers and
thereafter will be funded by Infoseek. See "Starwave Management's Discussion
and Analysis of Financial Condition and Results of Operations."
Unpredictability of Future Revenues; Potential Fluctuations in Operating
Results. As a result of Starwave's limited operating history and the emerging
nature of the markets in which it competes, Starwave is unable to accurately
forecast its revenues. Further, Starwave currently provides web site hosting
and other services, primarily to Disney and the Joint Ventures, the revenues
from which comprised 97% of Starwave's revenues for the nine months ended June
28, 1998. These services are provided under short-term contracts and there can
be no assurance that such contracts will be renewed. Starwave's current and
future expense levels, which are based largely on Starwave's expectations as
to future revenues, are to a large extent fixed. Starwave may be unable to
adjust spending in a timely manner to compensate for any unexpected revenue
shortfall, and a shortfall in actual revenues as compared to anticipated
revenues would have an immediate material adverse effect on Starwave's
business, financial condition and operating results.
Starwave's operating results may fluctuate significantly in the future as a
result of a variety of factors, many of which are outside Starwave's control.
Factors that may adversely affect Starwave's quarterly operating results
include the continued rate of growth, usage and acceptance of the Internet by
users; the rate of acceptance of the Internet as an advertising medium; demand
for Starwave's products and services; the introduction and acceptance of new
or enhanced products or services by Starwave or by its competitors; Starwave's
ability to anticipate and effectively adapt to a developing market and to
rapidly changing technologies; Starwave's ability to effectively expand its
operations and manage such expansion; initiation, renewal terms or expiration
of significant contracts such as those that Starwave currently has with ABC
News, ESPN, the National Basketball Association (NBA) NASCAR, and the National
Football League (NFL); demand for Internet advertising; the seasonality
inherent in the content of certain of Starwave's sports services, such as
NFL.com and NBA.com, seasonal trends in both Internet use and advertising
placements; the addition or loss of advertising from specific advertisers;
advertising budgeting cycles of individual advertisers with respect to both
traditional media and digital media; the amount and timing of capital
expenditures and other costs relating to the expansion of Starwave's
operations; price competition or pricing changes in the industry; technical
difficulties or system downtime; guild problems, strikes or other work
disruptions involving the content of Starwave's services or Starwave's
creative personnel; general economic conditions and economic conditions
specific to the Internet and digital media. In addition, operating results may
be materially impacted by fluctuations in the number of consumers of the
products and services offered by Starwave's co-branding partners, such as any
material increase or decrease in the number of viewers of ESPN, or any
interruption of the schedule of games offered by the NFL or the NBA. Also,
Starwave may elect from time to time to make certain pricing, service or
marketing decisions, or acquisitions that could have a short-term material
adverse effect on Starwave's business, results of operations and financial
condition and may not generate the long-term benefits intended.
Risks of New Business Areas. The success of Starwave's business strategy
will depend to a significant extent on Starwave's ability to expand its
operations by enhancing its existing services and creating new sources of
revenue, including from subscription services and online transactions. There
can be no assurance that any of
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Starwave's new services will be developed in a cost effective or timely manner
or will achieve market acceptance or that the markets that do develop will be
sufficient to support profitable operations of Starwave. There can be no
assurance that Starwave will be able in the future to identify new subject
areas with comparable broad customer appeal, that Starwave will introduce new
Internet services to address such subject areas, or that such new services, if
introduced, will be successful or profitable. Absent such new developments,
Starwave may be unable to expand and diversify its Internet services business,
and its ability to increase revenues and to attain profitability in the future
may be inhibited.
Reliance on Advertising Revenues. The Joint Ventures derived 65% and 61% of
their aggregate revenues during the six months ended September 28, 1997 and
the nine months ended June 28, 1998, respectively, from the sale of
advertisements, and Starwave expects such dependence on advertising revenue to
continue for the foreseeable future. The Joint Ventures' current business
model, which is in large part dependent upon the generation of revenues
through the sale of advertising on the Internet and other digital media, is
unproven. The ability to generate significant advertising revenues in the
future will depend, among other things, on advertisers' acceptance of the
Internet as an attractive and sustainable medium, the development of a large
base of users of Starwave's products and services with demographic
characteristics attractive to advertisers, the successful expansion of
Starwave's advertising capabilities and advertising sales force, and strong
acceptance of Starwave's services by users. Advertising revenues to date have
been derived from a limited number of advertising customers, generally
pursuant to contracts with terms of three months or less. These contracts
generally guarantee a minimum of impressions (displays of the advertisement to
the user) per month. There can be no assurance that current advertisers will
continue to purchase advertising space and services from Starwave, that
sufficient impressions will be achieved or available, or that Starwave will be
able to successfully attract additional advertisers. In addition, advertisers
of consumer products, Starwave's target customers for advertising sales, have
not yet engaged in significant advertising on the Internet and may not do so
in the future. Moreover, there is intense competition among sellers of
advertising space on the Internet, as well as a variety of pricing models
offered by different vendors for a range of advertising services, and
therefore it is difficult to project future levels of advertising revenues or
to predict which pricing models will be adopted by the industry or individual
companies. Accordingly, there can be no assurance that Starwave will be
successful in generating significant future advertising revenues, and a
failure to do so will have a material adverse effect on Starwave's business,
results of operations and financial condition. See "Starwave Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Dependence upon Third Party Distributors. Starwave has entered into a number
of third party distribution and promotional relationships and cross-promotion
agreements to help generate traffic on Starwave's Internet sites and
consequently generate revenues. These relationships include arrangements by
which certain of its services could be reached through "one-click" access from
one of the leading "web browser" software programs as well as other
arrangements by which Starwave's services may be accessed through web
browsers, search engines, and hyperlinks from other web sites. Starwave
generally does not have agreements with Internet site operators that provide
links to Starwave's services, and such operators may terminate such links at
any time without notice to Starwave. In addition, there can be no assurance
that the products or services of those companies that provide access or links
to Starwave's products or services, such as search engines and other Internet
site operators, will achieve market acceptance or commercial success.
Accordingly, the termination of any of the foregoing formal and informal
access arrangements may significantly reduce traffic on Starwave's Internet
sites, which would have a material adverse effect on Starwave's business,
results of operations and financial condition.
Technological Change; Dependence on Continued Technological Innovation. The
market for Internet products and services is characterized by technological
change, changing customer needs, frequent new product introductions and
evolving industry standards. These market characteristics are exacerbated by
the emerging nature of this market and the fact that many companies are
expected to introduce new Internet products and services in the near future.
Starwave's future success will depend in significant part on its ability to
continually and on a timely basis introduce new products, services and
technologies and to continue to improve the
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performance, features and reliability of Starwave's products and services in
response to both evolving demands of the marketplace and competitive product
offerings.
There can be no assurance that any new or proposed product or service will
attain market acceptance. Failure of Starwave to successfully design, develop,
test, market and introduce new and enhanced technologies and services, or the
failure of Starwave's recently introduced products and services to achieve
market acceptance could have a material adverse effect upon Starwave's
business, operating results and financial condition. There can be no assurance
that Starwave will not experience difficulties that could delay or prevent the
successful development, introduction or marketing of new or enhanced
technologies, products and services, or that Starwave's new or recently
introduced products and services will adequately meet the requirements of the
marketplace and achieve significant market acceptance. Due to certain market
characteristics, including technological change, changing customer needs,
frequent new product and service introductions and evolving industry
standards, timeliness of introduction of these new products and services is
critical. Delays in the introduction of new products and services may result
in customer dissatisfaction and may delay or cause a loss of advertising
revenue. There can be no assurance that Starwave will be successful in
developing new products or services or improving existing products and
services that respond to technological changes or evolving industry standards,
that Starwave will not experience difficulties that could delay or prevent the
successful development, introduction and marketing of new or improved products
and services, or that its new products and services will adequately meet the
requirements of the marketplace and achieve market acceptance. In addition,
new or enhanced products and services introduced by Starwave may contain
undetected errors that require significant design modifications. This could
result in a loss of customer confidence and user support, thus adversely
affecting the use of Starwave's products and services, which in turn would
have a material adverse effect upon Starwave's business, results of operations
or financial condition. If Starwave is unable to develop and introduce new or
improved products or services in a timely manner in response to changing
market conditions or customer requirements, Starwave's business, operating
results and financial condition will be materially adversely affected. In
addition, if Starwave is unable to remain competitive with its competitors,
its business, operating results and financial condition may be materially
adversely affected as well.
A key element of Starwave's strategy is to continue to develop proprietary
technological innovations that allow it to enhance the user's interactive
experience and strengthen relationships with advertisers. Starwave believes
such technological leadership is required for Starwave to maintain its
competitive advantages. There can be no assurance that Starwave will be able
to conceive, develop, or acquire such technological innovations successfully
or that Starwave's competitors will not successfully implement features on
their digital media properties that are superior to those of Starwave's
interactive programming. Moreover, the costs associated with developing new
technology can be significant. There can be no assurance that these costs will
not have a material adverse effect on Starwave's business, financial
condition, and operating results. See "Starwave Business--Technology."
Competition. Competition among content providers is intense and is expected
to increase significantly in the future. Starwave's products and services
compete against a variety of firms that provide content through one or more
media, such as print, broadcast, cable television, radio, online services and
the Internet. As with any other content provider, Starwave competes generally
with other content providers for the time and attention of consumers and for
advertising revenues. To compete successfully, Starwave must provide
sufficiently compelling and popular interactive content to attract Internet
users and to support advertising intended to reach such users. In the sports
sector, for example, Starwave through the Joint Ventures competes with all
traditional media, including newspapers and magazines such as Sports
Illustrated, USA Today, The New York Times and The Washington Post, and with
radio and television networks that offer news and sports-related programming,
such as ABC, NBC, CBS, CNN and Fox. Each of these competitors also offers one
or more Internet sites with content designed to complement its newspapers or
magazines or television programming. If the Internet becomes a more attractive
source of content for consumers, these print and broadcast competitors may
offer services that are qualitatively superior to, and thus more compelling
and popular than, those online services offered by Starwave. In addition,
Starwave's existing co-branding partners may choose (subject to any
limitations contained in their agreements with Starwave) to offer competing
online services and products. See "--Dependence Upon Third Party
Distributors."
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Starwave also competes for advertising dollars and the time and attention of
Internet users with other Internet and online content and service providers,
including Web directories, search engines, shareware archives, sites that
offer original editorial content, commercial online services and sites
maintained by service providers. These competitors include Netscape, Excite,
Yahoo!, Lycos, AOL, Microsoft, SNAP!, PointCast, CBS Sportsline, CNNsi, Fox
Sports Online, MSNBC, Yahoo! Sports, MSNBC, CNN Interactive, Fox News Online,
E! Online, Entertainment Weekly/PathFinder, Hollywood Online, CNN Interactive-
ShowBiz, Bloomberg, Microsoft Investor, Quicken Financial Network, Reuters,
Dow Jones and CNNfn. The market for Internet content and services is new,
intensely competitive and rapidly evolving. There are minimal barriers to
entry, and current and new competitors can launch new sites at relatively low
cost. In addition, Starwave competes for the time and attention of users with
thousands of commercial and non-profit Internet sites operated by individuals,
corporations, governments and educational institutions. Existing and potential
competitors also include magazine and newspaper publishers, cable television
companies and startup ventures attracted to the digital media market.
Accordingly, Starwave expects competition to persist and intensify and the
number of competitors to increase significantly in the future. As Starwave
expands the scope of its interactive programming and services, it will compete
directly with a greater number of Internet sites, other interactive media and
other media companies. Because the operations and strategic plans of existing
and future competitors are undergoing rapid change, it is extremely difficult
for Starwave to anticipate which companies are likely to offer competitive
services in the future. There can be no assurance that Starwave's products and
services will compete successfully.
Starwave believes that the principal competitive factors in attracting users
include the quality of presentation, the integration of content in an
interactive format and the relevance, timeliness, depth and breadth of
information and services offered by Starwave. Access to real time data and
video and audio highlights of live events may become increasingly important in
differentiating sites and attracting users. With respect to attracting
advertisers, Starwave believes that the principal competitive factors include
the number of users accessing Starwave's interactive programming, the
demographics of such users, Starwave's ability to deliver focused advertising
and interactivity through its services, and the overall cost-effectiveness and
value of advertising offered by Starwave. Given the intense competition among
content providers on the Internet and other media, there can be no assurance
that Starwave will be able to compete successfully with respect to any of
these factors. If Starwave loses one or more significant advertising customers
or is forced to reduce advertising rates in order to retain customers, its
business, financial condition and operating results will be materially
adversely affected.
Dependence on Key Personnel; Managing Potential Growth. Starwave's
performance is substantially dependent on its ability to attract, retain and
motivate its key employees. The production of interactive programming for the
Internet and other digital media requires highly skilled writers and editors
and personnel with sophisticated technical expertise, and the number of such
personnel available is extremely limited. Competition for such personnel among
companies with operations involving computer technology and the Internet is
intense, and there can be no assurance that Starwave will be able to retain
its existing employees or that it will be able to attract, assimilate or
retain sufficiently qualified personnel in the future. In particular, Starwave
has encountered difficulties in attracting qualified software developers for
its Internet sites and related technologies, and there can be no assurance
that Starwave will be able to attract and retain such developers. The
inability to attract and retain the necessary technical, managerial, editorial
and sales personnel could have a material adverse effect on Starwave's
business, financial condition or operating results.
Starwave has rapidly and significantly expanded its operations and
anticipates that significant expansion of its operations will continue to be
required in order to address potential market opportunities. This rapid growth
has placed, and is expected to continue to place, a significant strain on
Starwave's management, operational and financial resources. From December 31,
1993 to June 30, 1998, Starwave grew from approximately 60 to approximately
330 employees. The increase in the number of employees and Starwave's market
diversification and product development activities have resulted in increased
responsibilities for Starwave's management. In order to manage the expected
growth of its operations, Starwave will be required to implement and improve
its operational systems, procedures and controls, on a timely basis, and to
train, manage and expand its growing employee base. Further, Starwave's
management will be required to successfully maintain relationships with
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various co-branding partners, advertising customers, advertising agencies,
Internet sites and services, Internet service providers and other third
parties and to maintain control over the operations and strategic direction of
Starwave in a rapidly changing environment. There can be no assurance that
Starwave's current personnel, systems, procedures and controls will be
adequate to support Starwave's future operations, that management will be able
to identify, hire, train, motivate or manage required personnel, or that
management will be able to successfully identify and exploit existing and
potential market opportunities. If Starwave is unable to manage growth
effectively, Starwave's business, financial condition and operating results
will be materially adversely affected.
Capacity Constraints and System Disruptions. A key element of Starwave's
strategy is to generate a high volume of traffic to its products and services.
Accordingly, the performance of Starwave's products and services is critical
to the reputation of Starwave and its branded services, its ability to attract
advertisers to Starwave's services, and market acceptance of these products
and services. Any system failure that causes interruptions or that increases
response time of Starwave's services would result in less traffic to
Starwave's services and, if sustained or repeated, would reduce the
attractiveness of Starwave's products and services to advertisers and
customers. In addition, an increase in the number of users simultaneously
accessing Starwave's services could strain the capacity of the software,
hardware or telecommunications lines deployed by Starwave, which could lead to
slower response times or system failures. As the number of Internet sites and
users of interactive content increase, there can be no assurance that
Starwave's services and systems will be able to scale appropriately or
efficiently. Starwave is also dependent upon software companies and Internet
and online service providers that facilitate user access to its services, and
users have experienced and may in the future experience difficulties due to
third party system or software failures or incompatibilities not within
Starwave's control. Starwave is also dependent on third party hardware
suppliers for prompt delivery, installation and service of the servers and
other equipment and services used to provide its products and services. Any
disruption in the Internet access and service provided by Starwave or its
service providers could have a material adverse effect upon Starwave's
business, results of operations and financial condition.
The process of managing advertising within large, high traffic Internet
sites such as Starwave's is an increasingly important and complex task.
Starwave relies on internal advertising inventory management and analysis
systems to provide enhanced internal reporting and customer feedback on
advertising. To the extent that any extended failure of Starwave's advertising
management system results in incorrect advertising insertions, Starwave may be
exposed to "make good" obligations with its advertising customers, which, by
displacing advertising inventory, could have a material adverse effect on
Starwave's business, results of operations and financial condition.
In addition, Starwave's operation depends upon its ability to maintain and
protect its computer systems, which are currently located in Bellevue and
Seattle, Washington. These systems are vulnerable to damage from fire, floods,
earthquakes, wind storms, lightning, electrical and telecommunications
failures, break-ins and similar events. Although Starwave does maintain
insurance against fire, floods, wind storms and earthquakes, there can be no
assurance that the amount of coverage would be adequate in any particular
case. Starwave has developed fault-tolerant system capacity as well as
disaster recovery plans, but there can be no assurance that Starwave will have
implemented such capacity and plans at the time of a natural disaster or other
system or widespread telecommunications failure or that such capacity and
plans will prove adequate to the need. Despite the implementation of network
security measures by Starwave, its servers are also vulnerable to computer
viruses, break-ins and similar disruptive problems. Computer viruses, break-
ins or other problems caused by third parties could lead to interruptions,
delays in or cessation of service to users of Starwave's products and
services. The occurrence of any of these events, particularly if sustained in
duration or repeated, could have a material adverse effect on Starwave's
business, results of operations and financial condition.
Dependence on Intellectual Property Rights; Risks of Infringement. Starwave
relies on patent, trade secret and copyright laws to protect its proprietary
technologies, but there can be no assurance that such laws will provide
sufficient protection to Starwave, that others will not develop technologies
that are similar or superior to
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Starwave's or that third parties will not copy or otherwise obtain and use
Starwave's technologies without authorization. Starwave has filed patent
applications with respect to certain of its software products and innovative
online technologies, but there can be no assurance that patents will issue
with respect to such applications, that any issued patents will not be
challenged, invalidated or circumvented, or that the rights granted thereunder
will provide a competitive advantage for Starwave. Starwave's success and
ability to compete is also dependent in part on the protection of its original
interactive content and on the goodwill associated with its trademarks, trade
names, service marks and other proprietary rights. A substantial amount of
uncertainty exists concerning the application of copyright and trademark laws
to the Internet and other digital media, and there can be no assurance that
existing laws will provide adequate protection for Starwave's original content
or its Internet addresses (commonly referred to as "domain names"). After
giving effect to the Mergers, Starwave's proprietary technologies may receive
greater exposure in international markets. Effective patent, copyright,
trademark and trade secret protection may be unavailable or limited in certain
of such markets. Starwave has filed applications to register a number of its
trademarks and service marks, including the name "Starwave" and the related
"swirling" logo, but registrations have only been granted to date in selected
cases, and there can be no assurance that Starwave will be able to secure
additional or pending registrations. Starwave has also invested significant
resources in acquiring Internet domain names for existing and potential
Internet sites. There can be no assurance, however, that Starwave will be
entitled to use such names under applicable trademark and similar laws or that
other desired domain names will be available. Furthermore, policing
unauthorized use of Starwave's proprietary technology and other intellectual
property rights could entail significant expenses and could prove difficult or
impossible, particularly given the global nature of the Internet, the ease of
digital copying and the fact that the laws of other countries may afford
Starwave little or no effective protection of its intellectual property.
There can be no assurance that third parties will not bring claims of
copyright or trademark infringement against Starwave on the basis of non-news
use or otherwise. Starwave has from time to time received informal notices
from copyright and trademark holders regarding Starwave use of music and
images in Starwave's interactive programming. In addition, there can be no
assurance that third parties will not claim that Starwave's use of certain
technologies or methods violates a patent. The number of patents issued
covering interactive programming, Internet programming and techniques, and
electronic commerce is increasing, and there are already several patent
holders asserting claims that, if upheld, could substantially hinder evolution
or otherwise increase operating costs of the digital media marketplace and
particularly the ability to create viable destination services. Starwave
anticipates an increase in patent infringement claims involving interactive
programming and Internet-related technologies as the number of products and
competitors in this market grows and as related patents are issued,
particularly in the areas of real time or "streaming" audio and video, online
commerce and "digital cash," and other technologies that may be considered to
be critical to long-term success in this marketplace. Further, there can be no
assurance that third parties will not claim that Starwave has misappropriated
their creative ideas or formats or otherwise infringed upon their proprietary
rights in connection with its interactive programming and the content of its
services. Any claims of infringement, with or without merit, could be time
consuming to defend, result in costly litigation, divert management attention,
require Starwave to enter into costly royalty or licensing arrangements or
prevent Starwave from using important technologies or methods, any of which
could have a material adverse effect on Starwave's business, financial
condition or operating results.
RISKS RELATED TO INFOSEEK'S BUSINESS
In evaluating Infoseek's business, Starwave shareholders should carefully
consider the following risk factors in addition to those set forth under
"Risks Related to the Combined Companies, the Mergers and Related
Transactions" and the other information set forth herein or incorporated
herein by reference.
Limited Operating History; Historical Losses; Anticipation of Continued
Losses. Infoseek's limited operating history makes it difficult to manage
operations and predict future operating results. Infoseek has incurred
significant net losses since inception and expects to continue to incur
significant losses on a quarterly and annual basis in 1998 and may do so in
subsequent fiscal periods. As of June 30, 1998, Infoseek had an accumulated
deficit of $51,097,000. Infoseek and its prospects must be considered in light
of the risks, costs and
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difficulties frequently encountered by companies in their early stage of
development, particularly companies in the new and rapidly evolving Internet
market. There can be no assurance that Infoseek will be able to address any of
these challenges. Although Infoseek has experienced significant revenue growth
in 1997 and the first half of 1998, there can be no assurance that this growth
rate will be sustained or that revenues will continue to grow or that Infoseek
will achieve profitability. In 1997 and the first half of 1998, Infoseek
significantly increased its operating expenses as a result of a substantial
increase in its sales and marketing efforts, development of new distribution
channels, expansion of its customer support capabilities and to fund greater
levels of research and development. Further increases in operating expenses
are planned during fiscal 1998. To the extent that any such expenses are not
timely followed by increased revenues, Infoseek's business, results of
operations, financial condition and prospects would be materially adversely
affected.
Relationship with Netscape; Reliance on Third Party Sources of Traffic and
Advertising Sales. Infoseek relies in part on third party sources of traffic
to its web site, including Netscape and Microsoft, among others, pursuant to
contractual arrangements which generally have terms of one year or less. For
the year ended December 31, 1997 and the six months ended June 30, 1998,
approximately 46% and 31% of the aggregate page views on Infoseek's web site
were generated by traffic derived from third party sources. Since March 1995,
Infoseek has been a featured provider of navigational services on the Web page
of Netscape. In 1996 and 1997 and during the first half of 1998, approximately
65%, 33% and 18%, respectively, of all page views served on the Infoseek
Service came from traffic attributable to the Netscape web page. As of June 1,
1998, Infoseek entered into a one-year agreement with Netscape with terms that
provide for Infoseek to pay, based upon the level of impressions delivered, up
to an aggregate of $12,500,000 in cash to be one of the six non-exclusive
premier providers of navigational services (along with Excite, Netscape,
Lycos, Alta Vista, and LookSmart). Under terms of the agreement, which expires
May 31, 1999, Infoseek will receive 15% of premier provider rotations--the
pages served to visitors who have not selected a preferred provider. The
payments to Netscape are being recognized ratably over the term of the
agreement. Infoseek also has an agreement with Microsoft to become one of five
premier providers of search and navigational services on Microsoft's network
of Internet products and services. Under the agreement with Microsoft which
expires in September 1999, Infoseek is obligated to pay an aggregate of
$10,675,000 for a guaranteed minimum number of impressions on both Microsoft's
Internet Explorer search feature and Microsoft's website. Infoseek will also
pay, based on the number of impressions delivered, for additional impressions
on both Internet Explorer and Microsoft's website, up to a maximum of
$18,000,000. The accounting treatment for the Microsoft agreement is under
review by the Securities and Exchange Commission and will result in either
amortizing the $10,675,000 obligation over the one-year term of the agreement,
or expensing $7.0 million to $8.0 million in the quarter ended December 31,
1998, the quarter when the service is launched. At the end of the agreement
term, there can be no assurance that these or other similar agreements can or
will be renewed on terms satisfactory to Infoseek. If Infoseek is unable to
renew these or other similar agreements on favorable terms or is otherwise
unable to develop viable alternative distribution channels to Netscape or
Microsoft or is otherwise unable to offset a reduction in traffic from these
or other third party sources, advertising revenues would be adversely
affected, resulting in Infoseek's business, results of operations, financial
condition and prospects being materially and adversely affected. In addition,
Infoseek recently entered into an agreement with WebTV Networks, Inc.
("WebTV") pursuant to which Infoseek will be the exclusive provider of search
and directory services to WebTV. Under this two year agreement, Infoseek is
responsible for managing advertising sales for all of WebTV's search traffic
and the substantial majority of WebTV's current non-search traffic. Pursuant
to the agreement, Infoseek is obligated to make cash payments to WebTV
totalling $26 million, with $15 million of such amount being payable in
advance for the first five quarters during which the agreement is in effect
and the remaining $11 million being payable ratably over the last three
quarters of the agreement term. Such payments by Infoseek are subject to
reimbursement in the event that WebTV is unable to deliver a minimum of 4.5
billion impressions over the life of the agreement. Infoseek is to receive all
of the revenue generated from such advertising sales up to a pre-determined
amount that is in excess of Infoseek's total payment obligations to WebTV
under the agreement, with allocations of such revenue between Infoseek and
WebTV being made beyond this pre-determined amount. There can be no assurance
that Infoseek will be able to sell the available advertising inventory of
WebTV under this agreement or be able to collect the receivables resulting
from such advertising sales, which could have a
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material adverse effect on Infoseek's business, results of operations and
financial condition. See "Infoseek Management's Discussion and Analysis of
Financial Condition and Results of Operations."
Potential Fluctuations in Future Results. As a result of Infoseek's limited
operating history as well as the recent emergence of both the Internet and
intranet markets addressed by Infoseek, Infoseek has neither internal nor
industry-based historical financial data for any significant period of time
upon which to project revenues or base planned operating expenses. Infoseek
expects that its results of operations may also fluctuate significantly in the
future as a result of a variety of factors, including: the continued rate of
growth, usage and acceptance of the Internet and intranets as information
media; the rate of acceptance of the Internet as an advertising medium and a
channel of commerce; demand for Infoseek's products and services; the
advertising budgeting cycles of individual advertisers; the introduction and
acceptance of new, enhanced or alternative products or services by Infoseek or
by its competitors; Infoseek's ability to anticipate and effectively adapt to
a developing market and to rapidly changing technologies; Infoseek's ability
to attract, retain and motivate qualified personnel; initiation,
implementation, amendment, renewal or expiration of significant contracts with
Borders Group, Inc. ("Borders OnLine"), Microsoft, Netscape and others;
pricing changes by Infoseek or its competitors; specific economic conditions
in the Internet and intranet markets; general economic conditions; and other
factors. Substantially all of Infoseek's revenues have been generated from the
sale of advertising, and Infoseek expects to continue to derive substantially
all of its revenues from selling advertising and related products for the
foreseeable future. Moreover, most of Infoseek's contracts with advertising
customers have terms of three months or less. Advertising revenues are tightly
related to the amount of traffic on Infoseek's web site, which is inherently
unpredictable. Accordingly, future sales and operating results are difficult
to forecast. Infoseek's expense levels are based, in part, on its expectations
as to future revenues and, to a significant extent, are not expected to
decrease, at least in the short term. Infoseek may not be able to adjust
spending in a timely manner to compensate for any future revenue shortfall.
Accordingly, any significant shortfall in relation to Infoseek's expectations
would have an immediate material adverse impact on Infoseek's business,
results of operations, financial condition and prospects.
In addition, Infoseek may elect from time to time to make certain pricing,
service or marketing decisions or acquisitions that could have a short-term
material adverse effect on Infoseek's business, results of operations,
financial condition and prospects and which may not generate the long-term
benefits intended. From time to time, Infoseek has entered into and may
continue to enter into strategic relationships with companies for cross
service advertising, such as Infoseek's relationship with United Parcel
Service of America, Inc. ("UPS"). Infoseek's revenues have in the past been,
and may in the future continue to be, partially dependent on its relationship
with its strategic partners. Such strategic relationships have and may
continue to include substantial one-time or up front payments from Infoseek's
partners. Accordingly, Infoseek believes that its quarterly revenues are
likely to vary significantly in the future, that period-to-period comparisons
are not necessarily meaningful and that such comparisons should not
necessarily be relied upon as an indication of Infoseek's future performance.
Due to the foregoing factors, it is likely that in future periods, Infoseek's
operating results may be below the expectations of public market analysts and
investors. In such event, the price of Infoseek's common stock would likely be
materially adversely affected.
Risks Associated with Brand Development. Infoseek believes that establishing
and maintaining the Infoseek brand is a critical aspect of its efforts to
attract and expand its audience and that the importance of brand recognition
will increase due to the growing number of Internet sites and the relatively
low barriers to entry. Promotion and enhancement of the Infoseek brand will
depend largely on Infoseek's success in providing high-quality products and
services and in designing and implementing effective media promotions, which
success cannot be assured. In order to attract and retain Internet users and
to promote and maintain the Infoseek brand in response to competitive
pressures, Infoseek believes it is necessary to increase substantially its
financial commitment to creating and maintaining a distinct brand loyalty
among consumers. If Infoseek is unable to provide high-quality products and
services, design and implement effective media promotions or otherwise fails
to promote and maintain its brand, or if Infoseek incurs excessive expenses in
an attempt to improve its products and services or promote and maintain its
brand, Infoseek's business, results of operations, financial condition and
prospects would be materially and adversely affected.
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Intense Competition. The market for Internet and intranet products and
services is highly competitive, and Infoseek expects that competition will
continue to intensify. The market for Internet and intranet search and
navigational services has only recently begun to develop, and Infoseek cannot
predict with any certainty how competition will affect Infoseek, its
competitors or its customers. Infoseek also believes that the Internet market
increasingly will require portal services to integrate a more robust array of
multimedia content and services. As such, Infoseek believes that its future
success in part will depend upon its ability to effectively and timely
integrate such content and services, including but not limited to further
advancements in search and directory and other technologies and functionality,
development of on-line communities, implementation of electronic commerce and
provision of rich and diverse multimedia content. There can be no assurance
that Infoseek will be able to compete successfully or that the competitive
pressures faced by Infoseek, including those listed below, will not have a
material adverse effect on Infoseek's business, results of operations,
financial condition and prospects. Infoseek believes it faces numerous
competitive risks, including the following:
Competition from Consolidated Internet Products. A number of companies
offering Internet products and services, including direct competitors of
Infoseek, recently have begun to integrate multiple features within the
products and services they offer to consumers. Integration of Internet
products and services is occurring through development of competing
products and through acquisitions of, or entering into joint ventures
and/or licensing arrangements involving, competitors of Infoseek. For
example, Netscape has recently announced that it has signed a two-year
strategic partnership with Excite to build out content based channels
jointly for Netscape's Web site and to create co-branded search, thereby
competing directly with Infoseek. The Web browser offered by Microsoft,
another widely-used browser and substantial source of traffic for Infoseek,
may incorporate and promote information search and retrieval capabilities
in future releases or upgrades that could make it more difficult for
Internet viewers to find and use Infoseek's products and services.
Microsoft recently licensed products and services from Inktomi Corporation
("Inktomi"), a direct competitor of Infoseek, and has announced that it
will feature and promote Inktomi services in the Microsoft Network and
other Microsoft online properties. Infoseek expects that such search
services may be tightly integrated into the Microsoft operating system, the
Internet Explorer browser and other software applications, and that
Microsoft will promote such services within the Microsoft Network or
through other Microsoft-affiliated end- user services such as MSNBC or
WebTV. In addition, entities that sponsor or maintain high-traffic Web
sites or that provide an initial point of entry for Internet viewers,
currently offer and can be expected to consider further development,
acquisition or licensing of Internet search and navigation functions
competitive with those offered by Infoseek, or could take actions that make
it more difficult for viewers to find and use Infoseek's products and
services. For example, AOL is currently a significant shareholder of Excite
and offers Excite's WebCrawler and NetFind as the exclusive Internet search
and retrieval services for use by AOL's subscribers. Continued or increased
competition from such consolidations, integration and strategic
relationships involving competitors of Infoseek could have a material
adverse effect on Infoseek's business, results of operations, financial
condition and prospects.
Competition from existing search and navigational competitors. Many
companies currently offer directly competitive products or services
addressing Web search and navigation, including DEC/AltaVista, Excite,
HotBot, Inktomi, Lycos, CNET and Yahoo! In addition, Infoseek's Ultraseek
Server product competes directly with intranet products and services
offered by companies such as DEC/AltaVista, Lycos, Open Text and Verity.
The Web browsers currently offered by Netscape and Microsoft, which are the
two most widely-used browsers, incorporate prominent search buttons and
similar features, such as features based on "push" technologies, that
direct search traffic to competing services, including those that may be
developed or licensed by Microsoft or Netscape in enhancements or later
versions of these or other products. Many of Infoseek's existing
competitors, as well as a number of potential new competitors, have
significantly greater financial, technical, marketing and distribution
resources than Infoseek.
Competition from Internet and other advertising media. Infoseek also
competes with online services, other Web site operators and advertising
networks, as well as traditional media such as television, radio and print
for a share of advertisers' total advertising budgets. Additionally, a
large number of Web sites and online services (including, among others, the
Microsoft Network, MSNBC, AOL and other Web navigation companies such as
Excite, Lycos and Yahoo!) offer informational and community features, such
as news,
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stock quotes, sports coverage, yellow pages and e-mail listings, weather
news, chat services and bulletin board listings that are competitive with
the services currently offered or proposed to be offered by Infoseek.
Moreover, Infoseek believes that the number of companies selling Web-based
advertising and the available inventory of advertising space have recently
increased substantially. Accordingly, Infoseek may face increased pricing
pressure for the sale of advertisements and reductions in Infoseek's
advertising revenues.
Low barriers to entry for new search and navigational companies. Infoseek
believes that the costs associated with developing technologies, products
and services that compete with those offered by Infoseek are relatively
low. As a result, as the market for Internet and intranet search and
navigational products develops, other companies may be expected to offer
similar products and services and directly and indirectly compete with
Infoseek for advertising revenues.
Reliance on Advertising Revenues. Infoseek has derived a substantial
majority of its revenues to date from the sale of advertisements and expects
to continue its dependence on advertising and related products, including
channel sponsorships and, to a lesser extent, the sale of the Ultramatch
advertising management system and the Ultraseek Server intranet product.
Infoseek's current business model of generating revenues through the sale of
advertising on the Internet, which is highly dependent on the amount of
traffic on Infoseek's web site, is relatively unproven. The Internet as an
advertising medium has not been available for a sufficient period of time to
gauge its effectiveness as compared with traditional advertising media. In
addition, most of Infoseek's current advertising customers have limited or no
experience using the Internet as an advertising medium, have not devoted a
significant portion of their advertising expenditures to such advertising and
may not find such advertising to be effective for promoting their products and
services relative to advertising in traditional media. There can be no
assurance that current advertisers will continue to purchase advertising space
and services from Infoseek or that sufficient impressions will be achieved or
available, or that Infoseek will be able to successfully attract additional
advertisers. Furthermore, with the rapid growth of available inventory on the
Internet and the intense competition among sellers of advertising space, it is
difficult to project future levels of advertising revenues and pricing models
that will be adopted by the industry or individual companies. In addition, the
ability to quickly develop new business models which will generate additional
revenue sources may be vital for Infoseek to remain competitive in its
marketplace. Accordingly, there can be no assurance that Infoseek will be
successful in generating significant future advertising revenues or other
source of revenues; failure to do so could have a material adverse effect on
Infoseek's business, results of operations, financial condition and prospects.
Technological Change and New Products and Services. The market for Internet
products and services is characterized by rapid technological change, changing
customer needs, frequent new product introductions and evolving industry
standards. These market characteristics are exacerbated by the emerging nature
of this market and the fact that many companies are expected to introduce new
Internet products and services in the near future. Infoseek's future success
will depend on its ability to continually and, on a timely basis, introduce
new products, services and technologies and to continue to improve the
performance, features and reliability of Infoseek's products and services in
response to both evolving demands of the marketplace and competitive product
offerings.
In the fourth quarter of 1997, Infoseek released a new version of its
service which currently features 18 "channels," designed to bring together
topical information, services, products and communities on the Web. The new
service provides additional opportunities for revenue from the sale of channel
sponsorships as well as provides an opportunity for Infoseek to share in a
portion of the revenue facilitated by its viewers with these channel sponsors.
Continued market acceptance of this new version and successful conclusion of
sponsorship arrangements are integral to Infoseek's competitiveness and
viability. Most of Infoseek's additional channel sponsorship and partnership
arrangements are dependent on an increasing level of viewer traffic. If
Infoseek is unable to renew its relationship with Netscape, or if viewer
traffic is otherwise materially adversely affected, Infoseek may be unable to
retain its channel sponsorship and partnership arrangements. In addition,
there can be no assurance that this new sponsorship service or any other new
or proposed product or service will attain market acceptance, experience
technological sustainability or be free of errors that require significant
design
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modifications or that the business model to generate revenues will be
successful. Failure of Infoseek to successfully design, develop, test, market
and introduce other new and enhanced technologies and services, or any
enhancements of Infoseek's current search technology, or the failure of
Infoseek's recently introduced products and services to achieve market
acceptance could have a material adverse effect upon Infoseek's business,
results of operations, financial condition and prospects.
Due to rapid technological change, changing customer needs, frequent new
product and service introductions and evolving industry standards, timeliness
of introduction of these new products and services is critical. Delays in the
introduction of new products and services may result in customer
dissatisfaction and may delay or cause a loss of advertising revenue. There
can be no assurance that Infoseek will be successful in developing new
products or services or improving existing products and services that respond
to technological changes or evolving industry standards, that Infoseek will
not experience difficulties that could delay or prevent the successful
development, introduction and marketing of new or improved products and
services, or that its new products and services will adequately meet the
requirements of the marketplace and achieve market acceptance. If Infoseek is
unable to develop and introduce new or improved products or services in a
timely manner in response to changing market conditions or customer
requirements, Infoseek's business, results of operations, financial condition
and prospects could be materially adversely affected.
Management of Growth. Infoseek has recently experienced and may continue to
experience rapid growth, which has placed, and could continue to place, a
significant strain on Infoseek's limited personnel and other resources.
Competition for engineering, sales and marketing personnel is intense, and
there can be no assurance that Infoseek will be successful in attracting and
retaining such personnel or that Infoseek will be able to manage such growth
effectively. To succeed, Infoseek will need to continue to implement and
improve its operational, financial and management information systems and to
hire, train, motivate and manage its employees. In particular, Infoseek has
experienced difficulty in hiring and retaining the personnel necessary to
support the growth of Infoseek's business. The failure of Infoseek to
successfully manage any of these issues would have a material adverse effect
on Infoseek's business, results of operations, financial condition and
prospects. Infoseek's ability to manage its growth will require a significant
investment in and upgrade to its existing internal management information
systems to support increased accounting and other management related
functions, and a new advertising inventory management analysis system to
provide enhanced internal reporting and customer feedback on advertising.
These system upgrades and replacements will impact almost all phases of
Infoseek's operations (i.e. planning, advertising implementation and
management, finance and accounting). These systems are currently scheduled to
become operational by the second half of 1998. There can be no assurance that
Infoseek will not experience problems, delays or unanticipated additional
costs in implementing these systems or in the use of its existing system that
could have a material adverse effect on Infoseek's business, results of
operations, financial condition and prospects, particularly in the period or
periods in which these systems are brought online.
Capacity Constraints and System Failure; Advertising Management System. A
key element of Infoseek's strategy is to generate a high volume of traffic to
its products and services. Accordingly, the performance of Infoseek's products
and services is critical to Infoseek's reputation, its ability to attract
advertisers to Infoseek's web sites and market acceptance of these products
and services. Any system failure that causes interruptions or that increases
response time of Infoseek's products and services would result in less traffic
to Infoseek's web sites and, if sustained or repeated, would reduce the
attractiveness of Infoseek's products and services to advertisers and
customers. In addition, an increase in the volume of searches conducted
through Infoseek's products and services could strain the capacity of the
software, hardware or telecommunications lines deployed by Infoseek, which
could lead to slower response time or system failures. If traffic to
Infoseek's web site continues to increase, there can be no assurance that
Infoseek's products, services and systems will be able to scale appropriately.
Infoseek is also dependent upon web browser companies and Internet and online
service providers for access to its products and services, and viewers have
experienced and may in the future experience difficulties due to system or
software failures or incompatibilities not within Infoseek's control. Infoseek
is also dependent on hardware suppliers for prompt delivery, installation and
service of servers and other equipment and services used to provide its
products and services. Any disruption in the Internet access and service
provided
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by Infoseek or its service providers could have a material adverse effect upon
Infoseek's business, results of operations, financial condition and prospects.
The process of managing advertising within large, high traffic web sites
such as Infoseek's is an increasingly important and complex task. Infoseek is
in the process of converting from an internally developed advertising
inventory management analysis system to provide enhanced internal reporting
and customer feedback on advertising to a system being developed by
NetGravity. Infoseek currently anticipates that this new advertising
management system will be installed and become operational in the second half
of 1998. To the extent that Infoseek encounters material difficulties in
bringing, or is unable to bring, this new system online, Infoseek will need to
acquire an alternative solution from a third party vendor or devote sufficient
resources to enhance its current internally developed system. Any extended
failure of, or material difficulties encountered in connection with,
Infoseek's advertising management system may expose Infoseek to "make good"
obligations with its advertising customers, which, by displacing advertising
inventory would, among other consequences, reduce revenue and would have a
material adverse effect on Infoseek's business, results of operations,
financial condition and prospects.
In addition, Infoseek's operation depends upon its ability to maintain and
protect its computer systems, all of which are located at Infoseek's principal
offices in Sunnyvale, California. This system is vulnerable to damage from
fire, floods, earthquakes, power loss, telecommunications failures, break-ins
and similar events. Although Infoseek maintains insurance against fires,
floods, earthquakes and general business interruptions, there can be no
assurance the the amount of coverage will be adequate in any particular case.
Infoseek does not currently have a disaster recovery plan in effect and does
not have redundant systems for its service at an alternate site. Despite the
implementation of network security measures by Infoseek, its servers are also
vulnerable to computer viruses, break-ins and similar disruptive problems.
Computer viruses, break-ins or other problems caused by third parties could
lead to interruptions, delays in or temporary cessation of service to users of
Infoseek's products and services. The occurrence of any of these events would
have a material adverse effect on Infoseek's business, results of operations,
financial condition and prospects.
Risks Associated with International Expansion. As part of its business
strategy, Infoseek has begun to seek additional opportunities to expand its
products and services into international markets. Infoseek believes that such
expansion is important to Infoseek's ability to continue to grow and to market
its products and services. In marketing its products and services
internationally, however, Infoseek faces new competitors. In addition,
Infoseek's success in entering international markets is dependent upon
Infoseek's ability to create localized versions of its products and services.
There can be no assurance that Infoseek will be successful in creating
localized versions of its products and services or marketing or distributing
its products abroad or that, if Infoseek is successful, its international
revenues will be adequate to offset the expense of establishing and
maintaining international operations. To date, Infoseek has limited experience
in marketing and distributing its products and services internationally. In
addition to the uncertainty as to Infoseek's ability to establish an
international presence, there are certain difficulties and risks inherent in
doing business on an international level, such as compliance with regulatory
requirements and changes in these requirements, export restrictions, export
controls relating to technology, tariffs and other trade barriers, protection
of intellectual property rights, difficulties in staffing and managing
international operations, longer payment cycles, problems in collecting
accounts receivable, political instability, fluctuations in currency exchange
rates and potentially adverse tax consequences. In the event that in the
future the combined companies derive a material portion of their revenues from
international operations, the risks of fluctuations in currency exchange rates
will be increased. In such event and at such time, the combined companies will
evaluate whether to engage in a hedging strategy to minimize the risks of such
currency fluctuations. There can be no assurance that one or more of such
factors would not have a material adverse effect on any international
operations established by Infoseek and, consequently, on Infoseek's business,
results of operations, financial condition and prospects.
Dependence on Key Personnel. Infoseek's performance is substantially
dependent on the services of the members of its senior management team, as
well as its ability to retain and motivate its officers and key
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employees. In addition, Infoseek has recently hired, and plans to continue to
hire, a number of engineers to design and implement improvements to the
integration of content with its search engine technology, which Infoseek
believes will be a significant factor in its future ability to compete
favorably with other navigational guides. Infoseek's future performance
depends in significant part upon the contributions of its senior management
personnel, including its Chairman Steven Kirsch, who is integrally involved in
Infoseek's research and development efforts. Although Infoseek provides
incentives such as salary, benefits and option grants (which are typically
subject to vesting over four years) to attract and retain qualified employees,
the loss of services of any of Infoseek's officers or other key employees
would have a material adverse effect on Infoseek's business, results of
operations, financial condition and prospects.
Volatility of Stock Price. The price of Infoseek's common stock has been and
may continue to be subject to wide fluctuations in response to a number of
events and factors such as quarterly variations in results of operations,
announcements of new technological innovations or new products and media
properties by Infoseek or its competitors, changes in financial estimates and
recommendations by securities analysts, the operating and stock price
performance of other companies that investors may deem comparable to Infoseek,
and news relating to trends in Infoseek's markets. In addition, the stock
market in general, and the market prices for Internet-related companies in
particular, have experienced extreme volatility that often has been unrelated
to the operating performance of such companies. These broad market and
industry fluctuations may adversely affect the price of Infoseek's common
stock, regardless of Infoseek's operating performance.
Intellectual Property and Proprietary Rights. Infoseek's success depends
significantly upon its proprietary technology. Infoseek currently relies on a
combination of copyright and trademark laws, trade secrets, confidentiality
procedures and contractual provisions to protect its proprietary rights.
Infoseek seeks to protect its software, documentation and other written
materials under trade secret, patent and copyright laws, which afford only
limited protection. Infoseek holds two United States patents and currently has
10 United States patent applications pending and six foreign patent
applications pending. There can be no assurance that the pending applications
will be approved, or that if issued, such patents will not be challenged, and
if such challenges are brought, that such patents will not be invalidated.
There can be no assurance that Infoseek will develop proprietary products or
technologies that are patentable, that any issued patent will provide Infoseek
with any competitive advantages or will not be challenged by third parties, or
that the patents of others will not have a material adverse effect on Infoseek
ability to do business. Infoseek has registered and applied for registration
for certain service marks and trademarks, and will continue to evaluate the
registration of additional service marks and trademarks, as appropriate.
Infoseek generally enters into confidentiality agreements with its employees
and with its consultants and customers. Litigation may be necessary to protect
Infoseek's proprietary technology. Any such litigation may be time-consuming
and costly. Despite Infoseek's efforts to protect its proprietary rights,
unauthorized parties may attempt to copy aspects of Infoseek's products or
services or to obtain and use information that Infoseek regards as
proprietary. In addition, the laws of some foreign countries do not protect
proprietary rights to as great an extent as do the laws of the United States.
There can be no assurance that Infoseek's means of protecting its proprietary
rights will be adequate or that Infoseek's competitors will not independently
develop similar technology or duplicate Infoseek's products or design around
patents issued to Infoseek or other intellectual property rights of Infoseek.
There have been substantial amounts of litigation in the computer industry
regarding intellectual property rights. There can be no assurance that third
parties will not in the future claim infringement by Infoseek with respect to
current or future products, patents, copyrights, trademarks or other
proprietary rights, that Infoseek will counterclaim against any such parties
in such actions or that if Infoseek makes claims against third parties with
respect thereto, that any such party will not counterclaim against Infoseek in
such actions. For example, Infoseek is aware of a U.S. patent recently issued
to Carnegie Mellon related to Web spider technology that has been licensed to
Lycos and is currently utilized in the Lycos search engine. While Infoseek
currently believes, based on a preliminary review of such issued patent and
consultation with its patent counsel, that the technologies employed by
Infoseek in the Infoseek Service do not infringe the Carnegie Mellon patent,
there can be no assurance that Infoseek would prevail if Lycos or Carnegie
Mellon claimed Infoseek infringed such patent. Any
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such claims or counterclaims could be time-consuming, result in costly
litigation, cause product release delays, require Infoseek to redesign its
products or require Infoseek to enter into royalty or licensing agreements,
any of which could have a material adverse effect upon Infoseek's business,
results of operations, financial condition and prospects. Such royalty or
licensing agreements, if required, may not be available on terms acceptable to
Infoseek or at all.
Termination Fees, Options. If the Reorganization Agreement is terminated
under certain circumstances, Infoseek California would be required to pay
Starwave a fee of $17 million plus expenses. In addition, if the
Reorganization Agreement is terminated under circumstances in which Infoseek
California is required to pay a termination fee to Starwave, then Disney shall
have the right to exercise one or both of two options. The first option
includes the right to obtain a nonexclusive, worldwide license for five years,
with certain rights to sublicense, to use Infoseek search and communication
technology in connection with the development, operation and exploitation of
Disney's and its affiliates' online services, in exchange for an annual fee.
The second option would enable Disney to have prominent placement for links of
certain online services of Disney and its affiliates on Infoseek's Internet
Service for a term of five years, and prominent placement of content of Disney
and its affiliates within Infoseek's Internet services in exchange for an
annual fee. Exercise of one or both of the options could have the effect of
discouraging certain third parties from entering into strategic licensing or
other transactions with Infoseek California, including a business combination
or acquisition. See "Terms of the Mergers--Termination Fees."
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INFOSEEK SHAREHOLDERS MEETING
DATE, TIME AND PLACE OF INFOSEEK SHAREHOLDERS MEETING
The Infoseek California Shareholders Meeting will be held at the offices of
Infoseek California located at 1399 Moffett Park Drive, Sunnyvale, California
94089, on November 18, 1998 at 10:00 a.m. local time.
PURPOSE
The purpose of the Infoseek California Shareholders Meeting is to vote upon
proposals to (i) approve and adopt the Reorganization Agreement and approve
the Infoseek Merger and (ii) approve the issuance of 28,138,000 shares of
Infoseek Delaware common stock in connection with the Starwave Merger, and the
issuance to Disney of 2,642,000 shares of Infoseek Delaware common stock and
the Warrant to acquire 15,720,000 shares of Infoseek Delaware common stock
pursuant to the Securities Purchase Agreement, as required under the NASD
rules because the issuance would be in excess of 20% of Infoseek common stock.
Approval of the Infoseek Merger will also constitute approval of (i) the
Infoseek Merger Agreement, the Amended and Restated Certificate of
Incorporation and the Bylaws of Infoseek Delaware and (ii) the assumption of
Infoseek California's employee benefit plans and stock option and employee
stock purchase plans by Infoseek Delaware.
RECORD DATE AND OUTSTANDING SHARES
The record date for the Infoseek Shareholders Meeting is the close of
business on October 9, 1998. Only holders of record of Infoseek California
common stock on the Record Date are entitled to notice of, and to vote at, the
Infoseek California Shareholders Meeting. As of October 9, there were
approximately 570 shareholders of record holding an aggregate of approximately
31,508,312 shares of Infoseek California common stock.
This Joint Proxy Statement/Prospectus is being mailed on or about October
14, 1998 to all shareholders of record of Infoseek California as of the record
date.
VOTE REQUIRED
Pursuant to the CGCL, approval and adoption of the Reorganization Agreement
and approval of the Infoseek Merger requires the affirmative vote of the
holders of a majority of shares of Infoseek California common stock
outstanding on the Record Date. Pursuant to the rules of NASD, approval of the
issuance of 28,138,000 shares of Infoseek Delaware common stock in connection
with the Starwave Merger, and the issuance to Disney of 2,642,000 shares of
Infoseek Delaware common stock and the Warrant to acquire 15,720,000 shares of
Infoseek Delaware common stock pursuant to the Securities Purchase Agreement
requires the affirmative vote of the holders of a majority of shares of
Infoseek common stock, present in person or represented by proxy, at the
Infoseek Shareholders Meeting. Each holder of record of Infoseek California
common stock on the Record Date will be entitled to cast one vote per share on
the proposals to be acted upon at the Infoseek California Shareholders
Meeting. As of the Record Date, the directors and executive officers of
Infoseek California and their affiliates may be deemed to hold approximately
25% of the outstanding shares of Infoseek California common stock. See
"Security Ownership of Management and Principal Shareholders of Infoseek."
The presence, in person or by proxy, of at least a majority of the
outstanding shares of Infoseek California Common Stock entitled to vote at the
Infoseek Shareholders Meeting is necessary to constitute a quorum for the
transaction of business. Abstentions and non-votes will be counted for
purposes of determining a quorum. For purposes of obtaining the required vote
of a majority of the outstanding shares of Infoseek California common stock
for approval and adoption of the Reorganization Agreement and approval of the
Infoseek Merger, the effect of an abstention and the effect of a non-vote are
the same as that of a vote against the proposal. For purposes of obtaining the
required vote of a majority of shares of Infoseek California common stock
present in person or by proxy at the Infoseek Shareholders Meeting,
abstentions and non-votes will have no effect on the proposal. If no
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instructions are indicated in the proxies, such shares of Infoseek California
common stock shall be voted in favor of both proposals.
Certain executive officers, directors and principal shareholders of Infoseek
California (who as of the record date owned in the aggregate approximately 22%
of the outstanding shares of Infoseek California common stock) have entered
into agreements with Disney which obligates each such holder to vote all
shares of Infoseek California common stock held by such holder in favor of the
proposal to approve and adopt the Reorganization Agreement and approve the
Starwave Merger and in favor of the issuance of Infoseek Delaware common stock
in connection with the Starwave Merger and the issuance of shares of Infoseek
Delaware common stock and the Warrant pursuant to the Securities Purchase
Agreement. See "Terms of the Mergers--Shareholder Agreements--Infoseek
California."
PROXIES
Each of the persons named as a proxy is an executive officer of Infoseek
California. All shares of Infoseek common stock that are entitled to vote and
are represented at the Infoseek Shareholders Meeting by properly executed
proxies received prior to or at the Infoseek Shareholders Meeting and not duly
and timely revoked will be voted at the Infoseek Shareholders Meeting in
accordance with the instructions indicated on such proxies. If no such
instructions are indicated, such proxies will be voted to approve and adopt
the Reorganization Agreement and to approve the Merger.
Execution of a proxy does not in any way affect a shareholder's right to
attend the meeting and vote in person. Any proxy may be revoked by a
shareholder at any time before it is exercised by delivering a written
revocation or a later-dated proxy to the Secretary of Infoseek California, or
by attending the meeting and voting in person. Any written notice of
revocation or subsequent proxy should be sent so as to be delivered to
Infoseek California at 1399 Moffett Park Drive, Sunnyvale, California 94089,
Attention: Secretary, or hand-delivered to the Secretary of Infoseek
California, in each case at or before the taking of the vote at the Infoseek
Shareholders Meeting.
RECOMMENDATION OF INFOSEEK BOARD OF DIRECTORS
After careful consideration, the Infoseek California Board has unanimously
approved the Reorganization Agreement and the transactions contemplated
thereby and has determined that the Mergers are fair to, and in the best
interests of, Infoseek California and its shareholders. AFTER CAREFUL
CONSIDERATION, THE INFOSEEK CALIFORNIA BOARD UNANIMOUSLY RECOMMENDS A VOTE IN
FAVOR OF APPROVAL AND ADOPTION OF THE REORGANIZATION AGREEMENT AND APPROVAL OF
THE INFOSEEK MERGER AND THE ISSUANCE OF SHARES OF INFOSEEK DELAWARE COMMON
STOCK PURSUANT TO THE STARWAVE MERGER AND THE ISSUANCE OF SHARES OF INFOSEEK
DELAWARE COMMON STOCK AND THE WARRANT PURSUANT TO THE SECURITIES PURCHASE
AGREEMENT. See "The Mergers and Related Transactions--Background of the
Mergers and Related Transactions" and "--Recommendation of Infoseek Board of
Directors and Reasons for the Mergers."
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STARWAVE SHAREHOLDERS MEETING
DATE, TIME AND PLACE OF STARWAVE SHAREHOLDERS MEETING
The Starwave Shareholders Meeting will be held at the Bellevue Hilton,
located at 100-112th Avenue N.E., Bellevue, Washington 98004, on November 18,
1998 at 10:00 a.m. local time.
PURPOSE
The purpose of the Starwave Shareholders Meeting is to vote upon a proposal
to approve and adopt the Reorganization Agreement and approve the Starwave
Merger.
RECORD DATE AND OUTSTANDING SHARES
The Record Date for the Starwave Shareholders Meeting is the close of
business on October 9, 1998. Only holders of record of Starwave common stock
on the Record Date are entitled to notice of, and to vote at, the Starwave
Shareholders Meeting. As of October 9, 1998, there were approximately 280
shareholders of record holding an aggregate of 97,535,287 shares of Starwave
common stock.
This Joint Proxy Statement/Prospectus is being mailed on or about October
14, 1998 to all shareholders of record of Starwave as of the record date.
VOTE REQUIRED
Pursuant to the Washington Business Corporation Act ("WBCA") and the
Starwave Articles of Incorporation, the affirmative vote of the holders of a
majority of the voting shares of Starwave common stock outstanding as of the
record date voting together without regard to class is required to approve and
adopt the Reorganization Agreement and approve the Starwave Merger. Each
holder of record of Starwave common stock on the Record Date will be entitled
to cast one vote per share on the proposal to be acted upon at the Starwave
Shareholders Meeting. As of the record date, the directors and executive
officers of Starwave and their affiliates (including Disney) may be deemed to
be beneficial owners of approximately 94% of the outstanding shares of
Starwave common stock. See "Security Ownership of Management and Principal
Shareholders of Starwave."
The presence, in person or by proxy, of at least a majority of the
outstanding shares of Starwave common stock entitled to vote at the Starwave
Shareholders Meeting is necessary to constitute a quorum for the transaction
of business. Abstentions will be counted for purposes of determining a quorum.
For purposes of obtaining the required vote of a majority of the outstanding
shares of Starwave common stock for approval and adoption of the
Reorganization Agreement and approval of the Starwave Merger, the effect of an
abstention and the effect of a non-vote are the same as that of a vote against
the proposal. If no instructions are included in the proxies, such shares of
Starwave common stock will be voted in favor of the Proposal.
Certain executive officers and directors of Starwave and their affiliates
(including Disney) (who as of the record date collectively owned in the
aggregate approximately 94% of the outstanding shares of Starwave common
stock) have entered into agreements with Infoseek Delaware which obligates
each such holder to vote all shares of Starwave common stock held by such
holder in favor of the proposal to approve and adopt the Reorganization
Agreement and approve the Starwave Merger. Accordingly, holders of shares of
Starwave common stock sufficient to approve the Reorganization Agreement and
the Starwave Merger have already agreed to vote in favor of such transaction.
PROXIES
All shares of Starwave common stock that are entitled to vote and are
represented at the Starwave Shareholders Meeting by properly executed proxies
received prior to or at the Starwave Shareholders Meeting and not duly and
timely revoked will be voted at the Starwave Shareholders Meeting in
accordance with the
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instructions indicated on such proxies. If no such instructions are indicated,
such proxies will be voted to approve and adopt the Reorganization Agreement
and to approve the Starwave Merger.
Execution of a proxy does not in any way affect a shareholder's right to
attend the meeting and vote in person. Any proxy may be revoked by a
shareholder at any time before it is exercised by delivering a written
revocation or a later-dated proxy to the Secretary of Starwave, or by
attending the meeting and voting in person. Any written notice of revocation
or subsequent proxy should be sent so as to be delivered to Starwave at 13810
S.E. Eastgate Way, Suite 400, Bellevue, Washington 98005, Attention:
Secretary, or hand-delivered to the Secretary of Starwave, in each case at or
before the taking of the vote at the Starwave Shareholders Meeting.
RECOMMENDATION OF STARWAVE BOARD OF DIRECTORS
The Starwave Board has unanimously approved the Reorganization Agreement and
the transactions contemplated thereby and has determined that the Starwave
Merger is fair to, and in the best interests of, Starwave and its
shareholders. THE STARWAVE BOARD UNANIMOUSLY RECOMMENDS A VOTE IN FAVOR OF
APPROVAL AND ADOPTION OF THE REORGANIZATION AGREEMENT AND APPROVAL OF THE
STARWAVE MERGER. See "The Mergers and Related Transactions--Background of the
Mergers and Related Transactions," "--Recommendation of Starwave Board of
Directors and Reasons for the Starwave Merger."
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THE MERGERS AND RELATED TRANSACTIONS
Other than statements of historical fact, the statements made in this
section, including statements as to the benefits expected to result from the
Mergers and in respect of the planned New Portal Service and as to future
financial performance, including certain estimates thereof utilized in certain
analyses described under "--Opinion of Infoseek's Financial Advisor," are
forward-looking statements that are subject to risks and uncertainties. Actual
results could differ materially from those anticipated in these forward-
looking statements as a result of certain factors, including those set forth
in "Risk Factors" and elsewhere in this Joint Proxy Statement/Prospectus.
BACKGROUND OF THE MERGERS AND RELATED AGREEMENTS
On February 10, 1998, certain members of management of Infoseek, Disney and
Starwave met in New York City to discuss the potential opportunities for the
companies to establish one or more commercial relationships for Internet-
based, online services. Representatives of the companies met again in Burbank,
California on February 17 to further discuss potential collaborative
commercial opportunities and Infoseek management reviewed with representatives
of Disney and Starwave certain aspects of Infoseek's strategic direction and
recent operating results.
On February 24, 1998, members of management of the companies again met in
Burbank to further discuss potential commercial opportunities, and Disney and
Starwave management reviewed with Infoseek certain aspects of Disney's online
strategy and Starwave's business and recent operating results. In addition, at
this meeting, Disney management indicated that Disney had an interest in
pursuing an acquisition transaction with Infoseek and not merely a potential
commercial relationship; however, no proposed structure or other terms were
discussed at such meeting. During the month of February 1998, Infoseek and
Disney also entered into a mutually binding confidentiality letter agreement
(the "Confidentiality Agreement") and, pursuant to the Confidentiality
Agreement, the parties began exchanging certain financial, operational and
other information. Representatives of the parties next met on March 2, 1998 in
San Francisco, which meeting was also attended by a representative of
Infoseek's financial advisor, Merrill Lynch. During this meeting, the parties
focused on the possibility of a transaction in which Disney would acquire all
or substantially all of Infoseek's outstanding capital stock. These
discussions covered a variety of subjects pertaining to the business,
operations, financial condition, strategies and prospects of Infoseek.
On March 3, 1998 at a previously scheduled meeting of the Infoseek Board,
management of Infoseek reported on its preliminary discussions with Disney
regarding a possible business combination and reviewed with the Board a number
of the aspects of such a potential transaction, including the strategic
potential of a combination with Disney given its substantial brand recognition
and media presence, and the potential implications of such a combination for
Infoseek to further advance its strategic objectives in the Internet market.
Infoseek management noted that discussions were at an early stage and that no
terms nor definitive structure had been agreed to between the parties.
Management also discussed with the Infoseek Board certain other strategic
opportunities that were under discussion with certain other parties and the
status of such discussions. The Infoseek Board authorized and instructed
management to continue to explore the possibility of a business combination
with Disney, in addition to further developing other potential strategic
opportunities.
During an approximate one week period following the March 2, 1998 meeting,
the parties continued their internal examinations of a potential combination
transaction and certain members of management of Disney and Infoseek met in
New York City to further discuss a potential transaction. These discussions
focused on how the organizations of Disney's online businesses and Infoseek
might be integrated, but the parties were unable to arrive at mutually
agreeable terms with respect to a combination transaction. The parties held no
further substantive discussions regarding a potential combination transaction
or commercial relationship for the remainder of the month of March.
During the month of April 1998, representatives of Infoseek, Disney and
Starwave resumed their discussions, now focusing for the first time on the
potential sale of a minority interest in Infoseek to Disney,
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with the potential to acquire a majority interest through a warrant mechanism.
During these negotiations, at a meeting held on April 1, 1998 among certain
members of management of Disney and Infoseek as well as representatives of
Merrill Lynch, Infoseek's financial advisor, in Sunnyvale, California, the
parties first discussed the possibility of Infoseek's acquisition of Starwave.
Following this initial meeting in April, the parties continued their internal
review of the potential synergies of an Infoseek acquisition of Starwave and
potential stock and warrant investments by Disney in Infoseek.
On April 10, 1998 the Infoseek Board held a meeting to further review with
management the status of ongoing discussions with Disney. At this meeting,
management reviewed with the Infoseek Board the potential strategic synergies
of a combination transaction with Starwave, with its interests in the ESPN
Joint Venture and the ABC News Joint Venture, and the opportunity to develop
and launch a new Internet portal service combining the technologies, brands
and content of Infoseek, Starwave, the Joint Ventures and Disney. Infoseek
management and its financial and legal advisors also reviewed other potential
terms of a Disney minority investment in Infoseek with the potential to
acquire a majority interest through a warrant mechanism, subject to vesting
over time. The Infoseek Board directed management, along with its financial
and legal advisors, to further develop the terms of such a potential
transaction, including but not limited to the structure of a potential
acquisition of Starwave, the terms of a minority investment by Disney in
Infoseek, issues related to Disney's condition that any such transaction
include the ability to obtain a majority ownership position in Infoseek over
time, potential mechanisms for affording the minority shareholders of Infoseek
the opportunity to continue to participate in the long term strategic
opportunities of Infoseek in the event Disney acquired a majority ownership
position in Infoseek, and the development of the concept of a new Internet
portal service.
On April 14, 1998, representatives of Infoseek and Disney met in San Mateo,
California to further outline the potential strategic aspects and structural
terms of a transaction and to develop the parameters for a new Internet portal
service. The parties subsequently met in Burbank on April 24, 1998, which
meeting was also attended by representatives of Merrill Lynch and Wilson
Sonsini Goodrich & Rosati, legal counsel to Infoseek, to further discuss the
potential terms of a strategic transaction. In addition, on April 28, 1998, by
telephone conference call representatives of Infoseek provided Disney with
indicative terms of a potential transaction involving an acquisition of
Starwave, the issuance of stock and warrants to Disney and a strategic
transaction to develop, launch and promote a new Internet portal service.
On May 1, 1998, pursuant to a Shareholders Agreement dated as of April 17,
1997 among Starwave, its founder, Paul Allen, and DEI, and based on
discussions between Disney and Mr. Allen that began in early February 1998,
DEI acquired the remaining shares of Starwave common stock owned by Mr. Allen,
thereby increasing DEI's percentage ownership of Starwave's outstanding
capital stock from approximately 41% to approximately 91%.
During May 1998, Infoseek, Starwave and Disney continued to exchange
information pursuant to the Confidentiality Agreement and exchanged comments
on and further negotiated potential terms of a transaction on May 4, May 5,
May 10, May 12, May 14, May 15, May 19 and May 22, pursuant to conference
calls between representatives of Disney and Infoseek, including financial and
legal advisors. Certain members of management of Disney and Infoseek, as well
as their financial and legal advisors, also held a meeting on May 26 in
Burbank to further negotiate potential terms of a proposed transaction.
On the evening of May 26, 1998, the Infoseek Board of Directors held a
meeting to further review with members of Infoseek management and its
financial and legal advisors the status of negotiations with Disney and the
several proposed terms and conditions of such a transaction, as well as the
timing and several areas of further negotiation. Infoseek management also
reviewed with the Infoseek Board several other strategic opportunities
currently being reviewed or under discussion by Infoseek with certain other
parties, including certain opportunities for Infoseek to acquire other
complementary businesses. The Infoseek Board further directed management, in
consultation with Infoseek's financial and legal advisors, to continue to
further develop such opportunities.
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During the course of several conference calls and meetings among the parties
in May 1998, the parties began to narrow the range of outstanding issues with
respect to a proposed acquisition of Starwave and the related arrangements
between Infoseek and Disney. Given the substantial progress made in the course
of these discussions, the parties began to prepare drafts of definitive
documents pertaining to the proposed Starwave Merger and the related equity,
governance, licensing and commercial arrangements between Infoseek and Disney
and during the weekend of May 30-31, 1998, the parties first exchanged these
draft documents.
Beginning during the week of June 1, 1998, in response to legal and business
due diligence document requests from the other party, each of Infoseek, Disney
and Starwave made available various documentation regarding Infoseek, Starwave
and the Joint Ventures. Throughout the ensuing 17-day period prior to the
announcement of the execution and delivery of the Reorganization Agreement,
various financial, legal, accounting and management representatives of
Infoseek, Disney, and Starwave conducted additional due diligence. In
addition, commencing on June 3, 1998 and continuing throughout the ensuing 15-
day period prior to the announcement of the execution and delivery of the
Reorganization Agreement, representatives of Disney, Starwave and Infoseek,
and their legal and financial advisors, conducted a series of conference calls
and meetings in Burbank, California, focusing on the financial, structural,
legal and other terms of the proposed Starwave Merger and the related equity,
governance, licensing and commercial arrangements between Infoseek and Disney.
On June 5, 1998, the Infoseek Board met to further review with management of
Infoseek and its financial and legal advisors the status of the legal and
business due diligence investigation and the progress of negotiations with
Disney since the May 26 Board meeting. The material issues subject to ongoing
negotiation were reviewed with the Board and the Board further directed
Infoseek management, along with its financial and legal advisors, to continue
to negotiate the proposed Reorganization Agreement and the Related Agreements
with Disney and Starwave.
A special meeting of the Board of Directors of Infoseek was held on June 13,
1998 pursuant to which Infoseek management and its financial, accounting and
legal advisors reviewed with the Board the proposed terms and conditions of
the Starwave Merger and the related equity, governance, licensing and
commercial agreements between Infoseek and Disney based, in part, on materials
previously circulated to the Board, including drafts of the Reorganization
Agreement and the Related Agreements. This review and the related discussions
among members of the Infoseek Board, management and financial and legal
advisors included, among other things, the status of discussions and
negotiations to date and the material open issues in respect of such
negotiations, a review of the material terms of the Reorganization Agreement
and the Related Agreements, and the tax and accounting treatment of the
proposed Mergers and several transactions contemplated by the Related
Agreements. Management of Infoseek also reviewed with the Infoseek Board the
proposed Delaware holding company structure of Infoseek on a going-forward
basis following the proposed Mergers, as well as certain aspects of the
operations of Starwave and the Joint Ventures. Infoseek management, along with
its legal and financial advisors, also reviewed with the Board certain of the
proposed closing conditions to the Reorganization Agreement, as well as the
proposed termination rights and termination fees and related license and
service options. Representatives of Merrill Lynch also reviewed with the
Infoseek Board an overview of the various aspects of the transaction
consideration and a preliminary analysis of certain valuation metrics
applicable to the proposed transactions based on materials previously
distributed to the Board. The Board authorized and directed Infoseek
management, in consultation with its financial and legal advisors, to continue
to negotiate the terms of the proposed Starwave Merger and the related equity,
governance, licensing and commercial agreements proposed to be entered into
between Infoseek and Disney.
A special meeting of the Board of Directors of Starwave was held on June 13,
1998. At the meeting, the Starwave Board reviewed the proposed acquisition of
Starwave by Infoseek pursuant to the Reorganization Agreement, with the
assistance of legal counsel. The presentations to and discussions by the
Starwave Board included, among other things, (i) a review of certain
discussions conducted to date among representatives of Disney, Infoseek and
Starwave, (ii) a presentation of the then-current status of the negotiations
regarding the material terms of the Reorganization Agreement and related
transactions, including the Exchange Ratio, closing conditions and termination
rights and fees, and (iii) various other legal, financial and accounting
matters pertaining to the proposed Mergers. Prior to the meeting, the Starwave
Board was provided a draft of the Reorganization
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Agreement. Following discussion, the Starwave Board, by unanimous vote,
approved the Reorganization Agreement and the transactions contemplated
thereby and recommended that the Reorganization Agreement be approved by
Starwave's shareholders. In addition, the Starwave Board also unanimously
confirmed their approval of the grant of approximately 1.1 million employee
stock options to specific Starwave employees, which options had been
previously approved by the Starwave Board during a December 1997 meeting,
subject to management's final recommendations regarding the allocation of the
options among Starwave employees.
By unanimous written consent dated June 16, 1998, the Board of Directors of
DEI, which is the wholly owned subsidiary of Disney that is the majority
shareholder of Starwave and a party to the Reorganization Agreement, approved
the Reorganization Agreement and the transactions contemplated thereby and
related thereto.
Following these meetings of each of the Boards of Directors of Starwave and
Infoseek, the financial, legal, accounting and management representatives of
Infoseek, Disney, and Starwave continued to negotiate the terms of the
Reorganization Agreement, the Starwave Merger and the Related Agreements at
Disney's offices in Burbank.
The Infoseek Board held a meeting on June 17, 1998 at which Infoseek
management, along with its financial, legal and accounting advisors, reviewed
the terms of the proposed definitive Reorganization Agreement and the Related
Agreements based on the materials previously circulated to the Infoseek Board.
These presentations to and discussions with and among members of the Infoseek
Board included, among other things, the overall objectives of the proposed
Starwave Merger and the related equity, licensing and commercial arrangements
with Disney, the standstill, right to maintain and other aspects of the
proposed Governance Agreement, terms of the equity investment by Disney in
Infoseek and the related warrant structure, the strategic opportunity
presented by and operational issues associated with the development, launch
and promotion of the New Portal Service, and the risks associated therewith,
and the corporate structure, tax and accounting treatment of the proposed
Mergers and transactions contemplated by the Related Agreements. In addition,
representatives of Merrill Lynch made a presentation to the Infoseek Board
regarding the terms, structure and valuation aspects of the proposed Starwave
Merger, the related proposed equity investments by Disney in Infoseek, and the
licensing and commercial arrangements proposed to be entered into between
Infoseek and Disney in connection with the planned development, launch and
promotion of the New Portal Service. This presentation included a discussion
of the several analyses described under "--Opinion of Infoseek's Financial
Advisor" below. After these presentations and discussions, Merrill Lynch
rendered its oral opinion, subsequently confirmed in writing on June 18, 1998,
that consummation of the Mergers and the transactions contemplated by the
Securities Purchase Agreement, the Governance Agreement and the License
Agreement are fair to Infoseek and its shareholders from a financial point of
view. Following such presentations and discussions, the meeting of the Board
of Directors of Infoseek was adjourned until the morning of June 18, 1998. The
meeting of the Board of Directors of Infoseek was reconvened on June 18, 1998,
prior to opening of trading on Nasdaq, at which point Infoseek management and
its legal advisors again reviewed with the Board the material final proposed
terms of the Reorganization Agreement, the Mergers and the Related Agreements.
Following this review, the Infoseek Board voted unanimously to approve the
final terms of the Reorganization Agreement, the Mergers and the Related
Agreements between Infoseek and Disney and certain of their respective
affiliates in connection therewith.
Following these approvals of the Reorganization Agreement and the
transactions contemplated thereby and related thereto by the Boards of
Directors of Infoseek, DEI and Starwave, on June 18, 1998, representatives of
Infoseek, DEI and Starwave executed the Reorganization Agreement and the
Related Agreements and publicly announced the proposed transaction.
RECOMMENDATION OF INFOSEEK BOARD OF DIRECTORS AND REASONS FOR THE MERGERS
At its June 18, 1998 meeting, the Infoseek Board of Directors (the "Infoseek
Board") unanimously approved the Reorganization Agreement and the transactions
contemplated thereby, the Securities Purchase Agreement and the transactions
contemplated thereby, the Governance Agreement and the several license and
commercial agreements further described below under "Description of Related
Agreements." Infoseek's Board of Directors unanimously recommends that the
Infoseek shareholders vote in favor of (i) approval and adoption
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of the Reorganization Agreement and the Infoseek Merger, and (ii) the issuance
of shares of Infoseek Delaware common stock to the shareholders and
optionholders of Starwave in connection with the Starwave Merger, and the
issuance of shares of Infoseek Delaware common stock and the Warrant to Disney
pursuant to the Securities Purchase Agreement. In reaching its conclusion to
approve these several agreements and related transactions and to recommend
them to the shareholders of Infoseek, the Board of Directors of Infoseek
considered, among other things, the following factors (although the Infoseek
Board did not consider it practical to, nor did it attempt to, quantify or
otherwise assign relative weight to such factors in reaching its decision):
. Management's analysis of the financial performance and condition, assets,
business and prospects of Starwave and Infoseek, including, but not limited
to, information with respect to the respective recent revenues and earnings
performance, page views and other operating metrics of both entities. The
Infoseek Board also considered: (i) the detailed financial analyses, pro
forma and other information with respect to the Starwave, Infoseek and the
Mergers and the related transactions presented by Merrill Lynch, financial
advisor to Infoseek as more fully described below under "--Opinion of
Infoseek's Financial Advisor," (ii) Infoseek management's as well as the
Infoseek Board's own knowledge of Starwave, Infoseek and their respective
businesses, and (iii) the current financial and business climate of
Internet companies.
. The opportunity presented by the Starwave Merger and the Related
Agreements, in particular the licensing and commercial agreements with
Starwave and Disney to develop, launch and promote the planned New Portal
Service combining the search and directory technologies and services of
Infoseek with the Starwave web design and publishing technology and
expertise, as well as Starwave's joint venture relationships with the
prominent Internet websites of ESPN SportsZone and ABCNews.com and others,
as well as Disney's rich content and brand recognition which would assist
Infoseek in achieving its strategic objectives in an Internet market that
Infoseek believes increasingly will require an Internet portal service to
integrate a more robust array of multimedia content and services. In this
context, the Board also considered Disney's commitment to provide
promotional support to the New Portal Service for five years after its
launch and Disney's representation on Infoseek's Board of Directors
following the Mergers.
. The potential effect on Infoseek shareholders of Infoseek continuing as a
stand-alone entity without entering into a significant alliance with a
major media company, such as Disney, and in such context the potential
effect on Infoseek of acquiring the significant revenues, page views and
brand recognition associated with the ESPN SportsZone and ABCNews.com
websites that are the subject of the Joint Ventures with subsidiaries of
each of ESPN and ABC. In this regard, among other things, the Infoseek
Board considered Infoseek's position relative to a number of its search and
directory competitors in establishing the Infoseek Service as a premier
Internet portal site, and Infoseek's relative success and ability to
continue to generate consumer and advertiser loyalty to and brand
recognition of Infoseek products and services. The Infoseek Board also
considered the view of Infoseek's management that the Internet market
increasingly will require an Internet portal service to integrate a more
robust array of multimedia content and services, including but not limited
to further advancements in search and directory and other technologies and
functionality, development of on-line "communities," implementation of
electronic commerce, provision of rich and diverse multimedia content and
the offering of other products and services, and that Infoseek's future
success, in part, would depend upon its ability to effectively accomplish
such integration in a timely fashion.
. The complementary nature of Starwave and Infoseek's technology, resources
and business and customer relationships, and the greater financial,
personnel, sales, marketing and distribution resources the Mergers would
afford Infoseek, offering it the potential to accelerate its growth
strategy and to compete more effectively in the Internet market. In
addition, the support that Disney would afford the combined companies in
respect of the development, launch and promotion of the planned New Portal
Service that would increase the potential for its successful development,
launch and market acceptance.
. The ownership position of Disney following consummation of the Starwave
Merger and the related transactions, and the several standstill, voting and
other terms afforded the other Infoseek shareholders in light of Disney's
substantial ownership position in Infoseek following consummation of the
Mergers and the related transactions, that are designed to enable the other
Infoseek shareholders to continue to participate
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in the potential for growth of the combined company following the Mergers.
See "Description of Related Agreements--Equity and Governance Agreements."
. The strategic opportunities available to Infoseek within the Internet
industry and the likelihood of future consolidation and/or strategic
alliances in the Internet industry. In this connection the Board also
considered the strategic benefit of an alliance with a major media company,
such as Disney, capable of developing content and brands and providing
promotional opportunities and expertise not commonly found at Infoseek's
primary Internet competitors. The Board also considered in this context the
potential for establishing a substantial strategic alliance with other
large media companies and certain other entities based, in part, upon
discussions with such parties by Infoseek management.
In addition to the factors set forth above, in the course of its
deliberations concerning the Reorganization Agreement, the Mergers and the
Related Agreements, the Infoseek Board consulted with Infoseek's management,
as well as its financial, legal and accounting advisors, and reviewed a number
of other factors relevant to the Mergers and related transactions, including
(i) reports from Infoseek's management and legal, accounting and financial
advisors on specific terms of the Reorganization Agreement and the other
Related Agreements described below under "Description of Related Agreements,"
and the legal and business due diligence examination of Starwave conducted by
Infoseek management, and its legal, financial and accounting advisors; (ii)
information concerning the financial performance, business operations and
prospects of Infoseek California presented at meetings of the Infoseek Board,
including among other things, Infoseek's recent and historical stock and
earnings performance; (iii) Infoseek management's belief that the management
styles and corporate cultures of the two companies would be complementary; (v)
the expected tax and accounting treatment of the Mergers; (vi) the terms and
conditions of shareholder agreements entered into by Disney and certain
Starwave executives pursuant to which such parties agreed to vote in favor of
the Reorganization Agreement and the Starwave Merger, thereby substantially
enhancing the likelihood of consummation of the transactions; (vii) the
proposed Delaware holding company structure that will result from the Infoseek
Merger as described under "Reasons for Incorporation of the Holding Company in
Delaware"; (viii) an assessment of the financial fairness of the Starwave
Merger, the stock and warrant issuance to Disney and commercial, promotional
and licensing arrangements to the holders of Infoseek California common stock;
and (ix) the fact that the Reorganization Agreement would permit the Infoseek
Board to terminate the agreement under certain circumstances.
The Infoseek Board also considered a number of potentially negative factors
in its deliberations concerning the Reorganization Agreement, the Mergers and
the Related Agreements, including (i) the possibility of management and
employee disruption associated with the Mergers and the implications of
disruptive aspects of the transactions on retaining key technical and
management personnel; (ii) the delays in Infoseek's achieving operating
profitability associated with the goodwill amortization and increased
operating expense structure of the combined companies that will result from
effectuation of the Mergers and related transactions; (iii) the risks
associated with obtaining necessary regulatory and shareholder approvals of
the Mergers and the related stock issuances; (iv) the possibility that the
Starwave Merger and the resulting relationship with Disney might adversely
affect Infoseek's relationship with certain of its customers, including other
large media companies; (v) the possibility of a decline in the value of
Infoseek common stock; (vi) the risk that the potential benefits of the
Mergers might not be realized; (vii) the risk that the planned New Portal
Service may not be successfully developed, launched and promoted by Infoseek
in a timely fashion and the partial dependence upon Disney and the Joint
Ventures in this regard; (viii) the relative complexity of the several
transactions contemplated by the Reorganization Agreement and the Related
Agreements; (ix) the increased resources that may be required to manage the
larger operations of the combined companies, with a substantially increased
employee base in diverse geographic locations; and the other risks described
under "Risk Factors--Risks Related to the Combined Companies, the Mergers and
Related Transactions." The Infoseek Board concluded, however, that the
potential benefits of the transaction to Infoseek and its shareholders
outweighed the risks associated with the foregoing factors.
The foregoing discussion of the information and factors considered by the
Infoseek Board in connection with its evaluation of the Reorganization
Agreement, the Mergers and the Related Agreements is not intended to be
exhaustive but is intended to include the material factors considered by the
directors.
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FOR THE REASONS DESCRIBED ABOVE, THE INFOSEEK BOARD UNANIMOUSLY RECOMMENDS
THAT THE HOLDERS OF INFOSEEK COMMON STOCK VOTE "FOR" APPROVAL AND ADOPTION OF
THE REORGANIZATION AGREEMENT AND THE INFOSEEK MERGER AND THE ISSUANCE OF
SHARES PURSUANT TO THE STARWAVE MERGER, AND THE ISSUANCE OF SHARES OF INFOSEEK
DELAWARE COMMON STOCK AND THE WARRANT TO DISNEY PURSUANT TO THE SECURITIES
PURCHASE AGREEMENT.
RECOMMENDATION OF STARWAVE BOARD OF DIRECTORS AND REASONS FOR THE MERGER
On June 13, 1998, the Starwave Board, by unanimous vote, approved the
Reorganization Agreement and the Starwave Merger as being in the best
interests of Starwave and its shareholders and decided to recommend approval
and adoption of the Reorganization Agreement and the Starwave Merger to
Starwave shareholders. In reaching its conclusion, the Starwave Board
considered, among other things, the following factors:
. The value to Starwave shareholders of the continuation of Starwave as an
independent entity versus a strategic combination with Infoseek pursuant to
the Starwave Merger, which included consideration of, among other things,
(i) the current status of the Internet industry, (ii) the strategic options
available to Starwave within the Internet industry, (iii) the likelihood of
future consolidation and/or strategic alliances in the Internet industry,
(iv) the opportunity to combine with Infoseek and Disney to develop, launch
and promote the planned New Portal Service, (v) the potentially enhanced
ability of Starwave to recruit and retain key technical personnel in the
Internet market through a combination with a publicly traded Internet
company, and (vi) the respective businesses, management, operations,
assets, financial condition and prospects of each of Starwave and Infoseek
and the strategic opportunities available through a combination of the two
entities;
. The implied equity value of Starwave under the terms of the Reorganization
Agreement, as indicated by the Exchange Ratio and historical market prices
of Infoseek common stock, in relation to the implied equity value of
Starwave as indicated by recent transactions in Starwave common stock,
including Disney's acquisition of a majority interest in Starwave pursuant
to transactions consummated in April 1997 and May 1998;
. The advantages to Starwave shareholders (as Infoseek shareholders following
the Starwave Merger) of the strategic alliance between Infoseek and Disney
upon consummation of the Starwave Merger, including (i) licensing and
promotional agreements between Infoseek and Disney, through which Infoseek
would benefit from the strength of Disney's creative content and brand
recognition, and (ii) Disney's representation on the Infoseek Board and
participation in the development of certain Infoseek products, through
which Infoseek would benefit from the expertise of Disney's management;
. The terms and conditions of the Reorganization Agreement and related
transactions and agreements, including the Exchange Ratio, closing
conditions, termination rights, termination fees, the conversion of
Starwave stock options into Infoseek stock options on a basis consistent
with the Exchange Ratio (but with all other terms, including vesting,
remaining unchanged), and the transferability of Infoseek Delaware common
stock to be received by Starwave shareholders other than Disney pursuant to
the Starwave Merger in light of the registration of such common stock under
the Securities Act;
. The terms and conditions of shareholder agreements entered into by Disney,
certain Starwave executives and certain Infoseek executives (including
Infoseek's Chairman and largest shareholder, Steven T. Kirsch), pursuant to
which such parties agreed to vote in favor of the Mergers, thereby
significantly enhancing the likelihood of the consummation of the Mergers;
and
. The fact that the Starwave Merger is conditioned upon DEI's receipt of an
opinion of special counsel that the Starwave Merger will be treated as a
reorganization as described in Section 368(a) of the Code and/or, when
taken together with the Infoseek Merger as a transfer of property by DEI
governed by Section 351 of the Code.
The foregoing list of the factors considered by the Starwave Board is not
intended to be exhaustive, but includes the material factors considered by the
Board. In reaching its determination to approve the
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Reorganization Agreement and the transactions contemplated thereby, the
Starwave Board did not assign any relative or specific weights to the various
factors considered by it nor did it specifically characterize any factor as
positive or negative, and individual directors may have given different
weights to different factors and may have viewed certain factors more
positively or negatively than others.
FOR THE REASONS DESCRIBED ABOVE, THE STARWAVE BOARD UNANIMOUSLY RECOMMENDS
THAT THE HOLDERS OF STARWAVE COMMON STOCK VOTE "FOR" APPROVAL AND ADOPTION OF
THE REORGANIZATION AGREEMENT AND THE STARWAVE MERGER.
OPINION OF INFOSEEK'S FINANCIAL ADVISOR
Infoseek retained Merrill Lynch to act as its financial advisor with respect
to the Mergers and the transactions contemplated by the Securities Purchase
Agreement, the Governance Agreement and the License Agreement (collectively,
the "Transaction"). In connection with such engagement, Infoseek requested
that Merrill Lynch evaluate the fairness, from a financial point of view, of
the Transaction to Infoseek and its shareholders. At the meeting of Infoseek's
Board on June 17, 1998, Merrill Lynch rendered its oral opinion to the Board
of Directors of Infoseek, subsequently confirmed in writing on June 18, 1998
(the "Merrill Lynch Opinion") to the effect that, as of such date and based
upon the assumptions made, matters considered and limits of such review, as
set forth in such opinion, the Transaction was fair, from a financial point of
view, to Infoseek and the shareholders of Infoseek.
THE FULL TEXT OF THE MERRILL LYNCH OPINION, WHICH SETS FORTH THE ASSUMPTIONS
MADE, MATTERS CONSIDERED AND CERTAIN LIMITATIONS ON THE SCOPE OF REVIEW
UNDERTAKEN BY MERRILL LYNCH IS ATTACHED AS ANNEX C TO THIS PROXY STATEMENT AND
IS INCORPORATED HEREIN BY REFERENCE. THE DESCRIPTION OF THE MERRILL LYNCH
OPINION SET FORTH HEREIN IS QUALIFIED BY REFERENCE TO THE FULL TEXT OF THE
MERRILL LYNCH OPINION. SHAREHOLDERS OF INFOSEEK ARE URGED TO READ THE MERRILL
LYNCH OPINION IN ITS ENTIRETY. THE MERRILL LYNCH OPINION IS ADDRESSED TO
INFOSEEK'S BOARD OF DIRECTORS AND ADDRESSES ONLY THE FAIRNESS FROM A FINANCIAL
POINT OF VIEW OF THE TRANSACTION. THE TERMS OF THE TRANSACTION WERE DETERMINED
ON THE BASIS OF NEGOTIATIONS BETWEEN INFOSEEK AND DISNEY. THE MERRILL LYNCH
OPINION DOES NOT ADDRESS THE MERITS OF THE UNDERLYING DECISION BY INFOSEEK TO
ENGAGE IN THE TRANSACTION AND DOES NOT CONSTITUTE, NOR SHOULD IT BE CONSTRUED
AS, A RECOMMENDATION TO ANY SHAREHOLDER OF INFOSEEK AS TO HOW SUCH SHAREHOLDER
SHOULD VOTE AT THE INFOSEEK SHAREHOLDERS MEETING.
In arriving at the Merrill Lynch Opinion, Merrill Lynch, among other things:
(i) reviewed certain publicly available business and financial information
relating to Infoseek that Merrill Lynch deemed to be relevant; (ii) reviewed
certain information, including financial forecasts, relating to the business,
earnings, cash flow, assets, liabilities and prospects of Infoseek and
Starwave furnished to it by Infoseek and Disney, respectively; (iii) conducted
discussions with members of senior management and representatives of Infoseek
and Disney concerning the matters described in clauses (i) and (ii) above, as
well as Infoseek's and Starwave's respective businesses and prospects before
and after giving effect to the Transaction; (iv) reviewed the market prices
and valuation multiples for Infoseek common stock and compared it with those
of certain publicly traded companies that Merrill Lynch deemed relevant; (v)
reviewed the results of operations of Infoseek and Starwave and compared them
with those of certain publicly traded companies that Merrill Lynch deemed to
be relevant; (vi) compared the proposed financial terms of the Transaction
with the financial terms of certain other transactions that Merrill Lynch
deemed to be relevant; (vii) participated in certain discussions and
negotiations among representatives of Infoseek and Disney and their legal
advisors; (viii) reviewed the potential pro forma impact of the Transaction;
(ix) reviewed drafts of the Reorganization Agreement, the Securities Purchase
Agreement, the Warrant, the Note, the Governance Agreement and the License
Agreement; and (x) reviewed such other financial studies and analyses and took
into account such other matters as Merrill Lynch deemed necessary, including
its assessment of general economic, market and monetary conditions.
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In preparing the Merrill Lynch Opinion, Merrill Lynch assumed and relied on
the accuracy and completeness of all information supplied or otherwise made
available to it, discussed with or reviewed by or for it, or publicly
available, and Merrill Lynch did not assume any responsibility for
independently verifying such information or undertaking an independent
evaluation or appraisal of any of the assets or liabilities of Infoseek or
Starwave and Merrill Lynch has not been furnished with any such evaluation or
appraisal. In addition, Merrill Lynch did not assume any obligation to conduct
any physical inspection of the properties or facilities of Infoseek or
Starwave, and has participated in discussions with a limited number of members
of senior management of Starwave. With respect to the financial forecast
information furnished to or discussed with Merrill Lynch by Infoseek, Starwave
or Disney, including financial forecast information developed by Infoseek
taking into account the Transaction, including the planned New Portal Service,
Merrill Lynch did not assume any responsibility for independently verifying
such financial forecast information and assumed that such information had been
reasonably prepared and reflected the best then available estimates and
judgment of Infoseek's or Disney's management as to the expected future
financial performance of Infoseek or Starwave, as the case may be. In
addition, Merrill Lynch assumed that the Mergers would qualify as tax-free
reorganizations and/or tax-free exchanges for U.S. federal income tax purposes
and that immediately following the closing of the Mergers, Infoseek Delaware
would be entitled to properly report, in accordance with GAAP, the activities
of itself, its subsidiaries and the ESPN Joint Venture and ABCNews Joint
Venture under the Representation Agreements described under a "Description of
Related Agreements--Licensing and Commercial Agreements--ABCNews
Representation Agreement" and "Licensing and Commercial Agreements--ESPN
Representation Agreement" as revenue in Infoseek Delaware's publicly disclosed
consolidated financial statements. Merrill Lynch also assumed that the final
forms of each of the Reorganization Agreement, the Securities Purchase
Agreement, the Warrant, the Note, the Governance Agreement and the licensing
and commercial agreements would be substantially similar to the drafts
provided to Merrill Lynch.
The Merrill Lynch Opinion was necessarily based upon market, economic and
other conditions as they existed and could be evaluated on, and on the
information made available to Merrill Lynch as of, the date of such opinion.
Under its engagement by Infoseek, Merrill Lynch has no obligation to update
the Merrill Lynch Opinion to take into account events occurring subsequent to
the date that the Merrill Lynch Opinion was delivered to Infoseek's Board of
Directors. As a result, circumstances could develop prior to consummation of
the Mergers that, if known at the time Merrill Lynch rendered its opinion,
would have altered such opinion. Merrill Lynch assumed that in the course of
obtaining the necessary regulatory or other consents or approvals (contractual
or otherwise) for the Transaction, including the Mergers, no restrictions,
including any divestiture requirements or amendments or modifications, will be
imposed that will have a material adverse effect on the contemplated benefits
of the Transaction, including the Mergers. In arriving at its opinion, Merrill
Lynch was not authorized to solicit, and did not solicit, third party
indications of interest for the acquisition of all or any part of Infoseek.
Merrill Lynch expresses no opinion as to the price at which Infoseek
California common stock or Infoseek Delaware common stock will trade following
the announcement or consummation of the Transaction.
The matters considered by Merrill Lynch in arriving at its opinion are based
on numerous macroeconomic, operating and financial assumptions with respect to
industry performance, general business and economic conditions, many of which
are beyond the control of Infoseek, Starwave and Disney, and involve the
application of complex methodologies and educated judgment. Any estimates
incorporated in the analyses performed by Merrill Lynch are not necessarily
indicative of actual past or future results or values, which may be
significantly more or less favorable than such estimates. Estimated values do
not purport to be appraisals and do not necessarily reflect the prices at
which businesses or companies may be sold in the future. The Merrill Lynch
Opinion does not present a discussion of the relative merits of the
Transaction as compared with any other business plan or opportunity that might
be presented to Infoseek, or the effect of any other arrangement in which
Infoseek might engage.
At the meeting of Infoseek Board held on June 17, 1998, Merrill Lynch
presented certain financial analyses accompanied by written materials in
connection with the delivery of the oral Merrill Lynch Opinion at that meeting
and the written Merrill Lynch Opinion on June 18, 1998. The following is a
summary of the material financial and comparative analyses performed by
Merrill Lynch in arriving at the Merrill Lynch Opinion.
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Valuation of the Consideration Received by Infoseek
Valuation of Joint Ventures and Portal Revenues. Merrill Lynch analyzed the
value of the Joint Ventures and the value of the incremental revenues to be
realized by Infoseek and Starwave from the planned New Portal Service (the
"Portal Revenues") utilizing publicly traded comparable companies and
discounted projected cash flows.
Based on projected revenues for the ESPN Joint Venture which were prepared
by management of Infoseek, Merrill Lynch calculated the value of Starwave's
interest in the ESPN Joint Venture's projected earnings as a combination of
(i) multiples of estimated calendar year 1998 revenues of 14.3x to 15.8x, 1999
revenues of 7.5x to 8.3x and 2000 revenues of 5.1x to 5.6x, (ii) the value per
estimated unique visitor of the ESPN Joint Venture during March 1998 of
$194.00--$214.40, (iii) the value per estimated average daily page views of
the ESPN Joint Venture during the first quarter of calendar year 1998 of
$107.00--$118.30 and (iv) discounted cash flow analysis (i.e., an analysis of
the present value for the projected unlevered free cash flows and terminal
value for the periods and at the discount rates indicated) assuming a 50%-75%
probability of renewal with ESPN and a terminal value multiple of 30x to 40x
of fiscal year 2007 net income and a discount rate range of between 20% and
30%. Based on the foregoing, Merrill Lynch calculated a range of value for
Starwave's interest in the ESPN Joint Venture on a stand alone basis of
between $375 million and $500 million.
Based on projected revenues for the ABCNews Joint Venture prepared by
management of Infoseek, Merrill Lynch calculated the value of Starwave's
interest in the ABCNews Joint Venture's projected earnings as a combination of
(i) multiples of estimated calendar year 1998 revenues of 9.5x to 12.7x and
1999 revenues of 5.0x to 6.7x, (ii) the value per estimated unique visitor of
the ABCNews Joint Venture during March 1998 of $57.50--$76.70, (iii) the value
per estimated average daily page views of the ABCNews Joint Venture during the
first quarter of calendar year 1998 of $82.20--$109.50 and (iv) discounted
cash flow analysis assuming a 50%-75% probability of renewal with ABC and a
terminal value multiple of 30x to 40x of fiscal year 2007 net income and a
discount rate range of between 20% and 30%. Based on the foregoing, Merrill
Lynch calculated a range of value for Starwave's interest in the ABCNews Joint
Venture of between $60 million and $100 million.
Based on pro forma projected Portal Revenues after giving effect to the
Transaction which were prepared by management of Infoseek, Merrill Lynch
calculated a value based upon multiples (derived from publicly traded
comparable companies) of estimated calendar year 1999 Portal Revenues of 14.0x
to 15.0x, 2000 Portal Revenues of 9.0x to 10.0x and 2001 Portal Revenues of
9.0x to 10.0x (with the revenues for such year discounted back one additional
year to counterbalance use of a higher multiple). Merrill Lynch applied these
multiples in two scenarios, the first of which included assumptions leading to
Portal Revenues equalling a 15% increase in Infoseek consolidated pro forma
revenues and the second of which included assumptions leading to a 19%
increase in Infoseek consolidated revenues. Merrill Lynch also valued the
Portal Revenues using discounted cash flow analysis giving effect to the
Transaction, for the fiscal years 1999 through 2006, inclusive based upon
forecasts prepared by Infoseek's management assuming a terminal value multiple
of 35x to 45x of fiscal year 2007 net income and a discount rate range of
between 25% and 35%. Based on the foregoing, Merrill Lynch calculated a range
of value for the Portal Revenues of between $300 million and $350 million.
Accordingly, Merrill Lynch's analysis indicated that the total value of the
Portal Revenues and the Joint Ventures was calculated to be between $735
million and $950 million.
Comparable Transaction Analysis. Merrill Lynch reviewed five selected
strategic transactions in the technology and bioscience/healthcare industries
in which the investor did not obtain immediate control of the board of
directors of the company issuing the securities (the "Transaction
Comparables"). The Transaction Comparables reviewed, in reverse chronological
order of announcement date, were: (i) the original investment by Samsung
Electronics in AST Research Inc.; (ii) the investment by Zeneca Group PLC in
Salick Health Care, Inc.; (ii) the investment by Rhone-Poulenc Rorer Inc. in
Applied Immune Sciences, Inc.; (iv) the investment by American Home Products
Corporation in Genetics Institute, Inc.; and (v) the investment by Roche
Holding Ltd in Genentech, Inc.
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For each of the Transaction Comparables, Merrill Lynch calculated the
implied premium/(discount) of the price paid per share of common stock to the
issuing company's stock prices on the day before the announcement of the
respective transactions. These premiums were then adjusted to reflect the
implied premium attributable to the entire shareholder base. This analysis
yielded a range of premiums of 3% to 26%, and mean and medium premiums of 17%
and 18%, respectively. Merrill Lynch calculated ranges of implied
premiums/(discounts) of the price paid per share of common stock for the
shares issued in the Transaction, implying a range of prices per share paid
based upon the range of valuations for the Portal Revenues and the Joint
Ventures outlined above plus $25 to $50 million of other Starwave assets, as
compared to (i) Infoseek's closing stock price for June 12, 1998, (ii) the
average of Infoseek's closing stock price for the five trading days ended June
12, 1998, (iii) the average of Infoseek's closing stock price for the ten
trading days ending June 12, 1998, and (iv) Infoseek's closing stock price for
June 8, 1998. Those ranges on the adjusted basis were (4.5%) to 7.6%, 0.5% to
12.6%, 3.2% to 15.3% and 5.3% to 17.4%, respectively.
No transaction utilized in the comparable transaction analysis was identical
to the Transaction. Accordingly, an analysis of the results of the foregoing
transactions is not purely mathematical. Rather, it involves complex
considerations and judgments concerning differences in financial and operating
characteristics of the companies included in the comparable transaction
analysis and other factors that could affect the offer value and the
transaction consideration.
Contribution Analysis. Merrill Lynch observed that, after giving effect to
the issuance of Infoseek common stock in the Transaction, but excluding the
shares issuable pursuant to the Warrant, Disney and the other shareholders of
Starwave would receive 48.0% of Infoseek's common stock on a primary basis and
46.0% on a fully diluted basis (excluding the Warrant). Merrill Lynch analyzed
the relative contributions of Infoseek, the Portal Revenues, the Joint
Ventures and certain other Starwave assets to the revenues of the combined
entity. Using certain revenue scenarios provided by Infoseek and Disney,
Merrill Lynch observed that for fiscal years 1999, 2000 and 2001,
respectively, the Portal Revenues, the Joint Ventures and certain other
Starwave assets would contribute 42.5% to 46.8%, 42.9% to 54.2%, and 41.0% to
57.3%, respectively, of the combined entity's total revenue.
Pro Forma Analysis. Merrill Lynch analyzed certain pro forma effects to
revenues, discounted cash flow and earnings per share resulting from the
Transaction.
Utilizing pro forma projected revenues for Infoseek after giving effect to
the Transaction which were prepared by management of Infoseek, Merrill Lynch
calculated Infoseek's total enterprise value (defined as market value of
common equity plus total debt less cash) as a multiple of (i) estimated fiscal
year 1999 revenues of 10.0x to 14.0x and (ii) estimated page views for the
fourth quarter of fiscal year 1999 of 30.0x to 50.0x. Utilizing these total
enterprise values, based upon 65.3 million shares of Infoseek common stock
outstanding and assuming $140 million of cash less total debt, after giving
effect to the Transaction, Merrill Lynch calculated a range of implied values
per share of Infoseek common stock of $29.47 to $40.40 and $32.43 to $53.08,
based upon the range of 1999 revenue multiples and the range of 1999 page view
multiples, respectively.
Merrill Lynch analyzed certain pro forma earnings effects for fiscal years
1999 through 2001 resulting from the Transaction using two sets of forecasts
prepared by Infoseek management. In addition, Merrill Lynch analyzed pro forma
earnings effects within two scenarios relating to the Transaction, the first
involving an in-process research and development ("IPRD") write-off of 20% and
goodwill amortization over a period of two years ("Scenario One"), and the
second involving an IPRD write-off of 50% and goodwill amortization over a
period of seven years ("Scenario Two").
The analyses described in the preceding paragraph indicated that the
Transaction would be dilutive on a pro forma accounting basis in all cases for
fiscal years 1999, 2000 and 2001, except for fiscal year 2001 under Scenario
One using the more moderate growth forecast. On a pro forma basis, excluding
certain non-cash and extraordinary charges, the Transaction would be dilutive
in all cases except for fiscal year 2001 under Scenario One and Scenario Two
using the more moderate growth forecast.
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Merrill Lynch performed discounted cash flow analysis of Infoseek giving
effect to the Transaction, for the years 1999 through 2000, based upon
forecasts prepared by Infoseek's management. Utilizing these forecasts,
Merrill Lynch calculated a range of equity values per share for Infoseek based
upon the sum of the discounted net present value of Infoseek's two-year stream
of projected unlevered free cash flows plus the discounted net present value
of the terminal value based on a range of multiples of its projected fiscal
year 2001 revenues, less debt net of cash. Assuming discount rates from 25% to
35% and terminal value multiples of fiscal year 2001 revenues ranging from
9.0x to 11.0x, Merrill Lynch calculated a range of implied equity per share
values for Infoseek's common stock (after giving event to the Transaction) of
$38.38 to $54.03.
Valuation of the Consideration Offered by Infoseek
Analysis of Selected Comparable Publicly Traded Companies. Using publicly
available information and estimates of future financial results published by
First Call, an industry service provider of earnings estimates based on an
average of earnings estimates published by various investment banking firms
("First Call"), Merrill Lynch compared certain financial and operating
information and ratios for Infoseek with the corresponding financial and
operating information for a group of three publicly traded online media
companies, Excite, Inc., Lycos, Inc. and Yahoo! Inc. (the "Comparable
Companies").
Merrill Lynch's calculations resulted in the following relevant ranges for
the Comparable Companies: total enterprise value (defined as market value of
common equity plus value of total debt less cash) as a multiple of (i)
estimated 1999 revenues of 8.0x to 10.0x, (ii) estimated page views (a widely
quoted operating statistic for Internet companies used to measure site traffic
that is regarded as an indication of the revenue potential of the advertising
space sold by such companies) for the first quarter of 1998 of 45.0x to 50.0x,
(iii) estimated page views (excluding Netscape traffic) for the first quarter
of 1998 of 50.0x to 60.0x, (iv) estimated unique visitors during March 1998 of
65.0x to 85.0x, and (v) estimated 1999 earnings per share of common stock of
80.0x to 110.0x.
Applying the above ranges of multiples derived from the Comparable
Companies' information analyzed by Merrill Lynch, Merrill Lynch calculated
implied per share equity values of Infoseek ranging from $25.92 to $31.90,
$30.90 to $34.11, $26.08 to $30.90, $26.90 to $34.56, and $22.40 to $30.80,
based upon the range of 1999 revenue multiples, 1998 first quarter page view
multiples, page views excluding Netscape multiples, March 1998 unique visitor
multiples and 1999 earnings multiples, respectively.
None of the Comparable Companies is identical to Infoseek. Accordingly, a
complete analysis of the results of the foregoing calculations cannot be
limited to a quantitative review of such results and involves complex
considerations and judgments concerning differences in financial and operating
characteristics of the Comparable Companies and other factors that could
affect the public trading value of the Comparable Companies, as well as that
of Infoseek.
Discounted Cash Flow Analysis. Merrill Lynch also performed discounted cash
flow analyses of Infoseek without the Transaction for the years 1999 through
2000, based upon various forecasts prepared by Infoseek's management.
Utilizing these forecasts, Merrill Lynch calculated a range of equity per
share values for Infoseek based upon the sum of the discounted net present
value of Infoseek's two-year stream of projected unlevered free cash flows
plus the discounted net present value of the terminal value based on a range
of multiples of its projected fiscal year 2001 unlevered earnings, less debt
net of cash. Assuming discount rates ranging from 20% to 25% and terminal
value multiples of calendar year 2001 unlevered earnings ranging from 32.5.x
to 37.5x, Merrill Lynch calculated a range of implied equity per share values
for Infoseek common stock of $11.31 to $37.50.
Other Consideration Exchanged
Valuation of the Purchase of Shares and Warrant. As part of the
Transaction, Disney will pay approximately $70 million for 2,642,000 shares
of Infoseek's common stock. Merrill Lynch developed a range of values for
the Warrant, on a per share basis and in the aggregate, based upon a price
of $30.125
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per share for Infoseek's common stock and various other assumptions. On a
per share basis the value of the Warrant ranged from $6.47 per share to
$11.64 per share and the aggregate value of the Warrant ranged from $101.8
million to $183.1 million. Merrill Lynch also performed discounted cash
flow analyses with respect to the expected payments to be received by
Infoseek from the Note. Applying a discount rate range of between 5.5% and
7.5%, the implied value of the Note ranges, on a per share basis, from
$8.62 to $9.07, and ranges, on an aggregate basis, from $135.5 million to
$142.6 million.
The summary set forth above does not purport to be a complete description of
the analyses performed by Merrill Lynch in arriving at the Merrill Lynch
Opinion. The preparation of a fairness opinion is a complex process and not
necessarily susceptible to partial or summary description. In arriving at its
opinion, Merrill Lynch did not attribute any particular weight to any analysis
or factor considered by it, but rather made qualitative judgments as to the
significance and relevance of each analysis and factor. Merrill Lynch believes
that its analyses must be considered as a whole and that selecting portions of
its analyses and of the factors considered by it, without considering all
factors and analyses, could create a misleading view of the processes
underlying its analyses set forth in its opinion. Merrill Lynch believes that
none of the analyses failed to support the Merrill Lynch Opinion.
Infoseek's Board of Directors selected Merrill Lynch to render a fairness
opinion because Merrill Lynch is an internationally recognized investment
banking firm with substantial experience in transactions similar to the
Transaction. Merrill Lynch is continually engaged in the valuation of
businesses and their securities in connection with mergers and acquisitions
and for other purposes and has substantial experience in transactions similar
to the Transaction.
Pursuant to a letter agreement, Infoseek has agreed to pay Merrill Lynch (i)
a fee of $50,000 payable on the date of the letter agreement; and (ii) if the
Transaction is consummated, a transaction fee of 0.75% of the value of
Infoseek immediately prior to the consummation of the Transaction. The amount
referred to in the preceding clause (i) would be credited against the payment
under clause (ii). In addition, Infoseek has agreed to reimburse Merrill Lynch
for its reasonable out-of-pocket expenses (including reasonable fees and
expenses of its legal counsel), subject to certain limitations, incurred in
connection with its engagement, and to indemnify Merrill Lynch and certain
related persons against certain liabilities arising out of or in conjunction
with its rendering of services under its engagement, including certain
liabilities under the federal securities laws.
Merrill Lynch has in the past provided financial advisory and financing
services to Infoseek and Disney (in the last two years acting as the lead
underwriter for the issuance of 3,450,000 shares of Infoseek's common stock in
February 1998), and may continue to do so, and has received, and may receive,
customary fees for the rendering of such services. In the ordinary course of
its business, Merrill Lynch may actively trade the securities and commercial
paper of Infoseek and Disney for its own account and for the accounts of its
customers and, accordingly, may at any time hold a long or short position in
such securities and loans.
ADDITIONS TO INFOSEEK'S BOARD OF DIRECTORS; INTERESTS OF CERTAIN PERSONS IN
THE MERGERS
In accordance with the terms of the Governance Agreement, three
representatives of Disney, one of whom currently serves on the Board of
Directors of Starwave, will become members of the Board of Directors of
Infoseek. The Infoseek Delaware Board will be comprised of eight members, with
the other five seats filled by current Infoseek California directors. See
"Infoseek Management."
