<PAGE>
 
                                                   Exhibit 10.40


                          MICROSOFT INTERNET EXPLORER
                       LICENSE AND DISTRIBUTION AGREEMENT
                      Document Version 4.0, April 10, 1998


This Internet Explorer License and Distribution Agreement ("Agreement") is made
and entered into this 2nd day of July, 1998 ("Effective Date") by and between
MICROSOFT CORPORATION, a Washington corporation located at One Microsoft Way,
Redmond, WA 98052-6399 ("Microsoft"), and PRODIGY SERVICES CORPORATION, a
Delaware corporation located at 44 S. Broadway, White Plains, NY 10601
("Company").

1. DEFINITIONS

   (1) "Browsing Software" means software (whether part of an operating system
       or available as a separate product) designed to view, render, browse or
       otherwise interact with the Internet, the Web, and/or other public
       networks now existing or hereafter created;

   (2) "Email Client" means software which is used to compose, transmit,
       retrieve, and read electronic messages using peer-to-peer, store and
       forward, or similar email communication methods, whether part of an
       operating system (e.g., Outlook Express in Windows 98) or available as a
       separate product (e.g., Hotmail).

   (3) "Internet Site" means Company's Web site(s).

   (4) "Internet Product" means the Company-labeled product(s) and services
       which provided (i) access to the Internet, (ii) printed or online
       information about the Internet, and/or (iii) Content which is used or
       viewed in conjunction with the Internet; provided, however, that
       "Internet Product" does not include a personal computer.

   (5) "Logo" means the "Microsoft(R) Internet Explorer" logo(s) (or any
       successor(s) thereof) to be licensed to Company by separate agreement.

   (6) "Licensed Software" means, in object code form only for Platforms in all
       available languages requested by Company, the Microsoft software
       identified in Exhibit A, as may be amended from time to time.

   (7) "Platforms" means Windows 3.x (including Windows for Workgroups 3.x),
       Windows 95, Windows 98, Windows NT, Apple Macintosh, and UNIX.

                                      -1-
<PAGE>
 
2. LICENSE GRANTS, CONDITIONS & RESTRICTIONS

   (1) Licensed Software.  Microsoft grants to Company a nonexclusive, limited,
       -----------------                                                       
       worldwide, royalty-free license to use, reproduce and distribute
       (directly and indirectly through Company's distributors) through
       Company's distribution channels (including, but not limited to,
       distribution via the Web) the Licensed Software solely as part of or for
       use in conjunction with Company's Internet Product to Company's end user
       customers and prospective end user customers.  The foregoing license is
       expressly subject to the following conditions:

       (1) No Standalone Distribution.  The Licensed Software may only be
           distributed as part of or for use with Company's Internet Product,
           and not as a "standalone" product; provided, however, that Company or
           Company's sublicensees may distribute updates of the Licensed
           Software separately for purposes of updating an existing end user
           customer of an Internet Product.

       (2) No Distribution Apart from Web Browsing Software and Email Client. No
           component part(s) of the Licensed Software (e.g., NetShow,
           NetMeeting) may be distributed separate from the Internet Explorer
           and Outlook Express operating system updates or technologies.

       (3) New Releases. If Microsoft makes a new release of Licensed Software
           available, then:  (i) Company shall use reasonable efforts to cease
           reproduction and distribution of the older version of the Licensed
           Software component and shall promptly commence reproduction and
           distribution of the new release of the Licensed Software component
           with Company's Internet Product, provided that Company may deplete is
           existing inventory of Company's Internet Product containing a prior
           version of the Licensed Software, (ii) Company shall make the new
           release of Licensed Software available to its end user customers, and
           (iii) Company shall use reasonable efforts to notify its end users
           that a new release of the Licensed Software may be available from
           Company (with indication of appropriate URL) or from Microsoft by at
           lease including substantially the following notice on Company's main
           public web site for the Internet Product:  "A new version of the
           Licensed Software (or component thereof) may be available. Please go
           to [applicable Company URL] to update your software."

       (4) End Users and Distributors.  Company's sublicenses will not be
           materially inconsistent with the terms and conditions of this
           Agreement regarding rights granted by and obligations imposed upon
           Company by Microsoft.

