<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 4, 1997
REGISTRATION NO. 333-22669
================================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
PRE-EFFECTIVE
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
----------------------
EXCITE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C> <C>
CALIFORNIA 7379 77-0378215
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
----------------------
555 BROADWAY
REDWOOD CITY, CALIFORNIA 94063
(415) 568-6000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------------
ROBERT C. HOOD
EXECUTIVE VICE PRESIDENT, CHIEF ADMINISTRATIVE OFFICER AND CHIEF FINANCIAL
OFFICER
EXCITE, INC.
555 BROADWAY
REDWOOD CITY, CALIFORNIA 94063
(415) 568-6000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
----------------------
COPIES TO:
MARK C. STEVENS, ESQ.
JEFFREY R. VETTER, ESQ.
MICHAEL MCADAM, ESQ.
FENWICK & WEST LLP
TWO PALO ALTO SQUARE
PALO ALTO, CALIFORNIA 94306
(415) 494-0600
----------------------
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable
after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act") check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
===========================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED SHARE(1) PRICE(1) REGISTRATION FEE
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, no par value...... 2,645,000 $15.375(1) $40,666,875(1) $12,323.30(2)
- -----------------------------------------------------------------------------------------------------------
Common Stock, no par value...... 255,000 $11.9375(3) $3,044,063(3) $922.44(4)
- -----------------------------------------------------------------------------------------------------------
Total........................... 2,900,000 $13,245.74
===========================================================================================================
</TABLE>
(1) Estimated pursuant to Rule 457(c) solely for the purposes of calculating the
registration fee and based on the average of the high and low sales prices
of the Common Stock on the Nasdaq National Market on February 27, 1997.
(2) Previously paid.
(3) Computed on the basis of the offering price of the additional shares.
(4) In accordance with Rule 457(a), the amount of the additional filing fee was
estimated pursuant for Rule 457(c) for the purpose of calculating the
additional registration fee and based on the average of the high and low
sales prices of the Common Stock on the Nasdaq National Market on May 30,
1997.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED JUNE 4, 1997
LOGO
2,900,000 SHARES
COMMON STOCK
All of the 2,900,000 shares of Common Stock offered hereby are being sold
by Excite, Inc. ("Excite" or the "Company") in a public offering to selected
investors. On May 30, 1997, the last sale price of the Company's Common Stock,
as reported on the Nasdaq National Market, was $11.88 per share. See "Price
Range of Common Stock." The Company's Common Stock is traded on the Nasdaq
National Market under the symbol "XCIT."
----------------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 7.
----------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
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===============================================================================================
PRICE TO PROCEEDS TO
PUBLIC COMPANY(1)
<S> <C> <C>
- -----------------------------------------------------------------------------------------------
Per Share................................................ $ $
- -----------------------------------------------------------------------------------------------
Total.................................................... $ $
===============================================================================================
</TABLE>
(1) Before deducting expenses payable by the Company, estimated at $600,000.
----------------------
There can be no assurance that the Company will be successful in selling
any or all of the shares offered hereby. The Company has not fixed a minimum
number of shares to be sold pursuant to this offering. Therefore, the Company
may sell less than all of the shares offered hereby, which may significantly
reduce the amount of proceeds received by the Company.
The shares offered hereby are being issued and sold directly by the
Company. It is expected that payment for the shares sold pursuant hereto will be
made against delivery of certificates representing such shares and, subject to
any applicable waiting periods under the Hart-Scott-Rodino Antitrust
Improvements Act, in Palo Alto, California on or about June , 1997.
The date of this Prospectus is , 1997
<PAGE> 3
[PICTURES]
INFORMATION CONTAINED ON THE COMPANY'S WEB SITES SHALL NOT BE DEEMED TO
CONSTITUTE A PART OF THIS PROSPECTUS.
<PAGE> 4
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY
SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES OR AN OFFER
TO, OR A SOLICITATION OF, ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR
SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR
THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
THE DATE HEREOF.
