Exhibit 99.4
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AltaVista Business
Unaudited Combined Financial Statements
June 30, 1999 and 1998
ALTAVISTA BUSINESS
INDEX TO UNAUDITED COMBINED FINANCIAL STATEMENTS
Page
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Unaudited Combined Balance Sheets......................................................... F-2
Unaudited Combined Statements of Operations and Comprehensive Loss........................ F-3
Unaudited Combined Statements of Changes in Owner's Net Investment........................ F-4
Unaudited Combined Statements of Cash Flows............................................... F-5
Notes to Unaudited Combined Financial Statements.......................................... F-6
F-1
ALTAVISTA BUSINESS
UNAUDITED COMBINED BALANCE SHEETS
(in thousands)
December 31, June 30,
1998 1999
-------------- --------------
Assets
Current assets:
Cash and cash equivalents $ - $ 16,753
Accounts receivable, net 12,819 28,449
Prepaid expenses and other current assets 350 3,934
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Total current assets 13,169 49,136
Property and equipment, less accumulated depreciation 24,173 42,090
Goodwill and other intangible assets, net 226,488 733,906
Investments 500 10,816
Receivable from Compaq - 10,315
Other noncurrent assets - 1,714
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Total assets $ 264,330 $ 847,977
============== ==============
Liabilities and Owner's Net Investment
Current liabilities:
Long-term debt, current portion $ 658 $ 1,182
Capital lease obligation, current portion - 1,225
Accounts payable 691 15,457
Salaries, wages and related items 455 1,950
Accrued partner fees 7,656 1,591
Deferred revenue 150 6,809
Other current liabilities 774 27,248
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Total current liabilities 10,384 55,462
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Commitments and contingencies
Long-term debt 1,656 1,448
Capital lease obligation - 2,363
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Total liabilities 12,040 59,273
Net contribution from owner 321,856 1,173,313
Unearned compensation - (160,110)
Accumulated deficit (69,566) (226,335)
Accumulated other comprehensive income - 1,836
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Owner's net investment 252,290 788,704
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Total liabilities and owner's net investment $ 264,330 $ 847,977
============== ==============
The accompanying notes are an integral part of these combined financial
statements.
F-2
ALTAVISTA BUSINESS
UNAUDITED COMBINED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(in thousands)
January 1, June 12, Six Months
1998 to 1998 to Ended
June 11, June 30, June 30,
1998 1998 1999
--------------- -------------- --------------
Advertising and service revenue, net $ 13,622 $ 2,448 $ 40,994
Product revenue, net - - 14,828
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Total revenue 13,622 2,448 55,822
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Cost of advertising and service revenue 3,445 548 14,149
Cost of product revenue - - 15,548
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Total cost of revenue 3,445 548 29,697
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Gross profit 10,177 1,900 26,125
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Operating expenses:
Sales and marketing 5,425 1,505 41,741
Product development 5,413 665 13,798
General and administrative 1,744 300 9,133
Stock based compensation - - 8,906
Amortization of intangible assets 8 4,823 109,171
--------------- -------------- --------------
Loss from operations (2,413) (5,393) (156,624)
Interest expense, net 79 10 145
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Net loss (2,492) (5,403) (156,769)
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Other comprehensive income
Unrealized gains on investments - - 1,836
--------------- -------------- --------------
Comprehensive loss $ (2,492) $ (5,403) $ (154,933)
=============== ============== ==============
The accompanying notes are an integral part of these combined financial
statements.
F-3
ALTAVISTA BUSINESS
UNAUDITED COMBINED STATEMENTS OF CHANGES IN OWNER'S NET INVESTMENT
(in thousands)
Accumulated
Net Other Total
Contribution Unearned Accumulated Comprehensive Owner's Net
from Owner Compensation Deficit Income Investment
------------- ------------ ----------- ------------- ------------
Balance, December 31, 1998 $ 321,856 - $ (69,566) $ - $ 252,290
Net loss - - (156,769) - (156,769)
Unearned compensation 169,016 (169,016) - - -
Amortization of unearned
compensation - 8,906 - - 8,906
Unrealized gain on investments - - - 1,836 1,836
Net contribution from owner 682,441 - - - 682,441
------------- ------------ ----------- --------- ------------
Balance, June 30, 1999 $ 1,173,313 $ (160,110) $ (226,335) $ 1,836 $ 788,704
============= ============ =========== ========= ============
The accompanying notes are an integral part of these combined financial
statements.