                                      -2-
<PAGE>
 
       (5) License Restrictions.  The following restrictions apply to the
           license grant in this Section 2:  (i) Company may not reverse
           engineer, decompile or disassemble the Licensed Software; (ii)
           Company may not authorize further redistribution of the Licensed
           Software by end users of Company's Internet Product; and (iii)
           Company shall maintain and not alter or remove any copyright,
           trademark, and other protective notices contained in the Licensed
           Software, including the end user license agreement ("EULA") which is
           included in the setup installation of the Licensed Software. Company
           shall also comply with the Guidelines.

3. COMPANY OBLIGATIONS

In partial consideration for the royalty-free license grants set forth in
Article 2 above, Company shall perform the following obligations:

   (1) As a condition precedent to exercise of any rights under this Agreement,
       Company shall accept the terms of the Microsoft Internet Explorer Logo
       License Agreement ("Logo Agreement") located at
                                                      
       ieak.microsoft.com/logo.asp#elogo.
       --------------------------------- 

   (2) Company shall provide Microsoft with a quarterly volume distribution
       summary detailing the number of copies of the Licensed Software it has
       distributed the quarter within forty-five (45) days following the end of
       each calendar quarter.  Such summary shall specify separately each
       component, component version(s), and Platform(s) distributed and the
       means of distribution (Web download or CDROM) and shall be submitted to
                                                                              
       https://ieak.microsoft.com/secure/addReport.asp.  In the event Company
       -----------------------------------------------                       
       distributed no copies of the Licensed Software, Company shall indicate
       this on the volume distribution summary.  Microsoft shall maintain all
       distribution summary reports in confidence and may only disclose such
       reports to its immediate legal and financial consultants as may be
       required in the ordinary course of Microsoft's business.

   (3) Company shall maintain the quality of the Internet Product at a level
       that meets or exceeds industry standards and that is at least
       commensurate with the quality of products distributed by Company on or
       before the Effective Date.

   (4) Company shall participate in the following co-marketing activities:

       (1) Authorize Microsoft to use Company's name in press releases or other
           Microsoft advertising or promotions, and to identify Company as a
           licensee of the Licensed Software;

       (2) Make the Licensed Software available for use internally under
           Company's customary information services policies and procedures.

                                      -3-
<PAGE>
 
4. OWNERSHIP

Except as expressly licensed to Company in Section 2, Microsoft retains all
right, title and interest in and to the Licensed Software.  All rights not
expressly granted herein are reserved by Microsoft.

5. ACCEPTANCE AND DISCLAIMER OR WARRANTY

   (1) The Licensed Software is deemed accepted by Company.

   (2) Neither the Company nor any of its distributors or employees shall have
       any right to make any representation, warranty, or promise on behalf of
       Microsoft.

   (3) THE LICENSED SOFTWARE ARE PROVIDED TO COMPANY AS IS WITHOUT WARRANTY OF
       ANY KIND.  THE ENTIRE RISK AS TO THE RESULTS AND PERFORMANCE OF THE
       LICENSED SOFTWARE ARE ASSUMED BY COMPANY  AND THE END-USER CUSTOMER.
       MICROSOFT DISCLAIMS ALL WARRANTIES, EITHER EXPRESS OR IMPLIED, INCLUDING
       BUT NOT LIMITED TO, IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A
       PARTICULAR PURPOSE, TITLE AND NON-INFRINGEMENT.

6. LIMITATION OF LIABILITY

IN NO EVENT SHALL MICROSOFT BE LIABLE FOR ANY DIRECT, CONSEQUENTIAL, INDIRECT,
INCIDENTAL, OR SPECIAL DAMAGES WHATSOEVER, INCLUDING WITHOUT LIMITATION, DAMAGES
FOR LOSS OF BUSINESS PROFITS, BUSINESS INTERRUPTION, LOSS OF BUSINESS
INFORMATION, AND THE LIKE, ARISING OUT OF THE USE OF OR INABILITY TO USE THE
LICENSED SOFTWARE, EVEN IF MICROSOFT HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES.

7. TERM

The term of this Agreement shall commence as of the Effective Date and shall
continue for a period of one (1) year.  Thereafter, this Agreement shall
automatically renew for successive one year periods unless either party gives
the other party not fewer than sixty (60) days' notice of its intent not to
renew, unless earlier terminated as provided in Section 8.