----------------------
TABLE OF CONTENTS
<TABLE>
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PAGE
----
<S> <C>
Summary................................................................................ 4
Risk Factors........................................................................... 7
Use of Proceeds........................................................................ 19
Dividend Policy........................................................................ 19
Price Range of Common Stock............................................................ 19
Capitalization......................................................................... 20
Selected Consolidated Financial Data................................................... 21
Management's Discussion and Analysis of Financial Condition and Results of
Operations........................................................................... 23
Business............................................................................... 33
Management............................................................................. 47
Certain Transactions................................................................... 55
Principal Shareholders................................................................. 59
Description of Capital Stock........................................................... 61
Shares Eligible for Future Sale........................................................ 64
Plan of Distribution................................................................... 65
Legal Matters.......................................................................... 65
Experts................................................................................ 65
Additional Information................................................................. 66
Index to Consolidated Financial Statements............................................. F-1
</TABLE>
----------------------
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company can be inspected and
copied at the public reference facilities of the Commission located at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the Commission's Regional Offices at Seven World Trade Center, 13th Floor, New
York, New York 10048, and Northwest Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of such materials also can be
obtained form the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Judiciary Plaza, Washington, D.C. 20549 at prescribed rates. In
addition, the Commission maintains a World Wide Web site that contains reports,
proxy statements and other information regarding registrants that file
electronically with the Commission. The address of the Commission's Web site is
http://www.sec.gov. The Company's Common Stock is quoted for trading on the
Nasdaq National Market and reports, proxy statements and other information
concerning the Company may also be inspected at the offices of The Nasdaq Stock
Market, Inc., 1735 K Street, N.W., Washington, D.C. 20006.
Excite, Excite Search, Excite Reviews, the Excite logo, Excite City.Net,
City.Net, Excite Direct, ExciteSeeing Tours and the Magellan Internet Guide are
service marks of the Company. All other trademarks, service marks or trade names
referred to in this Prospectus are the property of their respective owners.
3
<PAGE> 5
SUMMARY
This Prospectus contains forward-looking statements which involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including those set forth under "Risk Factors" and elsewhere in this Prospectus.
The following summary is qualified in its entirety by the more detailed
information, including "Risk Factors," and consolidated financial statements and
notes thereto, appearing elsewhere in this Prospectus.
Except as otherwise noted, all information in this Prospectus assumes (i)
consummation of the acquisition by the Company of certain assets relating to
American Online, Inc.'s ("AOL") WebCrawler search and retrieval service (the
"WebCrawler Assets") as of December 1, 1996 and (ii) sale of all of the shares
offered hereby. Unless the context otherwise requires, the term "Company" or
"Excite" refers to Excite, Inc. and its subsidiaries.
THE COMPANY
The Excite Network, which includes the Excite and WebCrawler brands,
provides a gateway to the World Wide Web (the "Web") that organizes, aggregates
and delivers information to meet the needs of individual consumers. Designed to
help consumers make sense of the Web, the Excite Network contains a suite of
specialized information services, organized under 14 topical channels, which
combine proprietary search technology, editorial Web reviews, aggregated content
from third parties, bulletin boards and chat and personalization capabilities.
The Company's goal is to be the Web's leading branded media network with the
largest consumer reach, thereby providing an efficient means of advertising on
the Web. To this end, the Excite Network serves as a home base where consumers
can gather, interact and return to during each Web experience. For the most
recent month reported, February 1997, PC Meter, an independent Web tracking
service, estimated that the Excite Network was used by 44% of online households
at least once during this month, which was more than any other service reported
by PC Meter. For the month of March 1997, the Company had an average of
approximately 14.6 million page views per day (including page views attributable
to the WebCrawler Assets).
By offering a network of complementary services, the Company seeks to
increase the amount of time consumers spend using the Excite Network. Services
on the Excite Network include Excite Search and WebCrawler Search, which help
consumers search a database index of Web content to find relevant information;
Excite Reviews and WebCrawler Select, which contain professionally-authored
reviews of Web sites; Excite City.Net, a travel and destination guide providing
information on over 4,300 cities and regions worldwide; Excite Live!, a
personalized information service which delivers stock quotes, sports scores,
news and other content to consumers based on their personal profile; Excite
NewsTracker, a personalized news clipping service which scans over 300
newspapers and magazines; ExciteSeeing Tours, a Web-based "how-to" guide; Excite
Talk!, a Web community environment which includes bulletin boards and chat where
consumers can discuss topics of mutual interest; and Excite Reference, an online
reference service which provides consumers with an interface into multiple
information services such as yellow pages, white pages, email finders, people
finders, maps and shareware.