F-4
ALTAVISTA BUSINESS
UNAUDITED COMBINED STATEMENTS OF CASH FLOWS
(in thousands)
January 1, June 12, Six Months
1998 to 1998 to Ended
June 11, June 30, June 30,
1998 1998 1999
------------- ------------- ------------
Cash flows from operating activities:
Net loss $ (2,492) $ (5,403) $ (156,769)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation and amortization 2,078 5,140 113,775
Provision for bad debts and concessions 1,220 - 2,854
Stock based compensation - - 8,906
Changes in operating assets and liabilities:
Accounts receivable (3,248) (1,010) (16,757)
Prepaid expenses (3,577) 1,042 958
Accounts payable 47 (582) 7,252
Salaries, wages and related items 371 29 1,495
Deferred revenue (187) (63) 309
Other current liabilities (329) 291 3,928
------------- ------------- ------------
Net cash used in operating activities (6,117) (556) (34,049)
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Cash flows from investing activities:
Purchase of investments - (500) (8,480)
Purchases of property and equipment (5,419) (1,853) (17,092)
Acquisition of Shopping.com, net of cash acquired - - (224,193)
Acquisition of Zip2, net of cash acquired - - (294,761)
Increase in other assets - - (303)
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Net cash used in investing activities (5,419) (2,353) (544,829)
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Cash flows from financing activities:
Borrowings of long-term debt - - 16
Repayment of long-term debt - - (11,212)
Net contribution from owner 11,536 2,909 606,827
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Net cash provided by financing activities 11,536 2,909 595,631
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Net increase in cash - - 16,753
Cash at beginning of period - - -
Cash and cash equivalents at end of period $ - $ - $ 16,753
============= ============= ============
Non-cash investing and financing activities:
Owner's stock options issued for acquisitions $ - $ - $ 59,811
============= ============= ============
Compaq costs for acquisitions $ - $ - $ 12,000
============= ============= ============
Unrealized gain on available-for-sale securities $ - $ - $ 1,836
============= ============= ============
Unearned compensation $ - $ - $ 169,016
Interest paid $ 79 $ 10 $ 289
============= ============= ============
The accompanying notes are an integral part of these combined financial
statements.
F-5
ALTAVISTA BUSINESS
NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Description of the AltaVista Business
The AltaVista Business represents the AltaVista operation, including
Shopping.com and Zip2 from their respective acquisition dates.
AltaVista provides Internet search and navigation technology, enabling
the delivery of information through broad-based search capabilities. AltaVista's
objective is to deliver the most personally relevant Internet results faster
than anyone else on the Internet. With leverage from numerous partnerships,
AltaVista is extending its services to delivering highly personalized e-Commerce
offerings and local content through an integrated network of new media and e-
Commerce partners.
Effective February 15, 1999, Compaq Computer Corporation ("Compaq")
completed a cash tender offer for Shopping.com, an online retailer that offers
users an array of consumer products to buy. This acquisition is intended to be
included in the AltaVista Business. Accordingly, Shopping.com's operations are
included in these combined financial statements from the date of acquisition.
All significant intercompany balances and transactions have been eliminated.
Shopping.com is an Internet-based electronic retailer marketing a broad range of
products to both consumers and trade customers. Shopping.com employs proprietary
information systems along with industry software to provide its customers with
access to an automated marketplace of products, which consist of inventories of
multiple manufacturers and distributors, price comparisons, detailed product
descriptions, delivery status of products ordered and back order information.