In connection with the Mergers, Starwave is currently in the process of
negotiating with certain of its executive officers regarding severance or
retention arrangements in light of their potential roles in the combined
companies. See "Starwave Executive Compensation--Starwave Employment
Agreements." Although Starwave is currently unable to predict the final terms
of these arrangements, Starwave currently anticipates that its Chief Executive
Officer, Michael B. Slade, and its Chief Operating Officer, Curt D. Blake,
will terminate their employment with Starwave concurrently with the
consummation of the Mergers or shortly thereafter in accordance with severance
arrangements to be entered into with each such executive, and that Starwave's
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President, Patrick J. Naughton, and its Vice President, Technical Operations,
David Chamberlain, will continue their employment with the combined companies
in accordance with new or amended employment agreements. However, there can be
no assurance in this regard. Starwave does not anticipate that any such
arrangements or any failure to retain its executive officers will have a
material adverse effect on the business, financial condition, operating
results or prospects of the combined companies. Further, the Mergers are not
conditioned upon consummation or effectiveness of any of these arrangements or
the retention or termination of any of these officers.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
In the opinion of Dewey Ballantine LLP, special counsel to Disney, the
material federal income tax consequences of the Starwave Merger to holders of
Starwave common stock who, pursuant to the Starwave Merger, exchange their
Starwave common stock solely for Infoseek Delaware common stock, and in the
opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation, counsel
to Infoseek, the material federal income tax consequences of the Infoseek
Merger to holders of Infoseek California common stock who, pursuant to the
Infoseek Merger, exchange their Infoseek California common stock solely for
Infoseek Delaware common stock, are as described below. Consummation of the
Starwave Merger is conditioned upon the receipt by DEI of an opinion of Dewey
Ballantine LLP, based upon reasonably requested representation letters and
dated the closing date, to the effect that the Starwave Merger will be treated
as a reorganization described in Section 368(a) of the Code and/or, when taken
together with the Infoseek Merger, as a transfer of property to Infoseek
Delaware by DEI governed by Section 351 of the Code. The portions of the
discussion below under "--Treatment of Holders of Starwave Common Stock" and
"--Cash In Lieu of Fractional Shares" assume that the Starwave Merger will be
treated in accordance with the opinion of Dewey Ballantine LLP described in
the preceding sentence and that the representations made in connection
therewith will be true. Consummation of the Infoseek Merger is conditioned
upon the receipt by Infoseek California of an opinion of Wilson Sonsini
Goodrich & Rosati, based upon reasonably requested representation letters and
dated the closing date, to the effect that the Infoseek Merger will be treated
for federal income tax purposes as a reorganization described in Section
368(a) of the Code and/or, when taken together with the Starwave Merger, as a
transfer of property to Infoseek Delaware by holders of Infoseek California
common stock governed by Section 351 of the Code. The portion of the
discussion below under "Treatment of Holders of Infoseek California Common
Stock" assumes that the Infoseek Merger will be treated in accordance with the
opinion of Wilson Sonsini Goodrich & Rosati described in the preceding
sentence and that the representations made in connection therewith will be
true.
The discussion below and the opinions of Dewey Ballantine LLP and Wilson
Sonsini Goodrich & Rosati are based upon current provisions of the Code,
currently applicable Treasury regulations, and judicial and administrative
decisions and rulings. There can be no assurance that the Internal Revenue
Service (the "IRS") will not take a contrary view, and no ruling from the IRS
has been or will be sought. Future legislative, judicial or administrative
changes or interpretations could alter or modify the statements and
conclusions set forth herein, and any such changes or interpretations could be
retroactive and could affect the tax consequences to the shareholders of
Starwave and Infoseek California.
The discussion below and the opinions of Dewey Ballantine LLP and Wilson
Sonsini Goodrich & Rosati do not purport to deal with all aspects of federal
income taxation that may affect particular shareholders in light of their
individual circumstances, and is not intended for shareholders subject to
special treatment under the federal income tax law (including insurance
companies, tax-exempt organizations, financial institutions, broker-dealers,
foreign persons, stockholders who hold their stock as part of a hedge,
appreciated financial position, straddle or conversion transaction,
stockholders who do not hold their stock as capital assets and stockholders
who have acquired their stock upon the exercise of employee options or
otherwise as compensation). In addition, the discussion below and the opinions
do not consider the effect of any applicable state, local or foreign tax laws.
Treatment of Holders of Starwave Common Stock. Except as discussed below
under "--Cash in Lieu of Fractional Shares," a holder of Starwave common stock
who, pursuant to the Starwave Merger, exchanges Starwave common stock for
Infoseek Delaware common stock will not recognize gain or loss upon such
exchange. Such holder's tax basis in the Infoseek Delaware common stock
received pursuant to the Starwave
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Merger will be equal to its tax basis in the Starwave common stock surrendered
(excluding any portion of its tax basis allocated to fractional shares), and
its holding period for the Infoseek Delaware common stock will include its
holding period for the Starwave common stock surrendered.
Treatment of Holders of Infoseek California Common Stock. A holder of
Infoseek California common stock who, pursuant to the Infoseek Merger,
exchanges Infoseek California common stock for Infoseek Delaware common stock
will not recognize gain or loss upon such exchange. Such holder's tax basis in
the Infoseek Delaware common stock received pursuant to the Infoseek Merger
will be equal to its tax basis in the Infoseek California common stock
surrendered, and its holding period for the Infoseek Delaware common stock
will include its holding period for the Infoseek California common stock
surrendered.
Cash in Lieu of Fractional Shares. A Starwave shareholder who receives cash
in lieu of fractional shares of Infoseek Delaware common stock will be treated
as having received such fractional shares pursuant to the Starwave Merger and
then as having exchanged such fractional shares for cash in a redemption by
Infoseek Delaware. Any gain or loss attributable to fractional shares
generally should be capital gain or loss. The amount of such gain or loss will
be equal to the difference between the portion of the holder's tax basis in
the stock surrendered in the Starwave Merger that is allocated to its
fractional share and the cash received in lieu thereof. Any such capital gain
or loss should constitute long-term capital gain or loss if the stock has been
held by the holder for more than one year at the Effective Time.
Reporting Requirements and Backup Withholding. Each shareholder of Starwave
and Infoseek California receiving Infoseek Delaware common stock as a result
of the Mergers will be required to retain certain records and file with its
federal income tax return a statement setting forth certain facts relating to
the Mergers.
Backup withholding at the rate of 31% may apply with respect to certain cash
payments unless the recipient (i) is a corporation or comes within certain
other exempt categories and, when required, demonstrates this fact or (ii)
provides a correct taxpayer identification number, certifies as to no loss of
exemption from backup withholding and otherwise complies with applicable
requirements of the backup withholding rules. A shareholder who does not
provide Infoseek Delaware with its correct taxpayer identification number may
be subject to penalties imposed by the IRS. Any amounts withheld under the
backup withholding rules may be allowed as a refund or a credit against the
stockholder's federal income tax liability provided that certain required
information is furnished to the IRS.
Infoseek Delaware will report to shareholders of Infoseek Delaware and to
the IRS the amount of "reportable payments" and any amount withheld with
respect to Infoseek Delaware common stock during each calendar year.
THE FOREGOING GENERAL DESCRIPTION OF CERTAIN FEDERAL INCOME TAX CONSEQUENCES
IS NOT TAX ADVICE AND MAY NOT APPLY TO ALL SHAREHOLDERS OF STARWAVE AND
INFOSEEK. ACCORDINGLY, EACH SHAREHOLDER OF STARWAVE AND INFOSEEK IS URGED TO
CONSULT ITS OWN TAX ADVISOR WITH RESPECT TO THE TAX CONSEQUENCES OF THE
MERGERS, INCLUDING THE APPLICABILITY AND EFFECT OF STATE, LOCAL OR FOREIGN TAX
LAWS.
GOVERNMENTAL AND REGULATORY MATTERS
Under the HSR Act, and the rules promulgated thereunder by the FTC, the
Mergers and the transactions contemplated by the Related Agreements cannot be
consummated until notifications have been given to the FTC and the Antitrust
Division and the specified waiting periods have expired or terminated early.
The notifications required under the HSR Act were furnished to the FTC and the
Antitrust Division by Infoseek, Disney and Starwave and the specified waiting
periods under the HSR Act for the Mergers and related transactions were
terminated early as of July 13, 1998. Notwithstanding the termination of the
applicable waiting periods under the HSR Act, the Antitrust Division, the FTC
or any state or foreign governmental authority could take such action
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under the antitrust laws as it deems necessary or desirable in the public
interest. Such action could include seeking to enjoin the consummation of the
Mergers and the transactions contemplated by the Related Agreements or seeking
divestiture of portions of the businesses of Infoseek or Starwave. Private
parties may also seek to take legal action under the antitrust laws under
certain circumstances.
Based on information available to them, Infoseek and Starwave believe that
the Mergers and the transactions contemplated by the Related Agreements will
be effected in compliance with federal and state antitrust laws. However,
there can be no assurance that a challenge to the consummation of the Mergers
on antitrust grounds will not be made or that, if such a challenge were made,
Infoseek, Disney and Starwave would prevail.
ACCOUNTING TREATMENT
The Starwave Merger will be accounted for under the "purchase" method of
accounting in accordance with generally accepted accounting principles. Under
the "purchase" method of accounting, the aggregate consideration paid by the
acquiring company, which is deemed to be Infoseek Delaware, is allocated to
the acquired assets and liabilities (in this instance, of the business of
Starwave) based on the fair market values at the effective time with any
excess being treated as goodwill. Results of operations of Starwave, including
the related amortization of intangible assets and write-off of in-process
research and development associated with the Starwave Merger, will be included
in the results of operations of Infoseek Delaware subsequent to the effective
time. The conversion of Infoseek California common stock into shares of
Infoseek Delaware common stock will be treated as a reorganization with no
change in the recorded amount of Infoseek California's recorded assets and
liabilities. The financial statements of Infoseek California will be
consolidated with the financial statements of Infoseek Delaware.
STOCK EXCHANGE LISTING
It is a condition to the Mergers that the shares of Infoseek Delaware common
stock to be issued pursuant to the Reorganization Agreement be approved for
listing on Nasdaq. Infoseek Delaware will seek to obtain such listing on
Nasdaq prior to consummation of the Mergers.
RIGHTS OF DISSENTING INFOSEEK SHAREHOLDERS
If the Mergers are consummated, holders of Infoseek California common stock
who have properly exercised dissenters' rights in connection with the Infoseek
Merger under Sections 1300-1312 ("Chapter 13") of the CGCL will have the right
to receive such consideration as may be determined to be due with respect to
Dissenting Infoseek Shares (as defined below) pursuant to the laws of the
State of California; provided demands for such consideration are properly
filed at or before the Infoseek Shareholders Meeting with respect to five
percent (5%) or more of the outstanding shares of Infoseek California common
stock.
The following summary of the provisions of Chapter 13 is not intended to be
a complete statement of such provisions, and Infoseek California shareholders
are urged to read the full text of Chapter 13, a copy of which is attached to
this Joint Proxy Statement/Prospectus as Annex B-1.
If the Infoseek Merger is approved by the required vote of the holders of
Infoseek California common stock and is not abandoned or terminated, each
holder of shares of Infoseek California common stock who votes against the
Infoseek Merger and who follows the procedures set forth in Chapter 13 will be
entitled to have his or her shares of Infoseek California common stock
purchased by Infoseek California for cash at their fair market value, so long
as demands for such consideration are properly filed at or before the Infoseek
Shareholders Meeting with respect to five percent (5%) or more of the
outstanding shares of Infoseek California common stock. The fair market value
of shares of Infoseek California common stock will be determined as of the day
before the first announcement of the terms of the Infoseek Merger, excluding
any appreciation or depreciation resulting as a consequence of the Infoseek
Merger, but adjusted for any stock split, reverse stock split or share
dividend that becomes effective thereafter. The shares of Infoseek California
common stock with respect to
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which holders have perfected their purchase demand in accordance with Chapter
13 and have not effectively withdrawn or lost such rights are referred to as
the "Dissenting Infoseek Shares."
Within 10 days after approval of the Infoseek Merger by Infoseek
California's shareholders, Infoseek California must, if demands for appraisal
have been properly filed by the holders of five percent (5%) or more of the
outstanding shares of Infoseek California common stock, mail a notice of such
approval (the "Approval Notice") to all Infoseek shareholders who have voted
against the approval of the Infoseek Merger and followed the procedures set
forth in Chapter 13, together with a statement of the price determined by
Infoseek California to represent the fair market value of the applicable
Dissenting Infoseek Shares (determined in accordance with the immediately
preceding paragraph), a brief description of the procedures to be followed in
order for the Infoseek shareholder to pursue his or her dissenters' rights,
and a copy of Sections 1300-1304 of the CGCL. The statement of price by
Infoseek California constitutes an offer by Infoseek California to purchase
all Dissenting Infoseek Shares at the stated amount.
A shareholder of Infoseek California electing to exercise dissenters' rights
must, within the time period provided in Section 1301(b) of the CGCL, demand
in writing from Infoseek California the purchase of his or her shares of
Infoseek California common stock and payment to the shareholder at their fair
market value. An Infoseek holder who elects to exercise dissenters' rights
should mail or deliver his or her written demand to Infoseek California at
1399 Moffett Park Drive, Sunnyvale, California 94089, Attention: Andrew E.
Newton, Vice President, General Counsel and Secretary. The demand should
specify the holder's name and mailing address and the number of shares of
Infoseek California common stock held of record by such shareholder and state
that such holder is demanding purchase of his or her shares and payment of
their fair market value, and must also contain a statement as to what the
shareholder claims to be the fair market value of such shares as of the day
before the first announcement of the terms of the proposed Infoseek Merger.
Such statement of the fair market value of the shares of Infoseek California
common stock constitutes an offer by the shareholder to sell the Dissenting
Infoseek Shares held by such shareholder at that price.
Within the time period provided in Section 1302 of the CGCL, the Infoseek
shareholder must also submit the certificates representing the Dissenting
Infoseek Shares to Infoseek California for endorsement as Dissenting Infoseek
Shares.
If Infoseek California and the Infoseek California shareholder agree that
the shares are Dissenting Infoseek Shares and agree upon the purchase price of
the shares, the dissenting shareholder is entitled to the agreed-upon price
with interest thereon at the legal rate on judgments from the date of such
agreement. Payment for the Dissenting Infoseek Shares must be made within 30
days after the later of the date of such agreement or the date on which all
statutory and contractual conditions to the Infoseek Merger are satisfied, and
is subject to surrender to Infoseek California of the certificates
representing the Dissenting Infoseek Shares.
If Infoseek California denies that the shares are Dissenting Infoseek Shares
or if Infoseek California and the shareholder fail to agree upon the fair
market value of the shares of Infoseek California common stock, then within
the time period provided in Section 1304(a) of the CGCL, any shareholder who
has made a valid written purchase demand and who has not voted in favor of
approval and adoption of the Reorganization Agreement and the Infoseek Merger
may file a complaint in the superior court of the proper county requesting a
determination as to whether the shares are Dissenting Infoseek Shares or as to
the fair market value of such holder's shares of Infoseek California common
stock or both, or may intervene in any pending action brought by any other
Infoseek California shareholder. If the fair market value of the Dissenting
Infoseek Shares is at issue, the court may appoint one or more impartial
appraisers to determine the fair market value of such Dissenting Infoseek
Shares.
Except as expressly limited by Chapter 13 of the CGCL, holders of Dissenting
Infoseek Shares continue to have all the rights and privileges incident to
their shares, until the fair market value of their shares is agreed upon or
determined. A holder of Dissenting Infoseek Shares may not withdraw a demand
for payment unless Infoseek California consents thereto.
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Dissenting Infoseek Shares lose their status as Dissenting Infoseek Shares,
and dissenting shareholders cease to be entitled to require Infoseek
California to purchase their shares if: (a) the Infoseek Merger is abandoned;
(b) the shares are transferred prior to their submission to Infoseek
California for the required endorsement; (c) the dissenting Infoseek
California shareholder and Infoseek California do not agree upon the status of
the shares as Dissenting Infoseek Shares or do not agree on the purchase
price, but neither Infoseek California nor the shareholder files a complaint
or intervenes in a pending action within six months after mailing of the
Approval Notice; or (d) with Infoseek California's consent, the holder
delivers to Infoseek California a written withdrawal of such holder's demand
for purchase of his or her shares.
INFOSEEK CALIFORNIA SHAREHOLDERS WILL HAVE NO APPRAISAL RIGHTS UNLESS
DEMANDS FOR APPRAISAL AND PAYMENT ARE RECEIVED AT OR PRIOR TO THE DATE OF THE
INFOSEEK SHAREHOLDERS MEETING FROM HOLDERS OF 5% OR MORE OF THE OUTSTANDING
SHARES OF INFOSEEK COMMON STOCK.
RIGHTS OF DISSENTING STARWAVE SHAREHOLDERS
If the Starwave Merger is consummated, holders of Starwave common stock who
have properly exercised dissenters' rights under Chapter 23B.13 of the
Washington Business Corporation Act ("Chapter 23B.13") will have the right to
receive such consideration as may be determined to be due with respect to
Dissenting Starwave Shares (as defined below) pursuant to the laws of the
State of Washington.
The following summary of the provisions of Chapter 23B.13 is not intended to
be a complete statement of such provisions, and Starwave shareholders are
urged to read the full text of Chapter 23B.13, a copy of which is attached to
this Joint Proxy Statement/Prospectus as Annex B-2.
If the Starwave Merger is approved by the required vote of the holders of
Starwave common stock and is not abandoned or terminated, each holder of
shares of Starwave common stock who (i) has given prior notice to Starwave of
his or her intent to demand payment for his or her shares if the Starwave
Merger is consummated and (ii) does not vote in favor of the Starwave Merger
(a "Dissenting Starwave Shareholder") will be entitled to have his or her
shares of Starwave common stock purchased by Starwave for cash at "fair
value." The fair value of shares of Starwave common stock will be determined
as of the day immediately prior to the Effective Time, excluding any
appreciation or depreciation resulting as a consequence of the Starwave Merger
(unless such exclusion would be inequitable). The shares of Starwave common
stock with respect to which holders have perfected their payment demand rights
in accordance with Chapter 23B.13 and have not effectively withdrawn or lost
such rights are referred to as the "Dissenting Starwave Shares."
Within 10 days after the Effective Time of the Starwave Merger, Starwave
must deliver to all Dissenting Starwave Shareholders a notice containing (i) a
brief description of the procedures to be followed in order for such
Dissenting Starwave Shareholders to exercise their dissenters' rights, (ii)
the deadline for payment demand (30 to 60 days after notice is delivered to
shareholders) and (iii) a copy of Chapter 23B.13.
A Dissenting Starwave Shareholder must, within the time period required,
demand in writing from Starwave payment for his or her Dissenting Starwave
Shares. A Starwave shareholder who elects to exercise dissenters' rights
should mail or deliver his or her written demand to Starwave at 13810 S.E.
Eastgate Way, Suite 400, Bellevue, Washington 98005, attention: Corporate
Secretary. The payment demand must certify whether or not such Dissenting
Starwave Shareholder acquired beneficial ownership of his or her Dissenting
Starwave Shares before the date of the first announcement to the news media or
to Starwave shareholders of the terms of the Starwave Merger. Within the time
period required, a Dissenting Starwave Shareholder must also deposit with
Starwave the certificates representing the Dissenting Starwave Shares.
Within 30 days after the later of the Effective Time or the date a written
payment demand from a Dissenting Starwave Shareholder is received by Starwave,
and subject to surrender to Starwave of the certificates representing such
Dissenting Starwave Shareholder's Dissenting Starwave Shares, Starwave will be
required to
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pay to such Dissenting Starwave Shareholder the fair value of the Dissenting
Starwave Shares. Starwave will also be required to deliver to such Dissenting
Starwave Shareholder certain of its financial statements, together with an
explanation of how Starwave determined the fair value of the Dissenting
Starwave Shares and any interest accrued thereon, a statement of the
dissenter's right to demand payment if the dissenter is dissatisfied with
Starwave's calculation of the fair value of the Dissenting Starwave Shares,
and a copy of Chapter 23B.13. However, Starwave need not make timely payments
to Dissenting Starwave Shareholders who only own Starwave shares acquired
after the date of the announcement of the Merger. Instead, Starwave may
condition its payment for such shares on acceptance by the Dissenting Starwave
Shareholder of such payment as full satisfaction of the Dissenting Starwave
Shareholder's payment demand.
If a Dissenting Starwave Shareholder believes that the amount paid by
Starwave for Dissenting Starwave Shares is less than the fair value of such
shares or that any interest due thereon was calculated incorrectly, such
Dissenting Starwave Shareholder may notify Starwave in writing of such
Dissenting Starwave Shareholder's own estimate of the fair value of the
Dissenting Starwave Shares and any interest due thereon and demand payment
therefor by Starwave. Such notice must be provided to Starwave within 30 days
after Starwave makes or offers payment for the Dissenting Starwave Shares as
described above. If Starwave declines to pay the Dissenting Starwave
Shareholder's estimated fair value, Starwave must commence a court proceeding
within 60 days of the payment demand and petition the court to determine the
fair value of the Dissenting Starwave Shares and any interest due thereon.
Holders of Dissenting Starwave Shares continue to have all the rights and
privileges incident to such shares until the Effective Time. Starwave may
restrict the transfer of uncertificated Dissenting Starwave Shares from the
date any payment demand is received by Starwave for such shares until the
Effective Time.
STARWAVE SHAREHOLDERS WILL HAVE NO DISSENTERS' RIGHTS UNLESS NOTICE OF
INTENT TO DEMAND PAYMENT IS RECEIVED BY STARWAVE BEFORE THE SHAREHOLDER VOTE
AT THE STARWAVE SHAREHOLDERS MEETING.
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TERMS OF THE MERGERS
THE FOLLOWING IS A SUMMARY OF THE MATERIAL PROVISIONS OF THE REORGANIZATION
AGREEMENT, A COPY OF WHICH IS ATTACHED AS ANNEX A-1 TO THIS JOINT PROXY
STATEMENT/PROSPECTUS AND IS INCORPORATED HEREIN BY REFERENCE. THE FOLLOWING IS
NOT A COMPLETE STATEMENT OF ALL PROVISIONS OF THE REORGANIZATION AGREEMENT.
STATEMENTS MADE IN THIS JOINT PROXY STATEMENT/PROSPECTUS WITH RESPECT TO THE
TERMS OF THE REORGANIZATION AGREEMENT ARE QUALIFIED BY REFERENCE TO THE MORE
DETAILED INFORMATION SET FORTH IN THE REORGANIZATION AGREEMENT.
TERMS OF THE MERGERS
The Mergers
At the Effective Time (as defined below), and subject to and upon the terms
and conditions of the Reorganization Agreement, each of Infoseek Merger Sub
and Starwave Merger Sub will be merged with and into each of Infoseek
California and Starwave, respectively, with Infoseek California and Starwave
each continuing as surviving corporations and as wholly-owned subsidiaries of
Infoseek Delaware.
Effective Time
Subject to the provisions of the Reorganization Agreement, the parties shall
cause the Mergers to be consummated by filing a Certificate of Merger with the
Secretary of State of the State of California in accordance with the relevant
provisions of California law and the filing of Articles of Merger with the
Secretary of State of the State of Washington, each as soon as practicable on
or after the Closing Date (the later of such filings, or such further later
time as may be specified in the Certificate and Articles of Merger being the
"Effective Time" of the Mergers). The closing of the Mergers (the "Closing")
shall take place at the offices of Wilson Sonsini Goodrich & Rosati,
Professional Corporation, counsel to Infoseek, on the first business day after
satisfaction or waiver of the conditions set forth in the Reorganization
Agreement or at such other date, time and location as the parties may agree.
The Closing is currently anticipated to occur on or about November 18, 1998.
Directors and Officers
At the Effective Time, (i) the current directors of Infoseek Delaware, who
are also the current directors of Infoseek California, will continue to serve
on the Infoseek Delaware and Infoseek California Boards, along with an
additional three new representatives of Disney on the Infoseek Delaware Board;
(ii) the directors of Infoseek Merger Sub shall become the directors of
Infoseek California; (iii) the officers of Infoseek Delaware, who are the
current officers of Infoseek California, will remain as the officers of both
entities; (iv) the directors of Starwave Merger Sub shall become the directors
of Starwave; and (v) the officers of Starwave will continue in their current
positions, in each case until their successors are duly elected or appointed
in accordance with applicable law.
Manner and Basis for Converting Infoseek California Shares
At the Effective Time, by virtue of the Infoseek Merger, each issued and
outstanding share of Infoseek California common stock will be automatically
converted into the right to receive one share of Infoseek Delaware common
stock.
Manner and Basis for Converting Starwave Shares
At the Effective Time, by virtue of the Starwave Merger, each issued and
outstanding share of Starwave common stock will be automatically converted
into the right to receive a fraction of a share of Infoseek Delaware common
stock equal to the Exchange Ratio (as defined below). Each share of Starwave
common stock owned by Starwave, or any direct or indirect wholly-owned
subsidiary of Starwave immediately prior to the Effective Time, will be
canceled and extinguished without any conversion thereof.
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The "Exchange Ratio," as defined in the Reorganization Agreement, is equal
to the quotient obtained by dividing (i) 28,138,000 by (ii) the sum of: (x)
the aggregate number of shares of Starwave common stock outstanding and (y)
the aggregate number of shares of Starwave common stock subject to all issued
and outstanding options, warrants, and other rights to acquire Starwave
capital stock outstanding as of the Effective Time. Based on the outstanding
capitalization of Starwave as of October 9, 1998, the applicable Exchange
Ratio would be approximately 0.26 shares. Issuance of shares of Starwave
capital stock (not subject to outstanding options, warrants or other rights to
acquire Starwave capital stock) or the grant or issuance of additional
options, warrants or other rights to acquire Starwave capital stock subsequent
to such date will result in a proportional decrease in the Exchange Ratio
based upon the foregoing formula (except to the extent such issuances are
offset by any cancellations of outstanding stock options). Accordingly, in
light of potential adjustments in the Exchange Ratio and potential variations
in the market price of Infoseek common stock, Starwave shareholders cannot be
certain of the exact amount of consideration that they will receive upon
consummation of the Starwave Merger, and such consideration may be less than
Starwave shareholders may anticipate based on the Exchange Ratio and the
information regarding historical market prices of Infoseek common stock as set
forth in this Joint Proxy Statement/Prospectus. Starwave management
anticipates that, prior to consummation of the Mergers, options to acquire
Starwave common stock will be issued to new or current employees of Starwave
in the ordinary course of business consistent with past practice, which
issuances are not expected to have a material impact on the Exchange Ratio.
Starwave management does not currently anticipate any material increase in the
outstanding shares of Starwave capital stock prior to the consummation of the
Mergers (other than issuance of shares upon exercise of outstanding stock
options). Should Starwave issue additional capital stock (or rights to acquire
such capital stock) in excess of 10% of the total outstanding capital stock of
Starwave as of October 9, 1998, shareholders of Infoseek and Starwave will
receive a revised solicitation relating to the transactions described herein.
Pursuant to the Reorganization Agreement, unless Infoseek otherwise consents,
Starwave is prohibited from redeeming shares of its capital stock or any
options or other rights to acquire its capital stock, which redemptions would
have the effect of increasing the Exchange Ratio.
According to the terms of the Reorganization Agreement, the Exchange Ratio
will be adjusted to reflect appropriately the effect of any stock split,
reverse stock split, stock dividend (including any dividend or distribution of
securities convertible into Infoseek Delaware common stock or Infoseek
California common stock), reorganization, recapitalization, reclassification
or other like change with respect to Infoseek Delaware common stock or
Infoseek California common stock occurring or having a record date on or after
the date of the Reorganization Agreement and prior to the Effective Time.
Infoseek California Stock Options
At the Effective Time, each outstanding option or right to purchase shares
of Infoseek California common stock (each, an "Infoseek California Option")
shall be converted into an option to acquire the same number of shares of
Infoseek Delaware common stock and will continue to have, and be subject to,
the same terms and conditions (including vesting restrictions) as set forth in
the stock option agreement by which it is evidenced, except that each option
will become exercisable for Infoseek Delaware common stock rather than
Infoseek California common stock.
Starwave Stock Options
At the Effective Time, each outstanding option or right to purchase shares
of Starwave common stock (each, a "Starwave Option") shall be assumed by
Infoseek Delaware and be converted into an option to purchase that number of
shares of Infoseek Delaware common stock equal to the number of shares
Starwave common stock subject to such Starwave Option immediately prior to the
Effective Time multiplied by the Exchange Ratio, rounded down to the nearest
whole share and the per share exercise price for the shares of Infoseek
Delaware common stock issuable upon exercise of such assumed Starwave Option
shall be equal to the quotient obtained by dividing the exercise price per
share of Starwave common stock at which such Starwave Option was exercisable
immediately prior to the Effective Time by the Exchange Ratio, rounded up to
the nearest whole
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cent. Such option to purchase Infoseek Delaware common stock will otherwise
continue to have, and be subject to, the same terms and conditions (including
vesting restrictions) set forth in the Starwave option plan and/or the stock
option agreement by which it is evidenced.
Exchange Agent and Procedures
No certificates will be exchanged in the Infoseek Merger. Consequently,
holders of Infoseek California common stock should not surrender or seek to
exchange their stock certificates. Rather, following the Effective Time, each
certificate representing shares of Infoseek California common stock shall
automatically be deemed to represent an equal number of shares of Infoseek
Delaware common stock and, upon any transfer of such shares, Infoseek Delaware
shall cause to be issued certificates representing shares of Infoseek Delaware
common stock. Promptly after the Effective Time, Infoseek Delaware, acting
through Boston Equiserve L.P. as its exchange agent (the "Exchange Agent"),
will deliver to each holder of record of Starwave common stock, as of the
Effective Time, a letter of transmittal with instructions to be used by such
holder in surrendering such certificates in exchange for certificates
representing shares of Infoseek Delaware common stock. CERTIFICATES SHOULD NOT
BE SURRENDERED BY THE HOLDERS OF STARWAVE COMMON STOCK UNTIL SUCH HOLDERS
RECEIVE THE LETTER OF TRANSMITTAL FROM THE EXCHANGE AGENT, AND THEN ONLY IN
ACCORDANCE WITH THE TERMS OF SUCH LETTER OF TRANSMITTAL.
Fractional Shares
Fractional shares of Infoseek Delaware common stock will not be issued in
the Mergers. Instead, each shareholder of Starwave common stock who would
otherwise be entitled to a fractional share will receive cash in lieu thereof,
calculated on the basis of the average closing price of Infoseek California
common stock for the ten most recent trading days ending on the trading day
immediately prior to the Effective Time as reported on the Nasdaq National
Market.
Form S-8 Filing
Infoseek Delaware has agreed to file with the SEC, within 30 days after the
Effective Time, a registration statement on Form S-8 to register shares of
Infoseek Delaware common stock issuable as the result of the exercise of
options assumed in the Mergers.
CONSIDERATION IN THE MERGERS
The Infoseek Merger
Each share of Infoseek California common stock issued and outstanding at the
Effective Time shall be converted into one share of Infoseek Delaware stock
without any action on the part of the holder thereof (the "Infoseek Merger
Consideration").
The Starwave Merger
Upon surrender of a certificate representing Starwave common stock for
cancellation to the Exchange Agent together with a letter of transmittal, duly
executed, and such other customary documents as may be required pursuant to
such instructions, the holder of such certificate will be entitled to receive
in exchange therefor (i) certificates evidencing that number of whole shares
of Infoseek Delaware common stock which such holder has a right to receive in
the Starwave Merger, (ii) any dividends or other distributions on shares of
Infoseek Delaware common stock which such holder is entitled to receive, and
(iii) cash in lieu of fractional shares of Infoseek Delaware common stock
(each of (i), (ii) and (iii) being hereinafter referred to as the "Starwave
Merger Consideration"), and the certificate representing Starwave common stock
so surrendered shall therewith be canceled. In the event of a transfer of
ownership of shares of Starwave common stock which is not registered in the
transfer records of Starwave as of the Effective Time, the Starwave Merger
Consideration may be issued and paid to the transferee if the certificate
evidencing such shares of Starwave common stock is presented to the
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Exchange Agent, accompanied by all documents required to evidence and effect
such transfer and evidence that any applicable stock transfer taxes have been
paid.
Lost, Stolen or Destroyed Certificates. In the event any certificates
representing shares of Starwave common stock have been lost, stolen or
destroyed, the Exchange Agent will issue shares of Infoseek Delaware common
stock in exchange for such lost, stolen or destroyed certificates upon the
making of an affidavit of that fact by the owner of such certificates and, at
the request of Infoseek Delaware, upon delivery of a bond in such a sums as
Infoseek Delaware may reasonably direct as indemnity against any claim that
may be made against Infoseek Delaware or the Exchange Agent with respect to
the certificates alleged to have been lost, stolen or destroyed.
REPRESENTATIONS AND WARRANTIES
The Reorganization Agreement contains customary representations and
warranties made by Starwave and Disney, in favor of Infoseek California and
Infoseek Delaware and made by Infoseek California, in favor of Disney and
Starwave, relating, among other things, to the following matters: (i) due
organization and good standing; (ii) ownership of subsidiaries; (iii) the
capital structure of each company; (iv) the authorization, execution, delivery
and enforceability of the Reorganization Agreement and related agreements; (v)
the absence of conflict with, default under or violation of agreements and
laws, and the holding of permits necessary for the conduct of business; (vi)
the compliance of the Mergers with charters, bylaws and the law; (vii) the
absence of certain material defaults or violations; (viii) the filing of
certain documents with the Commission; (ix) the accuracy of financial
statements; (x) litigation matters; (xi) tax matters; (xii) ownership of
intellectual property; (xiii) compliance with environmental regulations; and
(xiv) employee benefit plans. The representations and warranties of Infoseek
California terminate as of the Effective Time; the representations and
warranties of Starwave and Disney survive the Effective Time for a period of
18 months (with an exception for tax matters, which survive until 60 days
following the expiration of the applicable statute of limitations), and Disney
has an indemnification obligation with respect thereto, subject to certain
limitations.
CONDUCT OF BUSINESS OF STARWAVE PENDING THE MERGERS
Pursuant to the Reorganization Agreement, other than as contemplated by the
Reorganization Agreement or the Related Agreements, each of Disney and
Starwave have agreed that, during the period from the date of the
Reorganization Agreement and continuing until the earlier of the termination
of the Reorganization Agreement pursuant to its terms or the Effective Time,
subject to certain exceptions, and except to the extent that Infoseek Delaware
or Infoseek California consents in writing, Starwave and the subsidiaries of
Starwave will carry on their business in the usual, regular and ordinary
course, in substantially the same manner conducted prior to the date of the
Reorganization Agreement, pay their debts and taxes when due, unless such
debts or taxes are the subject of a dispute that Starwave is actively seeking
to resolve, pay or perform other obligations when due, (unless such
obligations are the subject of a dispute that Starwave is actively seeking to
resolve) and to the extent consistent with such businesses, use their
reasonable efforts consistent with past practices and policies (i) to preserve
intact the present business organization of Starwave and the subsidiaries of
Starwave, (ii) to keep available the services of their present officers and
key employees and (iii) to preserve their relationships with customers,
suppliers, distributors, licensors, licensees and others with which each has
business dealings, all with the goal of preserving the goodwill and ongoing
business of Starwave and its subsidiaries at the Effective Time; provided,
however, that neither Starwave nor Disney shall be deemed in breach of the
conduct of business covenants because of the attrition, if any, among the
Starwave employees which may occur as a result of the transactions
contemplated by the Reorganization Agreement, so long as each of Starwave and
Disney use all reasonable efforts to retain such employees at Starwave.
Except as expressly contemplated by the Reorganization Agreement, neither
Starwave nor any of its subsidiaries, which, for purposes of the
Reorganization Agreement, includes the Joint Ventures, shall, without the
prior written consent of Infoseek Delaware or Infoseek California: (1) other
than in the ordinary course of business, consistent with past practices, sell
or enter into any material license agreement with respect to any of the
material intellectual property of Starwave or its subsidiaries with any person
or entity, or buy or enter into
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any material license agreement with respect to the intellectual property of
any person or entity; (2) other than in the ordinary course of business,
consistent with past practices, sell or transfer to any person or entity any
material rights to the intellectual property of Starwave; (3) other than in
the ordinary course of business, consistent with past practices, enter into or
materially amend any contract pursuant to which any other party is granted
marketing or distribution rights of any type or scope with respect to any
material products or technology of Starwave or any of Starwave's subsidiaries,
it being understood that the granting of exclusive rights to any third party
shall not be considered practices in the ordinary course of business; (4)
materially amend or otherwise materially modify (or agree to do so), except in
the ordinary course of business, or intentionally violate the terms of, any of
the material contracts of Starwave; (5) settle any litigation for an amount in
excess of $100,000 in any single case; (6) declare, set aside or pay any
dividends on or make any other distributions (whether in cash, stock or
property) in respect of any of the Starwave capital stock or any other equity
interests, as applicable, or split, combine or reclassify any of the Starwave
capital stock or issue or authorize the issuance of any other securities or
any other equity interests of Starwave, as applicable, in respect of, in lieu
of or in substitution for shares of capital stock of Starwave or any other
equity interests, as applicable, or repurchase, redeem or otherwise acquire,
directly or indirectly, any shares of the capital stock of Starwave or any of
Starwave's subsidiaries or other equity interests as applicable, of any
subsidiary of Starwave (or options, warrants or other rights exercisable
therefor); (7) other than Starwave's issuance of approximately 1,100,000
options to employees of Starwave in accordance with the resolutions of
Starwave's Board adopted on June 13, 1998 and any other grants of options to
purchase Starwave common stock (with an exercise price equal to fair market
value of the Starwave common stock at the date of option grant) granted to
employees in the ordinary course of business consistent with past practices,
issue, grant, deliver or sell or authorize or propose the issuance, grant,
delivery or sale of, or purchase or propose the purchase of, any shares of its
capital stock or any other equity interests, as applicable, or securities
convertible into, or subscriptions, rights, warrants or options to acquire, or
other agreements or commitments of any character obligating it to issue or
purchase any such shares or any other equity interests of Starwave or any of
the subsidiaries of Starwave, as applicable, or other convertible securities
of Starwave or any of the subsidiaries of Starwave; (8) cause or permit any
amendments to the Starwave Articles of Incorporation or Bylaws, or any
amendments to Starwave's other organizational documents; (9) acquire or agree
to acquire by merging or consolidating with, or by purchasing any assets or
equity securities of, or by any other manner, any business or any corporation,
partnership, association or other business organization or division thereof,
or except in the ordinary course otherwise acquire or agree to acquire any
assets, in each case involving an investment in excess of $100,000,
individually or $500,000 in the aggregate; (10) without limiting any other
provisions of clause (1) above, sell, lease, license or otherwise dispose of
any of Starwave's properties or assets, except in the ordinary course of
business and consistent with past practices, and except in the case of
properties or assets of less than $100,000 individually or $500,000 in the
aggregate; (11) except for advances and short-term loans provided by Disney or
affiliates of Disney to fund operating losses incurred in the ordinary course
of business consistent with past practice (whether evidenced by a written
instrument (which Starwave may execute at any time) or only reflected on the
financial statements (including without limitation the balance sheet provided
to Infoseek Delaware by Starwave at the closing, if then outstanding) and
books and records of Starwave) incur any indebtedness for borrowed money or
guarantee any such indebtedness or issue or sell any debt securities or
guarantee any debt securities of others except for obligations not exceeding
$100,000 individually or $500,000 in the aggregate; (12) grant any loans to
others or purchase debt securities of others or materially amend the terms of
any outstanding loan agreement to others; (13) grant any severance, retention,
or termination pay (i) to any director or officer or (ii) to any other
employee of Starwave or its subsidiaries, except in each case payments made
pursuant to certain standard written agreements outstanding as of the date of
the Reorganization Agreement or payments not exceeding $250,000 in the
aggregate after the date of the Reorganization Agreement; (14) adopt or enter
into any employee plan or agreement, pay or agree to pay any special bonus or
special remuneration to any director or employee, or increase the salaries or
wage rates of any Starwave employees other than routine increases and
promotions in the ordinary course of business, consistent with past practices;
(15) revalue any of Starwave's assets with a value in excess of $100,000
individually or $500,000 in the aggregate, including without limitation
writing down the value of inventory or writing off notes or accounts
receivable other than in the ordinary course of business; (16) except with
respect to taxes owed by Starwave or any subsidiaries of Starwave, pay,
discharge or satisfy, in an amount in excess of $100,000 (in any one case) or
$500,000 (in the aggregate),
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any claim, liability or obligation (absolute, accrued, asserted or unasserted,
contingent or otherwise), other than the payment, discharge or satisfaction in
the ordinary course of business of liabilities; (17) except with respect to
tax returns to be filed by Starwave or any of its subsidiaries for the taxable
year ending September 30, 1997, (i) make or change any material election in
respect of taxes relating to the operations of Starwave and its subsidiaries,
or, (ii) adopt or change any accounting method in respect of taxes except as
required by law; (18) other than in the ordinary course of business consistent
with past practice, enter into any strategic alliance; (19) accelerate the
vesting schedule of any of the outstanding Starwave Options or capital stock
of Starwave; or (20) hire any material number of employees or terminate any of
Starwave's key employees, or encourage employees to resign. In addition,
Starwave has agreed not to take any action that would prevent Starwave from
performing any of the covenants Starwave has agreed to in the Reorganization
Agreement.
CONDUCT OF INFOSEEK CALIFORNIA'S BUSINESS PENDING THE MERGERS
Other than as contemplated by the Reorganization Agreement and the Related
Agreements, Infoseek California has agreed to conduct the business of Infoseek
California in accordance with the terms and conditions as described in the
Governance Agreement entered into of even date with the Reorganization
Agreement. Except as otherwise contemplated by the Reorganization Agreement,
the Related Agreements and the other agreements by and between the parties
entered into as of the date of the Reorganization Agreement, and the several
transactions contemplated thereby, during the period from the date of the
Reorganization Agreement and continuing until the earlier of the termination
of the Reorganization Agreement or the Effective Time, Infoseek California has
agreed (except to the extent that Starwave shall otherwise have previously
consented in writing), to carry on Infoseek California's business (including
the business of the subsidiaries of Infoseek California) in the usual, regular
and ordinary course in substantially the same manner as theretofore conducted,
to pay the debts and taxes of Infoseek California (and the subsidiaries of
Infoseek California) when due (unless such debts and taxes are the subject of
a dispute that Infoseek California is actively seeking to resolve), to pay or
perform other obligations when due (unless such obligations are the subject of
a dispute that Infoseek California is actively seeking to resolve), and, to
the extent consistent with such businesses, use their reasonable efforts
consistent with past practice and policies to preserve intact Infoseek
California's (including its subsidiaries) present business organizations, keep
available the services of Infoseek California's (including its subsidiaries)
present officers and key employees and preserve Infoseek and its Subsidiaries'
relationships with customers, suppliers, distributors, licensors, licensees,
and others having business dealings with it, all with the goal of preserving
the goodwill and ongoing businesses of Infoseek California and its
subsidiaries at the Effective Time.
SOLICITATION OF ALTERNATIVE TRANSACTIONS
From and after the date of the Reorganization Agreement, Starwave and Disney
have agreed that each shall not, and shall not authorize or permit any of
their respective parent corporations, subsidiaries or officers, directors,
employees, accountants, counsel, investment bankers, financial advisors and
other representatives (collectively, their "Representatives") to, directly or
indirectly, solicit, initiate or encourage (including by way of furnishing
non-public information) or take any other action to facilitate knowingly any
inquiries or the making of any proposal which constitutes or may reasonably be
expected to lead to an Acquisition Proposal (as defined herein) in respect of
Starwave or any of its subsidiaries, from any person or entity, or engage in
any discussion or negotiations relating thereto or enter into any agreement
with any person providing for or contemplating any such Acquisition Proposal;
provided, however, that notwithstanding any other provision of the
Reorganization Agreement, (1) Starwave and Disney may comply with applicable
securities laws and regulations and (2) after either (x) Infoseek California
delivers 24 hours prior notice to Starwave that Infoseek California (a)
intends to deliver confidential information to a third party and/or (b)
intends to enter into discussions or negotiations with a third party, and
prior to the time Starwave's stockholders shall have voted to approve the
Reorganization Agreement, or (y) the occurrence of any of the events described
in clauses (vii)(a), (b) or (c) described in "--Termination of the
Reorganization Agreement," Starwave may:
(i) engage in discussions or negotiations with a third party who (without
any solicitation, initiation, or encouragement, directly or indirectly, by
Starwave or its Representatives after the date of the Reorganization
Agreement) seeks to initiate such discussions or negotiations, and may
furnish such third party information
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concerning Starwave and its business, properties and assets if and only to
the extent that (1)(a) the third party has first made an Acquisition
Proposal to acquire at least 65% of the consolidated assets or outstanding
voting power of Starwave that is financially superior to the Mergers and
the transactions contemplated in connection with the Mergers and not
subject to any financing condition, as determined in good faith in each
case by Starwave's board of directors after consultation with its financial
advisors (a "Starwave Superior Proposal") and (b) Starwave's board of
directors shall conclude in good faith, after considering applicable
provisions of state law, after consultation with outside counsel that such
action is consistent with its fiduciary duties under applicable law, and
(2) prior to furnishing such information to or entering into discussions or
negotiations with such person or entity, Starwave provides the required
notice and receives from such person or entity an executed confidentiality
agreement in reasonably customary form on terms not materially more
favorable to such person or entity than the terms contained in the
Confidentiality Agreement between the parties; and/or
(ii) recommend to the Starwave shareholders that they accept a Starwave
Superior Proposal from a third party, provided that the required conditions
set forth in subsection (i)(1) and (i)(2) above have been satisfied and,
prior to entering into a definitive agreement providing for a Starwave
Superior Proposal, the Reorganization Agreement is terminated pursuant to
the terms and conditions governing such termination as described in
subsections (ix) or (x) of "--Termination of the Reorganization Agreement."
From and after the date of the Reorganization Agreement, Infoseek California
has agreed that it shall not, and shall not authorize or permit any of its
subsidiaries or officers, directors, employees, accountants, counsel,
investment bankers, financial advisors and other representatives
(collectively, its "Representatives") to, directly or indirectly, solicit,
initiate or encourage (including by way of furnishing non-public information)
or take any other action to facilitate knowingly any inquiries or the making
of any proposal which constitutes or may reasonably be expected to lead to an
Acquisition Proposal (as defined herein) in respect of Infoseek California or
any of its subsidiaries, from any person or entity, or engage in any
discussion or negotiations relating thereto or enter into any agreement with
any person providing for or contemplating any such Acquisition Proposal;
provided, however, that notwithstanding any other provision of the
Reorganization Agreement, (1) Infoseek California may comply with applicable
securities laws and regulations, including without limitation the Exchange Act
(and Rule 14(e-2) promulgated under the Exchange Act with regard to a tender
or exchange offer), and (2) prior to the time its shareholders shall have
voted to approve the Reorganization Agreement, Infoseek California may:
(x) engage in discussions or negotiations with a third party who (without
any solicitation, initiation, or encouragement, directly or indirectly, by
Infoseek California or its Representatives after the date of the
Reorganization Agreement) seeks to initiate such discussions or
negotiations, and may furnish such third party information concerning
Infoseek California and its business, properties and assets if and only to
the extent that: (1)(a) the third party has first made an Acquisition
Proposal to acquire at least 65% of the consolidated assets or outstanding
voting power of Infoseek California's securities that is financially
superior to the Mergers and the transactions contemplated in connection
with the Mergers and not subject to any financing condition, as determined
in good faith in each case by Infoseek California's Board of Directors
after consultation with its financial advisors (an "Infoseek Superior
Proposal"), and (b) Infoseek California's Board of Directors shall conclude
in good faith, after considering applicable provisions of state law, after
consultation with outside counsel that such action is necessary for the
Board of Directors to act in a manner consistent with its fiduciary duties
under applicable law, and (2) prior to furnishing such information to or
entering into discussions or negotiations with such person or entity,
Infoseek California provides the notice described in the first paragraph of
this Section relating to the required notice in the event that Infoseek
California either delivers confidential information to a third party and/or
enters into discussions or negotiations with a third party, and receives
from such person or entity an executed confidentiality agreement in
reasonably customary form on terms not materially more favorable to such
person or entity than the terms contained in the Confidentiality Agreement
currently in place between Infoseek California and Disney; and/or
(y) recommend to its stockholders that they accept an Infoseek Superior
Proposal from a third party, provided that the conditions set forth in
(x)(1) and (x)(2) above have been satisfied and, prior to entering into a
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definitive agreement providing for an Infoseek Superior Proposal, the
Reorganization Agreement is terminated pursuant to subsections (vii) or
(viii) of the section titled "--Termination of the Reorganization
Agreement."
As used in the Reorganization Agreement, "Acquisition Proposal" means:
(i) a bona fide proposal or offer (other than by another party to the
Reorganization Agreement) for a tender or exchange offer for the securities
of Starwave or Infoseek California, as the case may be, or (ii) a bona fide
proposal or offer (other than by another party hereto) for a merger,
consolidation or other business communication involving an acquisition of
Starwave or Infoseek California, as the case may be, or any material
subsidiary of Starwave or Infoseek California, as the case may be, or
(iii) any proposal to acquire in any manner a substantial equity interest
in or a substantial portion of the assets of Starwave or Infoseek
California, as the case may be, or any material subsidiary of Starwave or
Infoseek California, as the case may be.
CONDITIONS TO THE MERGERS
The obligations of each party to the Reorganization Agreement to effect the
Mergers and otherwise consummate the transactions contemplated by the
Reorganization Agreement are subject to the satisfaction at or prior to the
Effective Time of the following conditions: (i) no temporary restraining
order, preliminary or permanent injunction or other order issued by any court
of competent jurisdiction or other legal restraint or prohibition preventing
the consummation of the Mergers shall be in effect, nor shall any proceeding
brought by an administrative agency or commission or other governmental
authority or instrumentality, domestic or foreign, seeking any of the
foregoing be pending; nor shall there be any action taken, or any statute,
rule, regulation or order enacted, entered, enforced or deemed applicable to
the Mergers, which makes the consummation of the Mergers illegal, and all
waiting periods under the HSR Act relating to the Starwave Merger and the
transactions contemplated by the Securities Purchase Agreement will have
expired or terminated early; (ii) the Reorganization Agreement shall have been
approved and adopted, and the Mergers shall have been duly approved, by the
requisite vote under applicable law, by the shareholders of Infoseek
California and Starwave; (iii) the shares of Infoseek Delaware to be issued in
the Mergers to the shareholders of Infoseek California and Starwave shall have
been approved for listing (subject to notice of issuance) on Nasdaq; (iv) the
Registration Statement of which this Joint Proxy Statement/Prospectus is a
part shall have become effective in accordance with the provisions of the
Securities Act, and no stop order shall have been issued by the SEC with
respect to the Registration Statement and no similar proceeding in respect of
this Joint Proxy Statement/Prospectus shall have been initiated or threatened
in writing by the SEC; and (v) the Related Agreements executed on the date of
the Reorganization Agreement shall be in full force and effect as of the
Effective Time.
In addition to the foregoing conditions, the obligation of Starwave and
Disney to consummate the Mergers is subject to the satisfaction at or prior to
the Effective Time of each of the following conditions, any of which may be
waived, in writing, exclusively by Starwave and Disney: (i) DEI shall have
received the opinion of Dewey Ballantine LLP, special counsel to Disney, based
upon reasonably requested representation letters of Disney, Infoseek and their
officers, directors, and employees dated the Closing Date, which opinion shall
be reasonably satisfactory to Disney, to the effect that the Starwave Merger
will be treated as a reorganization described in section 368(a) of the Code
and/or, when taken together with the Infoseek Merger, will be treated as a
transfer of property to Infoseek Delaware by DEI governed by section 351 of
the Code; (ii) the representations and warranties of Infoseek in the
Reorganization Agreement shall be true and correct in all material respects on
and as of the Effective Time as though such representations and warranties
were made on and as of such time, except for such inaccuracies as individually
or in the aggregate would not have a Material Adverse Effect (as defined
below) on Infoseek California, and each of Infoseek California and Infoseek
Delaware shall have performed and complied in all material respects with all
covenants and obligations of the Reorganization Agreement required to be
performed and complied with by them as of the Effective Time; (iii) no
Material Adverse Effect with respect to Infoseek California shall have
occurred since the date of the Reorganization Agreement and no events or
circumstances have occurred since the date of the Reorganization Agreement
that would have a Material Adverse Effect on Infoseek California (except for
any Material Adverse Effect that shall
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have been cured without such cure resulting or reasonably being expected to
result in a Material Adverse Effect on Infoseek California; and (iv) each of
Starwave and Disney shall have been provided with a certificate executed on
behalf of Infoseek California by its President and Chief Executive Officer to
the effect that, as of the Effective Time, the conditions set forth in the
Reorganization Agreement have been met. For purposes of the Reorganization
Agreement as a whole, "Material Adverse Effect" means any change, event or
effect that is materially adverse to the business, assets (including
intangible assets), financial condition, or results of operations of the
entity referred to, together with its subsidiaries, taken as a whole. For
purposes of the closing conditions, it shall also be deemed a "Material
Adverse Effect" on Infoseek California or Starwave, as the case may be, if
there shall be in effect a preliminary injunction or permanent injunction
issued by a court of competent jurisdiction against Infoseek California or
Starwave, as the case may be, preventing Infoseek California or Starwave, as
the case may be, from generally using or materially limiting the ability of
Infoseek California or Starwave, as the case may be, to generally use
intellectual property that is both material to and necessary for the conduct
of Infoseek California's or Starwave's business, as the case may be, as
currently conducted (taken as a whole), and the prior pendency of a temporary
restraining order in respect of such intellectual property which is no longer
in effect shall be deemed not to be a "Material Adverse Effect" on Infoseek
California or Starwave, as the case may be, for purposes of the Reorganization
Agreement.
Further, the obligations of Infoseek to consummate and effect the Mergers
are subject to the satisfaction at or prior to the Effective Time of each of
the following conditions, any of which may be waived, in writing, exclusively
by Infoseek California or Infoseek Delaware; (i) Infoseek California shall
have received the opinion of Wilson Sonsini Goodrich & Rosati, counsel to
Infoseek, based upon reasonably requested representation letters of Disney,
Infoseek and their officers, directors, and employees dated the Closing Date,
which opinion shall be reasonably satisfactory to Infoseek California, to the
effect that the Infoseek Merger will be treated as a reorganization described
in section 368(a) of the Code and/or, when taken together with the Starwave
Merger, as a transfer of property to Infoseek Delaware by holders of Infoseek
California common stock governed by section 351 of the Code; (ii) the
representations and warranties of Starwave and Disney in the Reorganization
Agreement shall be true and correct in all material respects on and as of the
Effective Time as though such representations and warranties were made on and
as of the Effective Time, except for such inaccuracies as individually or in
the aggregate would not have a Material Adverse Effect on Starwave, and each
of Starwave and Disney shall have performed and complied in all material
respects with all covenants and obligations of the Reorganization Agreement
required to be performed and complied with by them as of the Effective Time;
(iii) no Material Adverse Effect with respect to Starwave has occurred since
the date of the Reorganization Agreement and no events or circumstances have
occurred since the date of the Reorganization Agreement that would have a
Material Adverse Effect on Starwave (except for any Material Adverse Effect
that shall have been cured without such cure resulting or reasonably being
expected to result in a Material Adverse Effect on Starwave; (iv) any and all
consents, waivers, assignments and approvals as provided for in the
Reorganization Agreement (other than those whose failure to obtain,
individually or in the aggregate, would not have a Material Adverse Effect on
Starwave or Infoseek Delaware) shall have been obtained; (v) Infoseek
California shall have been provided with a certificate executed on behalf of
Disney by its Chief Financial Officer and executed on behalf of Starwave by
its President and Chief Executive Officer to the effect that, as of the
Effective Time the conditions set forth in the Reorganization Agreement have
been met; (vi) Infoseek California shall have received from Disney and
Starwave on or prior to the Closing Date the closing balance sheet of
Starwave, certified as to correctness by Disney and Starwave; and (vii) Disney
shall have delivered to Infoseek Delaware an amount equal to the shortfall, if
any, between the estimated net worth of Starwave (defined as the total
consolidated assets of Starwave minus total consolidated liabilities, each
determined in accordance with generally accepted accounting principles) and $5
million.
TERMINATION OF THE REORGANIZATION AGREEMENT
The Reorganization Agreement provides that it may be terminated and the
Mergers abandoned at any time prior to the Effective Time:
(i) By mutual consent of Infoseek California, Disney, and Starwave.
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(ii) By Infoseek California or Starwave if: (a) the Effective Time has not
occurred by December 31, 1998; provided, however, that the right to terminate
the Reorganization Agreement under this clause shall not be available to any
party whose action or failure to act has been a principal cause of or resulted
in the failure of the Mergers to occur on or before such date and such action
or failure to act constitutes a material breach of the Reorganization
Agreement; (b) there shall be a final nonappealable order of a federal or
state court in effect preventing consummation of the Mergers; or (c) there
shall be any statute, rule, regulation or order enacted, promulgated or issued
or deemed applicable to the Mergers by any governmental body that would make
consummation of the Mergers illegal.
(iii) By Infoseek California or Starwave if (a) the Infoseek California
Shareholders Meeting (including any adjournments or postponements thereof)
shall have been held and completed and Infoseek California's shareholders
shall have taken a final vote on the matters required to be voted on at the
Infoseek Shareholders Meeting as set forth herein in the section entitled
"Infoseek Shareholders Meeting--Purpose" and (b) such matters shall not have
been approved at such meeting by the required Infoseek California shareholder
vote (provided, further, that the right to terminate the Reorganization
Agreement under this clause shall not be available to Infoseek California or
Starwave where the failure to obtain the required Infoseek California
shareholder vote shall have been caused by the action or failure to act of
such party and such action or failure to act constitutes a material breach by
such party of the Reorganization Agreement).
(iv) By Infoseek California or Starwave if there shall be any governmental
action taken, or any statute, rule, regulation or order enacted, promulgated
or issued or deemed applicable to the Mergers by any governmental body, which
would: (a) prohibit Infoseek Delaware's ownership or operation of any material
portion of the business of Starwave or (b) compel Infoseek Delaware or
Starwave to dispose of or hold separate all or a material portion of the
business or assets of Starwave or Infoseek Delaware as a result of the
Mergers.
(v) By Infoseek California if it is not in material breach of its
obligations under the Reorganization Agreement and there has been a breach of
any representation, warranty or covenant contained in the Reorganization
Agreement on the part of Starwave or Disney, or if any representation or
warranty on the part of Starwave or Disney shall have become untrue, in either
case such that the condition relating to the accuracy of all representations
and warranties of Starwave and Disney as of the Effective Time would not be
satisfied as of the time of such breach or as of the time such representation
or warranty shall have become untrue and such inaccuracy in such
representation or warranty or breach shall not have been cured within thirty
(30) calendar days after written notice to Starwave and Disney; provided,
however, that, no cure period shall be required for a breach which by its
nature cannot be cured.
(vi) By Starwave or Disney if neither Starwave nor Disney is in material
breach of their respective obligations under the Reorganization Agreement and
there has been a breach of any representation, warranty or covenant contained
in the Reorganization Agreement on the part of Infoseek California, or if any
representation or warranty of Infoseek California shall have become untrue, in
either case such that the condition regarding the accuracy of Infoseek's
representations and warranties and compliance with all covenants and
obligations of the Reorganization Agreement would not be satisfied as of the
time of such breach or as of the time such representation or warranty shall
have become untrue and such inaccuracy in such representations and warranties
or such breach shall not have been cured within thirty (30) calendar days
after written notice to Infoseek California; provided, however, that no cure
period shall be required for a breach which by its nature cannot be cured.
(vii) By Starwave, prior to obtaining the required vote of the shareholders
of Infoseek California as provided in the Reorganization Agreement and after
receipt by Infoseek California of an Acquisition Proposal for Infoseek
California, if (a) by the end of the third business day following (but not
including) the day Starwave notifies Infoseek California that it wishes the
Board of Directors of Infoseek California to publicly reaffirm its
recommendation to stockholders of Infoseek California to vote for the Mergers,
the Board of Directors of Infoseek California fails to so publicly reaffirm;
or (b) by the later of the end of (A) the tenth business day following the
public announcement of an Acquisition Proposal for Infoseek California or (B)
the third business day following (but not including) the day Starwave notifies
Infoseek California that it wishes the Board of
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Directors of Infoseek California to publicly reject such publicly announced
Acquisition Proposal, the Board of Directors of Infoseek California fails to
publicly reject such Acquisition Proposal; or (c) the Board of Directors of
Infoseek California shall have changed its recommendation to its shareholders
to vote in favor of approval of the transactions contemplated by the
Reorganization Agreement.
(viii) By Infoseek California, prior to obtaining the required vote of the
shareholders of Infoseek California as provided in the Reorganization
Agreement upon five days' prior notice to Starwave (the "Infoseek California
Superior Proposal Notice"), if, as a result of an Infoseek Superior Proposal
by a party other than Starwave or any affiliates of Starwave, the Board of
Directors of Infoseek California determines in good faith, after considering
applicable provisions of state law, after consultation with outside counsel
that acceptance of the Infoseek California Superior Proposal is necessary for
the Board of Directors of Infoseek California to act in a manner consistent
with its fiduciary duties under applicable law; provided, however, that the
Board of Directors of Infoseek California, in making any such determination,
shall have considered all concessions which have then been offered by Starwave
(it being understood that prior to any such termination Infoseek California
shall, and shall cause its respective financial and legal advisors to,
negotiate with Starwave to make such adjustments in the terms and conditions
of the Reorganization Agreement in favor of Infoseek California as would
induce Infoseek California to proceed with a transaction with Starwave rather
than consummation of an Acquisition Proposal made by a third party).
Notwithstanding the foregoing, prior to or contemporaneous with any
termination under the foregoing Subsection (viii), Infoseek California must
pay to Starwave in immediately available funds the fees and expenses set forth
in the section herein titled "--Termination Fees." In addition, Infoseek
California has agreed that it shall not terminate the Reorganization Agreement
pursuant to the foregoing subsection (viii) at any time prior to 180 days
after the date of the Reorganization Agreement nor at any time prior to five
days after Starwave's receipt of an Infoseek California Superior Proposal
Notice in respect of the Infoseek Superior Proposal to be accepted.
(ix) By Infoseek California, prior to obtaining the required shareholder
vote of the shareholders of Infoseek California in accordance with the section
titled "Infoseek Shareholders Meeting--Purpose" and after receipt by Starwave
of an Acquisition Proposal for Starwave, if (a) by the end of the third
business day following (but not including) the day Infoseek California
notifies Starwave that it wishes the Board of Directors of Starwave to
publicly reaffirm its recommendation to stockholders of Starwave to vote for
the Mergers, the Board of Directors of Starwave fails to so publicly reaffirm;
or (b) by the later of the end of (A) the tenth business day following the
public announcement of an Acquisition Proposal for Starwave or (B) the third
business day following (but not including) the day Infoseek California
notifies Starwave that it wishes the Board of Directors of Starwave to
publicly reject such publicly announced Acquisition Proposal, the Board of
Directors of Starwave fails to publicly reject such Acquisition Proposal; or
(c) the Board of Directors of Starwave shall have changed its recommendation
to its shareholders to vote in favor of approval of the transactions
contemplated by the Reorganization Agreement.
(x) By Starwave, prior to obtaining the required vote of the shareholders of
Starwave, upon five days' prior notice to Infoseek California (the "Starwave
Superior Proposal Notice"), if, as a result of a Starwave Superior Proposal by
a party other than Infoseek California or any of its Affiliates, the Board of
Directors of Starwave determines in good faith, after considering applicable
provisions of state law, after consultation with outside counsel that
acceptance of the Starwave Superior Proposal is consistent with its fiduciary
duties under applicable law; provided, however, that the Board of Directors of
Starwave, in making any such determination, shall have considered all
concessions which have then been offered by Infoseek California (it being
understood that prior to any such termination Starwave shall, and shall cause
its respective financial and legal advisors to, negotiate with Infoseek
California to make such adjustments in the terms and conditions of the
Reorganization Agreement in favor of Starwave as would induce Starwave to
proceed with a transaction with Infoseek California rather than consummation
of an Acquisition Proposal made by a third party).
Notwithstanding the foregoing, prior to or contemporaneous with any
termination under subsection (x) above, Starwave must pay to Infoseek
California in immediately available funds the fees required to be paid
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pursuant to the section herein "--Termination Fees." In addition, Starwave
agrees that it shall not terminate the Reorganization Agreement pursuant to
subsection (x) above any time prior to 180 days after the date of the
Reorganization Agreement nor at any time prior to five days after Infoseek
California's receipt of a Starwave Superior Proposal Notice in respect of the
Starwave Superior Proposal to be accepted.
(xi) By Starwave, provided that neither it nor Disney is in breach of the
Reorganization Agreement, in the event that the Registration Statement has not
been declared effective by the SEC on or prior to the day that is 60 calendar
days following the day, if any, Infoseek California receives initial written
comments from the SEC in respect of the disclosures set forth therein (tolled
for any period of Federal government strike or extraordinary shutdown that
affects the SEC).
(xii) By Starwave, provided that neither it nor Disney is in breach of the
Reorganization Agreement, if there shall be in effect a preliminary injunction
or permanent injunction issued by a court of competent jurisdiction against
Infoseek California preventing Infoseek California from generally using or
materially limiting the ability of Infoseek California to generally use
intellectual property that is both material to and necessary for the conduct
of Infoseek's business as currently conducted (taken as a whole).
(xiii) By Infoseek California, provided that it is not in breach of the
Reorganization Agreement, if there shall be in effect a preliminary injunction
or permanent injunction issued by a court of competent jurisdiction against
Starwave preventing Starwave from generally using or materially limiting the
ability of Starwave to generally use intellectual property that is both
material to and necessary for the conduct of Starwave's business as currently
conducted (taken as a whole).
TERMINATION FEES
If the Reorganization Agreement is terminated by (i) Starwave as a result of
Infoseek's breach of the non- solicitation covenant, or (ii) by Starwave
pursuant to its rights under subsection (vii) of "--Termination of the
Reorganization Agreement," or (iii) by Infoseek pursuant to its rights under
subsection (viii) of "--Termination of the Reorganization Agreement," Infoseek
shall pay to Starwave a fee of $17 million, plus the amount of any documented
out-of-pocket expenses incurred by Starwave and its affiliates in connection
with the negotiation and preparation of the Reorganization Agreement and the
Related Agreements and any other ancillary agreements executed and delivered
in connection with the transactions contemplated thereby (including fees of
counsel and accountants) up to the date of such termination up to a maximum
aggregate of $1.5 million (collectively, "Expenses") in cash minus any amounts
as may have been previously paid by such party in termination fees.
If (i) the Reorganization Agreement is terminated by a party pursuant to
clause (iii) under "--Termination of the Reorganization Agreement" following a
failure of the shareholders of Infoseek California to grant the necessary
approvals of the Mergers and related transactions; (ii) prior to such meeting
of the shareholders of Infoseek California (and following the date of the
Reorganization Agreement), there shall have been publicly announced an
Acquisition Proposal involving Infoseek California (whether or not such
Acquisition Proposal shall have been rejected or shall have been withdrawn
prior to the time of such termination or of the shareholders' meeting); and
(iii) within 12 months of any such termination pursuant to such clause (iii),
Infoseek California becomes a majority-owned subsidiary of the offeror of such
Acquisition Proposal or an affiliate thereof or accepts a written offer to
consummate or consummates an Acquisition Proposal with such offeror or
affiliate thereof which would result in the acquisition of 50% or more of the
voting power of Infoseek California (a "Majority Acquisition Proposal"), then
Infoseek California, upon the signing of a definitive agreement relating to
such Majority Acquisition Proposal, or, if no such agreement is signed then at
the closing (and as a condition of the closing) of Infoseek California
becoming such a subsidiary or of such Majority Acquisition Proposal, shall pay
to Starwave a fee of $17 million plus Expenses, minus any amounts as may have
been previously paid by such party in termination fees.
If the Reorganization Agreement is terminated by (i) Infoseek California as
a result of a Starwave breach of the non-solicitation covenants, or (ii) by
Infoseek California pursuant to its rights under subsection (ix) of
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"--Termination of the Reorganization Agreement," or (iii) by Starwave pursuant
to its rights under subsection (x) of "--Termination of the Reorganization
Agreement," Starwave shall pay to Infoseek California a fee of $17 million,
plus Expenses minus any amount as may have been previously paid by Starwave in
termination fees.
In addition, under a separate Licensing and Services Option Agreement
between Disney and Infoseek, if the Reorganization Agreement is terminated
under circumstances in which Infoseek California is required to pay a
termination fee to Starwave, then Disney shall have the right to exercise one
or both of two options. The first option includes the right to obtain a
nonexclusive, worldwide license for five years, with certain rights to
sublicense, to use Infoseek search and communication technology in connection
with the development, operation and exploitation of Disney's and its
affiliates' online services. Upon the exercise of this option, Disney has
agreed to pay Infoseek an annual fee for the license and an additional annual
fee for the right to receive updates to the licensed technology. The second
option would enable Disney to have prominent placement for links of certain
online services of Disney and its affiliates on Infoseek's Internet Services
for a term of five years, and prominent placement of content of Disney and its
affiliates within Infoseek's Internet services in exchange for an annual fee.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
Infoseek Delaware will indemnify each director of Infoseek California and
Starwave as of the Effective Time (individually an "Indemnified Party" and
collectively the "Indemnified Parties"), to the fullest extent permitted under
applicable law. Such rights are in addition to rights that an Indemnified
Party may have under the charter, bylaws and other similar organizational
documents of Infoseek California, Starwave or any of their subsidiaries or
applicable law. Such rights are also contingent upon the occurrence of, and
will survive consummation of the transactions contemplated by the
Reorganization Agreement and are expressly intended to benefit each
Indemnified Party. DEI has agreed to indemnify and hold Infoseek Delaware and
each of its subsidiaries harmless, and reimburse Infoseek Delaware upon demand
for any and all amounts paid to or on behalf of an Indemnified Party who was,
at the date of the Reorganization Agreement, or following the date of the
Reorganization Agreement at any time prior to the Effective Time, a director
of Starwave, other than Michael Slade.
OTHER COVENANTS
The Reorganization Agreement also contains various other covenants and
agreements that are customary in transactions of this nature. Among other
things, Infoseek California and Starwave have agreed to prepare and cause to
be filed with the SEC this Joint Proxy Statement/Prospectus for the
solicitation of approval of the respective shareholders of Infoseek California
and Starwave of the Reorganization Agreement, the Mergers and the transactions
contemplated by the Reorganization Agreement. Infoseek California has also
agreed to prepare and cause to be filed with the SEC the Registration
Statement of which this Joint Proxy Statement/Prospectus is a part, with
respect to those shares of Infoseek Delaware common stock issuable in the
Mergers. Each of Infoseek Delaware, Infoseek California and DEI has agreed to
comply with applicable law and the rules and regulations promulgated by the
SEC, to respond promptly to any comments of the SEC or its staff and to have
the Registration Statement declared effective under the Securities Act as
promptly as practicable after it is filed with the SEC, and Infoseek
California has agreed to use all reasonable efforts to cause this Joint Proxy
Statement/Prospectus to be mailed to Infoseek California's shareholders and
Starwave's shareholders as promptly as practicable after the Registration
Statement is declared effective under the Securities Act; provided, however,
that if any of the Representation Agreements is duly terminated prior to the
Effective Time by Infoseek California, Infoseek California shall have the
unilateral right, exercisable in its sole discretion, to elect not to submit
the Reorganization Agreement and the transactions contemplated thereby to a
vote of Infoseek California's shareholders without being deemed in breach of
any obligation under the Reorganization Agreement and without payment of any
fees or penalties thereunder (provided that Infoseek California shall
otherwise remain subject to the terms and conditions of the Reorganization
Agreement, including, without limitation, the termination fee provisions
thereof), and Starwave may terminate the Reorganization Agreement. Each of the
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parties to the Reorganization Agreement has also agreed to promptly furnish to
the other party all information concerning itself, its shareholders and its
affiliates that may be required or reasonably requested in connection with any
action contemplated by the foregoing provisions. If any event related to
Infoseek Delaware, Infoseek California, DEI or Starwave occurs or if Infoseek
Delaware, Infoseek California, DEI or Starwave becomes aware of any
information, that should be disclosed in an amendment or supplement to the
Registration Statement or the Joint Proxy Statement/Prospectus, then Infoseek
Delaware, Infoseek California, DEI or Starwave, as applicable, shall inform
the other thereof and shall cooperate with each other in filing such amendment
or supplement with the SEC and, if appropriate, in mailing such amendment or
supplement to the stockholders of Infoseek California and Starwave.
SHAREHOLDER AGREEMENTS
Starwave
Each of DEI, Michael B. Slade, Curt Blake, Patrick Naughton and Thomas L.
Phillips, Jr. (together, the "Starwave Shareholders"), shareholders of
Starwave and together owning approximately 94% of the voting power of Starwave
as of the record date, has entered into a Shareholder Agreement with Infoseek
Delaware and Infoseek California (the "Starwave Shareholder Agreement")
pursuant to which such shareholders of Starwave have agreed, among other
things, to: (i) vote in favor of the Starwave Merger and the Reorganization
Agreement; (ii) vote against any other merger agreement, merger,
consolidation, asset sale, joint venture or similar transaction; (iii) vote
against any amendment to the Starwave Articles of Incorporation or Bylaws or
other proposal or transaction involving Starwave or its subsidiaries which
would impede, frustrate, prevent, nullify or result in a breach of any
covenant, representation or warranty or any other obligation of Starwave
regarding the Starwave Merger, the Reorganization Agreement, or any of the
transactions otherwise contemplated by the Reorganization Agreement or the
Starwave Shareholder Agreement; (iv) not grant any proxy or powers of attorney
with respect to the Starwave shares held by him or it; or (v) not sell,
transfer or other dispose of the Starwave shares held by it or him. The
obligations under the Starwave Shareholder Agreement are binding on
transferees and Starwave shares received pursuant to, among other things,
stock splits, stock dividends, and reorganizations or similar events. The
Starwave Shareholder Agreements expire on the earlier of (i) 180 days from the
date of the Shareholder Agreement and (ii) the Effective Time, and (iii)
termination of the Reorganization Agreement, other than, in the case of
Starwave shareholders other than DEI, pursuant to a termination due to a
Starwave Superior Proposal (as defined in the Reorganization Agreement)
received by Starwave. See "--Solicitation of Alternative Transactions" and "--
Termination of the Reorganization Agreement".
In connection with the covenants set forth above, each Starwave Shareholder
also granted to Harry M. Motro and Leslie E. Wright, as officers of Infoseek
California and Infoseek Delaware, an irrevocable proxy to vote such
shareholder's shares in favor of the Mergers and the Reorganization Agreement.
Infoseek California
Each of Steven T. Kirsch, Harry M. Motro, Andrew E. Newton and Leslie E.
Wright (the "Infoseek Shareholders"), each a shareholder of Infoseek
California and together owning approximately 22% of the voting power of
Infoseek California as of the Record Date, have entered into a Shareholder
Agreement with Disney (the "Infoseek Shareholder Agreement") pursuant to which
such Infoseek Shareholders have agreed, among other things, to: (i) vote in
favor of the Infoseek Merger and the Reorganization Agreement; (ii) not grant
any proxy or powers of attorney with respect to the Infoseek Shares held by
him or it; or (iii) not sell, transfer or otherwise dispose of the Infoseek
Shares held by such Infoseek Shareholder. The obligations under the Infoseek
Shareholder Agreement are binding on transferees and shares received pursuant
to, among other things, stock splits, stock dividends, and reorganizations or
similar events. The Infoseek Shareholder Agreements terminate on the earlier
of (i) 120 days from the date of the Shareholder Agreement, (ii) the Effective
Time or (iii) termination of the Reorganization Agreement, other than pursuant
to a termination due to an Infoseek Superior Proposal received by Infoseek
California. See "--Solicitation of Alternative Transactions" and "--
Termination of the Reorganization Agreement". Each of the Infoseek
Shareholders has also agreed, until
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the termination of the Standstill Period (as defined in the Governance
Agreement described below), even in the event of a termination of the other
provisions of the Shareholder Agreements, to vote shares beneficially owned by
such Infoseek Shareholder in favor Disney's nominees to the Infoseek Delaware
Board of Directors.
In connection with the covenants set forth above, such Infoseek Shareholders
also granted to Thomas O. Staggs and Laurence J. Shapiro, as officers of
Disney, an irrevocable proxy to vote such Infoseek Shareholders' shares in
favor of the Infoseek Merger and the Reorganization Agreement.
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DESCRIPTION OF RELATED AGREEMENTS
The several equity, governance, commercial and licensing agreements
summarized below have been entered into by and among Infoseek and Disney and
certain of their respective affiliates, and are to be effective upon and
subject to the consummation of the Mergers, although certain provisions of the
Governance Agreement described below are currently effective. It is a
condition to consummation of the Mergers that these agreements be in full
force and effect.
Each of the following summaries is not intended to be exhaustive and each is
qualified by the full text of the respective Related Agreements, each of which
has been filed as an exhibit to the Registration Statement on Form S-4 of
which this Joint Proxy Statement/Prospectus is a part.
EQUITY AND GOVERNANCE AGREEMENTS
Common Stock and Warrant Purchase Agreement
Infoseek Delaware and Disney entered into a Common Stock and Warrant
Purchase Agreement (the "Securities Purchase Agreement") concurrently with the
signing of the Reorganization Agreement. Under the terms of the Securities
Purchase Agreement, Infoseek Delaware has agreed to issue and sell, and Disney
has agreed to purchase concurrently with the consummation of the Mergers,
2,642,000 shares of Infoseek Delaware common stock (the "Sale Shares"), at a
price of $26.50 per share, and a warrant (as described further below, the
"Warrant") to purchase 15,720,000 shares of Infoseek Delaware common stock, at
certain times, at certain prices and on certain conditions, in exchange for
cash in the amount of $70,013,000.00 (the "Cash Consideration") and a note (as
described further below, the "Note") in the principal amount of $139,000,000.
The Sale Shares and the Warrant will be "restricted securities" as defined in
the Securities Act.
Warrant
The Warrant is exercisable to purchase 15,720,000 shares of Infoseek
Delaware common stock, subject to the following restrictions. The shares
subject to the Warrant vest and become exercisable as to one-third of the
shares subject to the Warrant upon each of the first, second, and third
anniversaries of the consummation of the Mergers. In the event of a Standstill
Termination Event (as defined in the Governance Agreement described below),
any unvested shares vest and become exercisable immediately.
The exercise price for each share of common stock of Infoseek Delaware under
the Warrant is equal to (i) 120% of the closing sale prices on Nasdaq (or
another national market) for the thirty trading days prior to the time such
share vests and becomes exercisable or (ii) if not traded on market, by
unanimous determination of the Infoseek Board or if the Infoseek Board cannot
agree, through an appraisal mechanism, subject to, in each case, a maximum per
share exercise price of $50.00.
The Warrant is transferrable only to 80% or greater subsidiaries of Disney.
The Warrant does not entitle the holder to any rights as a stockholder prior
to exercise. However, the Warrant and the shares underlying the Warrant are
subject to the Governance Agreement described below. Any shares issuable upon
exercise of the Warrant are entitled to the registration rights contained in
the Registration Rights Agreement described below.
Note
The Note, in principal amount of $139,000,000, bears interest at a rate of
6.5% per annum, which rate was determined on the basis of arms' length
negotiations between the parties and approximated Disney's then average cost
of capital. The Note is repayable in twenty quarterly principal installments
of $6,950,000 together with interest thereon, beginning on the three month
anniversary of the consummation of the Mergers. The Note (together with
accrued and unpaid interest) may be repaid in whole or in part without premium
or penalty at any time.
Registration Rights Agreement
Pursuant to the Registration Rights Agreement among Infoseek and Disney, to
be executed upon consummation of the Mergers, Infoseek Delaware will be
obligated to register, at its expense, under the
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Securities Act, Infoseek Delaware common stock held by Disney, 80% or greater
subsidiaries of Disney or Disney stockholders following a pro rata
distribution of Infoseek shares to such stockholders in certain circumstances.
Upon a request to register shares with an anticipated total offering price
of $10,000,000, Infoseek Delaware is obligated to file, on not more than two
occasions, a registration statement with respect to such shares within 45 days
at Infoseek Delaware's own expense, and use best efforts to cause such
registration to be declared effective, subject to certain limitations and
conditions. Such registration shall be on a form mutually agreed by the
parties, but may be pursuant to a shelf registration if Infoseek is eligible,
upon Disney's request. The obligation to register such shares pursuant to the
Registration Rights Agreement begins three years after the consummation of the
Mergers or upon the earlier termination of the Standstill Period (as defined
in the Governance Agreement).
If Infoseek Delaware proposes to register any of its securities under the
Securities Act either for its own account or for the account of others (except
in connection with employee benefit plans, mergers or stock issuable upon
conversion of convertible securities), Disney and others with registration
rights are entitled to notice of the registration, and are entitled to include
Infoseek Delaware shares therein, provided, among other conditions, that the
underwriters of any such offering have the right to limit the number of shares
included in the registration, subject to Disney's shares receiving priority
over all other parties (other than Infoseek Delaware) exercising registration
rights in connection with the offering.
Governance Agreement
Disney and Infoseek have also entered into a Governance Agreement which
provides for the following:
Disney's Standstill Restrictions. Pursuant to the Governance Agreement,
during the Standstill Period (as defined below), none of Disney, any affiliate
(as defined under the Exchange Act) of Disney or any group (as defined under
Rule 13d-3 of the Exchange Act, a "13D Group") of which Disney or any of its
affiliates is a member, shall directly or indirectly, acquire or beneficially
own voting stock or authorize or make a tender offer, exchange offer or other
offer therefor, if the effect of such acquisition would be to increase the
percentage of total current voting power represented by all shares of voting
stock of Infoseek beneficially owned by Disney to more than 49.9% of total
current voting power of Infoseek voting stock then outstanding, provided that,
the foregoing shall not prohibit Disney and/or any of its affiliates from
making a tender offer for 100% of the Infoseek shares of voting stock it does
not own during the Standstill Period so long as such tender offer has been
approved by a majority of Infoseek disinterested directors and is conditioned
upon a majority of the shares of voting stock held by disinterested
shareholders being tendered and not withdrawn with respect to such offer (a
"Disney Tender Offer"). Following the Standstill Period, Disney, its
affiliates or any 13D Group of which Disney or any of its affiliates is a
member shall be entitled to commence a tender or exchange offer to purchase or
exchange for cash or other consideration any Infoseek voting stock provided
that such offer is conditioned upon and not consummated unless a majority of
the shares of voting stock held by disinterested shareholders are tendered and
not withdrawn with respect to such tender or exchange offer.
As defined in the Governance Agreement, the following terms are defined as
follows: "Standstill Period" means the period beginning June 18, 1998 and
ending on the occurrence of a Standstill Termination Event; "Standstill
Reinstatement Event" means the occurrence of either of the following prior to
the third anniversary of the Closing: (i) withdrawal or termination of a Third
Party Tender Offer at any time during which a Disney Tender Offer is not then
pending or (ii) withdrawal, termination, or material alteration of a Disney
Tender Offer other than an increase in price; "Standstill Revised Limit" means
the percentage of the total current voting power represented by all shares of
Infoseek voting stock held by Disney as of the occurrence of a Standstill
Reinstatement Event; and "Standstill Termination Event" means the earliest to
occur of the following: (i) the third anniversary of the Closing, (ii) a
change in control of Infoseek, (iii) a third party tender offer to acquire 25%
or more of the then total current voting power of Infoseek, (iv) a Disney
Tender Offer, or (v) any person who is not Disney or an affiliate of Disney or
13D Group of which Disney or an affiliate of Disney is a member
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has acquired any Infoseek voting stock which results in such person or 13D
Group owning or having the right to acquire more than 25% of the total current
voting power of Infoseek unless such acquisition of shares by such person or
13D Group was approved by Infoseek's Board of Directors pursuant to a 75%
supermajority Infoseek Board approval, provided however, that upon a
Standstill Reinstatement Event, the Standstill Termination Event shall be
deemed not to have occurred and the Standstill Period shall be deemed to be
reinstated, and provided further that, upon a Standstill Reinstatement Event,
if the Standstill Revised Limit is greater than the Standstill Limit, then the
Standstill Revised Limit and not the Standstill Limit shall thereafter be
deemed the Standstill Limit.
Disney's Transfer Restrictions. Unless Disney beneficially owns less than 5%
of the total current voting power of Infoseek or until Disney owns at least
90% of the total current voting power of Infoseek, Disney shall not, directly
or indirectly, sell, transfer, pledge, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell, grant any
option, right or warrant to purchase or otherwise dispose of, any shares of
Infoseek voting stock or non-voting convertible securities of Infoseek except:
(i) to Infoseek; (ii) to an 80% owned subsidiary of Disney (a "Disney
Controlled Corporation"); (iii) after the Standstill Period, pursuant to a
bona fide firmly underwritten public offering (which underwriter or
underwriters of such offering shall include, if requested, an underwriter
selected by a majority of the disinterested directors of Infoseek) registered
under the Securities Act; (iv) after the Standstill Period, pursuant to a
rights offering, dividend or other pro rata distribution to the stockholders
of Disney; (v) after the Standstill Period, pursuant to Rule 144 promulgated
under the Securities Act, in a brokers' transaction (as defined under Rule
144); (vi) after the Standstill Period, in private placement transactions
exempt from the registration requirements of the Securities Act; (vii) in
response to a bona fide public tender offer or exchange offer subject to
Regulation 14D or Rule 13e-3 promulgated under the Exchange Act for cash or
other consideration which is made by or on behalf of Infoseek; or (viii) in
response to a third party tender offer, with certain limitations.
In addition, except in the case of a bona fide offer or proposal that, if
consummated, would result in a Change in Control of Infoseek (in which event
the following restrictions would terminate), unless Disney beneficially owns
less than 5% of the total current voting power of Infoseek or until Disney
owns at least 90% of the total current voting power of Infoseek, Disney has
agreed (i) not to transfer any of Infoseek voting stock shares acquired upon
exercise of any Warrants for a one year period after the date of the
acquisition of such shares except to a Disney Controlled Corporation or upon
the occurrence of a third party tender offer and (ii) not to transfer any
Warrants except to a Disney Controlled Corporation.
No transferee of Infoseek voting stock or non-voting convertible securities
sold, transferred or otherwise disposed of by Disney as permitted by the
Governance Agreement shall be bound (other than a Disney Controlled
Corporation) by the terms thereof, nor shall such transferee (other than a
Disney Controlled Corporation) be entitled, in any manner whatsoever, to any
rights afforded Disney under the Governance Agreement.
Infoseek's Right of First Refusal. Unless Disney beneficially owns shares
representing less than 5% of the total current voting power of Infoseek or
until Disney owns at least 90% of the total current voting power of Infoseek,
prior to Disney effecting any sale, transfer or other disposition of Infoseek
shares or non-voting convertible securities in connection with a private
placement transaction which directly or indirectly would result in the
transfer to any single person or 13D Group of 5% or more of the total current
voting power of Infoseek, then Infoseek shall have a first refusal right to
purchase all such shares or non-voting convertible securities. Infoseek may
assign this right of first refusal to any other person or persons except
certain competitors of Disney.
Disney's Voting Obligations. Disney shall take such action as may be
required so that all shares of Infoseek voting stock beneficially owned by
Disney are voted for or cast in favor of: (i) during the Standstill Period,
nominees to the Board of Directors of Infoseek in accordance with the
Governance Agreement and the joint recommendations of the management of
Infoseek and a majority of the disinterested directors of Infoseek, (ii)
increases in the authorized capital stock of Infoseek and amendments to stock
option plans and employee stock purchase plans, in each case approved by
Infoseek's Board of Directors, and (iii) all matters approved by a majority of
Disney's nominees to the Infoseek Board of Directors.
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Unless otherwise approved by a majority of the disinterested directors of
Infoseek (as further described under "Board Representation Rights" below),
during the Standstill Period, on all matters submitted to the vote, written
consent or approval of the holders of Infoseek voting stock other than those
matters set forth in the preceding paragraph, Disney shall take such action as
may be required so that all shares of Infoseek voting stock beneficially owned
by Disney which are in excess of the number of shares representing 43% of the
total current voting power of Infoseek are voted or cast on all matters
submitted to a vote, consent or other approval of the shareholders of Infoseek
on each such matter in the same proportion as the votes cast by the voting
stock held by the disinterested shareholders of Infoseek with respect to such
matters.
Except for the foregoing, nothing in the Governance Agreement precludes
Disney from voting shares of Infoseek voting stock which it beneficially owns
in such manner as Disney determines, in its sole discretion, on any matter
presented to stockholders for a vote, consent or other approval; provided,
however, that, in no event shall Disney exercise dissenter's rights under
applicable law in connection with any merger, consolidation or other
reorganization which is approved by Infoseek's Board of Directors and which is
intended to qualify for pooling-of-interests accounting treatment (to be
reflected in a comfort letter from a nationally recognized accounting firm in
customary form).
Infoseek's Repurchase Right. If at any time there is a change in control of
Disney and Disney does not then beneficially own Infoseek shares representing
a majority of the then total current voting power of Infoseek, then Infoseek
shall have the right to purchase all, but not less than all, of the Infoseek
shares and the Warrants then owned by Disney and its affiliates, at any time
not to exceed sixty (60) days after Disney informs Infoseek in writing of such
change in control of Disney, provided that, not later than 10 business days
after receipt of such notice, Infoseek notifies Disney in writing of its
intent to exercise the right of repurchase such securities. The purchase price
per share of such shares shall be the fair market value thereof as of the date
of occurrence of the change in control of Disney and the purchase price for
any Warrants shall be the purchase price of such Warrants paid by Disney to
Infoseek for such Warrants. Infoseek may not assign its right of repurchase
except to an 80% controlled subsidiary.
Disney's Rights to Maintain. During the Standstill Period, provided that
Disney beneficially owns at least 10% of the Total Outstanding Company Equity
(as defined below), if the percentage interest of Disney in the Total
Outstanding Company Equity is or would be reduced at any time as a result of
an issuance of new Infoseek securities, Disney shall have the right to
purchase for cash Disney's Pro Rata Portion (as defined below), in whole or in
part, at an aggregate purchase price equal to the product of the price per
share at which such new securities were or will be sold in such issuance
multiplied by Disney's Pro Rata Portion or any part thereof (the "Purchase
Price"). As defined in the Governance Agreement, "Disney's Pro Rata Portion"
means either (i) in the case of any issuances of new securities for cash
consideration in connection with a financing transaction, 43% of the number of
new securities, or (ii) in the case of any issuance of new securities in
connection with an acquisition transaction, that number of new securities that
would equal 43% after the issuance to Disney; and "Total Outstanding Company
Equity" means the total number of shares of outstanding capital stock of
Infoseek, on a fully diluted basis assuming the conversion, exchange or
exercise of all outstanding securities, whether vested or unvested,
convertible, exchangeable or exercisable into or for Company common stock.
In addition, upon any issuance of new Infoseek securities, and only if (i)
Disney purchases at least 15% of Disney's Pro Rata Portion of such issuance
from Infoseek or in the open market, or (ii) during the Standstill Period,
Disney owns at least 35% of the Total Outstanding Company Equity, or (iii)
after the Standstill Period, Disney owns at least 30% of the Total Outstanding
Company Equity, then Disney shall also have the right to purchase for cash a
Warrant exercisable for such number of Infoseek's new securities, either (a)
in the event of an issuance of new securities in connection with a financing
transaction, equal to 15% of the new securities, or (b) in the event of an
issuance of new securities in connection with an acquisition transaction,
equal to 15% of the new securities plus that number of new securities of
Disney's Pro Rata Portion actually purchased by Disney (either (a) or (b) as
applicable, the "Warrant Coverage"). Any such Warrant shall be in the form of
the Warrants purchased by Disney pursuant to the Securities Purchase Agreement
described above under "--Common Stock and Warrant Purchase Agreement" provided
however, that any such Warrants so purchased shall be fully vested
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and exercisable, and the per share exercise price for such new securities
underlying such Warrant shall be equal to the price per share at which such
new securities were sold in such issuance of such new securities by Infoseek.
Disney's purchase price for any such Warrant shall be an amount in cash
determined to be the fair market value of such Warrants by (a) mutual
agreement of Infoseek and Disney or (b) an investment bank mutually agreed
upon by Infoseek and Disney (based on a Black-Scholes option pricing model)
(the "Warrant Price").
Additionally, Disney may, at any time and from time to time, in lieu of
purchasing Disney's Pro Rata Portion or any part thereof from Infoseek in
connection with an acquisition transaction, purchase on the open- market such
number of shares of voting stock as have the equivalent equity interest as
Disney's Pro Rata Portion. Such open market purchases would entitle Disney to
purchase Warrant Coverage if such purchases are made within 60 days after
receipt by Disney of notice of such issuance from Infoseek. Disney may
purchase shares of voting stock both from Infoseek and in the open market, in
its discretion, in connection with any equity issuance, subject to the
Standstill Limit during the Standstill Period.
Board Representation Rights. The Governance Agreement provides that as a
condition to consummation of the Mergers, the Bylaws of Infoseek shall
authorize an eight (8) member Board of Directors of Infoseek, and the three
persons designated by Disney pursuant to the Reorganization Agreement shall
have been elected to Infoseek's Board of Directors. Thereafter, so long as
Disney beneficially owns at least 10% of Infoseek's total current voting
power, Infoseek shall include in the slate of nominees recommended by
Infoseek's management to shareholders for election as directors at any special
or annual meeting of shareholders of Infoseek and shall use its best efforts
in all other respects to cause the election of, that number of persons
designated by Disney equal to the greater of (i) one, or (ii) that number
determined by multiplying the then number of members of the Board of Directors
by the percentage of total current voting power of Infoseek then owned by
Disney. If such calculation results in a whole number plus a fraction, Disney
shall only be permitted to designate such whole number of persons; provided
however, that if Disney beneficially owns more than 25% of the total current
voting power of Infoseek and Disney is not entitled pursuant to the foregoing
calculation to appoint more than 25% of the members of the Board of Directors,
then such fraction shall be rounded up to the next nearest whole number for
purposes of determining the number of Disney designees on Infoseek's Board of
Directors. At any time during the Standstill Period, Disney shall not be
entitled, and Disney agrees not to cast votes for Disney designees for the
Infoseek Board of Directors in excess of the lesser of (i) the number of
directors which Disney is entitled to elect under the preceding terms of the
Governance Agreement or (ii) 49.9% of the members of the Board of Directors.
During the Standstill Period, in the event that the number of Disney designees
for the Infoseek Board of Directors exceeds the number of designees that
Disney is entitled to designate (the "Excess Directors"), Disney shall cause
that number of Excess Directors to resign and not stand for reelection in
connection with any special or annual meeting of shareholders of Infoseek.
Also see "The Mergers and Related Transactions--Additions to Infoseek's Board
of Directors; Interests of Certain Persons in the Mergers."
Events Requiring Supermajority Board Approval. Pursuant to the Governance
Agreement, until Disney's percentage beneficial ownership of the Total
Outstanding Company Equity falls below 10%, Infoseek shall not effectuate any
Event Requiring Supermajority Board Approval without first having obtained a
75% supermajority Infoseek Board approval. As defined in the Governance
Agreement, an "Event Requiring Supermajority Board Approval" means (i) any
amendment of Infoseek's Bylaws or Infoseek's Certificate of Incorporation,
(ii) a change in control of Infoseek or any subsidiary of Infoseek, (iii) a
sale of more than 15% of the total assets of Infoseek or any subsidiary of
Infoseek, (iv) issuances of securities of Infoseek representing 15% or more of
the total current voting power, (v) the sale or issuance of any securities of
Infoseek for consideration of $200 million or more, (vi) transactions
involving expenditures of cash by Infoseek or any subsidiary or incurrence of
indebtedness by Infoseek or any subsidiary, in either case, in excess of $200
million, or (vii) appointment of a new Chief Executive Officer of Infoseek;
provided that, during the period prior to the consummation of the Mergers, the
amount of consideration set forth in clauses (v) and (vi) above is deemed to
be $25 million.
Events Requiring Disinterested Board Approval. Pursuant to the Governance
Agreement and the Infoseek Delaware Certificate of Incorporation, until such
time as Disney owns 90% or more of Infoseek's total current voting stock,
neither Infoseek nor Disney shall effectuate an Event Requiring Disinterested
Board Approval
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without first having obtained Disinterested Board Approval with respect to
such event. As defined in the Governance Agreement, "Disinterested Board
Approval" means the affirmative vote or written consent of a majority of the
Disinterested Directors duly obtained in accordance with the applicable
provisions of Infoseek's bylaws and applicable law; "Disinterested Director"
means, during the Standstill Period, a member of the Board of Directors of
Infoseek who is not a Disney Director and, after the Standstill Period, a
member of the Board of Directors of Infoseek who is an Independent Director;
"Event Requiring Disinterested Board Approval" means: (i) any amendment to
Infoseek's Bylaws or Certificate of Incorporation, (ii) any transaction
between Infoseek (or any affiliate of Infoseek) and Disney (or any affiliate
of Disney), which (a) requires payments by any party in excess of $5 million
or (b) contemplates a term equal to or in excess of three years, (iii)
adoption of a "poison pill" share purchase rights plan by Infoseek, or any
amendment of, or redemption, or exchange of rights issued pursuant to any such
plan, provided that, such plan excludes from the definition of "Acquiring
Person" therein Disney and wholly owned (direct or indirect) subsidiaries of
Disney so long as neither Disney nor any Disney affiliate has breached
Disney's standstill restrictions described above and so long as Disney
beneficially owns at least 5% of the total current voting power of Infoseek,
(iv) any transfer of any Infoseek shares or non-voting convertible securities
by Disney to an Infoseek Competitor in a private placement (as opposed to a
public offering), (v) during the Standstill Period, any transfer of 25% or
more of Infoseek voting stock by Disney in a private placement (as opposed to
a public offering) to any single person or 13D Group, (vi) commencing a tender
offer or exchange offer by Disney or any affiliate of Disney (or any 13D Group
that includes Disney or any affiliate of Disney) to purchase or exchange for
cash or other consideration any Infoseek voting stock, except for a Disney
Tender Offer made (a) during a Third Party Tender Offer, or (b) following a
Standstill Termination Event so long as the cause of the Standstill
Termination Event was not a Disney Tender Offer, (vii) during the Standstill
Period, Disney's solicitation of proxies with respect to any Infoseek voting
stock or becoming a "participant" in any "election contest" (as such terms are
used in Rule 14(a)-11 of Regulation 14A promulgated under the Exchange Act)
relating to the election of directors of Infoseek, (viii) any termination by
Disney of the License Agreement (described below) between Disney and Infoseek
(a) as a result of Infoseek's failure to use commercially reasonable efforts
to meet certain spending requests for the New Portal Service, at any time
after a majority of the members of Infoseek's Board of Directors are Disney
Directors, (b) as a result of the acquisition by any person or group of 25% or
more of the voting power of Infoseek thereof if the event that causes Disney
to have such termination right is (y) a transfer by Disney of Infoseek shares
(other than a transfer pursuant to a third party tender offer) or (z) after a
majority of the members of Infoseek's Board of Directors are Disney designees,
an issuance of shares by Infoseek which results in a third party owning 25% or
more of the total current voting power of Infoseek, or (c) as a result of the
bankruptcy or receivership of Infoseek if the event that causes such
termination right is that Disney, in its capacity as a shareholder (and not as
a creditor) of Infoseek, has applied for or actively supported the appointment
of a receiver for Infoseek and such receiver has been appointed, (ix) a
transfer by Disney of Infoseek shares which results in a third party owning
25% or more of the total current voting power of Infoseek (other than a
transfer pursuant to third party tender offer), (x) during the Standstill
Period, or after the Standstill Period, unless Disney owns 50% or more of the
total current voting power of Infoseek, any of items (i) through (iv) set
forth as an Event Requiring Disinterested Shareholder Approval as described
below, (xi) any dissolution or liquidation of Infoseek, (xii) voluntary filing
of a petition for bankruptcy or receivership by Infoseek, or the failure to
oppose any other person's petition for bankruptcy or any other person's action
to appoint a receiver of Infoseek, or (xiii) any amendment, modification or
waiver (including a termination other than in accordance with the various
termination provisions contained in the Governance Agreement) of any of the
provisions of the Governance Agreement;
Events Requiring Disinterested Shareholder Approval. Pursuant to the
Governance Agreement and Infoseek Delaware's Certificate of Incorporation,
until such time as Disney owns 90% or more of the total current voting power
of Infoseek, neither Infoseek nor Disney (including any affiliate of such
party) shall effectuate an Event Requiring Disinterested Shareholder Approval
without first having obtained Disinterested Shareholder Approval with respect
to such event; provided however, that Disinterested Shareholder Approval shall
not be required, if on the record date for such approval of such Event
Requiring Disinterested Shareholder Approval, Disney beneficially owns less
than 25% of the total current voting power of Infoseek. As defined in the
Governance Agreement, "Disinterested Shareholder" means any shareholder of
Infoseek who is not Disney or
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an affiliate of Disney or a member of a 13D Group in which Disney or an
affiliate of Disney is also a member; "Disinterested Shareholder Approval"
means the affirmative vote or written consent of greater than 50% of the total
current voting power of Infoseek held by all Disinterested Shareholders;
"Event Requiring Disinterested Shareholder Approval" means: (i) the amendment
of any portion of Infoseek's charter that effectuates therein the provisions
requiring Disinterested Board Approval and Disinterested Shareholder Approval,
(ii) a sale or disposition of all or substantially all of Infoseek's assets,
(iii) the issuance of securities of Infoseek representing 20% or more of (a)
Infoseek's then Total Outstanding Company Equity or (b) Infoseek's then total
current voting power or (iv) a merger, consolidation, or other reorganization
of Infoseek with or into Disney or any affiliate of Disney.
First Offer Agreement
Pursuant to a letter agreement between Steven T. Kirsch, Infoseek's Chairman
and a principal shareholder of Infoseek, and Disney, Mr. Kirsch has agreed
that if, following the Effective Time of the Mergers and prior to the fourth
anniversary thereof, he elects to transfer (other than to family members or
for estate planning or charitable purposes) shares of Infoseek common stock
with an aggregate value of $1,000,000 or more, then he will first offer to
sell such shares to Disney, and Disney will have the right to purchase all
(but not less than all) of such shares, at the same purchase price offered to
Mr. Kirsch by the third party.
LICENSING AND COMMERCIAL AGREEMENTS
License Agreement
Pursuant to a License Agreement between Disney and Infoseek, Disney has
agreed to grant to Infoseek a worldwide license to utilize the trademarks,
service marks and World Wide Web addresses and domain names associated with
the New Portal Service and the copyrights in the user interface design of the
New Portal Service in connection with the development, operation and
exploitation of the New Portal Service. The license will be exclusive to
Infoseek and any other use of the licensed intellectual property is subject to
Infoseek's approval (which approval may not be unreasonably withheld for uses
that do not compete with Infoseek). Infoseek has agreed to pay Disney a
royalty equal to one percent (1%) of Infoseek's revenues other than Infoseek
revenues derived from Infoseek's software sales and services. Such royalties
are not earned or paid until the end of any Infoseek fiscal year in which
Infoseek has positive earnings before interest, taxes and amortization (EBITA)
as defined and royalty payments in any year will not exceed fifteen percent
(15%) of Infoseek's EBITA in such year. Disney has agreed to pay Infoseek
royalties based on a specified percentage of the revenues received by Disney
attributable to other licenses and uses of the licensed intellectual property
by Disney or its licensees.
The license may be terminated by Disney only upon occurrence of the
following events: (i) acquisition by any person or group (other than Disney)
of more than 25% of the voting equity of Infoseek; (ii) Infoseek's failure to
use commercially reasonable efforts to meet certain spending requirements for
the New Portal Service, as set forth in a mutually agreed upon business plan,
provided that these termination rights expire in ten years or earlier if
certain conditions are met; or (iii) bankruptcy or receivership of Infoseek.
Subject to adjustment by unanimous vote of the two member advisory committee
established pursuant to the Product Management Agreement described below,
these spending requirements for the New Portal Service for the first three
years are $40.5 million, $58.3 million and $64.8 million, respectively.
Thereafter such requirements are to be set by unanimous vote of the advisory
committee, provided that, if no amount is agreed to by the advisory committee,
such amount shall be based on the prior year's spending requirement as
adjusted for projected growth based on changes in the consumer price index or
certain other metrics. The amounts spent by Infoseek on the purchase of
promotional services under the Promotional Services Agreement described below
apply towards these spending requirements. Disney's ability to trigger these
termination rights will be limited by the Governance Agreement. If Disney
terminates the license, Infoseek will grant to Disney a worldwide,
nonexclusive, royalty-free license, with certain rights to sublicense, to use
Infoseek technology in connection with the development and operation of the
New Portal Service, with rights to obtain updates to the licensed technology
at most favored nation prices for five years after any such termination.
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Product Management Agreement
Under a Product Management Agreement, Disney and Infoseek have agreed to
establish an advisory committee (consisting of one Infoseek representative and
one Disney representative) for the overall management of the New Portal
Service to be developed and launched by Infoseek as well as to coordinate the
overall relationship between Disney and Infoseek. While decisions of the
advisory committee generally will be required to be unanimous, the Disney
representative will have tie-breaking authority over branding issues and
marketing plan formulation, as well as content and advertising standards, and
the Infoseek representative will have tie-breaking authority over product
development, operation, production, distribution, advertising sales, execution
of the marketing plan and day-to-day operations of the service. Under this
agreement, Disney and Infoseek have also each agreed to provide certain
prominent positioning for and links to Disney content and Infoseek search and
directory services within Infoseek and Disney's respective online services.
Promotional Services Agreement
Pursuant to a Promotional Services Agreement, ABC has agreed to provide, and
Infoseek has agreed to purchase, $165,000,000 in promotional services over a
five-year period for the New Portal Service, consisting of both traditional
and non-traditional opportunities. In addition, this agreement requires Disney
to co-brand all ABCNews.com and ESPN SportsZone nontraditional media
promotions with promotions for the New Portal Service. Infoseek will have the
right to renew the Promotional Services Agreement, other than with respect to
the co-branding requirement at the end of its initial five year term, for a
subsequent five year term. The obligations under the Promotional Services
Agreement are not conditioned on the success of the planned New Portal
Service. The purchases of promotional services by Infoseek under the
Promotional Services Agreement apply towards the spending requirements
discussed under "--License Agreement" above.
Amended and Restated ESPN Joint Venture
Starwave Partner and ESPN Partner have amended and restated the existing
ESPN Joint Venture between Starwave Partner and ESPN Partner for the
development, production and exploitation of narrowband products incorporating
and containing amateur or professional sports content, news and information
owned or controlled by ESPN Enterprises, Inc. or its affiliates (collectively
"ESPN"). The financial participation provisions of the Amended and Restated
ESPN Joint Venture remained substantially unchanged from the original ESPN
Joint Venture, with Starwave Partner and ESPN Partner each receiving a
quarterly allocation of fifty percent of the joint venture's net income (with
corresponding levels of funding commitments based on estimated cash expenses
and capital expenditures for such period) in years during which there is net
income, and with Starwave Partner allocated sixty percent of the net losses
and ESPN Partner allocated forty percent of the net losses (with corresponding
levels of funding commitments based on estimated cash expenses and capital
expenditures for such period) in loss years. The amended and restated ESPN
Joint Venture includes a mechanism for adjusting each partner's profit
participation in the event that a partner fails to make any funding commitment
cash contribution.
The amended and restated ESPN Joint Venture incorporates certain exclusivity
provisions with respect to the activities of Starwave Partner and ESPN
Partner. ESPN Partner and Starwave Partner have each agreed that neither ESPN
Partner nor Starwave Partner, as the case may be, nor any of their respective
affiliates would, during the term of the ESPN Joint Venture, in the U.S. or
Canada, develop, distribute, produce, exploit, market, promote on-air, provide
services of any nature or provide a license or permit a third party to utilize
any of their respective intellectual property rights with respect to
narrowband products containing professional or amateur sports content, news or
information. This exclusivity will not apply, however, to the parties'
activities associated with the development, expansion and commercialization of
sports components of the planned New Portal Service, nor will such exclusivity
apply to Starwave Partner or its affiliates' activities associated with search
or directory products, services, components or other search or directory
subject matter.
The amended and restated ESPN Joint Venture has a ten year term (from the
Effective Time) and can only be terminated by ESPN Partner or Starwave Partner
if (i) a party to the amended and restated ESPN Joint Venture or Infoseek
California is subject to a bankruptcy or similar proceeding, (ii) Starwave
Partner willfully and
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repeatedly misuses the trademarks or service marks of ESPN in material breach
of the agreement and repeatedly fails to cure such misuses, or (iii) the other
partner's profit participation is equal to or less than twenty-five percent
and the ESPN Joint Venture sustains either eight consecutive net loss fiscal
quarters or ten total net loss fiscal quarters. Upon expiration or
termination, ESPN Partner will be entitled to receive in-kind distribution of
editorial-related content assets and Starwave Partner will be entitled to
receive in-kind distribution of all technology assets and substantially all
other assets of the ESPN Joint Venture.
Amended and Restated ESPN/Starwave Management and Services Agreement
ESPN, Starwave and the ESPN Joint Venture have also entered into an Amended
and Restated ESPN/Starwave Management and Services Agreement to provide for
provision by ESPN of ESPN content and electronic commerce services for the
narrowband sports products developed pursuant to the amended and restated ESPN
Joint Venture and provision by Starwave of hosting services and technology
development and maintenance services in connection with such narrowband sports
products.
ESPN Representation Agreement
Under the ESPN Representation Agreement, Starwave has agreed to act as the
exclusive representative of the ESPN Joint Venture in the sale of advertising
for the ESPN SportsZone internet service and other internet services that are
owned and/or operated by the ESPN Joint Venture, such as NFL.com, NASCAR
Online and NBA.com. For the exclusive right to provide these services,
Starwave has agreed to make quarterly payments to the ESPN Joint Venture equal
to the greater of (i) a guaranteed minimum amount or (ii) advertising revenues
actually billed to third parties in the performance of the services (whether
or not collected), in each case less Starwave's costs of providing the
services and a profit margin.
Amended and Restated ABCNews Joint Venture
Starwave Partner, ABC Partner and Disney have amended and restated the
existing ABCNews Joint Venture among the parties for the development,
production and exploitation of narrowband products containing broad national,
international and local news content. The financial participation provisions
of the Amended and Restated ABCNews Joint Venture remained substantially
unchanged from the original ABCNews Joint Venture, with Starwave Partner and
ABC Partner to each receive a quarterly allocation of fifty percent of the
joint venture's net income (with corresponding levels of funding commitments
based on estimated cash expenses and capital expenditures for such period) in
years in which there is net income, and with Starwave Partner allocated sixty
percent of the net losses and ABC Partner allocated forty percent of the net
losses (with corresponding levels of funding commitments based on estimated
cash expenses and capital expenditures for such period) in loss years. The
amended and restated ABCNews Joint Venture includes a mechanism for adjusting
each partner's profit participation in the event that a partner fails to make
any funding commitment cash contribution.
The amended and restated ABCNews Joint Venture incorporates certain
exclusivity provisions with respect to the activities of Starwave Partner and
ABC Partner. ABC Partner and Starwave Partner each agreed that neither ABC
Partner nor Starwave Partner, as the case may be, nor any of their respective
affiliates would, during the term of the ABCNews Joint Venture, in the U.S. or
Canada, develop, distribute, produce, exploit, market or promote on-air
(subject to ABC's current agreement with America Online), or provide services
of any nature or provide a license or permit a third party to utilize any of
their respective intellectual property rights with respect to narrowband
products dedicated primarily to national and international news, other than
narrowband products dedicated primarily to entertainment or personal finance
news. This exclusivity does not apply, however, to the parties' activities
associated with the development, expansion and commercialization of news
components of the planned New Portal Service, nor does such exclusivity apply
to Starwave Partner or its affiliates' activities associated with search or
directory products, services, components or other search or directory subject
matter.
The amended and restated ABCNews Joint Venture has a ten year term (from the
Effective Time) and can only be terminated by ABC Partner or Starwave Partner
if (i) a party to the agreement or Infoseek is subject to a
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bankruptcy or similar proceeding, (ii) Starwave Partner willfully and
repeatedly misuses the trademarks or service marks of ABC or its affiliates in
material breach of the agreement and repeatedly fails to cure such misuses, or
(iii) the other partner's profit participation is equal to or less than
twenty-five percent and the ABCNews Joint Venture sustains either eight
consecutive net loss fiscal quarters or ten total net loss fiscal quarters.