In April 1997, the Company launched a channels-based format for its service
and content to provide consumers with a more intuitive interface that reflects
the way they navigate through other forms of media and enables advertisers to
more effectively reach target consumers. The Excite brand includes 14 channels
of topical interest such as Arts & Entertainment, Sports and Business &
Investing, among others. The entire suite of Excite services can be accessed
from each channel. By combining existing services with specialized information
from leading content providers, Excite provides channel specific content
including topical news, directories, bulletin boards, chat and search
capabilities.
A key element of the Company's strategy is to build traffic by increasing
the number of entry points to the Excite Network. The Company believes that
frequent consumer exposure to its network of services and brands will lead to
increased levels of consumer loyalty and retention. To this end, the Company has
established premier positions on Web sites operated by Microsoft Corporation
("Microsoft")and Netscape Communica-
4
<PAGE> 6
tions Corporation ("Netscape"), and has entered into an exclusive co-branding
agreement with AOL, the leading online service provider. There also exist
hundreds of thousands of hypertext links from across the Web pointing to the
Excite Network, and the Company has established a number of hardware
distribution relationships with companies such as Apple Computer, Inc.
("Apple"), Sega Enterprises Ltd. ("Sega") and Web TV Networks Inc. ("Web TV").
In addition to distribution arrangements, the Company seeks to increase consumer
awareness of both its Excite brand and WebCrawler brand, through advertising and
marketing campaigns. The Company launched a national brand building campaign
centered around the Jimi Hendrix song "Are You Experienced?" and incurred
expenses of $5.0 million for this campaign during the fourth quarter of 1996.
The Excite Network's heavy consumer traffic, specialized information
services, channel-based content, targeting technology and direct sales
organization offer advertisers an efficient method of advertising on the Web.
The Company believes that it has the strongest Web advertising sales
organization, consisting of 32 professionals, who educate, guide and advise
advertisers on optimizing their Web advertising purchases. Based on the PC Meter
data for February 1997, a single monthly advertising buy on the Excite Network
gives advertisers the potential to reach nearly half of all home-based Web
consumers. Excite's specialized services and targeting technology also enable
advertisers to target the mass audience of Web consumers or to tailor an
advertising strategy for specific affinity groups or for consumers possessing
certain demographic traits or for consumers requesting information relevant to
certain advertisers. The Company has also developed proprietary tools to measure
the effectiveness of and provide meaningful feedback with respect to
advertisements on the Excite Network.
The Company's address is 555 Broadway, Redwood City, California 94063, and
its telephone number is (415) 568-6000.
5
<PAGE> 7
THE OFFERING
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<S> <C>
Common Stock Offered............................. 2,900,000 shares
Securities Outstanding after the Offering........ 15,247,397 shares of Common Stock(1),
1,950,000 shares of Convertible
Preferred Stock (convertible into Common
Stock on a one-for-one basis)(2)
Use of Proceeds.................................. For general corporate purposes, including
working capital, which may include
strategic acquisitions of complementary
products, businesses and technologies.
See "Use of Proceeds."