Effective April 1, 1999, Compaq acquired Zip2, an Internet
provider of localized editorial content, consumer information and advertising
products by newspapers and other local media companies. This acquisition is
intended to be included in the AltaVista Business. Accordingly, Zip2's
operations are included in these combined financial statements from the date of
acquisition. All significant intercompany balances and transactions have been
eliminated.
Zip2 supports the delivery of localized editorial content, consumer
information and advertising products by newspapers and other local media
companies through a comprehensive suite of Web development solutions and service
offerings.
Basis of presentation
The financial statements of AltaVista are derived from the historic
books and records of Digital Equipment Corporation ("Digital") through June 11,
1998. As a result of the acquisition of Digital by Compaq on June 11, 1998, the
financial statements of AltaVista after the acquisition date are derived from
the historic books and records of Compaq and reflect the "pushdown" of Compaq's
bases in the assets and liabilities. The operating results and financial
position of Shopping.com and Zip2 are included from their respective dates of
acquisition and reflect the "pushdown" of Compaq's bases in the assets and
liabilities.
The statement of operations includes all revenues and costs directly
attributable to the AltaVista Business including charges for shared facilities,
functions and services used by the AltaVista Business and provided by Digital or
Compaq. Certain costs and expenses have been allocated based on management's
estimates of the cost of services provided to the AltaVista Business by Digital
or Compaq. Such costs include corporate research and engineering expenses,
corporate selling and marketing expenses and corporate general and
administrative expenses. Such allocations and charges are based on either a
direct cost pass-through or a percentage of total costs for the services
provided based on factors such as headcount or the specific level of activity
directly related to such costs (i.e., direct spending). Management believes that
these allocations are based on assumptions that are reasonable under the
circumstances. However, these allocations and estimates are not necessarily
indicative of the costs and expenses which would have resulted if the AltaVista
Business had been operated as a separate entity. The total amount of such
allocations included in the accompanying statements of operations for the
periods January 1, 1998 to June 11, 1998, June 12, 1998 to June 30, 1998, and
for the six months ended June 30, 1999 were $1.0 million, $0.2 million, and $0.7
million, respectively.
The AltaVista Business has incurred recurring losses from operations
through June 30, 1999. Compaq has committed to provide the funds required for
the conduct of the AltaVista Business' operations at least through December 31,
1999 or to the date, if earlier, on which it ceases to be the controlling
shareholder. The historical operating results may not be indicative of future
results.
On June 29, 1999, Compaq announced it entered into an agreement to
sell the AltaVista Business to CMGI, Inc. ("CMGI").
F-6
ALTAVISTA BUSINESS
NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS
(Continued)
Cash and cash equivalents
When cash received from operations by the AltaVista Business is swept
by Compaq or Digital it is recorded as reductions of net contribution from
owner; disbursements made by Compaq or Digital on behalf of the AltaVista
Business are recorded as increases to net contribution from owner. Effective as
of the date of the acquisitions of Shopping.com and Zip2, these combined
financial statements include the cash and cash equivalent balances carried by
Shopping.com and Zip2.
The AltaVista Business considers all highly-liquid investments with a
remaining maturity of three months or less to be cash equivalents.
Revenue Recognition
Advertising and service revenue
The AltaVista Business' revenues are derived primarily from short-term
advertising contracts negotiated by DoubleClick in accordance with the terms of
the Procurement and Trafficking Agreement (the "Agreement"). Prior to January 1,
1999, the AltaVista Business recorded as revenues its contractual percentage of
the total revenues generated from the delivery of advertisements. Effective
January 1, 1999, the AltaVista Business renegotiated the Agreement whereby the
AltaVista Business may now form its internal sales force to sell advertisements
directly to advertisers. DoubleClick only retains the exclusivity for delivering
through its proprietary computer systems the advertisements negotiated either by
DoubleClick or the AltaVista Business. Under the new agreement, the AltaVista
Business bears the economic risk of the transactions. Accordingly, the AltaVista
Business now records the full sales amount as revenue upon delivery of
advertisements. Amounts payable to DoubleClick, for commissions and service fees
are reported as selling and marketing expenses. The agreement is for a term of
three years from the effective date (the "Initial Term"). The Agreement is
automatically renewed for additional twelve month periods following the Initial
Term unless either party provides notice of termination during the third year of
the Agreement and no later than ninety days prior to the expiration of the
Initial Term or no later than 180 days prior to the expiration of any twelve
month renewal period.