8. DEFAULT AND TERMINATION

   (1) Either party may terminate this Agreement for any reason upon sixty (60)
       days prior written notice.

                                      -4-
<PAGE>
 
   (2) Either party may suspend performance and/or terminate this Agreement
       immediately upon written notice at any time if the other party is in
       material breach of any material warranty, term, condition or covenant of
       this Agreement, and fails to cure that breach within sixty (60) days
       after the written notice thereof.

   (3) Upon termination of this Agreement for any reason, Company's rights under
       Section 2 immediately terminate, and Company shall return to Microsoft or
       destroy all full or partial copies of the Licensed Software in Company's
       possession or under its control within ten (10) days following the
       termination date.

   (4) End-user sublicenses validly granted prior to expiration or termination
       of this Agreement shall survive termination or expiration of this
       Agreement; sublicenses granted to Marketing Affiliates shall be
       coterminous with Company's licenses.

   (5) Sections 1, 4, 5, 6, 8, 9, 10 and 11 shall survive termination of this
       Agreement.

9. SUPPORT

COMPANY shall be responsible for providing support for end users of any versions
of the Licensed Software and COMPANY's Internet Product distributed by COMPANY.

10. NOTICES AND REQUESTS

Except as otherwise provided on Exhibit A, all notices, authorizations, and
requests in connection with this Agreement shall be deemed given on the day they
are (i) transmitted via electronic mail with a copy deposited in the mail,
postage prepaid, certified or registered, return receipt requested; or (ii) sent
by overnight courier, charges prepared, with a confirming fax; and addressed as
follows:

   NOTICES TO Company:
   ------------------ 

               Prodigy Services Corporation
               44 S. Broadway
               White Plains, NY 10601
               Attn:  General Council
               Telephone:  (914) 448-8000
               Fax:  (914) 448-8223
               Email Address:_________________


   NOTICES TO Microsoft:
   -------------------- 

   Notices:    MICROSOFT CORPORATION
               One Microsoft Way

                                      -5-
<PAGE>
 
               Redmond, WA 98052-6399
               Attn:  General Manager, Internet Customer Unit
               Email Address: ____________________
               Copy to:  Law & Corporate Affairs, US Legal
               Fax:  (206) 936-7209

   Distribution summaries:  choose the "Report" option at:
                         https://ieak.microsoft.com/secure/addReport.asp
                         -----------------------------------------------

   or to such other address as the party to receive the notice or request so
   designates by written notice to the other.

11.  GENERAL

   (1) This Agreement shall be governed by the laws of the State of Washington,
       USA, as though entered into between Washington residents and to be
       performed entirely within the State of Washington, and Company consents
       to jurisdiction and venue in the state and federal courts sitting in the
       State of Washington.

   (2) Neither this Agreement, nor any terms and conditions contained herein,
       shall be construed as creating a partnership, joint venture, agency
       relationship or as granting a franchise.

   (3) No waiver of any breach of any provision of this Agreement shall
       constitute a waiver of any prior, concurrent or subsequent breach of the
       same or any other provisions hereof, and no waiver shall be effective
       unless made in writing and signed by an authorized representation of the
       waiving party.

   (4) If any provision of this Agreement shall be held by a court of competent
       jurisdiction to be illegal, invalid or unenforceable, the remaining
       provisions shall remain in full force and effect.

   (5) The rights and obligations hereunder shall inure to the benefit of the
       successors of the parties hereto, provided any rights or obligations
       hereunder shall not be assigned by Company without the prior written
       approval of Microsoft, such approval shall not be unreasonably withheld.

   (6) Any Licensed Software which Company distributes or licenses to or on
       behalf of the United States of America, its agencies and/or
       instrumentalities (the "Government"), shall be provided with RESTRICTED
       RIGHTS in accordance with DFARS 252.227-7013(c)1(ii), or as set forth in
       the particular department or agency regulations or rules, or particular
       contract which provide Microsoft equivalent or greater protection.