Nasdaq National Market symbol.................... XCIT
</TABLE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(In thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------ ------------------
1994(3) 1995 1996 1996 1997
------- ------- -------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Total revenues.............................. $ 293 $ 953 $ 14,757 $ 1,374 $ 7,515
Gross profit................................ 205 725 10,608 985 2,724
Operating loss.............................. (646) (6,390) (44,118) (5,646) (8,895)
Net loss.................................... $ (650) $(6,435) $(43,117) $(5,644) $(8,784)
Net loss per share.......................... $ (0.06) $ (0.58) $ (3.65) $ (0.50) $ (0.72)
Shares used in computing net loss per
share(4).................................. 10,576 11,070 11,818 11,341 12,214
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1997
--------------------------
ACTUAL AS ADJUSTED(5)
------- --------------
(UNAUDITED)
<S> <C> <C>
BALANCE SHEET DATA:
Working capital..................................................... $ 1,636 $ 35,488
Total assets........................................................ 40,747 74,599
Long-term obligations............................................... 3,889 3,889
Total shareholders' equity.......................................... 17,023 50,875
</TABLE>
- ---------------
(1) Based on shares of Common Stock outstanding as of March 31, 1997. Excludes
(i) 3,608,046 shares of Common Stock issuable upon the exercise of options
outstanding as of March 31, 1997 (which number includes options to purchase
approximately 939,748 shares of Common Stock granted subject to shareholder
approval) at a weighted average exercise price of approximately $5.18 per
share, (ii) an aggregate of 297,500 shares of Common Stock reserved for
future grants or sale under the Company's 1996 Directors Stock Option Plan
and 1996 Employee Stock Purchase Plan, (iii) an additional 2,315,252 shares
of Common Stock reserved for future grants or sale under the Company's 1996
Equity Incentive Plan (the "1996 Plan"), subject to shareholder approval,
(iv) 9,451 shares of Common Stock issuable upon the exercise of outstanding
warrants to purchase Common Stock, (v) 650,000 shares of Common Stock
issuable upon conversion of Convertible Preferred Stock issuable upon the
exercise of a warrant (the "AOL Warrant") and (vi) 680,330 shares of Common
Stock issuable upon conversion of Convertible Preferred Stock issuable upon
exercise by AOL of its right to exchange the 680,330 shares of Common Stock
owned by AOL for an equivalent number of shares of Convertible Preferred
Stock, which exchange right was granted in connection with the acquisition
of the WebCrawler Assets and the entering into of a distribution agreement
(the "Exchange Right").
(2) Excludes (i) 680,330 shares of Convertible Preferred Stock that will be
issued to AOL after exercise of the Exchange Right and (ii) 650,000 shares
of Convertible Preferred Stock issuable upon exercise of the AOL Warrant.
See "Certain Transactions" and "Description of Capital Stock."
(3) The year ended December 31, 1994 includes the results of operations from
Inception to December 31, 1994. Inception date is June 9, 1994 for Excite
and December 7, 1993 for McKinley. The operating results from December 7,
1993 through December 31, 1993 of The McKinley Group, Inc. ("McKinley"),
which was acquired by the Company in August 1996, were immaterial.
(4) See Note 1 of Notes to Consolidated Financial Statements for an explanation
of shares used in computing net loss per share.
(5) Adjusted to reflect the closing of the sale of the 2,900,000 shares of
Common Stock offered hereby at an assumed public offering price of $11.88
per share, and the application of the estimated net proceeds therefrom. See
"Use of Proceeds" and "Capitalization."
6
<PAGE> 8
RISK FACTORS
This Prospectus contains forward-looking statements which involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including those set forth in the following risk factors and elsewhere in this
Prospectus. In addition to the other information in this Prospectus, the
following risk factors should be considered carefully in evaluating the Company
and its business before purchasing the Common Stock offered by this Prospectus.
EXTREMELY LIMITED OPERATING HISTORY; ACCUMULATED DEFICIT AND ANTICIPATION OF
CONTINUED LOSSES
The Company was founded in June 1994 and commenced offering Excite services
in October 1995. McKinley, which was acquired by the Company in August 1996,
originally began operations in December 1993 and generated only limited revenues
prior to 1996. Accordingly, the Company has an extremely limited operating
history upon which an evaluation of the Company and its current business can be
based. The Company's business must be considered in light of the risks, expenses
and problems frequently encountered by companies in their early stage of
development, particularly companies in new and rapidly evolving markets such as
the Web and Web-based advertising markets. Specifically, such risks include,
without limitation, the failure of the Company to maintain premier positions on
certain high traffic Web access points such as those maintained by AOL,
Microsoft and Netscape, the failure of the Company to anticipate and adapt to a
developing market, the rejection of the Company's services by Web consumers
and/or advertisers, the inability of the Company to maintain and increase the
levels of traffic on the Excite Network, development of equal or superior
services or products by competitors, the failure of the market to adopt the Web
as an advertising medium, reductions in market prices for Web-based advertising,
the inability of the Company to effectively integrate the technology and
operations of The McKinley Group, Inc. ("McKinley"), the WebCrawler Assets or
any other subsequently acquired businesses or technologies with its operations,
and the inability to identify, attract, retain and motivate qualified personnel.