As a result of the acquisition of Zip2, these combined financial
statements now include revenues from the delivery of Web development solutions,
Web software applications hosting, technical and sales-related consulting
services and from a share of advertising revenues generated by newspaper and
other local media customers. Revenues from the delivery of Web development
solutions combined with consulting, Web hosting and other continuing service
obligations are recognized ratably as service revenues over the contract terms
which range from one to six years. Revenues from technical and sales-related
consulting services are recognized as services are provided. Provisions for
contractual adjustments and losses are recorded in the period such items are
identified. Deferred revenues represent the amount of cash received or invoices
rendered prior to revenue recognition. Revenues from contractual rights to share
in advertising revenues generated by newspaper and other local media customers
are recognized as advertising revenues as the fees are earned and become
receivable from the customer. Amounts due to newspaper and other local media
customers from contractual rights to share in advertising revenues generated by
Zip2 are recognized as costs of revenues in the period the related revenues are
earned.
F-7
ALTAVISTA BUSINESS
NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS
(Continued)
Product revenue
As a result of the acquisition of Shopping.com, these combined
financial statements now include revenues from the sales of consumer products.
Shopping.com recognizes revenue for such transactions at the time the vendor
ships the product to the customer and provides an allowance for sales returns
based on historical experience. To date, sales returns have not been material.
For the six months ended June 30, 1999, approximately 35% of
Shopping.com revenues represented sales of Compaq PC's to Free PC.com, an
AltaVista Business investee (see Note 5). Based on Compaq pricing, Shopping.com
recognized a nominal gross profit on such revenues.
Goodwill and other intangible assets
Intangible assets consist of trademarks and goodwill resulting from
the "pushdown" of the fair market value of the intangible assets attributable to
the AltaVista Business as recorded on Compaq's books as part of the acquisition
of Digital and from the acquisitions of Shopping.com and Zip2. Goodwill and
other intangible assets are being amortized on a straight-line basis over their
estimated useful lives of three years.
Impairment of long-lived assets
The AltaVista Business reviews for impairment of long-lived assets,
certain identifiable intangibles and goodwill whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. An impairment loss would be recognized when estimated undiscounted
future cash flows expected to result from the use of the asset and its eventual
disposition is less than its carrying amount. The AltaVista Business has not
identified any such impairment losses.
Investments
The AltaVista Business accounts for investments in marketable equity
securities in accordance with SFAS No. 115, "Accounting for Certain Investments
in Debt and Equity Securities." Under SFAS No. 115, marketable equity securities
are classified as available-for-sale.
Starting in 1998, Compaq obtained equity interests in several
privately held companies which are intended to be included in the AltaVista
Business. These investments resulted in the AltaVista Business owning less than
20% of the respective investees and are carried at the lower of cost or net
realizable value. For these investments, the AltaVista Business' policy is to
regularly review the assumptions underlying the operating performance and cash
flow forecasts in assessing the carrying values. The AltaVista Business tests
for impairment losses on investments when events and circumstances indicate that
such assets might be impaired. To date, no such impairment has been recorded.
Available-for-sale securities are stated at fair value, with the
unrealized gains and losses, net of taxes, reported in owner's net investment.
Realized gains and losses and declines in value judged to be other than
temporary on available-for-sale securities are included in results of
operations. At June 30, 1999, the AltaVista Business held available-for-sale
securities with estimated fair values of $1.8 million consisting of gross
unrealized gains of $1.8 million and a cost basis of $0.