                                      -6-
<PAGE>
 
   (7) Company acknowledges that the Licensed Software is subject to the export
       control laws and regulations of the US, and any amendments thereof.
       Company confirms that with respect to the Licensed Software, it will not
       export or re-export it, directly or indirectly, either to (i) any
       countries that are subject to US export restrictions (currently
       including, but not necessarily limited to, Cuba, Iran, Iraq, Libya, North
       Korea, Sudan, and Syria); (ii) any end user who Company knows or has
       reason to know will utilize them in the design, development or production
       of nuclear, chemical or biological weapons; or (iii) any end user who has
       been prohibited from participating in the US export transactions by any
       federal agency of the US government. Company further acknowledges that
       the Licensed Software may include technical data subject to export and
       re-export restrictions imposed by US law.

   (8) Company shall, at its own expense, promptly obtain and arrange for the
       maintenance of all non-U.S.A. government approvals, if any, and comply
       with all applicable local laws and regulations as may be necessary for
       Company's performance under this Agreement.

   (9) Company shall pay, and be responsible for any and all sales taxes, use
       taxes and any other taxes imposed by any jurisdiction as a result of (i)
       the entry into this Agreement; (ii) the performance of any of the
       provisions of this Agreement; or (iii) the transfer of any property,
       rights or any other grant hererunder.

  (10) If either Microsoft or Company employs attorneys to enforce any rights
       arising out of or relating to this Agreement, the prevailing party shall
       be entitled to recover reasonable attorneys' fees and costs.

  (11) This Agreement constitutes the entire agreement between the parties with
       respect to the subject matter hereof and supersedes all prior and
       contemporaneous agreements or communications.  It shall not be modified
       except by a written agreement dated subsequent to the date of this
       Agreement and signed on behalf of Company and Microsoft by their
       respective duly authorized representatives.

IN WITNESS WHEREOF, the parties have entered into this Agreement as of the
Effective Date written above.

MICROSOFT CORPORATION               COMPANY  Prodigy Services Corp


/s/J. Dossett                           /s/Marc  Jacobson
-----------------------                 --------------------------
By (sign)                                By (sign)

Jeffrey J. Dossett                      Marc Jacobson
-----------------------                 --------------------------
Name:  (Print)                          Name:  (Print)
General Manager
Internet Customer Unit                  Acting CFO & General Counsel
-----------------------                 ---------------------------       
Title                                    Title

8/18/98                                 7/2/98
-----------------------                 ----------------------------
Date                                     Date

                                      -7-
<PAGE>
 
                                   EXHIBIT A

                               LICENSED SOFTWARE

<TABLE>
<CAPTION>
Technology Name                Technology Version             Language Version
---------------------------------------------------------------------------------
<S>                   <C>                                   <C>
---------------------------------------------------------------------------------
 
Internet Explorer*    3.x, 4.x                              All publicly released
---------------------------------------------------------------------------------
Outlook Express*      4.x                                   All publicly released
---------------------------------------------------------------------------------
Comic Chat            All publicly released final versions  All publicly released
---------------------------------------------------------------------------------
NetShow               All publicly released final versions  All publicly released
---------------------------------------------------------------------------------
FrontPage Express     All publicly released final versions  All publicly released
---------------------------------------------------------------------------------
NetMeeting            1x, 2x                                All publicly released
---------------------------------------------------------------------------------
</TABLE>


          Special Notice Regarding Technology Upgrades and Amendments

All Licensed Software includes the indicated Technology Version only.  Microsoft
reserves the right to amend this Agreement in the event of public release of new
versions any of the Licensed Software (for example, release of IE 5.x).  In the
event that Microsoft elects to amend any of the terms and conditions of this
Agreement, upon release of a new Technology Version Microsoft will make
available through its http:/ieak.microsoft.com Web site (or any successor
                      ------------------------                           
thereto):

(1)  Identification of the new Technology Version;

(2)  An amendment to this Agreement ("Amendment"), setting forth the new terms
     and conditions that shall govern this Agreement;

(3)  Means for Company to "click accept" that Amendment.

Microsoft's notice regarding the Amendment will include notice (pursuant to
section 7 of the Agreement) that Microsoft will not renew the Agreement, absent
                                                ---                            
such Amendment, beyond its then current term.

*  Although Internet Explorer and Outlook Express comprise part of the operating
system of Windows 95, Windows 98 and Windows NT, certain versions of the
Technology are available as standalone software for the Windows 3.1, Macintosh
and Unix operating systems.