Upon expiration or termination, ABC Partner will be entitled to receive in-
kind distribution of editorial-related content assets and Starwave Partner
will be entitled to receive in-kind distribution of all technology assets and
substantially all other assets of the ABCNews Joint Venture.
Amended and Restated ABC News/Starwave Management and Services Agreement
ABC, Starwave and the ABCNews Joint Venture have entered into an Amended and
Restated ABC News/Starwave Management and Services Agreement to provide for
provision by ABC of ABC content and electronic commerce services for the
narrowband news products developed pursuant to the amended and restated
ABCNews Joint Venture and provision by Starwave of hosting services and
technology development and maintenance services in connection with such
narrowband news products.
ABCNews Representation Agreement
Under the ABC News Representation Agreement, Starwave has agreed to act as
the exclusive representative of the ABCNews Joint Venture in the sale of
advertising services for the ABCNews.com Internet service and other internet
services that are owned and/or operated by the ABCNews Joint Venture such as
Mr. Showbiz, Celebsite, and Wall of Sound. For the exclusive right to provide
these services, Starwave has agreed to make quarterly payments to the ABCNews
Joint Venture equal to the greater of (i) a guaranteed minimum amount or (ii)
advertising revenues actually billed to third parties in the performance of
the services (whether or not collected), in each case less Starwave's costs of
providing the services and a profit margin.
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UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma combined condensed financial information
for Infoseek Delaware consists of the Unaudited Pro Forma Combined Condensed
Statements of Operations for the year ended December 31, 1997, and for the six
months ended June 30, 1998 and the Unaudited Pro Forma Combined Condensed
Balance Sheet as of June 30, 1998 (collectively, the "Pro Forma Statements").
The Pro Forma Statements give effect to Infoseek Delaware's acquisition of
Starwave through a merger and exchange of shares and Infoseek Delaware's
acquisition of Infoseek California through a merger and exchange of shares. In
addition, the Pro Forma Statements give effect, conditioned upon and subject
to consummation of the proposed Mergers, to Disney's purchase of an additional
2,642,000 unregistered shares of Infoseek Delaware common stock and a warrant,
subject to vesting, to purchase an additional 15,720,000 unregistered shares
of Infoseek common stock (the "Warrant") in exchange for approximately $70.0
million in cash and $139.0 million in a five-year promissory note. The
Unaudited Pro Forma Combined Condensed Statement of Operations for the year
ended December 31, 1997 and the six months ended June 30, 1998 reflect these
transactions as if they had taken place on January 1, 1997. The Unaudited Pro
Forma Combined Condensed Balance Sheet gives effect to these transactions as
if they had taken place on June 30, 1998.
On July 24, 1998, Infoseek entered into an agreement to acquire Quando in
exchange for approximately $17.0 million, subject to adjustment, in shares of
Infoseek's common stock. The transaction is subject to customary closing
conditions, including shareholder approval by Quando, and is expected to close
on or about the closing of the Mergers. The Unaudited Pro Forma Combined
Condensed Statements of Operations for the year ended December 31, 1997 and
the six months ended June 30, 1998 reflect this transaction as if it had taken
place on January 1, 1997. The Unaudited Pro Forma Combined Condensed Balance
Sheet gives effect to the Quando acquisition as if it had taken place on June
30, 1998.
The Unaudited Pro Forma Combined Condensed Statements of Operations combine
Infoseek California's historical results of operations for the year ended
December 31, 1997 and the six months ended June 30, 1998 with Starwave's
historical results for the year ended December 31, 1997 and the six months
ended June 28, 1998 and Quando's historical results of operations for the year
ended December 31, 1997 and the six months ended June 30, 1998, respectively.
In addition, the Unaudited Pro Forma Combined Condensed Statements of
Operations include the impact of certain of the Related Agreements which
become effective with the Mergers. These agreements are described more fully
in the notes to these Unaudited Pro Forma Combined Condensed Statements of
Operations. See "Description of Related Agreements--Licensing and Commercial
Agreements." The Pro Forma Statements are not necessarily indicative of what
the actual financial results would have been had the transactions taken place
on January 1, 1997 or June 30, 1998 and do not purport to indicate the results
of future operations.
The Starwave Merger and the Quando acquisition will be accounted for using
the purchase method of accounting. The Pro Forma Statements have been prepared
on the basis of assumptions described in the notes thereto.
As a result of the Starwave Merger and the Quando acquisition, Infoseek
Delaware expects to incur write-offs related to in-process research and
development, currently estimated at $74.4 million and $9.4 million,
respectively. The Pro Forma Combined Condensed Balance Sheet includes the
effect of the write-off related to in-process research and development;
however, the Pro Forma Combined Condensed Statement of Operations does not
reflect these charges. The charges related to in-process research and
development will be reflected in Infoseek Delaware's consolidated financial
statements when the Starwave Merger and the Quando acquisition are
consummated. In addition, Infoseek expects to incur costs of integration
estimated at up to $5.0 million, subsequent to when the Starwave Merger and
the Quando acquisition are consummated. The Pro Forma Statements do not
include the costs of integration, as these costs will affect future operations
and do not qualify as liabilities in connection with a purchase business
combination under EITF 95-3, "Recognition of Liabilities in Connection with a
Purchase Business Combination."
91
<PAGE>
The Pro Forma Statements should be read in conjunction with the related
notes included in this document and the audited financial statements of
Starwave and Quando, including the notes thereto, included elsewhere in this
Joint Proxy Statement/Prospectus, and the audited financial statements of
Infoseek California and the notes thereto, included in Infoseek California's
Current Report on Form 8-K/A, as amended, filed on May 22, 1998 and amended on
August 10, 1998 and incorporated by reference in this Joint Proxy
Statement/Prospectus.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
INFOSEEK STARWAVE QUANDO PRO FORMA
ACTUAL ACTUAL ACTUAL ADJUSTMENTS TOTAL
-------- -------- ------ ----------- ---------
<S> <C> <C> <C> <C> <C>
Revenues................. $ 35,082 $ 5,811 $ 256 $ 16,368 (3) $ 57,517
Costs and expenses:
Hosting, content and
website costs(10)..... 6,319 7,667 1 13,790 (3) 26,398
2,455 (3)
(3,834)(4)
Amortization of
intangibles related to
hosting, content and
website costs......... -- -- -- 37,066 (8) 41,588
4,522 (18)
Research and
development........... 7,900 1,840 161 995 (8) 10,947
51 (18)
Sales and marketing.... 34,320 1,598 12 2,907 (8) 75,675
3,834 (4)
33,000 (11)
4 (18)
General and
administrative........ 7,042 3,188 419 1,683 (8) 12,466
134 (18)
Goodwill amortization.. -- -- -- 64,581 (8) 66,198
1,617 (18)
Restructuring and other
charges............... 7,349 -- -- -- 7,349
-------- -------- ----- --------- ---------
Total costs and
expenses................ 62,930 14,293 593 162,805 240,621
-------- -------- ----- --------- ---------
Operating loss........... (27,848) (8,482) (337) (146,437) (183,104)
Loss from Joint
Ventures................ -- (10,932) -- (74) (3) (11,006)
Other income (expense),
net..................... 1,286 (1,111) (16) -- 159
-------- -------- ----- --------- ---------
Net loss................. $(26,562) $(20,525) $(353) $(146,511) $(193,951)
======== ======== ===== ========= =========
Basic and diluted net
loss per share.......... $ (1.00) $ (3.35)
Shares used in computing
basic and diluted net
loss per share.......... 26,627 31,301 57,928
</TABLE>
See Notes to Unaudited Pro Forma Combined Condensed Financial Statements.
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<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
INFOSEEK STARWAVE QUANDO PRO FORMA
ACTUAL ACTUAL ACTUAL ADJUSTMENTS TOTAL
-------- -------- ------ ----------- --------
<S> <C> <C> <C> <C> <C>
Revenues..................... $31,519 $ 2,576 $ 89 $ 14,249 (3) $ 48,433
Costs and expenses:
Hosting, content and
website costs (10)........ 4,678 1,665 2 12,005 (3) 19,654
2,137 (3)
(833)(4)
Amortization of intangibles
related to hosting,
content and website
costs..................... -- -- -- 17,500 (8) 20,794
1,033 (8)
2,261 (18)
Research and development... 4,797 612 185 497 (8) 6,117
26 (18)
Sales and marketing........ 22,440 32 -- 1,454 (8) 41,261
833 (4)
16,500 (11)
2 (18)
General and
administrative............ 3,923 1,117 257 842 (8) 6,206
67 (18)
Goodwill amortization...... -- -- -- 32,290 (8) 33,099
809 (18)
------- ------- ----- -------- --------
Total operating expenses... 35,838 3,426 444 87,423 127,131
------- ------- ----- -------- --------
Operating loss............... (4,319) (850) (355) (73,174) (78,698)
Loss from Joint Ventures..... -- (6,350) -- (64)(3) (6,414)
Interest income (expense),
net......................... 1,252 555 (36) -- 1,771
------- ------- ----- -------- --------
Net loss..................... $(3,067) $(6,645) $(391) $(73,238) $(83,341)
======= ======= ===== ======== ========
Basic and diluted net loss
per share................... $ (0.10) $ (1.36)
Shares used in computing
basic and diluted net loss
per share................... 30,058 31,301 61,359
</TABLE>
See Notes to Unaudited Pro Forma Combined Condensed Financial Statements.
93
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
AS OF JUNE 30, 1998
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
INFOSEEK STARWAVE QUANDO PRO FORMA
ACTUAL ACTUAL ACTUAL ADJUSTMENTS TOTAL
-------- --------- ------- ----------- ----------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents.......... $ 668 $ 2,543 $ -- $ 70,013 (2) $ 73,224
Short-term
investments.......... 66,664 -- -- -- 66,664
Accounts receivable,
net.................. 8,759 1,229 33 -- 10,021
Receivables from
related parties...... -- 615 -- -- 615
Other current assets.. 730 404 -- -- 1,134
-------- --------- ------- --------- ----------
Total current
assets............. 76,821 4,791 33 70,013 151,658
Property and equipment,
net.................... 13,987 4,059 47 18,093
Developed technology.... -- -- -- 34,100 (1) 43,143
9,043 (13)
Assembled workforce..... -- -- -- 15,300 (1) 15,677
377 (13)
Deposits and other
assets................. 3,838 -- 4 -- 3,842
Goodwill................ -- -- -- 645,806 (1) 649,040
3,234 (13)
Joint Venture
relationships.......... -- 9,939 179,500 (1) 189,439
-------- --------- ------- --------- ----------
Total assets........ $ 94,646 $ 18,789 $ 84 $ 957,373 $1,070,892
======== ========= ======= ========= ==========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable...... $ 3,485 $ 1,015 $ 370 $ -- $ 4,870
Accrued payroll and
related expenses..... 2,024 1,828 -- -- 3,852
Accrued liabilities to
service providers.... 5,107 -- -- -- 5,107
Other accrued
liabilities.......... 3,902 691 -- 22,000 (5) 27,593
1,000 (14)
Due to affiliates..... -- 303 -- -- 303
Deferred revenue...... 4,794 543 -- -- 5,337
Short-term
obligations.......... 3,183 -- 107 -- 3,290
-------- --------- ------- --------- ----------
Total current
liabilities........ 22,495 4,380 477 23,000 50,352
Deferred tax liability.. -- -- -- 43,681 (9) 46,915
3,234 (19)
Long-term obligations... 3,408 -- 447 -- 3,855
Shareholders' equity:
Convertible preferred
stock................ -- -- 822 (822)(15) --
Common stock.......... 120,460 128,393 160 978,454 (6) 1,244,307
16,840 (16)
Accumulated deficit... (51,097) (109,861) (1,822) 35,461 (7) (134,917)
(7,598)(17)
Deferred
compensation......... (490) (4,123) -- 4,123 (12) (490)
Notes receivable from
shareholders......... (130) -- -- (139,000)(2) (139,130)
-------- --------- ------- --------- ----------
Total shareholders'
equity............. 68,743 14,409 (840) 887,458 969,770
-------- --------- ------- --------- ----------
Total liabilities
and shareholders'
equity............. $ 94,646 $ 18,789 $ 84 $ 957,373 $1,070,892
======== ========= ======= ========= ==========
</TABLE>
See Notes to Unaudited Pro Forma Combined Condensed Financial Statements.
94
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED
CONDENSED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30,
1998
The Pro Forma Statements give effect to Infoseek Delaware's acquisition of
Starwave through a merger and exchange of shares. In addition, conditioned
upon and subject to consummation of the proposed Merger, Disney has agreed to
purchase an additional 2,642,000 unregistered shares of Infoseek Delaware
common stock and a warrant, subject to vesting, to purchase an additional
15,720,000 unregistered shares of Infoseek Delaware common stock (the
"Warrant") in exchange for approximately $70.0 million in cash and a $139.0
million five-year promissory note. The Unaudited Pro Forma Combined Condensed
Statement of Operations for the year ended December 31, 1997 and the six
months ended June 30, 1998 reflect these transactions as if they had taken
place on January 1, 1997. The Unaudited Pro Forma Combined Condensed Balance
Sheet gives effect to these transactions as if they had taken place on June
30, 1998.
In addition, the unaudited Pro Forma Combined Condensed Statements of
Operations include the effect of certain of the Related Agreements that become
effective upon consummation of the Mergers. Under the Representation
Agreements, Starwave will contract for, and have exclusive rights to sell, all
advertising and other related items of the Joint Ventures. Starwave guarantees
its performance through minimum revenue commitments and is at risk if its
subsequent collection of the related receivables is insufficient to cover such
commitments. These Representation Agreements will result in Starwave
recognizing revenue for the sale of the advertising and of related items and a
corresponding representation fee for amounts due to the Joint Ventures. In
addition, under a five year Promotional Services Agreement, Infoseek has
committed to spend $165.0 million to promote the New Portal Service. These
costs are reflected, on a straight-line basis, in the Pro Forma Statements as
increased sales and marketing expenses. See "Description of Related
Agreements--Licensing and Commercial Agreements."
On July 24, 1998, Infoseek entered into an agreement to acquire Quando in
exchange for approximately $17.0 million, subject to adjustment, in shares of
Infoseek common stock. The transaction is subject to customary closing
conditions, including shareholder approval by Quando, and is expected to close
on or about the closing of the Mergers. The Unaudited Pro Forma Condensed
Statements of Operations for the year ended December 31, 1997 and the six
months ended June 30, 1998 reflect the Quando acquisition as if it had taken
place on January 1, 1997. The Unaudited Pro Forma Combined Condensed Balance
Sheet gives effect to this transaction as of it had taken place on June 30,
1998.
The Starwave Merger and the Quando acquisition will be accounted for using
the purchase method of accounting. The Pro Forma Statements have been prepared
on the basis of assumptions described in the notes thereto and include
assumptions relating to the allocation of the consideration paid for the
assets and liabilities of Starwave and Quando based on preliminary estimates
of their fair value. The actual allocation of such consideration may differ
from that reflected in the Pro Forma Statements after valuations and other
procedures to be performed after the closing of the Starwave Merger and the
Quando acquisition have been completed. Infoseek does not expect that the
final allocation of the purchase price will differ materially from the
preliminary allocations. In the opinion of Infoseek's management, all
adjustments necessary to present fairly such Pro Forma Statements have been
made on the proposed terms and structure of the Starwave Merger and the Quando
acquisition.
As a result of the Starwave Merger and the Quando acquisition, Infoseek
Delaware expects to incur write-offs related to in-process research and
development, currently estimated at $74.4 million and $9.4 million,
respectively. The Pro Forma Combined Condensed Balance Sheet includes the
effect of the write-off related to in-process research and development;
however, the Pro Forma Combined Condensed Statement of Operations does not
reflect these charges. The charges related to in-process research and
development will be reflected in Infoseek's consolidated financial statements
when the Starwave Merger and the Quando acquisition are consummated. In
addition, Infoseek expects to incur costs of integration estimated at up to
$5.0 million, subsequent to when the Starwave Merger and the Quando
acquisition are consummated. The Pro Forma Statements do not include the costs
of integration as they will affect future operations.
95
<PAGE>
The Pro Forma Statements are not necessarily indicative of what the actual
financial results would have been had the transactions taken place on January
1, 1997 or June 30, 1998 and do not purport to indicate the results of future
operations.
The Unaudited Pro Forma Statements give effect to the following pro forma
adjustments:
1. In accordance with the Reorganization Agreement, (i) Infoseek Merger Sub
will merge with and into Infoseek California, Infoseek California will become
a wholly-owned subsidiary of Infoseek Delaware, and all outstanding shares of
common stock of Infoseek California will be converted into shares of the
common stock of Infoseek Delaware, at the rate of one share of Infoseek
Delaware common stock for each share of Infoseek California common stock, and
(ii) Starwave Merger Sub will merge with and into Starwave, Starwave will
become a wholly-owned subsidiary of Infoseek Delaware, and all outstanding
shares of common stock of Starwave will be converted into that number of
shares of common stock of Infoseek Delaware, in accordance with the Exchange
Ratio. The Exchange Ratio is equal to the quotient obtained by dividing
28,138,000 by the sum of (a) the aggregate number of total outstanding
Starwave shares and (b) the aggregate number of shares of Starwave common
stock subject to Starwave's options outstanding at the Effective Time of the
Starwave Merger.
The Starwave Merger will be accounted for using the purchase method of
accounting. The purchase price was based on $32.42 per share, which is the
average of the market price before and immediately after the announcement of
the Reorganization Agreement.
The purchase price was determined as follows:
<TABLE>
<CAPTION>
STARWAVE INFOSEEK FAIR VALUE
SHARES SHARES (IN THOUSANDS)
----------- ---------- --------------
<S> <C> <C> <C>
Shares................................. 97,185,390 25,511,922 $827,096
Stock Options.......................... 10,003,812 2,626,078 70,738
----------- ---------- --------
Totals............................... 107,189,202 28,138,000 $897,834
=========== ========== ========
</TABLE>
The Starwave shares were first converted to Infoseek Delaware equivalent
shares by taking the number of Starwave shares divided by the Exchange Ratio
of approximately 3.8094 Starwave shares for each Infoseek Delaware share.
The fair value of "shares" was calculated by taking the fair value of the
stock ($32.42 per share) times the number of Infoseek Delaware shares to be
acquired.
With respect to stock options exchanged as part of the Starwave Merger, all
vested Starwave options exchanged for vested Infoseek Delaware options are
included as part of the purchase price based on their fair value. Any unvested
Starwave options issued in exchange for unvested Infoseek Delaware options are
also included as part of the purchase price based on their fair value.
The fair value of the stock was calculated by taking the options to purchase
Infoseek Delaware shares (2,626,078 options) times the fair value of the stock
($32.42 per share) less the proceeds which will be received from the
optionholder upon exercise (approximately $14.4 million).
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<PAGE>
The Pro Forma Statements have been prepared on the basis of assumptions
described in the notes thereto and includes assumptions relating to the
allocation of the consideration paid for the assets and liabilities of
Starwave based on preliminary estimates of their fair value. The actual
allocation of such consideration may differ from that reflected in the Pro
Forma Statements after valuations and other procedures to be performed after
the closing of the Starwave Merger have been completed. Below is a table of
the estimated acquisition cost, purchase price allocation and annual
amortization of the intangible assets acquired (in thousands):
<TABLE>
<CAPTION>
ANNUAL
AMORTIZATION AMORTIZATION
LIFE OF INTANGIBLES
------------ --------------
<S> <C> <C> <C>
Estimated Acquisition Cost
Estimated purchase price........... $897,834
Acquisition expenses............... 22,000
--------
Total Estimated Acquisition
Cost............................ $919,834
========
Purchase Price Allocation
Historical net book value of
Starwave at June 30, 1998......... $ 14,409
Intangible assets acquired:
Joint Venture relationships (ESPN
Joint Venture and ABC News Joint
Venture).......................... 179,500 10 $ 17,950
Developed technology............... 34,100 2 17,050
Assembled workforce................ 15,300 2 7,650
In-process technology.............. 74,400
Goodwill........................... 645,806 10 64,581
Deferred tax liability............. (43,681)
--------
Total............................ $919,834
========
</TABLE>
Tangible assets of Starwave acquired in the Starwave Merger principally
include cash, fixed assets and investments in the affiliates (i.e., the Joint
Ventures). Liabilities of Starwave assumed in the Starwave Merger principally
include accounts payable, accrued payroll and other current liabilities.
To determine the value of the developed technology and the investment in the
Joint Ventures, the expected future cash flow attributable to all existing
technology was discounted, taking into account risks related to the
characteristics and applications of the technology, existing and future
markets, and assessments of the life cycle stage of the technology. The
analysis resulted in a valuation of approximately $34.1 million for developed
technology which had reached technological feasibility and therefore was
capitalizable. The developed technology is being amortized on a straight line
basis over a two year period. The fair value of the Joint Venture
relationships was determined to be $179.5 million, which is being amortized on
a straight line basis over the life of the Joint Venture agreements (10
years).
The value of the assembled workforce was derived by estimating the costs to
replace the existing employees, including recruiting and hiring costs and
training costs for each category of employee. The analysis determined a
valuation of approximately $15.3 million for the assembled workforce. The
asset is being amortized on a straight-line basis over a two year period.
The preliminary goodwill allocation is $645.8 million, which is being
amortized on a straight line basis concurrent with the life of the Joint
Venture relationships (10 years).
The projects identified as in-process technology at Starwave are those that
will be underway at the time of the Starwave Merger and would, after
consummation of the Starwave Merger, require additional effort to establish
technological feasibility. These projects have identifiable technological risk
factors which indicate that even though successful completion is expected, it
is not assured. If an identified project is not successfully completed, there
is no alternative future use for the project and the expected future income
will not be realized.
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<PAGE>
The estimated amount of the in-process research and development charge
represents a preliminary estimate which could materially differ from the
actual results that will be experienced by Infoseek, as final values will not
be established until after the closing of the Starwave Merger.
The in-process technology to be acquired from Starwave in the transaction
consists primarily of technology related to the planned New Portal Service and
to replacement and enhancement of Starwave's core technology. Development of
the New Portal Service started in July 1998, following the announcement of the
Starwave Merger. An initial, limited version of the New Portal Service is
expected to be introduced in the fourth calendar quarter of 1998, subject to
consummation of the Mergers. The majority of the functionality planned for the
New Portal Service is not possible with Starwave's current architecture and
design. As a result, Starwave has shifted a substantial portion of its
development efforts toward redesigning its core technologies. These efforts
have been undertaken since July 1998 to integrate the existing content and
build a new infrastructure and new features. These will include the ability
for an individual to tailor content (such as types of news, sports teams,
etc.) to their own interests, and universal registration, which will track
user preferences and personal profiles (such as name, address, billing
information, etc.) across all the elements of the New Portal Service. This
should provide users with a better experience by enabling them to find what
they want and, if desired, make purchases on-line from any site within the New
Portal Service without having to re-input personal information. Infoseek
believes these are key features of the New Portal Service, which will be
composed of sites belonging to different entities including Infoseek, Disney,
and the Joint Ventures. Infoseek estimates that costs incurred to complete the
projects in-process as of the date of closing will be $7.5 million, of which
approximately $3.75 million will be spent in calendar 1998, with the remaining
$3.75 million spent in calendar 1999. There can be no assurance that actual
costs will not exceed these estimates.
Infoseek expects that the in-process technology will be successfully
developed, and that initial benefits from these projects will begin in the
quarter ending December 31, 1998, with the introduction of the initial version
of the New Portal Service. The full functionality intended for the planned New
Portal Service will not be supported at introduction, requiring a gradual
introduction of new features over the next several months or more following
the initial launch. Notwithstanding Infoseek's expectation that the in-process
technology will be successfully developed, there remain significant technical
challenges which must be resolved in order to implement many of the intended
features of the planned New Portal Service and to complete the in-process
technology. While Infoseek currently plans to launch the planned New Portal
Service in accordance with the schedule outlined above, there can be no
assurance that the service can be successfully developed and launched within
such schedule. If the combined companies are unable to successfully develop,
launch and promote the planned New Portal Service in a timely manner, or if
the combined companies incur excessive expenses in this connection or in an
attempt to improve the planned New Portal Service or promote and maintain
their brands, the combined companies' businesses, financial condition and
operating results will be materially adversely affected.
2. Under the terms of the Securities Purchase Agreement, Infoseek Delaware
has agreed to issue and sell, and Disney has agreed to purchase, 2,642,000
unregistered shares of common stock of Infoseek, at a price of $26.50 per
share, and a Warrant to purchase 15,720,000 shares of common stock of Infoseek
Delaware, subject to certain vesting restrictions on its exercisability, at
certain prices and on certain conditions, in exchange for cash in the amount
of $70.0 million and a note in principal amount of $139.0 million (subject to
and conditioned upon closing of the Mergers).
At the closing, Infoseek Delaware will deliver a Warrant to Disney to
purchase 15,720,000 shares of Infoseek Delaware common stock. The shares
subject to the Warrant vest and become exercisable 33 1/3% at each of the
first, second and third anniversaries of the closing. The exercise price for
each share of common stock of Infoseek Delaware subject to the Warrant shall
be equal to (i) 120% of the average closing sales price of Infoseek common
stock (as quoted on Nasdaq or another national market) for the thirty trading
days prior to the time such shares vest and become exercisable or (ii) if not
traded on any market, the fair market value thereof as determined by unanimous
determination of the Infoseek Board of Directors or if the Infoseek Directors
cannot agree, through an appraisal mechanism, subject to a maximum, in each
case, of $50.00 (subject to adjustment).
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<PAGE>
At the closing, Disney shall deliver a promissory note in principal amount
of $139.0 million payable to Infoseek. The promissory note bears interest on
the principal amount outstanding at a rate of 6.5% per annum. The promissory
note is repayable in twenty quarterly principal installments, beginning on the
three month anniversary of the closing, of $6.9 million, with the final
payment due on the five year anniversary of the closing. The promissory note
(together with accrued and unpaid interest) may be repaid in whole or in part
without premium or penalty at any time. See "Description of Related
Agreements--Equity and Governance Agreements."
3. Under each of the ESPN Representation Agreement by and among Infoseek,
Starwave and the ESPN Joint Venture, and the ABC Representation Agreement by
and among Infoseek, Starwave and the ABC News Joint Venture, each entered into
in conjunction with the Mergers, Starwave is engaged by the Joint Ventures on
an exclusive basis in the sale of advertising and other items as designated or
approved by the Joint Ventures and to provide additional services, if any, as
the Joint Ventures may request (collectively the "Services"). Activities with
respect to the sale of advertising on the Internet services and other related
items includes the negotiation, execution, renewal, amendment, modification or
termination of advertising and other related contracts. Starwave guarantees to
the Joint Ventures a minimum quarterly payment equal to the number of
projected page views, multiplied by 80%, multiplied by the minimum revenue
rate (the "Guaranteed Minimum Payment"). The minimum revenue rate is based on
the average ad revenue rate per page view of the publicly traded internet
companies involved in activities comparable to those of the Joint Ventures.
Starwave will recognize revenue on the sale of advertising and other related
items of the Joint Ventures due to its obligations under the Representation
Agreements. Starwave bears the risk of loss, if it fails to bill and collect
amounts sufficient to cover its contractual Guaranteed Minimum Payments. The
pro forma adjustment reflects (i) 100% of each of the Joint Ventures' revenues
as Starwave made substantially all sales on behalf of the Joint Ventures for
the year ended December 31, 1997 and the six months ended June 30, 1998, as
the Joint Ventures did not maintain a sales organization and (ii) the
assumption that the Representation Agreements were entered into January 1,
1997. The Representation Agreements are expected to have a continuing impact
on Starwave, although the amount of revenue Starwave will recognize will vary
in future periods.
Under the Representation Agreements, Starwave pays the Joint Ventures for
the right to render services the greater of (i) the Guaranteed Minimum Payment
or (ii) actual revenues billed to third parties for services, in each case
less only Starwave's actual and reasonably allocated costs of providing the
services and a profit margin of 5% of such costs ("Representation Rights
Fees"). The obligations of Starwave to pay the Representation Rights Fees are
unconditional. Starwave is required to pay the Joint Ventures regardless of
whether Starwave is able to collect the related outstanding receivables. The
pro forma adjustment for the Representation Rights Fee is the Joint Venture
revenues less allocated costs of 15% of revenue, plus a 5% profit margin on
allocated costs. In addition, a pro forma adjustment has been made for
additional costs Starwave would have incurred that were historically incurred
by the Joint Ventures.
Each of the Joint Ventures is accounted for under the equity method due to
neither Infoseek nor Starwave having a majority voting interest. The other
partners to these Joint Ventures, subsidiaries of ESPN and ABC, are
subsidiaries of Disney. A pro forma adjustment has been made to Starwave's
allocated (60%) losses from the Joint Ventures. This pro forma adjustment was
due to the Joint Ventures decreased revenues partially offset by decreased
costs under the Representation Agreement. See "Description of Related
Agreements--Licensing and Commercial Agreements."
4. The pro forma adjustment is to reclassify certain hosting, content and
website costs of Starwave to sales and marketing expense to conform to
Infoseek's presentation.
5. The pro forma adjustment to "Other Accrued Liabilities" reflects the
accrual of acquisition costs arising from the Mergers, estimated to be
approximately $22.0 million. The $22.0 million includes approximately $5.0
million for liabilities related to involuntary employee termination benefits
(relocations) of Starwave employees and $5.0 million for costs to exit other
Starwave activities, primarily operating leases of Starwave.
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<PAGE>
6. The pro forma adjustment to "common stock" reflects the elimination of
Starwave's common stock ($128.4 million) and the impact of the issuance of
Infoseek Delaware common stock ($897.8 million) in connection with the
Starwave Merger, and the issuance of stock and warrants to Disney for cash and
a note receivable ($70.0 million and $139.0 million, respectively).
7. The pro forma adjustment to "Accumulated Deficit" reflects the
elimination of Starwave's accumulated deficit ($109.9 million) and the in-
process technology charge ($74.4 million).
8. The pro forma adjustment is for the amortization of goodwill, developed
technology, Infoseek's interest in the Joint Ventures and assembled workforce.
9. Goodwill has been increased and deferred tax liabilities have been
recorded in the amount of $43.7 million to reflect the net tax effect of
book/tax basis differences in the acquired intangibles, excluding goodwill and
in-process research and development. Deferred tax assets have been realized
based on the projected reversal of taxable temporary differences and have been
netted against deferred tax liabilities for purposes of allocating the
purchase price.
10. Under a License Agreement entered into by and between DEI and Infoseek,
DEI has agreed to grant to Infoseek a worldwide license to exploit the
trademarks and World Wide Web addresses associated with the planned New Portal
Service and Infoseek has agreed to pay DEI royalties. Royalties are calculated
as one percent (1%) of Infoseek's revenues other than revenues derived from
software sales and services. Royalties under the License Agreement will not be
earned nor paid until the end of any Infoseek fiscal year in which Infoseek
has positive earnings before interest, taxes, and amortization (EBITA) as
defined and royalty payments in any year will not exceed 15% of EBITA in such
year as defined. See "Description of Related Agreements--Licensing and
Commercial Agreements." The Unaudited Pro Forma Combined Condensed Statement
of Operations does not include a pro forma adjustment for royalties under the
License Agreement as Infoseek would not be EBITA positive on a pro forma
basis. The components of the pro forma EBITA are shown below (in thousands):
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
1998 1997
---------- ------------
<S> <C> <C>
Net loss................................................ $(83,341) $(193,951)
Interest expense........................................ 413 2,782
Pro Forma Amortization of Intangibles:
Goodwill .............................................. 33,099 66,198
Developed technology................................... 10,786 21,572
Assembled workforce.................................... 3,919 7,839
Joint Venture relationships............................ 8,975 17,950
-------- ---------
EBITA................................................... $(26,149) $ (77,610)
======== =========
</TABLE>
11. Under a Promotional Services Agreement, ABC has agreed to provide, and
Infoseek has agreed to purchase $165.0 million in promotional services over a
five-year period for the planned New Portal Service. The Unaudited Pro Forma
Combined Condensed Statement of Operations includes an adjustment to reflect
recognition of expense under this agreement, on a straight-line basis, for
promotional services for the planned New Portal Service. See "Description of
Related Agreements--Licensing and Commercial Agreements."
12. The pro forma adjustment is to eliminate deferred compensation related
to Starwave stock options.
13. The Quando acquisition will be accounted for using the purchase method
of accounting. The purchase price is $17.0 million, subject to adjustment, in
shares of Infoseek's common stock. The Pro Forma Statements have been prepared
on the basis of assumptions described herein and include assumptions relating
to the allocation of the consideration paid for the assets and liabilities of
Quando based upon preliminary estimates of fair value. The actual allocation
of such consideration may differ from that reflected in the Pro Forma
Statements after valuations and other procedures to be performed after the
closing of the Quando acquisition have been
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completed. Below is a table of the estimated acquisition cost, purchase price
allocation and annual amortization of the intangible assets acquired (in
thousands):
<TABLE>
<CAPTION>
ANNUAL
AMORTIZATION AMORTIZATION
LIFE OF INTANGIBLES
------------ --------------
<S> <C> <C> <C>
Estimated Acquisition Cost
Estimated Purchase Price................. $17,000
Acquisition Expenses..................... 1,000
-------
Total Estimated Acquisition Cost........ $18,000
=======
Purchase Price Allocation.................
Historical net book value of Quando at
June 30, 1998........................... $ (840)
Intangible assets acquired:..............
Developed Technology..................... 9,043 2 $4,522
Assembled Workforce...................... 377 2 189
In-Process Technology.................... 9,420
Goodwill................................. 3,234 2 1,617
Deferred Tax Liability................... (3,234)
-------
Total................................... $18,000
=======
</TABLE>
Tangible assets of Quando to be acquired principally include cash and
accounts receivable. Liabilities of Quando assumed in the Quando acquisition
principally include accounts payable and short and long-term obligations.
To determine the value of the developed technology, the expected future cash
flow attributed to all existing technology was discounted, taking into account
risks related to the characteristics and applications of the technology,
existing and future markets, and assessments of the life cycle stage of
technology. The analysis resulted in a valuation of approximately $9.0 million
for developed technology which had reached technological feasibility and
therefore was capitalizable. The developed technology is being amortized on a
straight line basis over a two year period.
The value of the assembled workforce was derived by estimating the costs to
replace the existing employees, including recruiting and hiring costs and
training costs for each category of employee. The analysis yielded a valuation
of approximately $0.4 million for the assembled workforce. The asset is being
amortized on a straight line basis over a two year period.
The preliminary goodwill allocation is $3.2 million. Amortization of
goodwill is based on amortization over two years due to the rapid pace of
technological development of the Internet.
The projects identified as in-process technology at Quando are those that
will be underway at the time of the acquisition of Quando and would, after
consummation of the acquisition, require additional effort to establish
technological feasibility. These projects have identifiable technological risk
factors which indicate that even though successful completion is expected, it
is not assured. The estimated amount of the in-process research and
development charge represents a preliminary estimate which could materially
differ from the actual results that will be experienced by Infoseek, as final
values will not be established until after the closing of the acquisition of
Quando.
In-process technology acquired in the transaction consists primarily of
major additions to and replacement of core technology, which is related to
Infoseek's planned development of on-line shopping and other new features. The
majority of the intended functionality of these new features is not supported
by Quando's current technology. As a result, Quando has shifted substantially
all of its new development efforts toward developing the necessary technology.
Examples of the types of intended new capabilities include the ability to
gather
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information from dynamically generated web pages and the development of
technology to manage detailed attributes of items offered for sale on-line.
Infoseek estimates that the completion of projects in-process as of the date
of closing will cost approximately $1.0 million of which approximately $0.4
million will be spent in calendar 1998, with the remaining $0.6 million spent
in calendar 1999.
Infoseek expects that the in-process technology will be successfully
developed, and that initial benefits from these projects will begin in
November 1998, with a gradual introduction of new features over approximately
the nine months following the close. Notwithstanding Infoseek's expectation
that the in-process technology will be successfully developed, there remain
significant technical challenges that must be resolved in order to complete
the in-process technology.
14. The pro forma adjustment to "Other Accrued Liabilities" reflects the
accrual of acquisition costs arising from the Quando acquisition, estimated to
be approximately $1.0 million.
15. The pro forma adjustment to "Convertible Preferred Stock" reflects the
elimination of Quando's convertible preferred stock ($0.8 million).
16. The pro forma adjustment to "Common Stock" reflects the elimination of
Quando's common stock ($0.2 million), and the impact of the issuance of
Infoseek Common Stock ($17.0 million).
17. The pro forma adjustment to "Accumulated Deficit" reflects the
elimination of Quando's accumulated deficit ($1.8 million) and the in-process
technology charge ($9.4 million).
18. The pro forma adjustment is for the amortization of goodwill, developed
technology and assembled workforce.
19. Goodwill has been increased and deferred tax liabilities have been
recorded in the amount of $3.2 million to reflect the net tax effect of
book/tax basis differences in the acquired intangibles, excluding goodwill and
in-process research and development. Deferred tax assets have been realized
based on the projected reversal of taxable temporary differences and have been
netted against deferred tax liabilities for purposes of allocating the
purchase price.
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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
six months ended June 30, 1998 and 1997 and the consolidated balance sheet
data at June 30, 1998 are derived from unaudited financial statements of
Infoseek and contain all adjustments, consisting of normal recurring accruals,
necessary for a fair presentation of the financial position and results of
operations for such periods. The results of operations for the six months
ended June 30, 1998 are not necessarily indicative of results to be expected
for the full fiscal year. The data set forth below should be read in
conjunction with the consolidated financial statements of Infoseek, including
the rates thereto, and with "Infoseek's Management's Discussion and Analysis
of Financial Condition and Results of Operations" included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
PERIOD FROM SIX MONTHS
AUGUST 30, 1993 ENDED
YEARS ENDED DECEMBER 31, (INCEPTION) TO JUNE 30,
------------------------------------ DECEMBER 31, -----------------
1997 1996 1995 1994 1993 1998 1997
-------- -------- ------- ------- --------------- ------- --------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA(3):
Total revenues.............. $ 35,082 $ 15,095 $ 1,032 $ -- $ -- $31,519 $ 14,026
Costs and expenses:
Hosting, content and
website costs............ 6,319 3,194 614 -- -- 4,678 2,830
Research and
development.............. 7,900 4,550 1,175 1,063 8 4,797 4,102
Sales and marketing....... 34,320 20,455 1,488 97 -- 22,440 14,191
General and
administrative........... 7,042 4,177 1,148 360 19 3,923 3,295
Restructuring and other
charges(1)............... 7,349 -- -- -- -- -- 7,349
-------- -------- ------- ------- ----- ------- --------
Total costs and
expenses............. 62,930 32,376 4,425 1,520 27 35,838 31,767
-------- -------- ------- ------- ----- ------- --------
Operating loss.............. (27,848) (17,281) (3,393) (1,520) (27) (4,319) (17,741)
Interest income, net........ 1,286 1,343 97 10 -- 1,252 779
-------- -------- ------- ------- ----- ------- --------
Net loss.................... $(26,562) $(15,938) $(3,296) $(1,510) $ (27) $(3,067) $(16,962)
======== ======== ======= ======= ===== ======= ========
Basic and diluted net loss
per share (pro forma in
1995)(2)................... $ (1.00) $ (0.72) $ (0.21) $ (0.10) $ (0.64)
======== ======== ======= ======= ========
Shares used in computing
basic and diluted net loss
per share.................. 26,627 22,120 15,535 30,058 26,329
</TABLE>
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<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
-------------------------------- -----------
1997 1996 1995 1994 1993 1998
------- ------- ------ ---- ---- -----------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA(3):
Cash, cash equivalents and
short-term investments......... $31,439 $46,653 $1,626 $568 $177 $67,332
Working capital (deficit)....... 19,018 41,997 93 458 (99) 54,326
Total assets.................... 51,489 58,332 5,123 859 318 94,646
Long-term obligations........... 4,493 1,892 838 210 -- 3,408
Total shareholders' equity
(deficit)...................... 27,006 48,985 2,142 520 (27) 68,743
</TABLE>
- --------
(1) During the second quarter of 1997, Infoseek recorded restructuring and
other charges of approximately $7,400,000 related to the discontinuance of
certain business arrangements that were determined to be non-strategic and
to management changes.
(2) The earnings per share amounts prior to 1997 and for the six months ended
June 30, 1997 have been restated as required to comply with Statement of
Financial Accounting Standards No. 128, Earnings per Share and Staff
Accounting Bulletin No. 98, Earnings per Share.
(3) Infoseek's financial statements have been restated to reflect the
acquisition of WebChat Communications, Inc., which has been accounted for
as a pooling-of-interests.
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INFOSEEK MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Management's Discussion and Analysis of Financial Condition and Results
of Operations contains forward-looking statements subject to risks and
uncertainties. Actual results could differ materially from those projected in
the forward- looking statements as a result of the factors set forth in "Risk
Factors" beginning on page 21 of this Joint Proxy Statement/Prospectus,
including those entitled "--Risks Related to Infoseek's Business--Limited
Operating History; Historical Losses; Anticipation of Continued Losses," "--
Potential Fluctuations in Future Results," "--Reliance on Advertising
Revenues," "--Intense Competition," "--Relationship With Netscape; Reliance on
Third Party Sources of Traffic," "--Capacity Constraints and System Failure;
Advertising Management System" and "--Technological Change and New Products
and Services."
OVERVIEW
Infoseek was formed in August 1993 to develop and provide Internet and world
wide web search and navigational services. From inception to March 31, 1995,
Infoseek's operations were limited and consisted primarily of start-up
activities, including recruiting personnel, raising capital, research and
development, and the negotiation and execution of an agreement to license an
information retrieval search engine.
Infoseek introduced its first products and services in 1995. Through the
second quarter of 1997, Infoseek's strategic focus was on developing its
capabilities as an Internet search and navigation service. In response to
rapid growth and a change in the Internet search and navigation market,
Infoseek's Board of Directors, in the second quarter of 1997, hired a new
Chief Executive Officer, Harry Motro, to evolve the strategic vision of
Infoseek while continuing to leverage Infoseek's core strength in search and
navigation. Mr. Motro and founder Steven Kirsch recruited a number of new
members to the executive management team to execute Infoseek's strategy of
building Infoseek brand awareness; creating a richer viewer experience;
maximizing value for Infoseek's advertisers; providing intranet search
products; and enhancing Infoseek's search and navigation service. In June
1997, Infoseek took a restructuring charge of approximately $7,400,000 related
to the discontinuance of certain non-strategic business arrangements and
management changes.
In October 1997, Infoseek launched an enhanced version of the Infoseek
Service, with easy to navigate "channels" (now numbering 18) that integrate
search results with relevant information, services, products and communities
on the Internet. The new Infoseek Service provides Infoseek with a platform
for creating content and marketing partnerships that enrich the viewer's
experience while enabling advertisers, sponsors and partners to more
effectively target viewers.
Infoseek's second quarter 1998 revenues of approximately $17,066,000
represent a 119% increase as compared to the second quarter 1997 revenues of
approximately $7,786,000. Infoseek's average daily page views (a widely quoted
operating statistic for Internet companies used to measure site traffic that
is regarded as an indication of the revenue potential of the advertising space
sold by such companies) increased 13% in June 1998 as compared to December
1997 and averaged 20 million during the month of June 1998. Compared to June
1997, Infoseek's average daily page views increased 143% in June 1998. Through
June 1998, Infoseek derived a substantial majority of its revenues from the
sale of advertisements on its Web pages. Advertising revenues accounted for
approximately 89% of total revenues during the second quarter of 1998 compared
with 94% during the second quarter of 1997. For the six months ended June 30,
1998, advertising revenues accounted for approximately 89% of the total
revenues compared with 95% for the same period of 1997. Most of Infoseek's
contracts with advertising customers have terms of three months or less, with
options to cancel at any time.
Beginning with the October 1997 launch of the enhanced version of the
Infoseek Service, Infoseek began to sell channel sponsorships to advertisers,
sponsors and partners. Through the second quarter 1998, Infoseek entered into
various sponsor and partnership agreements covering certain topics within 12
of Infoseek's 18 channels, including an exclusive relationship with Borders
OnLine, Inc. for the sale of books. The duration of Infoseek's sponsorship and
partnership agreements range from two months to three years and revenues are
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generally recognized ratably over the term of the agreements, provided that
minimum impressions are met, and are included in advertising revenues.
Beginning in early 1997, Infoseek began to license its Ultraseek Server
product to corporate customers for use on their intranets and public Web
sites. Such licensing revenues represented approximately 11% of total revenues
for both the three and six month periods ended June 30, 1998. For the three
and six month periods ended June 30, 1997, licensing revenues represented
approximately 6% and 5%, respectively. Gross margins from licensing Ultraseek
and advertising revenues are not materially different; thus a change in the
level of this licensing business (either an increase or a decrease in the
relative percentage of revenue) is not expected to have a material effect on
Infoseek's gross margin or profit margin in the future.
Infoseek's significant growth and limited operating history in a rapidly
evolving industry make it difficult to manage operations and predict future
operating results. Infoseek has incurred significant net losses since
inception and expects to continue to incur significant losses on a quarterly
and annual basis in 1998 and in subsequent fiscal periods. As of June 30,
1998, Infoseek had an accumulated deficit of $51,097,000. Infoseek and its
prospects must be considered in light of the risks, costs and difficulties
frequently encountered by companies in their early stage of development,
particularly companies in the new and rapidly evolving Internet market. There
can be no assurance that Infoseek will be able to address any of these
challenges. Although Infoseek has experienced significant revenue growth in
1997 and in the first half of 1998, there can be no assurance that this growth
rate will be sustained or that revenues will continue to grow or that Infoseek
will achieve profitability. In 1997 and in the first half of 1998, Infoseek
significantly increased its operating expenses as a result of a substantial
increase in its sales and marketing operation, development of new distribution
channels, broadening of its customer support capabilities and funding of
greater levels of research and development. Further increases in operating
expenses are planned during the second half of 1998. To the extent that any
such expenses are not timely followed by increased revenues, Infoseek's
business, results of operations, financial condition and prospects would be
materially adversely affected.
As a result of Infoseek's limited operating history as well as the recent
emergence of both the Internet and intranet markets addressed by Infoseek,
Infoseek has neither internal nor industry-based historical financial data for
any significant period of time upon which to project revenues or to base
planned operating expenses. Infoseek expects that its results of operations
may also fluctuate significantly in the future as a result of a variety of
factors, including: the continued rate of growth, usage and acceptance of the
Internet and intranets as information media; the rate of acceptance of the
Internet as an advertising medium and a channel of commerce; demand for
Infoseek's products and services; the advertising budgeting cycles of
individual advertisers; the introduction and acceptance of new, enhanced or
alternative products or services by Infoseek or by its competitors; Infoseek's
ability to anticipate and effectively adapt to a developing market and to
rapidly changing technologies; Infoseek's ability to attract, retain and
motivate qualified personnel; initiation, implementation, renewal or
expiration of significant contracts with Borders OnLine, Inc., Microsoft,
Netscape and others; pricing changes by Infoseek or its competitors; specific
economic conditions in the Internet and intranet markets; general economic
conditions; and other factors. Substantially all of Infoseek's revenues have
been generated from the sale of advertising, and Infoseek expects to continue
to derive substantially all of its revenues from selling advertising and
related products for the foreseeable future. Moreover, most of Infoseek's
contracts with advertising customers have terms of three months or less.
Advertising revenues are tightly related to the amount of traffic on
Infoseek's Web site, which is seasonal and inherently unpredictable.
Accordingly, future sales and operating results are difficult to forecast. In
addition, Infoseek has relied on the purchase of traffic from Netscape,
Microsoft and others as a significant portion of Infoseek's total traffic. As
previously discussed, Infoseek entered into its agreement with Netscape in
June 1998. Under the new agreement Infoseek is purchasing 15% of Netscape's
available search traffic, which traffic has decreased from 35% during the
previous 12 months. The decline in Infoseek's average daily page views from 22
million in March 1998 to 20 million in June 1998 is due in large part to a
drop in traffic sourced from Netscape which decreased from 20% to 13% of
Infoseek's total traffic during the same period. While Infoseek believes that
it now has a better balance in the sources of its traffic, as Netscape
comprises only 13% of total traffic and Microsoft is providing 8% of total
traffic in the month of June, 1998, if total traffic
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does not resume growth during the quarter ending September 30, 1998, it could
result in an immediate material adverse impact on Infoseek's business, results
of operations, financial condition and prospects.
Infoseek's expense levels are based, in part, on its expectations as to
future revenues and, to a significant extent, are relatively fixed at least in
the short term. Infoseek may not be able to adjust spending in a timely manner
to compensate for any future revenue shortfall. Accordingly, any significant
shortfall in relation to Infoseek's expectations would have an immediate
material adverse impact on Infoseek's business, results of operations,
financial condition and prospects.
In addition, Infoseek may elect from time to time to make certain pricing,
service or marketing decisions or acquisitions that could have a short-term
material adverse effect on Infoseek's business, results of operations,
financial condition and prospects and which may not generate the long-term
benefits intended. From time to time, Infoseek has entered into and may
continue to enter into strategic relationships with companies for cross
service advertising, such as Infoseek's relationship with United Parcel
Service of America, Inc. ("UPS"). Infoseek's revenues have in the past been,
and may in the future continue to be partially dependent on, its relationship
with its strategic partners. Such strategic relationships have and may
continue to include substantial one-time or up front payments from Infoseek's
partners. Accordingly, Infoseek believes that its quarterly revenues are
likely to vary significantly in the future, that period-to-period comparisons
are not necessarily meaningful and that such comparisons should not
necessarily be relied upon as an indication of Infoseek's future performance.
Due to the foregoing factors, it is likely that in future periods, Infoseek's
operating results may be below the expectations of public market analysts and
investors. In such event, the trading price of Infoseek's common stock would
likely be materially adversely affected. See "Risk Factors--Risks Related to
Infoseek's Business--Limited Operating History; Historical Losses;
Anticipation of Continued Losses," "--Potential Fluctuations in Future
Results," "--Relationship With Netscape; Reliance on Third Party Sources of
Traffic" and "Risk Factors--Risks Related to the Combined Companies, the
Mergers and Related Transactions--Developing Market; Unproven Acceptance of
Internet Advertising and of Infoseek's Products and Services."
On April 17, 1998, Infoseek acquired WebChat Communications, Inc.
("WebChat") in a tax-free reorganization in which a wholly owned subsidiary of
Infoseek was merged directly into WebChat. Infoseek has exchanged
approximately 316,000 shares of its common stock for the outstanding common
and preferred shares of WebChat and has reserved approximately 11,000 shares
of Infoseek common stock for WebChat options assumed by Infoseek. The exchange
ratio was 0.03 shares of common stock of Infoseek for each share of the common
and preferred stock of WebChat. WebChat merger related costs, which were not
significant, were expensed in the second quarter of 1998. The WebChat merger
has been accounted for under the pooling-of-interests method.
On July 24, 1998, Infoseek entered into an agreement to acquire Quando in
exchange for approximately $17 million, subject to adjustment, in shares of
Infoseek Common Stock. Quando creates and licenses regularly-updated
customized directories, including shopping guides, event guides, content
directories, audio clip libraries, review guides, and data for website rating
guides. The transaction is subject to customary closing conditions, including
shareholder approval by Quando, and is expected to close on or about the
closing of the Mergers. Infoseek expects to account for the Quando acquisition
as a purchase transaction and expects to incur write-offs related to in-
process research and development of approximately $9.4 million in the quarter
ending December 31, 1998 in connection with this transaction. In addition,
intangible assets related to goodwill, developed technology and assembled
workforce are preliminarily estimated at approximately $12.6 million and will
be amortized over two years. In addition, these acquisitions and the Starwave
Merger involve risks and uncertainties, including those discussed under "Risk
Factors--Risks Related to the Combined Companies, The Mergers and Related
Transactions--Risks of Acquisition Strategy."
In addition, on August 28, 1998 Infoseek entered into an agreement with
WebTV pursuant to which Infoseek will be the exclusive provider of search and
directory services to WebTV. Under this two year agreement, Infoseek is
responsible for managing advertising sales for all of WebTV's search traffic
and the substantial majority of WebTV's current non-search traffic. Pursuant
to the agreement, Infoseek is obligated to
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make cash payments to WebTV totalling $26 million, with $15 million of such
amount being payable in advance for the first five quarters during which the
agreement is in effect and the remaining $11 million being payable ratably
over the last three quarters of the agreement term. Such payments by Infoseek
are subject to reimbursement in the event that WebTV is unable to deliver a
minimum of 4.5 billion impressions over the life of the agreement. Infoseek is
to receive all of the revenue generated from such advertising sales up to a
pre-determined amount that is in excess of Infoseek's total payment
obligations to WebTV under the agreement, with allocations of such revenue
between Infoseek and WebTV being made beyond this pre-determined amount. There
can be no assurance that Infoseek will be able to sell the available
advertising inventory of WebTV under this agreement or be able to collect the
receivables resulting from such advertising sales, which could have a material
adverse effect on Infoseek's business, results of operations and financial
condition.
Because the proposed acquisition of Starwave will be accounted for under the
"purchase" method of accounting, the purchase price will be allocated to the
acquired assets and liabilities of Starwave. An in-process research and
development charge, preliminarily estimated to be approximately $74.4 million,
will be recorded in the quarter the Starwave Merger is consummated. In
addition, intangible assets related to developed technology and assembled
workforce are preliminarily estimated at approximately $49.4 million and will
be amortized over two years. Intangible assets related to goodwill and the
Joint Ventures were preliminarily estimated to be approximately $645.8 and
$179.5 million, respectively, which will be amortized over ten years. In
addition, the combined companies expect to incur increased operating
expenditures associated with the expanded operations of the combined
companies' business and the development, launch and promotion of the planned
New Portal Service. In this regard, Infoseek has agreed to use commercially
reasonable efforts to meet certain spending requirements for the planned New
Portal Service pursuant to the terms of the License Agreement between Infoseek
and Disney related to the New Portal Service. Subject to adjustment by
unanimous vote of the two member advisory committee established pursuant to
the Product Management Agreement between Infoseek and Disney, these spending
requirements for the New Portal Service for the first three years are $40.5
million, $58.3 million and $64.8 million, respectively. Thereafter such
requirements are to be set by unanimous vote of the advisory committee,
provided that, if no amount is agreed to by the advisory committee, such
amount shall be based on the prior year's spending requirement as adjusted for
projected growth based upon changes in the consumer price index or certain
other metrics. In addition, pursuant to the Promotional Services Agreement,
Infoseek has agreed to purchase $165 million in promotional services over a
five-year period for the New Portal Service. The amounts spent on the purchase
of promotional services under the Promotional Services Agreement apply towards
the spending requirements under the License Agreement. See "Description of
Related Agreements--Licensing and Commercial Agreements." As a result, the
combined companies' profitability is expected to be delayed beyond the time
frame in which Infoseek California or Starwave, as independent entities, may
have otherwise achieved profitability. Management currently estimates that the
combined companies would not achieve profitability until at least 2002 and,
excluding the amortization of goodwill and other intangibles associated with
the Starwave Merger, until at least 2000. The foregoing estimates of the time
period in which the combined companies would not achieve profitability are
forward-looking-statements that are subject to risks and uncertainties. Actual
results may vary materially as a result of a number of factors, including but
not limited to those set forth under "Risk Factors--Risks Related to the
Combined Companies, the Mergers and Related Transactions--Uncertainties
Relating to Integration of Operations," "--Risks Related to Development,
Launch and Acceptance of Planned New Portal Service," "--Dependence on Joint
Ventures and Third Party Relationships," and "--Risks of Acquisition
Strategy." See "Unaudited Pro Forma Combined Condensed Financial Statements."
RESULTS OF OPERATIONS
For the Three and Six Months Ended June 30, 1998 and 1997
Total Revenue
For the three months ended June 30, 1998 and 1997, total revenues were
$17,066,000, and $7,786,000, respectively. For the six months ended June 30,
1998 and 1997, total revenues were $31,519,000 and $14,026,000, respectively.
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During the second quarter and through the first six months of 1998 and 1997,
Infoseek derived a substantial majority of its revenues from the sale of
advertisements on its Web pages. Advertising revenues in the three months
ended June 30, 1998 and 1997 were $15,269,000 and $7,325,000, respectively,
representing 89% and 94% of total revenues in such periods. For the six months
ended June 30, 1998 and 1997, advertising revenues were $28,052,000 and
$13,334,000, respectively, representing 89% and 95% of total revenues in the
periods. The growth in advertising revenues is attributable to the increased
use of the Internet for information publication, distribution and commerce
coupled with the development and acceptance of the Internet as an advertising
medium and increased viewer traffic on the Infoseek Service. Infoseek expects
to continue to derive a substantial majority of its revenues for the
foreseeable future from selling advertising space on its web sites.
Advertising revenues are derived principally from short-term advertising
contracts in which Infoseek guarantees a minimum number of impressions
(displays of an advertisement to the viewer) for a fixed fee. Advertising
revenues are recognized ratably over the term of the contract during which
services are provided and are stated net of customer discounts. To the extent
minimum guaranteed impressions are not met, Infoseek defers recognition of the
corresponding revenue until the remaining guaranteed impression levels are
achieved. Deferred revenue is comprised of billings in excess of recognized
revenue related to advertising contracts.
Also included in advertising revenues is the exchange by Infoseek of
advertising space on Infoseek's web sites for reciprocal advertising space or
traffic in other media publications or other web sites or receipt of
applicable goods and services. Revenues from these exchange transactions are
recorded as advertising revenues at the estimated fair value of the goods and
services received and are recognized when both Infoseek's advertisements and
reciprocal advertisements are run or applicable goods or services are
received. Although such revenues have not exceeded 10% of total revenues in
any period to date, Infoseek believes these exchange transactions are of
value, particularly in the marketing of the Infoseek brand, and expects to
continue to engage in these transactions in the future.
In late 1997, Infoseek released a new version of its service which now
features 18 "channels," designed to bring together topical information,
services, products and communities on the web. The new service provides
additional opportunities for revenue from the sale of channel sponsorships and
in some circumstances enables Infoseek to share in a portion of the revenue
generated by its viewers with these channel sponsors. Revenue generated by
channel sponsors is included in advertising revenues and is recognized on a
straight line basis over the terms of the agreements provided that minimum
impressions are met.
The balance of total revenues was derived from the licensing of the
Ultraseek Server product to businesses for internal use in their intranets,
extranets or public sites. This licensing revenue represented approximately
11% and 6% of total revenue for the three months ended June 30, 1998 and 1997,
respectively. For the six months ended June 30, 1998 and 1997, licensing
revenue represented approximately 11% and 5%, respectively.
Infoseek's current business model is to generate revenues through the sale
of advertising on the Internet. There can be no assurance that current
advertisers will continue to purchase advertising space and services from
Infoseek or that Infoseek will be able to successfully attract additional
advertisers.
Costs and Expenses
Infoseek's operating expenses have increased in absolute dollars during the
second quarter and first half of 1998 compared to the second quarter and first
half of 1997 as Infoseek has expanded its business and the marketing of its
services and products. Infoseek expects operating expenses to continue to
increase in dollar amount in the future as Infoseek continues to expand its
business.
Infoseek recorded aggregate deferred compensation of $5,666,000 in
connection with certain stock options granted through 1997. The amortization
of such deferred compensation is being charged to operations over the vesting
periods of the options, which are typically four years. For the three months
ended June 30, 1998 and 1997, Infoseek amortized $97,000 and $61,000,
respectively, related to stock options. For the six months ended June 30, 1998
and 1997, Infoseek amortized $193,000 and $337,000, respectively. The
amortization of this deferred compensation will continue to have an adverse
effect on Infoseek's results of operations through 1999.
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Hosting, Content and Website Costs
For the three months ended June 30, 1998 and 1997, hosting, content and
website costs were $2,524,000, and $1,533,000, respectively. For the six
months ended June 30, 1998 and 1997, hosting, content and website costs were
$4,678,000 and $2,830,000, respectively. Hosting, content and website costs
consist primarily of costs associated with the enhancement, maintenance and
support of Infoseek's web sites, including telecommunications costs and
equipment depreciation. Hosting, content and website costs also includes costs
associated with the licensing of certain third-party technologies. Hosting,
content and website costs increased in the three and six months ended June 30,
1998 and 1997 as Infoseek added additional equipment and personnel to support
its web sites and as royalties due to certain third parties increased.
Infoseek expects its hosting, content and website costs will continue to
increase in absolute dollars and possibly as a percentage of revenues as it
upgrades equipment and maintenance and support personnel and adds content
partners to meet the growing demands for web services.
Research and Development
For the three months ended June 30, 1998 and 1997 research and development
expenses were $2,667,000 and $2,374,000, respectively. For the six months
ended June 30, 1998 and 1997, research and development expenses were
$4,797,000 and $4,102,000, respectively. Research and development expenses
consist principally of personnel costs, consulting and equipment depreciation.
Costs related to research, design and development of products and services
have been charged to research and development expense as incurred.
The increase in research and development expenses for the three and six
months ended June 30, 1998 over the comparable periods in 1997 was primarily
the result of on-going enhancements to the Infoseek Service and the
development and implementation of new technology and products. Infoseek
believes that a significant level of product development expenses is required
to continue to remain competitive in its industry. Accordingly, Infoseek
anticipates that it will continue to devote substantial resources to product
development and that these costs are expected to continue to increase in
dollar amount in future periods.
Sales and Marketing
For the three months ended June 30, 1998 and 1997 sales and marketing
expenses were $11,863,000, and $7,541,000, respectively. For the six months
ended June 30, 1998 and 1997, sales and marketing expenses were $22,440,000
and $14,191,000, respectively. Sales and marketing expenses consist primarily
of compensation of sales and marketing personnel, advertising and promotional
expenses.
Sales and marketing expenses for the three month and six month periods ended
June 30, 1998 and 1997 included payments made to Netscape pursuant to an
arrangement for the listing of Infoseek's service on the Netscape web page. As
of March 31, 1998, Infoseek's agreement with Netscape provided for payments up
to an aggregate of $12,500,000 in cash and reciprocal advertising ($10,000,000
in cash and $2,500,000 in reciprocal advertising) to be one of four non-
exclusive premiere providers of navigational services (along with Excite,
Lycos, and Yahoo!). The Netscape arrangement expired on April 30, 1998, but
was subsequently extended through May 31, 1998. The payments to Netscape were
being recognized ratably over the term of the agreement. During the three
month periods ended June 30, 1998 and 1997, Infoseek recognized $833,000 and
$1,666,000, respectively, of sales and marketing expenses related to this
agreement. During the six month periods ended June 30, 1998 and 1997, Infoseek
recognized $3,333,000 and $2,916,000, respectively, of sales and marketing
expenses related to this agreement. As of June 30, 1998, Infoseek has
approximately $3,722,000 of cash commitment remaining in connection with this
agreement, which is included in accrued liabilities to service providers.
As of June 1, 1998, Infoseek entered into a one-year agreement with Netscape
with terms that provide for Infoseek to pay, based on impressions delivered,
up to an aggregate of $12,500,000 in cash to be one of the six non-exclusive
premier providers of navigational services (along with Excite, Netscape,
Lycos, Alta Vista, and
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LookSmart). Under terms of the agreement, which expires May 31, 1999, Infoseek
will receive 15% of premiere provider rotations- the pages served to visitors
who have not selected a preferred provider. The payments to Netscape are being
recognized ratably over the term of the agreement. During the three month
period ended June 30, 1998, Infoseek recognized $1,385,000 of sales and
marketing expense related to this agreement which is included in accrued
liabilities to service providers. As of June 30, 1998, Infoseek has a cash
commitment ranging from a minimum of $4,150,000 to a maximum of $12,500,000
depending on the level of traffic delivered by Netscape in connection with
this agreement.
In addition, in July 1997, Infoseek entered into an agreement with Netscape
whereby it was designated as a premier provider of international search and
navigational guide services for the Netscape Net Search Program for 10
Netscape local Web sites. Infoseek's agreement with Netscape provides for
payments of up to a maximum aggregate of $1,219,000 in cash and reciprocal
advertising over the one-year term of the agreement. During the three and six
months ended June 30, 1998, Infoseek recognized sales and marketing expenses
of approximately $100,000 and $200,000, respectively, under this agreement as
a component of sales and marketing expense (none for the three and six months
ended June 30, 1997).
Infoseek also had an agreement with Microsoft to provide navigational
services on certain Microsoft web sites through which Infoseek also received
traffic. In exchange for such traffic, Infoseek had made available to
Microsoft advertising space on the Infoseek Service free of charge. On
September 16, 1998, Infoseek terminated its existing agreement with Microsoft
and entered into a new agreement with Microsoft to become one of five premier
providers of search and navigation services on Microsoft's network of Internet
products and services. Under the terms of the new Microsoft agreement which
expires in September 1999, Infoseek is obligated to pay an aggregate of
$10,675,000 for a guaranteed minimum number of impressions on both Microsoft's
Internet Explorer search feature and Microsoft's website. Infoseek will also
pay, based on the number of impressions delivered, for additional impressions
on both Internet Explorer and Microsoft's website, up to a maximum of
$18,000,000. The accounting treatment for the Microsoft agreement is under
review by the Securities and Exchange Commission and will result in either
amortizing the $10,675,000 obligation over the one-year term of the agreement,
or expensing $7.0 million to $8.0 million in the quarter ended December 31,
1998, the quarter when the service is launched.
At the end of the terms of the respective agreements with Netscape and
Microsoft, there can be no assurance that these agreements with Netscape and
Microsoft or other similar agreements can or will be renewed on terms
satisfactory to Infoseek. If Infoseek is unable to renew these or other
similar agreements on favorable terms or is otherwise unable to develop viable
alternative distribution channels to Netscape and Microsoft or is otherwise
unable to offset a reduction in traffic from these or other third party
sources, advertising revenues would be adversely affected, resulting in
Infoseek's business, results of operations, financial condition and prospects
being materially and adversely affected. See "Risk Factors--Risks Related To
Infoseek's Business--Relationship with Netscape; Reliance on Third Party
Sources of Traffic."
The increase in sales and marketing expenses for the six months ended June
30, 1998 over 1997 was also the result of hiring additional sales and
marketing personnel and an increase in promotional and advertising activity
including advertising campaigns in both 1998 and 1997, including television.
Infoseek expects to increase the amount of promotional and advertising
expenses and anticipates hiring additional sales representatives in future
periods.
General and Administrative
For the three months ended June 30, 1998 and 1997 general and administrative
expenses were $2,061,000, and $1,825,000, respectively. For the six months
ended June 30, 1998 and 1997, general and administrative expenses were
$3,923,000 and $3,295,000, respectively. General and administrative expenses
consist primarily of compensation of administrative and executive personnel,
facility costs and fees for professional services.
The increase in general and administrative expenses for the three months and
six months ended June 30, 1998 over the comparable periods in 1997 was the
result of hiring additional administrative and executive staff
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and adding infrastructure to manage the expansion of the business. Infoseek
anticipates that its general and administrative expenses will continue to
increase in dollar amount as Infoseek continues to expand its administrative
and executive staff.
In connection with the Mergers and the Related Transactions, Infoseek has
incurred direct costs of approximately $1,000,000 as of June 30, 1998 and
estimates that it will incur costs of approximately $22.0 million associated
with the Mergers, which will be accounted for as part of the purchase price of
the transactions. The $22.0 million includes approximately $5.0 million for
liabilities related to involuntary employee termination benefits (relocations)
of Starwave employees and $5.0 million for costs to exit other Starwave
activities, primarily operating leases of Starwave. The combined companies
expect to incur additional integration costs of up to $5.0 million. These
costs will affect future operations and do not qualify as liabilities in
connection with a purchase business combination under EITF 95-3, "Recognition
of Liabilities in Connection with a Purchase Business Combination." There can
be no assurance that the combined companies will not incur additional material
charges in subsequent quarters to reflect additional costs associated with the
Mergers or other transactions. See "Risk Factors--Risks Relating to the
Combined Companies, the Mergers and Related Transactions--Amortization of
Goodwill and Increased Operating Costs Will Delay Profitability of Combined
Companies," "--Costs of Integration; Transaction Expenses," and "--Risks of
Acquisition Strategy."
Restructuring and Other Charges
During the second quarter of 1997, Infoseek recorded restructuring and other
charges of approximately $7,400,000, of which approximately $6,200,000 related
to the discontinuance of certain business arrangements which were determined
to be non-strategic, and approximately $1,200,000 related to management
changes. Of these restructuring charges, approximately $5,000,000 involved
cash outflows, all of which have been completed as of June 30, 1998. Non-cash
restructuring charges of approximately $2,400,000 related primarily to the
write-down of certain non-strategic business assets which were written off in
June 1997. There have been no material changes to the restructuring plan or in
the estimates of the restructuring costs.
Income Taxes
Due to the Infoseek's loss position, there was no provision for income taxes
for any of the periods presented. At December 31, 1997, Infoseek had federal
and state net operating loss carry forwards of approximately $42,600,000 and
$28,300,000, respectively. The federal net operating loss carry forwards will
expire beginning in 2009 through 2012, if not utilized, and the state net
operating loss carry forwards will expire in the years 1999 through 2002.
Certain future changes in the share ownership of Infoseek, as defined in the
Tax Reform Act of 1986 and similar state provisions, may restrict the
utilization of carry forwards. A valuation allowance has been recorded for the
entire deferred tax asset as a result of uncertainties regarding the
realization of the asset due to the lack of earnings history of Infoseek.
Year 2000 Compliance
Infoseek is aware of the issues associated with the programming code in
existing computer systems as the year 2000 approaches. The "year 2000 problem"
is pervasive and complex as virtually every computer operation will be
affected in some way by the rollover of the two-digit year value to 00. The
issue is whether computer systems will properly recognize date sensitive
information when the year changes to 2000. Systems that do not properly
recognize such information could generate erroneous data or cause a system to
fail.
Infoseek management has conducted a review of Infoseek's exposure to the
year 2000 problem, including working with computer systems and software
vendors to assure that they are prepared for the year 2000. Based on this
review and discussions with such vendors, Infoseek currently believes that its
internal systems are year 2000 compliant (with the exception of a single
system, which is scheduled to be replaced as part of a regular upgrade program
and is not material to Infoseek's operations). Infoseek does not expect to
further incur any significant operating expenses or invest in additional
computer systems to resolve issues relating to the year 2000 problem, with
respect to both its information technology and product and service functions.
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Notwithstanding the foregoing, significant uncertainty exists concerning the
effects of the year 2000 problem, including uncertainty with respect to
assurances made by Infoseek's vendors. Further, Infoseek has not investigated
year 2000 compliance of third parties who are not vendors of Infoseek, and
Infoseek has no control over such third parties' compliance. For example, the
failure of any site to which a link appears on the Infoseek Service could
result in the loss of such link and therefore reduce the breadth of services
offered through links from the Infoseek Service, which may in turn materially
adversely affect the Infoseek Service and the value of user traffic and
advertisers using such service. Any failure of Infoseek or its viewers,
customers, linked sites, advertisers or other third parties to be year 2000
compliant could materially affect the business, results of operations,
financial conditions and prospects of Infoseek.
For the Years Ended December 31, 1997, 1996 and 1995
Total Revenues
For the years ended December 31, 1997, 1996 and 1995 total revenues were
$35,082,000, $15,095,000 and $1,032,000, respectively.
During 1997, 1996 and 1995, Infoseek derived a substantial majority of its
revenues from the sale of advertisements on its Web pages. Advertising
revenues in 1997, 1996 and 1995 were $33,648,000, $14,951,000 and $849,000,
respectively, representing 96%, 99% and 82% of total revenues in such periods.
The growth in advertising revenues since 1995 is attributable to the increased
use of the Internet for information publication, distribution and commerce
coupled with the development and acceptance of the Internet as an advertising
medium and increased viewer traffic on the Infoseek Service. Infoseek expects
to continue to derive a substantial majority of its revenues for the
foreseeable future from selling advertising space on its Web sites.
Also included in advertising revenues is the exchange by Infoseek of
advertising space on Infoseek's web sites for reciprocal advertising space or
traffic in other media publications or other web sites or receipt of
applicable goods and services.
In late 1997, Infoseek released a new version of its service which now
features 18 "channels," designed to bring together topical information,
services, products and communities on the web. Revenues generated by channel
sponsors is included in advertising revenues and is generally recognized on a
straight line basis over the terms of the agreements provided that minimum
impressions are met.
In 1997, the balance of total revenues was derived from the licensing of the
Ultraseek Server product to businesses for internal use in their intranets,
extranets or public sites. Licensing of the Ultraseek Server commenced in
early 1997 and represented approximately 4% of total revenues for the year. In
1996 and 1995, the balance of the total revenues were derived from
subscription fees for a premium service offered to business and professional
viewers, which was discontinued during the third quarter of 1996.
Costs and Expenses
Infoseek's operating expenses increased in absolute dollars during 1997,
1996 and 1995 as Infoseek has transitioned from the product development stage
to the marketing of its services and products and expansion of its business.
Infoseek recorded aggregate deferred compensation of $5,666,000 in connection
with certain stock options granted through 1997. The amortization of such
deferred compensation is being charged to operations over the vesting periods
of the options, which are typically four years. For the years ended December
31, 1997, 1996 and 1995, Infoseek amortized $832,000, $1,346,000 and $44,000,
respectively, related to stock options. At December 31, 1997, unamortized
deferred compensation totaled $753,000.
Hosting, Content and Website Costs
For the years ended December 31, 1997, 1996 and 1995, hosting, content and
website costs were $6,319,000, $3,194,000 and $614,000, respectively. Hosting,
content and website costs increased in 1997 and
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1996 as Infoseek added additional equipment and personnel to support its web
sites and as royalties due to certain third parties increased.
Research and Development
For the years ended December 31, 1997, 1996 and 1995 research and
development expenses were $7,900,000, $4,550,000 and $1,175,000, respectively.
The increase in research and development expenses for 1997 and 1996 over 1995
was primarily the result of ongoing enhancements to the Infoseek Service and
the development and implementation of new technology and products. Ultraseek,
Infoseek's core search engine, was released in November 1996, and the
Ultramatch technology and channel products were commercially released during
the second and fourth quarter of 1997, respectively.
Sales and Marketing
For the years ended December 31, 1997, 1996 and 1995 sales and marketing
expenses were $34,320,000, $20,455,000 and $1,488,000, respectively. The
increase in sales and marketing expenses for 1997 and 1996 was the result of
hiring additional sales and marketing personnel and an increase in promotional
and advertising activity including advertising campaigns in both 1997 and
1996, including television.
Sales and marketing expenses for the years ended December 31, 1997 and 1996
included payments made to Netscape pursuant to an arrangement for the listing
of Infoseek's service on the Netscape web page. The original agreement with
Netscape provided for payments of up to an aggregate of $5,000,000 in cash and
reciprocal advertising ($3,500,000 in cash and $1,500,000 in reciprocal
advertising) over the course of the one-year term of the agreement. At
December 31, 1997, Infoseek had approximately $7,555,000 of cash commitment
remaining in connection with this agreement, which includes $4,221,000 of
accrued liabilities to service providers.
In addition, in July 1997, Infoseek entered into an agreement with Netscape
whereby it was designated as a premier provider of international search and
navigational guide services for the Netscape Net Search Program, for 10
Netscape local web sites. Infoseek's agreement with Netscape provides for
payments of up to a maximum aggregate of $1,219,000 in cash and reciprocal
advertising over the one-year term of the agreement. During the year ended
December 31, 1997, Netscape delivered at the minimum exposure level and
Infoseek as a result recognized sales and marketing expenses of approximately
$333,000 under this agreement.
General and Administrative
For the years ended December 31, 1997, 1996 and 1995 general and
administrative expenses were $7,042,000, $4,177,000 and $1,148,000,
respectively. The increase in general and administrative expenses for the
years ended 1997 and 1996 was the result of hiring additional administrative
and executive staff and adding infrastructure to manage the expansion of the
business.
Restructuring and Other Charges
During the second quarter of 1997, Infoseek recorded restructuring and other
charges of approximately $7,400,000, of which approximately $6,200,000 related
to the discontinuance of certain business arrangements which were determined
to be non-strategic, and approximately $1,200,000 related to management
changes. Of these restructuring charges, approximately $5,000,000 involved
cash outflows, of which $3,100,000 had been paid as of December 31, 1997. Non-
cash restructuring charges of approximately $2,400,000 related primarily to
the write-down of certain non-strategic business assets. There have been no
material changes to the restructuring plan or in the estimates of the
restructuring costs. As of December 31, 1997, Infoseek had approximately
$1,900,000 remaining in its restructuring reserve, which is currently expected
to be fully utilized by mid-1998.
LIQUIDITY AND CAPITAL RESOURCES
From inception through May 1996, Infoseek financed its operations and met
its capital expenditure requirements primarily from proceeds derived from the
issuance of equity, convertible debt securities and
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equipment term loans. In June 1996, Infoseek completed its initial public
offering and received proceeds from the offering of $43,485,000 net of
underwriting discounts, commissions and other offering costs. Concurrent with
the closing of the initial public offering, all outstanding shares of its
redeemable convertible preferred and convertible preferred stock were
automatically converted into shares of common stock. In February 1998,
Infoseek completed a follow-on public offering and received approximately
$43,015,000 net of underwriting discounts, commissions and other offering
costs. The proceeds will be used for general corporate purposes, including
expansion of its sales and marketing efforts, and capital expenditures.
For the first six months ended June 30, 1998, operating activities used cash
of $1,390,000 due primarily to Infoseek's net loss offset by increases in
depreciation and amortization, deferred revenue and accrued liabilities to
service providers. For the six month period ended June 30, 1997, operating
activities used cash of $8,760,000 due primarily to Infoseek's net loss
partially offset by increases in accrued restructuring and other charges,
depreciation and amortization and deferred revenue. For the six months ended
June 30, 1998, investing activities used cash of $44,695,000 primarily related
to the net purchases of short-term investments. For the six months ended June
30, 1997, investing activities provided net cash of $4,016,000, primarily
associated with the sale of short-term investments. Financing activities
generated cash of $43,430,000 and $5,120,000, in the six months ended June 30,
1998 and 1997, respectively, primarily from Infoseek's follow-on public
offering in February 1998 and equipment term loans in 1997.
For 1997, 1996 and 1995, operating activities used cash of $14,154,000,
$10,068,000 and $1,408,000, respectively. The net cash used during these
periods was primarily due to net losses and increases in accounts receivable,
partially offset by increases in accounts payable and accrued liabilities. For
1997, investing activities generated cash of $6,204,000 primarily related to
the sale of investments partially offset by purchases of short-term
investments and purchases of property and equipment. For 1996 and 1995,
investing activities used net cash of $49,827,000 and $3,326,000,
respectively, primarily associated with the purchase of short-term investments
and purchase of property and equipment partially offset by proceeds from the
sale of short-term investments. Financing activities generated net cash of
$7,485,000, $62,552,000 and $5,295,000, in 1997, 1996 and 1995, respectively,
primarily from repayment of term loans in 1997, the initial public offering in
June 1996, and preferred stock sales in 1995.
Infoseek has commitments for its facilities under operating lease agreements
and expects to continue to incur significant capital expenditures to support
expansion of Infoseek's business. Furthermore, from time to time Infoseek
expects to evaluate the acquisition of products, businesses and technologies
that complement Infoseek's business.
Infoseek had $67,332,000 in cash, cash equivalents and short-term
investments at June 30, 1998. Also, in March 1997, Infoseek entered into a
four-year, $5,000,000 equipment term loan facility. Infoseek currently
anticipates that its cash, cash equivalents, short-term investments, available
funds under its equipment term loan facility and, assuming consummation of the
Mergers, the approximately $70,000,000 of cash proceeds and the Note in the
amount of $139,000,000 from the sale of common stock and warrants to Disney in
connection with the Mergers and cash flows generated from advertising
revenues, will be sufficient to meet its anticipated needs for working capital
and other cash requirements through at least September 30, 1999. Thereafter,
Infoseek may need to raise additional funds. Infoseek may need to raise
additional funds sooner, however, in order to fund more rapid expansion, to
develop new or enhance existing services or products, to respond to
competitive pressures or to acquire complementary products, businesses or
technologies. If additional funds are raised through the issuance of equity or
convertible debt securities, the percentage ownership of the shareholders of
Infoseek will be reduced, shareholders may experience additional dilution and
such securities may have rights, preferences or privileges senior to those of
the holders of Infoseek's common stock. There can be no assurance that
additional financing will be available on terms favorable to Infoseek, or at
all. If adequate funds are not available or are not available on acceptable
terms, Infoseek's ability to fund expansion, take advantage of acquisition
opportunities, develop or enhance services or products or respond to
competitive pressures would be significantly limited. Such limitation could
have a material adverse effect on Infoseek's business, results of
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operations, financial condition and prospects. The estimate of the period for
which Infoseek expects its available funds to be sufficient to meet its
capital requirements is a forward-looking statement that involves risks and
uncertainties. There can be no assurance that Infoseek will be able to meet
its working capital and other cash requirements for this period as a result of
a number of factors including but not limited to those described under "Risk
Factors--Risks Relating to the Combined Companies, the Mergers and Related
Transactions--Future Capital Needs; Uncertainty of Additional Financing."
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INFOSEEK BUSINESS
Infoseek provides leading Internet search and navigation technology,
products and services that use the Web to connect its viewers' personal, work
and community lives. As a "connected" media company, Infoseek is able to
segment viewers by interest area, providing advertisers with focused and
targeted audiences. The Infoseek Service is a comprehensive Internet gateway
that combines search and navigation with directories of relevant information
sources and content sites, offers chat and instant messaging for communicating
shared interests and facilitates the purchase of related goods and services.
THE INFOSEEK SOLUTION AND STRATEGY
The Infoseek branded search and navigation services integrate accurate
search results with relevant Internet and other resources to enhance the
viewer's interaction with information and content and create a more effective
medium for advertisers, sponsors and commerce partners. The Infoseek Service
is a comprehensive Internet gateway that combines search and navigation with
directories of relevant information sources and content sites, offers chat and
instant messaging for communicating shared interests and facilitates the
purchase of related goods and services. In order to further leverage its core
strength in technology and to diversify its revenue base, Infoseek licenses
its Ultraseek Server product to corporate customers for use on their intranets
and public web sites.
Infoseek's business strategy is to leverage its leading search and directory
technologies, products and services to achieve the following:
. Build Infoseek Brand Awareness and Increase Market Share. Infoseek
believes that, as a "connected" media company that brings together
elements of its viewers' personal, work and community lives, building
Infoseek brand awareness is a key to building market share. Infoseek
intends to continue to utilize conventional mass media advertising
campaigns, distribution relationships and OEM relationships to enhance
its brand awareness. Infoseek intends to continue an integrated brand-
awareness campaign through press, print, broadcast, outdoor, radio and
online promotions in 1998. Infoseek has entered into agreements with a
number of companies such as AT&T Corp., Southwestern Bell Capital
Corporation ("Southwestern Bell"), Sprint Corporation ("Sprint") and
CNET (Snap! Online) ("CNET") in order to increase its brand awareness
and acquire new viewers.
. Create a Richer Viewer Experience. Infoseek believes that consumer
loyalty on the Internet is highly dependent on the creation of a robust
online environment from which viewers may access the information and
resources in which they are interested. The Infoseek Service provides a
rich experience for viewers through the integration of search, large
directories, shared interest communities and content features with
Infoseek's highly advanced core search technology. To date, Infoseek has
launched 18 "channels," which are organized topically.
. Maximize Value for Advertisers. Infoseek believes that it can best serve
advertisers on the Internet by effectively targeting interested
audiences and consumers. With the launch of its intelligent Web channel
service in October 1997, Infoseek believes that it greatly enhanced the
segmentation of its viewing audience. Infoseek intends to continue to
develop innovative approaches and solutions for its advertisers to
effectively reach their target audiences. For a segment of advertisers,
improved viewer targeting is achieved through Infoseek's Ultramatch
product, an advertising management product designed to create viewer
behavior profiles for the matching of goods and services. These Infoseek
products and services can result in better click-through for advertisers
and higher advertising rates for Infoseek.
. Provide Intranet Search Products. Infoseek believes that as enterprise
and corporate intranets continue to grow and are increasingly relied
upon for the efficient sharing of corporate documents, data and other
information, the need for advanced search and indexing technology
becomes critical. Infoseek has leveraged its research and development
investments in the core Infoseek search and navigation services to
provide a customizable intranet solution to corporate and enterprise
customers.
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. Enhance Core Search and Navigation Service. Infoseek believes that
search technology that delivers highly relevant results is an important
component in differentiating its services and in building a rich viewer
experience. Infoseek continuously seeks to innovate in the development
and integration of its services to provide viewers with a robust and
appealing environment and a convenient and powerful gateway to the
Internet.
THE INFOSEEK SERVICE AND PRODUCT OFFERINGS
Internet End-User Services and Products
Infoseek Service is a free search and navigation service targeted to viewers
at home, in business and in schools. Infoseek Service integrates multiple
methods of obtaining, organizing and sharing information on the Internet.
Viewers are presented with four principal means of obtaining information--
Search, Channels, Directory and Service Links--from which they can launch
specific queries, browse or access relevant content.
. Search: The Search function allows the viewer to launch query-based
searches of the Web, USENET News and other premium content databases,
including news and company collections. To perform a search, a viewer
types a query in the search box and is then presented a highly specific
response from a search of the entire database. A search can be effected
using either simple keywords, phrases or full text. The Search function
utilizes sophisticated techniques to allow viewers to obtain specific
results for case sensitive, numerical or singular letter aspects of
certain queries, such as "49ers" or "Vitamin C." Infoseek recently
announced Extra Search PrecisionTM, a search technology designed to
improve the quality of search results by delivering the most relevant
results on the Internet. Infoseek also added an advanced search feature
to the Infoseek homepage that allows users to control the specificity of
their search.
. Channels: Infoseek offers viewers 18 "channels" which are organized
topically much like sections of a newspaper. Current channels include
Automotive, Business, Careers, Communications, Computer, Education,
Entertainment, The Good Life, Health, Internet, Kids & Family, News,
Personal Finance, Real Estate, Shopping, Sports, Travel, and Women's.
Each channel includes content teasers to full stories, reviews,
databases and other information on content providers' sites and other
sites, best of the Web links to interesting and relevant information,
relevant Directory subtopics, news headlines, chat, transaction
opportunities and classified advertisements. Infoseek intends to launch
new channels aimed at specific demographic audiences and launch
subchannels within existing channels to help viewers easily find the
environment and information they are looking for.
. Directory: The Infoseek Directory is a hierarchical listing of Web pages
that have been selected and abstracted by Infoseek and organized by
category, which can be accessed by Infoseek's home page or the relevant
channel. The Directory enables a viewer to click on a directory entry
such as Arts & Entertainment or Sports, and to look through a hierarchy
of relevant Internet sites for areas of interest. For example, under
Sports, the viewer can proceed from "Baseball" to "Players," and
finally, to "Ken Griffey Jr." The Directory assists the viewer by
providing abstracts of each directory entry. As of October 1, 1998,
Infoseek had increased its directory of Web sites to over 500,000 sites.
. Service Links: Viewers can be directly linked to third party sites by
clicking on several different title bars listed at the side of the
search screen or icons presented on the Infoseek page. Pursuant to
arrangements with United Parcel Services of America, Inc. ("UPS"),
viewers can access the BigYellow on-line yellow pages directory or the
UPS tracking system by clicking on those links. The standard Internet
advertising on Infoseek also contains direct links to the advertisers'
home page. Without direct hypertext links such as these a viewer must
either conduct a new search or know and enter a precise URL to move to
another site.
The Infoseek Service offers viewers access to content feeds from a variety
of well-known Internet sources, third party content sources and co-branded
sites between Infoseek and other providers of services and products
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such as UPS, to provide viewers with high quality, up-to-date information
whether a viewer is navigating via search, channels or directory. For example,
news that is relevant to the viewer's query is made available as part of a
search result. In addition, the News Channel offers viewers the latest
business, world, political, technology and sports news from a variety of data
sources such as Reuters Holdings PLC ("Reuters"), Business Wire, Hoover's,
Inc. ("Hoover's"), PR Newswire, and USENET news groups.
To enrich the viewer experience, the Infoseek Service allows the use of the
information gathered from a search to interact with viewers of similar
interests and purchase goods within the site through features such as chat,
instant messaging and transaction-based web sites. For example, a consumer who
is interested in purchasing a Saturn automobile can conduct an online search,
compare notes with Saturn drivers in Infoseek's automobile chat room and even
purchase a Saturn through Auto-By-Tel Corporation ("Auto-By-Tel"), a web site
for evaluating and making car-buying decisions.
Corporate Intranet and Public Site Navigation Services and Products
In March 1997, Infoseek introduced Ultraseek Server, its first software
product targeted at the corporate market. Designed as an easy-to-install,
simple-to-manage spider and search engine, the product leverages the core
technology developed for the Infoseek Service. Key advantages of the Infoseek
Service in areas such as natural language support, relevance ranking
algorithms, and automated spider revisiting are augmented with an intuitive
interface, support for alternate document formats (for example, Microsoft
Office or Adobe PDF) and robust error recovery. The result is a solution for
corporate webmasters that enables the creation of a search capability on one
site or across an intranet with thousands of hosts, that is quick to
implement, and manageable with limited resources.
Infoseek views the Ultraseek Server product as a horizontal application,
with a strong fit across many industries. In 1997, Infoseek licensed software
to customers in the publishing industry (Industrial Distribution Group, Inc.
("IDG"), National Geographic Society), high technology (Sun Microsystems,
Inc., 3Com Corporation, Hewlett-Packard Company, Lexmark International Group,
Inc.), manufacturing (Ford Motor Company, The Boeing Company, Merck & Co.,
Inc., Rohm & Haas Company), communications (BellSouth Corporation, Ericsson LM
Tel. Co. Ad., Worldcom Inc.), government (NASA, U.S. Department of Education,
Lawrence Livermore National Laboratory), finance (Morgan Stanley Dean Witter,
John Hancock Mutual Life Insurance Company, Swiss Bank Corporation, New York
Stock Exchange), consumer goods (Sony Corporation, NIKE, Inc., Sears, Roebuck
and Co.) and education (Stanford University, Harvard University, Pennsylvania
State University, Georgia Institute of Technology, University of Sydney,
McGill University) among others. Infoseek also announced that it had been
selected as the intranet and public site search application by CERN, the
European Particle Physics Lab and creator of the world wide web.
Advertising Services and Products
Infoseek derives a substantial majority of its revenues from the sale of
advertisements. Infoseek is focused on providing its advertisers with high
volume and targeted access to interested audiences and potential buyers. These
advertisements appear on the Infoseek Service web page when a viewer enters
the service, receives search results, browses through the Directory or
accesses a channel. Advertising revenues represented 89%, 95%, 96% and 99% of
Infoseek's total revenues for the six months ended June 30, 1998 and 1997 and
fiscal 1997 and fiscal 1996, respectively. Infoseek believes it has been able
to achieve its advertising revenues to date primarily through its direct sales
force and through the products it offers advertisers.
Advertising Products and Pricing
Infoseek derives its revenue from several advertising options that may be
purchased individually or in packages--run of site rotations, directory and
channel rotations, key word rotations, cross service sponsorship, channel
sponsorship and Ultramatch targeting. These options may contain hypertext
links to the advertiser's home page.
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Rotations
. Run of Site: Run of site rotations are advertisements that rotate on a
random basis throughout the Infoseek Service, appealing to advertisers
seeking to establish brand recognition across the broadest reach of
Infoseek viewers. Search results advertisements are typically sold in
blocks of one thousand impressions to be generated over a four week
period. Infoseek's current cost per one thousand impressions ("CPM")
ranges from $18 to $29 depending upon the number of impressions
purchased.
. Directory and Channel: Directory and channel rotations are
advertisements that appear when an Infoseek viewer browses through
directory and channel topic pages. Directory and channel rotations allow
advertisers to target an audience with a specific area of interest. Like
run of site rotations, directory and channel rotations are sold in
blocks of impressions over a four week period. Because of the greater
selectivity of the audience, Infoseek's current CPM ranges from $30 to
$60.
. Keyword: Keyword rotations are advertisements that are displayed when an
Infoseek viewer's search contains a particular keyword selected by the
advertiser. This option offers the advertiser a highly targeted, self-
selected audience. Through its proprietary advertising management
system, Infoseek tracks every word that is queried by Infoseek viewers,
from which Infoseek has identified keywords that are most frequently
queried by Infoseek viewers and requested by advertisers. Infoseek's
current four week rate card CPM for a keyword is $55 to $60.
Channel and Cross-Service Sponsors and Partners
The channel version of the Infoseek Service, which was introduced in October
1997, now features 18 "channels" that allow a viewer to browse in an
environment that brings together the best topical information, service,
products and communities on the web. In addition, this version of the Infoseek
Service dynamically wraps relevant content around answers to a viewer's
queries.
Sponsors and partners with whom Infoseek has executed agreements include the
following:
<TABLE>
<S> <C>
CHANNEL SPONSORS AND PARTNERS
Automotive Auto-By-Tel, Insweb
Careers CareerPath
Communications AT&T
Computers CMP Media, Inc.
Entertainment N2K
Health Women.com, Onhealth, Vitamin Shoppe
Internet CMP Media, Inc.
Personal Finance Microsoft Investor, Datek Online
Travel Microsoft Expedia
Real Estate Netselect, Apartment.com, HomeShark, Housenet.com
Women's iVillage
CROSS-SERVICE
UPS
Borders Online
Microsoft Sidewalk
</TABLE>
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Infoseek believes there is significant potential to increase sponsorship
revenues through the six unsponsored channels, further segmentation of
existing channels into sub-channels as well as channels to be introduced in
the future.
Infoseek's enhanced channel version of the Infoseek Service provides a
better viewer experience and better segmentation of the target audience for
advertisers and sponsors. In addition, Infoseek was able to supplement its
banner advertising business with media-based revenues for sponsorships in its
channels and sub-channels. These opportunities for channel sponsors are in
addition to already existing arrangements with cross-service sponsors such as
UPS and Bell Atlantic. A cross-service sponsor's content or service appears on
the Infoseek Service home page or on multiple channels across the Infoseek
Service. Infoseek seeks to bundle these advertising options to create packages
that offer the greatest value to advertisers.
Ultramatch Targeting
Infoseek currently sells Ultramatch, an advertising management product based
upon technology which is designed to create a viewer profile based on real,
observed viewer behavior to allow precise, targeted advertising. Infoseek and
its advertisers have found that this technology significantly increases viewer
click-throughs. This innovative advertising approach, which allows advertisers
to target advertisements to specific viewer types based on analysis of
searching behavior, serves to significantly differentiate Infoseek's services.
Infoseek's current CPM for this targeting is $75, and the net cost for an
Ultramatch behavioral report is $1,100.
Advertisers
During 1997, over 500 advertisers placed advertisements on Infoseek's
service. For the year ended December 31, 1997 one customer, Bell Atlantic
Electronic Commerce Services, Inc., which has a representative on Infoseek's
Board of Directors and owns a substantial amount of Infoseek's common stock,
accounted for 8.2% of revenues. No one advertiser accounted for 10% or more of
Infoseek's revenues for the year ended December 31, 1997. To date, most of
Infoseek's contracts with advertisers have terms of three months or less.
Sales Force
As of June 30, 1998, Infoseek's advertising sales staff consisted of 50
representatives located in Sunnyvale, New York, San Francisco, Los Angeles,
Atlanta and Chicago. Infoseek believes that having an internal direct sales
force allows it to better understand and meet advertisers' needs, increase its
access to potential advertisers and maintain strong relationships with its
existing base of advertising clients.
MARKETING AND DISTRIBUTION
Marketing
Infoseek's strategy is to build brand awareness through an integrated plan
utilizing online and traditional media, public relations and promotions.
Infoseek's current consumer campaign includes the marketing of the Infoseek
brand on selected Web sites including MSNBC, ESPN SportsZone, AT&T Worldnet
and BigYellow. Infoseek's 1997 and first quarter 1998 television campaign
included a rotation of prime time spots in New York and San Francisco, both of
which are cities with higher than average Internet usage. In addition,
Infoseek's traditional media campaign includes local radio, outdoor
billboards, print advertising in consumer and vertical magazines such as Home
PC, Windows Magazine, Information Week and Internet Week, and trade
advertising in Advertising Age. Infoseek also cross-promotes with content
providers through advertising swaps both in online media and traditional print
and broadcast media.
Distribution
Infoseek seeks to form relationships that maximize audience reach and create
alternate distribution channels to Infoseek's services. Infoseek has
relationships with Netscape and Microsoft each of which distributes browser
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software to their customers which is used to navigate the web. Infoseek also
has distribution relationships with various Internet service providers and
content providers such as AT&T, Earthlink, Southwestern Bell and CNET.
Infoseek Service is listed by each of these companies as a navigational
service available to their viewers. The terms of these relationships vary
widely, both in the prominence given to Infoseek Service relative to other
alternatives and the compensation paid by Infoseek for advertising.
INTERNATIONAL OPERATIONS
As the Internet becomes an increasingly global information resource,
Infoseek believes it can leverage its core search and navigation technology
and brand recognition to provide benefits to viewers and advertisers
worldwide. Accordingly, Infoseek offers its service internationally through
partnerships with local providers of directory and editorial content in
Brazil, Denmark, Holland, France, Germany, Italy, Sweden and the United
Kingdom, and has been translated into Spanish. In addition, Infoseek's U.S.
sales force sells advertisements on Infoseek's foreign sites to U.S.
advertisers who want to reach a global audience. During 1995, 1996, 1997 and
through June 1998, less than 10% of Infoseek's traffic was derived from
international sources and less than 10% of Infoseek's revenues were derived
from advertising to international viewers. See "Risk Factors--Risks Related to
Infoseek's Business--Risks Associated With International Expansion."
TECHNOLOGY
Infoseek believes that by developing innovative proprietary technology and
integrating technology licensed from third parties where appropriate, it can
differentiate itself from its competitors. Infoseek's strategy is to develop
and license only technologies that are able to scale with the growth in
content on the Internet, in order to enable Infoseek to cost-effectively adapt
and grow with the Internet.
Core Search Engine Technology
Infoseek's current search engine technology is based on Ultraseek, an
enhanced search technology that provides users enhanced levels of accuracy,
currency, comprehensiveness and speed. Ultraseek includes built-in
intelligence with features such as phrase, capitalization and proper name
recognition. Infoseek's highly-rated search engine seeks to deliver accurate
results, which are characterized by the level of precision and the level of
recall. In addition, due to the dynamic nature of the Internet, the retrieval
of up-to-date information has become another key factor for the evaluation of
Internet search services. To bring current information to the viewer, Infoseek
has developed technology to regularly update its entire database of web pages.
This enables Infoseek Service to deliver accurate, relevant and up-to-date
search results. To facilitate the ease of use of the service, Infoseek Service
includes a sophisticated technology to interpret "natural language" queries.
Infoseek has also provided a proprietary web spider which works to enhance the
performance of the search engine. A web spider is software that identifies and
catalogs pages on the web. This catalog, when indexed with text retrieval
software such as Infoseek's search engine, can be quickly accessed by keyword
or phrase. Together, the search engine technology and the web spider
technology are used to index web pages, the directory and other sources of
content. Infoseek is continually developing its core search engine technology,
including the recently announced Extra Search Precision technology described
above.
Advertising Management
Infoseek has developed certain proprietary systems for the placement of
advertisements with targeted audiences on appropriate Infoseek Service web
pages. Infoseek's advertising management systems are capable of presenting in
real-time advertising that corresponds to a viewer's inquiry. If certain key
words have been purchased by more than one advertiser, the system
automatically determines which advertisement is displayed based upon the
number of impressions under contract and delivered to date. As part of
Infoseek's proprietary advertising management system, Infoseek also maintains
a database that tracks the number of searches of each word queried by Infoseek
viewers, the number of browses through each directory category and the number
of impressions of each advertisement. This system assists Infoseek in
estimating the number of expected
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impressions of specific advertisement options marketed by Infoseek or
otherwise sought by advertisers. As Infoseek's advertising volume increases,
Infoseek believes that it may be required to significantly improve its
internally developed advertising management system or to implement an
advertising management system from a third party vendor. Infoseek is in the
process of implementing such a system from NetGravity, but such implementation
has not yet occurred. To the extent that Infoseek encounters material
difficulties in bringing, or is unable to bring, this new system online,
Infoseek will need to acquire an alternative solution from a third party
vendor or devote sufficient resources to enhance its internally developed
current system. Any extended failure of, or material difficulties encountered
in connection with, Infoseek's advertising management system may expose
Infoseek to "make good" obligations with its advertising customers, which, by
displacing advertising revenue among other consequences, would reduce revenue
and would have a material adverse effect on Infoseek's business, results of
operations, financial condition and prospects.
COMPETITION
The market for Internet and intranet products and services is highly
competitive, and Infoseek expects that competition will continue to intensify.
The market for Internet and intranet search and navigational services has only
recently begun to develop, and Infoseek cannot predict with any certainty how
competition will affect Infoseek, its competitors or its customers. There can
be no assurance that Infoseek will be able to compete successfully or that the
competitive pressures faced by Infoseek, including those listed below, will
not have a material adverse effect on Infoseek's business, results of
operations, financial condition and prospects.
Competition from Consolidated Internet Products. A principal competitive
factor among providers of consolidated Internet products is the number of
integrated features offered on such providers' sites. A number of companies
offering Internet products and services, including direct competitors of
Infoseek, recently have begun to integrate multiple features within the
products and services they offer to consumers. Such competing companies
have greater resources and abilities to offer more highly integrated
products and services. In addition, entities that sponsor or maintain high-
traffic web sites or that provide an initial point of entry for Internet
viewers, currently offer and can be expected to consider further
development, acquisition or licensing of Internet search and navigation
functions competitive with those offered by Infoseek, or could take actions
that make it more difficult for viewers to find and use Infoseek's products
and services. Continued or increased competition from such consolidations,
integration and strategic relationships involving competitors of Infoseek
could have a material adverse effect on Infoseek's business, results of
operations, financial condition and prospects.
Competition from Search and Navigational Offerings. Many companies
currently offer directly competitive products or services addressing Web
search and navigation, including DEC/AltaVista, Excite, HotBot, Inktomi,
Lycos, CNET and Yahoo! The speed with which search results return and the
"intelligence" of such results received are factors which, among others,
determine such companies' competitiveness. Many of Infoseek's existing
competitors, as well as a number of potential new competitors, have
significantly greater financial, technical, marketing and distribution
resources than Infoseek with which to increase the speed and intelligence
of its search results. Infoseek believes that the costs associated with
developing search and navigational technologies, products and services that
compete with those offered by Infoseek are relatively low. As a result, as
the market for Internet and intranet search and navigational products
develops, other companies may be expected to offer similar products and
services and directly and indirectly compete with Infoseek for advertising
revenues.
Commercial Acceptance of Internet Advertising. Infoseek's future success
is highly dependent upon the increased use of the Internet and intranets
for information publication, distribution and commerce. The market for
Infoseek's products and services has only recently begun to develop, is
rapidly evolving and is characterized by an increasing number of market
entrants with products and services for use on the Internet and intranets.
Most of Infoseek's advertising customers have only limited experience with
the Internet as an advertising medium, have not yet devoted a significant
portion of their advertising expenditures to Internet-based advertising,
and may not find such advertising to be effective for promoting their
products and
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services relative to traditional print and broadcast media. Because
Infoseek expects to derive substantially all of its revenues in the
foreseeable future from sales of Internet advertising, the future success
of Infoseek is highly dependent on the development of the Internet as an
advertising medium. If the market fails to continue to develop, develops
more slowly than expected or becomes saturated with competitors, or if
Infoseek's products and services do not achieve or sustain acceptance by
Internet users or advertisers, Infoseek's business, results of operations,
financial condition and prospects would be materially adversely affected.
In addition, Infoseek has derived a substantial majority of its revenues to
date from the sale of advertisements and expects to continue its dependence
on advertising and related products, including channel sponsorships and, to
a lesser extent, the sale of the Ultramatch advertising management system
and the Ultraseek Server intranet product. Infoseek's current business
model of generating revenues through the sale of advertising on the
Internet, which is highly dependent on the amount of traffic on the
Infoseek Service, is relatively unproven. The Internet as an advertising
medium has not been available for a sufficient period of time to gauge its
effectiveness as compared with traditional advertising media. There can be
no assurance that Infoseek will be successful in generating significant
future advertising revenues or other source of revenues; failure to do so
could have a material adverse effect on Infoseek's business, results of
operations, financial condition and prospects.
Competition from Internet and Other Advertising Media. Infoseek competes
with online services, other web site operators and advertising networks, as
well as traditional media such as television, radio and print for a share
of advertisers' total advertising budgets. Additionally, a large number of
web sites and online services (including, among others, the Microsoft
Network, MSNBC, AOL and other web navigation companies such as Excite,
Lycos and Yahoo!) offer informational and community features, such as news,
stock quotes, sports coverage, yellow pages and e-mail listings, weather
news, chat services and bulletin board listings that are competitive with
the services currently offered or proposed to be offered by Infoseek. There
can be no assurance that Infoseek will be able to compete successfully with
such competitors.
Although Infoseek believes that its recent efforts to provide more
integrated products and services, develop and supply fast, large and
intelligent searches, and deliver large amounts of viewer impressions to
advertisers will allow it to compete effectively for viewers, partners and
advertisers with respect to the factors set forth above, there can be no
assurance that Infoseek will compete successfully with respect to any of the
factors described above for the reasons set forth with respect to each factor
above.
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INFOSEEK MANAGEMENT
INFOSEEK CALIFORNIA
Leslie E. Wright was promoted to Senior Vice President and Chief Operating
Officer in July 1998 from his position as Vice President and Chief Financial
Officer. Remo E. Canessa was appointed to the position of Vice President and
Chief Financial Officer. Certain biographical information regarding Messrs.
Wright and Canessa is set forth under "--Infoseek Delaware" below.
INFOSEEK DELAWARE
Prior to the closing of the Mergers, the executive officers and directors of
Infoseek Delaware will be the same executive officers and directors as those
of Infoseek California. Following the Mergers, the executive officers and
directors of Infoseek Delaware will be as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Harry M. Motro.......... 37 President, Chief Executive Officer and Director
Leslie E. Wright........ 45 Senior Vice President and Chief Operating Officer
Barak Berkowitz......... 44 Senior Vice President and General Manager, Portal
Product
Remo E. Canessa......... 41 Vice President and Chief Financial Officer
Bhagwan D. ("B.D.") Senior Vice President and General Manager,
Goel................... 34 Commerce
Beth A. Haggerty........ 39 Senior Vice President, Worldwide Sales and
Strategic Partnerships
Patrick Naughton........ 33 Senior Vice President and Chief Technology Officer
Andrew E. Newton........ 55 Vice President, General Counsel and Secretary
Steven Bornstein*....... 46 Director
Robert Iger*............ 47 Director
Steven T. Kirsch........ 41 Chairman of the Board of Directors
L. William Krause(1).... 56 Director
Matthew J. Stover(2).... 43 Director
Jake Winebaum*.......... 38 Director
John E. Zeisler(1)(2)... 45 Director
</TABLE>
- --------
* Messrs. Bornstein, Iger and Winebaum will be appointed to the Infoseek
Board of Directors pursuant to the terms of the Governance Agreement. See
"Description of Related Agreements--Equity and Governance Agreements--
Governance Agreements."
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
Harry M. Motro joined Infoseek in April 1997 as its President and was
appointed Chief Executive Officer and a director of Infoseek California in May
1997. From 1995 to April 1997, Mr. Motro served as Senior Vice President of
Cable News Network Inc. in charge of CNN Interactive and News Business
Development. From 1988 to 1995, Mr. Motro served in several executive
positions with Turner Broadcasting Inc. and CNN, including Director, Special
Projects and External Reporting, Assistant Vice President, Finance, and Vice
President, Business Development and Strategic Planning. From 1982 to 1988, Mr.
Motro served as Manager, Audit Services, with Coopers & Lybrand LLP. Mr. Motro
holds a B.S. degree in business from the University of Virginia.
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Leslie E. Wright joined Infoseek in August 1997 as Vice President, Finance
and Chief Financial Officer and was appointed Senior Vice President and Chief
Operating Officer in August 1998. From 1994 to July 1997, Mr. Wright worked
with Fractal Design Corporation, a graphics software company, where from May
1995 to July 1997 he served as Chief Operating Officer. From 1984 to 1994, Mr.
Wright worked with The ASK Group, Inc., a software company, where from 1986
through 1994, he served as Executive Vice President and Chief Financial
Officer. Mr. Wright holds a B.S. degree in business from San Jose State
University and is a Certified Public Accountant in the State of California.
Barak Berkowitz joined Infoseek in October 1997 as Vice President,
Marketing. In August 1990, Mr. Berkowitz founded MarketCentrix, a marketing
consulting firm servicing technology-based companies. Mr. Berkowitz acted as
President of MarketCentrix from August 1990 to July 1994, and again from
October 1996 until October 1997. From July 1994 to October 1996, Mr. Berkowitz
was Vice President and General Manager for the American region of Logitech,
Inc., a computer peripherals company. Mr. Berkowitz studied Psychology and
Biology at the City College of New York.
Remo E. Canessa joined Infoseek in August 1998 as Vice President and Chief
Financial Officer. From February 1998 to May 1998, Mr. Canessa was Chief
Financial Officer and Vice President of Finance of Raster Graphics, a
developer and manufacturer of high-performance color printing systems. From
1993 to February 1998, Mr. Canessa served as Vice President of Finance and
Corporate Controller for Bell Micro Products, Inc., a distributor of
semiconductor and computer products and contract manufacturer. Mr. Canessa
holds an M.B.A. degree from the University of Santa Clara in Santa Clara,
California, a B.A. degree in Economics from the University of California,
Berkeley and is a Certified Public Accountant in the State of California.
Bhagwan D. ("B.D.") Goel joined Infoseek in September 1998 as Senior Vice
President and General Manager, Commerce. From 1996 to 1998, Mr. Goel served as
Vice President Products and Services of Internet Shopping Network, an internet
business infrastructure company and wholly-owned subsidiary of USA Networks,
Inc. From 1994 to 1996, Mr. Goel served as Vice President, Products
Development for Worldwide Systems Corporation, a publisher of online travel
information and a joint venture between Ameritech and Random House. From 1989
to 1994, Mr. Goel was Director of Product Development for KnowledgeSet
Corporation (now Banta Intergrated Media), a developer of alternative
electronic media applications. Mr. Goel holds a Bachelor of Technology in
Electrical Engineering from the Indian Institute of Technology in New Delhi,
India, and an M.S. degree in Electrical Engineering from the University of
Toledo and is a candidate for a Ph.D. in Computer Science from Michigan State
University.
Beth A. Haggerty joined Infoseek in August 1997 as Vice President, Worldwide
Advertising Sales. From 1995 to April 1997, Ms. Haggerty served as Publishing
Director of NetGuide Magazine, a CMP Media publication ("CMP"), and most
recently as Publishing Director of CMPnet, the Internet Media Group of CMP. In
August 1996, Ms. Haggerty also managed the launch of CMP's online product,
NetGuide Live. From 1994 to 1995, Ms. Haggerty was a partner and co-founder of
Interactive Enterprises, a Ziff Davis venture, and a Publisher of
Inter@ctiveWeek magazine. From 1986 to 1994, Ms. Haggerty served in various
capacities with CMP, including senior-level sales and marketing management
positions for Information Week magazine, National Sales Manager for Network
Computing magazine and Publisher of CommunicationsWeek magazine. Ms. Haggerty
holds a B.S. degree in political science from Rutgers University.
Patrick J. Naughton will join Infoseek upon the consummation of the Starwave
Merger as Senior Vice President and Chief Technology Officer. Mr. Naughton is
currently President and Chief Technology Officer of Starwave, which position
he has held since April 1997. From July 1996 to April 1997, Mr. Naughton
served as Starwave's Senior Vice President, Technology. From October 1994 to
July 1996, Mr. Naughton served as Starwave's Vice President, Technology. From
January 1993 to October 1994, Mr. Naughton served as Chief Technologist of
First Person, Inc., a Sun Microsystems subsidiary formed to commercialize Java
technologies. Beginning in June 1988, Mr. Naughton was employed by Sun
Microsystems, where he started a research project in December 1990 in the Sun
Microsystems Laboratories which conceived the Java programming language.