Interim results
The interim combined financial statements as of June 30, 1999 and for
the periods January 1, 1998 to June 11, 1998, and June 12, 1998 to June 30,
1998, and for the six months ended June 30, 1999, have been prepared using the
same accounting principles as were used in preparing the financial statements as
of December 31, 1998 and for the period from January 1, 1998 to June 11, 1998
and from June 12, 1998 to December 31, 1998, respectively, and in the opinion of
management, reflect all adjustments, which include only normal recurring
adjustments, necessary to present fairly the AltaVista Business' financial
position, results of operations and cash flows as of June 30, 1999 and for the
periods January 1, 1998 to June 11, 1998, and June 12, 1998 to June 30, 1998,
and for the six months ended June 30, 1999. The results for the six months ended
June 30, 1999 are not necessarily indicative of the results to be expected for
the year ending December 31, 1999.
F-8
ALTAVISTA BUSINESS
NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS
(Continued)
Recent accounting pronouncements
In June 1998, the Financial Accounting Standards Boards ("FASB")
issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities." The new standard establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. SFAS No. 133 is effective for all
fiscal quarters of fiscal years beginning after June 15, 2000. The AltaVista
Business does not expect SFAS No. 133 to have a material effect on its financial
position or results of operations.
NOTE 2 - ACQUISITIONS
Compaq acquisition
On June 11, 1998, Compaq consummated its acquisition of Digital. The
purchase price was allocated to the assets acquired and liabilities assumed
related to the AltaVista Business based on Compaq's estimates of fair value. The
fair value assigned to intangible assets acquired was based on a valuation
prepared by an independent third party appraisal company and included
intangibles aggregating $274.1 million (goodwill of $255.6 million and
trademarks of $18.5 million).
Shopping.com and Zip2 acquisitions
Effective February 15, 1999, Compaq completed its acquisition of
Shopping.com which is intended to be contributed to the AltaVista Business. The
aggregate purchase price of $256.9 million consisted of $218.9 million in cash,
the issuance of Compaq employee stock options with a fair value of $32.0 million
and other acquisition costs of $ 6.0 million. The transaction was accounted for
under the purchase method of accounting. The results of operations of the
acquired entity and the estimated fair market values of the acquired assets and
liabilities have been included in the AltaVista Business' combined financial
statements from the date of acquisition. The aggregate purchase price including
liabilities assumed has been allocated to the assets acquired, consisting
primarily of goodwill of approximately $271 million that is being amortized over
a three year period. The purchase price allocation was based on the results of
an independent third party appraisal.
At the time of the acquisition by Compaq, Shopping.com was a defendant
in various litigation matters for which Compaq agreed to assume any ultimate
liability for such matters. Any unrecorded costs incurred in connection with
resolving these matters will be added to the purchase accounting allocation or
charged to expense. An equal amount will be recorded as a capital contribution
from Compaq.
Effective April 1, 1999, Compaq completed its acquisition of Zip2
which is intended to be contributed to the AltaVista Business. The aggregate
purchase price of $340.9 million consisted of $307.2 million in cash, the
issuance of AltaVista employee stock options with a fair value of $27.7 million
and other acquisition costs of $6.0 million. The results of operations of the
acquired entity and the estimated fair market values of the acquired assets and
liabilities have been included in the AltaVista Business' combined financial
statements from the date of acquisition. The aggregate purchase price including
liabilities assumed has been allocated to the assets acquired, consisting
primarily of goodwill of approximately $335 million that is being amortized over
a three year period. The purchase price allocation was based on the results of
an independent third party appraisal.