                                      -8-
<PAGE>
 
                                   EXHIBIT B
         MICROSOFT INTERNET EXPLORER LICENSE AND DISTRIBUTION AGREEMENT
                      Document Version 4.0, April 9, 1998

            IE Version 4.0 and IEAK Version 4.0 CUSTOMIZATION RIGHTS

ADDITIONAL DEFINITIONS:

(a) "Active Desktop" means the Channel Client feature of Microsoft's Internet
    Explorer version 4.0 software which supports "webcast," "push" or
    "broadcasts" of Content via the World Wide Web (the "Web").

(b) "Channel" means an aggregation of Content and advertising (if any) that is
    displayed or played, or available to be selected by an end user for display
    and/or play, by means of a Channel Client, and which may be further divided
    into sub-Channels.

(c) "Channel Client" means software that enables an End User to select and
    receive Channels in one or more display and/or audio elements, including
    software that is:  (i) an interactive application (such as a Web browser)
    that displays and/or plays Content within an application (or similar) window
    or directly upon a operating system desktop; and/or (ii) and animated and
    network-interactive screen saver application.

(d) "Channel Icon" means an icon or button which has an identifying logo and/or
    trademark and an integrated pointer/URL which may be pre-configured in the
    Internet Explorer Active Desktop user interface such that an end user, upon
    first starting up or using Active Desktop, will (if already connected to the
    Web) be able to link to an associated Channel.

(e) "Content" means data, text, audio, video, graphics, photographs, artwork and
    other technology and materials provided for use on Channels or Web sites.

(f) "IEAK" means a collection of tools that enable Company to perform limited
    customizations to the Licensed Software, such customizations being made in
    accordance with the on-line instructions provided in the IEAK application
    ("Instructions"), as amended from time to time.

(g) "License Key" means to 10-digit alpha numeric code provided by Microsoft
    that enables company to use the customization features of the IEAK.

(h) "Marketing affiliate" means a third party company which has contracted with
    COMPANY to produce a co-branded or "private labeled" Browsing Software or
    Email Client.

LICENSE GRANT:

Limited License Grant.  Subject to Company's continued compliance with all
---------------------                                                     
material terms of the Agreement and the terms of this Exhibit B, Microsoft
grants to Company a nonexclusive, 

                                      -9-
<PAGE>
 
limited worldwide, royalty-free license to customize the Licensed Software using
the IEAK in accordance with the IEAK Instructions. Company acknowledges and
agrees that its use of the IEAK to customize the Licensed Software requires the
rightful receipt from Microsoft of the "Standard Redistribution" license key
allocated to Company. Company agrees that it shall only use the IEAK and license
key in accordance with the Instructions. In the event the capabilities and/or
Instructions of the IEAK provide either more or fewer capabilities than the
customization rights granted in this Exhibit B, the customization rights set
forth in this Exhibit B shall govern.

1. Additional Customization Rights/Active Setup

Permitted Customizations/Active Setup.  For versions 4.x of Internet Explorer
-------------------------------------                                        
which support Active Setup, Company may use the IEAK to perform the any or all
of the following additional customizations:

   (a) Customize Browser title bar (says "Microsoft Internet Explorer" by
       default) only to add "provided by Company" at the end of the title.

   (b) Customize tool bar background bit map (watermark) that is used when not
       in high color mode.

   (c) Change default search page (default is home.microsoft.com/access/
                                              --------------------------
       allionone.asp).
       -------------  

   (d) Change default start page (default is home.microsoft.com).
                                             ------------------  

   (e) Change help "online support" page (defaults to point to microsoft.com).
                                                               -------------  

   (f) Add an unlimited number of pre-configured "favorites" entries (default is
       none).

   (g) Change Favorites hierarchy (with exception of "special folders" like
       "Channels")

   (h) Rename and/or customize Links (Todays' Links, Best of the Web, Today's
       News, etc.)

   (i) Disable and/or customize first time boot welcome page (after
       installation).

   (j) Customize Outlook Express info pane.

3. Additional Customization Rights/ISP Customization

Permitted Customizations/ISP Customization.  For versions 4.x of Internet
------------------------------------------                               
Explorer which support ISP Customization Company may use the IEAK to perform the
any or all of the following additional customizations:

                                      -10-
<PAGE>
 
   (a) Import Profile created by separately purchased Internet Connection
       Manager Administration Kit.

   (b) Change bitmap in Connection Manager dialog.