Mr. Naughton holds a B.S. degree in Computer Science from Clarkson University.
126
<PAGE>
Andrew E. Newton, a founder of Infoseek, has served as Vice President and
General Counsel since January 1994 and Secretary since March 1994. From
February 1990 to November 1993, Mr. Newton was Vice President and General
Counsel of Frame Technology Corporation, a software engineering company. Mr.
Newton holds an A.B. degree in English from Dartmouth College and a J.D.
degree from Columbia University School of Law.
Steven Bornstein will become a Director of Infoseek upon consummation of the
Mergers. Mr. Bornstein has been President and Chief Executive Officer of ESPN
since September 1990 and is also a director of ESPN.
Robert Iger will become a Director of Infoseek upon consummation of the
Mergers. Mr. Iger is President of ABC, Inc., a subsidiary of The Walt Disney
Company, which position he has held since February 1996. Prior thereto, Mr.
Iger served as President and Chief Operating Officer of Capital Cities/ABC,
Inc. from September 1994 to February 1996 and as President of the ABC
Television Network from January 1993 to August 1994. Mr. Iger holds a B.S. in
communications from Ithaca College.
Steven T. Kirsch, a founder of Infoseek, has been a director of Infoseek
since August 1993 and Chairman of the Board of Directors since December 1995.
From September 1993 to November 1995, Mr. Kirsch also served as President and
Chief Executive Officer of Infoseek. From January 1990 to December 1993, Mr.
Kirsch served as Vice President, New Product Development of Frame Technology
Corporation, a software engineering company which he co-founded. Mr. Kirsch
holds a B.S. degree and an M.S. degree in electrical engineering and computer
science from the Massachusetts Institute of Technology.
L. William Krause has served as a director of Infoseek since July 1997.
Since October 1991, Mr. Krause has served as President, Chief Executive
Officer and as a director of Storm Technology, Inc., a provider of computer
peripherals and software for digital imaging. Prior to that, Mr. Krause spent
ten years at 3Com Corporation, a manufacturer of global data networking
systems, where he served as President and Chief Executive Officer until he
retired in September 1990. Mr. Krause continued as Chairman of the Board for
3Com Corporation until 1993. Previously, Mr. Krause served in various
marketing and general management executive positions at Hewlett-Packard
Company. Mr. Krause currently serves as a director of Sybase, Inc. and Aureal
Semiconductor, Inc.
Matthew J. Stover has served as a director of Infoseek since March 1996.
Since December 1997, Mr. Stover has served as President and Chairman of the
Board of Bell Atlantic Information Services Group, an international marketing
information services provider. Mr. Stover is also the Chairman of the Board of
Global Directory Services Company. Since January 1998, Mr. Stover has served
as Chairman of the Board of Bell Atlantic Yellow Pages Company, formerly known
as NYNEX Information Resources Company, where from January 1994 to January
1998, he served as President and Chief Executive Officer. Prior to that, Mr.
Stover served as President and Chief Executive Officer of AGS Computers, Inc.
from December 1992 to December 1993, Vice President, Public Affairs and
Corporate Communications of NYNEX Corporation from May 1990 to December 1992
and Vice President, Communications for American Express Company from 1987 to
1990. Mr. Stover holds a B.A. degree in English language and literature from
Yale University and a certificate from the Executive Program of the University
of Virginia, Colgate Darden Graduate School of Business Administration.
Jake Winebaum will become a director of Infoseek upon consummation of the
Mergers. Mr. Winebaum is Chairman of the Buena Vista Internet Group, a
subsidiary of The Walt Disney Company, which position he has held since April
1998. Prior thereto, Mr. Winebaum was President of the Buena Vista Internet
Group from March 1997 to March 1998; President of Disney Online from July 1995
to March 1998; President of Disney Magazine Publishing from April 1994 to June
1995; President of Family PC from February 1994 to June 1995; and President of
Family Fun from February 1992 to June 1995. Mr. Winebaum currently is a member
of the Board of Directors of Starwave, although he will not be a member of the
Board of Directors of Starwave following the
Mergers. Mr. Winebaum will also become a member of the advisory committee
described in the Product Management Agreement. See "Description of Related
Agreements--Licensing and Commercial Agreements--Product Management
Agreement."
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<PAGE>
John E. Zeisler has served as a director of Infoseek since May 1995. Since
October 1996, Mr. Zeisler has served as a General Partner of InterWest
Partners, a venture capital firm. From August 1995 to September 1996, he
served as Senior Vice President, Marketing of NETCOM, an internet company.
From 1992 to 1995, he served as President and Chief Executive Officer of
Pensoft Corporation, a software company. From 1987 to 1992, Mr. Zeisler was a
co-founder and Vice President, Marketing of Claris Corporation, a software
company. Mr. Zeisler holds a B.S. degree in communications from Boston
University.
COMPENSATION
None of the executive officers or directors of Infoseek Delaware received
any annual or long-term compensation from Infoseek Delaware during the last
fiscal year.
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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 California common stock as of October 9, 1998 (except as
otherwise noted) by (i) each director of Infoseek California, (ii) Infoseek
California's Chief Executive Officer and each of the four other most highly
compensated executive officers of Infoseek California during the fiscal year
ended December 31, 1997, (iii) all directors and executive officers of
Infoseek California as a group, and (iv) all those known by Infoseek
California to be beneficial owners of more than five percent of outstanding
shares of Infoseek California common stock. This table is based on information
provided to Infoseek California or filed with the SEC by Infoseek California's
directors, executive officers and principal shareholders. Unless otherwise
indicated in the footnotes below, and subject to community property laws where
applicable, each of the named persons has sole voting and investment power
with respect to the shares shown as beneficially owned.
<TABLE>
<CAPTION>
PERCENTAGE OF
PERCENTAGE OF OUTSTANDING
OUTSTANDING INFOSEEK DELAWARE
COMMON STOCK COMMON STOCK
NUMBER OF SHARES OWNED PRIOR OWNED AFTER
BENEFICIAL OWNER BENEFICIALLY OWNED (1) TO MERGERS(2)(3)(4) MERGERS(2)(3)(4)
---------------- ---------------------- ------------------- -----------------
<S> <C> <C> <C>
Steven T. Kirsch(5)..... 5,888,855 18.69% 9.90%
Harry M. Motro(6)....... 396,832 1.24% *
Matthew J. Stover(7).... 1,164,384 3.69% 1.96%
John E. Zeisler(8)...... 67,811 * *
L. William Krause(9).... 15,000 * *
Beth A. Haggerty(10).... 56,122 * *
Andrew E. Newton(11).... 542,650 1.72% *
John S. Nauman(12)...... 141,454 * *
Leo R. Jolicoeur(13).... 99,110 * *
All directors and
executive officers as a
group
(10 persons)(14)....... 8,372,218 26.00% 14.07%
</TABLE>
- --------
* Represents less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that
person, the aggregate number of shares of common stock subject to options
held by that person that are currently exercisable or exercisable within
60 days of October 9, 1998 are deemed outstanding. Shares issuable
pursuant to such options are deemed outstanding for computing the
percentage of the person holding such options but are not deemed
outstanding for computing the percentage of any other person. To
Infoseek's knowledge, except as set forth in the footnote to this table
and subject to applicable community property laws, each party named in
the table has sole voting and investment power with respect to the shares
set forth opposite such party's name. Except as otherwise indicated, the
address of each of the parties in this table is as follows: c/o Infoseek
Corporation, 1399 Moffett Park Drive, Sunnyvale, California 94089.
(2) Steven Bornstein, Robert Iger and Jake Winebaum will be appointed to
Infoseek Delaware's Board of Directors at the Closing of the Mergers.
Such persons currently own no shares of Infoseek or Starwave common stock
and are not expected to own any shares immediately after the Mergers.
(3) Disney currently owns no shares of Infoseek common stock. Immediately
after the Mergers, Disney is expected to own approximately 25,665,023
shares of Infoseek common stock and have an approximately 43.1% ownership
interest (excluding the Warrant) in Infoseek.
(4) Does not include up to approximately 700,000 shares of Infoseek common
stock which may be issued in connection with the acquisition of Quando.
(5) Represents 5,888,855 shares held in the name of trusts for the benefit of
Mr. Kirsch and his family members.
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<PAGE>
(6) Includes 395,832 shares issuable pursuant to stock options that may be
exercised within 60 days after October 9, 1998.
(7) Includes 15,000 shares issuable pursuant to stock options held in the
name of Mr. Stover for the benefit of Bell Atlantic which may be
exercised within 60 days after the Record Date, of which 10,313 shares
would be subject to Infoseek's right of repurchase. Also includes
1,164,384 shares held by Bell Atlantic Electronic Commerce Services,
Inc., 35 Village Road, Middletown, Massachusetts 01949. Mr. Stover
disclaims beneficial ownership of such shares.
(8) Includes 55,312 shares issuable pursuant to stock options that may be
exercised within 60 days after the Record Date, of which 14,063 shares
would be subject to Infoseek's right of repurchase.
(9) Includes 15,000 shares issuable pursuant to stock options that may be
exercised within 60 days after the Record Date, of which 13,125 shares
would be subject to Infoseek's right of repurchase.
(10) Represents 1,122 shares held in the name of Ms. Haggerty's spouse.
Includes 55,000 shares issuable pursuant to stock options that may be
exercised within 60 days after the Record Date.
(11) Includes 26,562 shares issuable pursuant to stock options that may be
exercised within 60 days after the Record Date.
(12) Includes 46,875 shares which are subject to Infoseek's right of
repurchase, and 27,083 shares issuable pursuant to stock options that may
be exercised within 60 days after the Record Date.
(13) Includes 97,676 shares issuable pursuant to stock options that may be
exercised within 60 days after the Record Date.
(14) Includes 687,465 shares issuable pursuant to stock options that may be
exercised within 60 days after the Record Date, including those options
identified in footnotes (4) through (12).
130
<PAGE>
STARWAVE MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Management's Discussion and Analysis of Financial Condition and Results
of Operations contains forward-looking statements subject to risks and
uncertainties. Actual results could differ materially from those projected in
the forward-looking statements as a result of, among other things, the factors
set forth in "Risk Factors" beginning on page 21 of this Joint Proxy
Statement/Prospectus, including those entitled "--Risks Related to the
Combined Companies, the Mergers and Related Transactions,--Dependence on Joint
Ventures and Third Party Relationships," "--Dependence on Continued Growth in
Use of the Internet," "--Developing Market; Unproven Acceptance of Internet
Advertising and of the Combined Companies' Products and Services," "--Risks
Limited to Starwave's Business--Limited Operating History; Accumulated
Deficit, Anticipated Losses," "--Unpredictability of Future Revenues;
Potential Fluctuations in Operating Results" and "--Competition."
OVERVIEW
Starwave
Starwave is a producer of Internet-based online services in specific content
areas with broad consumer appeal. Starwave is recognized for its sports, news
and entertainment services. Starwave was organized in December 1991 and
commenced operations in January 1992. From that time through February 1993,
the operations of Starwave were limited to start-up activities, including
recruiting personnel, raising capital, and research and development concerning
the technical feasibility of providing content for delivery to the home over
high bandwidth digital communications, including satellite broadcast. From
March 1993 through December 1994, the primary operating activities of Starwave
included the development of CD-ROM products and the development of online
services.
In 1995, Starwave launched its first online services and also released its
first CD-ROM products. Additionally, Starwave began shifting its focus
primarily toward online services, as management perceived greater long-term
potential in that business segment. These services included, among others,
ESPN SportsZone, NBA.com, NFL.com, NASCAR Online, Outside Online and Mr.
Showbiz. This shift of focus ultimately led to the decision in March 1996 to
discontinue its Multimedia CD-ROM business segment, which was phased out in
1996. See "--Discontinued Operations" below. In March 1995, Starwave and ESPN
entered into an agreement whereby Starwave became the exclusive producer and
distributor of ESPN content on the Internet through April 1, 2000, which
agreement was superceded by the ESPN Joint Venture in connection with the
transactions described in the next paragraph.
Pursuant to a Stock Purchase Agreement dated as of March 28, 1997 among
Starwave, Starwave's founder, Paul Allen, and DEI (the "Starwave Stock
Purchase Agreement"), Starwave issued and sold to DEI 9,967,337 shares of
Starwave common stock for aggregate consideration of $82 million (39,869,348
shares after adjustment for the four-for-one stock split of Starwave common
stock declared on October 3, 1997 (the "Starwave Stock Split")). Starwave used
approximately $50 million of those proceeds to repay the then-outstanding
indebtedness owed by it to Mr. Allen, and the remaining $45.7 million of
indebtedness owed by Starwave to Mr. Allen was converted into 5,155,289 shares
of Starwave common stock (20,621,156 shares when adjusted for the Starwave
Stock Split). In connection with this transaction, effective April 1997,
Starwave formed its subsidiary, Starwave Partner, and Starwave Partner entered
into the ESPN Joint Venture and the ABCNews Joint Venture with ESPN Partner
and ABC Partner, respectively (with the ESPN Joint Venture superceding the
1995 agreement between Starwave and ESPN pertaining to ESPN SportsZone).
Following these transactions, Starwave continued its web site hosting,
software development and research activities, while the majority of its web
site operations costs were allocated to the Joint Ventures. Effective April 1,
1997, Starwave and the Joint Ventures established a fiscal year end of the
last Sunday in September.
On May 1, 1998, pursuant to a Shareholders Agreement dated as of April 17,
1997 (the "Starwave Shareholders Agreement") among Starwave, Mr. Allen and
DEI, DEI acquired all of the shares of Starwave
131
<PAGE>
common stock owned by Mr. Allen, thereby increasing DEI's percentage ownership
of Starwave's outstanding capital stock from approximately 41% to
approximately 91% on a primary shares basis.
The ESPN Joint Venture
Effective April 1997, Starwave Partner and ESPN Partner entered into
the ESPN Joint Venture for the production of Internet-based services
intended to appeal to consumer interest in sports-related content
areas. Starwave contributes technical expertise, labor and
infrastructure, and ESPN contributes licensed content, branding and
promotion. The ESPN Joint Venture has a ten-year term and a 50/50
capital ownership structure, and provides ESPN Partner with credit for
on-air promotion. Required funding under the Joint Venture is split
60/40 between Starwave Partner and ESPN Partner in negative cash flow
years and 50/50 in years in which the Joint Venture achieves positive
cash flow. The ESPN Joint Venture has inherited Starwave relationships
with nationally prominent content and branding partners, including the
NBA, the NFL, and NASCAR. The ESPN Joint Venture's flagship service is
ESPN SportsZone, which provides sports-related content.
The ABCNews Joint Venture
Effective April 1997, Starwave Partner and ABC Partner entered into
the ABCNews Joint Venture for the production of Internet-based services
intended to appeal to consumer interest in news and entertainment-
related content areas. Starwave contributes the technical expertise,
labor and infrastructure, and ABC Partner contributes licensed content.
The ABCNews Joint Venture has a ten-year term and a 50/50 capital
ownership structure, and provides ABC Partner with credit for ABC's on-
air promotion. Required funding under the Joint Venture is split 60/40
between Starwave Partner and ABC Partner in negative cash flow years
and 50/50 in years in which the Joint Venture achieves positive cash
flow. The ABCNews Joint Venture's flagship service is ABCNews.com,
which provides world, national, entertainment, health, technology and
business content. The ABCNews Joint Venture's other services include
Mr. Showbiz, Wall of Sound, CelebSite and Moneyscope.
Under existing terms, the Joint Ventures expire in April 2007 and may be
subject to earlier termination in certain circumstances. The Joint Ventures
have a term of 10 years from the Effective Time as amended in connection with
the Mergers.
Prior to the formation of the Joint Ventures in April 1997, Starwave had
formed relationships with co-branding partners for certain of its online
services. Starwave bore substantially all the production costs for the online
services and paid royalties to its co-branding partners. The royalties were
generally computed as a percentage of either advertising or gross revenues
generated from the related online service. Those percentages ranged from 30%
to 50% of such revenues. During this period, Starwave derived the majority of
its revenues from the sale of advertisements and subscription fees related to
premium subscription services and fantasy league services offered to users of
the ESPN SportsZone service. Advertising revenues are derived principally from
advertising placements in which Starwave provides a minimum number of
impressions (displays of an advertisement to the user) for a fixed fee.
Advertising and subscription revenues are recognized ratably over the term of
the period during which services are provided and in the case of advertising
is stated net of commissions. In conjunction with the formation of the Joint
Ventures, the co-branding relationship with ESPN was discontinued. The co-
branding relationships with the NBA, the NFL, and NASCAR were assumed by the
ESPN Joint Venture.
Starwave expects the Joint Ventures to continue to derive the substantial
majority of their revenues from the sale of advertising. Most of the
advertising placements of Starwave and the Joint Ventures have terms of three
months or less, with options to cancel at any time. In addition, there is
intense competition among sellers of advertising space on the Internet and a
variety of pricing models offered. See "Risk Factors--Risks Related to the
Combined Companies, the Mergers and Related Transactions--Developing Market;
Unproven Acceptance of Internet Advertising and of the Combined Companies'
Products and Services."
132
<PAGE>
The following selected financial data are derived from the financial
statements of Starwave included elsewhere in this Joint Proxy
Statement/Prospectus and should be read in conjunction with such financial
statements, the related notes thereto and the other financial information
pertaining to Starwave included elsewhere in this Joint Proxy
Statement/Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED NINE MONTHS ENDED
--------------------------- -----------------------
SEPTEMBER 30, YEAR ENDED YEAR ENDED JUNE 28, JUNE 29,
SEPTEMBER 28, 1996 DECEMBER 31, DECEMBER 31, 1998 1997
1997 (UNAUDITED) 1996 1995 (UNAUDITED) (UNAUDITED)
------------- ------------- ------------ ------------ ----------- -----------
(AMOUNTS IN THOUSANDS)
STATEMENTS OF OPERATIONS
DATA(1):
<S> <C> <C> <C> <C> <C> <C>
Revenues................ $ 4,892 $ 4,583 $ 8,302 $ 1,111 $ 3,496 $ 7,960
-------- -------- -------- -------- ------- --------
Operating Expenses:
Cost of online
services.............. 7,185 11,046 18,170 6,577 2,147 12,122
Development............ 1,605 5,586 6,138 5,771 848 3,385
Sales and marketing.... 1,589 2,872 5,492 1,789 41 4,130
General and
administrative........ 2,527 3,389 4,845 3,388 1,778 3,412
-------- -------- -------- -------- ------- --------
Total operating
expenses............ 12,906 22,893 34,645 17,525 4,814 23,049
-------- -------- -------- -------- ------- --------
Operating loss.......... (8,014) (18,310) (26,343) (16,414) (1,318) (15,089)
-------- -------- -------- -------- ------- --------
Other income (expense):
Loss from affiliate--
ESPN Joint
Venture(2)............ (2,251) -- -- -- (2,091) (808)
Loss from affiliate--
ABC News Joint
Venture(2)............ (5,958) -- -- -- (6,982) (3,116)
Interest (expense)
income................ (1,814) (3,187) (4,675) (3,023) 768 (3,244)
Other, net............. 464 (52) (658) 8 25 (118)
-------- -------- -------- -------- ------- --------
Net other expenses... (9,559) (3,239) (5,333) (3,015) (8,280) (7,286)
-------- -------- -------- -------- ------- --------
Loss from continuing
operations............. (17,573) (21,549) (31,676) (19,429) (9,598) (22,375)
Loss from discontinued
operations............. -- (4,289) (4,289) (7,474) -- --
-------- -------- -------- -------- ------- --------
Net loss................ $(17,573) $(25,838) $(35,965) $(26,903) $(9,598) $(22,375)
======== ======== ======== ======== ======= ========
</TABLE>
- --------
(1) In April 1997 Starwave entered into the ESPN Joint Venture and the ABCNews
Joint Venture. Subsequently, Starwave continued its business of web site
hosting, software development and research activities while revenue and
expenses associated with sites operated under contract with ESPN, ABC and
others were assumed by these Joint Ventures. As a result, periods prior to
and following April 1997 are not comparable.
(2) Represents Starwave's proportionate share of the loss (i.e., 60%).
STARWAVE RESULTS OF OPERATIONS
From Starwave's commencement of business activities in January 1992 through
the first quarter of 1995, Starwave's operations were limited and consisted
primarily of development of online services and CD-ROMs and other start-up
activities. Starwave first recognized online revenues in the second quarter of
1995. Thereafter until April 1997, the ESPN SportsZone online revenues were
the primary source of Starwave's revenues.
Beginning April 1997, Starwave entered into the Joint Ventures. As a result
of the terms of the Joint Ventures, all business related advertising revenue
and operating expenses are reflected at the Joint Venture level. Accordingly,
following the discussion of Starwave's results of operations below is a
discussion of the Joint Ventures' results of operations in order to make
comparative assessments of the results of operations more meaningful.
Starwave has classified the results of operations of its Multimedia CD-ROM
business segment as discontinued for all periods presented. Accordingly,
except as otherwise indicated, all results of operations information of
Starwave contained in this Joint Proxy Statement/Prospectus relate only to
continuing operations. See "--Starwave Discontinued Operations."
133
<PAGE>
Starwave began a new line of business in February 1997 to provide web site
hosting operations for Internet services produced by third parties. Revenues
from this line of business have been for consulting services and software
license revenues. The primary customer for such services is Disney.
COMPARISON OF STARWAVE'S NINE MONTHS ENDED JUNE 28, 1998 AND JUNE 29, 1997
Revenues
Revenues for the nine months ended June 28, 1998 and June 29, 1997 were
$3,496 and $7,960, respectively. Beginning April 1, 1997, the majority of the
revenue was earned by the Joint Ventures, resulting in a decline in the total
revenue for comparable periods.
For the nine months ended June 28, 1998, all of Starwave's revenue was
derived from $2,327 in web site hosting service revenue and $1,169 in software
license revenue.
For the nine months ended June 29, 1997, Starwave recognized advertising
revenues of $5,210. Beginning April 1, 1997, all advertising revenue was
earned by the Joint Ventures.
Operating Expenses
Cost of Online Services. Cost of online services consists primarily of site
production and maintenance costs, royalties to co-branding partners, web
operations and support costs, and fees and royalties paid to content
providers. Costs of online services for the nine months ended June 28, 1998
and June 29, 1997 were $2,147 and $12,122, respectively. Beginning April 1,
1997, all costs incurred for the production of online services were incurred
by the Joint Ventures, which resulted in a decrease in the costs for the
comparable periods.
Development. Development expenses include expenses related to the
development and production of new online services and technologies, including
payroll and related expenses for development staff as well as costs for
content, facilities and equipment. Once an online service is launched and
available to generate revenue, costs associated with enhancements and
development of new features for the service are included with online services
costs. Development costs for the nine months ended June 28, 1998 and June 29,
1997 were $848 and $3,385, respectively, representing 24% and 43%,
respectively, of total revenues. Beginning April 1, 1997, all costs incurred
for development relating to the Joint Ventures were moved to the Joint
Ventures. Starwave believes that a significant level of development activity
and expense is required in order to remain competitive with other new and
existing online services. Accordingly, Starwave anticipates that it will
continue to devote substantial resources to development and that the absolute
dollar amount of these costs will increase in future periods.
Sales and Marketing. Sales and marketing expenses consist primarily of
payroll and related expenses for sales and marketing personnel, advertising
expenses, as well as related facilities expenses. For the nine months ended
June 28, 1998 and June 29, 1997, sales and marketing expenses were $41 and
$4,130, respectively. Beginning April 1, 1997, all costs incurred for the
sales and marketing for the online services were incurred by the Joint
Ventures, resulting in a decrease in the costs for the comparable periods.
General and Administrative. General and administrative expenses consist
primarily of payroll and related expenses of executive, finance, legal, human
resources, and information systems personnel. In addition, these costs include
occupancy costs for Starwave, as well as fees for professional services. For
the nine months ended June 28, 1998 and June 29, 1997, general and
administrative costs were $1,778 and $3,412, respectively, representing 51%
and 43%, respectively, of total revenues. Beginning April 1, 1997 all costs
incurred for general and administrative relating to the Joint Ventures were
moved to the Joint Ventures. If Starwave continues to grow in size, it may
find it necessary to expand its information systems and to expand or relocate
to new or additional locations. As a result, Starwave anticipates that the
absolute dollar amount of general and administrative expenses will increase in
future periods.
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<PAGE>
Other Income (Expense). From inception through March 31, 1997, other income
(expense) consists primarily of interest expense incurred on the loans made to
Starwave by its majority shareholder. From April 1, 1997 to the current date,
other income (expense) consists mainly of Starwave's proportionate share
(i.e., 60%) of the earnings (losses) from the ABCNews Joint Venture and the
ESPN Joint Venture.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-------------------------
JUNE 28, JUNE 29,
1998 1997
----------- -----------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Loss from the ESPN Joint Venture(1)............... $ (2,091) $ (808)
Loss from the ABCNews Joint Venture(1)............ (6,982) (3,116)
Interest income (expense)......................... 768 ( 3,244)
Other income (expense)............................ 25 (118)
</TABLE>
- --------
(1) Represents Starwave's proportionate share of the loss (i.e., 60%).
COMPARISON OF STARWAVE'S NINE MONTHS ENDED SEPTEMBER 28, 1997 AND SEPTEMBER
30, 1996
Revenues
Revenues for the nine months ended September 28, 1997 and September 30, 1996
were $4,892 and $4,583, respectively. Beginning April 1, 1997, the majority of
the revenue generating operations was included in the Joint Ventures. The
transfer of revenue generating operations to the Joint Ventures was mitigated
by an increase in revenue in the first three months of the period resulting
from increased acceptance of commerce on the Internet.
Advertising revenues for the nine months ended September 28, 1997 and
September 30, 1996 were $2,446 and $3,475, respectively, representing 51% and
76%, respectively, of total revenues. Beginning April 1, 1997, all advertising
revenue was earned at the Joint Venture level, resulting in a decrease in
advertising revenue for comparable periods.
Cost of Online Services. Costs of online services for the nine months ended
September 28, 1997 and September 30, 1996 were $7,185 and $11,046,
respectively. Beginning April 1, 1997, all costs incurred for the production
of online services were incurred by the Joint Ventures, resulting in a
decrease in the costs for the comparable periods.
Development. Development costs for the nine months ended September 28, 1997
and September 30, 1996 were $1,605 and $5,586, respectively, representing 33%
and 122%, respectively, of total revenues. Development costs incurred on
behalf of the Joint Ventures' web sites are allocated to the Joint Ventures,
decreasing Starwave's total development costs for the comparable periods.
Sales and Marketing. Sales and marketing expenses for the nine months ended
September 28, 1997 and September 30, 1996 were $1,589 and $2,872,
respectively, representing 32% and 63%, respectively, of total revenues.
Beginning April 1, 1997, all costs incurred for the sales and marketing for
the online services were incurred by the Joint Ventures, resulting in a
decrease in the total costs for the comparable periods. A total of $1,301 or
82% of the sales and marketing costs incurred for the nine months ended
September 30, 1997 was incurred before the formation of the Joint Ventures on
April 1, 1997. The remainder of the sales and marketing costs were incurred
due to promotion of the web site hosting operations.
General and Administrative. For the nine months ended September 28, 1997 and
September 30, 1996, general and administrative costs were $2,527 and $3,389,
respectively, representing 52% and 74%, respectively, of total revenues.
Beginning April 1, 1997, general and administrative costs were allocated to
the Joint Ventures, thereby reducing the total expense for the comparable
periods.
135
<PAGE>
Other Income (Expense). From inception through March 31, 1997, other income
(expense) consists primarily of interest expense incurred on the loans made to
Starwave by its majority shareholder. From April 1, 1997 to the current date,
other income (expense) consists mainly of Starwave's proportionate share
(i.e., 60%) of the earnings (losses) from the ABCNews Joint Venture and the
ESPN Joint Venture.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
---------------------------
SEPTEMBER 28, SEPTEMBER 30,
1997 1996
------------- -------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Loss from the ESPN Joint Venture(1)............... $(2,251) $ --
Loss from the ABCNews Joint Venture(1)............ (5,958) --
Interest expense, net............................. (1,814) (3,187)
Other income (expense)............................ 464 (52)
</TABLE>
- --------
(1) Represents Starwave's proportionate share of the loss (i.e., 60%).
COMPARISON OF STARWAVE'S YEARS ENDED DECEMBER 31, 1996 AND 1995
Revenues
Starwave began to generate revenues in the second quarter of 1995. Revenues
for the years ended December 31, 1996 and 1995 were $8,302 and $1,111,
respectively.
For the years ended December 31, 1996 and 1995, advertising revenues were
$6,100 and $800, respectively, representing 73% and 72%, respectively, of
total revenues.
Operating Expenses
Cost of Online Services. Starwave did not incur any online services costs
until 1995 when Starwave launched its first online services and began
recognizing revenues from these services. Costs of online services for the
years ended December 31, 1996 and 1995 were $18,170 and $6,577, respectively.
Development. Development expenses include expenses relating to the
development and production of new online services and technologies, including
payroll and related expenses for development staff as well as costs for
content, facilities and equipment. Once an online service is launched and
available to generate revenue, costs associated with enhancements and
development of new features for the service are included with cost of online
services. Total development expenses were $6,138 and $5,771 for the years
ended December 31, 1996 and 1995, respectively, representing 74% and 519%,
respectively, of total revenues.
Sales and Marketing. Sales and marketing expenses consist primarily of
payroll and related expenses for sales and marketing personnel, advertising
expenses, as well as related facilities expenses. Sales and marketing expenses
for the years ended December 31, 1996 and 1995 were $5,492 and $1,789,
respectively, representing 66% and 161%, respectively, of total revenues.
General and Administrative. General and administrative expenses consist
primarily of payroll and related expenses of executive, finance, legal, human
resources, and information systems personnel. In addition, these costs include
occupancy costs for Starwave, as well as fees for professional services.
General and administrative expenses for the years ended December 31, 1996 and
1995 were $4,845 and $3,388, respectively, representing 58% and 305%,
respectively, of total revenues.
Other Income (Expense). In 1996 and 1995, other income (expense) consists
primarily of interest expense incurred on the loans made to Starwave by its
majority shareholder.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1996 1995
----------- -----------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Interest expense................................... $ (4,675) $ (3,023)
Other income (expense)............................. (658) 8
</TABLE>
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Interest expense increased during each of the years ended December 31, 1996
and 1995 ($3,023 during 1995 from $1,400 during 1994) due principally to the
increased magnitude of such loans. As of April 1, 1997, outstanding loans from
Paul Allen to Starwave totaled $95.7 million. As of December 31, 1996,
outstanding loans from Paul Allen to Starwave totaled $84.9 million, versus
$51.0 million as of December 31, 1995.
STARWAVE DISCONTINUED OPERATIONS
In 1994, Starwave began developing interactive multimedia CD-ROM products.
Starwave released its first CD-ROM product in November 1995 and released
additional CD-ROMs in 1995 and the first quarter of 1996. In March 1996,
Starwave made the decision to discontinue its Multimedia CD-ROM business
segment, and to phase out these operations by December 31, 1996.
Starwave has reflected the results of operations of the Multimedia CD-ROM
business segment as a discontinued operation for all periods presented. During
the phase-out period, Starwave completed production of its final CD-ROM
product and disposed of its remaining inventory of CD-ROM products.
Losses from operations of the Multimedia CD-ROM segment totaled $4,700 in
1994, $7,474 in 1995 and $1,046 in 1996. The loss on disposal of the
Multimedia CD-ROM segment of $3,243 in 1996 included the provision for
operating losses through the phase-out period.
Income Taxes. Until December 31, 1995, Starwave utilized the provisions of
Subchapter S of the Code. As a result, Starwave's net losses for tax purposes,
as well as tax credits and other tax incidents, were distributed to and
included on the personal income tax returns of its shareholders. Starwave was
not required to record any provision for income taxes, and the net losses and
tax incidents of Starwave through December 31, 1995 will not be available to
offset taxes on Starwave's future net income, if any. Effective January 1,
1996, Starwave elected to be taxed as a Subchapter C corporation under the
Code. The conversion from S Corporation status to C Corporation status had no
impact on the financial position or results of operations of Starwave. As of
September 28, 1997, Starwave had incurred net operating losses of
approximately $54.8 million for income tax purposes that may be available to
offset a similar amount of net income for income tax purposes in future
periods through 2011. Starwave has recorded a valuation allowance against the
deferred tax asset generated by the net operating losses and therefore has no
deferred tax assets or liabilities recorded on its balance sheet. Starwave
expects that future operating losses will result in additional net operating
losses for income tax purposes. The aggregate net operating losses are subject
to certain limitations.
STARWAVE LIQUIDITY AND CAPITAL RESOURCES
From inception through March 31, 1997, Starwave financed its operations and
met its capital expenditure requirements primarily through loans received from
Paul Allen, which totaled approximately $95.7 million. In April 1997,
approximately $50 million of such indebtedness to Mr. Allen was repaid using
proceeds received by Starwave upon consummation of the transactions
contemplated by the Starwave Stock Purchase Agreement, and the remaining $45.7
million of such indebtedness to Mr. Allen was converted into 5,155,289 shares
(20,621,156 shares when adjusted for the Starwave Stock Split) of Starwave
common stock. The remaining approximately $32 million of cash proceeds
received by Starwave upon consummation of the transactions contemplated by the
Starwave Stock Purchase Agreement was used to fund Starwave operations.
Net cash used in operating activities of $27,190 and $30,060 for the years
ended December 31, 1995 and 1996, respectively, was primarily attributable to
net operating losses incurred in such periods. Net cash used in operating
activities for the nine months ended September 28, 1997 of $6,807 was
primarily attributable to net operating losses incurred in the period. Net
cash used in investing activities of $2,585 and $3,321 for the years ended
December 31, 1995 and 1996, respectively, was primarily attributable to
purchases of equipment and leasehold improvements. Net cash used in investing
activities of $13,873 for the nine months ended September 28, 1997 was
attributable to purchases of equipment and leasehold improvements of $1,336,
and for funding of the ESPN Joint Venture and the ABCNews Joint Venture of
$12,537. Net cash provided by operating
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activities for the nine months ended June 28, 1998 of $195 was the result of
net operating losses primarily consisting of non-cash items. Starwave
currently has a commitment for its facilities under a noncancelable lease
agreement that expires in May 2001, subject to extension at Starwave's option.
Starwave also has a commitment for facilities under a noncancelable lease
agreement that expires November 2000, subject to a three-year extension at
Starwave's option.
The ESPN Joint Venture and the ABCNews Joint Venture have entered into
agreements with certain co-branding partners that require the payment of
minimum royalties and/or royalty advances to the co-branding partners. At
September 28, 1997, the ESPN Joint Venture's minimum royalty liability totaled
$2,800 and the ABCNews Joint Venture's minimum royalty liability totaled
$1,800. Certain of the co-branding agreements provide for additional royalty
payments if specified targets are met.
From inception of the ESPN Joint Venture and the ABCNews Joint Venture on
April 1, 1997, Starwave has provided 60% of the capital contributions
necessary for the operations of each Venture. For the nine months ended June
28, 1998 and for the six months ended September 28, 1997, capital contributed
to the ESPN Joint Venture was $5,769 and $5,377, respectively, and cash
provided for the ABCNews Joint Venture was $8,852 and $8,660, respectively.
It is anticipated that Starwave's cash requirements will continue to be
funded by Disney through the consummation of the Mergers and thereafter will
be funded by Infoseek.
YEAR 2000 COMPLIANCE
Starwave is aware of the issues associated with the programming code in
existing computer systems as the year 2000 approaches. The "year 2000 problem"
is pervasive and complex as virtually every computer operation will be
affected in some way by the rollover of the two-digit year value to 00. The
issue is whether computer systems will properly recognize date sensitive
information when the year changes to 2000. Systems that do not properly
recognize such information could generate erroneous data or cause a system to
fail.
Starwave management is conducting a review of Starwave's exposure to the
year 2000 problem, including working with computer system, data feed and
software vendors to assure that they are prepared for the year 2000. Based on
this review and discussions with such vendors, Starwave currently believes
that its internally developed systems are year 2000 compliant (with the
exception of two systems, which are scheduled to be replaced as part of a
regular upgrade program). Starwave does not expect to further incur any
significant operating expenses or significant investment in additional
computer systems to resolve issues relating to the year 2000 problem, with
respect to both its information technology and product and service functions.
Starwave has also inventoried, and is in the process of contacting, third
party software and data feed vendors to assure their systems are year 2000
compliant.
Notwithstanding the foregoing, significant uncertainty exists concerning the
effects of the year 2000 problem, including uncertainty with respect to
assurances made by Starwave's vendors. Further, Starwave has not investigated
year 2000 compliance of third parties who are not vendors of Starwave, and
Starwave has no control over such third parties' compliance. For example, the
failure of any site to which a link appears on a Starwave website could result
in the loss of such link and therefore reduce the breadth of services offered
through links from the Starwave website, which may in turn materially
adversely affect the Starwave website and the value of user traffic and
advertisers using such website. Any failure of Starwave or its viewers,
customers, linked sites, advertisers or other third parties to be year 2000
compliant could materially affect the business, results of operations,
financial condition and prospects of Starwave.
THE JOINT VENTURES' RESULTS OF OPERATIONS
The following is a discussion of the Joint Ventures' results of operations
in order to make comparative assessments of the results of operations move
meaningful.
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THE ESPN JOINT VENTURE
<TABLE>
<CAPTION>
APRIL 1, 1997 NINE MONTHS
(INCEPTION) TO ENDED
SEPTEMBER 28, JUNE 28,
1997 1998
-------------- -----------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Revenues............................................. $ 6,996 $14,521
Operating expenses:
Cost of online services............................ 7,168 10,668
Development........................................ 515 1,299
Sales and marketing................................ 2,262 3,809
General and administrative......................... 811 2,228
------- -------
Total operating expenses............................. 10,756 18,004
------- -------
Operating loss....................................... (3,760) (3,483)
Net other income..................................... 8 --
------- -------
Loss from operations................................. $(3,752) $(3,483)
======= =======
</TABLE>
Revenues
The ESPN Joint Venture began to generate revenues on April 1, 1997, after
the formation of the Joint Venture. Revenues for the six months ended
September 28, 1997 and nine months ended June 28, 1998 were $6,996 and
$14,521, respectively. Advertising revenues for the corresponding periods were
$4,868 and $10,292, respectively, representing 70%, and 71%, respectively, of
total revenue. The balance of revenue during those periods was derived from
subscription fees for premium services, fantasy leagues, and merchandise
sales.
Operating Expenses
The ESPN Joint Venture began incurring operating expenses upon formation of
the Joint Venture on April 1, 1997. These costs also include those costs paid
by its partners on behalf of the Joint Ventures. Starwave expects that ESPN
Joint Venture operating expenses will continue to increase in the future as
the Joint Venture seeks to expand its online services.
Cost of Online Services. Cost of online services consists primarily of site
production and maintenance costs, royalties to co-branding partners, web
operations and support costs, and fees paid to content providers. Costs of
online services for the six months ended September 28, 1997 and nine months
ended June 28, 1998 were $7,168 and 10,668, respectively.
Development. Development expenses include expenses related to the
development and production of new online services and technologies, including
payroll and related expenses for development staff as well as costs for
facilities and equipment. Total development costs for the six months ended
September 28, 1997 and nine months ended June 28, 1998 were $515 and $1,299,
respectively. These amounts represent 7% and 9%, respectively, of total
revenues in those periods. The increase in costs for the nine months ended
June 28, 1998 is primarily due to additional costs incurred for increased
labor costs. The ESPN Joint Venture anticipates that it will continue to
devote substantial resources to development to remain competitive and that the
absolute dollar amount of these costs will increase in future periods.
Sales and Marketing. Sales and marketing expenses consist primarily of
payroll and related expenses for sales and marketing personnel, advertising
expenses, as well as related facilities expenses. Sales and marketing expenses
for the six months ended September 28, 1997, and nine months ended June 28,
1998 were $2,262 and $3,809, respectively, representing 32% and 26%,
respectively, of total revenues. The ESPN Joint Venture anticipates that the
absolute dollar amount of sales and marketing expenses will increase in future
periods.
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General and Administrative. General and administrative expenses consist
primarily of payroll and related expenses of executive, finance, legal, human
resources, and information systems personnel. In addition, these
costs include occupancy costs for the ESPN Joint Venture, as well as fees for
professional services. General and administrative expenses for the six months
ended September 28, 1997, and nine months ended June 28, 1998 were $811 and
$2,228, respectively, representing 12% and 15%, respectively, of total
revenues. The ESPN Joint Venture opened offices in New York, New York and
Bristol, Connecticut, in addition to its operations in Starwave's existing
office in Bellevue, Washington, which contributed to the increased cost of
general and administrative expenses.
Income Taxes. Profits or losses of the ESPN Joint Venture are attributable
directly to its partners for income tax purposes. Consequently, an income tax
provision has not been reflected in any financial information presented.
THE ABCNEWS JOINT VENTURE
<TABLE>
<CAPTION>
APRIL 1, 1997
(INCEPTION) NINE MONTHS
TO ENDED
SEPTEMBER 28, JUNE 28,
1997 1998
------------- -----------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Revenues.............................................. $ 1,929 $ 7,171
Operating expenses:
Cost of online services............................. 9,015 11,696
Development......................................... 532 2,233
Sales and marketing................................. 1,777 2,660
General and administrative.......................... 537 2,219
------- --------
Total operating expenses.............................. 11,861 18,808
------- --------
Operating loss........................................ (9,932) (11,637)
Net other income...................................... 2 --
------- --------
Loss from operations.................................. $(9,930) $(11,637)
======= ========
</TABLE>
Revenues
The ABCNews Joint Venture began to generate revenues on April 1, 1997, after
the formation of the joint venture. Revenues for the six months ended
September 28, 1997, and the nine months ended June 28, 1998 were $1,929 and
$7,171, respectively. Advertising revenues for the corresponding periods were
$937 and $2,858, respectively, representing 49% and 40%, respectively, of
total revenue. The balance of revenue during those periods was derived from a
contract with a major online service for the use of ABCNews.com site
information on their proprietary service.
Operating Expenses
The ABCNews Joint Venture began incurring operating expenses upon formation
of the joint venture on April 1, 1997. These costs also include those costs
paid by its partners on behalf of the joint venture. Starwave expects that
ABCNews Joint Venture operating expenses will continue to increase in the
future as the joint venture seeks to expand its online services.
Cost of Online Services. Cost of online services consists primarily of site
production and maintenance costs, royalties to co-branding partners, web
operations and support costs, and fees paid to content providers. Costs of
online services for the six months ended September 28, 1997, and the nine
months ended June 28, 1998 were $9,015 and $11,696 respectively.
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Development. Development expenses include expenses related to the
development and production of new online services and technologies, including
payroll and related expenses for development staff as well as costs for
facilities and equipment. Total development costs for the six months ended
September 28, 1997 and the nine months ended June 28, 1998 were $532 and
$2,233, respectively. These amounts represent 28% and 31%, respectively, of
total revenues in those periods. Starwave expects that the ABCNews Joint
Venture will continue to devote substantial resources to development to remain
competitive and that the absolute dollar amount of these costs will increase
in future periods.
Sales and Marketing. Sales and marketing expenses consist primarily of
payroll and related expenses for sales and marketing personnel, advertising
expenses, as well as related facilities expenses. Sales and marketing expenses
for the six months ended September 28, 1997 and the nine months ended June 28,
1998 were $1,777 and $2,660, respectively, representing 92% and 37%,
respectively, of total revenues. The ABCNews Joint Venture anticipates that
the absolute dollar amount of sales and marketing expenses will increase in
future periods.
General and Administrative. General and administrative expenses consist
primarily of payroll and related expenses of executive, finance, legal, human
resources, and information systems personnel. In addition, these costs include
occupancy costs for the ABCNews Joint Venture, as well as fees for
professional services. General and administrative expenses for the six months
ended September 28, 1997 and the nine months ended June 28, 1998 were $537 and
$2,219, respectively, representing 28% and 31%, respectively, of total
revenues. The ABCNews Joint Venture opened an office in New York, New York in
addition to the existing offices in Bellevue, Washington, which contributed to
the increased cost of general and administrative expenses.
Income Taxes. Profits or losses of the ABCNews Joint Venture are
attributable directly to its partners for income tax purposes. Consequently,
an income tax provision has not been reflected in any financial information
presented.
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STARWAVE BUSINESS
OVERVIEW
Starwave is a producer of Internet-based online services in specific content
areas with broad consumer appeal. Starwave is recognized for its prominent
role in sports, news and entertainment services. These services are offered
through the Joint Ventures.
The ESPN Joint Venture's flagship service is ESPN SportsZone, which provides
unique sports-related content. The ESPN Joint Venture's other sports services
include NBA.com, NFL.com, NASCAR Online and Outside Online. The ABCNews Joint
Venture's flagship service is ABCNews.com, which provides a broad variety of
news and information, including world, national, entertainment, health,
technology and business news and information. The ABCNews Joint Venture's
other wholly owned services include Mr. Showbiz (entertainment news), Wall of
Sound (music news), CelebSite (celebrity information) and MoneyScope (business
news and information). The Joint Ventures derive content from their staffs,
partners, licensees, news services and freelance writers and commentators, and
they add additional value by converting this content into interactive
programming. To facilitate traffic to its online services, each service has
its own Internet address, or URL (Uniform Resource Locator), allowing direct
Internet access by any viewer.
BUSINESS STRATEGY
Starwave's business strategy consists of the following key elements: (i)
provide comprehensive, entertaining programming that is constantly updated;
(ii) leverage Starwave's association with high-profile brands, including ESPN,
ABC, the NBA, the NFL and NASCAR; (iii) utilize and develop leading-edge
technology that offers consumers advanced and entertaining services; (iv)
provide an attractive platform for mainstream, consumer-oriented advertisers;
and (v) capitalize on emerging revenue opportunities.
ESPN AND ABCNEWS JOINT VENTURES
The ESPN Joint Venture's sports services and the ABCNews Joint Venture's
news services are cross-linked, enabling users to move easily from one service
to another. The distinct URLs for ESPN SportsZone, NBA.com, NFL.com, NASCAR
Online and Outside Online enable the ESPN Joint Venture to capture audiences
having specific interests in particular sports categories, while the distinct
URLs for ABCNews.com, Mr. Showbiz, Wall of Sound, CelebSite and MoneyScope
enable the ABCNews Joint Venture to capture audiences having specific
interests in particular news, entertainment and business categories. These
URLs are displayed in ESPN and ABC broadcasts in order to promote ESPN
SportsZone and ABCNews.com, respectively.
The Joint Ventures have terms of ten years following the Effective Time of
the Mergers and are mutually exclusive with regard to U.S. and Canadian based
online sports and general news services, respectively. Required funding under
the Joint Ventures is split 60/40 between the Starwave and Disney entities in
loss years and 50/50 in years in which the respective Joint Ventures achieve
net income. Under the Joint Ventures, Starwave provides a variety of services,
including hosting, technology development, usage tracking, infrastructure,
production support, software tools and engines; ESPN provides access to ESPN
television and radio creative and editorial content, advertising and promotion
on ESPN cable television and radio networks and access to the "ESPN" brand,
properties and personalities; and Disney provides access to ABC News creative
and editorial content, advertising and promotion on ABC News programs, and
access to the "ABC News" brand, properties and personalities.
REVENUE SOURCES
Starwave and the Joint Ventures have historically derived their revenue
principally from advertising and subscription fees. Starwave believes that its
success in obtaining advertising revenue is primarily the result of high
consumer traffic, favorable demographics and innovative marketing approaches.
As of the date hereof, Starwave has introduced subscription services only on
ESPN SportsZone, including a premium subscription,
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which provides enhanced coverage, special editorial features, in-depth
statistics and graphical analysis and access to additional multimedia content,
as well as a one-time subscription, which provides access to fantasy games
such as Fantasy Baseball and Fantasy Football.
Starwave is also developing other revenue sources such as program bundling.
Services with branded content are able to bundle portions of their content
with third-party services, including online services, browsers, software
vendors and Internet service providers, in order to differentiate these
products and services from their competition. Starwave believes that bundling
branded services provides further distribution opportunities and generates
additional revenue through license fees, royalties and bounty payments.
Starwave also generates merchandising revenue through online sales and
transactions in the Zone Store within ESPN SportsZone and the NBA Store within
NBA.com. Finally, Starwave provides hosting services, and licenses some of its
proprietary software, to Disney and TheStreet.com.
MARKETING AND DISTRIBUTION
Starwave's strategy is to build brand awareness for the Joint Ventures'
services through a variety of marketing techniques, including reciprocal
advertising arrangements with web search engines, ABC and ESPN broadcasts,
advertisements in other traditional media and online media (such as broadcast
e-mail), trade advertisements and trade shows. Starwave and the Joint Ventures
have built brand awareness through their relationships with partners with
strong brands, including the NFL, the NBA, NASCAR, TheStreet and Outside
magazine.
TECHNOLOGY
Starwave believes that the utilization of leading-edge technologies is
necessary to differentiate the Joint Ventures' services. Starwave's technology
strategy is to internally develop technologies that offer consumers advanced
and entertaining services and increase the quality of the user experience. By
developing technologies internally, Starwave seeks to avoid the expense, delay
and dependence on outside suppliers typically associated with new technology
efforts. To date, Starwave has internally developed technologies that
facilitate authoring capabilities for text, audio, graphics and video that
enhance the speed and interactivity of its services, as well as technology
designed to enable consumers to make secure purchases using credit cards over
the Internet.
COMPETITION
Competition in Internet content publishing is intense and is expected to
increase significantly in the future. Starwave and the Joint Ventures face
overall competition for advertising dollars and audiences from Internet
navigation services such as Netscape, search engines and directories such as
Yahoo!, Lycos and Excite, online services such as AOL, The Microsoft Network
and SNAP! and other services such as PointCast. Furthermore, each of the Joint
Ventures' services faces direct competition from other content providers that
offer services and information pertaining to sports, news, entertainment and
finance. These include, among others, with respect to sports, CBS Sportsline,
CNNSI, Fox Sports online, MSNBC, Yahoo!Sports and AOL; with respect to news,
MSNBC, CNN Interactive, Fox News online, search engines' and directories' news
sections and the major online services; with respect to entertainment, E!
Online, Entertainment Weekly/Pathfinder, Hollywood Online, CNN Interactive-
Showbiz, movie studios such as MGM/UA, Warner Bros., Universal and Sony, and
the major online services; and with respect to finance, Bloomberg, Microsoft
Investor, Quicken Financial Network, Reuters, Dow Jones, CNNfn and various
other online services that provide both up-to-the-minute market information
and investment advice.
Large content providers in other media, including movie studios, television
networks, cable television providers and print publishers have the capacity to
translate their products into online services and to cross-promote these
services through their traditional media channels. These media providers may
form joint ventures such as MSNBC, a joint venture between Microsoft and NBC.
There have been many other recent strategic
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alliances and Starwave believes other potential alliances of technology and
content are likely to occur in the future.
Starwave believes that the principal competitive factors in attracting users
include the quality of presentation, the integration of content in an
interactive format and the relevance, timelines, depth and breadth of
information and services offered by Starwave. Access to real time data and
video and audio highlights of live events may become increasingly important in
differentiating sites and attracting users. With respect to attracting
advertisers, Starwave believes that the principal competitive factors include
the number of users accessing Starwave's interactive programming, the
demographic appeal of Starwave's services, the demographics of Starwave's
programming users, Starwave's ability to deliver focused advertising and
interactivity through its services, and the overall cost-effectiveness and
value of advertising offered by Starwave. Although Starwave believes that it
is well positioned to compete effectively because of the broad consumer appeal
of its content, its association with high-profile brands, its use and
development of leading-edge technology, and the attractive platform it
provides for advertisers, there can be no assurance that Starwave will be able
to compete successfully with respect to any of these factors. If Starwave
loses one or more significant advertising customers or is forced to reduce
advertising rates in order to retain customers, its business, financial
condition and operating results will be materially adversely affected. In
addition, there are many entities that have greater financial, technological,
marketing and editorial resources that can compete with all of Starwave's
services.
INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
Starwave and the Joint Ventures rely on patent, trade secret and copyright
laws to protect their proprietary technologies, but there can be no assurance
that such laws will provide sufficient protection to Starwave and the Joint
Ventures, that others will not develop similar or superior technologies, or
that third parties will not copy or otherwise obtain and use the technologies
of Starwave and the Joint Ventures without authorization. After giving effect
to the Mergers, Starwave's proprietary technologies may receive greater
exposure in international markets. Effective patent, copyright, trademark and
trade secret protection may be unavailable or limited in certain of such
markets. Starwave has filed patent applications with respect to certain of its
software and online technologies, but there can be no assurance that patents
will issue with respect to such applications, that any issued patents will not
be challenged, invalidated or circumvented, or that the patents will provide a
competitive advantage to Starwave. Starwave's and the Joint Ventures' success
is also dependent in part on the protection of their original interactive
content and on the goodwill associated with their trademarks, trade names,
service marks and other proprietary rights. A substantial amount of
uncertainty exists concerning the application of copyright and trademark laws
to the Internet and other digital media, and there can be no assurance that
existing laws provide adequate protection for Starwave's and the Joint
Ventures' content or their Internet addresses (commonly referred to as "domain
names"). Starwave and the Joint Ventures have federally registered trademarks
for the names Starwave(R), SportsZone(R) and Mr. Showbiz(R), and have filed
applications to register a number of other trademarks and service marks and
will continue to evaluate the registration of additional service marks and
trademarks, as appropriate. There can be no assurance that Starwave's means of
protecting and maintaining its proprietary rights, including the goodwill
associated with its trademarks, trade names and service marks, will be
adequate, and any failure to protect and maintain such rights could have a
material adverse effect on Starwave's business, financial condition and
operating results.
EMPLOYEES
As of June 30, 1998, Starwave had a total of 333 employees, including those
employees supporting the Joint Ventures. Of the total, 40 were involved in
Starwave's technology division, 38 were in web operations and MIS, 37 were in
general administration and development and 218 were involved in the Joint
Ventures. None of these employees are represented by a labor union. Neither
Starwave nor the Joint Ventures has experienced any work stoppages and they
consider relations with their employees to be good. Starwave's and the Joint
Ventures' performance is substantially dependent on the continued services of
their senior management teams and on their continuing ability to attract and
retain highly qualified and motivated officers and key employees and to
attract and retain sufficient numbers of technical and production personnel.
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SECURITY OWNERSHIP OF MANAGEMENT AND PRINCIPAL
SHAREHOLDERS OF STARWAVE
The following table sets forth, as of October 9, 1998, certain information
with respect to the beneficial ownership of shares of Starwave common stock by
(i) each Starwave director, (ii) Starwave's Chief Executive Officer and four
other most highly compensated executive officers of Starwave during the last
completed fiscal year whose total annual salary and bonus exceeded $100,000
(the "Starwave Named Executive Officers"), (iii) all directors and executive
officers of Starwave as a group, and (iv) each person (or group of affiliated
persons) known to Starwave to be the beneficial owner or 5% of more of
Starwave's outstanding shares. Except as otherwise noted, Starwave believes
that the beneficial owners of the shares of Starwave common stock listed
below, based on information furnished by them, have sole voting and investment
power with respect to such shares.
<TABLE>
<CAPTION>
SHARES OF
SHARES OF STARWAVE INFOSEEK DELAWARE
COMMON STOCK COMMON STOCK
BENEFICIALLY OWNED BENEFICIALLY OWNED
PRIOR TO MERGERS(2) AFTER MERGERS(3)(4)
-------------------------- --------------------------
BENEFICIAL OWNER(1) NUMBER PERCENT CLASS NUMBER PERCENT
------------------- ------------ --------------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Disney(5).............. 88,550,088(6) 90.8% A/B 25,665,023(7) 43.1%
Michael B. Slade....... 2,172,917 2.2% A 564,959 **
Chairman of the Board
and Chief Executive
Officer(8)
Thomas L. Phillips,
Jr.(9) ............... 918,600 ** A 238,836 **
Patrick J. Naughton.... 1,569,417 1.6% A 408,049 **
President(8)
Curt D. Blake ......... 844,793 ** A 219,646 **
Chief Operating
Officer(8)
David Chamberlain ..... 136,500 ** A 35,490 **
Vice President,
Technical
Operations(8)
Richard Glover,
Director(10).......... -- -- -- -- --
Kevin Mayer,
Director(10).......... -- -- -- -- --
Thomas Staggs,
Director(10).......... -- -- -- -- --
Jake Winebaum,
Director(10).......... -- -- -- -- --
All directors and
executive officers as
a group
(9 persons)(8)........ 5,642,227 5.6% A 1,466,979 2.5%
</TABLE>
- --------
** Less than 1%
(1) The address for each of Messrs. Slade, Phillips, Naughton, Blake and
Chamberlain is c/o Starwave Corporation, 13810 S.E. Eastgate Way, Suite
400, Bellevue, Washington 98005, and for each of Messrs. Glover, Mayer,
Staggs and Winebaum is c/o The Walt Disney Company, 500 South Buena Vista
Street, Burbank, California 91521.
(2) Percentage ownership calculations are based on 97,535,287 shares of
Starwave common stock outstanding as of October 9, 1998. Beneficial
ownership is determined in accordance with the rules of the SEC and
includes voting and investment power with respect to shares. Shares of
Starwave common stock subject to options or warrants currently
exercisable or exercisable within 60 days of October 9, 1998 are deemed
outstanding for computing the percentage ownership of the person holding
such options or warrants, but are not deemed outstanding for computing
the percentage of any other person.
(3) Estimates based on an Exchange Ratio of 0.26, which is subject to change
at the Effective Time based on the number of Starwave common shares and
options outstanding. Percentage ownership calculations are based on an
estimated 59,510,000 shares of Infoseek common stock outstanding
following the Mergers, which is subject to adjustment based on changes in
the Exchange Ratio (if any) and any additional shares of Infoseek common
stock that may be issued prior to the Effective Time in transactions (if
any) separate from those described herein.
(4) Does not include up to approximately 700,000 shares of Infoseek common
stock which may be issued in connection with the acquisition of Quando.
145
<PAGE>
(5) Includes both The Walt Disney Company and its wholly owned subsidiary,
DEI. For federal securities law purposes, The Walt Disney Company is
deemed to have investment and voting power over shares of Starwave and
Infoseek common stock held by itself as well as by its subsidiary, DEI.
(6) Consists of 48,680,740 shares of Starwave Class A Common Stock
(representing 50.0% of all outstanding Starwave shares) and 39,869,348
shares of Starwave Class B Common Stock (representing 40.8% of all
Starwave outstanding shares), all of which are owned by DEI. See Note (5)
above.
(7) Consists of 23,023,023 shares of Infoseek common stock acquired by DEI
pursuant to the Starwave Merger and 2,642,000 shares of Infoseek common
stock acquired by The Walt Disney Company pursuant to the Securities
Purchase Agreement. See Note (5) above.
(8) Includes shares which are issuable pursuant to stock options which may be
exercised within 60 days of October 9, 1998.
(9) Mr. Phillips was President of the ESPN Joint Venture until September 17,
1998, on which date his employment with the ESPN Joint Venture
terminated.
(10) Based on his employment as an officer of Disney, such director may be
deemed the owner of the shares held by Disney as indicated in the chart
above. However, each such director disclaims beneficial ownership of
Disney's shares.
146
<PAGE>
MANAGEMENT OF STARWAVE
EXECUTIVE OFFICERS OF STARWAVE
Set forth below is certain information with respect to Starwave's executive
officers.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- -------------------------------------------
<S> <C> <C>
Michael B. Slade................. 41 Chairman and Chief Executive Officer of
Starwave
Patrick J. Naughton.............. 33 President and Chief Technology Officer of
Starwave
Curt D. Blake.................... 40 Chief Operating Officer of Starwave
David Chamberlain................ 33 Vice President, Technical Operations of
Starwave
</TABLE>
Michael B. Slade. Mr. Slade joined Starwave in February 1993 as President,
Chief Executive Officer, and director. In April 1997, he was made Chairman and
CEO. From October 1992 to February 1993, he served as Vice President of
Special Projects for Asymetrix Corporation, a company wholly owned by Paul
Allen. Mr. Slade also serves on the Board of Directors of CKS Group.
Patrick J. Naughton. Mr. Naughton joined Starwave in October 1994 as its
Vice President, Technology, and served as Starwave's Senior Vice President,
Technology from July 1996 to April 1997. Since April 1997, he has served as
its President and Chief Technology Officer. In June 1988, he joined Sun
Microsystems, where he started a research project in the Sun Microsystems
Laboratories in December 1990 which conceived the Java programming language.
From January 1993 to October 1994, he served as Chief Technologist of First
Person, Inc., a Sun Microsystems subsidiary formed to commercialize Java
technologies.
Curt D. Blake. Mr. Blake has served as Chief Operating Officer of Starwave
since April 1997. From July 1996 until that time, he served as Senior Vice
President, Business, Legal and Administration. He has been Corporate Secretary
since November 1994. From September 1993, when he joined Starwave, to July
1996, he served as Vice President, Business and Legal Affairs and Corporate
Secretary. From June 1992 to September 1993, Mr. Blake served as Director of
Acquisitions, Business and Legal Affairs for Continuum Productions Corporation
(now Corbis), a multimedia acquisition and production company.
David Chamberlain. Mr. Chamberlain joined Starwave in March 1995 as Director
of Management Information Systems and, since April 1997, has served as Vice
President, Technical Operations. From March 1992 until March 1995, Mr.
Chamberlain was MIS Manager for Continuum Productions Corporation (now
Corbis), a multimedia acquisition and production company.
147
<PAGE>
STARWAVE EXECUTIVE COMPENSATION
STARWAVE COMPENSATION SUMMARY
The following table sets forth certain information concerning compensation
paid by Starwave to the Starwave Named Executive Officers during the fiscal
year ended September 28, 1997.
SUMMARY COMPENSATION TABLE
(FISCAL YEAR ENDED SEPTEMBER 28, 1997)
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION SECURITIES ALL OTHER
-------------------- UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION SALARY ($) BONUS ($) OPTIONS(1) ($)
--------------------------- ---------- --------- ------------ ------------
<S> <C> <C> <C> <C>
Michael B. Slade.............. $251,480 $ -- 3,300,000(2) $ --
Chairman & Chief Executive
Officer
Patrick J. Naughton........... 205,006 -- 2,620,000 --
President
Curt D. Blake................. 190,006 -- 1,300,000 --
Chief Operating Officer
Thomas L. Phillips, Jr. (3) .. 227,506 50,000 1,800,000(2) 101,454(4)
David Chamberlain............. 124,484 -- 240,000 --
Vice President, Technical
Operations
</TABLE>
- --------
(1) The securities underlying the stock options consist of shares of Class A
Common Stock of Starwave.
(2) During the fiscal year ended September 28, 1997, Paul Allen, Starwave's
founder, granted to Mr. Slade and Mr. Phillips options to acquire
1,000,000 shares and 300,000 shares of Starwave common stock,
respectively, directly from Mr. Allen. Since the issuance of such options
and prior to any exercise thereof by either such executive, Mr. Allen has
sold to Disney all shares of Starwave common stock owned by him and no
longer holds any shares of Starwave common stock. Such options have not
been assumed by Disney, Starwave or Infoseek.
(3) Mr. Phillips was President of the ESPN Joint Venture until September 17,
1998, on which date his employment with the ESPN Joint Venture terminated.
(4) Represents moving assistance paid on a one-time basis pursuant to Mr.
Phillips' relocation from Seattle, Washington to New York City, New York.
148
<PAGE>
STARWAVE OPTION GRANTS IN YEAR ENDED SEPTEMBER 28, 1997
The following table sets forth stock option grants made during the fiscal
year ended September 28, 1997 to the Starwave Named Executive Officers.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------------------------------------------
POTENTIAL REALIZABLE
% OF TOTAL VALUE AT ASSUMED ANNUAL
NUMBER OF OPTIONS RATES OF STOCK PRICE
SECURITIES GRANTED TO APPRECIATION FOR
UNDERLYING EMPLOYEES EXERCISE OPTION TERM(3)
OPTIONS IN FISCAL PRICE PER EXPIRATION ------------------------
NAME GRANTED(#) YEAR(1) SHARE($)(2) DATE 5%($) 10%($)
---- ---------- ---------- ----------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Michael B. Slade........ 1,000,000(4)(5) 20.8% $2.2675 3/28/2007 $ 1,853,824 $ 4,697,957
Patrick J. Naughton..... 1,000,000(4) 20.8% 2.2675 3/28/2007 1,426,019 3,613,811
Curt D. Blake........... 400,000(4) 8.3% 2.2675 3/28/2007 570,407 1,445,524
Thomas L. Phillips,
Jr..................... 900,000(4)(5)(6) 18.7% 2.2675 3/28/2007 1,283,417 3,252,430
David Chamberlain....... 120,000(7) 2.5% 2.2675 4/1/2007 171,122 433,657
</TABLE>
- --------
(1) Based on an aggregate of 4,819,600 options granted during the fiscal year
ended September 28, 1997 to Starwave employees (including the Starwave
Named Executive Officers) and employees of the Joint Ventures pursuant to
the Starwave Revised 1992 Combined Incentive and Nonqualified Stock Option
Plan, Amended and Restated as of March 7, 1995, and the Starwave 1997
Nonqualified Stock Option Plan.
(2) The exercise price per share of each option was equal to the fair market
value of Starwave common stock on the date of the grant as determined by
the Starwave Board of Directors based on recent sales of Starwave common
stock in arms' length transactions as well as the status of Starwave's
business, financial condition, results of operations and prospects.
(3) Represents amounts that may be realized upon exercise of the options
immediately prior to their expiration assuming the specified compounded
rates of appreciation on the base price (5% and 10%) of the Starwave
common stock over the option terms. The 5% and 10% amounts are calculated
based on rules required by the Commission and do not reflect Starwave's
estimate of future stock price growth.
(4) The options became exercisable as to 2.083% of the shares on April 28,
1997, and continue to vest as to an additional 2.083% with each month of
continuous employment thereafter.
(5) Does not include options granted by Paul Allen, Starwave's founder, to
Messrs. Slade and Phillips to acquire 1,000,000 shares and 300,000 shares
of Starwave common stock, respectively, directly from Mr. Allen. Since the
issuance of such options and prior to any exercise thereof by either such
executive, Mr. Allen has sold to Disney all shares of Starwave common
stock owned by him and no longer holds any shares of Starwave common
stock. Such options have not been assumed by Disney, Starwave or Infoseek.
(6) Mr. Phillips was President of the ESPN Joint Venture until September 17,
1998, on which date his employment agreement with the ESPN Joint Venture
terminated.
(7) The options became exercisable as to 25% of the shares on April 1, 1998
and continue to vest as to an additional 2.083% with each month of
continuous employment thereafter.
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<PAGE>
STARWAVE AGGREGATE OPTION EXERCISES AND VALUES AT SEPTEMBER 28, 1997
The following table sets forth information with respect to options exercised
during the fiscal year ended September 28, 1997 and the number and value of
securities underlying unexercised options held by the Starwave Named Executive
Officers at September 28, 1997.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF SECURITIES SUBJECT IN-THE-
SHARES TO UNEXERCISED OPTIONS AT MONEY OPTIONS AT
ACQUIRED DOLLAR FISCAL YEAR END (#) FISCAL YEAR-END ($)(1)
ON VALUE ------------------------------- -------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- -------- ---------- ------------- --------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Michael B. Slade........ 504,750 $1,128,915 124,998 1,006,250 $ 0 $ 286,125
Patrick J. Naughton..... 256,480 580,927 736,250 1,483,750 1,335,713 1,340,888
Curt D. Blake........... 63,140 27,466 356,250 481,250 697,313 286,125
Thomas L. Phillips,
Jr..................... 0 0 456,930 918,750 765,790 286,125
David Chamberlain....... 15,000 6,525 24,168 177,500 49,303 118,275
</TABLE>
- --------
(1) The value of in-the-money options is calculated as the fair market value
of the underlying Starwave common stock, minus the per share exercise
price of the stock options, multiplied by the number of shares subject to
the options, in accordance with applicable SEC rules. The fair market
value of the underlying securities at the fiscal year-end was estimated to
be approximately $2.27 per share, as determined by Starwave's Board of
Directors.
STARWAVE EMPLOYMENT AGREEMENTS
Michael B. Slade, Patrick J. Naughton, Curt D. Blake and David Chamberlain,
each a Starwave Named Executive Officer, are parties to the employment
agreements with Starwave summarized below. In connection with the Mergers,
Starwave is currently in the process of negotiating with these executive
officers regarding severance or retention arrangements in light of their
potential roles in the combined companies. Although Starwave is currently
unable to predict the final form of these arrangements, Starwave currently
anticipates that Messrs. Slade and Blake will terminate their employment with
Starwave concurrently with the consummation of the Mergers or shortly
thereafter in accordance with severance arrangements to be entered into with
each such executive, and that Messrs. Naughton and Chamberlain will continue
their employment with the combined companies in accordance with new or amended
employment agreements. However, there can be no assurance in this regard.
Starwave does not anticipate that any such arrangements or any failure to
retain such executive officers will have a material adverse impact on the
business, financial condition, operating results or prospects of Starwave. See
"The Mergers and Related Transactions--Additions to Infoseek's Board of
Directors; Interests of Certain Persons in the Mergers." The numbers of shares
of Starwave common stock and the price per share of Starwave common stock set
forth in the summaries below reflect the Starwave Stock Split.
Pursuant to the terms of an employment agreement dated March 28, 1997,
Starwave engaged Mr. Slade as its Chairman and Chief Executive Officer with an
annual base salary of $290,000, $320,000 and $360,000 for each of the three
successive 12-month periods in the employment period, which began April 1,
1997 and expires on March 31, 2000. In addition, the employment agreement
grants Mr. Slade (a) a nonqualified option to acquire 1,000,000 shares of
Starwave Class A Common Stock, (b) on or before August 1, 1997, the right to
sell up to 500,000 shares of Starwave Class A Common Stock to Starwave at a
cash price of $2.05 minus the exercise price of any vested options which are
purchased, (c) the right to sell up to 25% of his eligible shares of Starwave
Class A Common Stock within three months following December 31, 1998 and
December 31, 1999, if Starwave has met certain performance targets, and (d)
following the sixth anniversary of the employment agreement, if not previously
purchased by Disney pursuant to Disney's right to purchase such shares under
certain circumstances, the right to require Starwave to purchase all of his
eligible shares of Starwave Class A Common
150
<PAGE>
Stock at 80% of the fair market value thereof. The employment agreement also
provides for employee benefits, vacation days and expense reimbursement
customary for executive officers of Starwave.
Pursuant to the terms of an employment agreement dated March 28, 1997,
Starwave engaged Mr. Naughton as its President and Chief Technology Officer
with an annual base salary of $230,000, $260,000 and $290,000 and $330,000 for
each of the four successive 12-month periods in the employment period, which
began April 1, 1997 and expires on March 31, 2001. In addition, the employment
agreement grants Mr. Naughton (a) a nonqualified option to acquire 1,000,000
shares of Starwave Class A Common Stock, (b) on or before August 1, 1997, the
right to sell up to 318,500 of his eligible shares of Starwave Class A Common
Stock to Starwave at a cash price of $2.05, (c) the right to sell up to 10% of
his eligible shares of Starwave Class A Common Stock within three months
following December 31, 1998 and December 31, 1999, if Starwave has met certain
performance targets, and (d) following the sixth anniversary of the employment
agreement, if not previously purchased by Disney pursuant to Disney's right to
purchase such shares under certain circumstances, the right to require
Starwave to purchase all of his eligible shares of Starwave Class A Common
Stock at 80% of the Fair Market Value thereof. The employment agreement also
provides for employee benefits, vacation days and expense reimbursement
customary for executive officers of Starwave.
Pursuant to the terms of an employment agreement dated March 28, 1997,
Starwave engaged Mr. Blake as its Executive Vice President with an annual base
salary of $200,000, $220,000 and $240,000 for each of the three successive 12-
month periods in the employment period, which began April 1, 1997 and expires
on March 31, 2000. In addition, the employment agreement granted Mr. Blake (a)
a nonqualified option to acquire 400,000 shares of Starwave Class A Common
Stock, (b) on or before August 1, 1997, the right to sell up to 178,124 of his
eligible shares of Starwave Class A Common Stock to Starwave at a cash price
of $2.05, (c) the right to sell up to 10% of his eligible shares of Starwave
Class A Common Stock within three months following December 31, 1998 and
December 31, 1999, if Starwave has met certain performance targets, and (d)
following the sixth anniversary of the employment agreement, if not previously
purchased by Disney pursuant to Disney's right to purchase such shares under
certain circumstances, the right to require Starwave to purchase all eligible
shares of Starwave Class A Common Stock held by him at 80% of the Fair Market
Value thereof. The employment agreement also provides for employee benefits,
vacation days and expense reimbursement customary for executive officers of
Starwave.
Pursuant to the terms of an employment agreement dated April 11, 1997,
Starwave engaged Mr. Chamberlain as Vice President, Technical Operations with
an annual base salary of $125,000 and $145,000 for the two successive 12-month
periods in the employment period, which began April 1, 1997 and expires on
March 31, 1999. In addition, the employment agreement granted Mr. Chamberlain
(a) a nonqualified option to acquire 480,000 shares of Starwave Class A Common
Stock and (b) the right to sell up to 20% of his eligible shares of Starwave
Class A Common Stock to Starwave at a cash price of $2.05. The employment
agreement also provides for employee benefits, vacation days and expense
reimbursement customary for executive officers of Starwave.
151
<PAGE>
CERTAIN TRANSACTIONS OF STARWAVE
Following is a summary of certain business transactions and relationships
between Starwave and its majority shareholder, Disney. The following summary
does not purport to be complete and is subject to, and qualified by, express
reference to the provisions of the agreements (as applicable) governing the
respective transaction or relationship.
STOCK PURCHASE AGREEMENT
Pursuant to the Starwave Stock Purchase Agreement, Starwave issued and sold
to DEI 9,967,337 shares of Starwave common stock for aggregate consideration
of $82 million (39,869,348 shares after adjustment for the Starwave Stock
Split). Starwave used approximately $50 million of these proceeds to repay the
then-outstanding indebtedness owed by it to Paul Allen, and the remaining
approximately $45.7 million of indebtedness owed by Starwave to Mr. Allen was
converted into 5,155,289 shares of Starwave common stock (20,621,156 shares
when adjusted for the Starwave Stock Split). Pursuant to the Starwave Stock
Purchase Agreement, Starwave has certain indemnification obligations to
Disney, which Disney has agreed to relinquish in connection with the Mergers.
SHAREHOLDERS AGREEMENT
In connection with the Stock Purchase Agreement, Starwave, Mr. Allen and DEI
entered into the Starwave Shareholders Agreement, pertaining to the ownership,
voting and transfer of shares of Starwave common stock. On May 1, 1998, DEI
exercised its right under the Starwave Shareholders Agreement to call all of
the shares of Starwave common stock owned by Mr. Allen, which resulted in the
sale by Mr. Allen to DEI of 48,680,740 shares of Starwave common stock in
exchange for 1,290,518 shares of Disney common stock. Following such sale, Mr.
Allen ceased to own any shares of Starwave capital stock, thereby rendering
ineffective certain provisions of the Starwave Shareholders Agreement granting
various rights to Mr. Allen, including put rights, registration rights, board
representation rights, veto rights over certain corporate actions, preemptive
rights and tag-along sale rights. Pursuant to the Starwave Shareholders
Agreement, Starwave employee shareholders continue to be entitled to certain
tag-along sale rights and, in connection with Disney's purchase of Mr. Allen's
shares, the right to sell their shares to Disney at the same price paid by
Disney to Mr. Allen.
THE JOINT VENTURES
In connection with the transactions contemplated by the Starwave Stock
Purchase Agreement, the Joint Ventures were formed. The operations of the ESPN
Joint Venture currently include ESPN SportsZone, NBA.com, NFL.com, NASCAR
Online and Outside Online, and the operations of the ABCNews Joint Venture
currently include ABCNews.com, Mr. Showbiz, Wall of Sound, CelebSite and
MoneyScope.
The agreements relating to the Joint Ventures, as amended in connection with
the Mergers, have terms of ten years following the Effective Time of the
Mergers and are mutually exclusive with regard to U.S. based online sports and
general news services, respectively. Required funding under the Joint Ventures
are split 60/40 between the Starwave and Disney entities that are parties
thereto in negative cash flow years and 50/50 in years when the respective
Joint Ventures achieve positive cash flow. Under the Joint Ventures, Starwave
provides a variety of services, including hosting, technology development,
usage tracking, infrastructure, production support, software tools and
engines; ESPN provides access to all ESPN television and radio creative and
editorial content, advertising and promotion on ESPN cable television and
radio networks and access to the "ESPN" brand, properties and personalities;
and Disney provides access to all ABC News creative and editorial content,
advertising and promotion on ABC News programs, access to the "ABC News"
brand, properties and personalities and ABC News Broadcast Newsroom
infrastructure.
ESPN and ABC have editorial, creative and overall marketing control of the
services. Upon termination of the Joint Ventures, ESPN and ABC will own all
URLs containing "ESPN", "ESPNET" and "ABC" as well as all editorial and
creative assets, and Starwave will own all other assets. See "Starwave
Business--ESPN and ABCNews Joint Ventures."
152
<PAGE>
The agreements relating to the Joint Ventures, as amended in connection with
the transactions contemplated by the Reorganization Agreement, have been filed
as exhibits to the Registration Statement of Infoseek Delaware of which this
Joint Proxy Statement/Prospectus is a part, and the full text of such
agreements are hereby incorporated herein by reference. See "Related
Agreements--Licensing and Commercial Agreements."
HOSTING AND SOFTWARE LICENSING AGREEMENTS
Pursuant to a Hosting Agreement dated as of February 5, 1997 between
Starwave and Disney Online, a subsidiary of Disney ("DOL"), as amended,
Starwave provides Internet hosting services for "Disney's Daily Blast," an
online service of DOL, in exchange for monthly payments from DOL to Starwave
of $125,000. The Hosting Agreement expires April 8, 1999. Pursuant to a
Software License Agreement dated as of April 28, 1997 between Starwave and
DOL, as amended, Starwave licenses certain Internet site development and
production software to DOL in exchange for cash license fees in amounts
specified in the agreement for each type of licensed technology. The Software
License Agreement is terminable by Disney at any time upon 30 days' notice.
BOARD REPRESENTATION
As of the date hereof, four members of the Starwave Board of Directors,
consisting of Richard Glover, Kevin Mayer, Thomas Staggs and Jake Winebaum,
are employees of Disney or its affiliates. None of these individuals receives
any compensation for his service as a director on the Starwave Board.
Following the Mergers, Mr. Winebaum will become a director of Infoseek
Delaware and Mr. Glover, Mr. Mayer, Mr. Staggs and Mr. Winebaum will no longer
be members of the Board of Directors of Starwave. See "The Mergers and Related
Transactions--Additions to Infoseek's Board of Directors; Interests of Certain
Persons in the Mergers."
TECHNOLOGY LICENSE AGREEMENT
Pursuant to a Technology License Agreement dated as of April 23, 1997
between Paul Allen and Starwave (as amended on May 1, 1998, the "Technology
License Agreement"), Mr. Allen has a nonexclusive royalty-free U.S. license to
use (i) Starwave technology existing as of the date of the Technology License
Agreement, (ii) enhancements and modifications thereto created at any time
prior to the date Mr. Allen ceased to own any shares of Starwave common stock
(May 1, 1998), and (iii) a four-year non-exclusive U.S. license for $750,000
per year to additional enhancements and modifications thereto created during
the four-year period of the license, in each case in other ventures controlled
by Mr. Allen that are, in Disney's reasonable judgment, not competitive with
Starwave or Disney in the areas of general online services, search and
directory services, news, personal finance, sports, children's entertainment
or "edutainment" activities or women or family-related entertainment and
informational services and activities.
OTHER
Michael B. Slade, Starwave's Chief Executive Officer, is a member of the
Board of CKS, Inc., a new media marketing firm ("CKS"). Starwave has engaged
CKS to perform marketing and strategic analysis with regard to the planned New
Portal Service and to create and implement a marketing and advertising
campaign to support its launch. Although Starwave and CKS are currently
negotiating a definitive written agreement setting forth the terms of this
engagement, it is expected that CKS will receive approximately $1 million for
such services and that Starwave will be the owner of all work product produced
by CKS in connection with such services.
153
<PAGE>
REASONS FOR INCORPORATION OF THE HOLDING COMPANY IN DELAWARE
For the reasons set forth below, the Board of Directors of Infoseek believes
that it is in the best interests of Infoseek and its shareholders to change
the state of incorporation of the publicly traded Infoseek entity from
California to Delaware (the "Reincorporation") which will be the result of the
Infoseek Merger contemplated by the Reorganization Agreement. The
Reincorporation will be effected by merging Infoseek Merger Sub into Infoseek
California pursuant to the Infoseek Merger and the terms and conditions of the
Agreement and Plan of Merger related to the Infoseek Merger are attached to
this Joint Proxy Statement/Prospectus as Annex A-2 (the "Infoseek Merger
Agreement"). Upon completion of the Infoseek Merger, Infoseek California will
be a subsidiary of Infoseek Delaware. Infoseek Delaware's initial principal
business will be holding the capital stock of Infoseek California following
the Infoseek Merger and of Starwave following the Starwave Merger. The common
stock of Infoseek California is listed for trading on Nasdaq, and after the
Infoseek Merger, Infoseek Delaware's common stock will be traded on Nasdaq
without interruption, under the same symbol ("SEEK") as the shares of Infoseek
California common stock are currently traded.
As discussed below, the principal reasons for the proposed incorporation of
the publicly traded holding company are the greater flexibility of Delaware
corporate law, the substantial body of case law interpreting that law, and the
increased ability of Infoseek to attract and retain qualified directors.
Infoseek believes that its shareholders will benefit from the well established
principles of corporate governance that Delaware law affords. The proposed
Infoseek Delaware Amended and Restated Certificate of Incorporation ("Infoseek
Delaware's Certificate") and Infoseek Delaware's Bylaws ("Infoseek Delaware's
Bylaws") are substantially similar to those currently in effect for Infoseek
California, with the exception that differences between California and
Delaware law as they relate to cumulative voting and restrictions on hostile
takeovers, as well as certain other protective voting provisions included in
Infoseek Delaware's Certificate as required by the Governance Agreement. See
"Related Agreements--Equity and Governance Agreements" and "Comparison of
Capital Stock--Comparison of Capital Stock of Infoseek California and Infoseek
Delaware." The Reincorporation is not being proposed in order to prevent an
unsolicited takeover attempt and the Board of Directors of Infoseek is not
aware of any present attempt to acquire an interest in Infoseek, obtain
representation on the Board of Directors of Infoseek or take any significant
action that would affect the governance of Infoseek other than as contemplated
in the Reorganization Agreement and the Governance Agreement.
The Reincorporation is not the subject of a separate proxy solicitation and
Infoseek shareholders voting for approval and adoption of the Reorganization
Agreement will be deemed to have voted for the Reincorporation.
The discussion set forth below is qualified by reference to the
Reorganization Agreement, the Infoseek Merger Agreement, Infoseek Delaware's
Certificate and Infoseek Delaware's Bylaws, copies of which are attached to
this Joint Proxy Statement/Prospectus as Annex A-1, Annex A-2, Annex D-1 and
Annex D-2, respectively.
PRINCIPAL REASONS FOR REINCORPORATION
As Infoseek plans for the future (including the results of the Mergers and
transactions contemplated by the Related Agreements), the Infoseek Board of
Directors and Infoseek management believe that it is essential to be able to
draw upon well established principles of corporate governance in making legal
and business decisions. The prominence and predictability of Delaware
corporate law provide a reliable foundation on which Infoseek's governance
decisions can be based and Infoseek believes that shareholders will benefit
from the responsiveness of Delaware corporate law to their needs and to those
of Infoseek.
Prominence, Predictability and Flexibility of Delaware Law. For many years
Delaware has followed a policy of encouraging incorporation in that state and,
in furtherance of that policy, has been a leader in adopting, construing and
implementing comprehensive, flexible corporate laws responsive to the legal
and business needs
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of corporations organized under its laws. Many corporations have chosen
Delaware initially as a state of incorporation or have subsequently changed
corporate domicile to Delaware. Because of Delaware's prominence as the state
of incorporation for many major corporations, both the legislature and courts
in Delaware have demonstrated an ability and a willingness to act quickly and
effectively to meet changing business needs. The Delaware courts have
developed considerable expertise in dealing with corporate issues and a
substantial body of case law has developed construing Delaware law and
establishing public policies with respect to corporate legal affairs.
Increased Ability to Attract and Retain Qualified Directors. Both California
and Delaware law permit a corporation to include a provision in its
certificate of incorporation that reduces or limits the monetary liability of
directors for breaches of fiduciary duty in certain circumstances. The
increasing frequency of claims and litigation directed against directors and
officers has greatly expanded the risks facing directors and officers of
corporations in exercising their respective duties. The amount of time and
money required to respond to such claims and to defend such litigation can be
substantial. It is Infoseek's desire to reduce these risks to its directors
and officers and to limit situations in which monetary damages can be
recovered against directors so that Infoseek may continue to attract and
retain qualified directors who otherwise might be unwilling to serve because
of the risks involved. Infoseek believes that, in general, Delaware law
provides greater protection to directors than California law and that Delaware
case law regarding a corporation's ability to limit director liability is more
developed and provides more guidance than California law.
Well Established Principles of Corporate Governance. There is substantial
judicial precedent in the Delaware courts as to the legal principles
applicable to measures that may be taken by a corporation and as to the
conduct of the board of directors such as under the business judgment rule and
other standards. Infoseek believes that its shareholders will benefit from the
well established principles of corporate governance that Delaware law affords.
NO CHANGE IN THE NAME, BUSINESS, MANAGEMENT, EMPLOYEE BENEFIT PLANS OR
LOCATION OF PRINCIPAL FACILITIES OF INFOSEEK
The Infoseek Merger will effect only a creation of a holding company and a
change in the legal domicile of the publicly traded Infoseek entity and
certain other changes of a legal nature, certain of which are described in
this Joint Proxy Statement/Prospectus. The Infoseek Merger alone will NOT
result in any change in the name, business, management, assets or liabilities
(except to the extent of legal and other costs of effecting the
reincorporation and the Infoseek Merger) or location of the principal
facilities of Infoseek. The current directors of Infoseek California are the
same as the directors of Infoseek Delaware except that three additional
directors representing Disney will be added to the Infoseek Delaware Board of
Directors upon consummation of the Mergers. See "Infoseek Management." All
employee benefit, stock option and employee stock purchase plans of Infoseek
California will be assumed and continued by Infoseek Delaware, and each option
or right issued pursuant to such plans will automatically be converted into an
option or right to purchase the same number of shares of Infoseek Delaware
common stock, at the same price per share, upon the same terms, and subject to
the same conditions. Shareholders should note that approval of the Infoseek
Merger will also constitute approval of the assumption of these plans by
Infoseek Delaware. Other employee benefit arrangements of Infoseek California
will also be continued by Infoseek Delaware upon the terms and subject to the
conditions currently in effect. As noted above, after the Infoseek Merger, the
shares of Infoseek Delaware common stock will be traded, without interruption,
on the same exchange, Nasdaq, and under the same symbol, "SEEK" as the shares
of common stock of Infoseek California are currently traded.
ANTITAKEOVER IMPLICATIONS
Delaware, like many other states, permits a corporation to adopt a number of
measures designed to reduce a corporation's vulnerability to unsolicited
takeover attempts through amendment of the corporate charter or bylaws or
otherwise. The Reincorporation is not being effected in order to prevent such
a change in control and,
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except as contemplated by the Reorganization Agreement and the Related
Agreements, the Board of Directors is not aware of any present attempt to
acquire control of Infoseek or to obtain representation on the Board of
Directors.
Certain effects of the Reincorporation may be considered to have
antitakeover implications. Section 203 of the Delaware General Corporation
Law, from which Infoseek Delaware does not intend to opt out, restricts
certain "business combinations" with "interested stockholders" for three years
following the date that a person becomes an interested stockholder, unless the
Board of Directors approves the business combination or the acquisition
pursuant to which a party became an "interested stockholder." Infoseek
Delaware has adopted a "poison pill" Preferred Share Purchase Rights Agreement
(the "Rights Plan"). Pursuant to the Rights Plan, each share, effective as of
the closing of the Mergers, of Infoseek Delaware common stock will have
associated with it certain rights to acquire shares of Infoseek Delaware's
Series A Participating Preferred Stock, par value $0.001 (the "Rights"). The
Rights are triggered and become exercisable upon the occurrence of either (i)
the date of a public announcement of the acquisition of 15% or more beneficial
ownership of Infoseek Delaware's common stock by a person or group (an
"Acquiring Person"), or (ii) ten business days after a public announcement of
a tender or exchange offer for 15% or more beneficial ownership of Infoseek
Delaware's common stock by an Acquiring Person. If the Rights are triggered
because an Acquiring Person beneficially owns 15% or more of Infoseek
Delaware's common stock, each Right will provide its holder, other than a
holder who is an Acquiring Person, the right to purchase that number of shares
of Infoseek Delaware common stock having a market value at the time equal to
twice the exercise price, upon payment of the exercise price of $150 per
Right. In addition, in the event of certain business combinations, the Rights
permit the purchase of shares of common stock of an acquiror at a 50% discount
from the market price at the time. The Board of Directors has the right to
redeem the Rights at a price of $0.001 per Right at any time prior to the
close of business on the tenth day after the first public announcement that a
person has become an Acquiring Person (or such later time as may be determined
by the Board of Directors). If the Rights are triggered under certain
circumstances, the Board of Directors may elect to exchange each Right (other
than Rights held by an Acquiring Person) for one share of Infoseek Delaware
common stock. The Rights expire on October 2, 2008. These provisions may have
the effect of deterring hostile takeovers or delaying changes in control or
management of Infoseek Delaware. For purposes of the Rights Plan, Disney shall
not be deemed to be an Acquiring Person, so long as Disney has not breached
the standstill provisions of the Governance Agreement. Other measures
permitted under Delaware law that Infoseek is not implementing as part of the
Reincorporation include the establishment of a staggered board of directors
and the elimination of the right to remove a director other than for cause. It
should also be noted that elimination of cumulative voting and the
establishment of a classified board of directors also can be undertaken under
California law in certain circumstances. See "Comparison of Capital Stock--
Comparison of Capital Stock of Infoseek California and Infoseek Delaware--
Shareholder Approval of Certain Business Combinations."
The Infoseek Board of Directors believes that unsolicited takeover attempts
may be unfair or disadvantageous to Infoseek and its shareholders because,
among other reasons: (i) a non-negotiated takeover bid may be timed to take
advantage of temporarily depressed stock prices; (ii) a non-negotiated
takeover bid may be designed to foreclose or minimize the possibility of more
favorable competing bids or alternative transactions; (iii) a non-negotiated
takeover bid may involve the acquisition of only a controlling interest in
Infoseek's stock, without affording all shareholders the opportunity to
receive the same economic benefits; and (iv) certain of Infoseek's material
contractual arrangements provide that they may not be assigned pursuant to a
transaction which results in a "change of control" of Infoseek without the
prior written consent of the licensor or other contracting party.
By contrast, in a transaction in which an acquiror must negotiate with an
independent board of directors, the board can and should take account of the
underlying and long-term values of the company's business, technology and
other assets, the possibilities for alternative transactions on more favorable
terms, possible advantages from a tax-free reorganization, anticipated
favorable developments in the company's business not yet reflected in the
stock price and equality of treatment of all shareholders.
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Despite the belief of the Infoseek Board of Directors as to the benefits to
shareholders of the Reincorporation, it may be disadvantageous to the extent
that it has the effect of discouraging a future takeover attempt which is not
approved by the Infoseek Board of Directors, but which a majority of the
shareholders besides Disney may deem to be in their best interests or in which
shareholders may receive a substantial premium for their shares over the then
current market value or over their cost basis in such shares. In addition, to
the extent that such provisions enable the Infoseek Board of Directors to
resist a takeover or a change in control of Infoseek, such provisions could
make it more difficult to change the existing Infoseek Board of Directors and
management.
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COMPARISON OF CAPITAL STOCK
DESCRIPTION OF INFOSEEK DELAWARE CAPITAL STOCK
The authorized capital stock of Infoseek Delaware will consist, prior to the
closing of the Mergers, of 500,000,000 shares of common stock, $0.001 par
value per share, and 25,000,000 shares of Preferred Stock, $0.001 par value
per share.
Infoseek Delaware Common Stock
As of October 9, 1998, 100 shares of Infoseek Delaware common stock were
outstanding, all of which were held by Infoseek California. After giving
effect to the transactions contemplated by the Reorganization Agreement
(including the Infoseek Merger), there will be approximately 59,510,000 shares
of Infoseek Delaware common stock outstanding (which is subject to adjustment
based on changes in Starwave's outstanding capital stock and any shares of
Infoseek Common Stock that may be issued in transactions separate from the
Mergers, including up to 700,000 shares in connection with the acquisition of
Quando). See "The Mergers and Related Transactions." The holders of Infoseek
Delaware common stock are entitled to one vote per share on all matters to be
voted upon by the stockholders. Stockholders may not cumulate votes in
connection with the election of directors. The holders of Infoseek Delaware
common stock are entitled to receive ratably such dividends, if any, as may be
declared from time to time by the Board of Directors out of funds legally
available therefor. In the event of a liquidation, dissolution or winding up
of Infoseek Delaware, the holders of Infoseek Delaware common stock are
entitled to share ratably in all assets remaining after payment of liabilities
and payment of liquidation preferences to holders of Preferred Stock, if any.
Infoseek Delaware common stock has no preemptive or conversion rights or other
subscription rights. There are no redemption or sinking fund provisions
applicable to Infoseek Delaware common stock. All outstanding shares of
Infoseek Delaware common stock are fully paid and non-assessable, and the
shares of Infoseek Delaware common stock to be outstanding upon completion of
the Mergers will be fully paid and non-assessable. Effective as of the closing
of the Mergers each share of Infoseek Delaware common stock will have
associated with it certain rights to acquire shares of Infoseek Delaware
capital stock pursuant to a "poison pill" Rights Plan. See "Comparison of
Capital Stock of Infoseek California and Infoseek Delaware--Share Purchase
Rights Plan."
Preferred Stock
Infoseek Delaware has 25,000,000 shares of Preferred Stock authorized, of
which, as of the Record Date, no shares were outstanding. Subject to the terms
of the Governance Agreement, the Infoseek Delaware Board has the authority to
issue these shares of Preferred Stock in one or more series and to fix the
rights, preferences, privileges and restrictions, qualifications and
limitations granted to or imposed upon any unissued and undesignated shares of
Preferred Stock and to fix the number of shares constituting any series and
the designations of such series, without any further vote or action by the
stockholders (subject to applicable stock exchange rules). The Infoseek
Delaware Board, without stockholder approval (subject to applicable stock
exchange rules), can issue Preferred Stock with voting and conversion rights
which could adversely affect the voting power or other rights of the holders
of Infoseek Delaware common stock and the issuance of Preferred Stock may have
the effect of delaying, deferring or preventing a change in control of
Infoseek Delaware. Infoseek Delaware has initially reserved 100,000 shares of
Series A Participating Preferred Stock, par value $0.001 per share, for
potential issuance pursuant to the exercise of Rights under the Rights Plan.
See "--Comparison of Capital Stock of Infoseek California and Infoseek
Delaware--Share Purchase Rights Plan."
Transfer Agent and Registrar
The Transfer Agent and Registrar of Infoseek Delaware common stock is Boston
Equiserve L.P. and its telephone number is (650) 947-3231.
DESCRIPTION OF INFOSEEK CALIFORNIA CAPITAL STOCK
The authorized capital stock of Infoseek California consists of 65,000,000
shares of common stock, no par value, and 5,000,000 shares of Preferred Stock,
no par value.
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Infoseek California Common Stock
As of October 9, 1998, there were approximately 31,508,312 shares of
Infoseek California common stock outstanding. Holders of Infoseek California
common stock are entitled to one vote per share on all matters to be voted
upon by the shareholders. The shareholders of Infoseek California may cumulate
votes in the election of directors. The holders of Infoseek California common
stock are entitled to receive ratably such dividends, if any, as may be
declared from time to time by the Infoseek California Board out of funds
legally available therefor. In the event of a liquidation, dissolution or
winding up of Infoseek California, the holders of Infoseek California common
stock are entitled to share ratably in all assets remaining after payment of
liabilities. Infoseek California common stock has no preemptive or conversion
rights or other subscription rights. There are no redemption or sinking fund
provisions applicable to Infoseek California common stock. All outstanding
shares of Infoseek California common stock are fully paid and non-assessable,
and the shares of Infoseek Delaware common stock to be received by Infoseek
California Shareholders in connection with the Mergers in exchange for the
Infoseek California common stock outstanding immediately prior to completion
of the Mergers will be fully paid and non-assessable.
Preferred Stock
Infoseek California has 5,000,000 shares of Preferred Stock authorized, of
which, as of the record date, no shares were outstanding. Subject to the terms
of the Governance Agreement, the Infoseek California Board has the authority
to issue shares of Preferred Stock in one or more series and to fix the
rights, preferences, privileges and restrictions granted to or imposed upon
any unissued and undesignated shares of Preferred Stock and to fix the number
of shares constituting any series and the designations of such series, without
any further vote or action by the shareholders (subject to applicable stock
exchange rules). Although it presently has no intention to do so, the Infoseek
California Board, without shareholder approval (subject to applicable stock
exchange rules), can issue Preferred Stock with voting and conversion rights
which could adversely affect the voting power or other rights of the holders
of Infoseek California common stock and the issuance of Preferred Stock may
have the effect of delaying, deferring or preventing a change in control of
Infoseek California.
Transfer Agent and Registrar
The Transfer Agent and Registrar of Infoseek California common stock is
Boston Equiserve L.P. and its telephone number is (650) 947-3231.
DESCRIPTION OF STARWAVE CAPITAL STOCK
The authorized capital stock of Starwave consists of 250,000,000 shares of
Class A Common Stock, par value $0.01 per share, and 80,000,000 shares of
Class B Common Stock, par value $0.01 per share.
Starwave Common Stock
As of October 9, 1998, there were approximately 57,665,939 shares of
Starwave Class A Common Stock and 39,869,348 shares of Starwave Class B Common
Stock outstanding. With regard to all matters submitted to a vote of Starwave
shareholders, holders of Starwave Class A and Class B Common Stock vote
together without regard to class, except that holders of Starwave Class A
Common Stock are entitled to one vote per share while the holders of Starwave
Class B Common Stock are entitled to two and one-half votes per share. With
respect to any amendment of Starwave's Amended and Restated Articles of
Incorporation ("Starwave's Articles") that would alter or change any
preferences, limitations or relative rights of either class of Starwave common
stock, a separate class vote is required for the class that is adversely
affected. All shares of Class B Common Stock are currently held by Disney, and
upon transfer to any party other than a Disney affiliate, convert
automatically into shares of Class A Common Stock. The shareholders of
Starwave may not cumulate votes in the election of directors. The holders of
Starwave common stock are entitled to receive ratably such dividends, if any,
as may be declared from time to time by the Starwave Board out of funds
legally available therefor. In the event of a liquidation, dissolution or
winding up of Starwave, the holders of Starwave common stock are entitled to
share ratably in all assets remaining after payment of liabilities. Holders of
Starwave common stock have no
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preemptive or conversion rights or other subscription rights except that a
holder of Class B Common Stock may elect to convert such shares to Class A
Common Stock at any time. There are no redemption or sinking fund provisions
applicable to Starwave common stock. All outstanding shares of Starwave common
stock are fully paid and non-assessable, and the shares of Infoseek Delaware
common stock to be received by Starwave shareholders in connection with the
Mergers in exchange for the Starwave common stock outstanding immediately
prior to completion of the Mergers will be fully paid and non-assessable.
Transfer Agent and Registrar
Starwave currently acts as the Transfer Agent and Registrar of Starwave
common stock.
COMPARISON OF CAPITAL STOCK OF INFOSEEK CALIFORNIA AND INFOSEEK DELAWARE
After consummation of the Mergers, the holders of Infoseek California common
stock will receive Infoseek Delaware common stock under the terms of the
Reorganization Agreement and become shareholders of Infoseek Delaware. As
shareholders of Infoseek California, their rights are presently governed by
California law and by Infoseek California's Amended and Restated Articles of
Incorporation ("Infoseek California's Articles") and Infoseek California's
Bylaws ("Infoseek California's Bylaws"). As shareholders of Infoseek Delaware,
their rights will be governed by Delaware law and by Infoseek Delaware's
Amended and Restated Certificate of Incorporation ("Infoseek Delaware's
Certificate") and Infoseek Delaware's Bylaws ("Infoseek Delaware's Bylaws").
The following discussion summarizes the material differences between the
rights of holders of Infoseek California common stock and the rights of
holders of Infoseek Delaware common stock, and the material differences
between the charters and bylaws of Infoseek California and Infoseek Delaware.
This summary does not purport to be complete and is qualified by reference to
Infoseek California's Articles and Infoseek California's Bylaws, Infoseek
Delaware's Certificate and Infoseek Delaware's Bylaws and the relevant
provisions of California and Delaware law.
Size of the Board of Directors. In accordance with Delaware law, Infoseek
Delaware's Bylaws provide the Infoseek Delaware Board the authority to set the
exact number of directors within the range of from 6 to 11 persons. The number
of directors of Infoseek Delaware is currently fixed at 8. The Infoseek
Delaware Board, acting without shareholder approval, may change such number
within the range authorized in Infoseek Delaware's Bylaws. Under California
law, although changes in the number of directors must in general be approved
by a majority of the outstanding shares, the board of directors may fix the
exact number of directors within a stated range set forth in the articles of
incorporation or bylaws, if that stated range has been approved by the
shareholders. Infoseek California's Bylaws provide the Infoseek California
Board the authority to set the exact number of directors within the range of
from 5 to 9 persons.
Loans to Officers and Employees. Under Delaware law, a corporation may make
loans to, guarantee the obligations of or otherwise assist its officers or
other employees and those of its subsidiaries (including directors who are
also officers or employees) when such action, in the judgment of the
directors, may reasonably be expected to benefit the corporation. Under
California law, any loan or guaranty to or for the benefit of a director or
officer of the corporation or its parent requires approval of the shareholders
unless such loan or guaranty is provided under a plan approved by shareholders
owning a majority of the outstanding shares of the corporation. In addition,
under California law, shareholders of any corporation with 100 or more
shareholders of record may approve a bylaw authorizing the board of directors
alone to approve loans or guaranties to or on behalf of officers (whether or
not such officers are directors) if the board determines that any such loan or
guaranty may reasonably be expected to benefit the corporation. Infoseek
California's Bylaws permit Infoseek California to make loans to, guarantee the
obligations of or otherwise assist its officers or other employees and those
of its subsidiaries (including directors who are also officers or employees).
Voting by Ballot. Under Delaware law, the right to vote by written ballot
may be restricted if so provided in the certificate of incorporation. Infoseek
Delaware's Bylaws provide that the election of directors at a shareholders
meeting need not be by written ballot. Infoseek Delaware's Certificate
provides that elections of
directors need not be by written ballot unless the Infoseek Bylaws so provide.
California law provides that the
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election of directors may proceed in the manner described in a corporation's
bylaws. Infoseek California's Bylaws provide that, upon the demand of any
shareholder made at a meeting before the voting begins, the election of
directors shall be by ballot.
Cumulative Voting. In an election of directors under cumulative voting, each
share of stock normally having one vote is entitled to a number of votes equal
to the number of directors to be elected. A shareholder may then cast all such
votes for a single candidate or may allocate them among as many candidates as
the shareholder chooses. Under Delaware law, cumulative voting in the election
of directors is not available unless specifically provided for in the
certificate of incorporation. In contrast, California law provides that any
shareholder is entitled to cumulate his or her votes in the election of
directors upon proper notice of his or her intention to do so. However, a
"listed" California corporation may eliminate shareholders' cumulative voting
rights. Infoseek Delaware has not provided for cumulative voting in Infoseek
Delaware's Certificate and cumulative voting is therefore not available to
Infoseek Delaware's shareholders. Notwithstanding the fact that Infoseek
California is a listed corporation, Infoseek California has not eliminated the
right of cumulative voting, and cumulative voting is therefore available to
Infoseek California shareholders. A listed corporation is defined under
California law as a corporation with (i) outstanding securities listed on the
NYSE or American Stock Exchange, or (ii) a class of securities designated as a
national market system security on and by the National Association of
Securities Dealers Automatic Quotation System (or any successor) if the
corporation has at least 800 holders of its equity securities.
Classified Board of Directors. A classified board is one on which a certain
number of the directors are elected on a rotating basis each year. This method
of electing directors makes changes in the composition of the board of
directors, and thus a potential change in control of a corporation, a
lengthier and more difficult process. Delaware law permits, but does not
require, a classified board of directors, with staggered terms under which
one-half or one-third of the directors are elected for terms of two or three
years, respectively. Under California law, directors generally must be elected
annually; however, a "listed" corporation is permitted to adopt a classified
board. Neither Infoseek Delaware's Certificate nor Infoseek California's
Articles provides for a classified board.
Power to Call Special Shareholders' Meetings; Advance Notice of Shareholder
Business and Nominees. Under Delaware law, a special meeting of shareholders
may be called by the board of directors or by any other person authorized to
do so in the certificate of incorporation or the bylaws. Under California law,
a special meeting of shareholders may be called by the board of directors, the
chairman of the board, the president, the holders of shares entitled to cast
not less than 10% percent of the votes at such meeting and such additional
persons as are authorized by the articles of incorporation or the bylaws. The
Infoseek Delaware Bylaws authorize the Board of Directors, the Chairman of the
Board, the President or the holders of shares entitled to cast not less than
10% of the votes at such meeting to call a special meeting of shareholders.
The Infoseek Delaware Bylaws require 90 days advance notice in proper written
form of shareholder nominees for election as directors or other shareholder
business to be brought before a meeting, and permit the chairman of the
meeting to refuse to acknowledge the nomination of any person or the proposal
of any business not made in compliance with the procedures set forth in the
Infoseek Delaware Bylaws. The Infoseek California Bylaws allow shareholders
holding 10% of the outstanding shares of Infoseek California's voting stock,
the Board of Directors, the Chairman of the Board or the President to call
special meetings of shareholders. The Infoseek California Bylaws also require
between 35 and 60 days' advance notice provisions similar to those contained
in the Infoseek Delaware Bylaws.
Elimination of Actions by Written Consent of Shareholders. Under California
and Delaware law, shareholders may take action by written consent in lieu of
voting at a shareholders meeting. Both California law and Delaware law permit
a corporation, pursuant to a provision in such corporation's articles or
certificate of incorporation, as the case may be, to eliminate the ability of
shareholders to act by written consent. Elimination of the ability of
shareholders to act by written consent could lengthen the amount of time
required to take shareholder actions because certain actions by written
consent are not subject to the minimum notice requirements of a shareholders'
meeting, and could therefore deter hostile takeover attempts. If the ability
of
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shareholders to act by written consent is eliminated, a holder or group of
holders controlling a majority in interest of a corporation's capital stock,
for example, would not be able to amend such corporation's bylaws or remove
its directors pursuant to a shareholders' written consent. Infoseek
California's Articles and Infoseek Delaware's Certificate both eliminate the
ability of shareholders to act by written consent.
Shareholder Approval of Certain Business Combinations. In the last several
years, a number of states (but not California) have adopted special laws
designed to make certain kinds of "unfriendly" corporate takeovers, or other
transactions involving a corporation and one or more of its significant
shareholders, more difficult. Under Section 203 of the General Corporations
Law of the State of Delaware ("Section 203 of the DGCL"), certain "business
combinations" by Delaware corporations with "interested stockholders" are
subject to a three-year moratorium unless specified conditions are met. Under
Section 1203 of the California Corporations Code, certain business
combinations with certain interested shareholders are subject to specified
conditions, including a requirement that a fairness opinion must be obtained
and delivered to the corporation's shareholders, but there is no equivalent
provision to Section 203.
California law does require that holders of nonredeemable common stock
receive nonredeemable common stock in a merger of the corporation with the
holder of more than 50% but less than 90% of such common stock or its
affiliate unless all of the holders of such common stock consent to the
transaction. This provision of California law may have the effect of making a
"cash-out" merger by a majority shareholder more difficult to accomplish.
Share Purchase Rights Plan. Pursuant to Infoseek Delaware's "poison pill"
Rights Plan, effective as of the closing or the Mergers, each share of
Infoseek Delaware common stock will have associated with it certain rights to
acquire shares of Infoseek Delaware's Series A Participating Preferred Stock,
par value $0.001. The Rights are triggered and become exercisable upon the
occurrence of either (i) the date of a public announcement of the acquisition
of 15% or more beneficial ownership of Infoseek Delaware's common stock by an
Acquiring Person, or (ii) ten business days after a public announcement of a
tender or exchange offer for 15% or more beneficial ownership of Infoseek
Delaware's common stock by an Acquiring Person. If the Rights are triggered
because an Acquiring Person beneficially owns 15% or more of Infoseek
Delaware's common stock, each Right will provide its holder, other than a
holder who is an acquiring Person, the right to purchase that number of shares
of Infoseek Delaware common stock having a market value at the time equal to
twice the exercise price, upon payment of the exercise price of $150 per
Right. In addition, in the event of certain business combinations, the Rights
permit the purchase of shares of common stock of an acquiror at a 50% discount
from the market price at the time. The Board of Directors has the right to
redeem the Rights at a price of $0.001 per Right at any time prior to the
close of business on the tenth day after the first public announcement that a
person has become an Acquiring Person (or such later time as may be determined
by the Board of Directors). If the Rights are triggered under certain
circumstances, the Board of Directors may elect to exchange each Right (other
than Rights held by an Acquiring Person) for one share of Infoseek Delaware
common stock. The Rights expire on October 2, 2008. These provisions may have
the effect of deterring hostile takeovers or delaying changes in control or
management of Infoseek Delaware. For purposes of the Rights Plan, Disney shall
not be deemed to be an Acquiring Person, so long as Disney has not breached
the standstill provisions of the Governance Agreement.
Disinterested Shareholder and Disinterested Board Approval. Infoseek
Delaware's Certificate of Incorporation provides that certain actions require
Disinterested Shareholder Approval or Disinterested Board Approval, each as
defined in the Governance Agreement, before they may be taken by Infoseek.
Also, any amendment of Infoseek Delaware's Certificate of Incorporation that
affects the provisions regarding Disinterested Board Approval and
Disinterested Shareholder Approval will require Disinterested Shareholder
Approval. See "Description of Related Agreements--Equity and Governance
Agreements." Infoseek California's Articles contain no such provision.
Removal of Directors. Under Delaware law, except as otherwise provided in
the corporation's certificate of incorporation, a director of a corporation
that has a classified board of directors or cumulative voting may be removed
only with cause. In addition, under Delaware law, when a corporation's
certificate of incorporation
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provides that the holders of a class or series, voting as a class or series,
are entitled to elect one or more directors, then any director may be removed,
without cause, only by the applicable vote of holders of shares of that class
or series. A director of a corporation that does not have a classified board
of directors or cumulative voting may be removed with the approval of a
majority of the outstanding shares entitled to vote with or without cause.
Under California law, any director or the entire board of directors may be
removed, with or without cause (unless the corporation's articles of
incorporation provide otherwise), with the approval of a majority of the
outstanding shares entitled to vote; however, no individual director may be
removed (unless the entire board is removed) if the number of votes cast
against such removal would be sufficient to elect the director under
cumulative voting. In addition, under California law, when a corporation's
articles of incorporation provide that the holders of shares of a class or
series, voting as a class or series, are entitled to elect one or more
directors, then any director so elected may be removed only by the applicable
vote of holders of shares of that class or series. The Infoseek Delaware
Certificate and the Infoseek Delaware Bylaws do not provide for a classified
board or for cumulative voting.