There can be no assurance that the Company will be successful in addressing such
risks. The Company has achieved only limited revenues to date, has incurred
significant operating losses since inception and as of March 31, 1997, the
Company had an accumulated deficit of approximately $59.0 million. The Company
has also experienced significant increases in operating losses on an annual and
quarterly basis since inception. Although the Company has experienced
significant revenue growth during 1996, there can be no assurance that this
growth rate will be sustained or that revenues will continue to grow. There can
also be no assurance that any revenue growth that the Company experiences will
be indicative of future operating results. In addition, the Company has
increased, and plans to significantly increase further, its operating expenses
in order to increase its sales and marketing efforts, fund greater levels of
product development and increase its general and administrative costs to support
the enlarged organization. To the extent that revenues do not grow at
anticipated rates or that increases in such operating expenses precede or are
not subsequently followed by commensurate increases in revenues, or that the
Company is unable to adjust operating expense levels accordingly, the Company's
business, results of operations and financial condition will be materially and
adversely affected. Given the level of planned expenditures, the Company
anticipates that it will continue to incur operating losses through at least the
end of 1997. The extent of these losses will be contingent on the amount of
growth in the Company's advertising revenues which in turn depends on the
factors noted above. Although the Company does not anticipate that its operating
loss will continue to increase, there can be no assurance that operating losses
will not increase in the future or that the Company will ever achieve or sustain
profitability.
The Company intends to fund these operating losses with a portion of the
net proceeds of this offering and has also obtained a $6.0 million line of
credit with a bank. If the net proceeds of this offering together with its bank
line of credit and revenues are insufficient to fund the Company's operations or
if anticipated operating results are not achieved, the Company may need to seek
additional financing. See "-- Future Capital Needs; Uncertainty of Additional
Financing" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
7
<PAGE> 9
POTENTIAL FLUCTUATIONS IN QUARTERLY RESULTS; UNPREDICTABILITY OF FUTURE REVENUES
As a result of the Company's extremely limited operating history, the
Company has no meaningful historical financial data upon which to base planned
operating expenses. Accordingly, the Company's expense levels are based in part
on its expectations as to future advertising revenues and to a large extent are
fixed. There can be no assurance that the Company will be able to accurately
predict the levels of future advertising revenues, particularly in light of the
intense competition for the sale of Web-based advertisements and the uncertainty
as to the viability of the Web as an advertising medium, and the failure to do
so would have a materially adverse effect on the Company's business, results of
operations and financial condition. In addition, the Company derives
substantially all of its revenues from the sale of advertising pursuant to
short-term advertising contracts. As a result, quarterly sales and operating
results are entirely dependent on advertising revenues received within the
quarter, which are difficult to forecast, and are also dependent on the
Company's ability to adjust spending in a timely manner to compensate for any
unexpected revenue shortfall. The cancellation or deferral of a small number of
existing advertising contracts or the failure to obtain new advertising
contracts in any quarter could materially and adversely affect the Company's
business, results of operations and financial condition for such quarter.
Furthermore, the Company derives advertising revenue based on the amount of
traffic, or page views, on the Excite Network. Accordingly, any significant
shortfall of traffic on the Excite Network in relation to the Company's
expectations or the expectations of existing or potential advertisers, would
have an immediate material adverse effect on the Company's business, results of
operations and financial condition. In addition, certain of the Company's
short-term advertising contracts require the Company to guarantee a minimum
number of impressions. In the event that these minimum impressions are not met,
the Company could be required to refund a portion of the fees from such
advertisers. If the Company fails to meet this guaranteed number of impressions,
the ability of the Company to sell advertising to new or existing advertisers
could be adversely affected. See "-- Reliance on Advertising Revenues" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
The Company's operating results have varied on a quarterly basis during its
limited operating history and the Company expects to experience significant
fluctuations in future quarterly operating results. Such fluctuations have been
and may in the future be caused by numerous factors, many of which are outside
the Company's control, including, without limitation, specific economic
conditions relating to the Internet and the Web, usage of the Web, demand for
advertising on the Excite Network as well as demand for Web-based advertising in
general, changes in advertising rates as a result of competition or otherwise,
seasonal trends in advertising sales, the advertising budgeting cycles of
advertisers, incurrence of charges in connection with the Company's distribution
relationships with Netscape, AOL and other Internet service providers ("ISPs")
and online service providers ("OSPs") or other third parties, demand for the