F-9
ALTAVISTA BUSINESS
NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS
(Continued)
The following unaudited pro forma consolidated amounts give effect to the
acquisition of the AltaVista Business and the subsequent acquisitions of
Shopping.com and Zip2 as if they occurred on January 1, 1998 (the pro forma
results of operations for Shopping.com are based upon their fiscal year end of
January 31):
Year Ended Ended
December 31, June 30,
1998 1999
------------ -----------
Net revenues $ 49,319 $ 68,028
------------ -----------
Net loss $ (389,964) $ (212,775)
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NOTE 3 - UNEARNED STOCK-BASED COMPENSATION
In connection with certain stock option grants during the six months ended
June 30, 1999, the AltaVista Business recognized unearned stock compensation of
approximately $169 million, which was scheduled to be amortized over the four
year vesting periods of the related options. The CMGI transaction will result in
the immediate vesting of approximately 2.2 million options and, therefore, an
acceleration of expense recognition. Amortization expense recognized during the
six months ended June 30, 1999 totaled approximately $8.9 million of the
approximately $49 million anticipated total expense recognition through the date
of consummating the CMGI transaction. Stock options for approximately 9.8
million shares of AltaVista common stock were outstanding on June 30, 1999.
NOTE 4 - GOODWILL AND OTHER INTANGIBLE ASSETS
(in thousands) December 31, June 30,
1998 1999
------------ ----------
Goodwill $ 255,600 $ 861,342
Trademarks and patents 18,500 20,120
Other - 9,400
Purchased URL sites 3,422 3,422
----------- -----------
277,522 894,284
Less: accumulated amortization 51,034 160,378
----------- -----------
$ 226,488 $ 733,906
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NOTE 5 - INVESTMENTS
In December 1998, Compaq purchased on behalf of the AltaVista Business
500,000 shares of Series B preferred stock of Centraal Corporation ("Centraal").
The total consideration paid of approximately $500,000 resulted in the AltaVista
Business owning less than 20% of the investee.
In January 1999, Compaq purchased on behalf of the AltaVista Business
2,023,635 shares of Series D preferred stock of Virage, Inc. ("Virage"). The
total consideration paid of approximately $3,480,000 resulted in the AltaVista
Business owning less than 20% of the investee.
F-10
ALTAVISTA BUSINESS
NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS
(Continued)
In March 1999, Compaq purchased on behalf of the AltaVista Business
1,000,000 shares of Series B preferred stock of Free PC.com for approximately
$5,000,000 resulting in the AltaVista Business owning less than 20% of the
investee.
NOTE 6 - OTHER CURRENT LIABILITIES
(in thousands) December 31, June 30,
1998 1999
------------ -----------
Accrued legal $ - $ 10,764
Accrued advertising expense - 5,019
Accrued advertising commissions - 3,509
Accrued relocation and recruiting - 2,184
Other 774 5,772
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Total other current liabilities $ 774 $ 27,248
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Note 7 - SUBSEQUENT EVENTS
CMGI acquisition
On August 18, 1999, CMGI completed its acquisition of the AltaVista
Business including Shopping.com and Zip2 in a transaction under which Compaq
retained less than a 20% minority interest.
iAtlas merger
On October 22, 1999, CMGI merged its recently acquired iAtlas subsidiary
into the AltaVista Business in a transaction valued at approximately $27
million. Since its inception in April 1998, the operating results and net assets
of iAtlas have not been significant in relation to the AltaVista Business.
Zip2
On October 20, 1999, the AltaVista Business distributed its investment in
Zip2 to CMGI and Compaq according to their respective ownership percentages but
retained certain Zip2 assets and technology rights. Operations of Zip2 after
that date will not be included in the results of operations of the AltaVista
Business.
Investment
In July 1999, the AltaVista Business purchased 2,171,809 shares of Series C
preferred stock of 1st Up.com Corporation for approximately $2,500,000 resulting
in the AltaVista Business owning less than 20% of the investee.
Litigation
On October 15, 1999, AltaVista and Digital Equipment Corporation
("Digital") were served a complaint by One Zero Media, Inc. ("One Zero"). The
suit alleges breach of a Web Services Agreement entered into in May 1998 between
One Zero and Digital. AltaVista and Digital have not yet filed their response to
the complaint. The amount of any liability which might ultimately exist cannot
reasonably be estimated and no provision for loss has been made in the
accompanying combined financial statements. AltaVista and Digital intend to
vigorously defend the suit.
F-11