Filling Vacancies on the Board of Directors. Under Delaware law, vacancies
and newly created directorships may be filled by a majority of the directors
then in office (even though less than a quorum) unless otherwise provided in
the certificate of incorporation or bylaws (and unless the certificate of
incorporation directs that a particular class of stock is to elect such
director, in which case any other directors elected by such class, or a sole
remaining director so elected, may fill such vacancy). Under California law,
any vacancy on the board of directors (other than one created by removal of a
director) may be filled by the board. Unless otherwise specified in a
corporation's articles of incorporation or bylaws, if the number of directors
in office at the time a vacancy occurs is less than a quorum, a vacancy may be
filled by the unanimous written consent of the directors then in office, by
the affirmative vote of a majority of the directors then in office or by a
sole remaining director. A vacancy created by removal of a director may be
filled by the board only if the board is so authorized. The Infoseek Delaware
Bylaws allow any newly created directorship or vacancy on the Board to be
filled by a majority of the directors then in office even though less than a
quorum (unless the Board determines by resolution that the newly created
directorship shall be filled by the shareholders). The Infoseek California
Bylaws allow a vacancy (other than one created by removal of a director) to be
filled by the remaining members of the Board.
Indemnification and Limitation of Liability. California and Delaware have
similar laws relating to indemnification by a corporation of its officers,
directors, employees and other agents. The laws of both states also permit
corporations to adopt a provision in their charters eliminating the liability
of a director to the corporation or its shareholders for monetary damages for
breach of the director's fiduciary duty of care. There are nonetheless certain
differences between the laws of the two states with respect to indemnification
and limitation of liability.
Infoseek Delaware's Certificate eliminates the liability of directors to the
fullest extent permissible under Delaware law, as such law exists currently or
as it may be amended in the future. Under Delaware law, such provision may not
eliminate or limit director monetary liability for (i) breaches of the
director's duty of loyalty to the corporation or its shareholders; (ii) acts
or omissions not in good faith or involving intentional misconduct or knowing
violations of law; (iii) the payment of unlawful dividends or unlawful stock
repurchases or redemptions; or (iv) transactions in which the director
received an improper personal benefit. Such limitation of liability provisions
do not affect the availability of non-monetary remedies such as injunctive
relief or rescission.
Infoseek California's Articles also eliminate the liability of directors to
the fullest extent permissible under California law. California law does not
permit the elimination of monetary liability where such liability is based on
(i) intentional misconduct or knowing and culpable violation of law; (ii) acts
or omissions that a director believes to be contrary to the best interests of
the corporation or its shareholders, or that involve the absence of good faith
on the part of the director; (iii) receipt of an improper personal benefit;
(iv) acts or omissions that show reckless disregard for the director's duty to
the corporation or its shareholders, where the director in the ordinary course
of performing a director's duties was aware or should have been aware of a
risk of serious injury to the corporation or its shareholders; (v) acts or
omissions that constitute an unexcused pattern of inattention that amounts to
an abdication of the director's duty to the corporation and its shareholders;
(vi) interested
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transactions between the corporation and a director in which a director has a
material financial interest; or (vii) liability for improper distributions,
loans or guarantees.
Delaware law states that the indemnification provided by statute shall not
be deemed exclusive of any other rights under any bylaw, agreement, vote of
shareholders or disinterested directors or otherwise. The Infoseek Delaware
Bylaws include a provision providing that Infoseek Delaware must indemnify its
directors and officers to the fullest extent permissible under Delaware law.
California corporations may include in their charter a provision which
extends the scope of indemnification through agreements, bylaws or other
corporate action beyond that specifically authorized by statute. Infoseek
California's Articles include a provision that Infoseek California must
indemnify its directors and officers to the fullest extent permissible under
California law.
Inspection of Shareholders List. Both California and Delaware law allow any
shareholder to inspect and copy the shareholders list for a purpose reasonably
related to such person's interest as a shareholder. California law provides,
in addition, for an absolute right to inspect and copy the corporation's
shareholders list by persons holding an aggregate of 5% or more of a
corporation's voting shares, or, under certain other circumstances,
shareholders holding an aggregate of 1% or more of such shares.
Dividends and Repurchases of Shares. California law dispenses with the
concepts of par value of shares for most purposes as well as statutory
definitions of capital, surplus and the like. The concepts of par value,
capital and surplus are retained under Delaware law.
Delaware law permits a corporation to declare and pay dividends out of (i)
surplus or (ii) if there is no surplus, out of net profits for the fiscal year
in which the dividend is declared and/or for the preceding fiscal year as long
as the amount of capital of the corporation following the declaration and
payment of the dividend is not less than the aggregate amount of the capital
represented by the issued and outstanding stock of all classes having a
preference upon the distribution of assets. In addition, Delaware law
generally provides that a corporation may redeem or repurchase its shares only
if such redemption or repurchase would not impair the capital of the
corporation. Notwithstanding the foregoing, a Delaware corporation may redeem
or repurchase shares having a preference upon the distribution of any of its
assets (or shares of common stock, if there are no such shares of preferred
stock) if such shares will be retired upon acquisition (and provided that,
after the reduction in capital made in connection with such retirement of
shares, the corporation's remaining assets are sufficient to pay any debts not
otherwise provided for).
Under California law, a corporation may not make any distribution (including
dividends, whether in cash or other property, and repurchases of its shares)
unless either the corporation's retained earnings immediately prior to the
proposed distribution equal or exceed the amount of the proposed distribution
or, immediately after giving effect to such distribution, the corporation's
assets (exclusive of goodwill, capitalized research and development expenses
and deferred charges) would be at least equal to 1 1/4 times its liabilities
(not including deferred taxes, deferred income and other deferred credits),
and the corporation's current assets would be at least equal to its current
liabilities (or 1 1/4 times its current liabilities if the average pre-tax and
pre-interest expense earnings for the preceding two fiscal years were less
than the average interest expense for such years). Such tests are applied to
California corporations on a consolidated basis.
Shareholder Voting on Mergers and Similar Transactions. Both California and
Delaware law generally require that the holders of a majority of the
outstanding voting shares of the constituent corporations approve statutory
mergers. Infoseek California's Articles do not require a supermajority vote to
approve a merger. Delaware law does not require a shareholder vote of the
surviving corporation in a merger (unless the corporation provides otherwise
in its certificate of incorporation) if (i) the merger agreement does not
amend the existing certificate of incorporation; (ii) each share of the
surviving corporation outstanding before the merger is equal to an identical
outstanding or treasury share after the merger; and (iii) the number of shares
to be issued by the surviving corporation in the merger does not exceed 20% of
the shares outstanding immediately prior to the
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merger. California law contains a similar exception to its voting requirements
for reorganizations where shareholders or the corporation itself, or both,
immediately prior to the reorganization will own immediately after the
reorganization equity securities constituting more than five-sixths of the
voting power of the surviving or acquiring corporation or its parent entity.
Both California and Delaware law also require that a sale of all or
substantially all of the assets of a corporation be approved by a majority of
the outstanding voting shares of the corporation transferring such assets.
With certain exceptions, California law also requires that mergers,
reorganizations, certain sales of assets and similar transactions be approved
by a majority vote of each class of shares outstanding. By contrast, Delaware
law generally does not require class voting, except in certain transactions
involving an amendment to the certificate of incorporation which adversely
affects a specific class of shares, increases or decreases the number of
authorized shares of a class of shares or increases or decreases the par value
of the shares of a class of shares.
Interested Director Transactions. Under both California and Delaware law,
certain contracts or transactions in which one or more of a corporation's
directors has an interest are not void or voidable because of such interest,
provided that certain conditions, such as obtaining the required approval and
fulfilling the requirements of good faith and full disclosure, are met. With
certain exceptions, the conditions are similar under California and Delaware
law. Under California and Delaware law, either (i) the shareholders or the
disinterested directors must approve any such contract or transaction after
full disclosure of the material facts, and in California in the case of board
approval the contract or transaction must also be "just and reasonable" to the
corporation, or (ii) the contract or transaction must have been just and
reasonable (in California) or fair (in Delaware) as to the corporation at the
time it was approved. In the latter case, California law explicitly places the
burden of proof on the interested director.
Under California law, if shareholder approval is sought, the interested
director is not entitled to vote his shares with respect to any action
regarding such contract or transaction. If board approval is sought, the
contract or transaction must be approved by a majority vote of a quorum of the
directors, without counting the vote of any interested directors (except that
interested directors may be counted for purposes of establishing a quorum).
Under Delaware law, if board approval is sought, the contract or transaction
must be approved by a majority of the disinterested directors (even though
less than a quorum). Therefore, certain transactions that the Infoseek
California Board would lack the authority to approve because of the number of
interested directors, could be approved by a majority of the disinterested
directors of Infoseek Delaware representing less than a quorum.
Dissenters' or Appraisal Rights. Under both California and Delaware law, a
shareholder of a corporation participating in certain major corporate
transactions may be entitled, under varying circumstances, to dissenters' or
appraisal rights pursuant to which such shareholder may receive cash in the
amount of the fair market value of his or her shares in lieu of the
consideration he or she would otherwise receive in the transaction. Under
Delaware law, such rights are not available (i) with respect to the sale,
lease or exchange of all or substantially all of the assets of a corporation
or an amendment to the corporation's certificate of incorporation (unless
otherwise provided in the corporation's certificate of incorporation); (ii)
with respect to a merger or consolidation by a corporation the shares of which
are either listed on a national securities exchange or are held of record by
more than 2,000 holders if such shareholders are required to receive only
shares of the surviving corporation, shares of any other corporation which are
either listed on a national securities exchange or held of record by more than
2,000 holders, cash in lieu of fractional shares or a combination of the
foregoing; or (iii) to shareholders of a corporation surviving a merger if no
vote of the shareholders of the surviving corporation is required to approve
the merger because the agreement of merger does not amend the existing
certificate of incorporation, and each share of the surviving corporation
outstanding prior to the merger is an identical outstanding or treasury share
after the merger, the number of shares to be issued in the merger does not
exceed 20% of the shares of the surviving corporation outstanding immediately
prior to the merger.
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In contrast, shareholders of a California corporation whose shares are
listed on a national securities exchange (including Nasdaq) generally do not
have dissenters' rights unless the holders of at least 5% of the class of
outstanding shares claim the right or unless the corporation or any law
restricts the transfer of such shares. In addition, dissenters' rights are
unavailable if the shareholders of a corporation or the corporation itself, or
both, immediately prior to the reorganization will own immediately after the
reorganization equity securities constituting more than five-sixths of the
voting power of the surviving or acquiring corporation or its parent entity,
and if the shares of the surviving corporation have the same rights,
preferences, privileges and restrictions as the shares of the disappearing
corporation that are surrendered in exchange. Accordingly, appraisal rights
may be available to shareholders of Infoseek California with respect to the
Infoseek Merger only if holders of at least 5% of the outstanding common stock
of Infoseek California claim such rights.
Dissolution. Under Delaware law, unless a majority of the whole board of
directors approves a proposal to dissolve, a dissolution must be approved by
shareholders holding 100% of the total voting power of the corporation. Only
if a dissolution is initially approved by a majority of the whole board of
directors may it be approved by a simple majority of the corporation's
outstanding shares of capital stock entitled to vote thereon. Delaware law
allows a Delaware corporation to include in its certificate of incorporation a
super majority voting requirement in connection with dissolutions initiated by
the Board. Infoseek Delaware's Certificate contains no such super majority
voting requirement. Under California law, shareholders holding 50% or more of
the total voting power may authorize a corporation's dissolution, with or
without the approval of the corporation's board of directors, and this right
may not be modified by the articles of incorporation.
Shareholder Derivative Suits. Under Delaware law, a shareholder may only
bring a derivative action on behalf of the corporation if the shareholder was
a shareholder of the corporation at the time of the transaction in question or
his or her stock thereafter devolved upon him or her by operation of law.
California law provides that a shareholder bringing a derivative action on
behalf of a corporation need not have been a shareholder at the time of the
transaction in question, provided that certain tests are met. California law
also provides that the corporation or the defendant in a derivative suit may
make a motion to the court for an order requiring the plaintiff shareholder to
furnish a security bond. Delaware does not have a similar bonding requirement.
COMPARISON OF CAPITAL STOCK OF STARWAVE AND INFOSEEK DELAWARE
After consummation of the Starwave Merger, the holders of Starwave common
stock will be entitled to receive Infoseek Delaware common stock under the
terms of the Reorganization Agreement and become shareholders of Infoseek
Delaware. As shareholders of Starwave, their rights are presently governed by
Washington law and by Starwave's Articles and Starwave's Amended and Restated
Bylaws ("Starwave's Bylaws"). As shareholders of Infoseek Delaware, their
rights will be governed by Delaware law and by Infoseek Delaware's Certificate
and Infoseek Delaware's Bylaws. The following discussion summarizes the
material differences between the rights of holders of Starwave common stock
and the rights of holders of Infoseek Delaware common stock and differences
between the charters and bylaws of Starwave and Infoseek Delaware. This
summary does not purport to be complete and is qualified by reference to
Starwave's Articles and Starwave's Bylaws, Infoseek Delaware's Certificate and
Infoseek Delaware's Bylaws, and the relevant provisions of Washington and
Delaware law.
Size of the Board of Directors. In accordance with Delaware law, Infoseek
Delaware's Bylaws provide the Infoseek Delaware Board the authority to set the
exact number of directors within the range of from 6 to 11 persons. The number
of directors of Infoseek Delaware is currently fixed at 8. The Infoseek
Delaware Board acting without shareholder approval may change such number
within the range authorized in Infoseek Delaware's Bylaws. Under Washington
law, a corporation's articles of incorporation or bylaws must either specify
the number of directors or specify the process by which the number will be
fixed. Starwave's Bylaws provide the Starwave Board the authority to set the
exact number of directors within the range of from three to nine persons.
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Loans to Officers and Employees. Under Delaware law, a corporation may make
loans to, guarantee the obligations of or otherwise assist its officers or
other employees and those of its subsidiaries (including directors who are
also officers or employees) when such action, in the judgment of the
directors, may reasonably be expected to benefit the corporation. Starwave's
Bylaws permit it to enter into contracts with its directors, officers and
shareholders to the extent permitted by Washington law. Starwave's Bylaws
permit Starwave to enter into contracts with its directors, officers and
shareholders to the extent permitted by Washington law. Further, Starwave's
Bylaws and Washington law provide that such transactions shall not, absent
fraud, be void or voidable if they are approved by the disinterested directors
or shareholders.
Voting by Ballot. Under Delaware law, the right to vote by written ballot
may be restricted if so provided in the certificate of incorporation. Infoseek
Delaware's Bylaws provide that the election of directors at a shareholders
meeting need not be by written ballot. Infoseek Delaware's Certificate
provides that elections of directors need not be by written ballot unless
Infoseek Delaware's Bylaws so provide. Starwave's Bylaws do not specify any
rules for accepting voice or ballot votes.
Cumulative Voting. In an election of directors under cumulative voting, each
share of stock normally having one vote is entitled to a number of votes equal
to the number of directors to be elected. A shareholder may then cast all such
votes for a single candidate or may allocate them among as many candidates as
the shareholder chooses. Under Delaware law, cumulative voting in the election
of directors is not available unless specifically provided for in the
certificate of incorporation. In contrast, Washington law provides that
cumulative voting in the election of directors is available unless a
corporation's articles of incorporation specifically provide otherwise.
Infoseek Delaware has not provided for cumulative voting in Infoseek
Delaware's Certificate and cumulative voting is therefore not available to
Infoseek Delaware's shareholders. Starwave has expressly eliminated the right
of cumulative voting in Starwave's Articles, and cumulative voting is
therefore not available to Starwave's shareholders.
Classified Board of Directors. A classified board is one on which a certain
number of the directors are elected on a rotating basis each year. This method
of electing directors makes changes in the composition of the board of
directors, and thus a potential change in control of a corporation, a
lengthier and more difficult process. Washington and Delaware law both permit,
but do not require, a classified board of directors, with staggered terms
under which one-half or one-third of the directors are elected for terms of
two or three years, respectively. Neither Infoseek Delaware's Certificate nor
Starwave's Articles provides for a classified board.
Power to Call Special Shareholders' Meetings; Advance Notice of Shareholder
Business and Nominees. Under both Washington and Delaware law, a special
meeting of shareholders may be called by the board of directors or by any
other person authorized to do so in the articles or certificate of
incorporation or the bylaws. Infoseek Delaware's Bylaws authorize the Board of
Directors, the Chairman of the Board, the President or the holders of shares
entitled to cast not less than 10% of the votes at such meeting to call a
special meeting of shareholders. Infoseek Delaware's Bylaws require 90 days
advance notice in proper written form of shareholder nominees for election as
director or shareholder business to be brought before a meeting, and permit
the chairman of the meeting to refuse to acknowledge the nomination of any
person or the proposal of any business not made in compliance with the
procedures set forth in Infoseek Delaware's Bylaws. Starwave's Bylaws allow
shareholders holding 10% of the outstanding shares of Starwave's voting stock,
the Starwave Board of Directors, or any member of the Starwave Board to call
special meetings of shareholders. Starwave's Bylaws contain no advance notice
provisions similar to those contained in Infoseek Delaware's Bylaws.
Elimination of Actions by Written Consent of Shareholders. Under Washington
and Delaware law, shareholders may take action by written consent in lieu of
voting at a shareholders meeting. Delaware law permits a corporation, pursuant
to a provision in such corporation's certificate of incorporation to eliminate
the ability of shareholders to act by written consent. Elimination of the
ability of shareholders to act by written consent could lengthen the amount of
time required to take shareholder actions because certain actions by written
consent are not subject to the minimum notice requirements of a shareholders'
meeting, and could therefore deter
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hostile takeover attempts. If the ability of shareholders to act by written
consent is eliminated, a holder or group of holders controlling a majority in
interest of a corporation's capital stock, for example, would not be able to
amend such corporation's bylaws or remove its directors pursuant to a
shareholders' written consent. Under Washington law, for publicly-held
corporations and private corporations whose articles do not provide otherwise,
all actions taken by written consent must be unanimous. Starwave's Articles
provide for non-unanimous written consent, provided that the action is taken
by shareholders holding not less than the minimum number of votes that would
be necessary to authorize the action at a meeting at which all shares entitled
to vote were present and voted. Infoseek Delaware's Certificate eliminates the
ability of stockholders to act by written consent.
Shareholder Approval of Certain Business Combinations. In the last several
years, a number of states have adopted special laws designed to make certain
kinds of "unfriendly" corporate takeovers, or other transactions involving a
corporation and one or more of its significant shareholders, more difficult.
Under Section 203 of the DGCL, certain "business combinations" by Delaware
corporations with "interested stockholders" are subject to a three-year
moratorium unless specified conditions are met. Washington law prohibits a
"Target Corporation" (as defined by the statute) with certain exceptions, from
engaging in certain significant business transactions with an "Acquiring
Person" (defined generally as a person who acquires 10% or more of the
corporation's voting securities without the prior approval of the
corporation's board of directors) for a period of five years after such
acquisition. The prohibited transactions include, among others, a merger or
share exchange with, disposition of assets to, or issuance or redemption of
stock to or from, the Acquiring Person, or a reclassification of securities
that has the effect of increasing the proportionate share of the outstanding
securities held by the Acquiring Person. An Acquiring Person may avoid the
prohibition against effecting certain significant business transactions with
the Target Corporation if the board of directors of the Target Corporation, at
the time of the share acquisition, approves the proposed significant business
transaction.
Share Purchase Rights Plan. Pursuant to Infoseek Delaware's "poison pill"
Rights Plan, effective as of the closing of the Mergers, each share of
Infoseek Delaware common stock will have associated with it certain rights to
acquire shares of Infoseek Delaware's Series A Participating Preferred Stock,
par value $0.001. The Rights are triggered and become exercisable upon the
occurrence of either (i) the date of a public announcement of the acquisition
of 15% or more beneficial ownership of Infoseek Delaware's common stock by an
Acquiring Person, or (ii) ten business days after a public announcement of a
tender or exchange offer for 15% or more beneficial ownership of Infoseek
Delaware's common stock by an Acquiring Person. If the Rights are triggered
because an Acquiring Person beneficially owns 15% or more of Infoseek
Delaware's common stock, each Right will provide its holder, other than a
holder who is an Acquiring Person, the right to purchase that number of shares
of Infoseek Delaware common stock having a market value at the time equal to
twice the exercise price, upon payment of the exercise price of $150 per
Right. In addition, in the event of certain business combinations, the Rights
permit the purchase of shares of common stock of an acquiror at a 50% discount
from the market price at the time. The Board of Directors has the right to
redeem the Rights at a price of $0.001 per Right at any time prior to the
close of business on the tenth day after the first public announcement that a
person has become an Acquiring Person (or such later time as may be determined
by the Board of Directors). If the Rights are triggered under certain
circumstances, the Board of Directors may elect to exchange each Right (other
than Rights held by an Acquiring Person) for one share of Infoseek Delaware
common stock. The Rights expire on October 2, 2008. These provisions may have
the effect of deterring hostile takeovers or delaying changes in control or
management of Infoseek Delaware. For purposes of the Rights Plan, Disney shall
not be deemed to be an Acquiring Person, so long as Disney has not breached
the standstill provisions of the Governance Agreement.
Disinterested Shareholder and Disinterested Board Approval. Infoseek
Delaware's Certificate of Incorporation provides that certain actions require
Disinterested Shareholder Approval or Disinterested Board Approval, each as
defined in the Governance Agreement, before they may be taken by Infoseek. See
"Description of Related Agreements--Equity and Governance Agreements."
Starwave's Articles contain no such provision.
Removal of Directors. Under Delaware law, except as otherwise provided in
the corporation's certificate of incorporation, a director of a corporation
that has a classified board of directors may be removed only with
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cause. A director of a corporation that does not have a classified board of
directors or cumulative voting may be removed with the approval of a majority
of the outstanding shares entitled to vote with or without cause. In addition,
under Delaware law, when a corporation's certificate of incorporation provides
that the holders of a class or series, voting as a class or series, are
entitled to elect one or more directors, then any director may be removed,
without cause, only by the applicable vote of holders of shares of that class
or series. Under Washington law, if cumulative voting is not authorized, any
director or the entire board of directors may be removed, with or without
cause (unless the corporation's articles of incorporation provide otherwise),
if the number of votes cast to remove the director exceeds the number of votes
cast not to remove the director. In addition, under Washington law, when a
corporation's articles of incorporation provide that the holders of shares of
a class or series, voting as a class or series, are entitled to elect one or
more directors, then any director so elected may be removed only by the
applicable vote of holders of shares of that class or series. Infoseek
Delaware's Certificate and Infoseek Delaware's Bylaws do not provide for a
classified board or cumulative voting. Starwave's Articles expressly eliminate
cumulative voting.
Filling Vacancies on the Board of Directors. Under Delaware law, vacancies
and newly created directorships may be filled by a majority of the directors
then in office (even though less than a quorum) unless otherwise provided in
the certificate of incorporation or bylaws (and unless the certificate of
incorporation directs that a particular class of stock is to elect such
director, in which case any other directors elected by such class, or a sole
remaining director so elected, may fill such vacancy). Under Washington law,
any vacancy on the board of directors may be filled by the board unless the
articles of incorporation direct that a particular class of shares is to elect
such director, in which case only the holders of such class are entitled to
vote to fill the vacancy. Unless otherwise specified in a Washington
corporation's articles of incorporation or bylaws, if the number of directors
in office at the time a vacancy occurs is less than a quorum, a vacancy may be
filled by the affirmative vote of a majority of the directors then in office
or by a sole remaining director. Infoseek Delaware's Bylaws allow any newly
created directorship or vacancy on the Board to be filled by a majority of the
directors then in office even though less than a quorum (unless the Board
determines by resolution that the newly created directorship shall be filled
by the shareholders). Starwave's Bylaws allow a vacancy to be filled by the
remaining members of the Board unless the articles of incorporation direct
that a particular class of stock is to elect such director, in which case only
the holders of such class are entitled to vote to fill the vacancy.
Indemnification and Limitation of Liability. Washington and Delaware have
similar laws relating to indemnification by a corporation of its officers,
directors, employees and other agents. The laws of both states also permit
corporations to adopt a provision in their charters eliminating the liability
of a director to the corporation or its shareholders for monetary damages for
breach of the director's fiduciary duty of care. There are nonetheless certain
differences between the laws of the two states with respect to indemnification
and limitation of liability.
Infoseek Delaware's Certificate eliminates the liability of directors to the
fullest extent permissible under Delaware law, as such law exists currently or
as it may be amended in the future. Under Delaware law, such provision may not
eliminate or limit director monetary liability for (i) breaches of the
director's duty of loyalty to the corporation or its shareholders; (ii) acts
or omissions not in good faith or involving intentional misconduct or knowing
violations of law; (iii) the payment of unlawful dividends or unlawful stock
repurchases or redemptions; or (iv) transactions in which the director
received an improper personal benefit. Such limitation of liability provisions
do not affect the availability of non-monetary remedies such as injunctive
relief or rescission.
Starwave's Articles also eliminate the liability of directors to the fullest
extent permissible under Washington law. Washington law does not permit the
elimination of monetary liability where such liability is based on (i) acts or
omissions that involve intentional misconduct or knowing violation of law;
(ii) unlawful distributions to shareholders; or (iii) receipt of an illegal
personal benefit.
Delaware law states that the indemnification provided by statute shall not
be deemed exclusive of any other rights under any bylaw, agreement, vote of
shareholders or disinterested directors or otherwise. Infoseek Delaware's
Bylaws include a provision providing that Infoseek Delaware must indemnify its
directors and officers to the fullest extent permissible under Delaware law.
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Starwave's Articles include a provision that Starwave must indemnify its
directors and officers to the fullest extent permissible under Washington law.
Inspection of Shareholders List. Both Washington and Delaware law allow any
shareholder to inspect and copy the shareholders list for a purpose reasonably
related to such person's interest as a shareholder. In addition, Infoseek
Delaware's Bylaws provide for an absolute right to inspect and copy the
corporation's shareholders list by persons holding an aggregate of 5% or more
of a corporation's voting shares, or, under certain other circumstances,
shareholders holding an aggregate of 1% or more of such shares. Starwave's
Bylaws do not provide for any such absolute right of inspection.
Dividends and Repurchases of Shares. Washington law dispenses with the
concept of par value of shares for most purposes as well as statutory
definitions of capital, surplus and the like. The concepts of par value,
capital and surplus are retained under Delaware law.
Delaware law permits a corporation to declare and pay dividends out of (i)
surplus or (ii) if there is no surplus, out of net profits for the fiscal year
in which the dividend is declared and/or for the preceding fiscal year as long
as the amount of capital of the corporation following the declaration and
payment of the dividend is not less than the aggregate amount of the capital
represented by the issued and outstanding stock of all classes having a
preference upon the distribution of assets. In addition, Delaware law
generally provides that a corporation may redeem or repurchase its shares only
if such redemption or repurchase would not impair the capital of the
corporation. Notwithstanding the foregoing, a Delaware corporation may redeem
or repurchase shares having a preference upon the distribution of any of its
assets (or shares of common stock, if there are no such shares of preferred
stock) if such shares will be retired upon acquisition (and provided that,
after the reduction in capital made in connection with such retirement of
shares, the corporation's remaining assets are sufficient to pay any debts not
otherwise provided for).
Under Washington law, a corporation may not make any distribution (including
dividends, whether in cash or other property, and repurchases of its shares)
unless the corporation's total assets immediately following the proposed
distribution would equal or exceed the sum of its total liabilities plus the
amount that would be needed, if the corporation were to be dissolved at the
time of the distribution, to satisfy the preferential rights upon dissolution
of shareholders whose preferential rights are superior to those receiving the
distribution and the corporation is able to pay its debts as they become due
in the usual course of business.
Shareholder Voting on Mergers and Similar Transactions. Delaware law
requires that the holders of a majority of the outstanding voting shares of
the acquiring and target corporations approve statutory mergers. Starwave's
Articles require that the holders of a majority of the outstanding voting
shares approve certain business combinations including mergers such as the
Starwave Merger. Delaware law does not require a shareholder vote of the
surviving corporation in a merger (unless the corporation provides otherwise
in its certificate of incorporation) if (i) the merger agreement does not
amend the existing certificate of incorporation; (ii) each share of the
surviving corporation outstanding before the merger is equal to an identical
outstanding or treasury share after the merger; and (iii) the number of shares
to be issued by the surviving corporation in the merger does not exceed 20% of
the shares outstanding immediately prior to the merger. Washington law
contains a similar exception to its voting requirements for reorganizations
where (i) the articles of incorporation of the surviving corporation will not
differ from its articles of incorporation before the merger; (ii) each
shareholder of the surviving corporation whose shares were outstanding
immediately before the effective date of the merger will hold the same number
of shares, with identical designations, preferences, limitations and relative
rights, immediately after the merger; (iii) the number of voting shares
outstanding immediately after the merger, plus the number of voting shares
issuable as a result of the merger, either by the conversion of securities
issued pursuant to the merger or the exercise of rights and warrants issued
pursuant to the merger, will not exceed the total number of voting shares of
the surviving corporation authorized by its articles of incorporation
immediately before the merger; and (iv) the number of participating shares
outstanding immediately after the merger, plus the number of participating
shares issuable as a result of the merger, either by the conversion of
securities issued pursuant to the merger or the exercise of rights and
warrants issued pursuant to the merger, will not exceed the
170
<PAGE>
total number of participating shares of the surviving corporation authorized
by its articles of incorporation immediately before the merger.
Delaware law also requires that a sale of all or substantially all of the
assets of a corporation be approved by a majority of the outstanding voting
shares of the corporation transferring such assets. Starwave's Articles
require that such a sale be approved by a majority of the outstanding shares
of its Class A and Class B Common Stock, voting together without regard to
class.
Interested Director Transactions. Under both Washington and Delaware law,
certain contracts or transactions in which one or more of a corporation's
directors has an interest are not void or voidable because of such interest,
provided that certain conditions, such as obtaining the required approval and
fulfilling the requirements of good faith and full disclosure, are met. With
certain exceptions, the conditions are substantially similar under Washington
and Delaware law.
Dissenters' or Appraisal Rights. Under both Washington and Delaware law, a
shareholder of a corporation participating in certain major corporate
transactions may be entitled, under varying circumstances, to dissenters' or
appraisal rights pursuant to which such shareholder may receive cash in the
amount of the fair value of his or her shares in lieu of the consideration he
or she would otherwise receive in the transaction. Under Delaware law, such
rights are not available (i) with respect to the sale, lease or exchange of
all or substantially all of the assets of a corporation or an amendment to the
corporation's certificate of incorporation (unless otherwise provided in the
corporation's certificate of incorporation); (ii) with respect to a merger or
consolidation by a corporation the shares of which are either listed on a
national securities exchange or are held of record by more than 2,000 holders
if such shareholders are required to receive only shares of the surviving
corporation, shares of any other corporation which are either listed on a
national securities exchange or held of record by more than 2,000 holders,
cash in lieu of fractional shares or a combination of the foregoing; or (iii)
to shareholders of a corporation surviving a merger if no vote of the
shareholders of the surviving corporation is required to approve the merger
because the agreement of merger does not amend the existing certificate of
incorporation, and each share of the surviving corporation outstanding prior
to the reorganization is an identical outstanding or treasury share after the
merger, and the number of shares to be issued in the merger does not exceed
20% of the shares of the surviving corporation outstanding immediately prior
to the merger.
In contrast, under Washington law, dissenters' rights are available in the
event of any of the following corporate actions: (i) a merger (except for a
merger effected solely to change a corporation's state of incorporation); (ii)
a share exchange (only shareholders of the target who are entitled to vote on
the transaction may dissent); (iii) a sale or exchange of all or substantially
all of a corporation's assets for consideration other than cash (only
shareholders entitled to vote on the transaction may dissent); (iv) an
amendment of the articles of incorporation that materially reduces the number
of shares outstanding. Consequently, appraisal rights are available to
shareholders of Starwave with respect to the Starwave Merger; or (v) any
corporate action taken pursuant to a shareholder vote to the extent the
articles of incorporation, bylaws or a resolution of the board of directors
provides that voting or nonvoting shareholders are entitled to dissent and
obtain payment for their shares.
Dissolution. Under Delaware law, unless a majority of the whole board of
directors approves a proposal to dissolve, a dissolution must be approved by
shareholders holding 100% of the total voting power of the corporation. Only
if a dissolution is initially approved by a majority of the whole board of
directors may it be approved by a simple majority of the corporation's
outstanding shares of capital stock entitled to vote thereon. Delaware law
allows a Delaware corporation to include in its certificate of incorporation a
super majority voting requirement in connection with dissolutions initiated by
the Board. The Infoseek Delaware Certificate contains no such super majority
voting requirement. Under Washington law, a proposal to dissolve must be
approved by both the corporation's board of directors and its shareholders.
Shareholder Derivative Suits. Under both Washington and Delaware law, a
shareholder may only bring a derivative action on behalf of the corporation if
the shareholder was a shareholder of the corporation at the time of the
transaction in question or his or her stock thereafter devolved upon him or
her by operation of law.
171
<PAGE>
LEGAL MATTERS
Certain legal matters in connection with the issuance of Infoseek common
stock in the Starwave Merger, and the federal income tax consequences of the
Infoseek Merger will be passed upon for Infoseek California and Infoseek
Delaware by Wilson Sonsini Goodrich & Rosati, Professional Corporation. The
federal income tax consequences of the Starwave Merger will be passed upon for
DEI by Dewey Ballantine LLP.
EXPERTS
The consolidated financial statements of Infoseek Corporation at December
31, 1997 and 1996, and for each of the three years in the period ended
December 31, 1997, incorporated by reference in this Joint Proxy
Statement/Prospectus have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon incorporated by reference
herein, and are included in reliance upon such report given upon the authority
of such firm as experts in accounting and auditing.
The financial statements of Starwave as of September 28, 1997 and for the
period from January 1, 1997 to September 28, 1997 included in this Joint Proxy
Statement/Prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
The financial statements of Starwave as of December 31, 1996 and 1995, and
for each of the years ended December 31, 1996 and 1995, have been included in
this Joint Proxy Statement/Prospectus in reliance upon the report of KPMG Peat
Marwick LLP, independent certified public accountants, appearing elsewhere
herein, and upon the authority of said firm as experts in accounting and
auditing.
Effective April 24, 1997, Starwave's Board of Directors dismissed KPMG Peat
Marwick LLP (the "Former Accountants") as its independent accountants and
engaged PricewaterhouseCoopers LLP. The reports of the Former Accountants on
the financial statements of Starwave for the fiscal years ended December 31,
1996 and 1995 contained no adverse opinion or disclaimer of opinion and were
not qualified or modified as to uncertainty, audit scope or accounting
principles. During the period of the Former Accountants' engagement in
Starwave's two most recent fiscal years, there were no disagreements with the
Former Accountants on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure, which
disagreements if not resolved to the satisfaction of the Former Accountants
would have caused them to make reference thereto in their report on Starwave's
financial statements. Prior to April 24, 1997, Starwave had not consulted with
PricewaterhouseCoopers LLP on items regarding the application of accounting
principles to a specific completed or contemplated transaction, the type of
audit opinion that might be rendered on Starwave's financial statements, or
any matter that was the subject of a disagreement or reportable event.
The financial statements of Quando as of December 31, 1997 and 1996, and for
each of the years in the three-year period ended December 31, 1997, have been
included in this Joint Proxy Statement/Prospectus in reliance upon the report
of KPMG Peat Marwick LLP, independent certified public accountants, appearing
elsewhere herein, and upon the authority of said firm as experts in accounting
and auditing. The report of KPMG Peat Marwick LLP covering the December 31,
1997, financial statements contains an explanatory paragraph that states that
Quando's recurring losses from operations and net capital deficiency raise
substantial doubt about the entity's ability to continue as a going concern.
The financial statements do not include any adjustments that might result from
the outcome of that uncertainty.
172
<PAGE>
STARWAVE CORPORATION INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of PricewaterhouseCoopers LLP....................................... F-2
Report of KPMG Peat Marwick LLP............................................ F-3
Starwave Corporation Balance Sheets as of June 28, 1998, September 28, 1997
and December 31, 1996 and 1995............................................ F-4
Starwave Corporation Statements of Operations for the Nine Months Ended
September 28, 1997,
the Years Ended December 31, 1996 and 1995 and the Nine Months Ended June
28, 1998 and
June 29, 1997............................................................. F-5
Starwave Corporation Statements of Changes in Shareholders' Equity
(Deficit) for the Nine Months Ended June 28, 1998, the Nine Months Ended
September 28, 1997, and the Years Ended December 31, 1996 and 1995........ F-6
Starwave Corporation Statements of Cash Flows for the Nine Months Ended
September 28, 1997,
the Years Ended December 31, 1996 and 1995 and the Nine Months Ended June
28, 1998 and
June 29, 1997............................................................. F-7
Starwave Corporation Notes to Financial Statements......................... F-8
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Starwave Corporation
In our opinion, the accompanying balance sheet and the related statements of
operations, of changes in shareholders' equity (deficit) and of cash flows
present fairly, in all material respects, the financial position of Starwave
Corporation at September 28, 1997, and the results of its operations and its
cash flows for the period from January 1, 1997 to September 28, 1997, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for the
opinion expressed above.
As described in Note 1, in April 1997 the Company completed a number of
transactions which significantly changed its capital and operating structure.
PricewaterhouseCoopers LLP
Seattle, Washington
January 30, 1998
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Starwave Corporation:
We have audited the accompanying balance sheets of Starwave Corporation as
of December 31, 1996 and 1995, and the related statements of operations,
shareholders' deficit, and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Starwave Corporation as of
December 31, 1996 and 1995, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Seattle, Washington
February 7, 1997
F-3
<PAGE>
STARWAVE CORPORATION
BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
JUNE 28, SEPTEMBER 28, DECEMBER 31, DECEMBER 31,
1998 1997 1996 1995
----------- ------------- ------------ ------------
ASSETS
------ (UNAUDITED)
<S> <C> <C> <C> <C>
Cash and equivalents....... $ 2,543 $ 18,306 $ 305
Accounts receivable, net... 1,180 774 2,950 $ 734
Receivable from affiliate.. 615 1,292 174
Other receivables.......... 49 60 73 78
Net assets of discontinued
operations................ 1,052
Deferred royalties, net.... 783 28
Prepaid expenses and other
assets.................... 404 378 787 534
Equipment and leasehold
improvements, net......... 4,059 4,323 4,815 3,754
Investment in affiliates... 9,939 4,328
--------- --------- -------- --------
$ 18,789 $ 29,461 $ 9,713 $ 6,354
========= ========= ======== ========
<CAPTION>
LIABILITIES AND
SHAREHOLDERS'
EQUITY (DEFICIT)
----------------
<S> <C> <C> <C> <C>
Accounts payable........... $ 1,015 $ 1,500 $ 3,277 $ 710
Accrued interest on loans
from shareholder.......... 286
Accrued compensation....... 1,828 1,555 629 273
Accrued royalties.......... 250 500 2,087
Bank overdraft............. 191
Accrued liabilities of
discontinued operations... 441 359 519
Other accrued liabilities.. 118 177
Due to affiliates.......... 303 1,922 47
Deferred revenue........... 543 11 651 298
Loans from shareholder..... 84,888 51,025
--------- --------- -------- --------
Total liabilities...... 4,380 5,847 92,169 53,007
--------- --------- -------- --------
Commitments (Notes 6 and 8)
Shareholders' equity
(deficit)
Common stock A, $.01 par
value; authorized
250,000 shares; issued
and outstanding 57,269
(unaudited) shares in
1998, 55,512 shares in
1997, 34,214 shares in
1996 and 28,683 in
1995.................... 572 555 342 287
Common stock B, $.01 par
value; authorized 80,000
shares; issued and
outstanding 39,869
shares in 1998
(unaudited) and 1997 and
0 shares in 1996 and
1995.................... 400 399
Additional paid-in
capital................. 127,421 123,095 138 (215)
Deferred stock option
compensation expense.... (4,123) (172) (246)
Accumulated deficit...... (109,861) (100,263) (82,690) (46,725)
--------- --------- -------- --------
Total shareholders'
equity (deficit)...... 14,409 23,614 (82,456) (46,653)
--------- --------- -------- --------
$ 18,789 $ 29,461 $ 9,713 $ 6,354
========= ========= ======== ========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
STARWAVE CORPORATION
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE-MONTHS NINE MONTHS ENDED
ENDED YEAR ENDED YEAR ENDED ------------------
SEPTEMBER 28, DECEMBER 31, DECEMBER 31, JUNE 28, JUNE 29,
1997 1996 1995 1998 1997
------------- ------------ ------------ -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues................ $ 4,892 $ 8,302 $ 1,111 $ 3,496 $ 7,960
-------- -------- -------- ------- --------
Operating expenses
Cost of online
services............. 7,185 18,170 6,577 2,147 12,122
Development........... 1,605 6,138 5,771 848 3,385
Sales and marketing... 1,589 5,492 1,789 41 4,130
General and
administrative....... 2,527 4,845 3,388 1,778 3,412
-------- -------- -------- ------- --------
Total operating
expenses........... 12,906 34,645 17,525 4,814 23,049
-------- -------- -------- ------- --------
Operating loss.......... (8,014) (26,343) (16,414) (1,318) (15,089)
-------- -------- -------- ------- --------
Other income (expense)
Loss from affiliate--
EIV.................. (2,251) (2,091) (808)
Loss from affiliate--
AIV.................. (5,958) (6,982) (3,116)
Interest (expense)
income, net.......... (1,814) (4,675) (3,023) 768 (3,244)
Other, net............ 464 (658) 8 25 (118)
-------- -------- -------- ------- --------
Net other expense... (9,559) (5,333) (3,015) (8,280) (7,286)
-------- -------- -------- ------- --------
Loss from continuing
operations............. (17,573) (31,676) (19,429) (9,598) (22,375)
-------- -------- -------- ------- --------
Discontinued operations
Loss from operations
of Multimedia CD-ROM
segment.............. (1,046) (7,474)
Loss on disposal of
Multimedia CD-ROM
segment.............. (3,243)
-------- -------- -------- ------- --------
Loss from
discontinued
operations......... -- (4,289) (7,474) -- --
-------- -------- -------- ------- --------
Net loss................ $(17,573) $(35,965) $(26,903) $(9,598) $(22,375)
======== ======== ======== ======= ========
Basic and diluted net
loss per share from
continuing operations.. $ (0.25) $ (0.99) $ (0.68) $ (0.10) $ (0.43)
Basic and diluted net
loss per share from
discontinued
operations............. -- (0.14) (0.27) -- --
-------- -------- -------- ------- --------
Basic and diluted net
loss per share......... $ (0.25) $ (1.13) $ (0.95) $ (0.10) $ (0.43)
======== ======== ======== ======= ========
Shares used in computing
basic and diluted net
loss per share......... 71,691 31,958 28,412 96,260 51,579
======== ======== ======== ======= ========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
STARWAVE CORPORATION
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS)
<TABLE>
<CAPTION>
DEFERRED TOTAL
COMMON STOCK ADDITIONAL STOCK OPTION SHAREHOLDERS'
-------------- PAID-IN COMPENSATION ACCUMULATED EQUITY
SHARES AMOUNT CAPITAL EXPENSE DEFICIT (DEFICIT)
------ ------ ---------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1994................... 28,000 $280 $ (210) $ (19,822) $(19,752)
Exercise of stock
options................ 683 7 (5) 2
Net loss................ (26,903) (26,903)
------ ---- -------- --------- --------
Balance at December 31,
1995................... 28,683 287 (215) (46,725) (46,653)
Exercise of stock
options................ 5,531 55 (41) 14
Deferred compensation
expense related to
issuance of stock
options................ 394 $ (394)
Amortization of deferred
stock option
compensation expense... 148 148
Net loss................ (35,965) (35,965)
------ ---- -------- ------- --------- --------
Balance at December 31,
1996................... 34,214 342 138 (246) (82,690) (82,456)
Exercise of stock
options................ 2,612 26 (20) 6
Stock repurchase........ (1,935) (19) (3,950) (3,969)
Sale of common stock
Common Stock A........ 20,621 206 45,458 45,664
Common Stock B........ 39,869 399 81,469 81,868
Amortization of deferred
stock option
compensation expense... 74 74
Net loss................ (17,573) (17,573)
------ ---- -------- ------- --------- --------
Balance at September 28,
1997................... 95,381 954 123,095 (172) (100,263) 23,614
Exercise of stock
options (unaudited).... 1,757 18 94 112
Deferred compensation
expense related to
issuance of stock
options (unaudited).... 4,232 (4,232)
Amortization of deferred
stock option
compensation expense
(unaudited)............ 281 281
Net loss (unaudited).... (9,598) (9,598)
------ ---- -------- ------- --------- --------
Balance at June 28, 1998
(unaudited)............ 97,138 $972 $127,421 $(4,123) $(109,861) $ 14,409
====== ==== ======== ======= ========= ========
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
STARWAVE CORPORATION
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE-MONTHS NINE MONTHS NINE MONTHS
ENDED YEAR ENDED YEAR ENDED ENDED ENDED
SEPTEMBER 28, DECEMBER 31, DECEMBER 31, JUNE 28, JUNE 29,
1997 1996 1995 1998 1997
------------- ------------ ------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES
Net loss................ $(17,573) $(35,965) $(26,903) $ (9,598) $(22,375)
Adjustments to reconcile
net loss to net cash
used in operating
activities
Depreciation and
amortization of
equipment and
leasehold
improvements......... 1,629 2,170 1,631 1,651 1,657
Equity in losses from
affiliates........... 8,209 9,072 3,923
Loss on sale of
equipment............ 36 90 47
Amortization of
deferred stock
compensation
expense.............. 74 148 281 74
Change in certain
assets and
liabilities
Accounts
receivable......... 2,176 (2,216) (734) (406) 357
Receivable from
affiliate and other
receivables........ (1,279) 179 (247) 688 (996)
Deferred royalties.. 783 (755) 106 1,415
Prepaid expenses and
other assets....... 572 (253) (94) (26) 381
Net assets and
accrued liabilities
of discontinued
operations......... (160) 1,571 (72) 82 (375)
Accounts payable.... (1,777) 2,567 367 (485) 147
Accrued interest on
loans from
shareholder........ (286) (1,488)
Accrued
compensation....... 926 356 179 273 909
Accrued royalties... (1,587) 2,087 (250) (2,994)
Due to affiliates... 1,922 (47) (209) (1,619) 620
Deferred revenue.... (640) 353 298 532 (1,201)
Other accrued
liabilities........ (118) (59) (71) -- 79
-------- -------- -------- -------- --------
Net cash (used in)
provided by
operating
activities....... (6,807) (30,060) (27,190) 195 (18,379)
-------- -------- -------- -------- --------
CASH FLOWS FROM
INVESTING ACTIVITIES
Purchase of equipment
and leasehold
improvements........... (1,336) (3,358) (2,617) (1,387) (1,596)
Proceeds from sale of
equipment.............. 37 32
Expenses incurred on
behalf of affiliates... (12,537) (14,683) (4,561)
-------- -------- -------- -------- --------
Net cash used in
investing
activities....... (13,873) (3,321) (2,585) (16,070) (6,157)
-------- -------- -------- -------- --------
CASH FLOWS FROM
FINANCING ACTIVITIES
Loans from shareholder.. 10,776 33,863 28,075 19,276
Repayment of loans from
shareholder............ (50,000) (50,000)
Proceeds from collection
of subscription
receivable............. 70
(Decrease) increase in
bank overdraft......... (191) 191
Proceeds from sale of
stock, net............. 81,868 81,868
Funds used for stock
repurchase............. (3,969) (521)
Proceeds from exercise
of stock options....... 6 14 2 112 5
-------- -------- -------- -------- --------
Net cash provided
by financing
activities....... 38,681 33,686 28,338 112 50,628
-------- -------- -------- -------- --------
Net increase (decrease)
in cash and
equivalents............ 18,001 305 (1,437) (15,763) 26,092
Cash and equivalents at
beginning of period.... 305 1,437 18,306 2,325
-------- -------- -------- -------- --------
Cash and equivalents at
end of period.......... $ 18,306 $ 305 $ -- $ 2,543 $ 28,417
======== ======== ======== ======== ========
SUPPLEMENTAL DISCLOSURE
OF CASH FLOW
INFORMATION
Cash paid during the
period for interest.... $ 2,099 $ 4,889 $ 4,511 $ 2,953
SCHEDULE OF NONCASH
FINANCING ACTIVITIES
Equity issued to
shareholder in return
for extinguishment
of debt................ $ 45,664 $ 45,664
</TABLE>
See accompanying notes to financial statements.
F-7
<PAGE>
STARWAVE CORPORATION
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 28, 1997, DECEMBER 31, 1996 AND DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1. CHANGE IN CAPITAL AND OPERATING STRUCTURE
In April 1997, Starwave Corporation (the "Company") completed a number of
transactions which changed its capital and operating structure as follows. As
of April 22, 1997, The Walt Disney Company ("Disney") purchased a controlling
interest in the Company (Note 7). A portion of the proceeds from the sale of
common stock to Disney was used to repay part of the outstanding balance under
the loan from the Company's primary shareholder. The remaining balance of the
loan from shareholder was converted to Class A common stock (Note 5).
Effective April 1, 1997, the Company established a wholly owned subsidiary,
Starwave Ventures, Inc. ("SVI"). Concurrent with the Disney equity
transaction, two new partnerships were formed and the majority of the
Company's operations were contributed to those partnerships. The Company
maintains the website hosting, software development and research and the
majority of its website operations costs are allocated to the partnerships.
The structure and purpose of the partnerships is summarized in Note 2. Certain
expenses of the partnerships are incurred by the Company and allocated to the
partnerships.
2. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
The Company produces Internet-based services intended to appeal to broad
consumer interests in sports, news and entertainment. In 1995, the Company
began receiving subscription and advertising revenues related to its online
services and revenues from sales of CD-ROM products.
Inherent in the Company's business are various risks and uncertainties,
including its limited operating history and the limited history of commerce on
the Internet. Future revenues from online services are dependent on the
continued growth and acceptance of the Internet, use of the Internet for
information, publication, distribution and commerce, and acceptance of the
Internet as an effective advertising medium. In 1997, the Company established
partnerships with related parties to produce the online services summarized as
follows:
ABC NEWS/STARWAVE PARTNERS ("AIV")
On April 1, 1997, SVI and Disney Online Investments, Inc. ("DOL"), entered
into a partnership for the production of Internet-based services intended to
appeal to a broad consumer interest in news and entertainment-related content
areas. SVI contributed the technical expertise, labor and infrastructure, and
content and DOL contributed licensed content. SVI is allocated a 60% economic
interest in partnership losses, and a 50% interest in partnership gains. DOL
is allocated a 40% economic interest in partnership losses and a 50% interest
in partnership gains.
The partners make contributions to the partnership based on actual
development and production expenses incurred on behalf of the partnership or
on formulas and sharing ratios for general and administrative expenses as
defined in the partnership agreement. For the nine months ended September 28,
1997, contributions to the partnership totaled $14,416, of which $6,738 was
contributed by SVI during the nine months ended September 28, 1997 and $1,922
is due to the partnership and is included in amounts due affiliates. The
Company considers the methodology of allocation of contributions reasonable.
ESPN/STARWAVE PARTNERS ("EIV")
On April 1, 1997, SVI and ESPN Online Investments, Inc. ("EOL"), entered
into a partnership for the production of Internet-based services intended to
appeal to broad consumer interest in sports-related content
F-8
<PAGE>
STARWAVE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
areas. SVI contributed the technical expertise, labor and infrastructure, and
EOL contributed licensed content. SVI is allocated a 60% economic interest in
partnership losses and a 50% economic interest in partnership gains. EOL is
allocated a 40% economic interest in partnership losses and a 50% economic
interest in partnership gains.
The partners make contributions to the partnership based on actual
development and production expenses incurred on behalf of the partnership or
on formulas and sharing ratios for general and administrative expenses as
defined in the partnership agreement. For the nine months ended September 28,
1997, contributions to the partnership totaled $7,972, of which $6,580 was
contributed by SVI during the period and $1,203 is due from the partnership
and is included in amounts receivable from affiliates. The Company considers
the methodology of allocation of contributions reasonable. Included in other
income (expense) for 1997 are losses from these partnerships of $8,209.
Certain assets transferred by the Company to the partnerships upon formation
were recorded at book value.
Summarized financial information from the September 28, 1997 financial
statements of the partnerships is as follows:
<TABLE>
<CAPTION>
ESPN/STARWAVE ABC NEWS/STARWAVE
PARTNERS PARTNERS
------------- -----------------
<S> <C> <C>
Current assets............................... $4,985 $4,256
Noncurrent assets............................ 84 3,134
Current liabilities.......................... 2,333 2,930
Noncurrent liabilities....................... -- --
Revenues..................................... 6,996 1,929
Cost of online services...................... 7,168 9,015
Net loss..................................... (3,752) (9,930)
</TABLE>
BASIS OF PRESENTATION
The financial statements include the accounts of Starwave Corporation and
its wholly owned subsidiary, Starwave Ventures, Inc. All significant
intercompany transactions have been eliminated. Investments in partnerships
are accounted for using the equity method of accounting.
ACCOUNTING CHANGES
In June 1997, Statement of Financial Accounting Standards (SFAS) No. 130,
Reporting Comprehensive Income, was issued. This pronouncement requires
companies to report comprehensive income and its components prominently in the
financial statements. Comprehensive income includes both net income and
charges or credits to equity that are not the result of transactions with
owners. SFAS 130 is required to be adopted for fiscal years beginning after
December 15, 1997. The Company does not have any comprehensive income items
other than net income; therefore, SFAS 130 is not expected to impact the
Company.
In June 1998, Statement of Financial Accounting Standards (SFAS) No. 133,
Accounting for Derivative Instruments and Hedging Activities, was issued. This
pronouncement standardizes the accounting for derivative instruments by
requiring that an entity recognize those items as assets or liabilities in the
financial statements and measure them at fair value. SFAS 133 is required to
be adopted for fiscal years beginning after June 15, 1999. Since the Company
does not hold any derivative instruments, SFAS 133 is not expected to impact
the Company.
In October 1997, Statement of Position (SOP) No. 97-2, Software Revenue
Recognition, was issued. This pronouncement outlines criteria which must be
satisfied before revenue from selling or licensing software can be recognized.
SOP 97-2 is required to be adopted for transactions entered into in fiscal
years beginning after December 15, 1997. The Company is currently reviewing
the requirements of SOP 97-2 and assessing its impact on the Company's
financial statements.
F-9
<PAGE>
STARWAVE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
FISCAL YEAR CHANGE
Effective April 1, 1997, the Company changed its fiscal year-end from a
calendar year ended December 31 to a fiscal year ending the last Sunday in
September. For the purposes of the financial statements, fiscal year 1997
ended September 28, 1997.
The following is selected financial data for the nine-month transition
period ended September 28, 1997 and the comparable 1996 period:
<TABLE>
<CAPTION>
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 28, SEPTEMBER 30,
1997 1996
----------------- -----------------
(UNAUDITED)
<S> <C> <C> <C>
Revenues............................... $ 4,892 $ 4,583
-------- --------
Operating expenses
Cost of online services.............. 7,185 11,046
Development.......................... 1,605 5,586
Sales and marketing.................. 1,589 2,872
General and administrative........... 2,527 3,389
-------- --------
Total operating expenses........... 12,906 22,893
-------- --------
Operating loss......................... (8,014) (18,310)
-------- --------
Other income (expense)
Loss from affiliate--EIV............. (2,251) --
Loss from affiliate--AIV............. (5,958) --
Interest (expense) income, net....... (1,814) (3,187)
Other, net........................... 464 (52)
-------- --------
Net other expense.................. (9,559) (3,239)
-------- --------
Loss from continuing operations........ (17,573) (21,549)
-------- --------
Discontinued operations
Loss from operations of Multimedia
CD-ROM segment...................... (1,046)
Loss on disposal of Multimedia CD-ROM
segment............................. (3,243)
-------- --------
Loss from discontinued operations.. -- (4,289)
-------- --------
Net loss............................... $(17,573) $(25,838)
======== ========
</TABLE>
CASH AND EQUIVALENTS
Cash and equivalents include highly liquid investments with an original
maturity of three months or less.
EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements are stated at cost. Depreciation and
amortization of equipment and leasehold improvements are provided on the
straight-line method over the estimated useful lives of the assets or the
lease term, whichever is shorter.
DEFERRED ROYALTIES
Deferred royalties represent payments made or accrued to co-branding
partners and independent content providers under development and production
agreements. Amortization begins upon launch of the applicable online service
and is based on the greater of amounts determined by the contractual royalty
rates or amounts
F-10
<PAGE>
STARWAVE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
computed on a straight-line basis over the term of the agreements. In April
1997, all significant deferred royalties were contributed to the partnerships.
REVENUE RECOGNITION
Revenues from subscriptions to the Company's online services and advertising
appearing on the Company's online services were recognized on the straight-
line method over the terms of the subscriptions and advertising contracts,
respectively. Advertising revenues were stated net of commissions. Deferred
revenue represented online subscriptions and customer advertising not yet
recognized as revenue.
The Company guaranteed to certain advertising customers a minimum number of
page impressions to be delivered on its online service for a specified period.
To the extent minimum guaranteed page impression deliveries were not met, the
Company deferred recognition of the corresponding revenues until guaranteed
page impression delivery levels were achieved. As of September 28, 1997, no
revenues have been deferred as a result of these guarantees. As described
above, beginning in April 1997 all operating revenues are recognized by the
partnerships established in the current year.
The Company has two software license arrangements with related parties. The
software licenses are one-time fees and are recognized at the time the
software master is delivered and when the criteria for fixed fee revenue
recognition under Statement of Position No. 91-1 "Software Revenue
Recognition" are satisfied. The Company has contracted to provide for
additional post-contract support for a fee, which is recognized over the
period of the contract.
DEVELOPMENT EXPENSES
Development expenses relate to the development of new online services and
consist principally of compensation to Company employees, as well as costs for
content, facilities and equipment. Development expenses are charged to results
of operations as incurred. Once an online service is launched and available to
generate revenues, expenses associated with enhancements and developments of
new features for the service are included in cost of online services, and
beginning in April 1997, are allocated to the partnerships. For the nine
months ended September 28, 1997, the development expenses consist mainly of
the expenses associated with the core technology software used to run the
online services.
ADVERTISING EXPENSES
Advertising and promotion costs are expensed as incurred. The Company
incurred advertising costs of $451, $1,203 and $271 in 1997, 1996 and 1995,
respectively.
FEDERAL INCOME TAXES
The Company accounts for income taxes using the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax
rates expected to be recovered or settled. The effect on deferred income tax
assets and liabilities of changes in tax rates is recognized in income in the
period that includes the enactment date.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash and equivalents, accounts receivable, receivable
from affiliate, other receivables, accounts payable, accrued compensation,
accrued royalties and due to affiliates approximates fair value because of the
short-term maturity of these instruments.
F-11
<PAGE>
STARWAVE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
STOCK OPTION PLAN
Prior to January 1, 1996, the Company accounted for its stock option plan in
accordance with the provision of Accounting Principles Board (APB) Opinion No.
25, Accounting for Stock Issued to Employees, and related interpretations. As
such, compensation expense would be recorded on the date of grant to employees
only if the current market price of the underlying stock exceeded the exercise
price. On January 1, 1996, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation,
which permits entities to recognize as expense over the vesting period the
fair value of all stock-based awards on the date of grant. Alternatively, SFAS
No. 123 also allows entities to continue to apply the provision of APB Opinion
No. 25 for transactions with employees and provide pro forma disclosures for
employee stock option grants made in 1995 and future years as if the fair
value-based method defined in SFAS No. 123 had been applied to these
transactions. The Company has elected to continue to apply the provisions of
APB Opinion No. 25 to these transactions and provide the pro forma disclosure
provisions of SFAS No. 123.
NET LOSS PER SHARE
Basic net loss per share represents net loss divided by the weighted average
number of shares outstanding during the period. Diluted net loss per share
represents net loss divided by the weighted average number of shares
outstanding including the potentially dilutive impact of the stock options.
Common stock options are converted using the treasury stock method. Basic and
diluted net loss per share are equal for the periods presented because the
impact of stock options is antidilutive.
RECLASSIFICATION
Certain prior year amounts have been reclassified to conform to the current
presentation.
UNAUDITED INTERIM FINANCIAL STATEMENTS
The interim financial data as of June 28, 1998 and for the nine months ended
June 28, 1998 and June 29, 1997 is unaudited; however, in the opinion of
management, the interim data includes all adjustments, consisting only of
normal recurring adjustments necessary to present fairly the Company's
financial position as of June 28, 1998 and the results of its operations and
cash flows for the nine months ended June 28, 1998 and June 29, 1997.
3. EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 28, DECEMBER 31, DECEMBER 31,
1997 1996 1995
------------- ------------ ------------
<S> <C> <C> <C>
Equipment.......................... $ 9,879 $ 9,171 $ 6,304
Leasehold improvements............. 826 403 311
------- ------- -------
10,705 9,574 6,615
Less: Accumulated depreciation and
amortization...................... (6,382) (4,759) (2,861)
------- ------- -------
Net equipment and leasehold
improvements...................... $ 4,323 $ 4,815 $ 3,754
======= ======= =======
</TABLE>
F-12
<PAGE>
STARWAVE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
4. LOANS FROM SHAREHOLDER
During 1995 and 1996, the Company's majority shareholder made unsecured
loans to the Company under a $100,000 credit agreement which did not require
repayment of principal until October 31, 1999, at which time the entire
outstanding balance was due. The loans accrued interest at a rate which varied
based on the higher of the Citibank, N.A. base rate or 0.5% above certain
money market rates. In April 1997, the balance of the loan was repaid via a
cash repayment of $50,000, and conversion of the remaining $45,664 to Class A
common stock.
5. INCOME TAXES
From inception to December 31, 1995, the shareholders of the Company elected
to utilize the provisions of Subchapter S of the Internal Revenue Code (IRC)
and thus include the Company's losses in the shareholders' personal income tax
returns. Accordingly, the Company did not record a provision for federal
income taxes.
Effective January 1, 1996, the shareholders of the Company revoked their
election to utilize the provisions of Subchapter S of the IRC. As a result,
the Company has elected to be taxed as a Subchapter C corporation.
A current provision for income taxes has not been recorded for the period
ended September 28, 1997 or the year ended December 31, 1996 due to taxable
losses incurred during such periods. A valuation allowance has been recorded
for deferred tax assets because realization is primarily dependent on
generating sufficient taxable income prior to expiration of net operating loss
carry-forwards. Deferred tax assets are summarized as follows:
<TABLE>
<CAPTION>
SEPTEMBER 28, DECEMBER 31,
1997 1996
------------- ------------
<S> <C> <C>
Capitalized "start-up" expenses................... $ 2,635 $ 2,635
Net operating loss carry-forwards................. 18,633 12,730
Other............................................. 902 512
-------- --------
Gross deferred tax assets......................... 22,170 15,877
Less: Valuation allowance......................... (22,170) (15,877)
-------- --------
Net deferred tax assets........................... $ -- $ --
======== ========
</TABLE>
As of September 28, 1997, the Company has approximately $54,800 of net
operating loss carry-forwards available to offset future taxable income, if
any, through 2011.
Under the provisions of the IRC, utilization of the Company's net operating
loss carry-forwards may be subject to limitation if it should be determined
that a greater than 50% ownership change were to occur in the future. The
Company has determined that such a change occurred in April 1997 and the
annual utilization of loss carry-forwards generated through that period will
be limited.
6. STOCK OPTION PLAN
The Company has a Combined Incentive and Nonqualified Stock Option Plan (the
"Plan") for employees, directors, consultants or independent contractors under
which is reserved 140,000 shares of Class A common stock for stock option
grants. Pursuant to the Plan, the Board of Directors may grant nonqualified
and incentive stock options. The vesting period, exercise price and expiration
period of options are established at the discretion of the Board of Directors,
except that incentive stock options must be granted with exercise prices of
not less than 100% of fair market value of the underlying common stock on the
date of the grant. However, in no event shall the term of any incentive stock
option exceed ten years. All option grants to date vest over periods ranging
from three to four years, and expire ten years from the date of grant.
The per share weighted average fair value of stock options granted during
1997, 1996 and 1995 was $1.62, $0.11 and $0.001, respectively, on the date of
grant using the Black Scholes option-pricing model with the
F-13
<PAGE>
STARWAVE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
following weighted average assumptions: 1997, 1996 and 1995--expected dividend
yield 0%; risk-free interest rate of 6.28%, 6.14% and 6.25%, respectively, and
an expected life of 2.68, 2.89 and 3.16 years, respectively.
The Company applies APB Opinion No. 25 in accounting for the Plan and,
accordingly, compensation cost has been recognized for its stock options in
the financial statements only to the extent that the exercise price of the
option is less than the fair value of the underlying stock on the date of the
grant. Had the Company determined compensation cost based on the fair value at
the grant date for its stock options under SFAS No. 123, the Company's net
loss would have been increased to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
SEPTEMBER 28, DECEMBER 31, DECEMBER 31,
1997 1996 1995
------------- ------------ ------------
<S> <C> <C> <C>
Net loss
As reported........................ $(17,573) $(35,965) $(26,903)
Pro forma.......................... (18,116) (36,049) (26,904)
</TABLE>
Pro forma net loss reflects only options granted in 1997, 1996 and 1995.
Therefore, the full impact of calculating compensation cost for stock options
under SFAS No. 123 is not reflected in the pro forma net loss amounts
presented above because compensation cost is reflected over the options'
vesting period of three to four years and compensation cost for options
granted prior to January 1, 1995 is not considered.
The following summarizes the activity, restated for the common stock split
(Note 7), under the Company's plan:
<TABLE>
<CAPTION>
WEIGHTED
WEIGHTED AVERAGE
NUMBER AVERAGE FAIR VALUE
OF EXERCISE OF OPTIONS
SHARES PRICE GRANTED
------ -------- ----------
<S> <C> <C> <C>
Balances at December 31, 1994.................... 10,152 $0.003
Options granted.................................. 3,208 0.003 $0.001
Options exercised................................ (683) 0.003
Options canceled................................. (1,109) 0.003
------
Balances at December 31, 1995.................... 11,568 0.003
Options granted:
Exercise price equal to fair value............. 3,420 0.27 0.03
Exercise price less than fair value............ 1,920 0.09 0.22
Options exercised................................ (5,531) 0.003
Options canceled................................. (1,300) 0.03
------
Balances at December 31, 1996.................... 10,077 0.105
Options granted.................................. 4,383 2.27 1.62
Options exercised................................ (2,612) 0.01
Options canceled................................. (816) 0.12
------
Balances at September 28, 1997................... 11,032 0.99
======
Options exercisable at:
December 31, 1995.............................. 4,556 $0.003
December 31, 1996.............................. 2,800 0.025
September 28, 1997............................. 3,116 0.38
</TABLE>
At September 28, 1997, 10,158 shares remained reserved and available for
grant under the Plan.
F-14
<PAGE>
STARWAVE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The following table summarizes information about stock options outstanding
under the Plan at September 28, 1997
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICE OUTSTANDING LIFE PRICE EXERCISABLE PRICE
-------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$0.003.............. 3,099 7.31 $0.003 1,377 $0.003
0.09............... 1,751 8.71 0.09 911 0.09
0.15............... 15 8.61 0.15 4 0.15
0.29............... 167 8.72 0.29 51 0.29
0.44............... 1,617 8.89 0.44 360 0.44
2.27............... 4,383 9.50 2.27 413 2.27
------ -----
11,032 8.66 0.99 3,116 0.38
====== =====
</TABLE>
7. EQUITY
As of April 22, 1997, the Company amended its Articles of Incorporation to
authorize the issuance of two new classes of shares, designated, respectively,
Class A common stock and Class B common stock. As of September 28, 1997, the
Company had the authority to issue 250,000 shares and 80,000 shares of Class A
common stock and Class B common stock, respectively, at a par value of $.01
per share. Each holder of Class A common stock is entitled to one vote per
share owned and each holder of Class B common stock is entitled to 2 1/2 votes
per share owned. Class B shares may be converted into one share of Class A
common stock at any time, and the transfer of Class B shares to a third party
results in its automatic conversion to Class A shares. Each outstanding share
of common stock on the date of amendment became one share of Class A common
stock.
As established in the Stock Purchase Agreement dated March 28, 1997,
effective April 22, 1997 Disney obtained a controlling interest in the Company
by purchasing 9,967 (39,869 following the October 3, 1997 stock split of the
Company) shares of the Company's Class B common shares. The agreement provides
that Disney has the option to acquire all of the outstanding Class A shares
held by key shareholders and employees at a predetermined price. The initial
purchase proceeds provided $31,868 in cash to the Company, and extinguished
loans from a key shareholder of $50,000 (Note 4).
COMMON STOCK SPLIT
On October 4, 1997, the Board of Directors declared a four-for-one stock
split on the Company's Class A and Class B common stock effected in the form
of a stock dividend to holders of record on that date. Class A and Class B
common stock issued, including stock option information, and additional paid-
in capital for all periods presented, have been restated to reflect this
split.
8. LEASE COMMITMENTS
The Company occupies its current facilities under terms of a noncancelable
operating lease that expires in May 2001, subject to extensions at the
Company's option. At September 28, 1997, future minimum rental payments under
the lease are as follows:
<TABLE>
<S> <C>
Year ending September,
1998.......................................................... $1,388
1999.......................................................... 1,388
2000.......................................................... 977
2001.......................................................... 285
------
$4,038
======
</TABLE>
F-15
<PAGE>
STARWAVE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Rent expense under noncancelable operating leases amounted to $871 in 1997,
$931 in 1996 and $823 in 1995.
9. DISCONTINUED OPERATIONS
In March 1996, the Company made the decision to discontinue its Multimedia
CD-ROM segment. During the phase-out period, the Company completed production
of its final CD-ROM product and disposed of its remaining inventory of CD-ROM
products currently released. The phase-out period was completed by March 31,
1997. Operating results of the Multimedia CD-ROM segment for 1996 and 1995 are
shown separately in the accompanying statements of operations. Any activity
subsequent to December 31, 1996 reduced the net liability.
Net assets (liabilities) of discontinued operations consist of the
following:
<TABLE>
<CAPTION>
SEPTEMBER 28, DECEMBER 31, DECEMBER 31,
1997 1996 1995
------------- ------------ ------------
<S> <C> <C> <C>
Net assets (liabilities)
Accounts receivable.................. $ 380
Inventory............................ 105
Prepaid royalties to independent
content providers................... 839
Accounts payable and accrued
liabilities......................... $(359) $(500) (272)
Accrual for expected losses during
phase-out period.................... (19)
----- ----- ------
$(359) $(519) $1,052
===== ===== ======
</TABLE>
Net revenues and expenses of the Multimedia CD-ROM segment consist of the
following:
<TABLE>
<CAPTION>
SEPTEMBER 28, DECEMBER 31, DECEMBER 31,
1997 1996 1995
------------- ------------ ------------
<S> <C> <C> <C>
Net revenues.......................... $-- $ 664 $ 538
Expenses.............................. (4,934) (8,012)
Accrual for expected losses during
phase-out period..................... (19)
--- ------- -------
Loss from discontinued operations..... $-- $(4,289) $(7,474)
=== ======= =======
</TABLE>
The Company recognized revenues from CD-ROM product sales at the time of
shipment from the Company's distributor. The estimated effect of price
protection programs and product returns were recorded as reductions to
revenue.
10. OTHER EXPENSE
During 1996, the Company incurred legal and accounting fees of $606 in
connection with a proposed initial public offering, which was not completed.
As a result, the costs were expensed in 1996 and included in other expenses.
F-16
<PAGE>
ESPN JOINT VENTURE INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of PricewaterhouseCoopers LLP..................................... F-18
ESPN/Starwave Partners Balance Sheets as of June 28, 1998 and September
28, 1997................................................................ F-19
ESPN/Starwave Partners Statements of Operations for the Period from April
1, 1997 (Inception) to September 28, 1997 and the Nine Months Ended June
28, 1998................................................................ F-20
ESPN/Starwave Partners Statement of Changes in Partners' Equity for the
Period from April 1, 1997 (Inception) to September 28, 1997 and the Nine
Months Ended June 28, 1998.............................................. F-21
ESPN/Starwave Partners Statements of Cash Flows for the Period from April
1, 1997 (Inception) to September 28, 1997 and the Nine Months Ended June
28, 1998................................................................ F-22
ESPN/Starwave Partners Notes to Financial Statements..................... F-23
</TABLE>
F-17
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To ESPN/Starwave Partners
d/b/a ESPN Internet Ventures
In our opinion, the accompanying balance sheet and the related statements of
operations, of changes in partners' equity and of cash flows present fairly,
in all material respects, the financial position of ESPN/Starwave Partners
d/b/a ESPN Internet Ventures at September 28, 1997, and the results of its
operations and its cash flows for the period from April 1, 1997 (inception) to
September 28, 1997, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the
Partnership's management; our responsibility is to express an opinion on these
financial statements based on our audit. We conducted our audit of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Seattle, Washington
January 30, 1998
F-18
<PAGE>
ESPN/STARWAVE PARTNERS
(D/B/A ESPN INTERNET VENTURES)
BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 28, JUNE 28,
1997 1998
------------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
------
Current assets
Cash and cash equivalents.......................... $1,900 $ 5,064
Accounts receivable (net of allowance of $71 and
$79 (unaudited), respectively).................... 2,555 3,544
Prepaid royalties.................................. 530 2,105
Property and equipment, net.......................... 84 214
------ -------
Total assets..................................... $5,069 $10,927
====== =======
LIABILITIES AND PARTNERS' EQUITY
--------------------------------
Current liabilities
Accounts payable................................... $ 506 $ 394
Deferred revenue................................... 1,718 1,665
Due to partner..................................... 109
------ -------
Total current liabilities........................ 2,333 2,059
Commitments (Note 3)
Partners' equity..................................... 2,736 8,868
------ -------
Total liabilities and partners' equity........... $5,069 $10,927
====== =======
</TABLE>
See accompanying notes to financial statements.
F-19
<PAGE>
ESPN/STARWAVE PARTNERS
(D/B/A ESPN INTERNET VENTURES)
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
APRIL 1, 1997
(INCEPTION) NINE MONTHS
TO ENDED
SEPTEMBER 28, JUNE 28,
1997 1998
------------- -----------
(UNAUDITED)
<S> <C> <C>
Revenues:
Advertising revenue................................. $ 4,868 $10,363
Subscription revenue................................ 1,732 3,898
Merchandise and other............................... 396 260
------- -------
Total revenues.................................... 6,996 14,521
------- -------
Operating expenses:
Cost of online services............................. 7,168 10,668
Development......................................... 515 1,299
Sales and marketing................................. 2,262 3,809
General and administrative.......................... 811 2,228
------- -------
Total operating expenses.......................... 10,756 18,004
------- -------
Interest income....................................... 8
------- -------
Net loss.............................................. $(3,752) $(3,483)
======= =======
</TABLE>
See accompanying notes to financial statements.
F-20
<PAGE>
ESPN/STARWAVE PARTNERS
(D/B/A ESPN INTERNET VENTURES)
STATEMENT OF CHANGES IN PARTNERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
STARWAVE ESPN ONLINE TOTAL
VENTURES, INVESTMENTS PARTNERS'
INC. INC. EQUITY
--------- ----------- ---------
<S> <C> <C> <C>
Initial capital contribution
April 1, 1997 ............................... $(1,484) $(1,484)
Capital contributions.......................... 5,377 $ 2,595 7,972
Net loss for the period........................ (2,251) (1,501) (3,752)
------- ------- -------
Balance at September 28, 1997.................. 1,642 1,094 2,736
Capital contributions (unaudited).............. 5,769 3,846 9,615
Net loss for the period (unaudited)............ (2,090) (1,393) (3,483)
------- ------- -------
Balance at June 28, 1998 (unaudited)........... $ 5,321 $ 3,547 $ 8,868
======= ======= =======
</TABLE>
See accompanying notes to financial statements.
F-21
<PAGE>
ESPN/STARWAVE PARTNERS
(D/B/A ESPN INTERNET VENTURES)
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
APRIL 1, 1997
(INCEPTION) NINE MONTHS
TO ENDED
SEPTEMBER 28, JUNE 28,
1997 1998
------------- -----------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss............................................ $(3,752) $(3,483)
Adjustments to reconcile net loss to net cash used
in operating activities
Deferred revenue from contributed assets.......... 1,484
Operating expenses allocated from partners........ 5,004 9,615
Depreciation and amortization..................... 3 49
Change in accounts receivable..................... (2,555) (989)
Change in prepaid royalties....................... (530) (1,575)
Change in accounts payable........................ 506 (112)
Change in deferred revenue........................ 1,718 (53)
Change in due to partner.......................... 109 (109)
------- -------
Net cash provided by operating activities....... 1,987 3,343
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment.................. (87) (179)
------- -------
Net increase in cash................................ 1,900 3,164
Cash, beginning of period........................... 1,900
------- -------
Cash, end of period................................. $ 1,900 $ 5,064
======= =======
</TABLE>
See accompanying notes to financial statements.
F-22
<PAGE>
ESPN/STARWAVE PARTNERS
(D/B/A ESPN INTERNET VENTURES)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 28, 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1. ORGANIZATION, BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
ESPN/Starwave Partners (the "Partnership") was formed on April 1, 1997 upon
the execution of a partnership agreement between Starwave Ventures, Inc.
("SVI") and ESPN Online Investments Inc. SVI and ESPN Online Investments Inc.
(the "Partners") are allocated net losses and net profits of the Partnership
60%/40% and 50%/50%, respectively. In addition, the partners incur and pay
certain operating expenses on behalf of the Partnership. These expenses are
allocated to the Partnership and considered contributions to partners' equity.
Upon inception, SVI contributed a deferred revenue liability of $1,484
relating to services subsequently performed by the Partnership.
BUSINESS
The Partnership was established to develop, produce and maintain Internet-
based services intended to appeal to broad consumer interests in sports-
related content areas. The Partnership generates revenue from advertisements
sold for display upon its services, and from fantasy games and subscriptions
sold to the end consumer.
Inherent in the Partnership's business are various risks and uncertainties,
including its limited operating history and the limited history of commerce on
the Internet. Future revenues from online services are dependent on the
continued growth and acceptance of the Internet, use of the Internet as an
information source, and acceptance of the Internet as an effective advertising
medium.
REVENUE RECOGNITION
Advertising, subscription and fantasy game revenues are recognized using the
straight-line method over the period of the related advertising contract,
subscription term or sports season. Merchandise revenue is recognized at the
time of sale. Advertising revenues are stated net of commissions. The
Partnership guarantees to certain advertising customers a minimum number of
page impressions to be delivered to users of its services for a specified
period. To the extent minimum guaranteed page impression deliveries are not
met, the Partnership defers recognition of the corresponding revenues until
guaranteed page impression delivery levels are achieved. As of September 28,
1997, no revenues have been deferred as a result of these guarantees. Deferred
revenues represent payments received by the Partnership and are deferred until
earned. Deferred revenues are classified based on the period of the related
advertising contract or subscription.
CASH AND EQUIVALENTS
Cash and equivalents include highly liquid investments with an original
maturity of three months or less.
PREPAID ROYALTIES
Prepaid royalties represents payments made or accrued to independent content
providers under development and production agreements. Amortization begins
upon launch of the applicable online service and is based on the greater of
amounts determined by the contractual royalty rates or amounts computed on a
straight-line basis over the terms of the agreements. At September 28, 1997,
the Partnership had one contract for a total of $1,300, which is being
amortized on a straight-line basis over the 22-month life of the contract.
Management periodically evaluates the future recoverability of prepaid
royalties. In the event management does not expect to generate revenues
sufficient to recover the prepaid royalty under a particular contract, the
F-23
<PAGE>
ESPN/STARWAVE PARTNERS
(D/B/A ESPN INTERNET VENTURES)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Partnership will reduce the carrying amount of its prepaid royalty to its fair
value on the date such a determination is made.
ACCOUNTING CHANGES
In June 1997, Statement of Financial Accounting Standards (SFAS) No. 130,
Reporting Comprehensive Income, was issued. This pronouncement requires
companies to report comprehensive income and its components prominently in the
financial statements. Comprehensive income includes both net income and
charges or credits to equity that are not the result of transactions with
owners. SFAS 130 is required to be adopted for fiscal years beginning after
December 15, 1997. The Partnership does not have any comprehensive income
items other than net income; therefore, SFAS 130 is not expected to impact the
Partnership.
In June 1998, Statement of Financial Accounting Standards (SFAS) No. 133,
Accounting for Derivative Instruments and Hedging Activities, was issued. This
pronouncement standardizes the accounting for derivative instruments by
requiring that an entity recognize those items as assets or liabilities in the
financial statements and measure them at fair value. SFAS 133 is required to
be adopted for fiscal years beginning after June 15, 1999. Since the
Partnership does not hold any derivative instruments, SFAS 133 is not expected
to impact the Partnership.
In October 1997, Statement of Position (SOP) No. 97-2, Software Revenue
Recognition, was issued. This pronouncement outlines criteria which must be
satisfied before revenue from selling or licensing software can be recognized.
SOP 97-2 is required to be adopted for transactions entered into in fiscal
years beginning after December 15, 1997. Since the Partnership does not
generate revenue from selling or licensing software, SOP 97-2 is not expected
to impact the Partnership.
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost for purchased assets and net book
value for contributed assets. Depreciation and amortization are recognized
using the straight-line method over the estimated useful lives of such assets.
The estimated useful life used is three years.
DEVELOPMENT EXPENSES
Development expenses relate to the development of new technologies that may
benefit the existing online services and consist principally as costs for
content, facilities and equipment. Development expenses are charged to results
of operations as incurred. Once an online service is launched and available to
generate revenues, expenses associated with enhancements and development of
new features for the service are included in cost of online services.
ADVERTISING EXPENSES
Advertising and promotion costs are expensed as incurred. The Partnership
incurred advertising costs of $1,558 as of September 28, 1997.
INCOME TAXES
Profits or losses of the Partnership are attributable directly to the
partners for income tax purposes. Consequently, an income tax provision has
not been reflected in these financial statements.
F-24
<PAGE>
ESPN/STARWAVE PARTNERS
(D/B/A ESPN INTERNET VENTURES)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash and cash equivalents, accounts receivable,
accounts payable and accrued compensation approximates fair value because of
the short-term maturity of these instruments.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
UNAUDITED INTERIM FINANCIAL STATEMENTS
The interim financial data as of June 28, 1998 and for the nine months then
ended is unaudited; however, in the opinion of management, the interim data
includes all adjustments, consisting only of normal recurring adjustments
necessary to present fairly the Partnership's financial position as of June
28, 1998 and the results of its operations and cash flows for the nine months
ended June 28, 1998.
2. PROPERTY AND EQUIPMENT
Property and equipment consist of the following at September 28, 1997:
<TABLE>
<S> <C>
Computer hardware................................................... $87
Less: Accumulated depreciation and amortization..................... (3)
---
$84
===
</TABLE>
The Partnership shares office space and certain operating equipment with its
partners and the related rent and depreciation of $88 and $145, respectively,
was allocated to the Partnership for the period from April 1, 1997 (inception)
to September 28, 1997.
3. COMMITMENTS
The Partnership has production agreements with third parties (licensors)
under which the Partnership produces online services utilizing content
licensed under the production agreements. In exchange for content licenses,
the licensors are entitled to royalties calculated as a percentage of gross
revenues from the online services, as defined in the production agreements.
During the term of the production agreements, the Partnership is required to
pay minimum nonrefundable payments which are offset against the royalties as
they are earned. Future minimum royalty payments are summarized as follows:
<TABLE>
<S> <C>
Year ending September,
1998.......................................................... $ 525
1999.......................................................... 1,250
2000.......................................................... 1,000
------
$2,775
======
</TABLE>
F-25
<PAGE>
ABC NEWS JOINT VENTURE INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of PricewaterhouseCoopers LLP...................................... F-27
ABC News/Starwave Partners Balance Sheets as of June 28, 1998 and
September 28, 1997....................................................... F-28
ABC News/Starwave Partners Statements of Operations for the Period from
April 1, 1997 (Inception) to September 28, 1997 and the Nine Months Ended
June 28, 1998 ........................................................... F-29
ABC News/Starwave Partners Statement of Changes in Partners' Equity for
the Period from April 1, 1997 (Inception) to September 28, 1997 and the
Nine Months Ended June 28, 1998 ......................................... F-30
ABC News/Starwave Partners Statements of Cash Flows for the Period from
April 1, 1997 (Inception) to September 28, 1997 and the Nine Months Ended
June 28, 1998............................................................ F-31
ABC News/Starwave Partners Notes to Financial Statements.................. F-32
</TABLE>
F-26
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To ABC News/Starwave Partners
d/b/a ABC News Internet Ventures
In our opinion, the accompanying balance sheet and the related statements of
operations, of changes in partners' equity and of cash flows present fairly,
in all material respects, the financial position of ABC News/Starwave Partners
d/b/a ABC News Internet Ventures at September 28, 1997, and the results of its
operations and its cash flows for the period from April 1, 1997 (inception) to
September 28, 1997, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the
Partnership's management; our responsibility is to express an opinion on these
financial statements based on our audit. We conducted our audit of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Seattle, Washington
January 30, 1998
F-27
<PAGE>
ABC NEWS/STARWAVE PARTNERS
(D/B/A ABC NEWS INTERNET VENTURES)
BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 28, JUNE 28,
1997 1998
------------- -----------
(UNAUDITED)
ASSETS
------
<S> <C> <C>
Current assets
Cash and cash equivalents........................... $ 31 $ 4,330
Accounts receivable (net of allowance of $10 and $30
(unaudited), respectively)......................... 1,368 1,123
Prepaid royalties................................... 2,857 1,997
Equipment and leasehold improvements, net............. 3,134 3,553
------ -------
Total assets...................................... $7,390 $11,003
====== =======
<CAPTION>
LIABILITIES AND PARTNERS' EQUITY
--------------------------------
<S> <C> <C>
Current liabilities
Accounts payable.................................... $2,605 $ 1,352
Accrued compensation................................ 240 49
Deferred revenue.................................... 85 203
Due to partner...................................... -- 1,822
------ -------
Total liabilities................................. 2,930 3,426
Commitments (Note 3)
Partners' equity...................................... 4,460 7,577
------ -------
Total liabilities and partners' equity............ $7,390 $11,003
====== =======
</TABLE>
See accompanying notes to financial statements.
F-28
<PAGE>
ABC NEWS/STARWAVE PARTNERS
(D/B/A ABC NEWS INTERNET VENTURES)
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
APRIL 1, 1997 NINE MONTHS
(INCEPTION) TO ENDED
SEPTEMBER 28, JUNE 28,
1997 1998
-------------- -----------
(UNAUDITED)
<S> <C> <C>
Revenues:
Advertising revenues............................... $ 937 $ 2,856
Royalties.......................................... 992 4,315
------- --------
Total revenues................................... 1,929 7,171
------- --------
Operating expenses:
Cost of online services............................ 9,015 11,696
Development........................................ 532 2,233
Sales and marketing................................ 1,777 2,660
General and administrative......................... 537 2,219
------- --------
Total operating expenses......................... 11,861 18,808
------- --------
Interest income...................................... 2
------- --------
Net loss............................................. $(9,930) $(11,637)
======= ========
</TABLE>
See accompanying notes to financial statements.
F-29
<PAGE>
ABC NEWS/STARWAVE PARTNERS
(D/B/A ABC NEWS INTERNET VENTURES)
STATEMENT OF CHANGES IN PARTNERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
STARWAVE DOL ONLINE TOTAL
VENTURES, INVESTMENTS, PARTNERS'
INC. INC. EQUITY
--------- ------------ ---------
<S> <C> <C> <C>
Initial capital contribution, April 1, 1997.. $ (26) $ (26)
Capital contributions........................ 8,660 $ 5,756 14,416
Net loss for the period...................... (5,958) (3,972) (9,930)
------- ------- --------
Balance at September 28, 1997................ 2,676 1,784 4,460
Capital contributions (unaudited)............ 8,852 5,902 14,754
Net loss for the period (unaudited).......... (6,982) (4,655) (11,637)
------- ------- --------
Balance at June 28, 1998 (unaudited)......... $ 4,546 $ 3,031 $ 7,577
======= ======= ========
</TABLE>
See accompanying notes to financial statements.
F-30
<PAGE>
ABC NEWS/STARWAVE PARTNERS
(D/B/A ABC NEWS INTERNET VENTURES)
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
APRIL 1, 1997
(INCEPTION) NINE MONTHS
TO ENDED
SEPTEMBER 28, JUNE 28,
1997 1998
------------- -----------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss............................................ $(9,930) $(11,637)
Adjustments to reconcile net loss to net cash used
in operating activities
Deferred revenue from contributed assets.......... 26
Operating expenses allocated from partners........ 11,327 14,754
Depreciation and amortization..................... 273 492
Change in accounts receivable..................... (1,368) 245
Change in prepaid royalties....................... (2,857) 860
Change in accounts payable........................ 2,605 (1,253)
Change in accrued compensation.................... 240 (191)
Change in deferred revenue........................ 85 118
Change in due to partner.......................... 1,822
------- --------
Net cash provided by operating activities....... 401 5,210
------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of equipment and leasehold improvements.... (370) (911)
------- --------
Net increase in cash................................ 31 4,299
Cash, beginning of period........................... 31
------- --------
Cash, end of period................................. $ 31 $ 4,330
======= ========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES
Fixed assets contributed by partners................ $ 3,037
</TABLE>
See accompanying notes to financial statements.
F-31
<PAGE>
ABC NEWS/STARWAVE PARTNERS
(D/B/A ABC NEWS INTERNET VENTURES)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 28, 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1. ORGANIZATION, BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
ABC News/Starwave Partners (the "Partnership") was formed on April 1, 1997
upon the execution of a partnership agreement between Starwave Ventures, Inc.
("SVI") and DOL Online Investments Inc. SVI and DOL Online Investments Inc.
are allocated the net losses and net profits of the Partnership 60%/40% and
50%/50%, respectively. In addition, the partners incur and pay certain
operating expenses on behalf of the Partnership. These expenses are allocated
to the Partnership and considered contributions to partners' equity. Upon
inception, SVI contributed a deferred revenue liability of $26, relating to
services subsequently performed by the Partnership.
BUSINESS
The Partnership was established to develop, produce and maintain Internet-
based services intended to appeal to broad consumer interests in news and
entertainment content areas. The Partnership currently generates revenue from
advertisements sold for display upon its services, and royalties from certain
production agreements.
Inherent in the Partnership's business are various risks and uncertainties,
including its limited operating history and the limited history of commerce on
the Internet. Future revenues from online services are dependent on the
continued growth and acceptance of the Internet, use of the Internet as an
information source, and acceptance of the Internet as an effective advertising
medium.
ACCOUNTING CHANGES
In June 1997, Statement of Financial Accounting Standards (SFAS) No. 130,
Reporting Comprehensive Income, was issued. This pronouncement requires
companies to report comprehensive income and its components prominently in the
financial statements. Comprehensive income includes both net income and
charges or credits to equity that are not the result of transactions with
owners. SFAS 130 is required to be adopted for fiscal years beginning after
December 15, 1997. The Partnership does not have any comprehensive income
items other than net income; therefore, SFAS 130 is not expected to impact the
Partnership.
In June 1998, Statement of Financial Accounting Standards (SFAS) No. 133,
Accounting for Derivative Instruments and Hedging Activities, was issued. This
pronouncement standardizes the accounting for derivative instruments by
requiring that an entity recognize those items as assets or liabilities in the
financial statements and measure them at fair value. SFAS 133 is required to
be adopted for fiscal years beginning after June 15, 1999. Since the
Partnership does not hold any derivative instruments, SFAS 133 is not expected
to impact the Partnership.
In October 1997, Statement of Position (SOP) No. 97-2, Software Revenue
Recognition, was issued. This pronouncement outlines criteria which must be
satisfied before revenue from selling or licensing software can be recognized.
SOP 97-2 is required to be adopted for transactions entered into in fiscal
years beginning after December 15, 1997. Since the Partnership does not
generate revenue from selling or licensing software, SOP 97-2 is not expected
to impact the Partnership.
F-32
<PAGE>
ABC NEWS/STARWAVE PARTNERS
(D/B/A ABC NEWS INTERNET VENTURES)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
REVENUE RECOGNITION
Advertising revenues are recognized using the straight-line method over the
period of the related advertising contract. Advertising revenues are stated
net of commissions. The Partnership guarantees to certain advertising
customers a minimum number of page impressions to be delivered to users of its
services for a specified period. To the extent minimum guaranteed page
impression deliveries are not met, the Partnership defers recognition of the
corresponding revenues until guaranteed page impression delivery levels are
achieved. As of September 28, 1997, no revenues have been deferred as a result
of these guarantees. Deferred revenues represent payments received in advance
by the Partnership which are deferred until earned. Deferred revenues are
classified based on the period of the related advertising or production
contract.
CASH AND EQUIVALENTS
Cash and equivalents include highly liquid investments with an original
maturity of three months or less.
PREPAID ROYALTIES
Prepaid royalties represents payments made or accrued to independent content
providers under development and production agreements. Amortization begins
upon launch of the applicable online service and is based on the greater of
amounts determined by the contractual royalty rates or amounts computed on a
straight-line basis over the terms of the agreements. At September 28, 1997,
the Partnership had one contract for a total of $3,750, which is being
amortized on a straight-line basis over the two-year life of the contract.
EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements are recorded at cost for purchased
assets and net book value for contributed assets. Depreciation and
amortization are recognized using the straight-line method over the estimated
useful lives of such assets ranging from one to six years.
DEVELOPMENT EXPENSES
Development expenses relate to the development of new technologies that may
benefit the online service and consist principally of costs for labor,
facilities and equipment. Development expenses are charged to results of
operations as incurred. Once an online service is launched and available to
generate revenues, expenses associated with enhancements and development of
new features for the service are included in cost of online services.
ADVERTISING EXPENSES
Advertising and promotion costs are expensed as incurred. The Partnership
incurred advertising costs of $1,260 as of September 28, 1997.
INCOME TAXES
Profits or losses of the Partnership are attributable directly to the
partners for income tax purposes. Consequently, an income tax provision has
not been reflected in these financial statements.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash and cash equivalents, accounts receivable,
accounts payable and accrued compensation approximates fair value because of
the short-term maturity of these instruments.
F-33
<PAGE>
ABC NEWS/STARWAVE PARTNERS
(D/B/A ABC NEWS INTERNET VENTURES)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
UNAUDITED INTERIM FINANCIAL STATEMENTS
The interim financial data as of June 28, 1998 and for the nine months then
ended is unaudited; however, in the opinion of management, the interim data
includes all adjustments, consisting only of normal recurring adjustments
necessary to present fairly the Partnership's financial position as of June
28, 1998 and the results of its operations and cash flows for the nine months
ended June 28, 1998.
2. EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements consist of the following at September
28, 1997:
<TABLE>
<S> <C>
Computer hardware.................................................. $ 348
Software........................................................... 3
Furniture and fixtures............................................. 19
Leasehold improvements............................................. 3,037
------
3,407
Less: Accumulated depreciation and amortization.................... (273)
------
Equipment and leasehold improvements, net.......................... $3,134
======
</TABLE>
The Partnership shares office space and certain operating equipment with its
partners. Related rent in the amount of $29 was allocated to the Partnership
for the period from April 1, 1997 (inception) to September 28, 1997.
3. COMMITMENTS
The Partnership has production agreements with third parties (licensors)
under which the Partnership produces online services utilizing content
licensed under the production agreements. In exchange for content licenses,
the licensors are entitled to royalties calculated as a percentage of gross
revenues from the online services, as defined in the production agreements.
During the term of the production agreements, the Partnership is required to
pay minimum nonrefundable payments which are offset against the royalties as
they are earned. Future minimum royalty payments are summarized as follows:
<TABLE>
<S> <C>
Year ending September,
1998........................................................... $1,053
1999........................................................... 750
------
$1,803
======
</TABLE>
F-34
<PAGE>
QUANDO, INC. INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of KPMG Peat Marwick LLP.......................................... F-36
Quando, Inc. Balance Sheets as of December 31, 1997 and 1996 and June 30,
1998.................................................................... F-37
Quando, Inc. Statements of Operations for the Years Ended December 31,
1995, 1996 and 1997 and the Six Months Ended June 30, 1997 and 1998..... F-38
Quando, Inc. Statements of Shareholders' Equity (Deficit) for the Years
Ended December 31, 1995, 1996 and 1997, and the Six Months Ended June
30, 1998................................................................ F-39
Quando, Inc. Statements of Cash Flows for the Years Ended December 31,
1995, 1996 and 1997, and the Six Months Ended June 30, 1997 and 1998.... F-40
Quando, Inc. Notes to Financial Statements............................... F-41
</TABLE>
F-35
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Quando, Inc.:
We have audited the accompanying balance sheets of Quando, Inc. (the
Company) as of December 31, 1996 and 1997, and the related statements of
operations, shareholders' equity (deficit), and cash flows for each of the
years in the three-year period ended December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Quando, Inc. as of
December 31, 1996 and 1997, and the results of its operations and its cash
flows for the three-year period ended December 31, 1997 in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company has suffered recurring
losses from operations and has a net capital deficiency that raise substantial
doubt about its ability to continue as a going concern. Management's plans in
regard to these matters are described in note 12. The financial statements do
not include any adjustment that might result from the outcome of this
uncertainty.
KPMG Peat Marwick LLP
Portland, Oregon
August 18, 1998
F-36
<PAGE>
QUANDO, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------------------ -----------
1996 1997 1998
----------- ----------- -----------
(UNAUDITED)
ASSETS
------
<S> <C> <C> <C>
Current assets:
Cash.................................. $ 2,935 $ 50,984 $ --
Accounts receivable, net.............. -- 29,241 33,134
----------- ----------- -----------
Total current assets................ 2,935 80,225 33,134
Property and equipment, net............. 51,308 42,681 46,804
Other assets............................ 3,562 3,718 3,718
----------- ----------- -----------
Total assets........................ $ 57,805 $ 126,624 $ 83,656
=========== =========== ===========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' DEFICIT
-------------------------------------
<S> <C> <C> <C>
Current liabilities:
Accounts payable and accrued
expenses............................. $ 202,405 $ 260,908 $ 369,716
Shareholders' loans................... 66,991 67,658 107,242
----------- ----------- -----------
Total current liabilities........... 269,396 328,566 476,958
Convertible debt........................ -- 247,000 447,000
----------- ----------- -----------
Total liabilities................... 269,396 575,566 923,958
----------- ----------- -----------
Shareholders' deficit:
Preferred stock, no par value;
4,000,000 shares authorized:
Series A convertible preferred
stock; 300,000 shares authorized;
300,000 shares issued and
outstanding on December 31, 1996,
December 31, 1997 and June 30, 1998
(liquidation preference of
$300,000).......................... 295,575 295,575 295,575
Series B convertible preferred
stock; 880,000 shares authorized;
691,232, 880,000 and 880,000 shares
issued and outstanding on December
31, 1996, December 31, 1997 and
June 30, 1998, respectively
(liquidation preference of
$550,000).......................... 410,263 526,313 526,313
Common stock, no par value; 19,000,000
shares authorized; 5,445,000,
4,445,000 and 4,445,000 shares issued
and outstanding on December 31, 1996,
December 31, 1997 and June 30, 1998,
respectively......................... 160,000 160,000 160,000
Additional paid-in capital............ 6 6 6
Accumulated deficit................... (1,077,435) (1,430,836) (1,822,196)
----------- ----------- -----------
Total shareholders' deficit......... (211,591) (448,942) (840,302)
----------- ----------- -----------
Total liabilities and shareholders'
deficit............................ $ 57,805 $ 126,624 $ 83,656
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-37
<PAGE>
QUANDO, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
YEARS ENDED DECEMBER 31, 30,
------------------------------- -----------------------
1995 1996 1997 1997 1998
--------- --------- --------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues, net........... $ 71,186 $ 33,182 $ 255,723 $ 72,626 $ 88,578
Cost of goods sold...... 32,212 19,373 654 250 2,400
--------- --------- --------- --------- ---------
Gross margin.......... 38,974 13,809 255,069 72,376 86,178
--------- --------- --------- --------- ---------
Operating costs and
expenses:
Research and
development.......... 127,273 115,782 161,339 80,670 184,454
Sales and marketing... 400 2,000 12,000 1,971 --
General and
administrative....... 361,156 326,103 418,850 203,734 257,027
--------- --------- --------- --------- ---------
488,829 443,885 592,189 286,375 441,481
--------- --------- --------- --------- ---------
Loss from
operations......... (449,855) (430,076) (337,120) (213,999) (355,303)
Other income (expense):
Interest expense...... (5,737) (14,897) (26,151) (9,015) (35,908)
Other income
(expense), net....... 1,232 2,226 9,870 5 (149)
Loss on sale of fixed
assets............... (3,743) -- -- -- --
--------- --------- --------- --------- ---------
Loss before
provision for
income taxes....... (458,103) (442,747) (353,401) (223,009) (391,360)
Provision for income
taxes.................. -- -- -- -- --
--------- --------- --------- --------- ---------
Net loss.............. $(458,103) $(442,747) $(353,401) $(223,009) $(391,360)
========= ========= ========= ========= =========
</TABLE>
See accompanying notes to financial statements.
F-38
<PAGE>
QUANDO, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
PREFERRED STOCK
---------------------------------
TOTAL
SERIES A SERIES B COMMON STOCK ADDITIONAL SHAREHOLDERS
---------------- ---------------- -------------------- PAID-IN ACCUMULATED EQUITY
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT (DEFICIT)
------- -------- ------- -------- ---------- -------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1994................... 125,000 $120,575 -- $ -- 5,445,000 $160,000 $ 5 $ (176,585) $ 103,995
Issuance of preferred
stock.................. 175,000 175,000 -- -- -- -- 1 -- 175,001
Net loss................ -- -- -- -- -- -- -- (458,103) (458,103)
------- -------- ------- -------- ---------- -------- --- ----------- ---------
Balance, December 31,
1995................... 300,000 295,575 -- -- 5,445,000 160,000 6 (634,688) (179,107)
Issuance of preferred
stock, net of offering
costs.................. -- -- 691,232 410,263 -- -- -- -- 410,263
Net loss................ -- -- -- -- -- -- -- (442,747) (442,747)
------- -------- ------- -------- ---------- -------- --- ----------- ---------
Balance, December 31,
1996................... 300,000 295,575 691,232 410,263 5,445,000 160,000 6 (1,077,435) (211,591)
Issuance of preferred
stock, net of offering
costs.................. -- -- 188,768 116,050 -- -- -- -- 116,050
Recision of common
stock.................. -- -- -- -- (1,000,000) -- -- -- --
Net loss................ -- -- -- -- -- -- -- (353,401) (353,401)
------- -------- ------- -------- ---------- -------- --- ----------- ---------
Balance, December 31,
1997................... 300,000 295,575 880,000 526,313 4,445,000 160,000 6 (1,430,836) (448,942)
Net loss (unaudited).... -- -- -- -- -- -- -- (391,360) (391,360)
------- -------- ------- -------- ---------- -------- --- ----------- ---------
Balance, June 30, 1998
(unaudited)............ 300,000 $295,575 880,000 $526,313 4,445,000 $160,000 $ 6 $(1,822,196) $(840,302)
======= ======== ======= ======== ========== ======== === =========== =========
</TABLE>
See accompanying notes to financial statements.
F-39
<PAGE>
QUANDO, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
------------------------------- ---------------------------
1995 1996 1997 1997 1998
--------- --------- --------- ------------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net loss.............. $(458,103) $(442,747) $(353,401) $ (223,009) $ (391,360)
Adjustments to
reconcile net loss to
net cash used in
operating activities:
Depreciation and
amortization....... 22,146 12,567 16,179 9,025 9,894
Allowance for bad
debts.............. -- -- 1,618 1,618 --
Gain on forgiveness
of accounts
payable............ -- -- (10,000) -- --
Loss on sale of
fixed assets....... 3,743 -- -- -- --
Changes in assets
and liabilities:
Accounts
receivable....... (13,571) 26,909 (30,859) (16,090) (3,893)
Inventory......... (4,376) 16,538 -- -- --
Other assets...... 6,753 9 (156) (156) --
Accounts payable
and accrued
expenses......... 135,237 15,702 68,503 43,079 108,808
Other current
liabilities...... 15,953 (15,953) -- -- --
--------- --------- --------- ------------ ------------
Net cash used in
operating
activities..... (292,218) (386,975) (308,116) (185,533) (276,551)
--------- --------- --------- ------------ ------------
Cash flows from
investing activities:
Purchase of
equipment............ (17,277) (39,302) (7,552) (19) (14,017)
Proceeds from sale of
equipment............ 36,182 -- -- -- --
--------- --------- --------- ------------ ------------
Net cash
provided by
(used in)
investing
activities..... 18,905 (39,302) (7,552) (19) (14,017)
--------- --------- --------- ------------ ------------
Cash flows from
financing activities:
Proceeds from issuance
of convertible debt.. -- -- 240,000 65,000 200,000
Proceeds from
shareholder loans,
net.................. 51,364 15,627 7,667 1,567 39,584
Proceeds from issuance
of preferred stock,
net.................. 175,000 410,263 116,050 116,050 --
Proceeds from sale of
warrants............. 1 -- -- -- --
--------- --------- --------- ------------ ------------
Net cash
provided by
financing
activities..... 226,365 425,890 363,717 182,617 239,584
--------- --------- --------- ------------ ------------
Increase
(decrease) in
cash........... (46,948) (387) 48,049 (2,935) (50,984)
Cash at beginning of
year................... 50,270 3,322 2,935 2,935 50,984
--------- --------- --------- ------------ ------------
Cash at end of year..... $ 3,322 $ 2,935 $ 50,984 $ -- $ --
========= ========= ========= ============ ============
Supplemental disclosures
of cash flow
information:
Cash paid during the
year for:
Interest (including
amounts paid to
shareholders of
$5,737, $14,897,
$16,825, $7,970 and
$7,684,
respectively....... $ 5,737 $ 14,897 $ 26,151 $ 9,015 $ 35,908
Income taxes.......... -- -- -- -- --
Supplemental disclosures
of non-cash financing
activities:
Convertible notes
issued upon
conversion of
shareholder loans.... $ -- $ -- $ 7,000 $ -- $ --
</TABLE>
See accompanying notes to financial statements.
F-40
<PAGE>
QUANDO, INC.
NOTES TO FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Quando, Inc. (Quando or the Company) was incorporated as an S Corporation
on December 12, 1993 in the State of Oregon as Media Mosaic, Inc. (Media
Mosaic or the Company). Media Mosaic developed and published "how to" CD-
ROM's for several activities and hobbies. On October 10, 1994, Media Mosaic
revoked its S Corporation election of tax status and began operating as a C
Corporation. During 1994 and 1995, the Company's sales consisted entirely
of CD-ROM sales.
In 1996, due to lower than expected CD-ROM sales, Media Mosaic terminated
its CD-ROM development and publishing business. In March 1996, the Company
began developing custom event directory services for the internet.
Effective September 27, 1996, the Company changed its name from Media
Mosaic, Inc. to Quando, Inc. and in March 1997, the Company began to sell
their custom event directory services to customers. During 1997, the
Company's sales consisted entirely of fees charged for custom directory
services and fees charged for custom engineering projects.
UNAUDITED QUARTERLY INFORMATION
The financial information included herein for the six-month periods ended
June 30, 1997 and 1998 is unaudited; however, such information reflects all
adjustments consisting only of normal recurring adjustments which are, in
the opinion of management, necessary for a fair presentation of the
financial position, results of operations and cash flows for the interim
periods. The interim financial statements should be read in conjunction
with the financial statements and the notes included in the financial
statements. The results of operations for the interim period presented are
not necessarily indicative of the results to be expected for the full year.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from those
estimates.
REVENUE RECOGNITION
In 1995 and 1996, revenue resulted primarily from CD-ROM product sales. CD-
ROM sales were recognized upon shipment. The Company generally provided for
a right of return, however, due to the termination of this line of business
in 1996, no sales reserve was considered necessary at December 31, 1996 or
1997.
In 1997, revenue results primarily from fees for (a) directory services and
(b) engineering or other customization of directory services. Directory
service fees are recognized monthly as they are earned and custom
engineering projects are recognized on a completed contract basis.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Property and equipment are
depreciated using the straight-line method over the estimated useful lives
of the assets as follows: computers and software over three to five
F-41
<PAGE>
QUANDO, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
years, furniture and equipment over five to seven years. Leasehold
improvements are amortized over the shorter of the useful life of the asset
or the life of the lease.
INCOME TAXES
The Company accounts for income taxes under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences of events that have been included in the financial statements
and tax returns. Under this method, deferred tax assets and liabilities are
determined based on the difference between the financial statement and tax
bases of assets and liabilities using enacted tax rates in effect for the
year in which the differences are expected to be recovered or settled.
Valuation allowances are established to reduce deferred tax assets to the
amount expected to be realized.
RESEARCH AND DEVELOPMENT
Expenditures for research and development are expensed as incurred.
CAPITALIZED SOFTWARE
Under Statement of Financial Accounting Standards No. 86, software
development costs are to be capitalized beginning when a product's
technological feasibility has been established and ending when a product is
made available for general release to customers. The establishment of
technological feasibility of the Company's products has occurred shortly
before general release and, accordingly, no costs have been capitalized.
ROYALTIES
Royalties are accrued based on certain product sales, pursuant to
contractual agreements with developers of software products published by
the Company.
ACCOUNTS RECEIVABLE
Accounts receivable is net of an allowance for doubtful accounts of $-0-,
$1,618 and $1,618 at December 31, 1996, December 31, 1997 and June 30,
1998, respectively.
INTANGIBLE ASSETS
Intangible assets, which represent capitalized packaging design fees, are
amortized on a straight-line basis over the expected periods to be
benefited. The Company assesses the recoverability of this intangible asset
by determining whether the amortization of the goodwill balance over its
remaining life can be recovered through undiscounted future operating cash
flows of the product sales. Due to the discontinuance of the associated
product, the remaining capitalized packaging design fees of $16,937 were
written off during 1995 and are included in cost of goods sold.
STOCK-BASED COMPENSATION
The Company accounts for stock-based compensation using the Financial
Accounting Standard Board's Statement of Financial Accounting Standards No.
123 (SFAS 123), Accounting for Stock-Based Compensation. This statement
permits a company to choose either a fair-value based method of accounting
for its stock-based compensation arrangements or to comply with the current
Accounting Principles Board
F-42
<PAGE>
QUANDO, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Opinion 25 (APB Opinion 25) intrinsic-value-based method adding pro forma
disclosures of net loss computed as if the fair-value-based method had been
applied in the financial statements. The Company applies SFAS No. 123 by
retaining the APB Opinion 25 method of accounting for stock-based
compensation for employees with annual pro forma disclosures of net loss.
Stock-based compensation for non-employees is accounted for using the fair-
value-based method.
ADVERTISING
The Company expenses the costs of advertising when the costs are incurred.
Advertising expense was approximately $12,000, $2,000 and $400 for the
years ended December 31, 1995, 1996 and 1997, respectively.
EFFECT OF RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income" (SFAS 130), which establishes
requirements for disclosure of comprehensive income. The objective of SFAS
130 is to report all changes in equity that result from transactions and
economic events other than transactions with owners. Comprehensive income
is the total of net income and all other non-owner charges in equity. SFAS
130 is effective for fiscal years beginning after December 15, 1997.
Reclassification of earlier financial statements for comparative purposes
is required. The Company does not expect implementation to have a
significant impact on its financial statements.
Also in June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments
of an Enterprise and Related Information." SFAS No. 131 requires public
companies to report certain information about their operating segments in a
complete set of financial statements to shareholders. It also requires
reporting of certain enterprise-wide information about the Company's
products and services, its activities in different geographic areas and its
reliance on major customers. The basis for determining the Company's
operating segments is the manner in which management operates the business.
SFAS No. 131 is effective for fiscal years beginning after December 15,
1997. The Company does not expect implementation to have a significant
impact on its financial statements.