   (c) Pre-set the Proxy Server address.

   (d) Choose signup method (Internet Signup Server or Serverless Local) and
       customize required connection information.

   (e) For Outlook Express, set:
       . Incoming and outgoing mail servers
       . News server
       . Add custom LDAP servers

   (f) Add custom ILS server for NetMeeting if applicable.

4. Additional customization Rights/Channels

(a) Mandatory Customization/Selection of Pre-Configured Channels to Match Local
    ---------------------------------------------------------------------------
    Language and Region.  For versions 4.x of Internet Explorer which support
    -------------------                                                      
    Channels, Company shall use the IEAK to select the pre-configured Channels
    for the specific territory for which each and every Company-customized
    version of IE is targeted for distribution.  For example, if Company
    customizes separate versions of IE for distribution into territories A and
    B, Company shall use the IEAK to select the pre-configured default Channels
    for territory A for the version of IE Company creates for territory A, and
    shall use the IEAK to select the pre-configured default Channels for
    territory B for the version of IE Company creates for territory B.  If
    Company distributes a single version of IE into multiple territories,
    Company shall use the IEAK to select the pre-configured default Channels
    that are targeted to the single largest population in the combined
    territories in which Company distributes IE.  For the purpose of this
    paragraph, "territory" shall mean a language/country combination, such as
    German/Switzerland or French/Canada.

                                      -11-
<PAGE>
 
(b) Permitted Customizations/ISP Customization of Channels.  For versions 4.x of
    ------------------------------------------------------                      
    Internet Explorer which support Channels, Company may use the IEAK to
    perform the any or all of the following additional customizations with
    respect to Channels (as further illustrated in Attachment B-1):

   (1) Add a single Company Channel Icom to the topmost navigation level of the
       Internet Explorer Active Desktop Channel bar in the position below the
       Microsoft Channel Guide Icon. Said Icon may link either to Company or
       third party Channel available through Internet Explorer, provided that
       any trade names, trademarks, logos or brands displayed on the Channel
       Icon added by Company shall be limited to Company's mark or Company's
       Internet Product marks.

   (2) Add multiple "sub-channels" grouped underneath (at the second navigation
       level) the Company Channel Icon on the Internet Explorer Active Desktop
       channel bar, where each such sub-channel may be linked to Company or
       third-party Content accessible through Internet Explorer, and where each
       such sub-channel may use any branding selected by Company. In the case
       where sub-channels are grouped underneath a Company Channel Icon, the
       Company Channel is the only Channel which is individually recognized by
       IE; the sub-channels do not operate as separate standalone Channels by
       themselves (and cannot be subscribed directly using the IE 4.0 user
       interface without first accessing the Company Channel Icon).

   (3) configure the Company Channel added by Company to be "subscribed" by
       default, such that Company Channel Content and schedule information
       downloads to the end user's computer system hard disk automatically when
       the end user connects to the Internet and selects the "update" option.

   (4) Delete from the Internet Explorer Active Desktop channel bar any pre-
       configured Channel Icons that are developed or distributed by companies
       which compete directly with Company or Company's Marketing Affiliate(S),
       where such deleted Channels are to include only: (i) pre-configured
       Channels from other Internet access providers, (ii) pre-configured
       Channels which are produced by, or exclusively distributed by, direct
       competitors of Company or Company's Marketing Affiliates. Company may not
       delete a pre-configured Channel Icon that offers Content which is not
       directly competitive with Company or Company's Content but that may
       nonetheless compete for the end user's attention or interest with Content
       offered by Company.

                                      -12-
<PAGE>
 
(c) Development and Maintenance of advanced Internet Explorer Features in
    ---------------------------------------------------------------------
    Channels.  Company recognizes that customization of Channels is a
    --------                                                         
    supplemental right granted to Company pursuant to the Agreement.  In
    consideration for this supplemental right, Company agrees that for any
    Channel added pursuant to the Agreement.  In consideration for this
    supplemental right, company agrees that for any Channel added pursuant to
    this Exhibit B, Section 4, Company shall use reasonable commercial efforts
    to develop and maintain the customized Channel such that it demonstrates the
    advanced W3C-standard HTML features supported by Internet Explorer (such as
    Dynamic HTML) meets end user expectations of performance and frequency of
    update, and compares favorably, in Company's reasonable judgment, to
    Channels offered by other companies in Company's line of business.