In October 1997, the AICPA issued Statement of Position 97-2, "Software
Revenue Recognition," ("SOP 97-2"), which is effective for software
transactions entered into beginning January 1, 1998. SOP 97-2 generally
requires revenue earned on software arrangements involving multiple
elements to be allocated to each element based on the relative fair values
of the elements. The revenue allocated to software products generally is
recognized upon delivery of the products. The revenue allocated to post-
contract customer support generally is recognized ratably over the term of
the support and revenue allocated to service elements generally is
recognized as the services are performed. The Company does not expect SOP
97-2 to have a significant impact on its financial statements.
F-43
<PAGE>
QUANDO, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(2) PROPERTY AND EQUIPMENT, NET
Property and equipment consists of the following at December 31:
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Leasehold improvements.................................... $ 3,212 $ 3,212
Software.................................................. 33,526 33,526
Furniture and fixtures.................................... 6,792 7,152
Equipment................................................. 1,371 1,435
Computer equipment........................................ 29,245 36,373
------- -------
74,146 81,698
Less accumulated depreciation and amortization............ 22,838 39,017
------- -------
$51,308 $42,681
======= =======
</TABLE>
(3) INCOME TAXES
The Company incurred a loss for both financial reporting and tax return
purposes and, as such, there was no current or deferred tax provision for
the years 1995, 1996 and 1997.
The difference between the expected tax expense, computed by applying the
federal statutory rate of 34% to loss before taxes, and the actual tax
expense of $-0- is primarily due to the increase in the valuation allowance
for deferred tax assets.
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liability at December
31 are approximately as follows:
<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
Deferred tax assets:
Federal and state operating loss carryforwards....... $334,000 $492,000
Research and experimentation credits................. 18,000 33,000
Other................................................ 27,000 2,000
-------- --------
Total gross deferred tax assets.................. 379,000 527,000
Less valuation allowance............................. (379,000) (524,000)
-------- --------
Net deferred tax assets.......................... -- 3,000
Deferred tax liability:
Property and equipment, due to differences in
depreciation........................................ -- 3,000
-------- --------
$ -- $ --
======== ========
</TABLE>
The total valuation allowance for deferred tax assets as of December 31,
1995, 1996 and 1997 was $207,000, $379,000 and $524,000, respectively. The
net change in the total valuation allowance for the years ended December
31, 1995, 1996 and 1997 was an increase of $192,000, $172,000 and $145,000,
respectively.
At December 31, 1997, the Company has federal and state net operating loss
and research and experimentation credit carryforwards of approximately
$1,280,000 and $40,000, respectively. These carryforwards will expire
between 2000 and 2012 if not used by the Company to reduce income taxes
payable in future periods. These carryforwards will be subject to further
limitations upon closing of the proposed transaction discussed in note 12.
F-44
<PAGE>
QUANDO, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(4) SHAREHOLDERS' EQUITY
RECISION OF COMMON STOCK
On February 25, 1997, the two founders surrendered a total of 1,000,000
shares of common stock to the Company in exchange for no consideration. As
the Company has no par common stock, there is no statement of operations or
balance sheet effects of this transaction.
SERIES A AND SERIES B PREFERRED STOCK
The Series A preferred stock has no stated value per share and a
liquidation preference over the holders of common stock of an amount per
share equal to $1.00 (the original issue price) plus all declared but
unpaid dividends. The Series B preferred stock has no stated value per
share and a liquidation preference over the holders of common stock of an
amount per share equal to $.625 (the original issue price) plus all
declared but unpaid dividends. No dividend declarations have been made for
Series A or Series B preferred stock as of December 31, 1995, 1996 and
1997.
Each share is convertible into common stock at any time at the option of
the holder. The initial conversion ratio for both Series A and Series B
preferred stock is one-to-one, but this ratio is subject to modification
under the Company's Articles of Incorporation in the event of certain
dilutive issuance of securities, stock splits, stock dividends, stock
distributions or other common stock equivalent distributions. Automatic
conversion to common stock at the then effective conversion rate will occur
upon the closing of the issuance of shares following an effective
registration statement under the Securities Act of 1933, in which the
aggregate price to the public at least $7,500,000 and in which the public
offering price per share of common stock equals or exceeds $4.00.
The holders of each share of Series A preferred stock and Series B
preferred stock has the right to the number of votes to which they would be
entitled if the shares were converted to common stock. The Series A
preferred stock, Series B preferred stock and the common stock vote
together, not as separate classes. The Company has reserved 300,000 shares
of the Company's common stock for the conversion of Series A preferred
stock and 880,000 shares of common stock for the conversion of Series B
preferred stock.
SHAREHOLDERS' AGREEMENT
The Company and its shareholders have entered into agreements that include
restrictions on the transfer of the Company's common stock. Except for
expressly provided exceptions, no shareholder is allowed to transfer
ownership of stock without the shares being first offered for sale to the
Company.
WARRANTS
The Company issued warrants to purchase 300,000 shares of the Company's
common stock in 1994 and 1995 in conjunction with the sale of the Series A
preferred stock. The warrants were issued with an exercise price of $.10
per share and initially expired three years from the date of grant. On
November 1, 1997, the Company extended the term of these warrants from
three to five years from the date of grant.
On July 15, 1996, the Company granted a warrant to purchase 47,727 shares
of the Company's common stock to a related party at an exercise price of
$.55 per share. This warrant was issued in connection with an equipment
lease.
On December 1, 1997, the Company issued 16,000 warrants with an exercise
price of $.625 per share to a creditor.
F-45
<PAGE>
QUANDO, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(5) 1994 STOCK INCENTIVE PLAN
In 1994, the Company adopted an incentive stock option plan (the Plan)
whereby a total of 1,000,000 shares of common stock have been reserved for
the grant of stock options to selected employees, officers, directors,
consultants and advisors. Options granted pursuant to the Plan may be
either incentive stock options as defined in Section 442A of the Internal
Revenue Code of 1986, as amended, or non-qualified stock options, at the
discretion of the Board. Additionally, the aggregate fair market value
(determined at the time the options are granted) of common stock which the
incentive stock options are exercisable for the first time by an optionee
during any calendar year shall not exceed $100,000.
Under the Plan, options generally vest ratably over three to five years.
Options granted under the Plan must be exercised within three months of the
optionee's termination of employment and within ten years of the date of
the grant. Option prices are generally not less than the fair market value
of the shares at the date of grant. At the time of the exercise of the
option, all optionee's must grant the Company or its designee a right of
first refusal with respect to all transfers.
The Company has elected to account for its stock-based compensation plans
under APB Opinion 25; however, the Company has computed, for proforma
disclosure purposes, the value of all options granted during 1995, 1996 and
1997 using the minimum value option-pricing model as prescribed by SFAS 123
using the following assumptions used for grants:
<TABLE>
<CAPTION>
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Risk-free interest rate...................... 6.00% 6.25% 6.50%
Expected dividend yield...................... $ -- $ -- $ --
Expected lives............................... 5 years 5 years 5 years
Weighted average grant date fair value per
option...................................... $ .10 $ .141 $ .15
</TABLE>
If the Company had accounted for these options in accordance with SFAS 123,
the Company's net loss for the year ended December 31, 1997 would have
increased to the following pro forma amounts:
<TABLE>
<CAPTION>
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Net loss:
As reported............................ $(458,103) $(442,747) $(353,401)
Proforma............................... (458,517) (445,212) (356,786)
</TABLE>
F-46
<PAGE>
QUANDO, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
A summary of the status of the Company's Plan at December 31, 1997 and
changes during the three year period then ended is presented in the
following table:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE
OPTIONS PRICE
------- --------
<S> <C> <C>
Outstanding December 31, 1994............................ 5,000 $.10
Granted.................................................. 202,550 .10
Exercised................................................ -- --
Canceled................................................. 100,000 .10
------- -----
Outstanding December 31, 1995............................ 107,550 .10
Granted.................................................. 266,003 .141
Exercised................................................ -- --
Canceled................................................. 25,200 .10
------- -----
Outstanding December 31, 1996............................ 348,353 .131
Granted.................................................. 210,243 .150
Exercised................................................ -- --
Canceled................................................. 103,650 .126
------- -----
Outstanding December 31, 1997............................ 454,946 $.141
======= =====
</TABLE>
The outstanding stock options have a weighted average remaining contractual
life of 5.9 years. At December 31, 1997, a total of 174,421 incentive and
non-qualified stock options were exercisable at an weighted average
exercise price of $.13 share and with a weighted average remaining
contractual live in years of 5.5.
(6) CONVERTIBLE PROMISSORY NOTES
In 1997, the Company issued $247,000 in convertible subordinated promissory
notes (the Notes). The Notes are due on January 1, 2000 through April 1,
2000 and bear interest at 10% to 12% per annum. Prior to January 1, 2000,
the Notes are convertible into common stock at a price per share of the
next equity financing by the Company or, if there is no equity financing
before January 1, 2000, at $.625 per share of common stock.
(7) COMMITMENTS AND CONTINGENCIES
LEASES
The Company leases equipment and office space under non-cancelable
operating leases which expire at various dates through 2000.
Future minimum lease payments under operating leases are as follows:
<TABLE>
<S> <C>
Year ending December 31:
1998.......................................................... $ 50,692
1999.......................................................... 46,800
2000.......................................................... 42,900
--------
Total minimum lease payments................................ $140,392
========
</TABLE>
Lease expense totaled $63,114, $70,765 and $80,397 in 1995, 1996 and 1997,
respectively. (See Note 10)
F-47
<PAGE>
QUANDO, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
YEAR 2000
The Company is aware of the issues associated with the programming code in
existing computer systems as the year 2000 approaches. The "year 2000
problem" is pervasive and complex as virtually every computer operation
will be affected in some way by the rollover of the two-digit year value to
00. The issue is whether computer systems will properly recognize date
sensitive information when the year changes to 2000. Systems that do not
properly recognize such information could generate erroneous data or cause
a system to fail.
The Company has conducted a review of the Company's exposure to the year
2000 problem, including working with computer systems and software vendors
to assure that they are prepared for the year 2000. Based on this review
and discussions with such vendors, the Company currently believes that its
internal systems are year 2000 compliant. The Company does not expect to
incur any significant operating expenses or invest in additional computer
systems to resolve issues relating to the year 2000 problem, with respect
to both its information technology and product and service functions.
(8) LEGAL PROCEEDINGS
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's financial position, results of operations or liquidity.
(9) CUSTOMER INFORMATION
The Company had five, four and five significant customers in 1995, 1996 and
1997, respectively, that each account for greater than 10% of the Company's
revenues. These customers accounted for 100% and 79% of the Company's
accounts receivable at December 31, 1996 and 1997, respectively.
(10) RELATED PARTY TRANSACTION
In December 1994, the Company entered into a sales leaseback transaction
with a related party, which includes two Series A preferred shareholders
and one of the Company's founders and officers. The total payments under
this lease agreement totaled $40,040, $49,991 and $40,643 in 1995, 1996 and
1997, respectively.
The shareholders of the Company have made several loans to the Company. At
December 31, 1995, 1996 and 1997, the shareholder loan balances outstanding
totaled $51,364, $66,991 and $74,658, respectively. These loans have an
average interest rate of, 22%, 22% and 24% during 1995, 1996 and 1997,
respectively and interest expense totaled $5,737, $14,897 and $16,825 in
each year, respectively.
F-48
<PAGE>
QUANDO, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(11) RISK OF TECHNOLOGICAL CHANGE
CONTINGENCIES AND FACTORS THAT COULD AFFECT FUTURE RESULTS
A substantial portion of the Company's revenues each year are generated
from the development and rapid release to market of computer software
products newly introduced during the year. In the extremely competitive
industry environment in which the Company operates, such product
generation, development and marketing processes are uncertain and complex,
requiring accurate prediction of market trends and demand as well as
successful management of various development risks inherent in such
products. Additionally, the Company's development strategy relies on
certain key suppliers' ability to deliver completed products and component
computer software products in time to meet critical development and
distribution schedules. In light of these dependencies, it is reasonably
possible that failure to successfully manage a significant product
introduction or failure of certain key suppliers to deliver as needed could
have a sever near-term impact on the Company's growth and results of
operations.
(12) SUBSEQUENT EVENTS
During the six month period ended June 30, 1998, the Company issued
$200,000 in convertible subordinated promissory notes (the 1998 Notes). The
1998 Notes are due on April 1, 2000 and bear interest at 10% per annum.
Prior to January 1, 2000, the 1998 Notes are convertible into common stock
at a price per share of the next equity financing by the Company, or if
there is no equity financing before January 1, 2000, at $.625 per share of
common stock.
The Company issued warrants to purchase 592,000 shares of the Company's
common stock in 1998 in conjunction with the issuance of the 1998 notes.
The warrants were issued with an exercise price of $.0001 per share and
expire five years from the date of grant.
On July 13, 1998, two of the Company's Series A preferred stock
shareholders exercised warrants to purchase a total of 50,000 shares of
common stock at $.01 per share.
On July 24, 1998, the Company entered into an Agreement and Plan of
Reorganization (the Agreement) with Steelhead Acquisition Corp., a wholly-
owned subsidiary of Infoseek Corporation (Infoseek). Pursuant to the
Agreement, among other things, all the issued and outstanding shares of the
Company shall be converted into the right to receive shares of the common
stock of Infoseek. Commensurate with the closing, all outstanding preferred
stock will be converted in accordance with the respective preferred stock
conversion ratios. Additionally, all outstanding options under the
Company's 1994 stock option plan, whether vested or unvested, will be
assumed by Infoseek.
Effective upon the signing of the Agreement, Infoseek loaned the Company
$360,000 in the form of a promissory note. The Company used the proceeds
from this note to pay down their outstanding accounts payable and accrued
liabilities. All principal and accumulated interest on this note shall be
due and payable on March 31, 1999. This note is secured by the Company's
assets and bears interest at a rate of 6% annually.
This acquisition is expected to provide the Company with the additional
financial resources to continue operations. If the acquisition is not
completed, there is substantial doubt about the Company's ability to
continue as a going concern. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
F-49
<PAGE>
ANNEX A-1
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
INFOSEEK CORPORATION,
INFOSEEK CORPORATION,
STARWAVE CORPORATION,
AND
DISNEY ENTERPRISES, INC.
DATED AS OF JUNE 18, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
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<C> <S> <C>
ARTICLE I FORMATION OF HOLDING COMPANY AND SUBSIDIARIES ................ A-1
1.1 Organization of Holding Company................................ A-1
1.2 Directors and Officers of the Holding Company.................. A-2
1.3 Organization of Merger Subsidiaries............................ A-2
1.4 Actions of Directors and Officers.............................. A-2
1.5 Actions of Parent and Company.................................. A-2
1.6 The Mergers.................................................... A-2
1.7 The Closing.................................................... A-3
1.8 Directors...................................................... A-3
1.9 Officers....................................................... A-3
1.10 Merger Sub Stock............................................... A-3
1.11 Cancellation of Holding Company Capital Stock.................. A-3
1.12 Conversion of Parent Stock..................................... A-3
1.13 Treasury Stock................................................. A-4
1.14 Conversion of Company Common Stock............................. A-4
1.15 Exchange Agent................................................. A-5
1.16 Holding Company to Provide Common Stock........................ A-5
1.17 Exchange Procedures............................................ A-5
1.18 Dividends, Fractional Shares, Etc. ............................ A-5
1.19 Certain Definitions............................................ A-6
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND DEI ....... A-7
2.1 Organization of the Company.................................... A-8
2.2 Subsidiaries................................................... A-8
2.3 Company Capital Structure...................................... A-8
2.4 Authority...................................................... A-9
2.5 No Conflict.................................................... A-9
2.6 Consents....................................................... A-10
2.7 Company Financial Statements and Controls...................... A-10
2.8 No Undisclosed Liabilities..................................... A-10
2.9 No Changes..................................................... A-10
2.10 Tax Matters.................................................... A-11
2.11 Restrictions on Business Activities............................ A-13
2.12 Title of Properties; Absence of Liens and Encumbrances;
Condition of Equipment........................................ A-13
2.13 Intellectual Property.......................................... A-14
2.14 Agreements, Contracts and Commitments.......................... A-16
2.15 Interested Party Transactions.................................. A-16
2.16 Governmental Authorization..................................... A-17
2.17 Litigation..................................................... A-17
2.18 Minute Books................................................... A-17
2.19 Environmental Matters.......................................... A-17
2.20 Brokers' and Finders' Fees; Third Party Expenses............... A-18
2.21 Employee Benefit Plans; Compensation; Labor Matters............ A-18
2.22 Insurance...................................................... A-19
2.23 Compliance with Laws........................................... A-19
2.24 Warranties; Indemnities........................................ A-19
2.25 Ownership of Parent Stock...................................... A-20
2.26 Claims for Losses.............................................. A-20
2.27 Capital Summary Statements..................................... A-20
</TABLE>
A-i
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ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT...................... A-20
3.1 Organization, Standing and Power................................. A-20
3.2 Parent Subsidiaries.............................................. A-20
3.3 Authority; No Conflict; Consents................................. A-20
3.4 Parent Capital Structure......................................... A-21
3.5 SEC Documents; Parent Financial Statements....................... A-21
3.6 No Undisclosed Liabilities....................................... A-22
3.7 No Material Adverse Effect....................................... A-22
3.8 Brokers' and Finders' Fees....................................... A-22
3.9 Litigation....................................................... A-22
3.10 Taxes............................................................ A-22
3.11 Employee Benefit Plans; Compensation............................. A-23
3.12 Compliance with Laws............................................. A-25
3.13 Agreements, Contract, Commitments................................ A-25
3.14 Intellectual Property............................................ A-25
3.15 Real Property.................................................... A-26
3.16 Interested Party Transactions.................................... A-26
3.17 Restrictions on Business Activities.............................. A-26
ARTICLE IV CONDUCT PRIOR TO THE EFFECTIVE TIME............................ A-27
4.1 Conduct of the Parties........................................... A-27
4.2 No Solicitation.................................................. A-29
4.3 No HSR Violation................................................. A-31
ARTICLE V ADDITIONAL AGREEMENTS........................................... A-31
5.1 Registration Statement; Preparation of Joint Proxy Statement..... A-31
5.2 Shareholder Meetings............................................. A-33
5.3 Cooperation; Access to Information............................... A-33
5.4 Confidentiality.................................................. A-33
5.5 Expenses......................................................... A-33
5.6 Public Disclosure................................................ A-34
5.7 Consents......................................................... A-34
5.8 FIRPTA Compliance................................................ A-34
5.9 Reasonable Efforts............................................... A-34
5.10 Notification of Certain Matters.................................. A-34
5.11 Voting Agreements................................................ A-34
5.12 Director Nominees................................................ A-34
5.13 Non-Competition.................................................. A-34
5.14 Regulatory Filings; Reasonable Efforts........................... A-35
5.15 Additional Documents and Further Assurances...................... A-35
5.16 Employees........................................................ A-35
5.17 Form S-8......................................................... A-35
5.18 Director Action with Respect to Option Plans..................... A-35
5.19 Directors' Insurance and Indemnification......................... A-35
5.20 Stock Listing.................................................... A-35
5.21 Certain Tax Matters.............................................. A-35
5.22 Non Solicitation of Company Employees............................ A-39
5.23 Net Worth Test................................................... A-39
5.24 Compliance with Laws............................................. A-39
5.25 Share and Warrant Ownership...................................... A-40
5.26 Parent Option Grants............................................. A-40
5.27 ABC News/Starwave Partners....................................... A-40
</TABLE>
A-ii
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5.28 Funding of Ventures ............................................. A-40
5.29 Third Party Agreements........................................... A-40
5.30 Adoption of Option and Employee Stock Purchase Plans............. A-41
ARTICLE VI CONDITIONS TO THE MERGER ...................................... A-41
6.1 Conditions to Obligations of Each Party ......................... A-41
6.2 Conditions to Obligations of Company and DEI .................... A-41
6.3 Conditions to the Obligations of Parent and Holding Company ..... A-42
ARTICLE VII SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION .. A-43
7.1 Survival of Representations and Warranties ...................... A-43
7.2 Indemnification ................................................. A-43
7.3 Claims Against DEI for Indemnification .......................... A-44
7.4 Resolution of Conflicts; Arbitration ............................ A-44
7.5 Third-Party Claims .............................................. A-45
7.6 Exclusive Remedy ................................................ A-45
7.7 Indemnification For Taxes ....................................... A-45
ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER ........................... A-46
8.1 Termination ..................................................... A-46
8.2 Effect of Termination ........................................... A-48
8.3 Termination Fees ................................................ A-48
8.4 Amendment ....................................................... A-49
8.5 Extension; Waiver ............................................... A-49
ARTICLE IX GENERAL PROVISIONS ............................................ A-49
9.1 Notices ......................................................... A-49
9.2 Interpretation .................................................. A-50
9.3 Counterparts .................................................... A-51
9.4 Entire Agreement; Assignment .................................... A-51
9.5 Severability .................................................... A-51
9.6 Other Remedies .................................................. A-51
9.7 Governing Law ................................................... A-51
9.8 Rules of Construction ........................................... A-51
9.9 Attorneys Fees .................................................. A-51
</TABLE>
A-iii
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made and
entered into as of June 18, 1998 among Infoseek Corporation., a California
corporation ("Parent"), Infoseek Corporation, a newly organized Delaware
Corporation ("Holding Company"), Starwave Corporation, a Washington
corporation (the "Company"), and Disney Enterprises, Inc., a Delaware
corporation and the majority shareholder of the Company ("DEI").
RECITALS
A. The Boards of Directors of each of the constituent companies hereto
believe it is in the best interests of each company and their respective
shareholders to consummate the reorganization (the "Reorganization") provided
for herein, pursuant to which Holding Company, will acquire all of the capital
stock of each of Parent and the Company through the mergers of the Merger
Subsidiaries (as defined in Section 1.3) with and into each of the Parent and
the Company.
B. For federal income tax purposes, it is intended that (i) the Parent
Merger (as hereinafter defined) qualify as a reorganization under the
provisions of Section 368(a) of the United States Internal Revenue Code of
1986, as amended, (the "Code") and/or as an exchange under the provisions of
Section 351 of the Code and (ii) that the Company Merger (as hereinafter
defined) qualify as a reorganization under the provisions of Section 368(a) of
the Code and/or as an exchange under the provisions of Section 351 of the
Code.
C. Concurrently with the execution hereof, in order to induce Parent to
enter into this Agreement, certain shareholders of the Company and Parent are
each entering into a shareholders agreement providing for certain voting and
other restrictions with respect to shares of Parent Common Stock (as defined
in Section 1.12(a)) upon the terms and conditions specified therein.
D. Concurrently with the execution hereof, in order to induce the Company to
enter this Agreement, certain shareholders of Parent and DEI are each entering
into a shareholders agreement providing for certain voting and other
restrictions with respect to shares of Company Common Stock, upon the terms
and conditions specified therein; and Parent and DEI (or one of its
Affiliates) have entered into certain Transaction Agreements (as defined in
Section 2.4).
E. The Company and DEI, on the one hand, and Parent and Holding Company, on
the other hand, desire to make certain representations, warranties, covenants
and other agreements in connection with the Merger.
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable
consideration, the parties agree as follows:
ARTICLE I
Formation of Holding Company and Subsidiaries
1.1 Organization of Holding Company. The Certificate of Incorporation and
Bylaws of the Holding Company shall be in such forms as shall be mutually
determined by Parent and DEI; provided that the Certificate of Incorporation
of Holding Company shall be amended to be substantially in the form of the
Articles of Incorporation of Parent and to preserve the existing rights
afforded to shareholders thereunder (subject to any changes required in
accordance with the provisions of Delaware General Corporate Law). The
Certificate of Incorporation of Holding Company will additionally be amended
to provide that the authorized capital stock of Holding Company shall consist
initially of shares of common stock, no par value (the "Holding Company Common
Stock") and shares of preferred stock, no par value (the "Holding Company
Preferred Stock").
A-1
<PAGE>
1.2 Directors and Officers of the Holding Company. Subject to Section 5.12,
the directors and officers of the Holding Company shall be designated by
Parent. Each officer and director shall remain in office until his or her
successor is elected.
1.3 Organization of Merger Subsidiaries. As promptly as practicable
following the execution of this Agreement, Parent shall cause the following
companies to be organized for the sole purpose of effectuating the Parent
Merger and the Company Merger contemplated herein:
(i) Indigo Acquisition Corp., a corporation organized under the laws of
the State of California ("Merger Sub A"). The Articles of Incorporation and
Bylaws of Merger Sub A shall be in such forms as shall be determined by the
Parent and reasonably acceptable to DEI as soon as practicable following
the execution of this Agreement. The authorized capital stock of Merger Sub
A shall initially consist of 1,000 shares of common stock, no par value,
which shall be issued to Holding Company at a price of $1.00 per share;
(ii) Starwave Acquisition Corp., a corporation organized under the laws
of the State of Washington ("Merger Sub B" and, together with Merger Sub A,
the "Merger Subsidiaries" which will conduct no business activity that is
unrelated to the Mergers). The Articles of Incorporation and Bylaws of
Merger Sub B shall be in such forms as shall be determined by the Parent
and reasonably acceptable to DEI as soon as practicable following the
execution of this Agreement. The authorized capital stock of Merger Sub B
shall initially consist of 100 shares of common stock, par value $.01 per
share, which shall be issued to Holding Company at a price of $1.00 per
share.
1.4 Actions of Directors and Officers. As promptly as practicable following
the execution of this Agreement, the Parent shall designate the directors and
officers of Merger Sub A and Merger Sub B. The Parent shall cause (i) Holding
Company to elect the directors of the Merger Subsidiaries, (ii) the directors
of Merger Sub A and Merger Sub B to elect their respective officers, (iii) the
directors of Holding Company to ratify and approve this Agreement and to
approve the forms of the Merger Agreements (as defined below), (iv) the Merger
Agreements to be executed on behalf of the parties thereto, and (v) the
directors and officers of the Merger Subsidiaries to take such steps as may be
necessary or appropriate to complete the organization of the Merger
Subsidiaries and to approve the Merger Agreements.
1.5 Actions of Parent and Company. As promptly as practicable following the
execution of this Agreement, as the holders of all of the outstanding shares
of capital stock of Holding Company, the Parent shall cause Holding Company to
ratify and approve this Agreement, and shall cause Holding Company, as the
sole shareholder of each of the Merger Subsidiaries, to adopt the Merger
Agreements. The Parent shall cause Holding Company and the Merger Subsidiaries
to perform their respective obligations under this Agreement and the Merger
Agreements.
1.6 The Mergers. Pursuant to Plans of Merger, in forms to be mutually agreed
upon by the Parent and the Company (sometimes hereinafter referred to
individually as the "Parent Merger Agreement" and the "Company Merger
Agreement", respectively, and collectively as the "Merger Agreements"), which
Parent Merger Agreement and Company Merger Agreement shall upon such mutual
agreement be attached hereto as Exhibit A-1 and Exhibit A-2, respectively,
upon the terms and subject to the conditions set forth in this Agreement and
in the Merger Agreements:
(a) Merger Sub A shall be merged with and into Parent (the "Parent
Merger") in accordance with the applicable provisions of the laws of the
State of California. Parent shall be the surviving corporation in the
Parent Merger and shall continue its corporate existence under the laws of
the State of California. As a result of the Parent Merger, Parent shall
become a wholly owned Subsidiary of Holding Company. The effects and
consequences of the Parent Merger shall be as set forth in the Parent
Merger Agreement.
(b) Merger Sub B will be merged with and into the Company (the "Company
Merger"), in accordance with the applicable provisions of the laws of the
State of Washington. The Company shall be the surviving corporation in the
Company Merger and shall continue its corporate existence under the laws of
the State of
A-2
<PAGE>
Washington. As a result of the Company Merger, the Company shall become a
wholly owned Subsidiary of Holding Company. The effects and consequences of
the Company Merger shall be as set forth in the Company Merger Agreement.
The term "Mergers" shall mean the Parent Merger and the Company Merger,
each of which shall occur on the same date and which are intended to
constitute a single transaction.
(c) The term "Effective Time" shall mean the time and date which is the
later of (i) the date and time of the filing of the Certificate of Merger
relating to the Parent Merger with the Secretary of State of the State of
California (or such other date and time as may be specified in such
certificate as may be permitted by California law) and (ii) the date and
time of the filing of a Certificate of Merger by the Secretary of State of
the State of Washington with respect to the Company Merger (or such other
date and time as may be specified in such certificate as may be permitted
by Washington law).
1.7 The Closing. Subject to the terms and conditions of this Agreement, the
closing of the transactions contemplated by this Agreement and the Merger
Agreements (the "Closing") shall take place (a) at the offices of Wilson
Sonsini Goodrich & Rosati, Professional Corporation, 650 Page Mill Road, Palo
Alto, California 94304, at 10:00 a.m., local time, on the first business day
following the day on which the last to be fulfilled or waived of the
conditions set forth in Article VI shall be fulfilled or waived in accordance
herewith or (b) at such other time, date or place as Parent and the Company
may agree. The date on which the Closing occurs is hereinafter referred to as
the "Closing Date."
1.8 Directors. The directors of Parent immediately prior to the Effective
Time shall be the directors of the surviving corporation of the Parent Merger
as of the Effective Time and until their successors are duly appointed or
elected in accordance with applicable law. The directors of Merger Sub A and
the directors of Merger Sub B immediately prior to the Effective Time shall be
the directors of the surviving corporation of the Parent Merger and the
Company Merger, respectively, as of the Effective Time and until their
successors are duly appointed or elected in accordance with applicable law.
1.9 Officers. The officers of Parent and the Company immediately prior to
the Effective Time shall be the officers of the surviving corporations of the
Parent Merger and the Company Merger, respectively, as of the Effective Time
and until their successors are duly appointed or elected in accordance with
applicable law.
1.10 Merger Sub Stock. At the Effective Time, each share of the common stock
of Merger Sub A outstanding immediately prior to the Effective Time shall be
converted into and shall become one (1) share of common stock of the surviving
corporation of the Parent Merger. At the Effective Time, each share of the
common stock of Merger Sub B outstanding immediately prior to the Effective
Time shall be converted into and shall become one share of common stock of the
surviving corporation of the Company Merger.
1.11 Cancellation of Holding Company Capital Stock. At the Effective Time,
each share of the capital stock of Holding Company issued and outstanding
immediately prior to the Effective Time shall be canceled and cease to exist,
and the amounts paid by Parent for such shares shall be returned by Holding
Company to Parent.
1.12 Conversion of Parent Stock.
(a) Subject to Section 1.12 (b), at the Effective Time, each share of common
stock, no par value, of Parent ("Parent Common Stock") issued and outstanding
at the Effective Time shall be converted into one share of Holding Company
Common Stock. Upon such conversion, all such shares of Parent Common Stock
shall be canceled and cease to exist, and each certificate theretofore
representing any such shares shall, without any action on the part of the
holder thereof, be deemed to represent an equivalent number of shares of
Holding Company Common Stock.
(b) Notwithstanding anything in this Section 1.12 to the contrary, shares of
Parent Common Stock which are issued and outstanding immediately prior to the
Effective Time and which are held by shareholders who have not voted such
shares in favor of the Parent Merger and who shall have properly exercised and
perfected their rights of appraisal for such shares in the manner provided by
California Corporation Law and who, as of the
A-3
<PAGE>
Effective Time, shall not have effectively withdrawn or lost such dissenters
rights (collectively, the "Parent Dissenting Shares") shall not be converted
into or represent the right to receive the consideration for Parent Common
Stock pursuant to this Section 1.12, but the holder shall only be entitled to
such rights as are granted by applicable law. If such holder shall have so
failed to perfect or shall have effectively withdrawn or lost such right, his
shares shall thereupon be deemed to have been converted into and to have
become exchangeable for, at the Effective Time, the right to receive the
consideration provided for Parent Common Stock.
(c) At the Effective Time, each outstanding option or right to purchase
shares of Parent Common Stock (a "Parent Option") shall be contributed and
assumed by Holding Company in such manner that it is converted into an option
to purchase shares of Holding Company Common Stock, as provided below.
Following the Effective Time, each such Parent Option shall be exercisable
upon the same terms and conditions as then are applicable to such Parent
Option, except that (i) each such Parent Option shall be exercisable for that
number of shares of Holding Company Common Stock equal to the product obtained
by multiplying the number of shares of Parent Common Stock that were issuable
upon exercise in full of such assumed Parent Option immediately prior to the
Effective Time by one, and (ii) the per share exercise price for the shares of
Holding Company Common Stock issuable upon exercise of such assumed Parent
Option shall be equal to the exercise price per share of Parent Common Stock
at which such Parent Option was exercisable immediately prior to the Effective
Time. It is the intention of the parties that, to the extent that any such
Parent Option constituted an "incentive stock option" (within the meaning of
Section 422 of the Code) immediately prior to the Effective Time, such option
continue to qualify as an incentive stock option to the maximum extent
permitted by Section 422 of the Code, and that the assumption of the Parent
Stock Options provided by this Section 1.12(c) satisfy the conditions of
Section 424(a) of the Code.
1.13 Treasury Stock. At the Effective Time, each share of Parent Common
Stock which is held in the treasury of Parent immediately prior to the
Effective Time shall, by virtue of the Mergers, cease to be outstanding and
shall be canceled and retired without payment of any consideration therefor.
1.14 Conversion of Company Common Stock.
(a) At the Effective Time each issued and outstanding share of Company
Capital Stock, $0.01 par value, shall be converted, without any action on the
part of the holders hereof, into the right to receive, upon surrender of a
certificate representing such share of Company Capital Stock in the manner
provided in Section 1.17, that number of shares of Holding Company Common
Stock equal to the Exchange Ratio.
(b) Notwithstanding anything contained in this Section 1.14 to the contrary,
each share of Company Common Stock issued and held in the Company's treasury
immediately prior to the Effective Time shall, by virtue of the Company
Merger, cease to be outstanding and shall be canceled and retired without
payment of any consideration therefor.
(c) Notwithstanding anything in this Section 1.14 to the contrary, shares of
Company Common Stock which are issued and outstanding immediately prior to the
Effective Time and which are held by shareholders who have not voted such
shares in favor of the Company Merger and who shall have properly exercised
and perfected their rights of appraisal for such shares in the manner provided
by the Washington Business Corporation Act (the "WCL") and who, as of the
Effective Time, shall not have effectively withdrawn or lost such dissenters
rights ( collectively, the "Dissenting Shares") shall not be converted into or
represent the right to receive the consideration for Company Capital Stock
pursuant to Section 1.14, but the holder shall only be entitled to such rights
as are granted by applicable law. If such holder shall have so failed to
perfect or shall have effectively withdrawn or lost such right, his shares
shall thereupon be deemed to have been converted into and to have become
exchangeable for, at the Effective Time, the right to receive that number of
shares of Holding Company Common Stock equal to the Exchange Ratio. The
Company shall give Parent prompt notice of any Dissenting Shares (and shall
also give Parent prompt notice of any withdrawals of such demands for payment
in exercise of a shareholder's dissenters' rights) and Parent shall have the
right to direct all negotiations and proceedings with respect to any such
demands. Neither the Company nor the surviving corporation of the Company
Merger shall,
A-4
<PAGE>
except with the prior written consent of Parent, voluntarily make any payment
with respect to, or settle or offer to settle, any such demand for payment in
exercise of a shareholder's dissenters' rights.
(d) At the Effective Time, each outstanding option or right to purchase
shares of Company Common Stock (a "Company Option") shall be transferred to
and assumed by Holding Company in such manner that it is converted into an
option to purchase shares of Holding Company Common Stock, as provided below.
Following the Effective Time, each such Company Option shall be exercisable
upon the same terms and conditions as then are applicable to such Company
Option, except that (i) each such Company Option shall be exercisable for that
number of shares of Holding Company Common Stock equal to the product obtained
by multiplying the number of shares of Company Capital Stock that were
issuable upon exercise in full of such assumed Company Option immediately
prior to the Effective Time by the Exchange Ratio, rounded down to the nearest
whole number of shares of Parent Common Stock and (ii) the per share exercise
price for the shares of Holding Company Common Stock issuable upon exercise of
such assumed Company Option shall be equal to the quotient obtained by
dividing the exercise price per share of Company Capital Stock at which such
Company Option was exercisable immediately prior to the Effective Time by the
Exchange Ratio, rounded up to the nearest whole cent. It is the intention of
the parties that, to the extent that any such Company Option constituted an
"incentive stock option" (within the meaning of Section 422 of the Code)
immediately prior to the Effective Time, such option continue to qualify as an
incentive stock option to the maximum extent permitted by Section 422 of the
Code, and that the assumption of the Company Stock Options provided by this
Section 1.14(d) satisfy the conditions of Section 424(a) of the Code.
1.15 Exchange Agent. Parent shall appoint a reputable institution,
reasonably acceptable to DEI, to serve as exchange agent (the "Exchange
Agent") in the Mergers.
1.16 Holding Company to Provide Common Stock. Promptly after the Effective
Time, Holding Company shall make available to the Exchange Agent for exchange
in accordance with this Article I the shares of Holding Company Common Stock
issuable pursuant to Article I in exchange for all of the outstanding shares
of Company Capital Stock.
1.17 Exchange Procedures. On the Closing Date or as soon thereafter as
practicable, the Shareholders may surrender the certificates representing
their Company Capital Stock (the "Company Stock Certificates") to the Exchange
Agent for cancellation together with a letter of transmittal in such form and
having such provisions as Parent may reasonably request. Upon surrender of a
Company Stock Certificate for cancellation to the Exchange Agent or to such
other agent or agents as may be appointed by Parent, together with such letter
of transmittal, duly completed and validly executed in accordance with the
instructions thereto, the Exchange Agent will promptly deliver to the holder
of such Company Stock Certificate (other than the holders of Dissenting
Shares) in exchange therefor, subject to Section 1.18, the number of shares of
Holding Company Common Stock issuable in exchange for such Company Stock
Certificate pursuant to this Article I, and the Company Stock Certificate so
surrendered shall forthwith be canceled. Until so surrendered, each
outstanding Company Stock Certificate (other than certificates representing
Dissenting Shares) will be deemed from and after the Effective Time, for all
corporate purposes and subject to Section 1.18, to evidence only the right to
receive shares of Holding Company Common Stock issuable in accordance with
this Article I.
1.18 Dividends, Fractional Shares, Etc.
(a) Notwithstanding any other provisions of this Agreement, no dividends or
other distributions declared after the Effective Time on Holding Company
Common Stock shall be paid with respect to any shares of Company Capital Stock
represented by a Company Stock Certificate, until such Company Stock
Certificate is surrendered for exchange as provided herein. Subject to the
effect of applicable laws, following surrender of any such Company Stock
Certificate, there shall be paid to the holder of the Holding Company Stock
Certificates issued in exchange therefor, without interest, (i) at the time of
such surrender, the amount of dividends or other distributions with a record
date after the Effective Time theretofore payable with respect to such whole
shares of Holding Company Common Stock and not paid, less the amount of any
withholding taxes which may be required
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thereon, and (ii) at the appropriate payment date, the amount of dividends or
other distributions with a record date after the Effective Time but prior to
surrender and a payment date subsequent to surrender payable with respect to
such whole shares of Holding Company Common Stock, less the amount of any
withholding taxes which may be required thereon.
(b) From and after the Effective Time, there shall be no transfers on the
stock transfer books of Parent or the Company of the shares of Parent Common
Stock or Company Common Stock which were outstanding immediately prior to the
Effective Time. If, after the Effective Time, certificates representing any
such shares are presented to the surviving corporations of the Parent Merger
or the Company Merger, they shall be canceled and exchanged for certificates
for the consideration, if any, deliverable in respect thereof pursuant to this
Agreement and the Merger Agreements in accordance with the procedures set
forth in this Article I. Subject to applicable law, Company Stock Certificates
surrendered for exchange by any person constituting an "affiliate" of the
Company for purposes of Rule 145(c) under the Securities Act of 1933, as
amended (the "Securities Act"), shall not be exchanged until Parent has
received a written agreement from such person agreeing to comply with the
provisions of Rule 145 under the Securities Act.
(c) No fractional shares of Holding Company Common Stock shall be issued
pursuant to the Company Merger. In lieu of the issuance of any fractional
share of Holding Company Common Stock pursuant to the Company Merger, cash
adjustments will be paid to holders in respect of any fractional share of
Holding Company Common Stock that would otherwise be issuable, and the amount
of such cash adjustment shall be equal to the product of such fractional
amount and the average closing price of Parent Common Stock for the ten (10)
trading days ending on the trading day prior to the Closing Date.
(d) None of the Parent, the Company, the Holding Company, the Exchange Agent
or any other person shall be liable to any former holder of shares of Parent
Common Stock or Company Capital Stock for any amount properly delivered to a
public official pursuant to applicable abandoned property, escheat or similar
laws.
(e) In the event that any Company Stock Certificate (other than certificates
representing Dissenting Shares) shall have been lost, stolen or destroyed,
upon the making of an affidavit of that fact by the person claiming such
Company Stock Certificate to be lost, stolen or destroyed and, if required by
Holding Company, the posting by such person of a bond in such reasonable
amount as Holding Company may direct as indemnity against any claim that may
be made against it with respect to such Company Stock Certificate, the
Exchange Agent will issue in exchange for such lost, stolen or destroyed
Company Stock Certificate the applicable merger consideration, cash in lieu of
fractional shares, and unpaid dividends and distributions on shares of Holding
Company Common Stock deliverable in respect thereof pursuant to this Agreement
and the Company Merger Agreement.
1.19 Certain Definitions. For all purposes of this Agreement, the following
terms shall have the following meanings:
"Closing Balance Sheet" shall mean the estimated unaudited consolidated
balance sheet of the Company as of the Closing Date prepared in accordance
with GAAP (except that such unaudited consolidated balance sheet does not
contain the footnotes required by GAAP) and in good faith and based upon
the accounting procedures and methodologies utilized in preparing the Year-
End Financials and the Interim Financials.
"Company Capital Stock" shall mean shares of Company Common Stock and
shares of any other capital stock of the Company.
"Company Common Stock" shall mean shares of Class A Common Stock and the
Class B Common Stock of the Company.
"Company Options" shall mean all issued and outstanding options,
warrants, and other rights to acquire or receive Company Capital Stock
(whether or not vested).
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"Estimated Net Worth" shall equal the Net Worth of the Company as set
forth on the Closing Balance Sheet.
"Exchange Ratio" shall equal the quotient obtained by dividing (i)
28,138,000 by (ii) the sum of: (x) the aggregate number of Total
Outstanding Company Shares and (y) the aggregate number of shares of
Company Capital Stock subject to Company Options outstanding as of the
Effective Time.
"GAAP" shall mean generally accepted accounting principles in effect from
time to time in the United States, applied on a consistent basis for the
relevant entity.
"Merrill Lynch" shall mean Merrill Lynch, Pierce, Fenner & Smith
Incorporated.
"Net Worth" shall equal total consolidated assets of the Company minus
total consolidated liabilities of the Company, each as determined in
accordance with GAAP, as of the close of business on the Closing Date.
"Net Worth Target" shall mean $5 million.
"Parent Common Stock" shall mean shares of the common stock, no par
value, of Parent.
"Shareholder" shall mean each holder of any Company Capital Stock
immediately prior to the Effective Time.
"DEI Taxes" shall mean (i) all Taxes relating to any period (or portion
of any period) ending on or prior to the Closing Date of the Company or its
Subsidiaries including those attributable to their assets, operations or
employees for any period (or portion of any period) ending on or prior to
the Closing Date (not including any Tax incurred other than in the ordinary
course of business after the Effective Time on the Closing Date), including
without limitation any Taxes of the Company or any such Subsidiaries
arising as a result of the Company Merger or the Company's or any
Subsidiary of the Company during such period ceasing to be a member of a
consolidated, combined, or unitary group during such period, (ii) any
liability of the Company or any of its Subsidiaries that is attributable to
any consolidated, combined or unitary group of which the Company or any of
its Subsidiaries is a member prior to the Closing Date under Treas. Reg.
Section 1.1502-6 (or any comparable provision of foreign, state or local
law) or (iii) any liability of the Company or any of its Subsidiaries for
any period (or portion thereof) ending prior to the Effective Time under
any Tax sharing, Tax indemnity, Tax allocation or similar agreement or
arrangement entered into on or prior to the Effective Time, other than this
Agreement, or the Tax Sharing Agreement attached hereto as Exhibit E (the
Tax Sharing Agreement"); provided, however, that notwithstanding anything
in this Agreement to the contrary, DEI Taxes shall not include any Taxes
(i) for which Parent and Holding Company are required to indemnify DEI
pursuant to Section 7.7 hereof, or (ii) which Parent has agreed to share
pursuant to Section 5.21(a)(iii) hereof.
"Total Outstanding Company Shares" shall be the aggregate number of
shares of Company Capital Stock outstanding immediately prior to the
Effective Time.
ARTICLE II
Representations and Warranties of the Company and DEI
Each of the Company and DEI hereby, jointly and severally, represents and
warrants to Parent and Holding Company, subject to such exceptions as are
specifically disclosed in the disclosure schedule supplied by the Company and
DEI to Parent (the "Disclosure Schedule"), on the date hereof and as of the
Effective Time as though made at the Effective Time, as follows:
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2.1 Organization of the Company. The Company is a corporation duly
organized, validly existing and in good standing under Washington Law. The
Company has the corporate power to own its properties and to carry on its
business as now being conducted. The Company is duly qualified to do business
and in good standing as a foreign corporation in each jurisdiction in which
the failure to be so qualified would have a Material Adverse Effect. Each of
the Subsidiaries (as defined in Section 2.2 below) of the Company is duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its formation and has the corporate or other applicable power
to own its properties and to carry on its business as now being conducted.
Each of the Subsidiaries is duly qualified to do business and in good standing
in each jurisdiction outside of the jurisdiction of its formation in which the
failure to be so qualified would have a Material Adverse Effect. For all
purposes of this Agreement, the term "Material Adverse Effect" means any
change, event or effect that is materially adverse to the business, assets
(including intangible assets), financial condition, or results of operations
of the entity referred to, together with its subsidiaries, taken as a whole
("Material Adverse Effect"). The Company has delivered a true and correct copy
of its Amended and Restated Articles of Incorporation and Amended and Restated
Bylaws, each as amended to date, and has delivered a true and correct copy of
the charter or other organizational documents of each of its Subsidiaries,
each as amended to date, to Parent.
2.2 Subsidiaries. Except as set forth in Section 2.2 of the Disclosure
Schedule, the Company does not have, and has never had, any subsidiaries and
does not otherwise own, and has not otherwise owned, any shares in the capital
of or any interest in, or control of, directly or indirectly, any corporation,
partnership, association, joint venture or other business entity. The entities
set forth in Section 2.2 of the Disclosure Schedule are, except as otherwise
set forth in such section of the Disclosure Schedules hereinafter occasionally
referred to individually as a "Subsidiary" and, collectively, as the
"Subsidiaries." Section 2.2 of the Disclosure Schedule also sets forth or
references the form and percentage interest of the Company in the Subsidiaries
and, to the extent that a Subsidiary set forth thereon is not wholly owned by
the Company, lists the other person, persons, entity or entities who have an
interest in such Subsidiary and references the percentage of such interest.
2.3 Company Capital Structure.
(a) The authorized capital stock of the Company consists of 250,000,000
shares of authorized Class A Common Stock of which 57,316,042 shares are
issued and outstanding as of the date hereof and 80,000,000 shares of
authorized Class B Common Stock, of which 39,869,348 shares are issued and
outstanding as of the date hereof. As of the Effective Time, the number of
outstanding shares of Company Capital Stock shall not exceed 97,185,390
shares, except for such number of shares issued pursuant to Company Options
after the date hereof and through to the Effective Time. As of the date
hereof, the Company Capital Stock is held by the persons and in the amounts
set forth in Section 2.3(a) of the Disclosure Schedule. All outstanding shares
of Company Capital Stock are duly authorized, validly issued, fully paid and
non-assessable and not subject to preemptive rights created by statute, the
Amended and Restated Articles of Incorporation or Amended and Restated Bylaws
of the Company or any agreement to which the Company is a party or by which it
is bound and have been issued in compliance with federal and state securities
laws. There are no declared or accrued unpaid dividends with respect to any
shares of the Company's Capital Stock. The Company has no other capital stock
authorized, issued or outstanding.
(b) Except for the Company's Option Plans, the Company has never adopted or
maintained any stock option plan or other plan providing for equity
compensation of any person. The Company has reserved 86,000,000 shares of
Company Common Stock for issuance to employees and consultants pursuant to the
Option Plans of which options to purchase 18,639,114 shares of Company Capital
Stock have been issued as of the date hereof of which 10,003,812 shares remain
subject to options unexercised as of the date hereof. On June 13, 1998, the
Company's Board of Directors granted options to purchase 1,084,450 shares of
Class A Common Stock to the individuals indicated on Section 2.3(b) of the
Disclosure Schedule. Except as set forth on Section 2.3(b) of the Disclosure
Schedule, there is no outstanding Company Capital Stock which is subject to
vesting or Company Options. Section 2.3(b) of the Disclosure Schedule sets
forth the name of the holder of any Company Capital Stock subject to vesting,
the number of shares of Company Capital Stock subject to vesting and the
vesting schedule for such Company Capital Stock, including the extent vested
as of the most recent practicable date, and
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sets forth the name of the holder of any Company Options, the number of shares
of Company Capital Stock subject to such Company Option and the vesting
schedule for such Company Option, including the extent vested to date. There
are no options, warrants, calls, rights, commitments or agreements of any
character, written or oral, to which the Company or any Subsidiary is a party
or by which it is bound obligating the Company or any Subsidiary to issue,
deliver, sell, repurchase or redeem, or cause to be issued, delivered, sold,
repurchased or redeemed, any shares of the capital stock of the Company or
interests in any Subsidiary, as the case may be, or obligating the Company or
any Subsidiary to grant, extend, accelerate the vesting of, change the price
of, otherwise amend or enter into any such option, warrant, call, right,
commitment or agreement which are not set forth on Schedule 2.3(b). There are
no outstanding or authorized stock appreciation, phantom stock, profit
participation, or other similar rights with respect to the Company or any
Subsidiary. Except as contemplated by this Agreement, to the Company's and
DEI's Knowledge, there are no voting trusts, proxies, or other agreements or
understandings with respect to the voting stock of the Company or any
Subsidiary. For purposes of this Agreement, "Knowledge" shall mean actual
knowledge of the person (which in the case of a corporation shall mean only
the executive officers or directors of such corporation and which, in the case
of the Company, shall be deemed to be each of the following persons: Thomas
Phillips, Patrick Naughton, Michael Slade, Curt Blake, and Barbara Thompson,
after reasonable investigation; provided, however, that Knowledge shall not
constitute a representation or warranty that such investigation has in fact
been made and, for such purposes, "reasonable investigation" shall mean
inquiry of or consultation with the directors and executive officers of the
respective party but no other independent investigation.
2.4 Authority. Each of the Company and DEI has all requisite power and
authority to enter into this Agreement and any Transaction Agreements (as
hereinafter defined) to which it is a party and to consummate the transactions
contemplated hereby and thereby. The execution and delivery of this Agreement
and any Transaction Agreements to which it is a party and the consummation of
the transactions contemplated hereby and thereby have been duly authorized by
all necessary corporate action on the part of the Company and DEI, and no
further action is required on the part of the Company or DEI to authorize the
Agreement, any Transaction Agreements to which it is a party and the
transactions contemplated hereby and thereby, subject only to the approval of
this Agreement by the Shareholders. DEI has granted and delivered to Parent
irrevocable proxies, and such proxies are sufficient to permit Parent to
approve the Company Merger and all other matters required to be approved by
the Company's Shareholders in connection herewith; provided, however, that
such proxies shall not limit DEI's ability to vote for directors of the
Company. This Agreement and the Merger have been approved unanimously by the
Board of Directors of the Company. This Agreement and any Transaction
Agreements to which the Company or DEI is a party have been duly executed and
delivered by the Company or DEI, as the case may be, and, assuming the due
authorization, execution and delivery by the other parties hereto and thereto,
constitute the valid and binding obligation of the Company and DEI, as the
case may be, enforceable in accordance with their respective terms, except as
such enforceability may be limited by principles of public policy and subject
to the laws of general application relating to bankruptcy, insolvency and the
relief of debtors and to rules of law governing specific performance,
injunctive relief or other equitable remedies. The "Transaction Agreements"
shall mean all of the agreements executed and delivered in connection with the
transactions contemplated hereby by Parent, the Company, DEI and certain
affiliates of the Company and DEI (as defined in Rule 12b-2 promulgated under
the Securities Exchange Act of 1934, as amended) (the "Affiliates") and dated
as of the date hereof, including, without limitation, the ABCNews/Starwave
Management and Services Agreement, the ESPN/Starwave Management and Services
Agreement, the Representation Agreement by and among ESPN/Starwave Partners,
Starwave Corporation and Parent and the Representation Agreement by and among
ABC/Starwave Partners, Starwave Corporation and Parent (such Representation
Agreements, the "Representation Agreements").
2.5 No Conflict. Except as set forth in Section 2.5 of the Disclosure
Schedule, the execution and delivery of this Agreement and any Transaction
Agreements to which the Company or DEI is a party by either the Company or
DEI, as the case may be, do not, and the performance and consummation of the
transactions contemplated hereby and thereby will not, conflict with, or
result in any violation of, or default under (with or without notice or lapse
of time, or both), or give rise to a right of termination, cancellation,
modification or
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acceleration of any obligation or loss of any benefit under (any such event, a
"Conflict") (i) any provision of the Articles or Certificate of Incorporation
or Bylaws of the Company, or DEI, (ii) any material mortgage, indenture,
lease, contract or other agreement or instrument, permit, concession,
franchise or license to which the Company, any Subsidiary, or DEI or any of
their material properties or assets are subject, or (iii) any judgment, order,
decree, statute, law, ordinance, rule or regulation applicable to the Company,
any Subsidiary, or DEI or their respective material properties or assets.
2.6 Consents. Except as set forth in Section 2.6 of the Disclosure Schedule,
no consent, waiver, approval, order or authorization of, or registration,
declaration or filing with any Governmental Body is required by or with
respect to the Company any Subsidiary, or DEI in connection with the execution
and delivery of this Agreement and any Transaction Agreements to which the
Company, or DEI is a party or the consummation of the transactions
contemplated hereby and thereby, except for (i) such consents, waivers,
approvals, orders, authorizations, registrations, declarations and filings as
may be required under applicable securities laws thereby, (ii) the filing of
the Merger Agreement with the Secretary of State of the State of Washington,
(iii) any applicable filings required under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), (iv) the approval of the
Merger by the Company's Shareholders and (v) any other such filings or
approvals as may be required under Washington State Law. For purposes of this
Agreement, "Governmental Body" shall mean any: (a) nation, state,
commonwealth, province, territory, county, municipality, district or other
jurisdiction of any nature; (b) federal, state, local, municipal, foreign or
other government; or (c) governmental or quasi- governmental authority of any
nature (including any governmental division, department, agency, commission,
instrumentality, official, organization, unit, body or entity and any court or
other tribunal).
2.7 Company Financial Statements and Controls.
(a) Section 2.7 of the Disclosure Schedule sets forth the Company's audited
consolidated balance sheet as of September 28, 1997 and the related audited
consolidated statements of income and cash flows for the nine-month periods
ended September 28, 1997 and the twelve-month period ended December 31, 1996
(the "Year-End Financials") and the Company's unaudited consolidated balance
sheets as of March 31, 1998, and the related unaudited consolidated statements
of income and cash flows for the six months ended March 31, 1998 (the "Interim
Financials"). Except as otherwise set forth in Section 2.7 of the Disclosure
Schedule, the Year-End Financials and the Interim Financials have been
prepared in accordance with GAAP applied on a basis consistent throughout the
periods indicated and are consistent with each other. The Year-End Financials
and Interim Financials present fairly the consolidated financial condition and
consolidated operating results of the Company and any consolidated
Subsidiaries as of the dates and during the periods indicated therein, subject
in the case of the Interim Financials, to normal year-end adjustments, which
will not be material in amount. The Company's unaudited consolidated balance
sheet as of March 31, 1998 included in the Interim Financials shall be
hereinafter referred to as the "Current Balance Sheet."
(b) The Company and each of its Subsidiaries maintains a system of internal
accounting controls sufficient to provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial
statements in conformity with GAAP and to maintain asset accountability.
2.8 No Undisclosed Liabilities. Except (i) as reflected in the Current
Balance Sheet, or (ii) with respect to any matter arising in the ordinary
course of business consistent with past practices since March 31, 1998, the
Company and its Subsidiaries have no liability, indebtedness, obligation, or
claim of any type, whether accrued, absolute, contingent, matured, unmatured
or other, which individually or in the aggregate are required to be reflected
or reserved against on the consolidated balance sheet of the Company and its
consolidated Subsidiaries in accordance with GAAP or that, individually or in
the aggregate, would have a Material Adverse Effect on the Company.
2.9 No Changes. Except as set forth in Section 2.9 of the Disclosure
Schedule or as contemplated by this Agreement or the Transaction Agreements,
since March 31, 1998 to the date of this Agreement, there has not been,
occurred or arisen:
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(a) amendments or changes to the Amended and Restated Articles of
Incorporation or Amended and Restated Bylaws of the Company, or to the
charter or other organizational documents of any Subsidiary;
(b) capital expenditure or commitment by the Company or any Subsidiary,
exceeding $100,000 individually or $500,000 in the aggregate;
(c) destruction of, damage to or loss of any material assets of the
Company or any Subsidiary (whether or not covered by insurance);
(d) change in accounting methods or practices (including any change in
depreciation or amortization policies or rates) by the Company or any
Subsidiary;
(e) revaluation exceeding $100,000 individually or $500,000 in the
aggregate by the Company or any Subsidiary of any of its assets;
(f) declaration, setting aside or payment of a dividend or other
distribution with respect to the Company's capital stock or any direct or
indirect redemption, purchase or other acquisition by the Company of its
capital stock;
(g) material increase in the salary, bonuses or other payment or
compensation payable or to become payable by the Company or any Subsidiary
to any of its officers, directors, employees or consultants, other than
routine increases in the ordinary course of business consistent with past
practices;
(h) sale, lease, license or other disposition of any of the assets or
properties with a value of $100,000 or more of the Company or any
Subsidiary or any creation of any security interest in such assets or
properties, in each case, other than in the ordinary course of business
consistent with past practices;
(i) loan by the Company or any Subsidiary to any person or entity, or the
incurring by the Company or any Subsidiary of any indebtedness (other than
trade payables or other ordinary course liabilities consistent with past
practices), guaranteeing by the Company or any Subsidiary of any
indebtedness (other than in the ordinary course of business), issuance or
sale of any debt securities of the Company or any Subsidiary or
guaranteeing of any debt securities of others;
(j) waiver or release of any right or claim with a value of $100,000 or
more individually or $500,000 or more in the aggregate of the Company or
any Subsidiary, including any write-off or other compromise of any account
receivable of the Company or any Subsidiary;
(k) issuance or sale, or contract to issue or sell, by the Company or any
of its Subsidiaries of any shares of its capital stock or other equity
interests or securities exchangeable, convertible or exercisable therefor,
or any securities, warrants, options or rights to purchase any of the
foregoing, except for options to purchase capital stock of the Company
granted to employees of the Company, which such issuance has been described
in Section 2.3(b) of the Disclosure Schedule;
(l) any event or condition of any character that has had a Material
Adverse Effect on the Company; or
(m) negotiation or agreement by the Company, any of its Subsidiaries or
any officer or employees thereof to do any of the things described in the
preceding clauses (a) through (l) (other than negotiations with Parent and
its representatives regarding the transactions contemplated by this
Agreement and the Transaction Agreements).
2.10 Tax Matters.
(a) Tax Definitions.
(i) "Tax" or, collectively, "Taxes", means (i) any and all federal,
state, local and foreign taxes, assessments and other governmental charges,
duties, impositions and liabilities, including taxes based upon or measured
by gross receipts, income, profits, sales, use and occupation, and value
added, ad valorem, transfer, franchise, withholding, payroll, recapture,
employment, excise and property taxes, together with all interest,
penalties and additions imposed with respect to such amounts; (ii) any
liability for the payment of any amounts of the type described in clause
(i) as a result of being or ceasing to be a member of an affiliated,
consolidated, combined or unitary group for any period (including, without
limitation, any liability under
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Treas. Reg. Section 1.1502-6 or any comparable provision of foreign, state
or local law); and (iii) any liability for the payment of any amounts of
the type described in clause (i) or (ii) as a result of any express or
implied obligation to indemnify any other person or as a result of any
obligations under any agreements or arrangements with any other person with
respect to such amounts and including any liability for taxes of a
predecessor entity.
(ii) "Cash Payment Agreements" means the Promotional Services Agreement,
the License Agreement and the Promissory Note.
(iii) "Final Determination" means a determination as defined in section
1313(a) of the Code or any other event which finally and conclusively
establishes the amount of any liability for Taxes.
(iv) "Management" means the Chairman of the Board of Directors, Chief
Executive Officer, President, Chief Operating Officer, Chief Financial
Officer, and any other officer of a corporation having a comparable level
of decision-making responsibility.
(v) "Other Property or Money" means other property or money within the
meaning of section 351(b) and/or section 356 of the Code.
(vi) "Post-Closing Tax Period" means any Tax period (or portion thereof)
ending after the Closing Date.
(vii) "Pre-Closing Tax Period" means any Tax period (or portion thereof)
ending on or before the Closing Date.
(viii) "Taxing Authority" means any federal, state, local, foreign or
other body that imposes any Tax.
(b) Tax Returns and Audits. Except as set forth in Section 2.10(b) of the
Disclosure Schedule:
(i) As of the Effective Time, Company and Company Subsidiaries will have
prepared and timely filed (or caused to be prepared and timely filed) all
material (as to the Company) required federal, state, local and foreign
returns, estimates, information statements and reports required to be filed
(required federal, state, local and foreign returns, estimates, information
statements and reports relating to any person are collectively referred to
hereinafter as "Returns") relating to any and all Taxes concerning or
attributable to the Company and Company Subsidiaries or their operations
and such Returns shall be true and correct in all material respects and
have been completed in all material respects in accordance with applicable
law. Notwithstanding the foregoing, no representation is hereby made
regarding the size or availability of the net operating losses of the
Company or its Subsidiaries.
(ii) As of the Effective Time, the Company and Company Subsidiaries (A)
will have paid (or caused to be paid) all material (as to the Company)
Taxes the Company or any of its Subsidiaries is required to pay and will
have withheld (or caused to be withheld) with respect to employees of the
Company and Company Subsidiaries all federal and state income taxes, FICA,
FUTA and other Taxes required to be withheld, and (B) will have accrued on
the Current Balance Sheet all Taxes attributable to the operations of the
Company and Company Subsidiaries for the periods covered by the Current
Balance Sheet and will not have incurred any liability for Taxes for the
period from the date of the Current Balance Sheet to the Effective Time
other than in the ordinary course of business.
(iii) There has been no delinquency in the payment of any Tax with
respect to the Company, its Subsidiaries or their operations, nor is there
any Tax deficiency outstanding, assessed or proposed with respect to the
operations of the Company or its Subsidiaries, nor has DEI, the Company, or
its Subsidiaries executed any waiver of any statute of limitations on or
extending the period for the assessment or collection of any Tax relating
to the Company or its Subsidiaries.
(iv) No audit or other examination of any Return relating to Taxes with
respect to the Company is presently in progress, nor has the Company been
notified in writing of any request for such an audit or other examination.
(v) The Company and its Subsidiaries have made available to Parent or its
legal counsel, copies of all foreign, federal and state income and all
state sales and use Returns for the Company filed for all periods since its
inception.
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(vi) There are (and there will be immediately following the Effective
Time) no liens, pledges, charges, claims, restrictions on transfer,
mortgages, security interests or other encumbrances of any sort
(collectively, "Liens") on the assets of the Company or its Subsidiaries
relating to or attributable to Taxes other than Liens for Taxes not yet due
and payable or delinquent.
(vii) None of the Company's or its Subsidiaries' assets are treated as
"tax-exempt use property", within the meaning of Section 168(h) of the
Code.
(viii) The Company has not filed any consent agreement under Section
341(f) of the Code or agreed to have Section 341(f)(4) of the Code apply to
any disposition of a subsection (f) asset (as defined in Section 341(f)(4)
of the Code) owned by the Company.
(ix) Neither the Company nor any of its Subsidiaries is a party to any
Tax sharing, Tax indemnification or Tax allocation agreement nor does the
Company owe any amount under any such agreement, other than this Agreement
and the Tax Sharing Agreement.
(x) The Company is not, and has not been at any time, a "United States
Real Property Holding Corporation" within the meaning of Section 897(c)(2)
of the Code.
(c) Compensation Taxes. There is no contract, agreement, plan or arrangement
to which Company is a party as of the date of this Agreement, including but
not limited to the provisions of this Agreement, covering any service provider
or former service provider to the Company or any Subsidiary, which as a result
of the Mergers, could give rise to the payment of any amount that would not be
deductible pursuant to Sections 280G, 404 or 162(m) of the Code.
2.11 Restrictions on Business Activities. Except as set forth in Section
2.11 of the Disclosure Schedule, there is no material agreement (noncompete or
otherwise), commitment, judgment, injunction, order or decree to which the
Company is a party or otherwise binding upon the Company or its Subsidiaries
which has the effect of prohibiting any material current business practice of
the Company or its Subsidiaries, any material acquisition of property
(tangible or intangible) by the Company or its Subsidiaries or the conduct of
material business by the Company or its Subsidiaries. Without limiting the
foregoing, neither the Company nor its Subsidiaries has entered into any
material agreement under which the Company or its Subsidiaries is materially
restricted from selling, licensing or otherwise distributing any of its
material technology or products to or providing services to, customers or
potential customers or any class of customers, in any material geographic
area, during any material period of time or in any material segment of the
market. After the date hereof, with respect to each agreement listed on
Section 2.11 of the Disclosure Schedule, each of DEI and the Company agrees to
use commercially reasonable efforts (including using reasonable efforts to
cause its officers, divisions and affiliates) to modify or amend such
agreements as reasonably requested by Parent (provided such efforts shall not
include any material expenditures) and as reasonably necessary to eliminate
any conflict with the proposed business of Holding Company.
2.12 Title of Properties; Absence of Liens and Encumbrances; Condition of
Equipment.
(a) Neither the Company nor its Subsidiaries own(s) any real property, and
has never owned any real property. Section 2.12(a) of the Disclosure Schedule
sets forth a list of all real property currently leased by the Company or any
of its Subsidiaries. All such current leases are in full force and effect in
accordance with their respective terms, and neither the Company nor its
Subsidiaries is in material default under any of such leases.
(b) Except as set forth in Section 2.12(b) of the Disclosure Schedule, the
Company and its Subsidiaries have good and valid title to, or, in the case of
leased properties and assets, valid leasehold interests in, all of their
material tangible properties and assets, real, personal and mixed, used or
held for use in their business, free and clear of any Liens, except (i) as
reflected in the Current Balance Sheet, (ii) for Taxes not yet due and payable
or delinquent, and (iii) where such imperfections of title and encumbrances,
if any, which are not material in character, amount or extent, and which do
not materially detract from the value, or materially interfere with the
present use, of the property subject thereto or affected thereby.
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(c) The Company and its Subsidiaries have valid and enforceable rights, free
and clear of any Liens (except Liens for Taxes not yet due and payable or
delinquent), of all advertising, hosting and content customer files and other
advertising, hosting and content customer information relating to advertising,
hosting and content of the Company's and its Subsidiaries' current and former
customers as are material for the conduct of the Company's business as
currently conducted (the "Customer Information").
2.13 Intellectual Property.
(a) For the purposes of this Agreement, the following terms have the
following definitions:
"Intellectual Property" shall mean any or all of the following and all
rights in, arising out of, or associated therewith: (i) all United States
and foreign patents and applications therefor and all reissues, divisions,
renewals, extensions, provisionals, continuations and continuations-in-part
thereof; (ii) all inventions (whether patentable or not), invention
disclosures, improvements, trade secrets, proprietary information, know
how, technology, technical data and customer lists, and all documentation
relating to any of the foregoing; (iii) all copyrights, copyrights
registrations and applications therefor and all other rights corresponding
thereto throughout the world; (iv) all trade names, logos, common law
trademarks and service marks; trademark and service mark registrations and
applications therefor and all goodwill associated therewith throughout the
world; (v) all databases and data collections and all rights therein
throughout the world; and (vi) all computer software including all source
code, object code, firmware, development tools, files, records and data,
all media on which any of the foregoing is recorded, all Web addresses,
sites and domain names, all rights of publicity and privacy, and (vii) any
similar, corresponding or equivalent rights to any of the foregoing and (x)
all documentation related to any of the foregoing.
"Company Intellectual Property" shall mean any Intellectual Property that
is owned by or exclusively licensed to the Company.
"Registered Intellectual Property" shall mean all United States,
international and foreign: (i) patents, patent applications (including
provisional applications); (ii) registered trademarks, applications to
register trademarks, intent-to-use applications, or other registrations or
applications related to trademarks; (iii) registered copyrights and
applications for copyright registration; (iv) any mask work registrations
and applications to register mask works; and (v) any other Company
Intellectual Property that is the subject of an application, certificate,
filing, registration or other document issued by, filed with, or recorded
by, any state, government or other public legal authority.
(b) Section 2.13(b) of the Disclosure Schedule lists all Registered
Intellectual Property owned by, or filed in the name of, the Company (the
"Company Registered Intellectual Property") and lists any proceedings or
actions before any court, tribunal (including the United States Patent and
Trademark Office (the "PTO") or equivalent authority anywhere in the world)
related to any of the Company Registered Intellectual Property Rights.
(c) Except as set forth in Section 2.13(c) of the Disclosure Schedule, each
item of Company Intellectual Property, including all Company Registered
Intellectual Property listed in Section 2.13(b) of the Disclosure Schedule and
all Intellectual Property licensed to the Company or any of its Subsidiaries,
is free and clear of any Liens, except for Liens for Taxes not yet due and
payable or delinquent and Liens that do not materially interfere with the
Company's use of Intellectual Property. Except as set forth in Section 2.13(c)
of the Disclosure Schedule, the Company (i) is the exclusive owner or has
valid and enforceable rights to use of all trademarks and trade names used in
connection with the operation or conduct of the business of the Company or any
of its Subsidiaries as currently conducted, including the sale of any products
or technology or the provision of any services by the Company or any of its
Subsidiaries and (ii) is the exclusive owner of or has valid and enforceable
rights to use, all copyrighted works that are Company or its Subsidiaries'
products or other works of authorship used in connection with the operation or
conduct of the business of the Company or any of its Subsidiaries as currently
conducted, including the sale of any products or technology or the provision
of any services by the Company or any of its Subsidiaries.
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(d) Except as set forth in Section 2.13(d) of the Disclosure Schedule and
except for any transfer, grants or authorizations that do not have a Material
Adverse Effect, the Company has not transferred ownership of or granted any
license of or right to use or authorized the retention of any rights to use
any Intellectual Property that is or was Company Intellectual Property, to any
other person.
(e) Except as set forth in Section 2.13(e) of the Disclosure Schedule, the
Company Intellectual Property constitutes all of the material Intellectual
Property used in and necessary to the conduct of the Company's and its
Subsidiaries' businesses as currently conducted by the Company and its
Subsidiaries, including, without limitation, the design, development,
distribution, manufacture, use, import, license and sale of the products,
technology and services of by the Company and its Subsidiaries (including
products, technology or services currently under development). Except as set
forth in Section 2.13(e) of the Disclosure Schedule, no person who has
licensed Intellectual Property to the Company or any of its Subsidiaries has
material ownership rights or license rights to improvements made by the
Company or any of its Subsidiaries in such Intellectual Property which has
been licensed to the Company or any of its Subsidiaries.
(f) Other than "shrink-wrap" and similar widely available commercial end-
user licenses, the contracts, licenses and agreements listed in Section
2.13(f) of the Disclosure Schedule include all material contracts, licenses
and agreements to which the Company or any of its Subsidiaries is a party with
respect to any Intellectual Property.
(g) Except as set forth in Section 2.13(g) of the Disclosure Statement, the
operation of the business of the Company and its Subsidiaries as it currently
is conducted by the Company and its Subsidiaries (including but not limited to
the design, development, distribution, use, import, manufacture, license and
sale of the products, technology or services (including products, technology
or services currently under development) of the Company or any of its
Subsidiaries does not infringe or misappropriate the Intellectual Property of
any person, violate the rights of any person (including rights to privacy or
publicity), or constitute unfair competition or trade practices under the laws
of any jurisdiction, and neither the Company nor any of its Subsidiaries has
received notice from any person claiming that such operation or any act,
product, technology or service (including products, technology or services
currently under development) of the Company or any of its Subsidiaries
infringes or misappropriates the Intellectual Property of any person or that
the Company or any of its Subsidiaries has engaged in unfair competition or
trade practices under the laws of any jurisdiction (nor does the Company or
DEI have Knowledge of any basis therefor).
(h) All necessary registration, maintenance and renewal fees in connection
with Company Registered Intellectual Property have been paid and all necessary
documents and certificates in connection with Company Registered Intellectual
Property have been filed with the relevant patent, copyright, trademark or
other authorities in the United States or foreign jurisdictions, as the case
may be, for the purposes of maintaining such Registered Intellectual Property
when commercially reasonable.
(i) Except as set forth in Schedule 2.13(i) of the Disclosure Schedule,
there are no material contracts, licenses or agreements between the Company
and any other person with respect to Company Intellectual Property under which
there is any material dispute to the Knowledge of the Company or DEI regarding
the scope of such agreement, or performance under such agreement including
with respect to any payments to be made or received by the Company thereunder.
(j) Except as set forth in Schedule 2.13(j) of the Disclosure Schedule, the
Company has no currently pending claim against any person for infringing or
misappropriating any Company Intellectual Property.
(k) Except as set forth in Section 2.13(k) of the Disclosure Schedule, no
Company Intellectual Property or product, technology or service of the Company
or any of its Subsidiaries which is material to the conduct of the business of
the Company or any of its Subsidiaries as currently conducted is subject to
any proceeding or outstanding decree, order, judgment, agreement or
stipulation that restricts in any material manner the use, transfer or
licensing thereof by the Company or may affect the validity, use or
enforceability of such Company Intellectual Property.
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(l) No (i) product, technology, service or publication of the Company or any
of its Subsidiaries (ii) material published or distributed by the Company or
any of its Subsidiaries is obscene, defamatory, or constitutes false
advertising or otherwise violates any law or regulation.
2.14 Agreements, Contracts and Commitments.
(a) Except as set forth in Sections 2.11, 2.13(f), or 2.14(a) of the
Disclosure Schedule, as of the date hereof, neither the Company nor any of its
Subsidiaries is a party to or is bound by:
(i) any fidelity or surety bond or completion bond,
(ii) any lease of personal property having a value individually in excess
of $50,000 individually or $100,000 in the aggregate,
(iii) any agreement, contract or commitment relating to capital
expenditures and involving future payments in excess of $100,000
individually or $500,000 in the aggregate,
(iv) any agreement, contract or commitment relating to the disposition or
acquisition of assets or any interest in any business enterprise, in each
case with a value of more than $100,000 individually or $500,000 in the
aggregate and occurring outside the ordinary course of the Company's or any
of its Subsidiaries' business,
(v) any mortgages, indentures, loans or credit agreements, security
agreements, guarantees, or other agreements or instruments relating to the
borrowing of money or extension of credit (other than between the Company
and DEI),
(vi) any purchase order or contract for the purchase of materials
involving in excess of $50,000 individually or $100,000 in the aggregate,
(vii) any material distribution, joint marketing or development
agreement, or
(viii) any other agreement, contract or commitment that involves $100,000
or more and is not cancelable without penalty within sixty (60) days.
(b) The Company and each of its Subsidiaries is in compliance in all
material respects with and has not, in any material respect, breached,
violated or defaulted under, or received notice that it has breached, violated
or defaulted in such manner under, any of the terms or conditions of any
agreement, contract, covenant, instrument, lease, license or commitment
required to be listed on Section 2.11, 2.13, or 2.14(a) of the Disclosure
Schedule (collectively a "Contract"), nor does the Company or DEI have
Knowledge of any event that would constitute such a breach, violation or
default with the lapse of time, giving of notice or both. Each Contract is in
full force and effect and, to the Knowledge of the Company and DEI, is not
subject to any material default thereunder by any party obligated to the
Company or its Subsidiaries pursuant thereto. The Company and each of its
Subsidiaries has obtained, or will obtain prior to the Closing Date, all
necessary consents, waivers and approvals of parties to any Contract as are
required thereunder in connection with the Mergers or for such Contracts to
remain in effect without material modification after the Closing. Following
the Effective Time, each of the Company and its Subsidiaries will be permitted
to exercise all of their respective rights under each Contract then in effect
without the payment of any additional amounts or consideration other than
ongoing fees, royalties or payments which the Company or its Subsidiaries
would otherwise be required to pay had the transactions contemplated by this
Agreement not occurred.
2.15 Interested Party Transactions. To DEI's and the Company's Knowledge, no
officer or director of the Company has directly or indirectly, (i) an interest
in any entity which furnishes or sells, services, products or technology that
are the same as any products, services, or technologies that the Company or
any of its Subsidiaries furnishes or sells and that constitute a material part
of the Company's or its Subsidiaries' business, or (ii) any interest in any
entity that purchases from or sells or furnishes to the Company or any of its
Subsidiaries any goods or services that are material in nature to the
Company's or its Subsidiaries' business or (iii) a beneficial interest in any
Contract; provided, that ownership of no more than five percent (5%) of the
outstanding voting stock of a corporation shall not be deemed an "interest in
any entity" for purposes of this Section 2.15.
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2.16 Governmental Authorization. Section 2.16 of the Disclosure Schedule
accurately lists each material consent, license, permit, grant or other
authorization issued to the Company and each of its Subsidiaries by a
Governmental Body (i) pursuant to which the Company or any of its Subsidiaries
currently operates or holds any interest in any of their properties or (ii)
which is required for the operation of its business or the holding of any such
interest, in each case the absence of which would have a Material Adverse
Effect (herein collectively called "Company Authorizations"). The Company
Authorizations are in full force and effect and constitute all Company
Authorizations required to permit the Company and its Subsidiaries to operate
or conduct its business or hold any interest in its properties or assets, in
each case except to the extent that would not result in a Material Adverse
Effect on the Company.
2.17 Litigation. Except as set forth in Section 2.17 of the Disclosure
Schedule, there is no action, suit or proceeding of any nature pending, or, to
the Company's or DEI's Knowledge, threatened, against the Company or any of
its Subsidiaries, their properties or any of their officers or directors, nor,
to the Knowledge of the Company or DEI, is there any reasonable basis
therefor. To the Company's and DEI's Knowledge, there is no investigation
pending or threatened against the Company or any of its Subsidiaries, their
properties or any of their officers or directors (nor, to the Knowledge of the
Company and DEI, is there any reasonable basis therefor) by or before any
Governmental Body.
2.18 Minute Books. The minutes of the Company made available to counsel for
Parent are the only minutes of the Company.
2.19 Environmental Matters.
(a) Hazardous Material. Each of the Company and its Subsidiaries has not:
(i) operated any underground storage tanks at any property that the Company
has at any time owned, operated, occupied or leased; or (ii) illegally
released any material amount of any substance that has been designated by any
Governmental Body or by applicable federal, state or local law to be
radioactive, toxic, hazardous or otherwise a danger to health or the
environment, including, without limitation, PCBs, asbestos, petroleum, and
urea-formaldehyde and all substances listed as hazardous substances pursuant
to the Comprehensive Environmental Response, Compensation, and Liability Act
of 1980, as amended, or defined as a hazardous waste pursuant to the United
States Resource Conservation and Recovery Act of 1976, as amended, and the
regulations promulgated pursuant to said laws (a "Hazardous Material"), but
excluding office and janitorial supplies used in the ordinary course of
business. No Hazardous Materials are present as a result of the deliberate
actions of the Company or any of its Subsidiaries in, on or under any
property, including the land and the improvements, ground water and surface
water thereof, that the Company has at any time owned, operated, occupied or
leased.
(b) Hazardous Materials Activities. The Company has not illegally
transported, stored, used, manufactured, disposed of, released or exposed its
employees or others to Hazardous Materials (excluding office and janitorial
supplies used in the ordinary course of business) in violation of any law in
effect on or before the Effective Time, nor has the Company or any of its
Subsidiaries illegally disposed of, transported, sold, or manufactured any
product containing a Hazardous Material (excluding office and janitorial
supplies used in the ordinary course of business) (any or all of the foregoing
being collectively referred to as "Hazardous Materials Activities").
(c) Permits. Each of the Company and its Subsidiaries currently holds all
material environmental approvals, permits, licenses, clearances and consents
(the "Environmental Permits") necessary for the conduct of the Company's
Hazardous Material Activities, respectively, and other businesses of the
Company and its Subsidiaries as such activities and businesses are currently
being conducted.
(d) Environmental Liabilities. No action, proceeding, revocation proceeding,
amendment procedure, writ, injunction or claim is pending, or to the Company's
or DEI's Knowledge, threatened concerning any Environmental Permit, Hazardous
Material or any Hazardous Materials Activity of the Company or its
Subsidiaries. Neither the Company nor DEI has Knowledge of any fact or
circumstance which would reasonably
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be expected to involve the Company or any of its Subsidiaries in any
environmental litigation or impose upon the Company or any of its Subsidiaries
any environmental liability.
2.20 Brokers' and Finders' Fees; Third Party Expenses. The Company has not
incurred, nor will it incur, directly or indirectly, any liability for
brokerage or finders' fees or agents' commissions or any similar charges in
connection with the Agreement or any transaction contemplated hereby.
2.21 Employee Benefit Plans; Compensation; Labor Matters.
(a) For purposes of this Section 2.21, the following terms shall have the
meanings set forth below:
(i) "Affiliate" shall mean any other person or entity under common
control with the Company within the meaning of Section 414(b), (c), (m) or
(o) of the Code and the regulations thereunder, provided that DEI and its
Affiliates, other than the Company and its subsidiaries, shall not be
deemed an Affiliate of the Company for these purposes.
(ii) "Employee Plan" shall refer to any plan, program, policy, contract,
or agreement or other arrangement providing for bonuses, severance or
retention payments or benefits, termination pay, deferred compensation,
pensions, profit sharing, performance awards, stock or stock- related
awards, or fringe benefits, or other employee benefits of any kind, written
or otherwise, funded or unfunded, including without limitation, any plan
which is or has been maintained, contributed to, or required to be
contributed to, by the Company or any Affiliate for the benefit of any
"Employee" (as defined below), and pursuant to which the Company or any
Affiliate has or may have any material liability, contingent or otherwise;
and
(iii) "Employee" shall mean any current, former, or retired employee,
consultant, officer, or director of the Company or any of its Subsidiaries.
(iv) "Employee Agreement" shall refer to each employment, severance or
retention agreement or contract between the Company or any Affiliate and
any Employee;
(b) Schedule. Section 2.21(b) of the Disclosure Schedule contains an
accurate and complete list of each Employee Plan and each Employee Agreement.
The Company does not have any plan or commitment, whether legally binding or
not, to establish any new Employee Plan or Employee Agreement, to modify any
Employee Plan or Employee Agreement (except to the extent required by law or
to conform any such Employee Plan or Employee Agreement to the requirements of
any applicable law, or as required by this Agreement), or to enter into any
Employee Plan or Employee Agreement, nor does it have any intention or
commitment to do any of the foregoing.
(c) Documents. The Company has provided access to Parent to correct and
complete copies of each Employee Plan and each Employee Agreement including
all amendments thereto.
(d) Employee Plan/Employee Agreement Compliance. Except as set forth in
Section 2.21(d) of the Disclosure Schedules, (i) the Company has performed in
all material respects all obligations required to be performed by it under
each Employee Plan and Employee Agreement and each Employee Plan has been
established and maintained in material conformity with its terms and in
compliance with all applicable laws, statutes, orders, rules and regulations,
including ERISA and the Code; (ii) each Employee Plan intended to qualify
under Section 401(a) of the Code and each trust intended to qualify under
Section 501(a) of the Code has either received a favorable determination
letter with respect to each such Plan from the IRS or has remaining a period
of time under applicable Treasury regulations or IRS pronouncements in which
to apply for such a determination letter and make any amendments necessary to
obtain a favorable determination; (iii) there are no actions, suits or claims
pending, or, to the Knowledge of the Company or its Affiliates threatened or
anticipated (other than routine claims for benefits) against any Employee Plan
or against the assets of any Employee Plan; and (iv) there are no inquiries or
proceedings pending or, to the Knowledge of the Company or its Affiliates,
threatened by the IRS or DOL with respect to any Employee Plan.
(e) Pension Plans. The Company or any of its Affiliates does not now, nor
have they ever, maintained, established, sponsored, participated in, or
contributed to, any Employee Plan which is subject to Part 3 of Subtitle B of
Title I of ERISA, Title IV of ERISA or Section 412 of the Code.
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(f) Multi-Employer Plans. At no time has the Company or any of its
Affiliates contributed to or been requested to contribute to any Employee Plan
that is a "multi-employer plan" as defined in Section 3(37) of ERISA.
(g) No Post-Employment Obligations. No Employee Plan provides, or has any
liability to provide, life insurance, medical or other employee benefits to
any Employee upon his or her retirement or termination of employment for any
reason, except as may be required by statute, and except as may otherwise be
provided under any agreement listed on Section 2.21(b) of the Disclosure
Schedule, the Company has not represented, promised or contracted (whether in
oral or written form) to any Employee (either individually or to Employees as
a group) that such Employee(s) would be provided with life insurance, medical
or other employee welfare benefits upon their retirement or termination of
employment, except to the extent required by statute.
(h) Effect of Transaction. The execution of this Agreement and the
consummation of the transactions contemplated hereby will not (either alone or
upon the occurrence of any additional or subsequent events) constitute an
event under any Employee Plan, Employee Agreement, trust or loan that will or
may result in any payment (whether of severance pay or otherwise),
acceleration, forgiveness of indebtedness, stock option or restricted stock
vesting acceleration, distribution, increase in benefits or obligation to fund
benefits with respect to any Employee.
(i) Employment Matters. Except as set forth in Section 2.22(i) of the
Disclosure Schedule, the Company (i) is in compliance in all material respects
with all material applicable laws, rules and regulations respecting
employment, employment practices, terms and conditions of employment and wages
and hours, in each case, with respect to Employees; (ii) has withheld all
amounts required by law or by agreement to be withheld from the wages,
salaries and other payments to Employees; (iii) is not liable for any arrears
of wages or any taxes or any penalty for failure to comply with any of the
foregoing; and (iv) is not liable for any payment to any trust or other fund
or to any governmental or administrative authority, with respect to
unemployment compensation benefits, social security or other benefits or
obligations for Employees (other than routine payments to be made in the
normal course of business and consistent with past practice).
(j) Labor. No work stoppage or labor strike against the Company or any of
its Subsidiaries is pending, or to the Knowledge of the Company or DEI,
threatened. Neither the Company nor any of its Subsidiaries is involved in or,
to the Company's or DEI's Knowledge threatened with any labor dispute,
grievance, or litigation relating to labor, safety or discrimination matters
involving any Employee, including, without limitation, charges of unfair labor
practices or discrimination complaints, which, if adversely determined, would,
individually or in the aggregate, result in any material liability to the
Company, any of its Subsidiaries, Parent or Sub. Neither the Company nor any
of its Subsidiaries has engaged in any unfair labor practices which could,
individually or in the aggregate, directly or indirectly result in any
material liability to the Company, any of its Subsidiaries, Parent, Sub or any
Affiliate. Neither the Company nor any of its Subsidiaries is presently a
party to, or bound by, any collective bargaining agreement or union contract
with respect to Employees and no collective bargaining agreement is being
negotiated by the Company or any of its Subsidiaries.
2.22 Insurance. As of the date hereof, the Company is insured against such
losses and risks and in such amounts as are customary in the business in which
it is engaged and the policies providing such insurance are in full force and
effect.
2.23 Compliance with Laws. The Company and each of its Subsidiaries has
complied in all material respects with, is not in material violation of, and
has not received any notices of material violation with respect to, any
material foreign, federal, state or local statute, law or regulation.
2.24 Warranties; Indemnities. Except for the warranties and indemnities
contained in (i) those contracts and agreements set forth in Section 2.13, and
2.14 of the Disclosure Schedule and (ii) the Company's "shrink wrap"
commercial end-user license agreements, neither the Company nor any Subsidiary
has given any warranties or indemnities relating to products or technology
sold or licensed or services rendered by the Company or any Subsidiary.
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2.25 Ownership of Parent Stock. None of DEI, its affiliates, Company or any
of their Subsidiaries or Affiliates beneficially owns as of the date hereof
any shares of Parent Capital Stock (other than immaterial amounts through
employee benefit plans of DEI or the Company over which neither DEI nor the
Company exercises any voting power).
2.26 Claims for Losses. DEI has no outstanding claims for Losses (as defined
in the Stock Purchase Agreement as such term is defined in Section 7.2 of this
Agreement) nor does it have any other action, suit or proceeding of any nature
pending, or to DEI's Knowledge, threatened against Company, their properties
or any of their officers or directors.
2.27 Capital Summary Statements. Schedule 2.27 of the Company Disclosure
Schedule sets forth the unaudited Capital Summary Statement of each holder of
a Partnership Interest (as such term is defined in each of the ABC
News/Starwave and ESPN/Starwave Partnership Agreements dated as of March 28,
1997 (the "Partnership Agreements") as of May 31, 1998 (the "Capital Summary
Statement")). (The partnerships formed under such Partnership Agreements are
referred to herein as the "Partnerships".) The Capital Summary Statement
presents accurately the allocation of profits and loss among the capital
accounts of the Partnership Interest holders since inception and is correct in
all material respects. The Capital Summary Statement reflects an allocation of
losses of 60% to the Company and 40% to the other partner, in each case. Also
such allocations of profit and loss have been properly made in accordance with
the Partnership Agreements.
ARTICLE III
Representations and Warranties of Parent
Parent represents and warrants to the Company and DEI, subject to such
exceptions as are specifically disclosed in the Disclosure Schedule supplied
by Parent to DEI and the Company (the "Parent Disclosure Schedule"), as of the
date hereof as follows:
3.1 Organization, Standing and Power. Parent is a corporation duly
organized, validly existing and in good standing under the laws of the State
of California. Holding Company is, and the Merger Subsidiaries will be as of
the Effective Time, corporations duly organized, validly existing and in good
standing under the laws of their respective jurisdictions of incorporation.
Each of Parent and its Subsidiaries has the corporate power to own its
properties and to carry on its business as now being conducted and is duly
qualified to do business and is in good standing in each jurisdiction in which
the failure to be so qualified would have a Material Adverse Effect on Parent.
Parent has delivered a true and correct copy of the Articles of Incorporation
and Bylaws of Parent, as amended to date, to counsel for the Company and DEI.
Each of the Subsidiaries as defined in Section 3.2 below of Parent is duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its formation and has the corporate or other applicable power
to own its property and to carry on its business as now being conducted. Each
of the Subsidiaries is duly qualified to do business and is in good standing
each jurisdiction outside of the jurisdiction of its formation of which the
failure to be so qualified would have a Material Adverse Effect. Parent has
made available the true and correct copy of the charter and by laws or other
organizational document of each of its Subsidiaries, each as amended to date,
to the Company.
3.2 Parent Subsidiaries. Except as set forth in Section 3.2 of Parent
Disclosure Schedule, Parent does not have, and has never had, any
subsidiaries, in each case that would be required to be listed as a
"Subsidiary" in exhibits to the periodic reports of Parent under the Exchange
Act. The entities set forth in Section 3.2 of Parent Disclosure Schedule are
hereinafter occasionally referred to individually as a "Parent Subsidiary"
and, collectively as the "Parent Subsidiaries." Section 3.2 of Parent
Disclosure Schedule also sets forth the form and percentage interest of Parent
in the Parent Subsidiaries and, to the extent that a Parent Subsidiary set
forth thereon is not wholly owned by Parent, lists the other person or
persons, or entity or entities, who have an interest in such Parent Subsidiary
and the percentage of such interest.
3.3 Authority; No Conflict; Consents. Each of Parent and Parent Subsidiaries
has all requisite corporate power and authority to enter into this Agreement
and the Transaction Agreements to which it is a party and to
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consummate the transactions contemplated hereby and thereby. The execution and
delivery of this Agreement and the Transaction Agreements and the consummation
of the transactions contemplated hereby and thereby have been duly authorized
by all necessary corporate action on the part of Parent and Parent
Subsidiaries, and no further action is required on the part of Parent or
Parent Subsidiaries to authorize the Agreement, any Transaction Agreements to
which it is a party and the transactions contemplated hereby and thereby,
subject only to the approval of this Agreement by Parent's shareholders. This
Agreement, the Transaction Agreements and the Merger have been approved by the
Board of Directors of Parent. This Agreement and the Transaction Agreements to
which Parent or Parent Subsidiaries is a party have been duly executed and
delivered by Parent or Parent Subsidiaries, as the case may be, and, assuming
the due authorization, execution and delivery by the other parties hereto and
thereto, constitute the valid and binding obligations of Parent and Parent
Subsidiaries, enforceable in accordance with their respective terms, except as
such enforceability may be limited by principles of public policy and subject
to the laws of general application relating to bankruptcy, insolvency and the
relief of debtors and to rules of law governing specific performance,
injunctive relief or other equitable remedies. The execution and delivery by
each of Parent and Parent Subsidiaries, as the case may be, of this Agreement
and the Transaction Agreements do not, and the performance and consummation of
the transactions contemplated hereby and thereby will not, result in any
Conflict with (i) any provision of the Articles or Certificate of
Incorporation, Bylaws or other organizational documents of Parent or Parent
Subsidiary, (ii) any material mortgage, indenture, lease, contract or other
agreement or instrument, permit, concession, franchise or license to which
Parent or any Parent Subsidiary, or any of their properties or assets, are
subject, or (iii) any judgment, order, decree, statute, law, ordinance, rule
or regulation applicable to Parent or any Parent Subsidiary or their
respective properties or assets. No consent, waiver, approval, order or
authorization of, or registration, declaration or filing with any Governmental
Body is required by or with respect to Parent or any Parent Subsidiaries in
connection with the execution and delivery of this Agreement and any
Transaction Agreements to which Parent or Parent Subsidiaries are a party or
the consummation of the transactions contemplated hereby and thereby, except
for (i) the filing of the Articles of Merger for the Company Merger with the
Secretary of State of the State of Washington and the Agreement of Merger, for
the Parent Merger with the Secretary of State of the State of California, (ii)
such consents, waivers, approvals, orders, authorizations, registrations,
declarations and filings as may be required under applicable federal and state
securities laws, (iii) any applicable filings required under the HSR Act, (iv)
the approval of the Merger by Parent's shareholders and (v) any other such
filings or approvals as may be required under Washington Law.
3.4 Parent Capital Structure. The authorized capital stock of Parent
consists of 50,000,000 shares of Common Stock, no par value, of which
31,414,015 shares were issued and outstanding as of June 12, 1998, and
5,000,000 shares of undesignated Preferred Stock, no par value, of which no
shares are issued or outstanding. All such shares of Parent have been duly
authorized, and all such issued and outstanding shares have been validly
issued, are fully paid and nonassessable and not subject to preemptive rights
created by statute, the Articles or Certificate of Incorporation or Bylaws of
Parent or any agreement to which Parent is a party or by which it is bound,
and have been issued in compliance with federal and state securities laws.
There are no declared or accrued unpaid dividends with respect to any shares
of Parent's capital stock. There are no outstanding or authorized stock
appreciation, phantom stock, profit participation, or other similar rights
with respect to Parent or Parent Subsidiaries. Except as contemplated by this
Agreement, to Parent's Knowledge, there are no voting trusts, proxies or other
agreements or understandings with respect to the voting stock of Parent or
Parent Subsidiaries.
3.5 SEC Documents; Parent Financial Statements. Parent has furnished the
Company with a true and complete copy of all of its filings with the
Securities and Exchange Commission (the "SEC") since January 1, 1997 (the "SEC
Documents"). Each of the SEC Documents when filed, was true and correct and
did not omit to state any material fact required to be stated therein or
necessary to make the statements made therein, in light of the circumstances
under which they were made, not misleading in each case, except as superseded
in any subsequent filings. The SEC Documents contain an audited consolidated
balance sheet of Parent as of December 31, 1997 and the related audited
consolidated statements of income and cash flow for the year then ended and
Parent's unaudited consolidated balance sheet as of March 31, 1998 filed as an
exhibit to Parent's Current Report
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on Form 8-K, dated as of May 22, 1998 (the "Parent Balance Sheet"), and the
related unaudited consolidated statements of income and cash flow for the
three-month period then ended (collectively, the "Parent Financials"). The
Parent Financials have been prepared in accordance with GAAP applied on a
basis consistent throughout the periods indicated and are consistent with each
other. The Parent Financials present fairly the consolidated financial
condition and consolidated operating results and cash flows of the Parent as
of the dates and during the periods indicated therein, subject, in the case of
unaudited statements, to normal year-end adjustments, which will not be
material in amount. The Parent and each of its Parent Subsidiaries maintains a
system of internal accounting controls sufficient to provide reasonable
assurance that transactions are recorded as necessary to permit preparation of
financial statements in conformity with GAAP and to maintain asset
accountability.
3.6 No Undisclosed Liabilities. Except (i) as reflected in the Parent
Balance Sheet, (ii) as set forth on Section 3.6 to the Parent Disclosure
Schedules, or (iii) with respect to any matter arising in the ordinary course
of business consistent with past practices since March 31, 1998, Parent and
Parent Subsidiaries have no liability, indebtedness, obligation, expense,
claim, deficiency, guarantee or endorsement of any type, whether accrued,
absolute, contingent, matured, unmatured or other, which individually or in
the aggregate are required to be reflected or reserved against on the
consolidated balance sheet of Parent and Parent Subsidiaries in accordance
with GAAP, or that, individually or in the aggregate, would have a Material
Adverse Effect. In addition, since March 31, 1998, there has not been any
declaration, setting aside or payment of a dividend or other distribution with
respect to Parent's capital stock or any material change in accounting methods
practices by Parent or any Parent Subsidiary.
3.7 No Material Adverse Effect. Since the date of the Parent Balance Sheet,
there has not occurred any event or condition of any character that has had a
Material Adverse Effect on Parent.
3.8 Brokers' and Finders' Fees. Except for those fees payable to Merrill
Lynch & Co. as financial advisor to Parent, neither Parent nor Parent
Subsidiary has incurred, nor will it incur, directly or indirectly, any
liability for brokerage or finders' fees or agents' commissions or any similar
charges in connection with this Agreement or any transaction contemplated
hereby.
3.9 Litigation. Except as set forth on Section 3.9 of the Parent Disclosure
Schedule, there is no action, suit or proceeding of any nature pending, or, to
the Parent's Knowledge, threatened, against the Parent or any of Parent
Subsidiaries, their properties or any of their officers or directors, nor, to
the Knowledge of the Parent, is there any reasonable basis therefor. To the
Parent's Knowledge, there is no investigation pending or threatened against
Parent or any of its Subsidiaries, their properties or any of their officers
or directors (nor, to the Knowledge of the Parent, is there any reasonable
basis therefor) by or before any Governmental Body. No Governmental Body has
at any time challenged or questioned the legal right of Parent or any of
Parent's Subsidiaries to conduct its operations as presently or previously
conducted.
3.10 Taxes.
(a) Tax Returns and Audits.
(i) As of the Effective Time, Parent and Parent Subsidiaries will have
prepared and timely filed (or caused to be prepared and timely filed) all
material (as to Parent) required federal, state, local and foreign Returns,
relating to any and all Taxes concerning or attributable to the Parent and
Parent Subsidiaries or their operations and such Returns shall be true and
correct in all material respects and have been completed in all material
respects in accordance with applicable law. Notwithstanding the foregoing,
no representation is hereby made regarding the size or availability of the
net operating losses of Parent or the Parent Subsidiaries;
(ii) As of the Effective Time, Parent and Parent Subsidiaries (A) will
have paid (or caused to be paid) all material (as to Parent) Taxes that
Parent or any of Parent's Subsidiaries is required to pay and will have
withheld (or caused to be withheld) with respect to employees of the Parent
and Parent Subsidiaries all federal and state income taxes, FICA, FUTA and
other Taxes required to be withheld, and (B) will have
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accrued on the Parent Financials, all Taxes attributable to the operations
of the Parent and Parent Subsidiaries for the periods covered by the Parent
Financials and will not have incurred any liability for Taxes for the
period from the date of the Parent Balance Sheet to the Effective Time
other than in the ordinary course of business;
(iii) There has been no delinquency in the payment of any Tax with
respect to Parent, any Parent Subsidiaries, or their operations, nor is
there any Tax deficiency outstanding, assessed or proposed with respect to
the operations of Parent or the Parent Subsidiaries, nor has Parent or the
Parent Subsidiaries executed any waiver of any statute of limitations on or
extending the period for the assessment or collection of any Tax relating
to the Parent or Parent Subsidiaries;
(iv) No audit or other examination of any Return relating to Taxes with
respect to the Parent is presently in progress, nor has Parent been
notified in writing of any request for such an audit or other examination;
(v) There are (and there will be immediately following the Effective
Time) no Liens on the assets of the Parent or Parent Subsidiaries relating
to or attributable to Taxes other than Liens for Taxes not yet due and
payable or delinquent;
(vi) Neither Parent nor any of the Parent Subsidiaries is a party to any
Tax sharing, Tax indemnification or Tax allocation agreement nor does
Parent or any of the Parent Subsidiaries owe any amount under any such
agreement, other than this Agreement and the Tax Sharing Agreement;
(vii) Parent has not filed any consent agreement under Section 341(f) of
the Code or agreed to have Section 341(f)(4) of the Code apply to any
disposition of a subsection (f) asset (as defined in Section 341(f)(4) of
the Code) owned by Parent or a Parent Subsidiary.
(viii) Parent and its Subsidiaries have made available to Company or its
legal counsel, copies of all foreign, federal and state income and all
state sales and use Returns for Parent filed for all periods since its
inception.
(b) Compensation Taxes. There is no contract, agreement, plan or arrangement
to which Parent is a party as of the date of this Agreement, including but not
limited to the provisions of this Agreement, covering any service provider or
former service provider to the Parent or any Parent Subsidiary, which as a
result of the Mergers, could give rise to the payment of any amount that would
not be deductible pursuant to Sections 280G, 404 or 162(m) of the Code.
3.11 Employee Benefit Plans; Compensation.
(a) For purposes of this Section 3.11, the following terms shall have the
meanings set forth below:
(i) As used in this Section 3.11, "Affiliate" shall mean any other person
or entity under common control with Parent within the meaning of Section
414(b), (c), (m) or (o) of the Code and the regulations thereunder.
(ii) As used in this Section 3.11, "Employee Plan" shall refer to any
plan, program, policy, contract, agreement or other arrangement providing
for bonuses, severance or retention payments or benefits, termination pay,
deferred compensation, pensions, profit sharing, performance awards, stock
or stock-related awards or fringe benefits of any kind, written or
otherwise, funded or unfunded, including without limitation, any plan which
is or has been maintained, contributed to, or required to be contributed
to, by the Parent or any Affiliate for the benefit of any "Employee" (as
defined below), and pursuant to which the Parent or any Affiliate has or
may have any material liability, contingent or otherwise; and
(iii) As used in this Section 3.11, "Employee" shall mean any current,
former, or retired employee, consultant, officer, or director of Parent or
any Parent Subsidiary.
(iv) As used in this Section 3.11, "Employee Agreement" shall refer to
each employment, severance, retention, agreement or contract between the
Parent or any Affiliate and any Employee;
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(b) Employee Plan Compliance. (i) Parent has performed in all material
respects all obligations required to be performed by it under each Employee
Plan and Employee Agreement and each Employee Plan and Employee Agreement has
been established and maintained in material conformity with its terms and in
compliance with all applicable laws, statutes, orders, rules and regulations,
including ERISA and the Code; (ii) each Employee Plan intended to qualify
under Section 401(a) of the Code and each trust intended to qualify under
Section 501(a) of the Code has either received a favorable determination
letter with respect to each such Plan from the IRS or has remaining a period
of time under applicable Treasury regulations or IRS pronouncements in which
to apply for such a determination letter and make any amendments necessary to
obtain a favorable determination; (iii) there are no actions, suits or claims
pending, or, to the Knowledge of Parent or its Affiliates threatened or
anticipated (other than routine claims for benefits) against any Employee Plan
or against the assets of any Employee Plan; (iv) each Employee Plan can be
amended, terminated or otherwise discontinued after the Effective Time in
accordance with its terms, without liability to the Company, any of its
Subsidiaries, Parent, Parent Subsidiary or any Affiliate (other than ordinary
administration expenses typically incurred in a termination event); and (v)
there are no inquiries or proceedings pending or, to the Knowledge of the
Parent or its Affiliates, threatened by the IRS or DOL with respect to any
Employee Plan.
(c) Pension Plans. Parent or any of its Affiliates does not now, nor have
they ever, maintained, established, sponsored, participated in, or contributed
to, any Employee Plan which is subject to Part 3 of Subtitle B of Title I of
ERISA, Title IV of ERISA or Section 412 of the Code.
(d) Multi-Employer Plans. At no time has Parent or any of its Affiliates
contributed to or been requested to contribute to any Employer Plan that is a
"multi-employer plan" as defined in Section 3(37) of ERISA.
(e) No Post-Employment Obligations. No Employee Plan provides, or has any
liability to provide, life insurance, medical or other employee benefits to
any Employee upon his or her retirement or termination of employment for any
reason, except as may be required by statute, and has not represented,
promised or contracted (whether in oral or written form) to any Employee
(either individually or to Employees as a group) that such Employee(s) would
be provided with life insurance, medical or other employee welfare benefits
upon their retirement or termination of employment, except to the extent
required by statute.
(f) Effect of Transaction. The execution of this Agreement and the
consummation of the transactions contemplated hereby will not (either alone or
upon the occurrence of any additional or subsequent events) constitute an
event under any Employee Plan, Employee Agreement, trust or loan that will or
may result in any payment (whether of severance pay or otherwise),
acceleration, forgiveness of indebtedness, stock option or restricted stock
vesting acceleration, distribution, increase in benefits or obligation to fund
benefits with respect to any Employee.
(g) Employment Matters. Parent (i) is in compliance in all material respects
with all material applicable laws, rules and regulations respecting
employment, employment practices, terms and conditions of employment and wages
and hours, in each case, with respect to Employees; (ii) has withheld all
amounts required by law or by agreement to be withheld from the wages,
salaries and other payments to Employees; (iii) is not liable for any arrears
of wages or any taxes or any penalty for failure to comply with any of the
foregoing; (iv) is not liable for any payment to any trust or other fund or to
any governmental or administrative authority, with respect to unemployment
compensation benefits, social security or other benefits or obligations for
Employees.
(h) Labor. No work stoppage or labor strike against Parent or Parent
Subsidiaries is pending, or to the Knowledge of the Parent, threatened. Parent
Subsidiaries is not involved in, or to its Knowledge threatened with any labor
dispute, grievance, or litigation relating to labor, safety or discrimination
matters involving any Employee, including, without limitation, charges of
unfair labor practices or discrimination complaints, which, if adversely
determined, would, individually or in the aggregate, result in any material
liability to the Parent or Parent Subsidiaries. Parent has not engaged in any
unfair labor practices which could, individually or in the aggregate, directly
or indirectly result in any material liability to the Parent, Parent
Subsidiaries or any Affiliate. None of Parent or any Parent Subsidiaries is
presently a party to, or bound by, any collective bargaining
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agreement or union contract with respect to Employees and no collective
bargaining agreement is being negotiated by Parent.
3.12 Compliance with Laws. Parent and Parent Subsidiaries have complied in
all material respects with, are not in violation of, and have not received any
notices of violation with respect to, any material foreign, federal, state or
local statute, law or regulation.
3.13 Agreements, Contract, Commitments. Parent and each Parent Subsidiary is
in compliance in all material respects with and has not, in any material
respects, breached, violated or defaulted under or received notice that it has
breached, violated or defaulted in such manner under, any of the terms or
conditions of any agreement, contract, covenant, instrument, lease, license or
commitment that is included in any Securities Act or Exchange Act filing as a
"Material Contract" (collectively "Parent Contracts"), nor does Parent have
Knowledge of any event that would cause such a breach, violation or default
with the lapse of time, giving of notice or both. Each Parent Contract is in
full force and effect and, to the Knowledge of Parent, is not subject to any
material default thereunder by any party obligated to Parent or Parent
Subsidiaries pursuant thereto. Parent and each Parent Subsidiary has obtained,
or will obtain prior to Closing Date, all necessary consents, waivers and
approvals of parties to any Parent Contract as are required thereunder in
connection with the Mergers or for such Contracts to remain in effect without
material modification after the Effective Time.
3.14 Intellectual Property.
(a) For purposes of this Agreement, the following terms have the following
definitions:
"Parent Intellectual Property" shall mean any Intellectual Property owned
by or exclusively licensed to Parent (including, without limitation, Patent
Number 5,751,956 ("Method and Apparatus for Redirection of Server External
Hyper-Link References") (the "Click-On Patent").
(b) Section 3.14(b) of the Parent Disclosure Schedule lists any proceedings
or actions before any court, tribunal (including the PTO or equivalent
authority anywhere in the world) related to any of the Registered Intellectual
Property of Parent.
(c) Except as set forth in Section 3.14(c) of the Parent Disclosure
Schedule, each item of Parent Intellectual Property, and all Intellectual
Property licensed to Parent or any of its Subsidiaries, is free and clear of
any Liens, except for Liens for Taxes not yet due and payable or delinquent
and Liens that do not materially interfere with the Parent's use of
Intellectual Property. Except as set forth in Section 3.14(c) of the Parent
Disclosure Schedule, Parent (i) is the exclusive owner or has valid and
enforceable rights to use all trademarks and trade names used in connection
with the operation or conduct of the business of Parent or any of the Parent
Subsidiaries as currently conducted, including the sale of any products or
technology or the provisions of any services by Parent or any of the Parent
Subsidiaries and (ii) is the exclusive owner of or has valid and enforceable
rights to use all copyrighted works that are Parent or the Parent Subsidiaries
products or any works of authorship used in connection with the operation or
conduct of the business of the Parent or any of the Parent Subsidiaries as
currently conducted, including the sale of any products or technology or the
provision of any services by the Parent or any of the Parent Subsidiaries.
(d) Except as set forth in Section 3.14(d) of the Parent Disclosure Schedule
and except for any transfers, grants or authorizations that do not have
Material Adverse Effect, Parent has not transferred ownership of or granted
any license of or the right to use or authorized the retention of any rights
to use any Intellectual Property that is or was Parent Intellectual Property,
to any other person.
(e) Parent has valid and enforceable rights in all of the material
Intellectual Property used in and necessary to the conduct of Parent's and its
Subsidiaries' businesses as currently conducted by Parent and its
Subsidiaries. No person who has licensed Intellectual Property to Parent or
any of its Subsidiaries has material ownership rights or license rights to
improvements made by Parent or any of its Subsidiaries in such Intellectual
Property which has been licensed to Parent or any of its Subsidiaries.
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(f) Except as set forth in Section 3.14(f) of the Parent Disclosure
Schedule, the operation of the business of Parent and Parent Subsidiaries as
it currently is conducted does not infringe or misappropriate the Intellectual
Property of any person, violate the rights of any person (including rights to
privacy or publicity), or constitute unfair competition or trade practices
under the law of any jurisdiction, and neither Parent nor any of Parent
Subsidiaries has received notice from any person claiming that such operation
or any act, product, technology or service (including products, technology
services currently under development) of Parent or any of Parent Subsidiaries
infringes or misappropriate the Intellectual Property of any person or that
the Parent or any of its Subsidiaries has engaged in unfair competition or
trade practices under the laws of any jurisdiction (nor does Parent have
Knowledge of any basis therefor).
(g) To Parent's Knowledge, there is no prior art that would compromise the
validity of the Click-On Patent under any subsection of 35 U.S.C. Section 102.
Parent has no Knowledge of any public knowledge or use anywhere, by anyone, of
the subject matter disclosed in the Click-On Patent before the invention date.
Parent has no Knowledge of the subject matter disclosed in the Click-On Patent
having been patented or described anywhere in a printed publication by anyone
before the invention date. Parent has no Knowledge of the subject matter
disclosed in the Click-On Patent having been in public use or on sale
anywhere, by anyone, before February 22, 1995.
(h) All necessary registration, maintenance and renewal fees in connection
with Registered Intellectual Property of Parent have been paid and all
necessary documents and certificates in connection with Parent Registered
Intellectual Property have been filed with the relevant patent, copyright,
trademark or other authorities in the United States or foreign jurisdictions,
as the case may be, for the purposes of maintaining such Registered
Intellectual Property when commercially reasonable.
(i) There are no material contracts, licenses or agreements between Parent
and any other person with respect to Parent Intellectual Property under which
there is any material dispute to the Knowledge of Parent regarding the scope
of such agreement, or performance under such agreement including with respect
to any payments to be made or received by Parent thereunder.
(j) Parent has no currently pending claim against any person for infringing
or misappropriating any Parent Intellectual Property.
(k) No Parent Intellectual Property or product, technology or service of
Parent or any of its Subsidiaries which is material to the conduct of the
business of Parent or any of its Subsidiaries as currently conducted is
subject to any proceeding or outstanding decree, order, judgment, agreement or
stipulation that restricts in any material manner the use, transfer or
licensing thereof by Parent or may affect the validity, use or enforceability
of such Parent Intellectual Property.
3.15 Real Property. Neither Parent nor any Parent Subsidiary owns any real
property nor has it ever owned any real property.
3.16 Interested Party Transactions. To Parent's Knowledge, no executive
officer or director of Parent is a party to any transactions required to be
disclosed under Item 404 of Regulation S-K of the Securities Act that have not
been disclosed in the SEC Documents.
3.17 Restrictions on Business Activities. Except as set forth in the Parent
Disclosure Schedule, there is no material agreement (noncompete or otherwise),
commitment, judgment, injunction, order or decree to which Parent is a party
or otherwise binding upon Parent or its Subsidiaries which has the effect of
materially prohibiting any material current business practice of Parent or its
Subsidiaries, any material acquisition of property (tangible or intangible) by
Parent or its Subsidiaries or the conduct of material business by Parent or
its Subsidiaries. Without limiting the foregoing, neither Parent nor its
Subsidiaries has entered into any material agreement under which Parent or its
Subsidiaries is materially restricted from selling, licensing or otherwise
distributing any of its material technology or products to or providing
services to, customers or potential
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customers or any class of customers, in any material geographic area, during
any material period of time or in any material segment of the market.
ARTICLE IV
Conduct Prior to the Effective Time
4.1 Conduct of the Parties.
(a) Conduct of Business of the Company and its Subsidiaries. Except as
otherwise contemplated by this Agreement, the Transaction Agreements and the
other agreements by and between Parent and DEI or their Affiliates of even
date herewith and the several transactions contemplated hereby and thereby,
during the period from the date of this Agreement and continuing until the
earlier of the termination of this Agreement or the Effective Time, each of
the Company and DEI agrees (except to the extent that Parent shall otherwise
have previously consented in writing), to carry on the Company's and its
Subsidiaries' respective businesses in the usual, regular and ordinary course
in substantially the same manner as heretofore conducted, to pay the debts and
Taxes of the Company and its Subsidiaries when due (unless such debts and
Taxes are the subject of a dispute that the Company is actively seeking to
resolve), to pay or perform other obligations when due (unless such
obligations are the subject of a dispute that the Company is actively seeking
to resolve), and, to the extent consistent with such businesses, use their
reasonable efforts consistent with past practice and policies to preserve
intact the Company's and its Subsidiaries' present business organizations,
keep available the services of the Company's and its Subsidiaries' present
officers and key employees and preserve the Company's and its Subsidiaries'
relationships with customers, suppliers, distributors, licensors, licensees,
and others having business dealings with it, all with the goal of preserving
the Company's and its Subsidiaries' goodwill and ongoing businesses at the
Effective Time; provided, however, that neither the Company nor DEI shall be
deemed in breach of this Section 4.1 because of attrition, if any, among the
Company employees which may occur as a result of the transactions contemplated
hereby, so long as each of the Company and DEI use all reasonable efforts to
retain such employees at the Company. Except as expressly contemplated by this
Agreement or as set forth in Section 4.1 of the Disclosure Schedule, neither
the Company nor any Subsidiary shall, without the prior written consent of
Parent pursuant to a request made in accordance with the notice provisions set
forth in Section 9.1 of this Agreement (which written consent will be granted
or denied within seventy two (72) hours of receipt of such notice by Parent,
provided that any failure to reply within such time period will be deemed as
non-consent, and which consent will not be unreasonably withheld).
(i) Other than in the ordinary course of business, consistent with past
practices, sell or enter into any material license agreement with respect
to the Company Intellectual Property with any person or entity or buy or
enter into any material license agreement with respect to the Intellectual
Property of any person or entity;
(ii) Other than in the ordinary course of business, consistent with past
practices, sell or transfer to any person or entity any material rights to
the Company Intellectual Property;
(iii) Other than in the ordinary course of business, consistent with past
practices, enter into or materially amend any Contract pursuant to which
any other party is granted marketing or distribution rights of any type or
scope with respect to any material products or technology of the Company or
any Subsidiary, it being understood that the granting of exclusive rights
to any third party shall not be considered practices in the ordinary course
of business.
(iv) Materially amend or otherwise materially modify (or agree to do so),
except in the ordinary course of business, or intentionally violate the
terms of, any of the Contracts set forth or described in the Disclosure
Schedule;
(v) Settle any litigation for an amount in excess of $100,000 in any
single case;
(vi) Declare, set aside or pay any dividends on or make any other
distributions (whether in cash, stock or property) in respect of any of its
capital stock or any other equity interests, as applicable, or split,
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combine or reclassify any of its capital stock or issue or authorize the
issuance of any other securities or any other equity interests of the
Company, as applicable, in respect of, in lieu of or in substitution for
shares of capital stock of the Company or any other equity interests, as
applicable, or repurchase, redeem or otherwise acquire, directly or
indirectly, any shares of the capital stock of the Company or any
Subsidiary or other equity interests as applicable, of any Subsidiary (or
options, warrants or other rights exercisable therefor);
(vii) Other than the Company's issuance of approximately 1,100,000
options to employees of the Company in accordance with the resolutions of
the Company's Board adopted on June 13, 1998 and any other grants of
options to purchase Company Common Stock (with an exercise price equal to
fair market value of the Company Stock at the date of option grant) granted
to employees in the ordinary course of business consistent with past
practices, issue, grant, deliver or sell or authorize or propose the
issuance, grant, delivery or sale of, or purchase or propose the purchase
of, any shares of its capital stock or any other equity interests, as
applicable, or securities convertible into, or subscriptions, rights,
warrants or options to acquire, or other agreements or commitments of any
character obligating it to issue or purchase any such shares or any other
equity interests of the Company or any of its Subsidiaries, as applicable,
or other convertible securities of the Company or any of its Subsidiaries.
(viii) Cause or permit any amendments to its Articles or Certificate of
Incorporation or Bylaws, or any amendments to its other organizational
documents;
(ix) Acquire or agree to acquire by merging or consolidating with, or by
purchasing any assets or equity securities of, or by any other manner, any
business or any corporation, partnership, association or other business
organization or division thereof, or except in the ordinary course
otherwise acquire or agree to acquire any assets, in each case involving an
investment in excess of $100,000, individually or $500,000 in the
aggregate;
(x) Without limiting any other provisions of clause 4.1(a)(i) above,
sell, lease, license or otherwise dispose of any of its properties or
assets, except in the ordinary course of business and consistent with past
practices, and except in the case of properties or assets of less than
$100,000 individually or $500,000 in the aggregate;
(xi) Except for advances and short-term loans provided by DEI or its
Affiliates to fund operating losses incurred in the ordinary course of
business consistent with past practice (whether evidenced by a written
instrument (which the Company may execute at any time) or only reflected on
the financial statements (including without limitation the Closing Balance
Sheet, if then outstanding) and books and records of the Company) incur any
indebtedness for borrowed money or guarantee any such indebtedness or issue
or sell any debt securities or guarantee any debt securities of others
except for obligations not exceeding $100,000 individually or $500,000 in
the aggregate;
(xii) Grant any loans to others or purchase debt securities of others or
materially amend the terms of any outstanding loan agreement to others;
(xiii) Grant any severance, retention, or termination pay (i) to any
director or officer or (ii) to any other Employee except in each case
payments made pursuant to standard written agreements outstanding on the
date hereof and disclosed in the Disclosure Schedule or payments not
exceeding $250,000 in the aggregate after the date hereof;
(xiv) Adopt any Employee Plan, or enter into any Employee Agreement, pay
or agree to pay any special bonus or special remuneration to any director
or employee, or increase the salaries or wage rates of its Employees other
than routine increases and promotions in the ordinary course of business,
consistent with past practices;
(xv) Revalue any of its assets with a value in excess of $100,000
individually or $500,000 in the aggregate, including without limitation
writing down the value of inventory or writing off notes or accounts
receivable other than in the ordinary course of business;
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(xvi) Except with respect to Taxes, pay, discharge or satisfy, in an
amount in excess of $100,000 (in any one case) or $500,000 (in the
aggregate), any claim, liability or obligation (absolute, accrued, asserted
or unasserted, contingent or otherwise), other than the payment, discharge
or satisfaction in the ordinary course of business of liabilities;
(xvii) Except with respect to Tax Returns to be filed for the taxable
year ending September 30, 1997, (i) make or change any material election in
respect of Taxes relating to the operations of the Company and its
Subsidiaries, or, (ii) adopt or change any accounting method in respect of
Taxes except as required by law;
(xviii) Other than in the ordinary course of business consistent with
past practice, enter into any strategic alliance;
(xix) Accelerate the vesting schedule of any of the outstanding Company
Options or Company Capital Stock;
(xx) Hire any material number of employees or terminate any of the
Company's key employees, or encourage employees to resign;
Take, or agree to take, any of the actions described in Sections 4.1(a)
through (w) above, or any other action that would prevent the Company from
performing or cause the Company not to perform its covenants hereunder.
(b) Conduct of Business of the Parent. Except as otherwise contemplated by
this Agreement, the Transaction Agreements and the other agreements by and
between Parent and DEI or its affiliates of even date herewith and the several
transactions contemplated hereby and thereby, Parent shall conduct its
business in accordance with the terms and conditions as described in the
Governance Agreement entered into of even date herewith. Except as otherwise
contemplated by this Agreement, the Transaction Agreements and the other
agreements by and between Parent and DEI and/or their Affiliates of even date
herewith and the several transactions contemplated hereby and thereby, during
the period from the date of this Agreement and continuing until the earlier of
the termination of this Agreement or the Effective Time, Parent agrees (except
to the extent that the Company shall otherwise have previously consented in
writing), to carry on Parent's and its Subsidiaries' respective businesses in
the usual, regular and ordinary course in substantially the same manner as
heretofore conducted, to pay the debts and Taxes of Parent and its
Subsidiaries when due (unless such debts and Taxes are the subject of a
dispute that Parent is actively seeking to resolve), to pay or perform other
obligations when due (unless such obligations are the subject of a dispute
that Parent is actively seeking to resolve), and, to the extent consistent
with such businesses, use their reasonable efforts consistent with past
practice and policies to preserve intact Parent's and its Subsidiaries'
present business organizations, keep available the services of Parent's and
its Subsidiaries' present officers and key employees and preserve Parent's and
its Subsidiaries' relationships with customers, suppliers, distributors,
licensors, licensees, and others having business dealings with it, all with
the goal of preserving Parent's and its Subsidiaries' goodwill and ongoing
businesses at the Effective Time.
4.2 No Solicitation.
(a) From and after the date hereof, the Company and DEI shall not, and shall
not authorize or permit any of their respective parent corporations,
subsidiaries or officers, directors, employees, accountants, counsel,
investment bankers, financial advisors and other representatives
(collectively, their "Representatives") to, directly or indirectly, solicit,
initiate or encourage (including by way of furnishing non-public information)
or take any other action to facilitate knowingly any inquiries or the making
of any proposal which constitutes or may reasonably be expected to lead to an
Acquisition Proposal (as defined herein) in respect of the Company or any of
its Subsidiaries, from any person or entity, or engage in any discussion or
negotiations relating thereto or enter into any agreement with any person
providing for or contemplating any such Acquisition Proposal; provided,
however, that notwithstanding any other provision hereof, (1) the Company and
DEI may comply with applicable securities laws and regulations and (2) after a
Section 4.2 Notice (as defined below), if any, has been delivered to the
Company by Parent, and prior to the time the Company's stockholders shall have
voted to approve this Agreement, the Company may:
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(i) engage in discussions or negotiations with a third party who (without
any solicitation, initiation, or encouragement, directly or indirectly, by
the Company or its Representatives after the date hereof) seeks to initiate
such discussions or negotiations, and may furnish such third party
information concerning the Company and its business, properties and assets
if and only to the extent that:
(1) (a) the third party has first made an Acquisition Proposal to
acquire at least 65% of the consolidated assets or outstanding voting
power of the Company's securities that is financially superior to the
Company Merger and the transactions contemplated in connection with the
Company Merger and not subject to any financing condition, as
determined in good faith in each case by the Company's board of
directors after consultation with its financial advisors (a "Company
Superior Proposal"), and (b) the Company's board of directors shall
conclude in good faith, after considering applicable provisions of
state law, after consultation with outside counsel that such action is
consistent with its fiduciary duties under applicable law, and
(2) prior to furnishing such information to or entering into
discussions or negotiations with such person or entity, the Company (y)
provides prompt notice to Parent to the effect that it is furnishing
information to or entering into discussions or negotiations with such
person or entity and (z) receives from such person or entity an
executed confidentiality agreement in reasonably customary form on
terms not materially more favorable to such person or entity than the
terms contained in the Confidentiality Agreement between Parent and
TWDC; and/or
(ii) recommend to its shareholders that they accept a Company Superior
Proposal from a third party, provided that the conditions set forth in
clauses 4.2(a)(i)(1)and 4.2(a)(i)(2) above have been satisfied and, prior
to entering into a definitive agreement providing for a Company Superior
Proposal, this Agreement is terminated pursuant to Section 8.1(i) or
8.1(j), as applicable.
(b) From and after the date hereof, Parent shall not, and shall not
authorize or permit any of its subsidiaries or officers, directors, employees,
accountants, counsel, investment bankers, financial advisors and other
representatives (collectively, its "Representatives") to, directly or
indirectly, solicit, initiate or encourage (including by way of furnishing
non-public information) or take any other action to facilitate knowingly any
inquiries or the making of any proposal which constitutes or may reasonably be
expected to lead to an Acquisition Proposal (as defined herein) in respect of
Parent or any of its Subsidiaries from any person or entity, or engage in any
discussion or negotiations relating thereto or enter into any agreement with
any person providing for or contemplating any Acquisition Proposal; provided,
however, that notwithstanding any other provision hereof, Parent may (1)
comply with applicable securities laws and regulations, including without
limitation the Exchange Act (and Rule 14e-2 promulgated under the Exchange Act
with regard to a tender or exchange offer), and (2) prior to the time its
stockholders shall have voted to approve this Agreement, Parent may:
(i) engage in discussions or negotiations with a third party who (without
any solicitation, initiation, or encouragement, directly or indirectly, by
Parent or its Representatives after the date hereof) seeks to initiate such
discussions or negotiations, and may furnish such third party information
concerning the party and its business, properties and assets if and only to
the extent that:
(1) (a) the third party has first made an Acquisition Proposal to
acquire at least 65% of the consolidated assets or outstanding voting
power of Parent's securities that is financially superior to the
Mergers and the transactions contemplated in connection with the
Mergers and not subject to any financing condition, as determined in
good faith in each case by Parent's board of directors after
consultation with its financial advisors (a "Parent Superior
Proposal"), and (b) Parent's board of directors shall conclude in good
faith, after considering applicable provisions of state law, after
consultation with outside counsel that such action is necessary for the
board of directors to act in a manner consistent with its fiduciary
duties under applicable law, and
(2) prior to furnishing such information to or entering into
discussions or negotiations with such person or entity, Parent (y)
provides a Section 4.2 Notice (as defined below) and (z) receives from
such person or entity an executed confidentiality agreement in
reasonably customary form on terms
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not materially more favorable to such person or entity than the terms
contained in the Confidentiality Agreement between Parent and TWDC;
and/or
(ii) recommend to its stockholders that they accept a Parent Superior
Proposal from a third party, provided that the conditions set forth in
clauses 4.2(b)(i)(1) and 4.2(b)(i)(2) above have been satisfied and, prior
to entering into a definitive agreement providing for a Parent Superior
Proposal, this Agreement is terminated pursuant to Section 8.1(g) or
8.1(h), as applicable.
(c) Each party shall immediately cease and terminate any existing
solicitation, initiation, encouragement, activity, discussion or negotiation
with any party or parties conducted heretofore by the party or its
Representatives with respect to any Acquisition Proposal. Each party hereto
shall notify the other party orally (if possible) and in writing of any
Acquisition Proposal with respect to it or any other transaction, the
consummation of which would reasonably be expected to prevent or materially
interfere with or materially delay the Merger (including the material terms
and conditions of any such Acquisition Proposal and the identity of the person
making it), promptly, but in any event within 72 hours, after actual knowledge
thereof by any such party's directors, executive officers, counsel or
individuals representing it as its investment bankers or financial advisors.
In the event that Parent delivers confidential information to a third party
and/or enters into discussions or negotiations with a third party pursuant to
Section 4.2(b)(1), Parent shall, 24 hours prior to such delivery or
discussions or negotiations deliver a notice to the Company regarding such
fact (a "Section 4.2 Notice"; a Section 4.2 Notice will also be deemed to have
been given upon occurrence of any of the events specified in clauses (x), (y)
or (z) of Section 8.1(g)).
As used in this Section 4.2, "Acquisition Proposal" shall mean:
(i) a bona fide proposal or offer (other than by another party hereto)
for a tender or exchange offer for the securities of the Company or Parent,
as the case may be, or
(ii) a bona fide proposal or offer (other than by another party hereto)
for a merger, consolidation or other business combination involving an
acquisition of the Company or Parent, as the case may be, or any material
subsidiary of the Company or Parent, as the case may be, or
(iii) any proposal to acquire in any manner a substantial equity interest
in or a substantial portion of the assets of the Company or Parent, as the
case may be, or any material subsidiary of the Company or Parent, as the
case may be.
4.3 No HSR Violation. During the period from the date of this Agreement and
until the earlier of the termination of this Agreement pursuant to its terms
or the Effective Time, no party hereto shall be required to take any action
that would cause a violation of the HSR Act.
ARTICLE V
Additional Agreements
5.1 Registration Statement; Preparation of Joint Proxy Statement
(a) As soon as practicable after the execution of this Agreement, Parent and
the Company shall jointly prepare and cause to be filed with the SEC
preliminary proxy materials constituting the Joint Proxy Statement of Parent
and the Company for the solicitation of approval of the respective
shareholders of Parent and the Company of this Agreement, the Mergers (in the
case of Parent) and the Company Merger (in the case of the Company) and the
transactions contemplated hereby. Parent shall also prepare and cause to be
filed with the SEC the Form S-4 Registration Statement, in which the Joint
Proxy Statement will be included as a prospectus, with respect to those shares
of Holding Company Common Stock issuable in the Mergers. Each of Holding
Company, Parent, Company and DEI shall use all reasonable efforts to cause the
Form S-4 Registration Statement and the Joint Proxy Statement to comply with
applicable law and the rules and regulations promulgated by the SEC, to
respond promptly to any comments of the SEC or its staff and to have the Form
S-4
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Registration Statement declared effective under the Securities Act as promptly
as practicable after it is filed with the SEC and Parent shall use all
reasonable efforts to cause the Joint Proxy Statement to be mailed to Parent's
shareholders and the Company's shareholders, as promptly as practicable after
the Form S-4 Registration Statement is declared effective under the Securities
Act; provided, however, that if any of the Representation Agreements is duly
terminated prior to the Effective Time by Parent, Parent shall have the
unilateral right, exercisible in its sole discretion, to elect not to submit
the this Agreement and the transactions contemplated hereby to a vote of
Parent's shareholders without being deemed in breach of any obligation under
this Agreement and without payment of any fees or penalties hereunder
(provided that Parent shall otherwise remain subject to the terms and
conditions of this Agreement, including without limitation Section 8.3
hereof), and the Company may terminate this Agreement. Each of the parties
hereto shall promptly furnish to the other party all information concerning
itself, its shareholders and its affiliates that may be required or reasonably
requested in connection with any action contemplated by this Section 5.1. If
any event relating to Holding Company, Parent, DEI or the Company occurs, or
if Holding Company, Parent, DEI or the Company becomes aware of any
information, that should be disclosed in an amendment or supplement to the
Form S-4 Registration Statement or the Joint Proxy Statement, then Holding
Company, Parent, DEI or the Company, as applicable, shall inform the other
thereof and shall cooperate with each other in filing such amendment or
supplement with the SEC and, if appropriate, in mailing such amendment or
supplement to the stockholders of Parent and the Company. The Joint Proxy
Statement shall include the recommendations of the Boards of Directors of
Parent and the Company in favor of the Agreement and the Mergers, as
applicable, and the transactions contemplated hereby; provided that the
respective recommendations of the Boards of Directors may not be included or
may be withdrawn if the Parent Board of Directors or the Company Board of
Directors has recommended a Superior Proposal or Company Superior Proposal, as
the case may be, in accordance with the terms of Section 4.2 (it being
understood that nothing herein shall limit the Company's and Parent's
obligations to hold and convene their respective shareholder meetings promptly
and as provided in this Agreement).
(b) Prior to the Effective Time, Parent shall use reasonable efforts to
obtain all regulatory approvals needed to ensure that the Holding Company
Common Stock to be issued in the Mergers: (i) will be registered or qualified
under the securities law of every jurisdiction of the United States in which
any registered holder of the Company Common Stock or Parent Common Stock who
is receiving shares of registered Holding Company Common Stock has an address
of record or be exempt from such registration; and (ii) will be approved for
quotation at the Effective Time on the Nasdaq National Market; provided,
however, that neither Parent nor Holding Company shall, pursuant to the
foregoing, be required (A) to qualify to do business as a foreign corporation
in any jurisdiction in which it is now qualified, or (B) to file a general
consent to service of process in any jurisdiction with respect to matters
unrelated to the issuance of Holding Company Common Stock pursuant hereto.
(c) Parent, DEI and the Company (in respect of the information respectively
supplied by it) agree that: (i) none of the information to be supplied by it
or its Affiliates for inclusion in the Form S-4 Registration Statement will,
at the time the Form S-4 Registration Statement becomes effective under the
Securities Act, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they
are made, not misleading; (ii) none of the information to be supplied by it or
its Affiliates for inclusion in the Joint Proxy Statement will, at the time
the Joint Proxy Statement is mailed to the stockholders of Parent and the
Company, or as of the Effective Time, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading; and (iii) as to
matters respecting it and its Joint Proxy Statement and the Form S-4 will
comply as to form in all material respects with the provisions of the
Securities Act and the Exchange Act, as applicable, and the rules and
regulations promulgated by the SEC thereunder, except that no covenant
representation or warranty is made by Parent with respect to statements made
or incorporated by reference therein based on information supplied by the
Company or DEI for inclusion or incorporation by reference in the Joint Proxy
Statement and no covenant, representation or warranty is made by the Company
or DEI with respect to statements made or incorporated by reference therein
based on information supplied by Parent for inclusion or incorporation by
reference in the Joint Proxy Statement.
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5.2 Shareholder Meetings.
(a) The Company shall promptly after the date hereof take all action
necessary in accordance with applicable law and its Articles of Incorporation
and Bylaws to hold and convene a meeting of the Company's shareholders (the
"Company Shareholders' Meeting") on the date of a Parent Shareholders' Meeting
or prior thereto if it so chooses. Except as required by the SEC or applicable
court order, the Company shall not postpone or adjourn (other than for the
absence of a quorum) the Company Shareholders' Meeting without the consent of
Parent. It is understood and intended by the parties hereto that the Voting
Agreement and the irrevocable proxies delivered to Parent by DEI are
sufficient for Parent to approve the transactions contemplated hereby by the
Company's stockholders, and neither DEI nor the Company shall in any way
challenge the validity, enforceability or effectiveness of the Voting
Agreement or proxies. Subject to Section 5.1(a), the Company and DEI shall
take all other action necessary or advisable to secure the vote or consent of
shareholders required by applicable law to effect the Mergers and the
transactions contemplated hereby (the "Required Company Shareholder Vote").
(b) Parent shall promptly after the date hereof take all action necessary in
accordance with applicable law and its Articles of Incorporation and Bylaws to
hold and convene a meeting of Parent's shareholders (the "Parent Shareholders'
Meeting"). Except as required by the SEC or applicable court order, Parent
shall not postpone or adjourn (other than for the absence of a quorum) the
Parent Shareholders' Meeting without the consent of the Company. Parent shall
not in any way challenge the validity, enforceability or effectiveness of the
voting agreements entered into by shareholders of Parent in connection with
the Mergers. Subject to Section 5.1(a), Parent shall take all other action
necessary or advisable to secure the vote or consent of shareholders required
by applicable law to effect the Mergers and the transactions contemplated
hereby (the "Required Parent Shareholder Vote").
5.3 Cooperation; Access to Information. Upon reasonable prior notice, the
Company and Parent shall afford the other party and its respective
accountants, counsel and other representatives, reasonable access during
normal business hours during the period prior to the Effective Time to all of
its properties, books, contracts, commitments and records, all other
information concerning its business, properties and personnel (subject to
restrictions imposed by applicable law) as the first party may reasonably
request and all its key employees. Upon reasonable prior notice Company and
Parent agree to provide each other and its respective accountants, counsel and
other representatives copies of internal financial statements (including by
returns and supporting documentation) promptly upon request. No information or
knowledge obtained in any investigation pursuant to this Section 5.3 shall
affect or be deemed to modify any representation or warranty contained herein
or the conditions to the obligations of the parties to consummate the Merger.
5.4 Confidentiality. Each of the parties hereto hereby agrees that the
information obtained in any investigation pursuant to Section 5.4, or pursuant
to the negotiation and execution of this Agreement or the effectuation of the
transactions contemplated hereby shall be governed by the terms of the
Confidential Disclosure Agreement effective as of on or about February 17,
1998, and that the Company, its officers, directors, employees, agents and
representatives agree to be bound by the terms thereof by virtue of DEI's
execution thereof.
5.5 Expenses.
(a) Except as set forth in Section 5.5(b) and Section 8.3, whether or not
the Merger is consummated, all fees and expenses incurred in connection with
the Merger including, without limitation, all legal, accounting, financial
advisory, consulting and all other fees and expenses of third parties ("Third
Party Expenses") incurred by a party in connection with the negotiation and
effectuation of the terms and conditions of this Agreement and the
transactions contemplated hereby, shall be the obligation of the respective
party incurring such fees and expenses, provided, however that Parent and DEI
shall share equally in all fees and expenses, other than Third Party Expenses,
incurred in relation to filing of the Form S-4 Registration Statement and
printing the Joint Proxy Statement (including any preliminary materials
related thereto). Without limiting the foregoing, but subject to Section
8.3(c), Parent agrees to pay the fees and expenses of Merrill Lynch in
connection with the transactions contemplated hereby.
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(b) In the event that the Merger is consummated, DEI agrees to pay at the
Closing those Third Party Expenses of the Company and DEI and their Affiliates
that have been incurred on or prior to the Closing Date.
5.6 Public Disclosure. Parent, DEI and the Company shall consult with each
other before issuing any press release or otherwise making any public
statements with respect to this Agreement or the Merger or the transactions
contemplated hereby or thereby and shall not issue any such press release or
make any such public statement prior to such consultation, except as may be
required by law, The Nasdaq Stock Market, or any listing agreement with a
national securities exchange.
5.7 Consents. The Company, DEI and Parent shall use their best efforts to
obtain the consents, waivers, assignments and approvals under any of their
respective material contracts as may be required in connection with the
Mergers so as to preserve all rights of, and benefits to, the Company and
Parent thereunder.
5.8 FIRPTA Compliance. On the Closing Date, the Company shall deliver to
Parent a properly executed statement in a form reasonably acceptable to Parent
for purposes of satisfying Parent's obligations under Treasury Regulation
Section 1.1445-2(c)(3).
5.9 Reasonable Efforts. Subject to the terms and conditions provided in this
Agreement, each of the parties hereto shall use commercially reasonable
efforts to take promptly, or cause to be taken, all actions, and to do
promptly, or cause to be done, all things necessary, proper or advisable under
applicable laws and regulations to consummate and make effective the
transactions contemplated hereby, to obtain all necessary waivers, consents
and approvals and to effect all necessary registrations and filings and to
remove any injunctions or other impediments or delays, legal or otherwise, in
order to consummate and make effective the transactions contemplated by this
Agreement for the purpose of securing to the parties hereto the benefits
contemplated by this Agreement; provided that none of DEI, the Company nor
Parent shall be required to agree to any divestiture by any of them or any of
their respective subsidiaries or affiliates of shares of capital stock or of
any business, assets or property of any of them or any of their subsidiaries
or affiliates, or the imposition of any material limitation on the ability of
any of them to conduct their businesses or to own or exercise control of such
assets, properties and stock.
5.10 Notification of Certain Matters. Each of the Company, DEI and Parent
shall give prompt notice to the other party of (i) the occurrence or non-
occurrence of any event, the occurrence or non-occurrence of which is likely
to cause any representation or warranty of any party contained in this
Agreement to be untrue or inaccurate at or prior to the Effective Time and
(ii) any failure of either Parent, the Company or DEI, as the case may be, to
comply with or satisfy any covenant, condition or agreement to be complied
with or satisfied by it hereunder; provided, however, that the delivery of any
notice pursuant to this Section 5.10 shall not limit or otherwise affect any
remedies available to the party receiving such notice. No disclosure by the
Company or DEI, on the one hand, or Parent, on the other, pursuant to this
Section 5.10, however, shall be deemed to amend or supplement the Disclosure
Schedule or prevent or cure any misrepresentations, breach of warranty or
breach of covenant.
5.11 Voting Agreements. DEI has delivered to Parent, concurrently with the
execution of this Agreement, an executed Voting Agreement substantially in the
form attached hereto as Exhibit D (the "Voting Agreement") together with an
irrevocable proxy. In addition, certain Parent shareholders have delivered to
DEI, concurrently with the execution of this Agreement, an executed voting
agreement.
5.12 Director Nominees. The Company and DEI shall have the right to select
as its nominees three persons to serve as members of the Board of Directors of
Holding Company (such persons, or any replacement persons, the "Nominees") and
Parent shall cause the Nominees to be appointed to the Board of Directors of
Holding Company (to the extent they so consent) as of the Effective Time.
5.13 Non-Competition. Parent, Holding Company and DEI agree to be bound by
the non-competition provisions set forth in Annex I hereto and incorporated
herein.
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5.14 Regulatory Filings; Reasonable Efforts. As soon as may be reasonably
practicable, Parent and DEI each shall file with the United States Federal
Trade Commission (the "FTC") and the Antitrust Division of the United States
Department of Justice ("DOJ") Notification and Report Forms relating to the
transactions contemplated herein as required by HSR, as well as comparable
pre-merger notification forms required by the merger notification or control
laws and regulations of any applicable jurisdiction, as agreed to by the
parties. Parent, DEI and Company each shall promptly (a) supply the other with
any information which may be required in order to effectuate such filings and
(b) supply any additional information which reasonably may be required by the
FTC, the DOJ or the competition or merger control authorities of any other
jurisdiction and which the parties may reasonably deem appropriate.
5.15 Additional Documents and Further Assurances. Each party hereto, at the
request of another party hereto, shall execute and deliver such other
instruments and do and perform such other acts and things as may be necessary
or desirable for effecting completely the consummation of this Agreement and
the transactions contemplated hereby.
5.16 Employees. Upon and after the Effective Time, subject to the applicable
eligibility and other requirements of such plans, each of the employees of the
Surviving Corporation shall be eligible for the benefit plans and arrangements
available to employees of Holding Company.
5.17 Form S-8. Holding Company agrees to file, no later than thirty (30)
days after the Closing, a registration statement on Form S-8 covering the
shares of Holding Company Common Stock issuable pursuant to outstanding
options granted under the applicable stock option plans of Parent and the
Company. The Company shall cooperate with and assist Holding Company in the
preparation of such registration statement.
5.18 Director Action with Respect to Option Plans. Prior to the Effective
Time, the Board of Directors of the Company shall take such actions as shall
ensure that Company Options outstanding under the Option Plans do not have
their vesting accelerated as a result of the consummation of the Mergers and
the transactions contemplated hereby and thereby.
5.19 Directors' Insurance and Indemnification. The Holding Company will
indemnify each director of Parent and the Company as of the Effective Time
(individually an "Indemnified Party" and collectively the "Indemnified
Parties"), to the fullest extent permitted under applicable law. The rights
under this Section 5.19 are in addition to rights that an Indemnified Party
may have under the Articles of Incorporation, Bylaws, other similar
organizational documents of Parent, the Company, or any of its Subsidiaries or
applicable law. The rights under this Section 5.19 are contingent upon the
occurrence of, and will survive consummation of, the transactions contemplated
hereby and are expressly intended to benefit each Indemnified Party. DEI
hereby agrees to indemnify and hold Holding Company and each of its
Subsidiaries harmless, and reimburse Holding Company upon demand for any and
all amounts paid to or on behalf of an Indemnified Party who was, at the date
hereof, or following the date hereof at any time prior to the Effective Time,
a director of the Company, other than Michael Slade.
5.20 Stock Listing. Parent will use reasonable efforts to list prior to the
Effective Time on the Nasdaq National Market, subject to official notice of
issuance, the shares of Holding Company Common Stock to be issued hereunder.
5.21 Certain Tax Matters.
(a) Return Filing; Information Sharing.
(i) DEI shall prepare and file, or cause to be prepared and filed, with
the appropriate governmental authority all Returns relating to Taxes
required to be filed (with extensions) by or with respect to the Company
and its Subsidiaries on or prior to the Closing Date. DEI shall prepare (or
cause to be prepared) and the Parent shall timely file (or cause to be
timely filed), all Returns relating to Taxes of the Company or any of its
Subsidiaries with respect to periods (or portions thereof) ending on or
prior to the Closing Date that are required to be filed after the Closing
Date.
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(ii) DEI and Parent agree that they will, and will cause their affiliates
to, make available all such information, employees and records of or
relating to the Company and its Subsidiaries as either party may request
with respect to matters relating to Taxes (including, without limitation,
the right to make copies of such information and records) and will
cooperate with respect to all matters relating to Taxes (including, without
limitation the filing of Returns, the filing of an amended Return, audits,
and proceedings). Unless requested by DEI, neither Holding Company, Parent
nor their subsidiaries nor the Company nor any Subsidiary thereof shall
file (or permit to be filed) any amended Return with respect to the Company
or any Subsidiary thereof for any period (or portion thereof) ending on or
prior to the Closing Date without obtaining the prior written consent of
DEI and neither Holding Company, Parent nor their subsidiaries nor the
Company nor any Subsidiary thereof shall, with respect to Taxes relating to
(i) a period (or portion thereof) ending on or prior to the Effective Time
or (ii) any matter that is the subject of this Agreement or any of the
Transaction Agreements, unless, however, there has been a Final
Determination to the contrary relating to such position or matter, take (or
permit to be taken by any affiliate) any position, initiate (or permit to
be initiated) any claim or otherwise take (or fail to take) any action that
could reasonably be expected to adversely affect DEI or its affiliates with
respect to such Taxes. Following the Effective Time, nothing in this
Agreement shall be construed to prevent Holding Company, Parent, any Parent
Subsidiary, the Company or its Subsidiaries from deducting to the maximum
extent permitted by law amounts required to be paid in cash under the
Promotional Services Agreement, the License Agreement and the
Representation Agreement.
(iii) Notwithstanding any other provision of this Agreement, all
transfer, registration, stamp, documentary, sales, use and similar Taxes
(including, but not limited to, all applicable real estate transfer or
gains Taxes and stock transfer Taxes), any penalties, interest and
additions to such Taxes incurred in connection with this Agreement and the
Merger contemplated hereby shall be the responsibility of and be shared
equally by Parent and DEI. DEI and Parent shall cooperate in the timely
making of all filings, Returns, reports and forms as may be required in
connection therewith.
(iv) If any of Holding Company, Parent, the Company or any subsidiary or
affiliate of the foregoing thereof receives any written notice from any Tax
authority proposing any audit or adjustment to any Tax relating to the
Company or any Subsidiary thereof for which DEI or any affiliate thereof
may be liable under this Agreement, Parent, the Company or such subsidiary
shall give prompt written notice thereof to DEI, which notices shall
describe in detail each proposed adjustment. In the event DEI receives
notice of Taxes for which Parent may be liable, DEI shall provide similar
notice to Parent or Holding Company.
(v) Parent, the Company and DEI shall furnish and Parent and Holding
Company shall each use their reasonable efforts to cause officers,
directors and employees of Parent or Holding Company holding or
representing 5% or more of the outstanding stock of Parent to furnish
special counsel to DEI and counsel to Parent with one or more certificates
dated as of the Closing Date signed on behalf of it by one or more of its
officers having authority to sign such certificates and containing such
true and correct statements as may reasonably be requested to enable
special counsel to DEI and counsel to Parent to render the opinions
described in Sections 6.2(a) and 6.3(a), provided, however, that in
connection with such certificates neither Parent nor Holding Company shall
be required to ascertain the intent (but must disclose actual knowledge) of
any Parent shareholder who is not an officer, director or employee of
Holding Company or Parent.
(vi) Holding Company, Parent, the Company and DEI agree to report (and
cause to be reported by their affiliates) any item attributable to a
transaction that occurs on the Closing Date but after the Closing (other
than any transaction in the ordinary course of business) in accordance with
the "next day rule" contained in Treas. Reg. Section 1.1502-76(b).
(vii) Parent and Holding Company grant to DEI and its duly appointed
representatives the sole right to negotiate, resolve, settle or contest any
audit of or claim for Tax with respect to which DEI may have to indemnify
Parent or any affiliate under this Agreement and Parent and Holding Company
agree to cooperate and cause their affiliates to cooperate and take all
actions requested by DEI with respect to the foregoing. If DEI does not
assume the defense of any such claim for Taxes after receiving written
notice of the same
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from Parent or Holding Company, Holding Company may defend the same in such
manner as it may deem appropriate.
(viii) Holding Company, Parent and DEI agree to furnish or cause to be
furnished to each other, upon request, as promptly as practicable, such
information and assistance relating to Holding Company, Parent and their
Affiliates (including without limitation any partnership in which either
owns directly or indirectly any interest), and the Company as is reasonably
necessary for the filing of all Tax Returns, and the making of any election
related to Taxes, the preparation for any audit by any Taxing Authority,
and the prosecution or defense of any claim, suit or proceeding relating to
any Tax Return. Holding Company, Parent and DEI will cooperate with each
other in the conduct of any audit or other proceeding related to Taxes and
all other Tax matters relating to the Holding Company, Parent and the
Company, and each will execute and deliver such powers of attorney and
other documents as are necessary to carry out the intent of this Section
5.21 (viii).
(b) Tax Covenants. Unless there has been a Final Determination to the
contrary (or DEI and Holding Company otherwise agree in writing), DEI, the
Company, Holding Company, and Parent covenant and agree, for all Tax purposes
including all Tax Returns and any Tax controversies, to (and to cause any
affiliate or successor to their assets or businesses to) take each of the
positions set forth below (and not to take any position inconsistent
therewith):
(i) The Company Merger (i) will qualify as a reorganization described in
section 368(a) of the Code and/or (ii) when taken together with the Parent
Merger, will qualify as a transfer of the stock of the Company to Holding
Company governed by section 351 of the Code.
(ii) The Parent Merger (i) will qualify as a reorganization under Section
368(a) of the Code and/or (ii) when taken together with the Company Merger,
will qualify as a transfer of the stock of Parent to Holding Company
governed by section 351 of the Code.
(iii) Except for cash received in lieu of fractional shares, none of the
consideration received by DEI or any non-dissenting shareholder of the
Company in the Company Merger will be treated as Other Property or Money.
(iv) Except for cash received in lieu of fractional shares, none of the
consideration received by Parent's non-dissenting stockholders in the
Parent Merger will be treated as Other Property or Money.
(v) Except for cash received in lieu of fractional shares, no income,
gain or loss will be recognized by Holding Company, TWDC (or any other
affiliate thereof, including without limitation DEI, the Company and Merger
Sub B), or any non-dissenting shareholder of the Company with respect to
the exchange of Company Common Stock for Holding Company Common Stock in
the Company Merger.
(vi) Except for cash received in lieu of fractional shares, no income,
gain or loss will be recognized by Parent, its non-dissenting shareholders,
or Merger Sub A with respect to the exchange of Parent Common Stock for
Holding Company Common Stock in the Parent Merger.
(vii) None of the consideration in either the Company Merger or the
Parent Merger will be paid or issued for services.
(viii) Unless Holding Company and DEI agree to the contrary, except with
respect to interest payments pursuant to the Promissory Note, no income,
deduction, gain or loss will be recognized with respect to the issuance,
exercise or satisfaction of the Holding Company Common Stock, Holding
Company Warrants or the Promissory Note (e.g., the parties agree that the
Promissory Note will not be issued with any original issue discount as
defined in section 1273 of the Code.)
(c) Additional "Tax Covenants". Parent and, upon the consummation of the
Mergers contemplated hereby, Holding Company covenants, jointly and severally,
to DEI (and with respect to 5.21(c)(viii), DEI also covenants to Parent):
(i) No stock or securities (including, without limitation, options or
warrants (other than warrants issued to TWDC pursuant to the Common Stock
and Warrant Purchase Agreement and options issued to
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Employees pursuant to Section 5.21 hereof)) will be issued to any person or
entity other than TWDC, DEI and the shareholders of Parent and the Company
in connection with the Transaction.
(ii) Management of each of Parent and Holding Company has no plan or
intention for (and will not permit) Holding Company to issue any stock
other than Holding Company Common Stock in (or in connection with) the
Transaction.
(iii) Management of each of Parent and Holding Company has no plan or
intention for (and will not permit in connection with the Transaction)
Holding Company to redeem or otherwise acquire in connection with the
Transaction any of the Holding Company Common Stock to be issued in the
Transaction (other than stock repurchased from terminated employees in the
ordinary course of business.)
(iv) Management of each of Parent and Holding Company has no plan or
intention to cause (and will not permit in connection with the Transaction)
Parent or the Company to be liquidated for U.S. Federal income tax purposes
or merged with any other entity.
(v) Management of each of Parent and Holding Company has no plan or
intention to terminate the existence of Holding Company or to merge Holding
Company with any other corporation (and will not permit the occurrence of
any such event in connection with the Transaction).
(vi) Management of each of Parent and Holding Company has no plan or
intention for (and will not permit) in (or in connection with) the
Transaction, Holding Company to dispose of all or any portion of the stock
of either Parent or the Company (including, without limitation, via
merger).
(vii) Following the Transaction, the Management of each of Parent and
Holding Company will cause (i) Parent to continue its historic business or
use a significant portion of its historic business assets in a business of
Parent and (ii) the Company to continue its historic business or use a
significant portion of its historic business assets in a business of the
Company.
(viii) None of DEI, Holding Company, Parent or any of their subsidiaries
has taken (or will take) any action including, without limitation, any
action inconsistent with any representation, warranty, or covenant made
pursuant to Sections 6.2(a) and 6.3(a) hereof or has any knowledge of any
fact or circumstance that is reasonably likely to prevent (i) the Parent
Merger from qualifying as (x) a reorganization described in section 368(a)
of the Code and/or (y) when taken together with the Company Merger, a
transfer of property to Holding Company by the shareholders of Parent
governed by section 351 of the Code and/or (ii) the Company Merger from
qualifying as (x) and reorganization described in section 368(a) of the
Code and/or (y) when taken together with the Parent Merger, as a transfer
of property to Holding Company by DEI governed by section 351 of the Code.
(d) Reporting. DEI, the Company, Parent and Holding Company agree to report
to the other any communication from or with the Internal Revenue Service or
any other Taxing Authority which relates in any way to the characterization of
the Transaction. Notwithstanding any such communication, Holding Company and
Parent covenant and agree to (and to cause any affiliate or successor to their
assets or businesses to) continue to take each of the positions specified in
Section 5.21(b) for all Tax purposes (unless there has been a Final
Determination contrary to such position). Without limiting the generality of
the foregoing, (i) each of DEI and Holding Company will file with its Federal
income tax return for the taxable year in which the Transfer is made (which
tax return shall be timely filed) the information required by Treas. Reg.
Section 1.351-3 and 1.368-3 and to provide each other upon request with a
statement to the effect that such party has complied with this requirement
after filing, and (ii) DEI shall have the opportunity to review and approve
any Tax return to be filed by Holding Company, the Company and/or Parent with
respect to the Transaction, such approval not to be unreasonably withheld.
DEI, the Company, Holding Company and Parent also will maintain such permanent
records as are required by Treas. Reg. (S)(S) 1.351-3(c) and 1.368-3.
(e) Protective Claims. Notwithstanding anything in this Section 5.21(e) to
the contrary, Holding Company will (and will cause any affiliate to) file
protective claims for refund if so requested in writing by DEI (and only if so
requested by DEI) based on any position contrary to the positions described in
Section 5.21(b), (i), (ii), (iii), (v) and (vii) (the "DEI Positions"). In
addition, Holding Company will (and will cause any affiliate to) use
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its best efforts to obtain any refund if so requested in writing by DEI (and
only if so requested by DEI) which may be available based on any position
contrary to the DEI Positions, and, upon receipt of any such refund, will
promptly remit any such amount (less any Taxes attributable to such refund)
and also taking into account any deduction attributable to any payment under
this Section 5.21(e) to DEI. DEI will have the right to control any
administrative or judicial proceeding relating to any such claim for refund,
and DEI will reimburse Holding Company for all reasonable cost relating to any
such claim.
(f) Tax Adjustment Payments. If a Final Determination is made contrary to
any of the DEI Positions, then (in addition to any other remedies which may be
available to DEI but without duplication thereof) Holding Company will pay to
DEI an amount equal to the excess of (a) the liability for the aggregate
amount of Taxes to which Parent, Holding Company, and their subsidiaries would
have been subject in each relevant jurisdiction had the DEI Positions been
sustained (and had Holding Company not been required to make any such payments
pursuant to this Section 5.21(f), over (b) the actual liability for such Taxes
for such periods assuming that the other positions set forth in Section
5.21(b) are sustained. Such payment (i) will not be treated as, or deemed to
be a payment of, Tax and (ii) will be due (subject to a 30-day grace period)
when, as and to the extent Parent or Holding Company derives an actual Tax
savings (including, without limitation, in the form of any refund or reduction
in Tax liability that would not have otherwise been available) as the result
of such excess; provided, however, that appropriate adjustments will be made
in the event that Tax savings are ultimately disallowed in a Final
Determination. If any payment required under this Section 5.21(f) is not made
on or before the above due date, then such payment will be made together with
interest at the rate per annum determined from time to time under section
6621(a)(2) of the Code compounded daily for the period from such due date to
the date on which the payment is actually made. Any dispute concerning the
calculation of payments due under this Section 5.21(f) will be resolved by a
nationally recognized accounting firm that is jointly selected and mutually
engaged by DEI and the non-DEI designated members of the Board of Directors of
Holding Company (the fees and expenses of which shall be shared equally by DEI
and Holding Company).
(g) Allocation of Income and Deductions. For purposes of this Agreement,
income, deductions, and other items will be allocated between the final Pre-
Closing Tax Period and Post-Closing Tax Period based on an actual closing of
the books of the business as of the close of business on the Closing Date. Any
amounts attributable to transactions not in the ordinary course of business
prior to the Closing will be allocated to the final Pre-Closing Tax Period and
amounts attributable to transactions not in the ordinary course of business
following the Closing will be allocated to the initial Post-Closing Tax
Period.
5.22 Non Solicitation of Company Employees. DEI agrees beginning on the date
hereof and continuing until the Effective Date, not to, without Parent's
consent, solicit the hiring of any person who is an employee of the company,
or induce any such person to discontinue his or her employment with the
Company.
5.23 Net Worth Test. At least two (2) business days prior to the Closing
Date, DEI and the Company shall deliver to Parent the Closing Balance Sheet.
DEI and the Company agree that if Estimated Net Worth is less than the Net
Worth Target, then DEI shall deliver to Holding Company at the Closing by
cashier's check or wire transfer in immediately available funds the amount by
which Estimated Net Worth is less than the Net Worth Target (the "Net Worth
Payment"). DEI and the Parent agree that (i) if Net Worth is less than the
lesser of (A) the Net Worth Target and (B) Estimated Net Worth, Holding
Company shall be entitled to recover the amount of such deficit from DEI as a
Loss in accordance with the procedures set forth in Article VII and (ii) if
the Net Worth exceeds the Estimated Net Worth, the Holding Company shall
reimburse DEI the amount of such excess, provided that the amount of such
reimbursement plus the Estimated Net Worth shall not exceed the Net Worth
Target. Following the Closing, Holding Company shall deliver to DEI a
statement indicating the Net Worth and, upon request, a calculation thereof in
reasonable detail.
5.24 Compliance with Laws. For a period of six months following the
Effective Time, Holding Company agrees with DEI that it will not knowingly
fail to comply with applicable employment laws.
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5.25 Share and Warrant Ownership. Parent and Holding Company hereby
represent, warrant and agree, jointly and severally, that, if the transactions
contemplated by this Agreement and the Common Stock Warrant and Purchase
Agreement between Parent and DEI of even date herewith (the "Purchase
Agreement") were consummated as of the date of this Agreement, then (i) the
shares of Holding Company Common Stock that would be acquired by DEI pursuant
to this Agreement, coupled with the shares of Holding Company Stock that would
be acquired by The Walt Disney Company ("TWDC") pursuant to the Purchase
Agreement, would represent, as of the date of this Agreement, in the
aggregate, at least 42.75% of all outstanding shares of Holding Company Stock
and at least 38.45% of all outstanding shares of Holding Company Common Stock
on a fully diluted basis (i.e., assuming the conversion, exchange or exercise
of all securities that are convertible, exchangeable or exercisable for shares
of Holding Company Common Stock, excluding the Warrant acquired by TWDC
pursuant to the Purchase Agreement) as of the date of this Agreement, and (ii)
the Warrant would represent, as of the date hereof, the right to acquire a
number of shares of Holding Company Common Stock that, when coupled with the
shares referred to in clause (i) hereof, would represent as of the date of
this Agreement at least 50.10% of all outstanding shares of Holding Company
Common Stock on a fully diluted basis (i.e., assuming the conversion, exchange
or exercise of all securities that are convertible, exchangeable or
exercisable for shares of Holding Company Common Stock, including, without
limitation, the Warrant) as of the date of this Agreement assuming for
purposes of the percentage calculations set forth in the foregoing clauses (i)
and (ii) that there are only (x) 88,550,088 shares of Company Common Stock
outstanding as of the date of this Agreement and held by DEI, and (y)
107,189,202 shares of Company Common Stock outstanding on a fully diluted
basis (assuming the conversion, exchange or exercise of all Company Options)
and further assuming the truth and accuracy of the representations and
warranties set forth in Section 2.3 hereof. Any breach of the foregoing
representation, warranty and agreement shall be remedied by the issuance,
without additional consideration (the consideration therefor being deemed part
of the original consideration payable by TWDC under the Purchase Agreement, by
Holding Company of additional shares of Holding Company Common Stock or
additional Warrants, to the extent necessary to increase TWDC's and DEI's
aggregate percentage ownership of Holding Company to the amounts and as of
such date specified in clauses (i) and (ii), respectively. This
representation, warranty and agreement shall survive and continue until the
eighteen (18) month anniversary of the Effective Time.
5.26 Parent Option Grants. Prior to the Effective Time, without the written
consent of DEI, Parent shall not issue any options, warrants or other rights
to acquire Parent Common Stock, other than employee stock options and rights
to acquire shares in accordance with employee stock purchase plans in the
ordinary course of business, consistent with past practice.
5.27 ABC News/Starwave Partners. Following the date hereof, subject to the
mutual, reasonable approval of Parent and DEI and provided that Parent and DEI
mutually agree that ABC News/Starwave Partners will continue to lease space
from DEI's affiliate, ABC, Inc., then ABC News/Starwave Partners will enter
into an arms-length lease with ABC, Inc. for such amount of space as the
parties hereto deem reasonable. The parties hereto acknowledge that, until
such lease is entered into (or until the parties determine that ABC
News/Starwave Partners shall locate alternative space), ABC News/Starwave
Partners shall continue to lease the space it currently occupies at ABC, Inc.
at reasonable rates consistent with past practice.
5.28 Funding of Ventures. From the date hereof through the Effective Time or
the termination of this Agreement, the Company agrees that it shall promptly
fund, and DEI agrees that it shall cause its Affiliates, ABC, Inc. and ESPN,
to promptly fund the capital accounts of ABC News/Starwave Partners and
ESPN/Starwave Partners, respectively, in accordance with past practice and the
Partnership Agreements pertaining to such partnerships (it being understood
that in past practice, both partners have contributed their appropriate share
of the capital requirements in accordance with the Partnership Agreements).
5.29 Third Party Agreements. DEI will cause the AOL/ABC News Short Form
Agreement, dated as of March 5, 1997, as amended on June 4, 1998, to terminate
and be of no further force and effect no later than November 30, 1998 with no
liability to Parent or Holding Company. Parent agrees that, although DEI will
be
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required to indemnify Parent for any breach of this covenant, no such breach
shall be the basis for not closing the transactions contemplated hereby.
5.30 Adoption of Option and Employee Stock Purchase Plans. At the Effective
Time, Holding Company shall assume all stock option and employee stock
purchase plans of Parent.
ARTICLE VI
Conditions to the Merger
6.1 Conditions to Obligations of Each Party. The respective obligations of
each party to this Agreement to consummate and effect this Agreement and the
transactions contemplated hereby shall be subject to the satisfaction at or
prior to the Effective Time of the following conditions:
(a) No Injunctions or Restraints; Illegality. No temporary restraining
order, preliminary or permanent injunction or other order issued by any
court of competent jurisdiction or other legal restraint or prohibition
preventing the consummation of the Mergers shall be in effect, nor shall
any proceeding brought by an administrative agency or commission or other
governmental authority or instrumentality, domestic or foreign, seeking any
of the foregoing be pending; nor shall there be any action taken, or any
statute, rule, regulation or order enacted, entered, enforced or deemed
applicable to the Mergers, which makes the consummation of the Mergers
illegal. All waiting periods under the HSR Act relating to the transactions
hereby will have expired or terminated early.
(b) Shareholder Approval. This Agreement shall have been approved and
adopted, and the Mergers shall have duly approved, by the requisite vote
under applicable law, by the shareholders of Parent and the Company.
(c) Listing. The shares of Holding Company Common Stock to be issued in
the Merger to the Shareholders shall have been approved for listing
(subject to notice of issuance) on the Nasdaq National Market.
(d) Effectiveness of Registration Statement. The Form S-4 Registration
Statement shall have become effective in accordance with the provisions of
the Securities Act, and no stop order shall have been issued by the SEC
with respect to the Form S-4 Registration Statement and no similar
proceeding in respect of the Joint Proxy Statement, shall have been
initiated or threatened in writing by the SEC.
(e) Transaction Agreements. The Transaction Agreements executed on the
date hereof shall be in full force and effect as of the Effective Time.
6.2 Conditions to Obligations of Company and DEI. The obligations of the
Company and DEI to consummate and effect this Agreement and the transactions
contemplated hereby shall be subject to the satisfaction at or prior to the
Effective Time of each of the following conditions, any of which may be
waived, in writing, exclusively by the Company and DEI:
(a) Tax Opinion. DEI shall have received the opinion of Dewey Ballantine
LLP, special counsel to DEI, substantially in the same form as the Tax
opinion described in Section 6.3(a), and based upon reasonably requested
representation letters of DEI, the Holding Company, and Parent and their
officers, directors, and employees dated the Closing Date, which opinion
shall be reasonably satisfactory to DEI, to the effect that the Company
Merger will be treated as a reorganization described in section 368(a) of
the Code and/or, when taken together with the Parent Merger, will be
treated as a transfer of property to Holding Company by DEI governed by
section 351 of the Code.
(b) Representations, Warranties and Covenants. The representations and
warranties of Parent in this Agreement shall be true and correct in all
material respects on and as of the Effective Time as though such
representations and warranties were made on and as of such time, except for
such inaccuracies as individually or in the aggregate would not have a
Material Adverse Effect on Parent, and each of Parent and Holding Company
shall have performed and complied in all material respects with all
covenants and obligations of this Agreement required to be performed and
complied with by then as of the Effective Time.
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(c) No Material Adverse Effect. No Material Adverse Effect with respect
to Parent shall have occurred since the date of this Agreement and no
events or circumstances have occurred since the date hereof that would have
a Material Adverse Effect on Parent (except for any Material Adverse Effect
that shall have been cured without such cure resulting or reasonably being
expected to result in a Material Adverse Effect on Parent). (For purposes
of this Article VI, it shall be deemed a "Material Adverse Effect" on
Parent if there shall be in effect a preliminary injunction or permanent
injunction issued by a court of competent jurisdiction against Parent
preventing Parent from generally using or materially limiting the ability
of Parent to generally use Intellectual Property that is both material to
and necessary for the conduct of Parent's business as currently conducted
(taken as a whole), and the prior pendency of a temporary restraining order
in respect of such Intellectual Property which is no longer in effect shall
be deemed not to be a "Material Adverse Effect" on Parent for purposes of
this Article VI.)
(d) Certificate of Parent and Holding Company. The Company and DEI shall
have been provided with a certificate executed on behalf of Parent and
Holding Company by its President and Chief Executive Officer to the effect
that, as of the Effective Time, the conditions set forth in Sections 6.3(a)
and 6.2(b) and (c) have been met.
6.3 Conditions to the Obligations of Parent and Holding Company. The
obligations of Parent and Holding Company to consummate and effect this
Agreement and the transactions contemplated hereby shall be subject to the
satisfaction at or prior to the Effective Time of each of the following
conditions, any of which may be waived, in writing, exclusively by Parent:
(a) Tax Opinion. Parent shall have received the opinion of Wilson Sonsini
Goodrich & Rosati, special counsel to Parent, substantially in the same
form as the Tax opinion described in Section 6.2(a), and based upon
reasonably requested representation letters of DEI, the Holding Company,
and Parent and their officers, directors, and employees dated the Closing
Date, which opinion shall be reasonably satisfactory to Parent, to the
effect that the Parent Merger will be treated as a reorganization described
in section 368(a) of the Code and/or, when taken together with the Company
Merger, as a transfer of property to Holding Company by holders of Parent
Common Stock governed by section 351 of the Code.
(b) Representations, Warranties and Covenants. The representations and
warranties of the Company and DEI in this Agreement shall be true and
correct in all material respects on and as of the Effective Time as though
such representations and warranties were made on and as of the Effective
Time, except for such inaccuracies as individually or in the aggregate
would not have an Material Adverse Effect on the Company, and each of the
Company and DEI shall have performed and complied in all material respects
with all covenants and obligations of this Agreement required to be
performed and complied with by them as of the Effective Time.
(c) No Material Adverse Effect. No Material Adverse Effect with respect
to the Company shall have occurred since the date of this Agreement and no
events or circumstances have occurred since the date hereof that would have
a Material Adverse Effect on the Company (except for any Material Adverse
Effect that shall have been cured without such cure resulting or reasonably
being expected to result in a Material Adverse Effect on the Company). (For
purposes of this Article VI, it shall be deemed a "Material Adverse Effect"
on the Company if there shall be in effect a preliminary injunction or
permanent injunction issued by a court of competent jurisdiction against
the Company preventing the Company from generally using or materially
limiting the ability of the Company to generally use Intellectual Property
that is both material to and necessary for the conduct of the Company's
business as currently conducted (taken as a whole), and the prior pendency
of a temporary restraining order in respect of such Intellectual Property
which is no longer in effect shall be deemed not to be a "Material Adverse
Effect" on the Company for purposes of this Article VI.)
(d) Third Party Consents. Any and all consents, waivers, assignments and
approvals listed in Section 2.5 of the Disclosure Schedule (other than
those whose failure to obtain, individually or in the aggregate, would not
have a Material Adverse Effect on the Company or the Holding Company) shall
have been obtained.
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(e) Certificate of the Company and DEI. Parent shall have been provided
with a certificate executed on behalf of DEI by its Chief Financial Officer
and executed on behalf of the Company by its President and Chief Executive
Officer to the effect that, as of the Effective Time the conditions set
forth in Sections 6.2(a) and 6.3(b) and (c) have been met.
(f) Net Worth Payment. Parent shall have received from DEI and the
Company on or prior to the Closing Date the Closing Balance Sheet,
certified as to correctness by DEI and the Company; and DEI shall have
delivered to Holding Company the Net Worth Payment pursuant to Section
5.23.
ARTICLE VII
Survival of Representations and Warranties; Indemnification
7.1 Survival of Representations and Warranties. The representations and
warranties made by the Company and DEI in this Agreement or in any instrument
delivered pursuant to this Agreement shall terminate on the eighteen (18)
month anniversary of the Closing Date; provided, however, that the
representations, warranties, covenants, promises and agreements made by any
party to this Agreement relating or pertaining to any Tax or Returns related
to Taxes, whether made pursuant to this Agreement or any instrument required
under this Agreement other than those representations and warranties made
pursuant to Section 3.10 hereof (which shall terminate upon the Effective
Time) shall survive until sixty (60) days following the expiration of the
applicable statute of limitations (taking into account all extensions). The
representations and warranties made by Parent and Holding Company contained
herein or in any instrument delivered pursuant to this Agreement (other than
with respect to certificates relating to the Tax opinions described in
Sections 6.2(a) and 6.3(a) hereof, which shall survive until 60 days following
the expiration of the applicable statute of limitations taking into account
all extensions) shall terminate and be of no further force or effect at the
Effective Time, and following the Effective Time, notwithstanding the
following sentence, no party shall have any recourse whatsoever against Parent
or Holding Company in respect of any such representation and warranty (other
than with respect to certificates relating to the tax Opinions described in
Sections 6.2(a) and 6.3(a) hereof). The covenants, promises and agreements of
Parent shall survive the Effective Time, whether made pursuant to this
Agreement or any instrument required under this Agreement. No party hereto
makes any representation or warranty other than those representations and
warranties set forth in this Agreement.
7.2 Indemnification.
(a) From and after the Effective Time, DEI agrees to indemnify and hold
Parent, Holding Company, and their respective officers, directors, employees,
agents and affiliates harmless against all claims, losses, liabilities,
damages, deficiencies, costs and expenses, including reasonable attorneys'
fees and expenses of investigation and defense (hereinafter individually a
"Loss" and collectively "Losses") incurred by Holding Company, Parent, its
officers, directors, employees, agents or affiliates (including the Surviving
Corporation) directly or indirectly as a result of (i) any inaccuracy or
breach of a representation or warranty of the Company or DEI contained in this
Agreement, (ii) any failure by the Company (on or prior to the Effective Time)
or DEI (at any time) to perform or comply with any covenant contained in this
Agreement, including, without limitation, Section 5.23 hereof, or (iii) DEI
Taxes to the extent not accrued on the Closing Balance Sheet; provided,
however, that DEI shall be liable under Section 7.2 (a)(i) only to the extent
that Losses incurred exceed $3 million (the "Threshold") in which case DEI
will be liable for the amount of all such Losses in excess of the Threshold up
to an aggregate of $350 million (the "Cap"); provided, however, with respect
to the matters set forth in Sections 7.2(a)(ii) and (a)(iii) the Threshold
shall not be applicable. In addition, to the extent that Losses are incurred
that result solely from the inaccuracies or breaches of representations and
warranties of the Company or DEI arising solely from facts and circumstances
occurring following the date hereof (but only to the extent that such Losses
do not result from a breach by DEI or the Company of any representation or
warranty made as of the date hereof, or a breach of any obligations under this
Agreement, and only to the extent not relating to facts and circumstances
occurring on or prior to the date hereof), the right to indemnification under
this Section 7.2 for such Losses ("Post-Signing Losses") shall be subject to a
separate and additional threshold of $1 million, which
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will be used first prior to using the $3 million Threshold, and DEI's
obligation to indemnify in respect of such Post-Signing Losses shall commence
only to the extent that such Post-Signing Losses exceed the sum of $1 million
plus the portion of the $3 million Threshold unused by other Losses, and then,
only for the amount of such Losses in excess of the sum of $1 million plus the
unused portion of the $3 million Threshold; provided, however that DEI's
obligation to indemnify with respect to such Losses shall be aggregated with
all other Losses resulting from the matters set forth in Section 7.2(a)(i)
and, together with such Losses, shall be subject to the Cap. Furthermore,
without regard to any threshold, DEI shall pay to Holding Company in
immediately available funds, upon demand by Holding Company the amounts, if
any, by which Net Worth is less than the lesser of (1) Estimated Net Worth and
(2) the Net Worth Target. DEI shall not have any right of contribution from
the Company with respect to any Loss claimed. Nothing herein shall limit the
liability of the Company or DEI for any willful breach of any representation,
warranty or covenant if the Merger does not occur.
(b) Notwithstanding the foregoing, DEI hereby waives any right to seek
indemnification from the Company for any Losses as such term is defined in
that certain Stock Purchase Agreement dated as of March 28, 1997 by and
between the Company, Paul G. Allen and DEI (the "Stock Purchase Agreement")
pursuant to Section 5.1 of the Stock Purchase Agreement, and hereby forever
releases the Company from any and all past and present claims, actions, suits,
and proceedings of any nature pending or threatened against the Company,
whether or not in connection with the Stock Purchase Agreement, other than
intercompany accounts in the amounts reflected in the books and records of the
Company.
7.3 Claims Against DEI for Indemnification. Upon receipt by DEI of a
certificate signed by any officer of Holding Company or Parent (an "Officer's
Certificate"): (A) stating that Parent or Holding Company has paid or properly
accrued Losses for which indemnification may be sought under Section 7.2 and
(B) specifying in reasonable detail the individual items of Losses included in
the amount so stated, the date each such item was paid or properly accrued and
the nature of the misrepresentations, breach of warranty or covenant to which
such items is related, DEI shall, unless DEI shall timely object in writing to
such claim or claims made in such Officer's Certificate pursuant to the
provisions of Section 7.4, deliver to Holding Company as promptly as
practicable, cash in an amount equal to such Losses. To the extent that DEI
indemnifies Holding Company for any accrued Loss, and such accrued Loss is
ultimately determined to exceed the amounts required by GAAP, Holding Company
shall promptly return such amount to DEI.
7.4 Resolution of Conflicts; Arbitration.
(i) In case DEI shall object in writing to any claim or claims made in any
Officer's Certificate within thirty (30) days after delivery of such Officer's
Certificate, DEI and Holding Company shall attempt in good faith to agree upon
the rights of the respective parties with respect to each of such claims. If
DEI and Holding Company should so agree, a memorandum setting forth such
agreement shall be prepared and signed by both parties.
(ii) If no such agreement can be reached after good faith negotiation,
either Holding Company or DEI may demand arbitration of the matter pursuant to
this Section 7.4 unless the amount of the damage or Loss is at issue in
pending litigation with a third party, in which event arbitration shall not be
commenced until such amount is ascertained or both parties agree to
arbitration; and in either such event the matter shall be settled by
arbitration conducted by one arbitrator mutually agreeable to Holding Company
and DEI. In the event that within forty-five (45) days after submission of any
dispute to arbitration, Holding Company and DEI cannot mutually agree on one
arbitrator, Holding Company and DEI shall each select one arbitrator, and the
two arbitrators so selected shall select a third arbitrator. The arbitrator or
arbitrators, as the case may be, shall set a limited time period and establish
procedures designed to reduce the cost and time for discovery while allowing
the parties an opportunity, adequate in the sole judgement of the arbitrator
or majority of the three arbitrators, as the case may be, to discover relevant
information from the opposing parties about the subject matter of the dispute.
The arbitrator or a majority of the three arbitrators, as the case may be,
shall rule upon motions to compel or limit discovery and shall have the
authority to impose sanctions, including attorneys' fees and costs, to the
extent as a competent court of law or equity, should the arbitrators or a
majority of the three arbitrators, as the case may be, determine that
discovery was sought without substantial justification or that discovery was
refused or objected to without
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substantial justification. The decision of the arbitrator or a majority of the
three arbitrators, as the case may be, as to the validity and amount of any
claim in such Officer's Certificate shall be binding and conclusive upon the
parties to this Agreement. Such decision shall be written and shall be
supported by written findings of fact and conclusions which shall set forth
the award, judgment, decree or order awarded by the arbitrator(s).
(iii) Judgment upon any award rendered by the arbitrator(s) may be entered
in any court having jurisdiction. Any such arbitration shall be held in Santa
Clara County, California, under the rules then in effect of the American
Arbitration Association. The arbitrator(s) shall determine how all expenses
relating to the arbitration shall be paid, including without limitation, the
respective expenses of each party, the fees of each arbitrator and the
administrative fee of the American Arbitration Association.
7.5 Third-Party Claims. Promptly after the receipt by any party hereto of a
notice of any claim, action, suit or proceeding of any third party (a "Third
Party Claim") which may be subject to indemnification hereunder, such party
(the "Indemnified Party") shall give written notice of such claim to the party
obligated to provide indemnification hereunder (the "Indemnifying Party"),
stating the nature and basis of such claim and the amount thereof, to the
extent known. Failure of the Indemnified Party to give such notice shall not
relieve the Indemnifying Party from any liability which it may have on account
of this indemnification or otherwise, except to the extent that the
Indemnifying Party is actually prejudiced thereby. The Indemnifying Party
shall be entitled to participate in the defense of and, if it agrees
unconditionally to indemnify the Indemnified Party for any and all Losses
incurred as a result of such Third Party Claim, to assume the defense of such
claim, action, suit or proceeding with counsel selected by the Indemnifying
Party and approved by the Indemnified Party (such approval not to be
unreasonably withheld). Upon the election by the Indemnifying Party to assume
the defense of, or otherwise contest, such claim, action, suit or proceeding,
the Indemnifying Party shall not be liable for any legal or other expenses
subsequently incurred by the Indemnified Party in connection with the defense
thereof, although the Indemnified Party shall have the right to participate in
the defense thereof and to employ counsel, at its own expense. Notwithstanding
the foregoing, the Indemnifying Party shall be liable for the reasonable fees
and expenses of counsel employed by the Indemnified Party, if and only to the
extent that (i) the Indemnifying Party has not employed counsel or counsel
reasonably acceptable to the Indemnified Party to assume the defense of such
action within a reasonable time after receiving notice of the commencement of
the action, (ii) the employment of counsel and the amount reimbursable
therefor by the Indemnified Party has been authorized in writing by the
Indemnifying Party, or (iii) there is an actual conflict of interests between
the Indemnifying Party and the Indemnified Party. The parties shall use
commercially reasonable efforts to minimize Losses from claims by third
parties and shall act in good faith in responding to, defending against,
settling or otherwise dealing with such claim, notwithstanding any dispute as
to liability as between the parties under this Article VII. The parties shall
also cooperate in any such defense, give each other reasonable access to all
information relevant thereto and use commercially reasonable efforts to make
employees and other representatives available on a mutually convenient basis
to provide additional information and explanation of any material provided in
connection therewith. No claim by a third party may be settled by the
Indemnifying Party without the written consent of the Indemnified Party (which
consent shall not be unreasonably withheld), except in the event that the
settlement involves (i) the payment of money only, for which the Indemnified
Party is totally indemnified by the Indemnifying Party, and (ii) the
unconditional release from all related liability of the Indemnified Party.
This section 7.5 shall not apply to disputes relating to Taxes.
7.6 Exclusive Remedy. Following the Effective Time, except with respect to
any knowing or intentional or fraudulent breaches of the representations and
warranties of the Company or DEI contained in this Agreement, the sole and
exclusive remedy of Holding Company for any claim for breaches of
representation and warranties of the Company or DEI arising under this
Agreement shall be the indemnification provided in this Article VII.
7.7 Indemnification For Taxes. Parent and Holding Company agree to indemnify
and hold DEI and its affiliates harmless from and against (a) any and all
Taxes, expenses, costs and other damages attributable in whole or in part to
any breach of any (i) representation, warranty, covenant, agreement or promise
contained in the Certificates delivered pursuant to Section 6.2(a) hereof, or
(ii) any agreement, covenant or promise made by Parent and/or Holding Company
in this Agreement, any Transaction Agreement, or in any instrument delivered
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pursuant to such agreements, in each case that relate to Taxes, (b) Taxes
attributable to any action or transaction occurring on the Closing Date after
the Effective Time, other than in the ordinary course of business, or (c)
Taxes attributable to the Company or any Subsidiary thereof with respect to
any period or portion thereof commencing after the Closing.
ARTICLE VIII
Termination, Amendment and Waiver
8.1 Termination. This Agreement may be terminated and the Mergers abandoned
at any time prior to the Effective Time:
(a) by mutual consent of DEI, the Company and Parent;
(b) by Parent or the Company if: (i) the Effective Time has not occurred
by December 31, 1998 provided, however, that the right to terminate this
Agreement under this Section 8.1(b)(i) shall not be available to any party
(who, in the case of the Company, shall include DEI) whose action or
failure to act has been a principal cause of or resulted in the failure of
the Mergers to occur on or before such date and such action or failure to
act constitutes a material breach of this Agreement; (ii) there shall be a
final nonappealable order of a federal or state court in effect preventing
consummation of the Mergers; or (iii) there shall be any statute, rule,
regulation or order enacted, promulgated or issued or deemed applicable to
the Mergers by any Governmental Body that would make consummation of the
Mergers illegal;
(c) by Parent or the Company if (i) the Parent Shareholders' Meeting
(including any adjournments or postponements thereof) shall have been held
and completed and Parent's shareholders shall have taken a final vote on
the matters set forth in Section 5.2(b) hereof, and (ii) such matters shall
not have been approved at such meeting by the required Parent Shareholder
Vote (provided, further, that the right to terminate this Agreement under
Section 8.1(c) shall not be available to Parent or the Company where the
failure to obtain the required Parent Shareholder Vote shall have been
caused by the action or failure to act of such party and such action or
failure to act constitutes a material breach by such party of this
Agreement);
(d) by Parent or the Company if there shall be any governmental action
taken, or any statute, rule, regulation or order enacted, promulgated or
issued or deemed applicable to the Mergers by any Governmental Body, which
would: (i) prohibit Holding Company's ownership or operation of any
material portion of the business of the Company or (ii) compel Holding
Company or the Company to dispose of or hold separate all or a material
portion of the business or assets of the Company or Holding Company as a
result of the Mergers;
(e) by Parent if it is not in material breach of its obligations under
this Agreement and there has been a breach of any representation, warranty
or covenant contained in this Agreement on the part of the Company or DEI,
or if any representation or warranty on the part of the Company or DEI
shall have become untrue, in either case such that the condition set forth
in Sections 6.3(b) would not be satisfied as of the time of such breach or
as of the time such representation or warranty shall have become untrue and
such inaccuracy in such representation or warranty or breach shall not have
been cured within thirty (30) calendar days after written notice to the
Company and DEI; provided, however, that, no cure period shall be required
for a breach which by its nature cannot be cured;
(f) by the Company or DEI if neither the Company nor DEI is in material
breach of their respective obligations under this Agreement and there has
been a breach of any representation, warranty or covenant contained in this
Agreement on the part of Parent, or if any representation or warranty of
Parent shall have become untrue, in either case such that the condition set
forth in Section 6.2(b) would not be satisfied as of the time of such
breach or as of the time such representation or warranty shall have become
untrue and such inaccuracy in such representations and warranties or such
breach shall not have been cured within thirty (30) calendar days after
written notice to Parent; provided, however, that no cure period shall be
required for a breach which by its nature cannot be cured;
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(g) by the Company, prior to obtaining the Required Parent Shareholder
Vote and after receipt by Parent of an Acquisition Proposal for Parent, if
(x) by the end of the third business day following (but not including) the
day the Company notifies Parent that it wishes the Board of Directors of
the Parent to publicly reaffirm its recommendation to stockholders of
Parent to vote for the Mergers, the Board of Directors of Parent fails to
so publicly reaffirm; or (y) by the later of the end of (A) the tenth
business day following the public announcement of an Acquisition Proposal
for Parent or (B) the third business day following (but not including) the
day the Company notifies Parent that it wishes the Board of Directors of
the Parent to publicly reject such publicly announced Acquisition Proposal,
the Board of Directors of Parent fails to publicly reject such Acquisition
Proposal; or (z) the Board of Directors of Parent shall have changed its
recommendation to its shareholders to vote in favor of approval of the
transactions contemplated hereby;
(h) by Parent, prior to obtaining the Required Parent Shareholder Vote
upon five days' prior notice to the Company (the "Parent Superior Proposal
Notice"), if, as a result of a Parent Superior Proposal by a party other
than the Company or any of its Affiliates, the board of directors of Parent
determines in good faith, after considering applicable provisions of state
law, after consultation with outside counsel that acceptance of the Parent
Superior Proposal is necessary for the board of directors to act in a
manner consistent with its fiduciary duties under applicable law; provided,
however, that the board of directors of Parent, in making any such
determination, shall have considered all concessions which have then been
offered by the Company (it being understood that prior to any such
termination Parent shall, and shall cause its respective financial and
legal advisors to, negotiate with the Company to make such adjustments in
the terms and conditions of this Agreement in favor of Parent as would
induce Parent to proceed with a transaction with the Company rather than
consummation of an Acquisition Proposal made by a third party).
Notwithstanding the foregoing, prior to or contemporaneous with any
termination under Section 8.1(h) Parent must pay to the Company in
immediately available funds the fees required to be paid pursuant to
Section 8.3(a) hereof. In addition, Parent agrees that it shall not
terminate this Agreement pursuant to this Section 8.1(h) at any time prior
to 180 days after the date of this Agreement nor at any time prior to five
days after the Company's receipt of a Parent Superior Proposal Notice in
respect of the Parent Superior Proposal to be accepted;
(i) by Parent, prior to obtaining the Required Company Shareholder Vote
and after receipt by the Company of an Acquisition Proposal for the
Company, if (x) by the end of the third business day following (but not
including) the day Parent notifies the Company that it wishes the Board of
Directors of the Company to publicly reaffirm its recommendation to
stockholders of the Company to vote for the Mergers, the Board of Directors
of the Company fails to so publicly reaffirm; or (y) by the later of the
end of (A) the tenth business day following the public announcement of an
Acquisition Proposal for the Company or (B) the third business day
following (but not including) the day Parent notifies the Company that it
wishes the Board of Directors of the Company to publicly reject such
publicly announced Acquisition Proposal, the Board of Directors of the
Company fails to publicly reject such Acquisition Proposal; or (z) the
Board of Directors of the Company shall have changed its recommendation to
its shareholders to vote in favor of approval of the transactions
contemplated hereby;
(j) by the Company, prior to obtaining the Required Company Shareholder
Vote, upon five days' prior notice to Parent (the "Company Superior
Proposal Notice"), if, as a result of a Company Superior Proposal by a
party other than Parent or any of its Affiliates, the Board of Directors of
the Company determines in good faith, after considering applicable
provisions of state law, after consultation with outside counsel that
acceptance of the Company Superior Proposal is consistent with its
fiduciary duties under applicable law; provided, however, that the board of
directors of the Company, in making any such determination, shall have
considered all concessions which have then been offered by Parent (it being
understood that prior to any such termination the Company shall, and shall
cause its respective financial and legal advisors to, negotiate with Parent
to make such adjustments in the terms and conditions of this Agreement in
favor of the Company as would induce the Company to proceed with a
transaction with Parent rather than consummation of an Acquisition Proposal
made by a third party).
Notwithstanding the foregoing, prior to or contemporaneous with any
termination under Section 8.1(j) the Company must pay to Parent in
immediately available funds the fees required to be paid pursuant to
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Section 8.3(c) hereof. In addition, the Company agrees that it shall not
terminate this agreement pursuant to this Section 8.1(j) at any time prior
to 180 days after the date of this Agreement nor at any time prior to five
days after Parent's receipt of a the Company Superior Proposal Notice in
respect of the Company Superior Proposal to be accepted.
(k) by the Company, provided that neither it nor DEI is in breach of this
Agreement, in the event that the Form S-4 Registration Statement has not
been declared effective by the SEC on or prior to the day that is 60
calender days following the day, if any, Parent receives initial written
comments from the SEC in respect of the disclosures set forth therein
(tolled for any period of Federal government strike or extraordinary
shutdown that affects the SEC);
(l) by the Company, provided that neither it nor DEI is in breach of this
Agreement, if there shall be in effect a preliminary injunction or
permanent injunction issued by a court of competent jurisdiction against
Parent preventing Parent from generally using or materially limiting the
ability of Parent to generally use Intellectual Property that is both
material to and necessary for the conduct of Parent's business as currently
conducted (taken as a whole); or
(m) by Parent, provided that it is not in breach of this Agreement, if
there shall be in effect a preliminary injunction or permanent injunction
issued by a court of competent jurisdiction against the Company preventing
the Company from generally using or materially limiting the ability of the
Company to generally use Intellectual Property that is both material to and
necessary for the conduct of the Company's business as currently conducted
(taken as a whole).
Where action is taken to terminate this Agreement pursuant to this Section
8.1, it shall be sufficient for such action to be authorized by the Board of
Directors (as applicable) of the party taking such action.
8.2 Effect of Termination. In the event of termination of this Agreement as
provided in Section 8.1 and subject to the payment of any amounts due under
Section 8.3, this Agreement shall forthwith become void and there shall be no
liability or obligation on the part of Holding Company, Parent, Sub, DEI or
the Company, or their respective officers, directors or shareholders, provided
that each party shall remain liable for any willful breaches of such party's
covenants hereunder or intentional or willful breaches of such party's
representations and warranties hereunder (other than in the case of Parent,
Section 3.17, for which Parent shall bear no liability) prior to its
termination; provided further that the provisions of Sections 5.4, 5.5, 8.3
and Article IX of this Agreement shall remain in full force and effect and
survive any termination of this Agreement.
8.3 Termination Fees.
(a) If this Agreement is terminated by (i) the Company as a result of a
breach of Section 4.2(b) by Parent, or (ii) by the Company pursuant to its
rights under Section 8.1(g), or (iii) by Parent pursuant to its rights under
Section 8.1(h), Parent shall pay to the Company a fee of $17 million, plus the
amount of any documented out-of-pocket expenses incurred by the Company and
its Affiliates in connection with the negotiation and preparation of this
Agreement and the Transaction Agreements and any other ancillary agreements
executed and delivered in connection with the transactions contemplated hereby
and thereby (including fees of counsel and accountants) up to the date of such
termination up to a maximum aggregate of $1.5 million (collectively,
"Expenses") in cash minus any amounts as may have been previously paid by such
party pursuant to this Section 8.3.
(b) If :
(i) this Agreement is terminated by a party pursuant to Section 8.1(c)
following a failure of the shareholders of Parent to grant the necessary
approvals described in Section 5.2; and
(ii) prior to such meeting of the shareholders of Parent (and following
the date hereof), there shall have been publicly announced an Acquisition
Proposal involving Parent (whether or not such Acquisition Proposal shall
have been rejected or shall have been withdrawn prior to the time of such
termination or of the shareholders' meeting); and
(iii) within 12 months of any such termination described in clause (b)(i)
above, Parent becomes a majority-owned subsidiary of the offeror of such
Acquisition Proposal or an Affiliate thereof or accepts a
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written offer to consummate or consummates an Acquisition Proposal with
such offeror or Affiliate thereof which would result in the acquisition of
50% or more of the voting power of Parent (a "Majority Acquisition
Proposal");
then Parent, upon the signing of a definitive agreement relating to such
Majority Acquisition Proposal, or, if no such agreement is signed then at
the closing (and as a condition of the closing) of Parent becoming such a
subsidiary or of such Majority Acquisition Proposal, shall pay to the
Company a fee of $17 million plus Expenses, minus any amounts as may have
been previously paid by such party pursuant to this Section 8.3.
(c) If this Agreement is terminated by (i) Parent as a result of a breach of
Section 4.2(a) by the Company, or (ii) by Parent pursuant to its rights under
Section 8.1(i), or (iii) by the Company pursuant to its rights under Section
8.1(j), the Company shall pay to Parent a fee of $17 million, plus the amount
of any documented out-of-pocket expenses incurred by Parent and its Affiliates
in connection with the negotiation and preparation of this Agreement and the
Transaction Agreements and any other ancillary agreements executed and
delivered in connection with the transactions contemplated hereby and thereby
(including fees of counsel and accountants) up to the date of such termination
up to a maximum aggregate of $1.5 million in cash minus any amounts as may
have been previously paid by such party pursuant to this Section 8.3.
(d) Expenses. The parties agree that the agreements contained in this
Section 8.3 are an integral part of the transactions contemplated by this
Agreement. No termination by a party of this Agreement under this Article VIII
shall be effective unless and until all fees required to be then paid by such
party pursuant to Section 8.3 hereof shall have been received in immediately
available funds by the other party. Notwithstanding anything to the contrary
contained in this Section 8.3, if one party fails to pay to the other any fee
due under Sections 8.3(a) or (b) or (c) within the time required under Section
8.1(h) or 8.1(j), if applicable, or within 5 business days of the event giving
rise to the payment of such fees in all other cases, in addition to any
amounts paid or payable pursuant to such sections, the defaulting party shall
pay the out-of-pocket costs and expenses (including reasonable legal fees and
expenses) in connection with any action, including the filing of any lawsuit
or other legal action, taken to collect payment together with interest on the
amount of any unpaid fee at the publicly announced prime rate of Citibank N.A.
from the date such fee was required to be paid. The fees and expenses set
forth in this Section 8.3 shall not be the exclusive remedy available against
any party that willfully breaches this Agreement.
8.4 Amendment. This Agreement may be amended by the parties hereto at any
time by execution of an instrument in writing signed on behalf of Parent, Sub,
DEI and the Company.
8.5 Extension; Waiver. At any time prior to the Effective Time, Parent and
Sub, on the one hand, and the Company and DEI, on the other hand, may, to the
extent legally allowed, (i) extend the time for the performance of any of the
obligations of the other party hereto, (ii) waive any inaccuracies in the
representations and warranties made to such party contained herein or in any
document delivered pursuant hereto, and (iii) waive compliance with any of the
agreements or conditions for the benefit of such party contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall
be valid only if set forth in an instrument in writing signed on behalf of
such party.
ARTICLE IX
General Provisions
9.1 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
messenger or courier service, or mailed by registered or certified or
overnight mail (return receipt requested) or sent via facsimile (with
acknowledgment of complete transmission) to the parties at the following
addresses (or at such other address for a party as shall be specified by like
notice), provided, however, that notices sent by mail will not be deemed given
until received:
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(a) if to Holding Company, Parent or Sub, to:
Infoseek
1399 Moffett Park Drive
Sunnyvale, CA 94089
Attention: Harry M. Motro, President
Andrew E. Newton, Esq.
Telephone No: (408) 543-6000
Facsimile No: (408) 734-9350
with a copy to:
Wilson Sonsini Goodrich & Rosati
Professional Corporation
650 Page Mill Road
Palo Alto, California 94304
Attention: David J. Segre, Esq.
Attention: Marty W. Korman, Esq.
Telephone No.: (650) 493-9300
Facsimile No.: (650) 493-6811
(b) if to the Company, to
Starwave, Inc.
c/o DEI
500 South Buena Vista Street
Burbank, California 91521
Attention: Lawrence J. Shapiro
Telephone No.: (818) 560-4370
Facsimile No.: (818) 563-4160
(c) if to DEI, to:
DEI
500 South Buena Vista Street
Burbank, CA 91521
Attention: Lawrence J. Shapiro
Telephone No.: (818) 560-4370
Facsimile No.: (818) 563-4160
with copies to:
O'Melveny & Myers
400 S. Hope Street
Los Angeles, CA 90071-2899
Attention: C. James Levin, Esq.
Telephone No.: (213) 669-6578
Facsimile No.: (213) 669-6407
Dewey Ballantine LLP
1775 Pennsylvania Avenue N.W.
Washington, DC 20006
Attention: Joseph M. Pari
9.2 Interpretation. The words "include," "includes" and "including" when used
herein shall be deemed in each case to be followed by the words "without
limitation." The table of contents and headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
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9.3 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each
of the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
9.4 Entire Agreement; Assignment. This Agreement, the Exhibits hereto, the
Transaction Agreements, the Confidentiality Agreement, and the documents and
instruments and other agreements among the parties and/or their Affiliates
hereto referenced herein or entered into in connection herewith: (a)
constitute the entire agreement among the parties with respect to the subject
matter hereof and supersede all prior agreements and understandings both
written and oral, among the parties with respect to the subject matter hereof;
(b) are not intended to confer upon any other person any rights or remedies
hereunder; and (c) shall not be assigned (other than by operation of law)
without the written consent of the other party. The obligations of the parties
hereto shall be binding on the respective legal successor and assigns to the
parties and the successors in interest of all or substantially all of the
business of the respective parties.
9.5 Severability. In the event that any provision of this Agreement or the
application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as
reasonably to effect the intent of the parties hereto. The parties further
agree to replace such void or unenforceable provision of this Agreement with a
valid and enforceable provision that will achieve, to the extent possible, the
economic, business and other purposes of such void or unenforceable provision.
9.6 Other Remedies. Except as otherwise provided herein, any and all
remedies herein expressly conferred upon a party will be deemed cumulative
with and not exclusive of any other remedy conferred hereby, or by law or
equity upon such party, and the exercise by a party of any one remedy will not
preclude the exercise of any other remedy.
9.7 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California, regardless of the laws
that might otherwise govern under applicable principles of conflicts of laws
thereof.
9.8 Rules of Construction. The parties hereto agree that they have been
represented by counsel during the negotiation and execution of this Agreement
and, therefor, waive the application of any law, regulation, holding or rule
of construction providing that ambiguities in an agreement or other document
will be construed against the party drafting such agreement or document.
9.9 Attorneys Fees. If any action or other proceeding relating to the
enforcement of any provision of this Agreement is brought by any party hereto,
the prevailing party shall be entitled to recover reasonable attorneys' fees,
costs and disbursements (in addition to any other relief to which the
prevailing party may be entitled).
A-51
<PAGE>
IN WITNESS WHEREOF, Holding Company, Parent, the Company and DEI have caused
this Agreement to be signed, all as of the date first written above.
Infoseek Corporation Starwave Corporation
/s/ Harry M. Motro /s/ Kevin A. Mayer
By: _________________________________ By: _________________________________
Name: Harry M. Motro Name: Kevin A. Mayer
Title:President and Chief Title:Vice President
Executive Officer
Infoseek Corporation Disney Enterprises, Inc.
/s/ Harry M. Motro /s/ John R. Ball
By: _________________________________ By: _________________________________
Name: Harry M. Motro Name: John R. Ball
Title:President and Chief Title:Vice President
Executive Officer
[SIGNATURE PAGE TO REORGANIZATION AGREEMENT]
A-52
<PAGE>
ANNEX A-2
AGREEMENT OF MERGER
BY AND AMONG
ICO ACQUISITION CORP.,
A CALIFORNIA CORPORATION,
INFOSEEK CORPORATION,
A CALIFORNIA CORPORATION
AND
INFOSEEK CORPORATION,
A DELAWARE CORPORATION
This Agreement of Merger (the "Merger Agreement"), is made and entered into
as of , 1998 by and among Infoseek Corporation, a California
corporation ("Infoseek California"), Infoseek Corporation, a Delaware
corporation ("Holding Company"), and ICO Acquisition Corp., a California
corporation and wholly owned subsidiary of Holding Company ("Merger Sub" and,
together with Infoseek California, the "Constituent Corporations").
RECITALS
A. Holding Company, Infoseek California, Starwave Corporation and Disney
Enterprises, Inc. have entered into that certain Agreement and Plan of
Reorganization dated as of June 18, 1998 (the "Reorganization Agreement"),
providing, among other things, for the execution and filing of this Merger
Agreement and the merger of Merger Sub with and into Infoseek California upon
the terms set forth in this Merger Agreement (the "Merger").
B. The respective Boards of Directors of each of the Constituent
Corporations deem it advisable and in the best interests of each of such
corporations and their respective shareholders that Merger Sub be merged with
and into Infoseek California and have approved this Merger Agreement and the
Merger.
C. The Reorganization Agreement, this Merger Agreement and the Merger have
been approved by the shareholders of Infoseek California and by the sole
shareholder of Merger Sub.
NOW THEREFORE, in consideration of the mutual agreements and covenants set
forth herein, each of the Constituent Corporations hereby agrees that Merger
Sub shall be merged with and into Infoseek California in accordance with the
provisions of the laws of the State of California, upon the terms and subject
to the conditions set forth as follows:
ARTICLE I
THE CONSTITUENT CORPORATIONS
1.1 Infoseek California. Infoseek California is a corporation duly organized
and existing under the laws of the State of California and has an authorized
capital of sixty-five million (65,000,000) shares, sixty million (60,000,000)
of which are designated "Common Stock," no par value, and five million
(5,000,000) of which are designated "Preferred Stock", no par value. As of the
date of this Merger Agreement, shares of Common Stock are issued
and outstanding, and no shares of Preferred Stock are issued and outstanding.
Infoseek California was incorporated under the laws of the State of California
on August 30, 1993.
1.2 Merger Sub. Merger Sub is a corporation duly organized and existing
under the laws of the State of California and has an authorized capital of
1,000 shares, all of which are designated "Common Stock," no par value. As of
the date of this Agreement, 1,000 shares of Common Stock are outstanding, all
of which are held by Holding Company. Merger Sub was incorporated under the
laws of the State of California on July 1, 1998.
A-2-1
<PAGE>
ARTICLE II
THE MERGER
2.1 Surviving Corporation. At the Effective Time (as defined in Section 2.2)
and subject to and upon the terms and conditions of this Merger Agreement, the
Reorganization Agreement and the applicable provisions of the California
General Corporation Law, Merger Sub shall be merged with and into Infoseek
California, the separate corporate existence of Merger Sub shall cease and
Infoseek California shall continue as the surviving corporation and as a
wholly-owned subsidiary of Holding Company. The surviving corporation after
the Merger is hereinafter sometimes referred to as the "Surviving
Corporation."
2.2 Filing and Effectiveness. The Merger shall become effective upon filing
the Merger Agreement with the Secretary of State of the State of California.
The date and time when the Merger shall become effective, as aforesaid, is
herein called the "Effective Time."
2.3 Effect of the Merger. At the Effective Time, the effect of the Merger
shall be as set forth in Section 1107 of the California General Corporation
Law. Without limiting the generality of the foregoing, and subject thereto, at
the Effective Time, all the property, rights, privileges, powers and
franchises of Merger Sub shall vest in the Surviving Corporation, and all
debts, liabilities and duties of Merger Sub shall become the debts,
liabilities and duties of the Surviving Corporation.
2.4 Articles of Incorporation; Bylaws. At the Effective Time, the Articles
of Incorporation and the Bylaws of the Surviving Corporation shall be those of
Infoseek California immediately prior to the Effective Time.
2.5 Directors and Officers. The directors of Infoseek California shall be
the directors of the Surviving Corporation at the Effective Time and such
directors shall serve until they are removed in accordance with the Articles
of Incorporation and Bylaws of the Surviving Corporation. The officers of
Infoseek California shall be the officers of the Surviving Corporation at the
Effective Time and such officers shall serve until they are removed or
replaced in accordance with the Bylaws of the Surviving Corporation.
2.6 Effect of Merger on the Capital Stock of the Constituent Corporations.
(a) Effect on Common Stock of Infoseek California. At the Effective Time,
by virtue of the Merger and without any action on the part of Merger Sub,
Infoseek California, the holders of any shares of Infoseek California
Common Stock or any other person, each share of Infoseek California Common
Stock ("Infoseek California Common Stock") issued and outstanding
immediately prior to the Effective Time will be canceled and extinguished
and be converted automatically into the right to receive, upon surrender of
the certificate representing such shares of Infoseek California Common
Stock in the manner provided in Section 2.7(c), one (1) share of common
stock of the Holding Company ("Holding Company Common Stock").
(b) Infoseek California Stock Options and Right to Purchase Infoseek
California Common Stock. At the Effective Time, each outstanding stock
option granted by Infoseek California ("Infoseek California Option"), and
each other outstanding right to purchase Infoseek California Common Stock
shall be assumed by Holding Company. Prior to the Effective Time, Infoseek
California shall take all action necessary to effect the transactions
anticipated by this Section 2.7(b) under all Infoseek California Option
agreements and any other outstanding rights to purchase Infoseek California
Common Stock and any other plan or arrangement of Infoseek California.
(c) Capital Stock of Merger Sub. Each share of common stock of Merger Sub
issued and outstanding immediately prior to the Effective Time shall be
converted into and exchanged for one (1) validly issued, fully paid and
nonassessable share of common stock of the Surviving Corporation.
A-2-2
<PAGE>
(d) Cancellation of Holding Company Common Stock. At the Effective Time,
each share of the Holding Company Common Stock issued and outstanding
immediately prior to the Effective Time shall be canceled and cease to
exist, and such shares shall be returned to the status of authorized but
unissued shares.
2.7 Exchange of Certificates.
(a) Exchange Agent. Boston Equiserve L.P. shall serve as exchange agent
(the "Exchange Agent") in the Merger.
(b) Holding Company to Provide Common Stock. Promptly after the Effective
Time, Holding Company shall make available to the Exchange Agent for
exchange in accordance with this Article II the Common Stock issuable
pursuant to Section 2.6 in exchange for all of the outstanding shares of
Infoseek California Common Stock.
(c) Exchange Procedures. After the Effective Time, each holder of an
outstanding certificate representing shares of Infoseek California Common
Stock shall receive a letter of transmittal from the Exchange Agent
describing the exchange procedures and may, at such shareholder's option,
surrender the same for cancellation to the Exchange Agent, and each such
holder shall be entitled to receive in exchange therefor a certificate or
certificates representing the number of shares of Holding Company Common
Stock into which the surrendered shares were converted as herein provided.
Unless and until so surrendered, each outstanding certificate theretofore
representing shares of Infoseek California Common Stock shall be deemed for
all purposes to represent the number of shares of Holding Company Common
Stock into which such shares of Infoseek California Common Stock were
converted in the Merger.
The registered owner on the books and records of Holding Company or the
Exchange Agent of any shares of stock represented by such outstanding
certificate shall, until such certificate shall have been surrendered for
transfer or conversion or otherwise accounted for to Holding Company or the
Exchange Agent, have and be entitled to exercise any voting and other rights
with respect to and to receive dividends and other distributions upon the
shares of Common Stock of Holding Company represented by such outstanding
certificate as provided above.
Each certificate representing Holding Company Common Stock so issued in the
Merger shall bear the same legends, if any, with respect to the restrictions
on transferability as the certificates of Infoseek California Common Stock so
converted and given in exchange therefor, unless otherwise determined by the
Board of Directors of Holding Company in compliance with applicable laws, or
other such additional legends as agreed upon by the holder and Holding
Company.
If any certificate for shares of Holding Company Common Stock is to be
issued in a name other than that in which the certificate surrendered in
exchange therefor is registered, it shall be a condition of issuance thereof
that the certificate so surrendered shall be properly endorsed and otherwise
in proper form for transfer, that such transfer otherwise be proper and comply
with applicable securities laws and that the person requesting such transfer
pay to Holding Company or the Exchange Agent any transfer or other taxes
payable by reason of the issuance of such new certificate in a name other than
that of the registered holder of the certificate surrendered or establish to
the satisfaction of Holding Company that such tax has been paid or is not
payable.
2.8 Dissenting Shares.
(a) Notwithstanding any provision of this Merger Agreement to the
contrary, the shares of any holder of Infoseek California who has demanded
and perfected appraisal rights for such shares in accordance with
California law and who, as of the Effective Time, has not effectively
withdrawn or lost such appraisal rights ("Dissenting Shares"), shall not be
converted into or represent a right to receive Holding Company Common Stock
pursuant to Section 2.6, but the holder thereof shall only be entitled to
such rights as are granted by the California General Corporation Law.
A-2-3
<PAGE>
(b) Notwithstanding the foregoing, if any holder of shares of Infoseek
California Common Stock who demands appraisal of such shares under the
California General Corporation Law shall effectively withdraw or lose
(through failure to perfect or otherwise) the right to appraisal, then, as
of the later of the Effective Time or the occurrence of such event, such
holder's shares shall automatically be converted into and represent only
the right to receive Holding Company Common Stock in accordance with
Section 2.6 hereof, without interest thereon, upon surrender of the
certificate representing such shares of Infoseek California Common Stock in
the manner provided in Section 2.6.
2.9 Taking of Necessary Action; Further Action. If, at any time after the
Effective Time, any further action is necessary or desirable to carry out the
purposes of this Agreement and to vest Holding Company with full right, title
and possession to all assets, property, rights, privileges, powers and
franchises of Infoseek California, Holding Company and Merger Sub, the
officers and directors of Infoseek California, Holding Company and Merger Sub
are fully authorized in the name of their respective corporations or otherwise
to take, and will take, all such lawful and necessary action.
2.10 Tax and Accounting Consequences.
(a) It is intended by the parties hereto that the Merger shall constitute
a reorganization within the meaning of Section 368(a) of the Code and/or,
when taken together with the Company Merger (as defined in the
Reorganization Agreement), will be treated as a transfer of property by the
holders of Infoseek California Common Stock to Holding Company governed by
Section 351 of the Code. The parties hereto adopt this Merger Agreement as
a "plan of reorganization" within the meaning of Sections 1.368-2(g) and
1.368-3(a) of the United States Income Tax Regulations.
(b) It is intended by the parties hereto that the Merger will be
accounted for under the "purchase" method of accounting in accordance with
generally accepted accounting principles.
ARTICLE III
MISCELLANEOUS
3.1 Termination by Mutual Agreement. Notwithstanding the approval of this
Merger Agreement by the shareholders of Merger Sub and Infoseek California,
this Merger Agreement may be terminated at any time prior to the Effective
Time by mutual agreement of the Board of Directors of Merger Sub and Infoseek
California, subject to the terms and conditions of the Reorganization
Agreement.
3.2 Termination of Agreement and Plan of Reorganization. Notwithstanding the
approval of this Merger Agreement by the shareholders of Merger Sub and
Infoseek California, this Merger Agreement shall terminate forthwith in the
event that the Reorganization Agreement shall be terminated as therein
provided.
3.3 Amendment. This Merger Agreement may be amended by the parties hereto at
any time before or after approval hereof by the shareholders of either Merger
Sub or Infoseek California, but, after any such approval, no amendment will be
made which, under the applicable provisions of California law, requires the
further approval of shareholders without obtaining such further approval. This
Merger Agreement shall not be amended except by an instrument in writing
signed on behalf of each of the parties hereto.
3.4 Counterparts. This Merger Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one agreement.
3.5 Governing Law. This Merger Agreement shall be governed in all respects,
including validity, interpretation and effect by the laws of the State of
California.
A-2-4
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Merger Agreement.
INFOSEEK CORPORATION,
a California corporation
By:
----------------------------------
Name: Harry M. Motro
Title: President
By:
----------------------------------
Name: Andrew E. Newton
Title: Secretary
INFOSEEK CORPORATION,
a Delaware corporation
By:
----------------------------------
Name: Harry M. Motro
Title: President
By:
----------------------------------
Name: Andrew E. Newton
Title: Secretary
ICO ACQUISITION CORP.
a California corporation
By:
----------------------------------
Name: Harry M. Motro
Title: President
By:
----------------------------------
Name: Leslie E. Wright
Title: Secretary
A-2-5
<PAGE>
INFOSEEK CORPORATION
OFFICERS' CERTIFICATE OF APPROVAL OF MERGER
The undersigned, Harry M. Motro and Andrew E. Newton, do hereby certify
that:
1. They are the President and Secretary, respectively, of Infoseek
Corporation, a California corporation (the "Company").
2. The principal terms of the Agreement of Merger in the form attached to
this Certificate (the "Merger Agreement") providing for the merger (the
"Merger") of ICO Acquisition Corp., a California corporation, with and into
the Company and the conversion of each outstanding share of Company Common
Stock into the right to receive one share of common stock of Infoseek
Corporation, a Delaware corporation, was duly approved by the Board of
Directors and shareholders of the Company.
3. The authorized capital stock of the Company consists of 60,000,000
shares of Common Stock and 5,000,000 shares of Preferred Stock. As of the
date hereof, shares of Company Common Stock were issued and
outstanding, all of which were entitled to vote upon the Merger. No shares
of Preferred Stock were issued and outstanding and entitled to vote on the
Merger. A vote of more than 50% of the outstanding shares of Company Common
Stock was required to approve the Merger.
4. The principal terms of the Merger Agreement were approved by the
consent of the holders of a majority of the outstanding shares of Company
Common Stock, which vote exceeded the vote required.
We further declare under penalty of perjury under the laws of the State of
California that the matters set forth in this certificate are true and correct
of our own knowledge.
Date: , 1998
Signature:
------------------------------
Name: Harry M. Motro
Title: President
Signature:
------------------------------
Name: Andrew E. Newton
Title: Secretary
A-2-6
<PAGE>
ICO ACQUISITION CORP.
OFFICERS' CERTIFICATE OF APPROVAL OF MERGER
The undersigned, Harry M. Motro and Leslie E. Wright, do hereby certify
that:
1. They are the President and Secretary, respectively, of ICO Acquisition
Corp., a California corporation ("ICO").
2. The principal terms of the Agreement of Merger in the form attached to
this Certificate (the "Merger Agreement") providing for the merger (the
"Merger") of ICO with and into Infoseek Corporation, a California
corporation, was duly approved by the Board of Directors and by the sole
shareholder of ICO.
3. The authorized capital stock of ICO consists of 1,000 shares of Common
Stock. As of the date hereof, there were 1,000 shares of ICO Common Stock
issued and outstanding, all of which were entitled to vote upon the Merger.
A vote of more than 50% of the outstanding shares of ICO Common Stock was
required to approve the Merger.
4. The principal terms of the Merger Agreement were approved by the
consent of ICO's sole shareholder, Infoseek Corporation, a Delaware
corporation, which holds 100% of ICO's issued and outstanding shares, which
vote exceeded the vote required.
5. The required vote of the shareholders of Infoseek Corporation, a
Delaware corporation, and the parent of ICO Acquisition Corp., to enter
into the Merger was obtained.
6. The cancellation of all of the outstanding shares of Common Stock of
Infoseek Corporation, a Delaware corporation, at the Effective Time of the
Merger, was approved by 100% of the outstanding shares of Infoseek
Corporation, a Delaware corporation.
We further declare under penalty of perjury under the laws of the State of
California that the matters set forth in this certificate are true and correct
of our own knowledge.
Date: , 1998.
Signature:
------------------------------
Name: Harry M. Motro
Title: President
Signature:
------------------------------
Name: Leslie E. Wright
Title: Secretary
A-2-7
<PAGE>
ANNEX A-3
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
STARWAVE ACQUISITION CORP.,
A WASHINGTON CORPORATION,
STARWAVE CORPORATION,
A WASHINGTON CORPORATION
AND
INFOSEEK CORPORATION,
A DELAWARE CORPORATION
This AGREEMENT AND PLAN OF MERGER (the "Merger Agreement") is made and
entered into as of , 1998 by and among Infoseek Corporation, a
Delaware corporation ("Infoseek Delaware"), Starwave Acquisition Corp., a
Washington corporation and wholly-owned subsidiary of Infoseek Delaware
("Merger Sub"), and Starwave Corporation, a Washington corporation ("Starwave"
and, together with Merger Sub, the "Constituent Corporations").
RECITALS
A. Infoseek Delaware, a Delaware corporation, Infoseek Corporation, a
California corporation, Starwave and Disney Enterprises, Inc., a majority
shareholder of Starwave, have entered into that certain Agreement and Plan of
Reorganization dated as of June 18, 1998 (the "Reorganization Agreement"),
providing, among other things, for the execution and filing of this Merger
Agreement and the merger of Merger Sub with and into Starwave upon the terms
set forth in this Merger Agreement (the "Merger").
B. The respective Boards of Directors of each of the Constituent
Corporations deem it advisable and in the best interests of each of such
corporations and their respective shareholders that Merger Sub be merged with
and into Starwave and have approved this Merger Agreement and the Merger.
C. The Reorganization Agreement, this Merger Agreement and the Merger have
been approved by the shareholders of Starwave and by the sole shareholder of
Merger Sub.
NOW THEREFORE, in consideration of the mutual agreements and covenants set
forth herein, each of the Constituent Corporations hereby agrees that Merger
Sub shall be merged with and into Starwave in accordance with the provisions
of the laws of the State of Washington, upon the terms and subject to the
conditions set forth as follows:
ARTICLE I
THE CONSTITUENT CORPORATIONS
1.1 Starwave. Starwave is a corporation duly organized and existing under
the laws of the State of Washington and has an authorized capital of two
hundred fifty million (250,000,000) shares of Class A Common Stock and eighty
million (80,000,000) shares of Class B Common Stock. As of the date of this
Merger Agreement, shares of Class A Common Stock and shares
of Class B Common Stock are issued and outstanding. The Class A Common Stock
and the Class B Common Stock are referred to herein collectively as the
"Starwave Capital Stock."
1.2 Merger Sub. Merger Sub is a corporation duly organized and existing
under the laws of the State of Washington and has an authorized capital of
1,000 shares, all of which are designated "Common Stock," no par value. As of
the date of this Agreement, 1,000 shares of Common Stock are outstanding, all
of which are held by Infoseek Delaware.
A-3-1
<PAGE>
ARTICLE II
THE MERGER
2.1 Surviving Corporation. At the Effective Time (as defined in Section 2.2)
and subject to and upon the terms and conditions of this Agreement, the
Reorganization Agreement and the applicable provisions of Washington Law,
Merger Sub shall be merged with and into Starwave, the separate corporate
existence of Merger Sub shall cease and Starwave shall continue as the
surviving corporation and as a wholly-owned subsidiary of Infoseek Delaware.
The Articles of Incorporation of Merger Sub as in effect at the Effective Time
shall from and after the Effective Time be and continue to be the Articles of
Incorporation of the Surviving Corporation, and the Surviving Corporation
shall amend its Articles of Incorporation accordingly. The surviving
corporation after the Merger is hereinafter sometimes referred to as the
"Surviving Corporation" and shall be governed by the laws of the State of
Washington.
2.2 Filing and Effectiveness. The Merger shall become effective when the
following actions shall have been completed:
(a) This Merger Agreement and the Merger shall have been adopted and
approved by the shareholders of each Constituent Corporation in accordance
with the requirements of the Washington Business Corporation Act;
(b) All of the conditions precedent to the consummation of the Merger
specified in this Merger Agreement shall have been satisfied or duly waived
by the party entitled to satisfaction thereof; and
(c) This Merger Agreement and the Articles of Merger in substantially the
form attached hereto as Exhibit A-1 shall have been filed with the
Secretary of State of the State of Washington.
The date and time when the Merger shall become effective, as aforesaid, is
herein called the "Effective Time."
2.3 Effect of Merger on the Capital Stock of the Constituent Corporations.
(a) Effect on Capital Stock of Starwave; Exchange Ratio. At the Effective
Time, by virtue of the Merger and without any action on the part of Merger
Sub, Starwave, the holders of any shares of Starwave Capital Stock or any
other person, each share of Starwave Capital Stock issued and outstanding
immediately prior to the Effective Time will be canceled and extinguished
and be converted automatically into the right to receive, upon surrender of
the certificate representing such shares of Starwave Capital Stock in the
manner provided in Section 2.4(c) the number of shares of Infoseek Delaware
Common Stock determined by dividing (i) 28,138,000 by (ii) the sum of: (x)
the aggregate number of shares of Starwave Capital Stock outstanding
immediately prior to the Effective Time and (y) the aggregate number of
shares of Starwave Capital Stock subject to options, warrants or other
rights to acquire or receive Starwave Capital Stock ("Starwave Options")
outstanding as of the Effective Time (the "Exchange Ratio").