5.  CO-MARKETING ACTIVITIES

Company shall participate in the following co-marketing activities:

   (a) Use the Logo in Company's packaging, advertising and promotional
       materials in accordance with the terms and guidelines in the Logo
       Agreement and as may be provided by Microsoft from time to time;

   (b) Display the "Get Microsoft Internet Explorer" link logo, separately
       licensed from Microsoft, on the home page for Company's Internet Product
       along with a hot link to www.microsoft.com/ie in accordance with the
                                --------------------                       
       guidelines set forth at ieak.microsoft.com/logo.asp#elogo, or any 
                                  ---------------------------------        
       successor thereof;

6.  ACCEPTANCE AND DISCLAIMER OF WARRANTY

(a) The IEAK is deemed accepted by Company

(b) Neither the Company nor any of its distributors or employees shall have any
    right to make any representation, warranty, or promise on behalf of
    Microsoft.

(c) THE IEAK IS PROVIDED TO COMPANY AS IS WITHOUT WARRANTY OF ANY KIND.  THE
    ENTIRE RISK AS TO THE RESULTS AND PERFORMANCE OF THE IEAK ARE ASSUMED BY
    COMPANY AND THE END-USER CUSTOMER.  MICROSOFT DISCLAIMS ALL WARRANTIES,
    EITHER EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO, IMPLIED WARRANTIES
    OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, TITLE AND NON-
    INFRINGEMENT

                                      -13-
<PAGE>
 
7. LIMITATION OF LIABILITY

IN NO EVENT SHALL MICROSOFT BE LIABLE FOR ANY DIRECT, CONSEQUENTIAL, INDIRECT,
INCIDENTAL, OR SPECIAL DAMAGES WHATSOEVER, INCLUDING WITHOUT LIMITATION, DAMAGES
FOR LOSS OF BUSINESS PROFITS, BUSINESS INTERRUPTION, LOSS OF BUSINESS
INFORMATION, AND THE LIKE, ARISING OUT OF THE USE OF INABILITY TO USE THE IEAK,
EVEN IF MICROSOFT HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.

8. EXPORT CONTROLS

Company acknowledges that the IEAK is subject to the export control laws and
regulations of the US, and any amendments thereof.  Company confirms that with
respect to the IEAK, it will not export or re-export it, directly or indirectly,
either to (i) any countries that are subject to US export restrictions
(currently including, but not necessarily limited to, Cuba, Iran, Iraq, Libya,
North Korea, Sudan, and Syria); (ii) any end user who Company knows or has
reason to know will utilize them in the design, development or production of
nuclear, chemical or biological weapons; or (iii) any end user who has been
prohibited from participating in the US export transactions by any federal
agency of the US government.  Company further acknowledge that the IEAK may
include technical data subject to export and re-export restrictions imposed by
US law.

9. TERMINATION

Upon termination of the Agreement or this Exhibit B for any reason, Company's
rights under this Exhibit B immediately terminate, and Company shall return to
Microsoft or destroy all full or partial copies of the IEAK in Company's
possession or under its control within ten (10) days following the termination
date.

                                      -14-
<PAGE>
 
                                 ATTACHMENT B-1

      Illustration of Channel Bar Navigation Hierarchy & Channel Placement

1. Channel Bar Topmost Navigation Level (visible on Active Desktop) sample
   configuration:

Channel
 Guide
-----------
Company
 Channel
-----------
MSN
-----------
MSNBC
-----------
Disney
-----------
PointCast
-----------
(others)
-----------

1. The Channel Guide always occupies the first position (at the top of the
   Channel Bar).  Company Channel may be inserted in the second position
   (thereby shifting other Channels down one position).  The Company Channel
   Icon is visible by default when Active Desktop is first installed.  With the
   exception of adding the Company Channel, all pre-configured Channels must
   remain on the Channel Bar in the order shipped in the IEAK for each target
   territory (or country/language combination).  End users are able to add,
   rearrange, and/or delete any Channels they wish after installing IE.

2. Channel Bar "sub-Channels" may be configured "under" a topmost level Category
   such that when a topmost level Category is clicked, the sub-Channel(s) are
   displayed.  Sub-Channels are not visible until the Category containing them
   is clicked.

                                      -15-