(b) Starwave Stock Options. Each outstanding Starwave Option shall be
assumed by Infoseek Delaware in such manner that it is converted into an
option to purchase shares of Infoseek Delaware Common Stock as provided
herein. Following the Effective Time, each such Starwave Option shall be
exercisable upon the same terms and conditions as then are applicable to
such Starwave Option, except that (i) each such Starwave Option shall be
exercisable for that number of shares of Infoseek Delaware Common Stock as
are equal to the product obtained by multiplying the number of shares of
Starwave Capital Stock that were issuable upon exercise in full of such
assumed Starwave Option immediately prior to the Effective Time by the
Exchange Ratio, rounded down to the nearest whole number of shares of
Infoseek Delaware Common Stock, and (ii) the per share exercise price for
the shares of Infoseek Delaware Common Stock issuable upon exercise of the
assumed Starwave Option shall be equal to the quotient obtained by dividing
the exercise price per share of Starwave Capital Stock at which each such
Starwave Option was exercisable immediately prior to the Effective Time by
the Exchange Ratio, rounded up to the nearest whole cent. Prior to the
Effective Time, Starwave shall take all action necessary to effect the
transactions anticipated by this Section 2.3(b) under all Starwave Option
agreements.
A-3-2
<PAGE>
(d) Capital Stock of Merger Sub. Each share of common stock of Merger Sub
issued and outstanding immediately prior to the Effective Time shall be
converted into and exchanged for one (1) validly issued, fully paid and
nonassessable share of common stock of the Surviving Corporation.
(e) Fractional Shares. No fractional shares of Infoseek Delaware Common
Stock shall be issued pursuant to this Merger Agreement. In lieu of the
issuance of any fractional share of Infoseek Delaware Common Stock, cash
adjustments will be paid to holders in respect of any fractional share of
Infoseek Delaware Common Stock that would otherwise be issuable, and the
amount of such cash adjustment shall be equal to the product of such
fractional amount and the average closing price of the common stock of
Infoseek Corporation, a California corporation and the parent of Infoseek
Delaware, for the ten (10) days ending on the trading day prior to the
Effective Time.
2.4 Exchange of Certificates.
(a) Exchange Agent. Boston Equiserve L.P. shall serve as exchange agent
(the "Exchange Agent") in the Merger.
(b) Infoseek Delaware to Provide Common Stock. Promptly after the
Effective Time, Infoseek Delaware shall make available to the Exchange
Agent for exchange in accordance with this Article II the Common Stock
issuable pursuant to Section 2.3 in exchange for all of the outstanding
shares of Starwave Capital Stock.
(c) Exchange Procedures. After the Effective Time, each holder of an
outstanding certificate representing shares of Starwave Capital Stock shall
receive a letter of transmittal from the Exchange Agent describing the
exchange procedures and shall surrender the same for cancellation to the
Exchange Agent, and each such holder shall be entitled to receive in
exchange therefor a certificate or certificates representing the number of
shares of Infoseek Delaware Common Stock into which the surrendered shares
were converted as herein provided. Unless and until so surrendered, each
outstanding certificate theretofore representing shares of Starwave Capital
Stock shall be deemed for all purposes to represent the number of shares of
Infoseek Delaware Common Stock into which such shares of Starwave Capital
Stock were converted in the Merger.
The registered owner on the books and records of Infoseek Delaware or the
Exchange Agent of any shares of stock represented by such outstanding
certificate shall, until such certificate shall have been surrendered for
transfer or conversion or otherwise accounted for to Infoseek Delaware or the
Exchange Agent, have and be entitled to exercise any voting and other rights
with respect to and to receive dividends and other distributions upon the
shares of Common Stock of Infoseek Delaware represented by such outstanding
certificate as provided above.
Each certificate representing Common Stock of Infoseek Delaware so issued in
the Merger shall bear the same legends, if any, with respect to the
restrictions on transferability as the certificates of Starwave so converted
and given in exchange therefor, unless otherwise determined by the Board of
Directors of Infoseek Delaware in compliance with applicable laws, or other
such additional legends as agreed upon by the holder and Infoseek Delaware.
If any certificate for shares of Infoseek Delaware Common Stock is to be
issued in a name other than that in which the certificate surrendered in
exchange therefor is registered, it shall be a condition of issuance thereof
that the certificate so surrendered shall be properly endorsed and otherwise
in proper form for transfer, that such transfer otherwise be proper and comply
with applicable securities laws and that the person requesting such transfer
pay to Infoseek Delaware or the Exchange Agent any transfer or other taxes
payable by reason of the issuance of such new certificate in a name other than
that of the registered holder of the certificate surrendered or establish to
the satisfaction of Infoseek Delaware that such tax has been paid or is not
payable.
2.5 Rights, Privileges, Etc. At the Effective Time, the Surviving
Corporation, without further act, deed or other transfer, shall retain or
succeed to, as the case may be, and possess and be vested with all the rights,
A-3-3
<PAGE>
privileges, immunities, powers, franchises and authority, of a public as well
as of a private nature, of the Constituent Corporations; all property of every
description and every interest therein and all debts and other obligations of
or belonging to or due to the Constituent Corporations on whatever account
shall thereafter be taken and deemed to be held by or transferred to, as the
case may be, or vested in the Surviving Corporation without further act or
deed; title to any real estate, or any interest therein, vested in the
Constituent Corporations shall not revert or in any way be impaired by reason
of the Merger; and all of the rights of creditors of the Constituent
Corporations shall be preserved unimpaired, and all liens upon the property of
the Constituent Corporations shall be preserved unimpaired, and such debts,
liabilities, obligations and duties of the Constituent Corporations shall
thenceforth remain with or attach to, as the case may be, the Surviving
Corporation and may be enforced against it to the same extent as if all of
such debts, liabilities, obligations and duties had been incurred or
contracted by it.
2.6 Articles of Incorporation and Bylaws. The Articles of Incorporation of
Merger Sub as in effect on the Effective Time shall, from and after the
Effective Time, be and continue to be the Articles of Incorporation of the
Surviving Corporation without change or amendment until thereafter amended in
accordance with the provisions thereof and applicable laws. The Bylaws of
Merger Sub as in effect on the Effective Time shall, from and after the
Effective Time, be and continue to be the Bylaws of the Surviving Corporation
without change or amendment until thereafter amended in accordance with the
provisions thereof, the Articles of Incorporation of the Surviving Corporation
and applicable laws.
2.7 Directors and Officers. The directors of Merger Sub shall be the
directors of the Surviving Corporation at the Effective Time and such
directors shall serve until they are removed in accordance with the Articles
of Incorporation and Bylaws of the Surviving Corporation. The officers of
Starwave shall be the officers of the Surviving Corporation at the Effective
Time and such officers shall serve until they are removed or replaced in
accordance with the Bylaws of the Surviving Corporation.
2.8 Further Action. From time to time, as and when requested by the
Surviving Corporation, or by its successors or assigns, any party hereto shall
execute and deliver or cause to be executed and delivered all such deeds and
other instruments, and shall take or cause to be taken all such further or
other actions, as the Surviving Corporation, or its successors or assigns, may
deem necessary or desirable in order to vest in and confirm to the Surviving
Corporation, and its successors or assigns, title to and possession of all the
property, rights, privileges, powers and franchises referred to herein and
otherwise to carry out the intent and purposes of this Merger Agreement.
2.9 Dissenting Shares. Notwithstanding anything in this Merger Agreement to
the contrary, shares of capital stock of the Constituent Corporations which
are issued and outstanding immediately prior to the Effective Time and which
are held by shareholders who have not voted such shares in favor of the Merger
and shall have complied with the applicable provisions of Revised Code of
Washington 23B.13.010 et seq. shall not be converted into or be exchangeable
for the right to receive the consideration provided in Section 2.3 of this
Merger Agreement, unless and until such holder shall have failed to perfect or
shall have effectively withdrawn or lost his or her rights as a dissenting
shareholder under Revised Code of Washington 23B.13.010 et seq. If such holder
shall have so failed to perfect or shall have effectively withdrawn or lost
such rights, his or her shares of Starwave Capital Stock shall thereupon be
deemed to have been converted into and to have become exchangeable for, at the
Effective Time, the right to receive the merger consideration provided herein
without interest thereon.
2.10 Tax and Accounting Consequences.
(a) It is intended by the parties hereto that the Merger shall constitute
a reorganization within the meaning of Section 368(a) of the Code and/or,
when taken together with the Parent Merger (as defined in the
Reorganization Agreement), will be treated as a transfer of property by the
holders of Starwave common stock to Infoseek Delaware governed by Section
351 of the Code. The parties hereto adopt this Merger Agreement as a "plan
of reorganization" within the meaning of Sections 1.368-2(g) and 1.368-3(a)
of the United States Income Tax Regulations.
(b) It is intended by the parties hereto that the Merger will be
accounted for under the "purchase" method of accounting in accordance with
generally accepted accounting principles.
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<PAGE>
ARTICLE III
MISCELLANEOUS
3.1 Termination by Mutual Agreement. Notwithstanding the approval of this
Merger Agreement by the shareholders of Merger Sub and Starwave, this Merger
Agreement may be terminated at any time prior to the Effective Time by mutual
agreement of the Board of Directors of Merger Sub and Starwave.
3.2 Termination of Agreement and Plan of Reorganization. Notwithstanding the
approval of this Merger Agreement by the shareholders of Merger Sub and
Starwave, this Merger Agreement shall terminate forthwith in the event that
the Reorganization Agreement shall be terminated as therein provided.
3.3 Amendment. This Merger Agreement may be amended by the parties hereto at
any time before or after approval hereof by the shareholders of either Merger
Sub or Starwave, but, after any such approval, no amendment will be made
which, under the applicable provisions of Washington law, requires the further
approval of shareholders without obtaining such further approval. This Merger
Agreement shall not be amended except by an instrument in writing signed on
behalf of each of the parties hereto.
3.4 Counterparts. This Merger Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one agreement.
3.5 Governing Law. This Merger Agreement shall be governed in all respects,
including validity, interpretation and effect by the laws of the State of
Washington.
IN WITNESS WHEREOF, this Merger Agreement, having first been duly approved
by resolutions of the Board of Directors of each of the Constituent
Corporations and Infoseek Delaware, is hereby executed on behalf of each of
the Constituent Corporations and Infoseek Delaware by their respective
officers thereunto duly authorized.
INFOSEEK CORPORATION, a Delaware
corporation
By:
--------------------------------------
Its:
--------------------------------------
Attest:
By:
---------------------------------
STARWAVE ACQUISITION CORP.,
a Washington corporation
By:
--------------------------------------
Its:
--------------------------------------
Attest:
By:
---------------------------------
STARWAVE CORPORATION, a Washington
corporation
By:
--------------------------------------
Its:
--------------------------------------
Attest:
By:
---------------------------------
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<PAGE>
EXHIBIT A-1
ARTICLES OF MERGER
STARWAVE ACQUISITION CORP.,
A WASHINGTON CORPORATION
WITH AND INTO
STARWAVE CORPORATION,
A WASHINGTON CORPORATION
IN ACCORDANCE WITH RCW 23B.11.050
The undersigned, Harry M. Motro, being the President of Starwave Acquisition
Corp., a Washington corporation, and Michael B. Slade, being the Chief
Executive Officer of Starwave Corporation, a Washington corporation, DO HEREBY
CERTIFY as follows:
(1) The constituent corporations in the merger (the "Merger") are
Starwave Acquisition Corp., a Washington corporation, and Starwave
Corporation, a Washington corporation; Starwave Acquisition Corp. shall be
merged with and into Starwave Corporation. The surviving corporation shall
be Starwave Corporation and its name shall remain Starwave Corporation.
(2) An Agreement and Plan of Merger dated as of , 1998 (the
"Merger Agreement") has been approved, adopted, and executed by each of the
constituent corporations in accordance with RCW 23B.11.010. The Merger
Agreement is attached hereto as Exhibit A and incorporated herein by
reference.
(3) The Merger was duly approved by the shareholders of each of the
constituent corporations in accordance with Section 23B.011.030 of the
Washington Business Corporation Act.
(4) The Merger shall become effective on , 1998 at :
.m.
IN WITNESS WHEREOF, the parties hereto have caused these Articles of Merger
to be duly executed as of this day of , 1998.
STARWAVE ACQUISITION CORP.,
a Washington corporation
By:
----------------------------------
Harry M. Motro, President
STARWAVE CORPORATION,
a Washington corporation
By:
----------------------------------
Michael B. Slade, Chief Executive
Officer
A-3-6
<PAGE>
ANNEX B-1
CALIFORNIA GENERAL CORPORATION LAW
CHAPTER 13
DISSENTERS' RIGHTS
(S)1300. RIGHT TO REQUIRE PURCHASE--"DISSENTING SHARES" AND "DISSENTING
SHAREHOLDER" DEFINED.
(a) If the approval of the outstanding shares (Section 152) of a corporation
is required for a reorganization under subdivisions (a) and (b) or subdivision
(e) or (f) of Section 1201, each shareholder of the corporation entitled to
vote on the transaction and each shareholder of a subsidiary corporation in a
short-form merger may, by complying with this chapter, require the corporation
in which the shareholder holds shares to purchase for cash at their fair
market value the shares owned by the shareholder which are dissenting shares
as defined in subdivision (b). The fair market value shall be determined as of
the day before the first announcement of the terms of the proposed
reorganization or short-form merger, excluding any appreciation or
depreciation in consequence of the proposed action, but adjusted for any stock
split, reverse stock split or share dividend which becomes effective
thereafter.
(b) As used in this chapter, "dissenting shares" means shares which come
within all of the following descriptions:
(1) Which were not immediately prior to the reorganization or short-form
merger either (A) listed on any national securities exchange certified by the
Commissioner of Corporations under subdivision (o) of Section 25100 or (B)
listed on the list of OTC margin stocks issued by the Board of Governors of
the Federal Reserve System, and the notice of meeting of shareholders to act
upon the reorganization summarizes this section and Sections 1301, 1302, 1303
and 1304; provided, however, that this provision does not apply to any shares
with respect to which there exists any restriction on transfer imposed by the
corporation or by any law or regulation; and provided, further, that this
provision does not apply to any class of shares described in subparagraph (A)
or (B) if demands for payment are filed with respect to 5 percent or more of
the outstanding shares of that class.
(2) Which were outstanding on the date for the determination of shareholders
entitled to vote on the reorganization and (A) were not voted in favor of the
reorganization or, (B) if described in subparagraph (A) or (B) of paragraph
(1) (without regard to the provisos in that paragraph), were voted against the
reorganization, or which were held of record on the effective date of a short-
form merger; provided, however, that subparagraph (A) rather than subparagraph
(B) of this paragraph applies in any case where the approval required by
Section 1201 is sought by written consent rather than at a meeting.
(3) Which the dissenting shareholder has demanded that the corporation
purchase at their fair market value, in accordance with Section 1301.
(4) Which the dissenting shareholder has submitted for endorsement, in
accordance with Section 1302.
(c) As used in this chapter, "dissenting shareholder" means the recordholder
of dissenting shares and includes a transferee of record.
(S)1301. DEMAND FOR PURCHASE.
(a) If, in the case of a reorganization, any shareholders of a corporation
have a right under Section 1300, subject to compliance with paragraphs (3) and
(4) of subdivision (b) thereof, to require the corporation to purchase their
shares for cash, such corporation shall mail to each such shareholder a notice
of the approval of the reorganization by its outstanding shares (Section 152)
within 10 days after the date of such approval, accompanied by a copy of
Sections 1300, 1302, 1303, 1304 and this section, a statement of the price
determined by the corporation to represent the fair market value of the
dissenting shares, and a brief description of the
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procedure to be followed if the shareholder desires to exercise the
shareholder's right under such sections. The statement of price constitutes an
offer by the corporation to purchase at the price stated any dissenting shares
as defined in subdivision (b) of Section 1300, unless they lose their status
as dissenting shares under Section 1309.
(b) Any shareholder who has a right to require the corporation to purchase
the shareholder's shares for cash under Section 1300, subject to compliance
with paragraphs (3) and (4) of subdivision (b) thereof, and who desires the
corporation to purchase such shares shall make written demand upon the
corporation for the purchase of such shares and payment to the shareholder in
cash of their fair market value. The demand is not effective for any purpose
unless it is received by the corporation or any transfer agent thereof (1) in
the case of shares described in clause (i) or (ii) of paragraph (1) of
subdivision (b) of Section 1300 (without regard to the provisos in that
paragraph), not later than the date of the shareholders' meeting to vote upon
the reorganization, or (2) in any other case within 30 days after the date on
which the notice of the approval by the outstanding shares pursuant to
subdivision (a) or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder.
(c) The demand shall state the number and class of the shares held of record
by the shareholder which the shareholder demands that the corporation purchase
and shall contain a statement of what such shareholder claims to be the fair
market value of those shares as of the day before the announcement of the
proposed reorganization or short-form merger. The statement of fair market
value constitutes an offer by the shareholder to sell the shares at such
price.
(S)1302. ENDORSEMENT OF SHARES.
Within 30 days after the date on which notice of the approval by the
outstanding shares or the notice pursuant to subdivision (i) of Section 1110
was mailed to the shareholder, the shareholder shall submit to the corporation
at its principal office or at the office of any transfer agent thereof, (a) if
the shares are certificated securities, the shareholder's certificates
representing any shares which the shareholder demands that the corporation
purchase, to be stamped or endorsed with a statement that the shares are
dissenting shares or to be exchanged for certificates of appropriate
denomination so stamped or endorsed or (b) if the shares are uncertificated
securities, written notice of the number of shares which the shareholder
demands that the corporation purchase. Upon subsequent transfers of the
dissenting shares on the books of the corporation, the new certificates,
initial transaction statement, and other written statements issued therefor
shall bear a like statement, together with the name of the original dissenting
holder of the shares.
(S)1303. AGREED PRICE--TIME FOR PAYMENT.
(a) If the corporation and the shareholder agree that the shares are
dissenting shares and agree upon the price of the shares, the dissenting
shareholder is entitled to the agreed price with interest thereon at the legal
rate on judgments from the date of the agreement. Any agreements fixing the
fair market value of any dissenting shares as between the corporation and the
holders thereof shall be filed with the secretary of the corporation.
(b) Subject to the provisions of Section 1306, payment of the fair market
value of dissenting shares shall be made within 30 days after the amount
thereof has been agreed or within 30 days after any statutory or contractual
conditions to the reorganization are satisfied, whichever is later, and in the
case of certificated securities, subject to surrender of the certificates
therefor, unless provided otherwise by agreement.
(S)1304. DISSENTER'S ACTION TO ENFORCE PAYMENT.
(a) If the corporation denies that the shares are dissenting shares, or the
corporation and the shareholder fail to agree upon the fair market value of
the shares, then the shareholder demanding purchase of such shares as
dissenting shares or any interested corporation, within six months after the
date on which notice of the approval by the outstanding shares (Section 152)
or notice pursuant to subdivision (i) of Section 1110 was mailed to the
shareholder, but not thereafter, may file a complaint in the superior court of
the proper county praying the court to determine whether the shares are
dissenting shares or the fair market value of the dissenting shares or both or
may intervene in any action pending on such a complaint.
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<PAGE>
(b) Two or more dissenting shareholders may join as plaintiffs or be joined
as defendants in any such action and two or more such actions may be
consolidated.
(c) On the trial of the action, the court shall determine the issues. If the
status of the shares as dissenting shares is in issue, the court shall first
determine that issue. If the fair market value of the dissenting shares is in
issue, the court shall determine, or shall appoint one or more impartial
appraisers to determine, the fair market value of the shares.
(S)1305. APPRAISERS' REPORT--PAYMENT--COSTS.
(a) If the court appoints an appraiser or appraisers, they shall proceed
forthwith to determine the fair market value per share. Within the time fixed
by the court, the appraisers, or a majority of them, shall make and file a
report in the office of the clerk of the court. Thereupon, on the motion of
any party, the report shall be submitted to the court and considered on such
evidence as the court considers relevant. If the court finds the report
reasonable, the court may confirm it.
(b) If a majority of the appraisers appointed fail to make and file a report
within 10 days from the date of their appointment or within such further time
as may be allowed by the court or the report is not confirmed by the court,
the court shall determine the fair market value of the dissenting shares.
(c) Subject to the provisions of Section 1306, judgment shall be rendered
against the corporation for payment of an amount equal to the fair market
value of each dissenting share multiplied by the number of dissenting shares
which any dissenting shareholder who is a party, or who has intervened, is
entitled to require the corporation to purchase, with interest thereon at the
legal rate from the date on which judgment was entered.
(d) Any such judgment shall be payable forthwith with respect to
uncertificated securities and, with respect to certificated securities, only
upon the endorsement and delivery to the corporation of the certificates for
the shares described in the judgment. Any party may appeal from the judgment.
(e) The costs of the action, including reasonable compensation to the
appraisers to be fixed by the court, shall be assessed or apportioned as the
court considers equitable, but, if the appraisal exceeds the price offered by
the corporation, the corporation shall pay the costs (including in the
discretion of the court attorneys' fees, fees of expert witnesses and interest
at the legal rate on judgments from the date of compliance with Sections 1300,
1301 and 1302 if the value awarded by the court for the shares is more than
125 percent of the price offered by the corporation under subdivision (a) of
Section 1301).
(S)1306. DISSENTING SHAREHOLDER'S STATUS AS CREDITOR.
To the extent that the provisions of Chapter 5 prevent the payment to any
holders of dissenting shares of their fair market value, they shall become
creditors of the corporation for the amount thereof together with interest at
the legal rate on judgments until the date of payment, but subordinate to all
other creditors in any liquidation proceeding, such debt to be payable when
permissible under the provisions of Chapter 5.
(S)1307. DIVIDENDS PAID AS CREDIT AGAINST PAYMENT.
Cash dividends declared and paid by the corporation upon the dissenting
shares after the date of approval of the reorganization by the outstanding
shares (Section 152) and prior to payment for the shares by the corporation
shall be credited against the total amount to be paid by the corporation
therefor.
(S)1308. CONTINUING RIGHTS AND PRIVILEGES OF DISSENTING SHAREHOLDERS.
Except as expressly limited in this chapter, holders of dissenting shares
continue to have all the rights and privileges incident to their shares, until
the fair market value of their shares is agreed upon or determined. A
dissenting shareholder may not withdraw a demand for payment unless the
corporation consents thereto.
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<PAGE>
(S)1309. TERMINATION OF DISSENTING SHAREHOLDER STATUS.
Dissenting shares lose their status as dissenting shares and the holders
thereof cease to be dissenting shareholders and cease to be entitled to
require the corporation to purchase their shares upon the happening of any of
the following:
(a) The corporation abandons the reorganization. Upon abandonment of the
reorganization, the corporation shall pay on demand to any dissenting
shareholder who has initiated proceedings in good faith under this chapter all
necessary expenses incurred in such proceedings and reasonable attorneys'
fees.
(b) The shares are transferred prior to their submission for endorsement in
accordance with Section 1302 or are surrendered for conversion into shares of
another class in accordance with the articles.
(c) The dissenting shareholder and the corporation do not agree upon the
status of the shares as dissenting shares or upon the purchase price of the
shares, and neither files a complaint or intervenes in a pending action as
provided in Section 1304, within six months after the date on which notice of
the approval by the outstanding shares or notice pursuant to subdivision (i)
of Section 1110 was mailed to the shareholder.
(d) The dissenting shareholder, with the consent of the corporation,
withdraws the shareholder's demand for purchase of the dissenting shares.
(S)1310. SUSPENSION OF PROCEEDINGS FOR PAYMENT PENDING LITIGATION.
If litigation is instituted to test the sufficiency or regularity of the
votes of the shareholders in authorizing a reorganization, any proceedings
under Section 1304 and 1305 shall be suspended until final determination of
such litigation.
(S)1311. EXEMPT SHARES.
This chapter, except Section 1312, does not apply to classes of shares whose
terms and provisions specifically set forth the amount to be paid in respect
to such shares in the event of a reorganization or merger.
(S)1312. ATTACKING VALIDITY OF REORGANIZATION OR MERGER.
(a) No shareholder of a corporation who has a right under this chapter to
demand payment of cash for the shares held by the shareholder shall have any
right at law or in equity to attack the validity of the reorganization or
short-form merger, or to have the reorganization or short-form merger set
aside or rescinded, except in an action to test whether the number of shares
required to authorize or approve the reorganization have been legally voted in
favor thereof; but any holder of shares of a class whose terms and provisions
specifically set forth the amount to be paid in respect to them in the event
of a reorganization or short-form merger is entitled to payment in accordance
with those terms and provisions or, if the principal terms of the
reorganization are approved pursuant to subdivision (b) of Section 1202, is
entitled to payment in accordance with the terms and provisions of the
approved reorganization.
(b) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, subdivision (a) shall not
apply to any shareholder of such party who has not demanded payment of cash
for such shareholder's shares pursuant to this chapter; but if the shareholder
institutes any action to attack the validity of the reorganization or short-
form merger or to have the reorganization or short-form merger set aside or
rescinded, the shareholder shall not thereafter have any right to demand
payment of cash for the shareholder's shares pursuant to this chapter. The
court in any action attacking the validity of the reorganization of short-form
merger or to have the reorganization or short-form merger set aside or
rescinded shall not restrain or enjoin the consummation of the transaction
except upon 10 days' prior notice to the corporation and upon a determination
by the court that clearly no other remedy will adequately protect the
complaining shareholder or the class of shareholders of which such shareholder
is a member.
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(c) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, in any action to attack the
validity of the reorganization or short-form merger or to have the
reorganization or short-form merger set aside or rescinded, (1) a party to a
reorganization or short-form merger which controls another party to the
reorganization or short-form merger shall have the burden of proving that the
transaction is just and reasonable as to the shareholders of the controlled
party, and (2) a person who controls two or more parties to a reorganization
shall have the burden of proving that the transaction is just and reasonable
as to the shareholders of any party so controlled.
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<PAGE>
ANNEX B-2
WASHINGTON BUSINESS CORPORATION ACT
CHAPTER 23B.13
DISSENTERS' RIGHTS
23B.13.010 DEFINITIONS. As used in this chapter:
(1) "Corporation" means the issuer of the shares held by a dissenter before
the corporate action, or the surviving or acquiring corporation by merger or
share exchange of that issuer.
(2) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under RCW 23B.13.020 and who exercises that right when and in
the manner required by RCW 23B.13.200 through 23B.13.280.
(3) "Fair value," with respect to a dissenter's shares, means the value of
the shares immediately before the effective date of the corporate action to
which the dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action unless exclusion would be inequitable.
(4) "Interest" means interest from the effective date of the corporate
action until the date of payment, at the average rate currently paid by the
corporation on its principal bank loans or, if none, at a rate that is fair
and equitable under all the circumstances.
(5) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of shares
to the extent of the rights granted by a nominee certificate on file with a
corporation.
(6) "Beneficial shareholder" means the person who is a beneficial owner of
shares held in a voting trust or by a nominee as the record shareholder.
(7) "Shareholder" means the record shareholder or the beneficial
shareholder.
23B.13.020 RIGHT TO DISSENT. (1) A shareholder is entitled to dissent from,
and obtain payment of the fair value of the shareholder's shares in the event
of, any of the following corporate actions:
(a) Consummation of a plan of merger to which the corporation is a party
(i) if shareholder approval is required for the merger by RCW 23B.11.030,
23B.11.080, or the articles of incorporation and the shareholder is
entitled to vote on the merger, or (ii) if the corporation is a subsidiary
that is merged with its parent under RCW 23B.11.040;
(b) Consummation of a plan of share exchange to which the corporation is
a party as the corporation whose shares will be acquired, if the
shareholder is entitled to vote on the plan;
(c) Consummation of a sale or exchange of all, or substantially all, of
the property of the corporation other than in the usual and regular course
of business, if the shareholder is entitled to vote on the sale or
exchange, including a sale in dissolution, but not including a sale
pursuant to court order or a sale for cash pursuant to a plan by which all
or substantially all of the net proceeds of the sale will be distributed to
the shareholders within one year after the date of sale;
(d) An amendment of the articles of incorporation that materially reduces
the number of shares owned by the shareholder to a fraction of a share if
the fractional share so created is to be acquired for cash under RCW
23B.06.040; or
(e) Any corporate action taken pursuant to a shareholder vote to the
extent the articles of incorporation, bylaws, or a resolution of the board
of directors provides that voting or nonvoting shareholders are entitled to
dissent and obtain payment for their shares.
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(2) A shareholder entitled to dissent and obtain payment for the
shareholder's shares under this chapter may not challenge the corporate action
creating the shareholder's entitlement unless the action fails to comply with
the procedural requirements imposed by this title, RCW 25.10.900 through
25.10.955, the articles of incorporation, or the bylaws, or is fraudulent with
respect to the shareholder or the corporation.
(3) The right of a dissenting shareholder to obtain payment of the fair
value of the shareholder's shares shall terminate upon the occurrence of any
one of the following events:
(a) The proposed corporate action is abandoned or rescinded;
(b) A court having jurisdiction permanently enjoins or sets aside the
corporate action; or
(c) The shareholder's demand for payment is withdrawn with the written
consent of the corporation.
23B.13.030 DISSENT BY NOMINEES AND BENEFICIAL OWNERS. (1) A record
shareholder may assert dissenters' rights as to fewer than all the shares
registered in the shareholder's name only if the shareholder dissents with
respect to all shares beneficially owned by any one person and notifies the
corporation in writing of the name and address of each person on whose behalf
the shareholder asserts dissenters' rights. The rights of a partial dissenter
under this subsection are determined as if the shares as to which the
dissenter dissents and the dissenter's other shares were registered in the
names of different shareholders.
(2) A beneficial shareholder may assert dissenters' rights as to shares held
on the beneficial shareholder's behalf only if:
(a) The beneficial shareholder submits to the corporation the record
shareholder's written consent to the dissent not later than the time the
beneficial shareholder asserts dissenters' rights; and
(b) The beneficial shareholder does so with respect to all shares of
which such shareholder is the beneficial shareholder or over which such
shareholder has power to direct the vote.
23B.1.200 NOTICE OF DISSENTERS' RIGHTS. (1) If proposed corporate action
creating dissenters' rights under RCW 23B.13.020 is submitted to a vote at a
shareholder's meeting, the meeting notice must state that shareholders are or
may be entitled to assert dissenters' rights under this chapter and be
accompanied by a copy of this chapter.
(2) If corporate action creating dissenters' rights under RCW 23B.13.020 is
taken without a vote of shareholders, the corporation, within ten days after
[the] effective date of such corporate action, shall notify in writing all
shareholders entitled to assert dissenters' rights that the action was taken
and send them the dissenters' notice described in RCW 23B.13.220.
23B.13.210 NOTICE OF INTENT TO DEMAND PAYMENT. If proposed corporate action
creating dissenters' rights under RCW 23B.13.020 is submitted to a vote at a
shareholders' meeting, a shareholder who wishes to assert dissenters' rights
must (a) deliver to the corporation before the vote is taken written notice of
the shareholder's intent to demand payment for the shareholder's shares if the
proposed action is effected, and (b) not vote such shares in favor of the
proposed action.
(2) A shareholder who does not satisfy the requirements of subsection (1) of
this section is not entitled to payment for the shareholder's shares under
this chapter.
23B.13.220 DISSENTERS' NOTICE. (1) If proposed corporate action creating
dissenters' rights under RCW 23B.13.020 is authorized at a shareholders'
meeting, the corporation shall deliver a written dissenters' notice to all
shareholders who satisfied the requirements of RCW 23B.13.210.
(2) The dissenters' notice must be sent within ten days after the effective
date of the corporate action and must:
(a) State where the payment demand must be sent and where and when
certificates for certificated shares must be deposited;
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(b) Inform holders of uncertificated shares to what extent transfer of
the shares will be restricted after the payment demand is received;
(c) Supply a form for demanding payment that includes the date of the
first announcement to news media or to shareholders of the terms of the
proposed corporate action and requires that the person asserting
dissenters' rights certify whether or not the person acquired beneficial
ownership of the shares before that date;
(d) Set a date by which the corporation must receive the payment demand,
which date may not be fewer than thirty nor more than sixty days after the
date the notice in subsection (1) of this section is delivered; and
(e) Be accompanied by a copy of this chapter.
23B.13.230 DUTY TO DEMAND PAYMENT (1) A shareholder sent a dissenters'
notice described in RCW 23B.13.220 must demand payment, certify whether the
shareholder acquired beneficial ownership of the shares before the date
required to be set forth in the dissenters' notice pursuant to RCW
23B.13.220(2)(c), and deposit the shareholder's certificates in accordance
with the terms of the notice.
(2) The shareholder who demands payment and deposits the shareholder's share
certificates under subsection (1) of this section retains all other rights of
a shareholder until the proposed corporate action is effected.
(3) A shareholder who does not demand payment or deposit the shareholder's
share certificates where required, each by the date set in the dissenters'
notice, is not entitled to payment for the shareholder's shares under this
chapter.
23B.13.240 SHARE RESTRICTIONS. (1) The corporation may restrict the transfer
of uncertificated shares from the date the demand for their payment is
received until the proposed corporate action is effected or the restriction is
released under RCW 23B.13.260.
(2) The person for whom dissenters' rights are asserted as to uncertificated
shares retains all other rights of a shareholder until the effective date of
the proposed corporate action.
23B.13.250 PAYMENT. (1) Except as provided in RCW 23B.13.270, within thirty
days of the later of the effective date of the proposed corporate action, or
the date the payment demand is received, the corporation shall pay each
dissenter who complied with RCW 23B.13.230 the amount the corporation
estimates to be the fair value of the shareholder's shares, plus accrued
interest.
(2) The payment must be accompanied by:
(a) The corporation's balance sheet as of the end of a fiscal year ending
not more than sixteen months before the date of payment, an income
statement for that year, a statement of changes in shareholders' equity for
that year, and the latest available interim financial statements, if any;
(b) An explanation of how the corporation estimated the fair value of the
shares;
(c) An explanation of how the interest was calculated;
(d) A statement of the dissenter's right to demand payment under RCW
23B.13.280; and
(e) A copy of this chapter.
23B.13.260 FAILURE TO TAKE ACTION. (1) If the corporation does not effect
the proposed action within sixty days after the date set for demanding payment
and depositing share certificates, the corporation shall return the deposited
certificates and release any transfer restrictions imposed on uncertificated
shares.
(2) If after returning deposited certificates and releasing transfer
restrictions, the corporation wishes to undertake the proposed action, it must
send a new dissenters' notice under RCW 23B.13.220 and repeat the payment
demand procedure.
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<PAGE>
23B.13.270 AFTER-ACQUIRED SHARES. (1) A corporation may elect to withhold
payment required by RCW 23B.13.250 from a dissenter unless the dissenter was
the beneficial owner of the shares before the date set forth in the
dissenters' notice as the date of the first announcement to news media or to
shareholders of the terms of the proposed corporate action.
(2) To the extent the corporation elects to withhold payment under
subsection (1) of this section, after taking the proposed corporate action, it
shall estimate the fair value of the shares, plus accrued interest, and shall
pay this amount to each dissenter who agrees to accept it in full satisfaction
of the dissenter's demand. The corporation shall send with its offer an
explanation of how it estimated the fair value of the shares, an explanation
of how the interest was calculated, and a statement of the dissenter's right
to demand payment under RCW 23B.13.280.
23B.13.280 PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR
OFFER. (1) A dissenter may notify the corporation in writing of the
dissenter's own estimate of the fair value of the dissenter's shares and
amount of interest due, and demand payment of the dissenter's estimate, less
any payment under RCW 23B.13.250, or reject the corporation's offer under RCW
23B.13.270 and demand payment of the dissenter's estimate of the fair value of
the dissenter's shares and interest due, if:
(a) The dissenter believes that the amount paid under RCW 23B.13.250 or
offered under RCW 23B.13.270 is less than the fair value of the dissenter's
shares or that the interest due is incorrectly calculated;
(b) The corporation fails to make payment under RCW 23B.13.250 within
sixty days after the date set for demanding payment; or
(c) The corporation does not effect the proposed action and does not
return the deposited certificates or release the transfer restrictions
imposed on uncertificated shares within sixty days after the date set for
demanding payment.
(2) A dissenter waives the right to demand payment under this section unless
the dissenter notifies the corporation of the dissenter's demand in writing
under subsection (1) of this section within thirty days after the corporation
made or offered payment for the dissenter's shares.
23B.13.300 COURT ACTION. (1) If a demand for payment under RCW 23B.13.280
remains unsettled, the corporation shall commence a proceeding within sixty
days after receiving the payment demand and petition the court to determine
the fair value of the shares and accrued interest. If the corporation does not
commence the proceeding within the sixty-day period, it shall pay each
dissenter whose demand remains unsettled the amount demanded.
(2) The corporation shall commence the proceeding in the superior court of
the county where a corporation's principal office, or, if none in this state,
its registered office, is located. If the corporation is a foreign corporation
without a registered office in this state, it shall commence the proceeding in
the county in this state where the registered office of the domestic
corporation merged with or whose shares were acquired by the foreign
corporation was located.
(3) The corporation shall make all dissenters, whether or not residents of
this state, whose demands remain unsettled, parties to the proceeding as in an
action against their shares and all parties must be served with a copy of the
petition. Nonresidents may be served by registered or certified mail or by
publication as provided by law.
(4) The corporation may join as a party to the proceeding any shareholder
who claims to be a dissenter but who has not, in the opinion of the
corporation, complied with the provisions of this chapter. If the court
determines that such shareholder has not complied with the provisions of this
chapter, the shareholder shall be dismissed as a party.
(5) The jurisdiction of the court in which the proceeding is commenced under
subsection (2) of this section is plenary and exclusive. The court may appoint
one or more persons as appraisers to receive evidence and
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<PAGE>
recommend decision on the question of fair value. The appraisers have the
powers described in the order appointing them, or in any amendment to it. The
dissenters are entitled to the same discovery rights as parties in other civil
proceedings.
(6) Each dissenter made a party to the proceeding is entitled to judgment
(a) for the amount, if any, by which the court finds the fair value of the
dissenter's shares, plus interest, exceeds the amount paid by the corporation,
or (b) for the fair value, plus accrued interest, of the dissenter's after-
acquired shares for which the corporation elected to withhold payment under
RCW 23B.13.270.
23B.13.310 COURT COSTS AND COUNSEL FEES. (1) The court in a proceeding
commenced under RCW 23B.13.300 shall determine all costs of the proceeding,
including the reasonable compensation and expenses of appraisers appointed by
the court. The court shall assess the costs against the corporation, except
that the court may assess the costs against all or some of the dissenters, in
amounts the court finds equitable, to the extent the court finds the
dissenters acted arbitrarily, vexatiously, or not in good faith in demanding
payment under RCW 23B.13.280.
(2) The court may also assess the fees and expenses of counsel and experts
for the respective parties, in amounts the court finds equitable:
(a) Against the corporation and in favor of any or all dissenters if the
court finds the corporation did not substantially comply with the
requirements of RCW 23B.13.200 through 23B.13.280; or
(b) Against either the corporation or a dissenter, in favor of any other
party, if the court finds that the party against whom the fees and expenses
are assessed acted arbitrarily, vexatiously, or not in good faith with
respect to the rights provided by chapter 23B.13 RCW.
(3) If the court finds that the services of counsel for any dissenter were
of substantial benefit to other dissenters similarly situated, and that the
fees for those services should not be assessed against the corporation, the
court may award to these counsel reasonable fees to be paid out of the amounts
awarded the dissenters who were benefited.
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<PAGE>
ANNEX C
Corporate and
Institutional
Client Group
101 California Street,
Suite 1200
San Francisco,
California 94111
415 676 3200
FAX 415 676 3299
[LOGO OF MERRIL LYNCH APPEARS HERE]
June 18, 1998
Board of Directors
Infoseek Corporation
1399 Moffett Park Drive
Sunnyvale, CA 94089-1134
Members of the Board of Directors:
We understand that Infoseek Corporation, a California corporation (the
"Company"), Infoseek Corporation, a Delaware corporation ("Holding"), Starwave
Corporation, a Washington corporation ("Starwave") and Disney Enterprises,
Inc., a Delaware corporation ("DEI"), a wholly-owned subsidiary of The Walt
Disney Company, a Delaware corporation (the "Purchaser") have entered into an
Agreement and Plan of Reorganization, dated as of June 18, 1998 (the
"Reorganization Agreement"), which provides, among other things, for (i) the
merger of a wholly-owned subsidiary of Holding with and into the Company and
(ii) the merger of another wholly-owned subsidiary of Holding with and into
Starwave (collectively, the "Mergers") such that the Company and Starwave will
become wholly-owned subsidiaries of Holding. Pursuant to the Mergers (i) each
outstanding share of common stock, no par value, of the Company ("Company
Common Stock"), other than shares held by the Company or Starwave, shall be
converted into one share of common stock, par value $.01 per share, of Holding
("Holding Common Stock"), and (ii) all outstanding shares of common stock of
Starwave (the "Starwave Common Stock") shall be converted into shares of
Holdings Common Stock based upon an exchange ratio equal to 28,138,000 divided
by the aggregate number of shares of Starwave capital stock outstanding and
issuable upon exercise of options, warrants or other rights to acquire
Starwave capital stock as of the effective time of the merger of Starwave. In
addition, in connection with the execution of the Reorganization Agreement,
the Purchaser and Holding will enter into a Common Stock and Warrant Purchase
Agreement (the "Purchase Agreement") pursuant to which Purchaser will acquire
2,642,000 shares of Holding Common Stock and a warrant exercisable for up to
15,720,000 shares of Holding Common Stock upon the terms and conditions set
forth in the Common Stock Warrant (the "Warrant") in return for approximately
$70 million in cash and the Purchaser Promissory Note (the "Notes") in an
aggregate principal amount of $139 million. In connection with the Mergers and
the purchase of the Holdings Common Stock and Warrant, Holdings, the Purchaser
and certain affiliates thereof will enter into the Governance Agreement (the
"Governance Agreement") and the Company and DEI will enter into the License
Agreement (the "License Agreement") granting the Company certain rights with
respect to internet portal services (the "New Portal Service"). The
consummation of the Mergers and the transactions contemplated by the Purchase
Agreement, the License Agreement and the Governance Agreement shall be
referred to collectively as the "Transaction."
You have asked us whether, in our opinion, the Transaction is fair from a
financial point of view to the Company and the shareholders of the Company.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed certain publicly available business and financial
information relating to the Company that we deemed to be relevant;
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<PAGE>
(2) Reviewed certain information, including financial forecasts, relating
to the business, earnings, cash flow, assets, liabilities and prospects of
the Company and Starwave furnished to us by the Company and Purchaser,
respectively;
(3) Conducted discussions with members of senior management and
representatives of the Company and Purchaser concerning the matters
described in clauses 1 and 2 above, as well as the Company's and Starwave's
respective businesses and prospects before and after giving effect to the
Transaction;
(4) Reviewed the market prices and valuation multiples for the Company
Common Stock and compared it with those of certain publicly traded
companies that we deemed relevant;
(5) Reviewed the results of operations of the Company and Starwave and
compared them with those of certain publicly traded companies that we
deemed to be relevant;
(6) Compared the proposed financial terms of the Transaction with the
financial terms of certain other transactions that we deemed to be
relevant;
(7) Participated in certain discussions and negotiations among
representatives of the Company and Purchaser and their legal advisors;
(8) Reviewed the potential pro forma impact of the Transaction;
(9) Reviewed drafts of the Reorganization Agreement, the Purchase
Agreement, the Warrant, the Note, the License Agreement and the Governance
Agreement; and
(10) Reviewed such other financial studies and analyses and took into
account such other matters as we deemed necessary, including our assessment
of general economic, market and monetary conditions.
In preparing our opinion, we have assumed and relied on the accuracy and
completeness of all information supplied or otherwise made available to us,
discussed with or reviewed by or for us, or publicly available, and we have
not assumed any responsibility for independently verifying such information or
undertaken an independent evaluation or appraisal of any of the assets or
liabilities of the Company or Starwave or been furnished with any such
evaluation or appraisal. In addition, we have not assumed any obligation to
conduct any physical inspection of the properties or facilities of the Company
or Starwave, and have participated in discussions with a limited number of
members of senior management of Starwave. With respect to the financial
forecast information furnished to or discussed with us by the Company or
Purchaser, including financial forecast information developed by the Company
taking into account the Transaction, including the New Portal Service, we have
not assumed any responsibility for independently verifying such financial
forecast information and have assumed that they have been reasonably prepared
and reflect the best currently available estimates and judgment of the
Company's or Purchaser's management as to the expected future financial
performance of the Company or Starwave, as the case may be. We have assumed
that the Mergers will qualify as tax-free reorganization and/or a tax-free
exchange for U.S. federal income tax purposes and that immediately following
the closing of the Mergers, Holding shall be entitled to properly report, in
accordance with GAAP, the activities of itself, its subsidiaries and the AIV
and EIV joint ventures under the Representative Agreements as revenue in
Holding's publicly disclosed consolidated financial statements. We have also
assumed that the final forms of each of the Reorganization Agreement, the
Purchase Agreement, the Warrant, the Note, the Governance Agreement and the
License Agreement will be substantially similar to the last drafts of such
agreements reviewed by us.
Our opinion is necessarily based upon market, economic and other conditions
as they exist and can be evaluated on, and on the information made available
to us as of, the date hereof. We have assumed that in the course of obtaining
the necessary regulatory or other consents or approvals (contractual or
otherwise) for the Transaction, including the Mergers, no restrictions,
including any divestiture requirements or amendments or modifications, will be
imposed that will have a material adverse effect on the contemplated benefits
of the Transaction, including the Mergers.
In connection with the preparation of this opinion, we have not been
authorized by the Company or the Board of Directors to solicit, nor have we
solicited, third party indications of interest for the acquisition of all or
any part of the Company.
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<PAGE>
We are acting as financial advisor to the Company in connection with the
Transaction and will receive a fee from the Company for our services, a
significant portion of which is contingent upon the consummation of the
Transaction. In addition, the Company has agreed to indemnify us for certain
liabilities arising out of our engagement. We have, in the past, provided
financial advisory and financing services to the Company and Purchaser and may
continue to do so and have received, and may receive, fees for the rendering
of such services. We have recently underwritten an offering of the Company's
Common Stock. In addition, in the ordinary course of our business, we actively
make a market for and may actively trade the Company Common Stock, for our own
account and for the accounts of customers and, accordingly, may at any time
hold a long or short position in such securities.
This opinion is for the use and benefit of the Board of Directors of the
Company in the evaluation of the Transaction, and our opinion is not intended
to be, and does not constitute a recommendation to any shareholder of the
Company as to how such shareholder should vote in connection with any portion
of the Transaction.
We are not expressing any opinion herein as to the prices at which the
Company Common Stock or Holding Common Stock will trade following the
announcement or consummation of the Transaction.
On the basis of and subject to the foregoing, we are of the opinion that, as
of the date hereof, the Transaction is fair to the Company and the
shareholders of the Company from a financial point of view.
Very truly yours,
MERRILL LYNCH, PIERCE, FENNER &
SMITH INCORPORATED
/s/ Merrill Lynch, Pierce, Fenner & Smith
Incorporated
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<PAGE>
ANNEX D-1
AMENDED
AND
RESTATED
CERTIFICATE OF INCORPORATION
OF
INFOSEEK CORPORATION
Infoseek Corporation, a corporation organized and existing under the laws of
the State of Delaware, does hereby certify:
1. The name of the corporation is Infoseek Corporation. Infoseek
Corporation was originally incorporated under the same name, and the
original Certificate of Incorporation was filed with the Secretary of State
of the State of Delaware on June 12, 1998.
2. Pursuant to Sections 242 and 228 of the General Corporation Law of the
State of Delaware, the amendments and restatement herein set forth have
been duly approved by the Board of Directors and stockholders of Infoseek
Corporation.
3. This Amended and Restated Certificate of Incorporation restates and
integrates and amends the provisions of the Certificate of Incorporation of
this corporation and has been duly adopted in accordance with Sections 228,
242 and 245 of the General Corporation Law of the State of Delaware.
4. The text of the Certificate of Incorporation is hereby restated and
amended to read in its entirety as follows:
FIRST
The name of the Corporation is Infoseek Corporation (the "Corporation").
SECOND
The address of the Corporation's registered office in the State of Delaware
is 1209 Orange Street, Wilmington, County of New Castle, Delaware 19801. The
name of its registered agent at such address is The Corporation Trust Company.
THIRD
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of
the State of Delaware.
FOURTH
(a) The total number of shares which the Corporation shall have authority to
issue is five hundred twenty five million (525,000,000) shares of capital
stock.
(b) Of such authorized shares, five hundred million (500,000,000) shares
shall be designated "Common Stock" and have a par value of $.001.
(c) Of such authorized shares, twenty five million (25,000,000) shares shall
be designated "Preferred Stock" and have a par value of $.001. The Preferred
Stock may be issued from time to time in one or more series. The Board of
Directors of the Corporation is authorized to fix the voting power, full or
limited or no
D-1-1
<PAGE>
voting power, and to determine the powers, preferences and rights and the
qualifications, limitations or restrictions granted to or imposed upon any
series of Preferred Stock, and within the limitations or restrictions stated
in any resolution or resolutions of the Board of Directors fixing the number
of shares constituting any series, to increase or decrease (but not below the
number of shares of any such series then outstanding) the number of shares of
any such series, to determine the designation of any series, and to fix the
number of shares of any series. In case the number of shares of any series
shall be so decreased, the shares constituting such decrease shall resume the
status which they had prior to the adoption of the resolution originally
fixing the number of shares of such series subject to the requirements of
applicable law.
FIFTH
The Corporation is to have perpetual existence.
SIXTH
Elections of directors need not be by written ballot unless the Bylaws of
the Corporation shall so provide.
SEVENTH
The number of directors which constitute the whole Board of Directors of the
Corporation shall be designated in the Bylaws of the Corporation.
EIGHTH
In furtherance and not in limitation of the powers conferred by statute, the
Board of Directors is expressly authorized to make, alter, amend or repeal the
Bylaws of the Corporation.
NINTH
(a) To the fullest extent permitted by the General Corporation Law of the
State of Delaware as the same exists or as may hereafter be amended, a
director of the Corporation shall not be personally liable to the Corporation
or its stockholders for monetary damages for breach of fiduciary duty as a
director.
(b) The Corporation may indemnify to the fullest extent permitted by law any
person made or threatened to be made a party to an action or proceeding,
whether criminal, civil, administrative or investigative, by reason of the
fact that he, his testator or intestate is or was a director, officer or
employee of the Corporation or any predecessor of the Corporation or serves or
served at any other enterprise as a director, officer or employee at the
request of the Corporation or any predecessor to the Corporation.
(c) Neither any amendment nor repeal of this Article Ninth, nor the adoption
of any provision of this Corporation's Certificate of Incorporation
inconsistent with this Article Ninth, shall eliminate or reduce the effect of
this Article Ninth, in respect of any matter occurring, or any action or
proceeding accruing or arising or that, but for this Article Ninth, would
accrue or arise, prior to such amendment, repeal or adoption of an
inconsistent provision.
TENTH
Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. The books of the Corporation may be kept
(subject to any provision contained in the statutes) outside of the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the Bylaws of the Corporation.
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<PAGE>
ELEVENTH
The stockholders of the Corporation may not take action by written consent
in lieu of a meeting but must take any actions at a duly called annual or
special meeting and the power of stockholders to consent in writing without a
meeting is specifically denied.
TWELFTH
(a) Certain Definitions. For purposes of this Article Twelfth, the following
shall apply:
"Affiliate" shall have the meaning set forth in Rule 12b-2 of the rules and
regulations promulgated under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"); provided, however, that for purposes of this Certificate
of Incorporation, the Purchaser and its Affiliates, on the one hand, and the
Corporation and its Affiliates, on the other, shall not be deemed to be
"Affiliates" of one another.
"Beneficially Own" or "Beneficial Ownership" shall have the meaning set
forth in Rule 13d-3 of the rules and regulations promulgated under the
Exchange Act.
"Change in Control of the Corporation" shall mean any of the following: (i)
a merger, consolidation or other business combination or transaction to which
the Corporation is a party if the stockholders of the Corporation immediately
prior to the effective date of such merger, consolidation or other business
combination or transaction, as a result of such share ownership, have
Beneficial Ownership of voting securities representing less than 50% of the
Total Current Voting Power of the surviving corporation following such merger,
consolidation or other business combination or transaction; (ii) an
acquisition by any person, entity or 13D Group of direct or indirect
Beneficial Ownership of Voting Stock of the Corporation representing 25% or
more of the Total Current Voting Power of the Corporation; (iii) a sale of all
or substantially all the assets of the Corporation; or (iv) a liquidation or
dissolution of the Corporation.
"Closing" shall mean the consummation of the transactions contemplated by
the Merger Agreement.
"Corporation Competitor" shall mean Yahoo! Inc., Lycos, Inc., Excite, Inc.,
Netscape Communications Corporation, Microsoft Corporation, CNET, America
Online, Inc. or any of their respective Affiliates, or any successor thereto.
"Corporation Controlled Company" shall mean a company of which the
Corporation owns not less than 80% of the outstanding voting power entitled to
vote in the election of directors of such company.
"Disinterested Board Approval" shall mean the affirmative vote or written
consent of a majority of the Disinterested Directors duly obtained in
accordance with applicable provisions of the Corporation's bylaws and
applicable law.
"Disinterested Directors" means, during the Standstill Period, a member of
the Board of Directors of the Corporation who is not a Purchaser Director and,
after the Standstill Period, a member of the Board of Directors of the
Corporation who is an Independent Director.
"Disinterested Stockholder" shall mean any stockholder of the Corporation
who is not the Purchaser or an Affiliate of the Purchaser or a member of a 13D
Group in which the Purchaser or an Affiliate of the Purchaser is also a
member.
"Disinterested Stockholder Approval" shall mean the affirmative vote (or, if
written consents are permitted, the written consent) of greater than 50% of
the Total Current Voting Power of all Disinterested Stockholders duly obtained
in accordance with the applicable provisions of this Certificate of
Incorporation, the Corporation's bylaws and applicable law.
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<PAGE>
"Event Requiring Supermajority Board Approval" shall mean (i) any amendment
of the Corporation's bylaws or this Certificate of Incorporation, (ii) a
Change in Control of the Corporation or any subsidiary of the Corporation,
(iii) a sale of more than 15% of the total assets of the Corporation or any
subsidiary of the Corporation, (iv) issuances of securities of the Corporation
representing 15% or more of the Total Current Voting Power, (v) the sale or
issuance of any securities of the Corporation for consideration of $200
million or more, (vi) transactions involving expenditures of cash by the
Corporation or any subsidiary or incurrence of indebtedness by the Corporation
or any subsidiary, in either case, in excess of $200 million, or (vii)
appointment of a new Chief Executive Officer of the Corporation.
"Governance Agreement" shall mean that certain Governance Agreement among
the Corporation and the Purchaser dated June 18, 1998.
"Independent Director" shall mean a director of the Corporation (i) who is
not and has never been an officer or employee of the Corporation, any
Affiliate of the Corporation or of an entity that derived 10% or more of its
revenues in its most recent fiscal year from transactions involving the
Corporation or any Affiliate of the Corporation, (ii) who is not and has never
been an officer or employee and is not currently a director of Purchaser or
any Affiliate of the Purchaser or of an entity that derived more than 10% of
its revenues in its most recent fiscal year from transactions involving
Purchaser or any Affiliate of the Purchaser and (iii) who has no compensation,
consulting or contracting arrangement with the Corporation, Purchaser or their
respective Affiliates or any other entity such that a reasonable person would
regard such director as likely to be unduly influenced by management of the
Corporation or Purchaser, respectively, and shall, by definition, not include
any Purchaser Director.
"License Agreement" shall mean that certain License Agreement between Disney
Enterprises, Inc., a Delaware corporation, and Infoseek Corporation, a
California corporation, dated as of June 18, 1998.
"Merger Agreements" shall mean the various agreements between the
Corporation, the Purchaser and their respective Affiliates dated as of June
18, 1998.
"Non-Voting Convertible Securities" shall mean any securities of the
Corporation which are convertible into, exchangeable for or otherwise
exercisable to acquire Voting Stock of the Corporation, including convertible
securities, warrants, rights or options to purchase Voting Stock of the
Corporation.
"Purchaser" shall mean, collectively, The Walt Disney Company, a Delaware
corporation, and Disney Enterprises, Inc., a Delaware corporation.
"Purchaser Director" shall mean a member of the Board of Directors of the
Corporation who (i) is designated for such position by Purchaser in accordance
with Section 3.2 of the Governance Agreement, or (ii) is or has been an
officer or employee of Purchaser or any Affiliate of the Purchaser or of an
entity that derived more than 10% of its revenues in its most recent fiscal
year from transactions involving Purchaser or any Affiliate of the Purchaser,
or (iii) has a compensation, consulting or contracting arrangement with
Purchaser or any of its Affiliates or any other entity such that a reasonable
person would regard such director as likely to be unduly influenced by
management of Purchaser.
"Purchaser Restricted Actions" shall mean (a) Purchaser's solicitation of
proxies with respect to any Voting Stock or becoming a "participant" in any
"election contest" (as such terms are used in Rule 14(a)-11 of Regulation 14A
promulgated under the Exchange Act) relating to the election of directors of
the Corporation; provided that Purchaser shall not be deemed to be such
"participant" merely by reason of the membership of the Purchaser Directors on
the Corporation's Board of Directors pursuant to the terms of the Governance
Agreement; (b) Purchaser's deposit of any shares of Voting Stock in a voting
trust or, except as otherwise provided or contemplated under the Governance
Agreement (including Section 2.4 thereof), Purchaser's
D-1-4
<PAGE>
subjecting of any Voting Stock to any arrangement or agreement with any third
party with respect to the voting of such Voting Stock; or (c) Purchaser's
joining in a 13D Group, partnership, limited partnership, syndicate or other
group, or otherwise acting in concert with any third person for the purpose of
acquiring, holding, voting or disposing of Voting Stock or Non-Voting
Convertible Securities of the Corporation.
"Purchaser Tender Offer" shall mean a bona fide public tender offer subject
to the provisions of Regulation 14D when first commenced within the meaning of
Rule 14d-2(a) of the rules and regulations under the Exchange Act, by the
Purchaser or any Affiliate of the Purchaser (or any 13D Group that includes
Purchaser or any Affiliate of the Purchaser) to purchase or exchange for cash
or other consideration any Voting Stock and which consists of an offer to
acquire 100% of the Total Current Voting Power of the Corporation then in
effect (other than Shares owned by the Purchaser or any Affiliate of the
Purchaser) and is conditioned (which condition may not be waived) on a
majority of the shares of Voting Stock held by Disinterested Stockholders
being tendered and not withdrawn with respect to such offer.
"Shares" shall mean any shares of Voting Stock that are Beneficially Owned
by the Purchaser, including any share of Voting Stock acquired upon exercise
of any Warrants, but specifically excluding any shares of Corporation common
stock subject to the Warrants or any other Non-Voting Convertible Securities
that have not yet been exercised, converted or exchanged for Voting Stock.
"Standstill Period" shall mean the period beginning on June 18, 1998 and
ending on the occurrence of a Standstill Termination Event.
"Standstill Reinstatement Event" shall mean the occurrence of either of the
following prior to the third anniversary of the Closing. (i) withdrawal or
termination of a Third Party Tender Offer at any time during which a Purchaser
Tender Offer is not then pending or (ii) withdrawal, termination, or material
alteration of a Purchaser Tender Offer other than an increase in price.
"Standstill Termination Event" shall mean the earliest to occur of the
following: (i) the third anniversary of the Closing; (ii) a Change in Control
of the Corporation, (iii) a Third Party Tender Offer, (iv) a Purchaser Tender
Offer, or (v) any person who is not the Purchaser or an Affiliate of the
Purchaser or 13D Group to which the Purchaser or an Affiliate of the Purchaser
is a member has acquired any Voting Stock which results in such person or 13D
Group owning or having the right to acquire more than 25% of the Total Current
Voting Power of the Corporation unless such acquisition of shares by such
person or 13D Group was approved by the Corporation's Board of Directors
pursuant to Supermajority Board Approval; provided however, that upon a
Standstill Reinstatement Event, the Standstill Termination Event shall be
deemed not to have occurred and the Standstill Period shall be deemed to be
reinstated except that, upon the third anniversary of the Closing, the
Standstill Period shall be permanently terminated for all purposes.
"Supermajority Board Approval" shall mean the affirmative vote of 75% or
more of the members of the Corporation's Board of Directors; provided that, at
any time that Purchaser Beneficially Owns more than 25% of the Total Current
Voting Power of the Corporation and, notwithstanding that Purchaser voted all
shares Beneficially Owned by Purchaser in the most recent election of members
of the Board of Directors of the Corporation for all of the designees of
Purchaser to the Board of Directors of the Corporation (which number of
designees was the maximum number Purchaser was entitled to designate pursuant
to the provisions of Section 3.2(b) of the Governance Agreement), the number
of Purchaser Directors is fewer than the number Purchaser is entitled to
designate pursuant to the provisions of Section 3.2(b) of the Governance
Agreement, a Supermajority Board Approval shall not be deemed to have been
obtained unless the written consent of Purchaser shall have been obtained with
respect to the Event Requiring Supermajority Board Approval.
"Third Party Tender Offer" shall mean a bona fide public tender offer
subject to the provisions of Regulation 14D when first commenced within the
meaning of Rule 14d-2(a) of the rules and regulations under the Exchange Act,
by a person or 13D Group (which is not made by and does not include any of the
Corporation, the Purchaser or any Affiliate of either of them) to purchase or
exchange for cash or other consideration any
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<PAGE>
Voting Stock and which consists of an offer to acquire 25% or more of the then
Total Current Voting Power of the Corporation.
"Total Current Voting Power" shall mean, with respect to any corporation,
the total number of votes which may be cast in the election of members of the
Board of Directors of such corporation if all securities entitled to vote in
the election of such directors are present and voted.
"Total Outstanding Company Equity" shall mean the total number of shares of
outstanding capital stock of the Corporation, on a fully diluted basis
assuming the conversion, exchange or exercise of all outstanding securities,
whether vested or unvested, convertible, exchangeable or exercisable into or
for common stock of the Corporation.
"Voting Stock" shall mean shares of the Corporation's common stock and any
other securities of the Corporation having the ordinary power to vote in the
election of members of the Board of Directors of the Corporation.
"Warrants" shall mean those certain warrants, exercisable to purchase the
Corporation's common stock, sold to The Walt Disney Company pursuant to that
certain Common Stock and Warrant Purchase Agreement dated as of June 18, 1998
between the Corporation and The Walt Disney Company, and any warrants acquired
by the Purchaser from the Corporation pursuant to the exercise of Purchaser's
rights under Section 3.1 of the Governance Agreement.
"13D Group" means any group of persons formed for the purpose of acquiring,
holding, voting or disposing of Voting Stock which would be required under
Section 13(d) of the Exchange Act, and the rules and regulations promulgated
thereunder, to file a statement on a Schedule 13D pursuant to Rule 13d-1(a) or
a Schedule 13G pursuant to Rule 13d-1(c) with the Securities and Exchange
Commission (the "SEC") as a "person" within the meaning of Section 13(d)(3) of
the Exchange Act if such group beneficially owned Voting Stock representing
more than 5% of any class of Voting Stock then outstanding.
(b) Events Requiring Disinterested Stockholder Approval
Notwithstanding anything in this Certificate of Incorporation or the
Corporation's bylaws to the contrary, in addition to any other vote of
stockholders of the Corporation required by this Certificate of Incorporation,
the Corporation's bylaws or applicable law, until such time as the Purchaser
owns 90% of the Total Current Voting Power of the Corporation, none of the
following actions may be taken by the Corporation or the Purchaser (or any
Affiliate of such party) without first obtaining Disinterested Stockholder
Approval: (i) the amendment of any portion of this Article Twelfth (other than
any such amendment that constitutes only a correction of the matters set forth
in this Article Twelfth such that this Article Twelfth accurately and clearly
effectuates the provisions of Sections 4.1 and 4.2 of the Governance Agreement
in accordance with Section 4.3 of the Governance Agreement as in effect on
June 18, 1998, provided however that for purposes hereof, the reference to
"Bylaws" in Section 4.3 shall be deemed to refer to this Certificate of
Incorporation); (ii) a sale or disposition of all or substantially all of the
Corporation's assets; (iii) except with respect to the Merger Agreements and
the several transactions contemplated by the Merger Agreements, the issuance
of securities of the Corporation representing 20% or more of (a) the then
Total Outstanding Company Equity or (b) the then Total Current Voting Power of
the Corporation; or (iv) a merger, consolidation, or other reorganization of
the Corporation with or into Purchaser or any Affiliate of the Purchaser;
provided however, that Disinterested Stockholder Approval shall not be
required if, on the record date with respect to voting upon or approving any
such event, the Purchaser Beneficially Owns less than 25% of the Total Current
Voting Power of the Corporation.
(c) Events Requiring Disinterested Director Approval
Notwithstanding anything in this Certificate of Incorporation or the
Corporation's bylaws to the contrary, in addition to any other vote of
directors required under this Certificate of Incorporation, the Corporation's
bylaws or applicable law, until such time as the Purchaser owns 90% of the
Total Current Voting Power of the
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<PAGE>
Corporation, none of the following actions may be taken by the Board of
Directors of the Corporation or the Purchaser (or any Affiliate of the
Purchaser) without first obtaining Disinterested Board Approval: (i) any
amendment to the Corporation's bylaws or this Certificate of Incorporation;
(ii) any transaction between the Corporation (or any Affiliate of the
Corporation) and the Purchaser (or any Affiliate of the Purchaser), except
with respect to the Merger Agreements and the several transactions
contemplated by the Merger Agreements, that (a) requires payments by any party
in excess of $5 million or (b) contemplates a term equal to or in excess of
three years; (iii) adoption of a "poison pill" share purchase rights plan by
the Corporation, or any amendment of, or redemption or exchange of, rights
issued pursuant to any such plan, provided that, such plan excludes from the
definition of "Acquiring Person" therein the Purchaser and wholly owned
(direct or indirect) subsidiaries of the Purchaser, so long as neither the
Purchaser nor any Affiliate of the Purchaser has breached the Purchaser's
standstill obligations under Section 2.1(a), (d), (e) or (f) of the Governance
Agreement, and so long as the Purchaser Beneficially Owns at least 5% of the
Total Current Voting Power of the Corporation; (iv) any transfer of any Shares
or Non-Voting Convertible Securities by the Purchaser to a Corporation
Competitor in a private placement (as opposed to a public offering); (v)
during the Standstill Period, any transfer of 25% or more of the Voting Stock
by the Purchaser in a private placement (as opposed to a public offering) to
any single person or 13D Group; (vi) commencing a tender offer or exchange
offer by Purchaser or any Affiliate of Purchaser (or any 13D Group that
includes Purchaser or any Affiliate of Purchaser) to purchase or exchange for
cash or other consideration any Voting Stock, except for a Purchaser Tender
Offer made (a) during a Third Party Tender Offer, or (b) following a
Standstill Termination Event, so long as the cause of the Standstill
Termination Event was not a Purchaser Tender Offer; (vii) during the
Standstill Period, any of the Purchaser Restricted Actions; (viii) any
termination by the Purchaser (not the Corporation) of the License Agreement
(a) pursuant to Section 10.1(b) thereof, at any time after a majority of the
members of the Corporation's Board of Directors are Purchaser Directors, (b)
pursuant to Section 10.1(a) thereof if the event that causes Purchaser to have
the right to terminate pursuant to such Section 10.1(a) is (x) a transfer by
the Purchaser of Shares which results in a third party owning 25% or more of
the Total Current Voting Power of the Corporation (other than a transfer
pursuant to a Third Party Tender Offer whether for 25% of the Total Current
Voting Power of the Corporation or a greater or lesser amount) or (y) after a
majority of the members of the Corporation's Board of Directors are Purchaser
Directors, an issuance of shares of common stock by the Corporation which
results in a third party owning 25% or more of the Total Current Voting Power
of the Corporation, or (c) pursuant to Section 10.1(c) thereof if the event
that causes the Purchaser to have the right to terminate pursuant to such
Section 10.1(c) is that the Purchaser, in its capacity as a stockholder (and
not as a creditor) of the Corporation, has applied for or actively supported
the appointment of a receiver for the Corporation or a Corporation Controlled
Company and such receiver has been appointed; (ix) a transfer by the Purchaser
of Shares which results in a third party owning 25% or more of the Total
Current Voting Power of the Corporation (other than a transfer pursuant to a
Third Party Tender Offer whether for 25% of the Total Current Voting Power of
the Corporation or a greater or lesser amount); (x) unless the Purchaser owns
50% or more of the Total Current Voting Power of the Corporation, any of items
(i) through (iv) set forth in paragraph (b) of this Article Twelfth as an
Event Requiring Disinterested Shareholder Approval; (xi) any dissolution or
liquidation of the Corporation or a Corporation Controlled Company; (xii)
voluntary filing of a petition for bankruptcy or receivership by the
Corporation or a Corporation Controlled Company; or the failure to oppose any
other person's petition for bankruptcy or any other person's action to appoint
a receiver of the Corporation or a Corporation Controlled Company, or (xiii)
any amendment, modification or waiver (including a termination other than in
accordance with the various termination provisions contained in the Governance
Agreement) of any of the provisions of the Governance Agreement.
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<PAGE>
THIRTEENTH
The Corporation reserves the right to amend, alter, change or repeal any
provision contained in this Certificate of Incorporation, in the manner now or
hereafter prescribed by statute and in accordance with this Certificate of
Incorporation, and all rights conferred upon stockholders herein are granted
subject to this reservation.
IN WITNESS WHEREOF, Infoseek Corporation has caused this Amended and
Restated Certificate of Incorporation to be executed by , its , this
day of 1998.
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<PAGE>
ANNEX D-2
BYLAWS
OF
INFOSEEK CORPORATION
<PAGE>
BYLAWS
OF
INFOSEEK CORPORATION
ARTICLE I
Corporate Offices
1.1 Registered Office
The registered office of the corporation shall be in the City of Wilmington,
County of New Castle, State of Delaware. The name of the registered agent of
the corporation at such location is The Corporation Trust Company.
1.2 Other Offices
The board of directors may at any time establish other offices at any place
or places where the corporation is qualified to do business.
ARTICLE II
Meetings of Stockholders
2.1 Place of Meetings
Meetings of stockholders shall be held at any place, within or outside the
State of Delaware, designated by the board of directors. In the absence of any
such designation, stockholders' meetings shall be held at the registered
office of the corporation.
2.2 Annual Meeting
The annual meeting of stockholders shall be held each year on a date and at
a time designated by the board of directors. In the absence of such
designation, the annual meeting of stockholders shall be held on the second
Friday of June in each year at 10:00 a.m. However, if such day falls on a
legal holiday, then the meeting shall be held at the same time and place on
the next succeeding full business day. At the meeting, directors shall be
elected and any other proper business may be transacted.
2.3 Special Meeting
Special meetings of stockholders for any purpose or purposes may be called
at any time by the Board of Directors, the chairman of the Board of Directors,
the president or one or more shareholders holding shares in the aggregate
entitled to cast not less than 10% of the votes cast at that meeting.
2.4 Notice of Stockholders' Meetings
Subject to the requirements of applicable law, all notices of meetings with
stockholders shall be in writing and shall be sent or otherwise given in
accordance with Section 2.5 of these bylaws not less than ten (10) nor more
than sixty (60) days before the date of the meeting to each stockholder
entitled to vote at such meeting. The notice shall specify the place, date,
and hour of the meeting, and, in the case of a special meeting, the purpose or
purposes for which the meeting is called.
2.5 Manner of Giving Notice; Affidavit of Notice
Written notice of any meeting of stockholders, if mailed, is given when
deposited in the United States mail, postage prepaid, directed to the
stockholder at his address as it appears on the records of the corporation. An
affidavit of the secretary or an assistant secretary or of the transfer agent
of the corporation that the notice has
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<PAGE>
been given shall, in the absence of fraud, be prima facie evidence of the
facts stated therein. If mailed, such notice shall be deemed to be given when
deposited in the mail, postage prepaid, directed to the stockholder at his
address as it appears on the records of the corporation.
2.6 Quorum
The holders of a majority of the stock issued and outstanding and entitled
to vote thereat, present in person or represented by proxy, shall constitute a
quorum at all meetings of the stockholders for the transaction of business
except as otherwise provided by statute or by the certificate of
incorporation. If, however, such quorum is not present or represented at any
meeting of the stockholders, then the stockholders entitled to vote thereat,
present in person or represented by proxy, shall have power to adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until a quorum is present or represented. At such adjourned meeting
at which a quorum is present or represented, any business may be transacted
that might have been transacted at the meeting as originally noticed.
2.7 Adjourned Meeting; Notice
When a meeting is adjourned to another time or place, unless these bylaws
otherwise require, notice need not be given of the adjourned meeting if the
time and place thereof are announced at the meeting at which the adjournment
is taken. At the adjourned meeting the corporation may transact any business
that might have been transacted at the original meeting. If the adjournment is
for more than thirty (30) days, or if after the adjournment a new record date
is fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote at the meeting.
2.8 Voting
The stockholders entitled to vote at any meeting of stockholders shall be
determined in accordance with the provisions of Section 2.11 of these bylaws,
subject to the provisions of Sections 217 and 218 of the General Corporation
Law of the State of Delaware (relating to voting rights of fiduciaries,
pledgors and joint owners of stock and to voting trusts and other voting
agreements).
Except as may be otherwise provided in the certificate of incorporation,
each stockholder shall be entitled to one vote for each share of capital stock
held by such stockholder.
2.9 Waiver of Notice
Whenever notice is required to be given under any provision of the General
Corporation Law of the State of Delaware or of the certificate of
incorporation or these bylaws, a written waiver thereof, signed by the person
entitled to notice, whether before or after the time stated therein, shall be
deemed equivalent to notice. Attendance of a person at a meeting shall
constitute a waiver of notice of such meeting, except when the person attends
a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not
lawfully called or convened. Neither the business to be transacted at, nor the
purpose of, any regular or special meeting of the stockholders need be
specified in any written waiver of notice unless so required by the
certificate of incorporation or these bylaws.
2.10 Intentionally omitted
2.11 Record Date for Stockholder Notice; Voting; Giving Consents
In order that the corporation may determine the stockholders entitled to
notice of or to vote at any meeting of stockholders or any adjournment thereof
or entitled to receive payment of any dividend or other distribution or
allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock or for the purpose of any other lawful
action, the board of directors may fix, in advance, a record date, which shall
not be more than sixty (60) nor less than ten (10) days before the date of
such meeting, nor more than sixty (60) days prior to any other action.
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<PAGE>
If the board of directors does not so fix a record date:
(i) The record date for determining stockholders entitled to notice of or
to vote at a meeting of stockholders shall be at the close of business on
the day next preceding the day on which notice is given, or, if notice is
waived, at the close of business on the day next preceding the day on which
the meeting is held.
(ii) The record date for determining stockholders for any other purpose
shall be at the close of business on the day on which the board of
directors adopts the resolution relating thereto.
A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the board of directors may fix a new record date for
the adjourned meeting.
2.12 Notice of Stockholders Business and Nominations
(A) Annual Meetings of Stockholders. (1) Nominations of persons for election
to the Board of Directors of the corporation and the proposal of business to
be considered by the stockholders may be made at an annual meeting of
stockholders (a) pursuant to the corporation's notice of meeting delivered
pursuant to Section 2.4 of these Bylaws, (b) by or at the direction of the
Chairman of the Board or the Board of Directors or (c) by any stockholder of
the corporation who is entitled to vote at the meeting, who complied with the
notice procedures set forth in clauses (2) and (3) of this paragraph (A) of
this Bylaw and who was a stockholder of record at the time such notice is
delivered to the Secretary of the corporation.
(2) For nominations or other business to be properly brought before an
annual meeting by a stockholder pursuant to clause (c) of paragraph (A)(1) of
this Bylaw, the stockholder must have given timely notice thereof in writing
to the Secretary of the corporation and such other business must otherwise be
a proper matter for stockholder action. To be timely, a stockholder's notice
shall be delivered to the Secretary at the principal executive offices of the
corporation not less than seventy days nor more than ninety days prior to the
first anniversary of the preceding year's annual meeting: provided, however,
that in the event that the date of the annual meeting is advanced by more than
twenty days, or delayed by more than seventy days. from such anniversary date,
notice by the stockholder to be timely must be so delivered not earlier than
the ninetieth day prior to such annual meeting and not later than the close of
business on the later of the seventieth day prior to such annual meeting or
the seventh day following the day on which public announcement of the date of
such meeting is first made. Such stockholder's notice shall set forth (a) as
to each person whom the stockholder proposes to nominate for election or
reelection as a director all information relating to such person that is
required to be disclosed in solicitations of proxies for election of directors
in an election contest, or is otherwise required, in each case pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended (the
"Exchange Act") and Rule 14a-11 thereunder, including such person's written
consent to being named in the proxy statement as a nominee and to serving as a
director if elected; (b) as to any other business that the stockholder
proposes to bring before the meeting, a brief description of the business
desired to be brought before the meeting, the reasons for conducting such
business at the meeting and any material interest in such business of such
stockholder and the beneficial owner, if any, on whose behalf the proposal is
made; and (c) as to the stockholder giving the notice and the beneficial
owner, if any, on whose behalf the nomination or proposal is made (i) the name
and address of such stockholder, as they appear on the corporation's books,
and of such beneficial owner, (ii) the class and number of shares of the
corporation which are owned beneficially and of record by such stockholder and
such beneficial owner and (iii) whether the stockholder or the beneficial
owner intends or is part of a group which intends to solicit proxies from
other stockholders in support of such nomination or proposal. In no event
shall the public announcement of an adjournment of an annual meeting commence
a new time period for the giving of a stockholder's notice as described above.
(3) Notwithstanding anything in the second sentence of paragraph (A)(2) of
this Bylaw to the contrary, in the event that the number of directors to be
elected to the Board of Directors of the corporation is increased and there is
no public announcement naming all of the nominees for director or specifying
the size of the increased Board of Directors made by the corporation at least
eighty days prior to the first anniversary of the preceding
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<PAGE>
year's annual meeting, a stockholder's notice required by this Bylaw shall
also be considered timely, but only with respect to nominees for any new
positions created by such increase, if it shall be delivered to the Secretary
at the principal executive offices of the corporation not later than the close
of business on the tenth day following the day on which such public
announcement is first made by the corporation.
(B) Special Meetings of Stockholders. Only such business shall be conducted
at a special meeting of stockholders as shall have been brought before the
meeting pursuant to the corporation's notice of meeting pursuant to Section
2.4 of these Bylaws. Nominations of persons for election to the Board of
Directors may be made at a special meeting of stockholders at which directors
are to be elected pursuant to the corporation's notice of meeting (a) by or at
the direction of the Board of Directors or (b) by any stockholder of the
corporation who is entitled to vote at the meeting, who complies with the
notice procedures set forth in this Bylaw and who is a stockholder of record
at the time such notice is delivered to the Secretary of the corporation. In
the event the Corporation calls a special meeting of stockholders for the
purpose of electing one or more directors to the Board of Directors, any such
stockholder may nominate a person or persons (as the case may be), for
election to such position(s) as are specified in the corporation's Notice of
Meeting, if the stockholder's notice as required by paragraph (A)(2) of this
Bylaw shall be delivered to the Secretary at the principal executive offices
of the corporation not earlier than the ninetieth day prior to such special
meeting and not later than the close of business on the later of the
seventieth day prior to such special meeting or the tenth day following the
day on which public announcement is first made of the date of the special
meeting and of the nominees proposed by the Board of Directors to be elected
at such meeting. In no event shall the public announcement of an adjournment
of a special meeting commence a new time period for the giving of a
stockholder's notice as described above.
(C) General. (1) Only persons who are nominated in accordance with the
procedures set forth in this Bylaw shall be eligible to serve as directors and
only such business shall be conducted at a meeting of stockholders as shall
have been brought before the meeting in accordance with the procedures set
forth in this Bylaw. Except as otherwise provided by law, the Certificate of
Incorporation or these Bylaws, the chairman of the meeting shall have the
power and duty to determine whether a nomination or any business proposed to
be brought before the meeting was made in accordance with the procedures set
forth in this Bylaw and, if any proposed nomination or business is not in
compliance with this Bylaw, to declare that such defective proposal or
nomination shall be disregarded.
(2) Notwithstanding the foregoing provisions of this Bylaw, a stockholder
shall also comply with all applicable requirements of the Exchange Act and the
rules and regulations thereunder with respect to the matters set forth in this
Bylaw. Nothing in this Bylaw shall be deemed to affect any rights of
stockholders to request inclusion of proposals in the corporation's proxy
statement pursuant to Rule 14a-8 under the Exchange Act.
2.13 Proxies
Each stockholder entitled to vote at a meeting of stockholders or to express
consent or dissent to corporate action in writing without a meeting may
authorize another person or persons to act for him by a written proxy, signed
by the stockholder and filed with the secretary of the corporation, but no
such proxy shall be voted or acted upon after three (3) years from its date,
unless the proxy provides for a longer period. A proxy shall be deemed signed
if the stockholder's name is placed on the proxy (whether by manual signature,
typewriting, telegraphic transmission or otherwise) by the stockholder or the
stockholder's attorney-in-fact. The revocability of a proxy that states on its
face that it is irrevocable shall be governed by the provisions of Section
212(c) of the General Corporation Law of the State of Delaware.
2.14 List of Stockholders Entitled to Vote
The officer who has charge of the stock ledger of a corporation shall
prepare and make, at least ten (10) days before every meeting of stockholders,
a complete list of the stockholders entitled to vote at the meeting, arranged
in alphabetical order, and showing the address of each stockholder and the
number of shares registered in the name of each stockholder. Such list shall
be open to the examination of any stockholder, for any purpose germane to the
meeting, during ordinary business hours, for a period of at least ten (10)
days prior to the meeting,
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<PAGE>
either at a place within the city where the meeting is to be held, which place
shall be specified in the notice of the meeting, or, if not so specified, at
the place where the meeting is to be held. The list shall also be produced and
kept at the time and place of the meeting during the whole time thereof, and
may be inspected by any stockholder who is present.
ARTICLE III
Directors
3.1 Powers
Subject to the provisions of the General Corporation Law of the State of
Delaware and any limitations in the certificate of incorporation or these
bylaws relating to action required to be approved by the stockholders or by
the outstanding shares, the business and affairs of the corporation shall be
managed and all corporate powers shall be exercised by or under the direction
of the board of directors.
3.2 Number of Directors
The Board of Directors shall consist of no fewer than six (6) and no more
than eleven (11) and shall be initially fixed at eight (8). The number within
six (6) to eleven (11) may be changed by a duly adopted amendment to this
bylaw adopted by resolution of the board of directors in accordance with these
bylaws. No reduction of the authorized number of directors shall have the
effect of removing any director before that director's term of office expires.
3.3 Election, Qualification and Term of Office of Directors
Except as provided in Section 3.4 of these bylaws, directors shall be
elected at each annual meeting of stockholders to hold office until the next
annual meeting. Directors need not be stockholders unless so required by the
certificate of incorporation or these bylaws, wherein other qualifications for
directors may be prescribed. Each director, including a director elected to
fill a vacancy, shall hold office until his successor is elected and qualified
or until his earlier resignation or removal.
Elections of directors need not be by written ballot.
3.4 Resignation and Vacancies
Any director may resign at any time upon written notice to the corporation.
When one or more directors so resigns and the resignation is effective at a
future date, a majority of the directors then in office, including those who
have so resigned, shall have power to fill such vacancy or vacancies, the vote
thereon to take effect when such resignation or resignations shall become
effective, and each director so chosen shall hold office as provided in this
section in the filling of other vacancies.
Unless otherwise provided in the certificate of incorporation or these
bylaws:
(i) Vacancies and newly created directorships resulting from any increase
in the authorized number of directors elected by all of the stockholders
having the right to vote may be filled by a majority of the directors then
in office, although less than a quorum, or by a sole remaining director.
(ii) Whenever the holders of any class or classes of stock or series
thereof are entitled to elect one or more directors by the provisions of
the certificate of incorporation, vacancies and newly created directorships
of such class or classes or series may be filled by a majority of the
directors elected by such class or classes or series thereof then in
office, or by a sole remaining director so elected.
If at any time, by reason of death or resignation or other cause, the
corporation should have no directors in office, then any officer or any
stockholder or an executor, administrator, trustee or guardian of a
stockholder, or other fiduciary entrusted with like responsibility for the
person or estate of a stockholder, may call a special meeting of stockholders
in accordance with the provisions of the certificate of incorporation or these
bylaws, or may apply to the Court of Chancery for a decree summarily ordering
an election as provided in Section 211 of the General Corporation Law of the
State of Delaware.
D-2-5
<PAGE>
If, at the time of filling any vacancy or any newly created directorship,
the directors then in office constitute less than a majority of the whole
board (as constituted immediately prior to any such increase), then the Court
of Chancery may, upon application of any stockholder or stockholders holding
at least ten (10) percent of the total number of the shares at the time
outstanding having the right to vote for such directors, summarily order an
election to be held to fill any such vacancies or newly created directorships,
or to replace the directors chosen by the directors then in office as
aforesaid, which election shall be governed by the provisions of Section 211
of the General Corporation Law of the State of Delaware as far as applicable.
3.5 Place of Meetings; Meetings by Telephone
The board of directors of the corporation may hold meetings, both regular
and special, either within or outside the State of Delaware.
Unless otherwise restricted by the certificate of incorporation or these
bylaws, members of the board of directors, or any committee designated by the
board of directors, may participate in a meeting of the board of directors, or
any committee, by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and such participation in a meeting shall constitute presence in
person at the meeting.
3.6 First Meetings
The first meeting of each newly elected board of directors shall be held at
such time and place as shall be fixed by the vote of the stockholders at the
annual meeting and no notice of such meeting shall be necessary to the newly
elected directors in order legally to constitute the meeting, provided a
quorum shall be present. In the event of the failure of the stockholders to
fix the time or place of such first meeting of the newly elected board of
directors, or in the event such meeting is not held at the time and place so
fixed by the stockholders, the meeting may be held at such time and place as
shall be specified in a notice given as hereinafter provided for special
meetings of the board of directors, or as shall be specified in a written
waiver signed by all of the directors.
3.7 Regular Meetings
Regular meetings of the board of directors may be held without notice at
such time and at such place as shall from time to time be determined by the
board.
3.8 Special Meetings; Notice
Special meetings of the board of directors for any purpose or purposes may
be called at any time by the chairman of the board, the president, any vice
president, the secretary or any two (2) directors.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail or
telecopy, charges prepaid, addressed to each director at that director's
address as it is shown on the records of the corporation. If the notice is
mailed, it shall be deposited in the United States mail at least four (4) days
before the time of the holding of the meeting. If the notice is delivered
personally or by telephone or by telegram, it shall be delivered personally or
by telephone or to the telegraph company at least forty-eight (48) hours
before the time of the holding of the meeting. Any oral notice given
personally or by telephone may be communicated either to the director or to a
person at the office of the director who the person giving the notice has
reason to believe will promptly communicate it to the director. The notice
need not specify the purpose or the place of the meeting, if the meeting is to
be held at the principal executive office of the corporation.
3.9 Quorum
At all meetings of the board of directors, a majority of the authorized
number of directors shall constitute a quorum for the transaction of business
and the act of a majority of the directors present at any meeting at which
there is a quorum shall be the act of the board of directors, except as may be
otherwise specifically provided by
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statute or by the certificate of incorporation. If a quorum is not present at
any meeting of the board of directors, then the directors present thereat may
adjourn the meeting from time to time, without notice other than announcement
at the meeting, until a quorum is present.
3.10 Waiver of Notice
Whenever notice is required to be given under any provision of the General
Corporation Law of the State of Delaware or of the certificate of
incorporation or these bylaws, a written waiver thereof, signed by the person
entitled to notice, whether before or after the time stated therein, shall be
deemed equivalent to notice. Attendance of a person at a meeting shall
constitute a waiver of notice of such meeting, except when the person attends
a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not
lawfully called or convened. Neither the business to be transacted at, nor the
purpose of, any regular or special meeting of the directors, or members of a
committee of directors, need be specified in any written waiver of notice
unless so required by the certificate of incorporation or these bylaws.
3.11 Adjourned Meeting; Notice
If a quorum is not present at any meeting of the board of directors, then
the directors present thereat may adjourn the meeting from time to time,
without notice other than announcement at the meeting, until a quorum is
present.
3.12 Board Action by Written Consent Without a Meeting
Unless otherwise restricted by the certificate of incorporation or these
bylaws, any action required or permitted to be taken at any meeting of the
board of directors, or of any committee thereof, may be taken without a
meeting if all members of the board or committee, as the case may be, consent
thereto in writing and the writing or writings are filed with the minutes of
proceedings of the board or committee.
3.13 Fees and Compensation of Directors
Unless otherwise restricted by the certificate of incorporation or these
bylaws, the board of directors shall have the authority to fix the
compensation of directors.
3.14 Approval of Loans to Officers
The corporation may lend money to, or guarantee any obligation of, or
otherwise assist any officer or other employee of the corporation or of its
subsidiary, including any officer or employee who is a director of the
corporation or its subsidiary, whenever, in the judgment of the directors,
such loan, guaranty or assistance may reasonably be expected to benefit the
corporation. The loan, guaranty or other assistance may be with or without
interest and may be unsecured, or secured in such manner as the board of
directors shall approve, including, without limitation, a pledge of shares of
stock of the corporation. Nothing in this section contained shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the corporation
at common law or under any statute.
3.15 Removal of Directors
Unless otherwise restricted by statute, by the certificate of incorporation
or by these bylaws, any director or the entire board of directors may be
removed, with or without cause, by the holders of a majority of the shares
then entitled to vote at an election of directors.
No reduction of the authorized number of directors shall have the effect of
removing any director prior to the expiration of such director's term of
office.
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ARTICLE IV
Committees
4.1 Committees of Directors
The board of directors may designate one or more committees, with each
committee to consist of one or more of the directors of the corporation. The
board may designate one or more directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting of
the committee. In the absence or disqualification of a member of a committee,
the member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the board of directors to act at the meeting in the place of
any such absent or disqualified member. Any such committee, to the extent
provided in the resolution of the board of directors or in the bylaws of the
corporation and to the extent permitted by applicable law, shall have and may
exercise all the powers and authority of the board of directors in the
management of the business and affairs of the corporation, and may authorize
the seal of the corporation to be affixed to all papers that may require it.
4.2 Committee Minutes
Each committee shall keep regular minutes of its meetings and report the
same to the board of directors when required.
4.3 Meetings and Action of Committees
Meetings and actions of committees shall be governed by, and held and taken
in accordance with, the provisions of Article III of these bylaws, Section 3.5
(place of meetings and meetings by telephone), Section 3.7 (regular meetings),
Section 3.8 (special meetings and notice), Section 3.9 (quorum), Section 3.10
(waiver of notice), Section 3.11 (adjournment and notice of adjournment), and
Section 3.12 (action without a meeting), with such changes in the context of
those bylaws as are necessary to substitute the committee and its members for
the board of directors and its members; provided, however, that the time of
regular meetings of committees may also be called by resolution of the board
of directors and that notice of special meetings of committees shall also be
given to all alternate members, who shall have the right to attend all
meetings of the committee. The board of directors may adopt rules for the
government of any committee not inconsistent with the provisions of these
bylaws.
ARTICLE V
Officers
5.1 Officers
The officers of the corporation shall be a president, one or more vice
presidents, a secretary, and a chief financial officer. The corporation may
also have, at the discretion of the board of directors, a chairman of the
board, one or more assistant vice presidents, assistant secretaries and any
such other officers as may be appointed in accordance with the provisions of
Section 5.3 of these bylaws. Any number of offices may be held by the same
person.
5.2 Election of Officers
The officers of the corporation, except such officers as may be appointed in
accordance with the provisions of Sections 5.3 or 5.5 of these bylaws, shall
be chosen by the board of directors.
5.3 Subordinate Officers
The board of directors may appoint, or empower the president to appoint,
such other officers and agents as the business of the corporation may require,
each of whom shall hold office for such period, have such authority, and
perform such duties as are provided in these bylaws or as the board of
directors may from time to time determine.
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5.4 Removal and Resignation of Officers
Any officer may be removed, either with or without cause, by an affirmative
vote of the majority of the board of directors at any regular or special
meeting of the board or, except in the case of an officer chosen by the board
of directors, by any officer upon whom such power of removal may be conferred
by the board of directors.
Any officer may resign at any time by giving written notice to the
corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless
otherwise specified in that notice, the acceptance of the resignation shall
not be necessary to make it effective. Any resignation is without prejudice to
the rights, if any, of the corporation under any contract to which the officer
is a party.
5.5 Vacancies in Offices
Any vacancy occurring in any office of the corporation shall be filled by
the board of directors.
5.6 Chairman of the Board
The chairman of the board, if such an officer be elected, shall, if present,
preside at meetings of the board of directors and exercise and perform such
other powers and duties as may from time to time be assigned to him by the
board of directors or as may be prescribed by these bylaws. If there is no
president, then the chairman of the board shall also be the chief executive
officer of the corporation and shall have the powers and duties prescribed in
Section 5.7 of these bylaws.
5.7 President
Subject to such supervisory powers, if any, as may be given by the board of
directors to the chairman of the board, if there be such an officer, the
president shall be the chief executive officer of the corporation and shall,
subject to the control of the board of directors, have general supervision,
direction, and control of the business and the officers of the corporation. He
shall preside at all meetings of the shareholders and, in the absence or
nonexistence of a chairman of the board, at all meetings of the board of
directors. He shall have the general powers and duties of management usually
vested in the office of president of a corporation and shall have such other
powers and duties as may be prescribed by the board of directors or these
bylaws.
5.8 Vice President
In the absence or disability of the president, the vice presidents, if any,
in order of their rank as fixed by the board of directors or, if not ranked, a
vice president designated by the board of directors, shall perform all the
duties of the president and when so acting shall have all the powers of, and
be subject to all the restrictions upon, the president. The vice presidents
shall have such other powers and perform such other duties as from time to
time may be prescribed for them respectively by the board of directors, these
bylaws, the president or the chairman of the board.
5.9 Secretary
The secretary shall keep or cause to be kept, at the principal executive
office of the corporation or such other place as the board of directors may
direct, a book of minutes of all meetings and actions of directors, committees
of directors, and shareholders. The minutes shall show the time and place of
each meeting, whether regular or special (and, if special, how authorized and
the notice given), the names of those present at directors' meetings or
committee meetings, the number of shares present or represented at
shareholders' meetings, and the proceedings thereof.
The secretary shall keep, or cause to be kept, at the principal executive
office of the corporation or at the office of the corporation's transfer agent
or registrar, as determined by resolution of the board of directors, a share
register, or a duplicate share register, showing the names of all shareholders
and their addresses, the number and classes of shares held by each, the number
and date of certificates evidencing such shares, and the number and date of
cancellation of every certificate surrendered for cancellation.
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The secretary shall give, or cause to be given, notice of all meetings of
the shareholders and of the board of directors required to be given by law or
by these bylaws. He shall keep the seal of the corporation, if one be adopted,
in safe custody and shall have such other powers and perform such other duties
as may be prescribed by the board of directors or by these bylaws.
5.10 Chief Financial Officer
The chief financial officer shall keep and maintain, or cause to be kept and
maintained, adequate and correct books and records of accounts of the
properties and business transactions of the corporation, including accounts of
its assets, liabilities, receipts, disbursements, gains, losses, capital,
retained earnings, and shares. The books of account shall at all reasonable
times be open to inspection by any director.
The chief financial officer shall deposit all money and other valuables in
the name and to the credit of the corporation with such depositaries as may be
designated by the board of directors. He shall disburse the funds of the
corporation as may be ordered by the board of directors, shall render to the
president and directors, whenever they request it, an account of all of his
transactions as chief financial officer and of the financial condition of the
corporation, and shall have such other powers and perform such other duties as
may be prescribed by the board of directors or these bylaws.
5.11 Assistant Secretary
The assistant secretary, or, if there is more than one, the assistant
secretaries in the order determined by the stockholders or board of directors
(or if there be no such determination, then in the order of their election)
shall, in the absence of the secretary or in the event of his or her inability
or refusal to act, perform the duties and exercise the powers of the secretary
and shall perform such other duties and have such other powers as the board of
directors or the stockholders may from time to time prescribe.
5.12 Authority and Duties of Officers
The officers of the corporation shall have such powers and duties in the
management of the corporation as may be prescribed by the Board of Directors
and, to the extent not so provided, as generally pertain to their respective
offices, subject to the control of the Board of Directors. The Board of
Directors may require any officer, agent or employee to give security for the
faithful performance of his duties.
5.13 Limitations on Powers and Duties of Officers
No officer shall take any action, enter into any agreement, make any
representation or, by purposeful inaction, effect any of the actions or
decisions which the Board of Directors is prohibited or restricted from
enacting pursuant to these Bylaws or the certificate of incorporation and
their further amendments.
ARTICLE VI
Indemnity
6.1 Indemnification of Directors and Officers
The corporation shall, to the maximum extent and in the manner permitted by
the General Corporation Law of the State of Delaware, indemnify each of its
directors and officers (the "Indemnitees") against expenses (including
attorneys' fees), judgments, fines, settlements, and other amounts actually
and reasonably incurred in connection with any proceeding, arising by reason
of the fact that such person is or was a director or officer of the
corporation. For purposes of the first sentence of this Section 6.1, a
"director" or "officer" of the corporation includes any person (i) who is or
was a director or officer of the corporation, (ii) who, while a director or
officer of the corporation, is or was serving at the request of the
corporation as a director or officer of another corporation, partnership,
joint venture, trust or other enterprise, or (iii) who was a director or
officer of a corporation which was a predecessor corporation of the
corporation or of another enterprise at the request of such predecessor
corporation. Notwithstanding the first sentence of this Section 6.1, except as
otherwise provided
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in Section 6.5, the corporation shall be required to indemnify an Indemnitee
in connection with a proceeding (or part thereof) commenced by such Indemnitee
only if the commencement of such proceeding (or part thereof) by the
Indemnitee was authorized by the Board of Directors of the corporation.
6.2 Indemnification of Others
The corporation shall have the power, to the extent and in the manner
permitted by the General Corporation Law of the State of Delaware, to
indemnify each of its employees and agents (other than directors and officers)
against expenses (including attorneys' fees), judgments, fines, settlements,
and other amounts actually and reasonably incurred in connection with any
proceeding, arising by reason of the fact that such person is or was an agent
of the corporation. For purposes of this Section 6.2, an "employee" or "agent"
of the corporation (other than a director or officer) includes any person (i)
who is or was an employee or agent of the corporation, (ii) who is or was
serving at the request of the corporation as an employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, or (iii)
who was an employee or agent of a corporation which was a predecessor
corporation of the corporation or of another enterprise at the request of such
predecessor corporation.
6.3 Insurance
The corporation may purchase and maintain insurance on behalf of any person
who is or was a director, officer, employee or agent of the corporation, or is
or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against any liability asserted against him and incurred by
him in any such capacity, or arising out of his status as such, whether or not
the corporation would have the power to indemnify him against such liability
under the provisions of the General Corporation Law of the State of Delaware.
6.4 Prepayment of Expenses
The corporation shall pay the expenses incurred by an Indemnitee in
defending any proceeding in advance of its final disposition, provided,
however, that the payment of expenses incurred by a director or officer in
advance of the final disposition of the proceeding shall be made only upon
receipt of an undertaking by the director or officer to repay all amounts
advanced if it should be ultimately determined that the director or officer is
not entitled to be indemnified under this Article or otherwise to the extent
that such undertaking is required by law.
6.5 Claims
If a claim for indemnification or payment of expenses under this Article is
not paid in full within sixty days after a written claim therefor has been
received by the corporation the claimant may file suit to recover the unpaid
amount of such claim and, if successful in whole or in part, shall be entitled
to be paid the expense of prosecuting such claim. In any such action the
corporation shall have the burden of proving that the claimant was not
entitled to the requested indemnification or payment of expenses under
applicable law.
6.6 Non-Exclusivity of Rights
The rights conferred on any person by this Article 6 shall not be exclusive
of any other rights which such person may have or hereafter acquire under any
statute, provision of the certificate of incorporation, these by-laws,
agreement, vote of stockholders or disinterested directors or otherwise.
6.7 Other Indemnification
The corporation's obligation, if any, to indemnify or advance expenses to
any person who was or is serving at its request as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust,
enterprise or non-profit entity shall be reduced by any amount such person may
collect as indemnification or advancement of expenses from such other
corporation, partnership, joint venture, trust, enterprise or non-profit
enterprise.
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<PAGE>
6.8 Amendment or Repeal
Any repeal or modification of the foregoing provisions of this Article 6
shall not adversely affect any right or protection hereunder of any person in
respect of any act or omission occurring prior to the time of such repeal or
modification.
ARTICLE VII
General Matters
7.1 Checks
From time to time, the board of directors shall determine by resolution
which person or persons may sign or endorse all checks, drafts, other orders
for payment of money, notes or other evidences of indebtedness that are issued
in the name of or payable to the corporation, and only the persons so
authorized shall sign or endorse those instruments.
7.2 Execution of Corporate Contracts and Instruments
The board of directors, except as otherwise provided in these bylaws, may
authorize any officer or officers, or agent or agents, to enter into any
contract or execute any instrument in the name of and on behalf of the
corporation; such authority may be general or confined to specific instances.
Unless so authorized or ratified by the board of directors or within the
agency power of an officer, no officer, agent or employee shall have any power
or authority to bind the corporation by any contract or engagement or to
pledge its credit or to render it liable for any purpose or for any amount.
7.3 Stock Certificates; Partly Paid Shares
The shares of the corporation shall be represented by certificates, provided
that the board of directors of the corporation may provide by resolution or
resolutions that some or all of any or all classes or series of its stock
shall be uncertificated shares. Any such resolution shall not apply to shares
represented by a certificate until such certificate is surrendered to the
corporation. Notwithstanding the adoption of such a resolution by the board of
directors, every holder of stock represented by certificates and upon request
every holder of uncertificated shares shall be entitled to have a certificate
signed by, or in the name of the corporation by the chairman or vice-chairman
of the board of directors, or the president or vice-president, and by the
treasurer or an assistant treasurer, or the secretary or an assistant
secretary of such corporation representing the number of shares registered in
certificate form. Any or all of the signatures on the certificate may be a
facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate has ceased to be
such officer, transfer agent or registrar before such certificate is issued,
it may be issued by the corporation with the same effect as if he were such
officer, transfer agent or registrar at the date of issue.
The corporation may issue the whole or any part of its shares as partly paid
and subject to call for the remainder of the consideration to be paid
therefor. Upon the face or back of each stock certificate issued to represent
any such partly paid shares, upon the books and records of the corporation in
the case of uncertificated partly paid shares, the total amount of the
consideration to be paid therefor and the amount paid thereon shall be stated.
Upon the declaration of any dividend on fully paid shares, the corporation
shall declare a dividend upon partly paid shares of the same class, but only
upon the basis of the percentage of the consideration actually paid thereon.
7.4 Special Designation on Certificates
If the corporation is authorized to issue more than one class of stock or
more than one series of any class, then the powers, the designations, the
preferences, and the relative, participating, optional or other special rights
of each class of stock or series thereof and the qualifications, limitations
or restrictions of such preferences and/or rights shall be set forth in full
or summarized on the face or back of the certificate that the corporation
shall
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issue to represent such class or series of stock; provided, however, that,
except as otherwise provided in Section 202 of the General Corporation Law of
the State of Delaware, in lieu of the foregoing requirements there may be set
forth on the face or back of the certificate that the corporation shall issue
to represent such class or series of stock a statement that the corporation
will furnish without charge to each stockholder who so requests the powers,
the designations, the preferences, and the relative, participating, optional
or other special rights of each class of stock or series thereof and the
qualifications, limitations or restrictions of such preferences and/or rights.
7.5 Lost Certificates
Except as provided in this Section 7.5, no new certificates for shares shall
be issued to replace a previously issued certificate unless the latter is
surrendered to the corporation and canceled at the same time. The corporation
may issue a new certificate of stock or uncertificated shares in the place of
any certificate theretofore issued by it, alleged to have been lost, stolen or
destroyed, and the corporation may require the owner of the lost, stolen or
destroyed certificate, or his legal representative, to give the corporation a
bond sufficient to indemnify it against any claim that may be made against it
on account of the alleged loss, theft or destruction of any such certificate
or the issuance of such new certificate or uncertificated shares.
7.6 Construction; Definitions
Unless the context requires otherwise, the general provisions, rules of
construction, and definitions in the General Corporation Law of the State of
Delaware shall govern the construction of these bylaws. Without limiting the
generality of this provision, the singular number includes the plural, the
plural number includes the singular, and the term "person" includes both a
corporation and a natural person.
7.7 Dividends
The directors of the corporation, subject to any restrictions contained in
the certificate of incorporation, may declare and pay dividends upon the
shares of its capital stock pursuant to the General Corporation Law of the
State of Delaware. Dividends may be paid in cash, in property, or in shares of
the corporation's capital stock.
The directors of the corporation may set apart out of any of the funds of
the corporation available for dividends a reserve or reserves for any proper
purpose and may abolish any such reserve. Such purposes shall include but not
be limited to equalizing dividends, repairing or maintaining any property of
the corporation, and meeting contingencies.
7.8 Fiscal Year
The fiscal year of the corporation shall be fixed by resolution of the board
of directors and may be changed by the board of directors.
7.9 Seal
The Corporation may adopt a corporate seal, which may be altered at
pleasure, and may use the same by causing it or a facsimile thereof to be
impressed or affixed or in any other manner reproduced.
7.10 Transfer of Stock
Upon surrender to the corporation or the transfer agent of the corporation
of a certificate for shares duly endorsed or accompanied by proper evidence of
succession, assignation or authority to transfer, it shall be the duty of the
corporation to issue a new certificate to the person entitled thereto, cancel
the old certificate, and record the transaction in its books.
7.11 Stock Transfer Agreements
The corporation shall have power to enter into and perform any agreement
with any number of shareholders of any one or more classes of stock of the
corporation to restrict the transfer of shares of stock of the corporation of
any one or more classes owned by such stockholders in any manner not
prohibited by the General Corporation Law of the State of Delaware.
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7.12 Registered Stockholders
The corporation shall be entitled to recognize the exclusive right of a
person registered on its books as the owner of shares to receive dividends and
to vote as such owner, shall be entitled to hold liable for calls and
assessments the person registered on its books as the owner of shares, and
shall not be bound to recognize any equitable or other claim to or interest in
such share or shares on the part of another person, whether or not it shall
have express or other notice thereof, except as otherwise provided by the laws
of Delaware.
7.13 Representation of Shares of Other Corporations
The chairman of the board, the president, any vice president, the treasurer,
the secretary or assistant secretary of this corporation, or any other person
authorized by the board of directors or the president or a vice president, is
authorized to vote, represent, and exercise on behalf of this corporation all
rights incident to any and all shares of any other corporation or corporations
standing in the name of this corporation. The authority granted herein may be
exercised either by such person directly or by any other person authorized to
do so by proxy or power of attorney duly executed by such person having the
authority.
ARTICLE XIII
Amendments
These bylaws may be adopted, amended or repealed by the stockholders
entitled to vote; provided, however, that the corporation has conferred the
power to adopt, amend or repeal these bylaws upon the directors pursuant to
Article Eighth of the corporation's certificate of incorporation. The fact
that such power has been so conferred upon the directors shall not divest the
stockholders of the power, nor limit their power to adopt, amend or repeal
bylaws.
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EXHIBIT 99.1
DETACH HERE
INFOSEEK CORPORATION (A CALIFORNIA CORPORATION)
SPECIAL MEETING OF SHAREHOLDERS--NOVEMBER 18, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF INFOSEEK CORPORATION ("INFOSEEK")
The undersigned hereby appoints Harry M. Motro, Leslie E. Wright and Andrew
E. Newton, and each of them, as attorneys-in-fact and proxies of the
undersigned, with full power of substitution, to vote all of the shares of
Infoseek's common stock which the undersigned may be entitled to vote at the
Special Meeting of Shareholders of Infoseek to be held at Infoseek's offices
located at 1399 Moffett Park Drive, Sunnyvale, California 94089, on November
18, 1998 at 10:00 a.m. local time, and at any and all adjournments or
postponements thereof, with all of the powers the undersigned would possess if
personally present, upon and in respect of the following proposal and in
accordance with the following instructions. The proposal referred to herein is
described in detail in the accompanying joint proxy statement/prospectus.
UNLESS A CONTRARY DIRECTION IS INDICATED, THIS PROXY WILL BE VOTED FOR THE
PROPOSALS SPECIFIED ON THE REVERSE SIDE. IF A SPECIFIC DIRECTION IS INDICATED,
THIS PROXY WILL BE VOTED IN ACCORDANCE THEREWITH.
[SEE REVERSE SIDE]
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)
<PAGE>
DETACH HERE
PLEASE MARK VOTES AS IN THIS EXAMPLE.[X]
PLEASE MARK, DATE, SIGN AND RETURN THIS PROXY CARD PROMPTLY IN THE ENCLOSED
POSTPAID RETURN ENVELOPE. THE BOARD OF DIRECTORS OF INFOSEEK CORPORATION
RECOMMENDS A VOTE FOR THE FOLLOWING PROPOSAL.
(i) approval and adoption of an Agreement and Plan of Reorganization
(the "Reorganization Agreement"), dated as of June 18, 1998, among
Infoseek Corporation, a California corporation ("Infoseek California"),
Infoseek Corporation, a newly-formed Delaware corporation ("Infoseek
Delaware"), Starwave Corporation, a Washington corporation ("Starwave")
and Disney Enterprises, Inc., a Delaware corporation, and approval of a
reincorporation transaction, as contemplated by the Reorganization
Agreement, pursuant to an Agreement and Plan of Merger by and among
Infoseek California, Infoseek Delaware and ICO Acquisition Corporation,
a newly formed California corporation and wholly-owned subsidiary of
Infoseek Delaware ("Infoseek Merger Sub"), whereby Infoseek Merger Sub
will be merged with and into Infoseek California and each outstanding
share of Infoseek California common stock will be converted into the
right to receive one share of Infoseek Delaware common stock, with the
result that Infoseek California will become a wholly-owned subsidiary of
Infoseek Delaware; and (ii) the issuance of 28,138,000 shares of
Infoseek Delaware common stock to the shareholders of Starwave in
connection with the acquisition of Starwave, as contemplated by the
Reorganization Agreement, pursuant to an Agreement and Plan of Merger by
and among Infoseek Delaware, Starwave, and Starwave Acquisition
Corporation, a newly formed Washington corporation and wholly-owned
subsidiary of Infoseek Delaware ("Starwave Merger Sub"), whereby
Starwave Merger Sub will be merged with and into Starwave and each
outstanding share of Starwave common stock will be converted into the
right to receive approximately 0.26 shares of Infoseek Delaware common
stock, subject to adjustment, with the result that Starwave will become
a wholly-owned subsidiary of Infoseek Delaware, and the issuance to The
Walt Disney Company of 2,642,000 shares of Infoseek Delaware common
stock and the Warrant to purchase an additional 15,720,000 shares of
Infoseek Delaware common stock to The Walt Disney Company pursuant to
the Common Stock and Warrant Purchase Agreement dated as of June 18,
1998 between Infoseek and The Walt Disney Company (and the shares
underlying such Warrant).
FOR [_] AGAINST [_] ABSTAIN [_]
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT [_]
Please sign exactly as your name
appears hereon. If the stock is
registered in the names of two or
more persons, each should sign.
Executors, administrators, trustees,
guardians and attorneys-in-fact
should add their titles. If the
signer is a corporation, please give
the full corporate name and have a
duly authorized officer sign,
stating such officer's title. If the
signer is a partnership, please sign
in the partnership's name by an
authorized person.
Signature: __________________________ Signature: __________________________
Date: _______________________________ Date: _______________________________