Company's services, incurrence of costs relating to acquisitions of businesses
or technologies, introduction or enhancement of services by the Company and its
competitors, market acceptance of new services, delays in the introduction of
services or enhancements by the Company or its competitors, changes in the
Company's pricing policies or those of its competitors, mix of types of
advertisements sold, such as the amount of targeted advertising sold as a
percentage of total advertising sold, capacity constraints and dependencies on
computer infrastructure and general economic conditions. In order to promote and
maintain awareness of the Company's brands, the Company has in the past and may
in the future significantly increase its advertising and/or promotion budgets
for a particular quarter which could materially and adversely affect the
Company's business, results of operations and financial condition for such
period. As a strategic response to a changing competitive environment, the
Company may elect from time to time to make certain other pricing, service or
marketing decisions or acquisitions that could have a material adverse effect on
the Company's business, results of operations and financial condition. As a
result, the Company believes that period-to-period comparisons of its results of
operations will not necessarily be meaningful and should not be relied upon as
an indication of future performance. Due to all of the foregoing factors, it is
likely that in some future quarter or quarters the Company's operating results
will be below the expectations of public market analysts and investors. In such
event, the price of the Company's Common Stock would be materially and adversely
affected. See "-- Volatility of Stock Price" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
8
<PAGE> 10
DEPENDENCE ON NETSCAPE AND AOL
Under its new Premier Provider Agreement with Netscape, the Company's
Excite services are designated as one of four "Premier Providers" of search and
navigation services accessible from the Netscape "Net Search" page. The Company
has also entered into an agreement with Netscape pursuant to which the Company's
WebCrawler brand is designated as one of many "Marquee Providers" of search and
navigation services which are also accessible from the "Net Search" page. The
Company believes that a substantial portion of its aggregate historical user
traffic is attributable to Netscape. The Company believes that it will continue
to be substantially dependent on its relationship with Netscape for a
significant percentage of its traffic. These agreements provide that the
"Premier Provider" and "Marquee Provider" status will be maintained until April
30, 1998, in exchange for which the Company is committed to make minimum
aggregate payments of $8.25 million in cash and advertising services over the
one-year term of the agreements. See Notes 12 and 13 to Notes to Consolidated
Financial Statements. If the Company were not able to enter into replacement
agreements with Netscape with respect to its "Premier Provider" or "Marquee
Provider" arrangements at the end of the term, the Excite Network could lose a
significant portion of its traffic, and as a result, advertising revenues would
be materially and adversely affected. In addition, if any replacement agreements
with Netscape are on materially worse terms than those of the Company's current
"Premier Provider" or "Marquee Provider" Agreements, there would be a material
adverse effect on the Company's business, results of operations and financial
condition.
The Company has also entered into a five-year distribution agreement with
AOL pursuant to which a co-branded version of the Excite search and directory
service is designated as the exclusive Web search and retrieval service for AOL
for at least a two year period. Pursuant to this agreement, the Company and AOL
will share advertising revenues attributable to the co-branded service hosted on
AOL. After the expiration of this initial two year exclusivity period, the
parties can extend the exclusive arrangement only by mutual agreement. If the
exclusivity period does not extend beyond the initial two year term, the
co-branded service would become the "default" search and directory service on
AOL, however, AOL could enter into a strategic relationship with a competitor of
the Company or offer its own competing services. In such an event, the amount of
the Company's advertising revenues could be materially and adversely affected.
In addition, if the Company fails to satisfy certain technical, product feature
and editorial criteria during the term of the agreement, if the Company and AOL
fail to renew this agreement upon the expiration of the five year term, or if
any renewal is on materially worse terms than the initial agreement with AOL,
there could be a material adverse effect on the Company's business, results of
operations and financial condition. As a result of its implementation of a
flat-rate pricing program, there have been numerous reports in the press and
potential litigation regarding, among other things, AOL's capacity to handle a
large number of subscribers. There can be no assurance that AOL will not
experience a decline in the number of its subscribers as a result of these
reports or as a result of the problems reported. The Company's operating results
could be adversely affected if AOL, for any reason, were to lose significant
market share, experience a significant decrease in the number of its
subscribers, or a significant decrease in the number of its subscribers
utilizing AOL for their Web search and retrieval needs. In addition, any decline
in the number of AOL subscribers could adversely affect the amount of traffic on
the Excite Network. See "-- Acquisition Strategy; Integration of Past and Future
Acquisitions," "Business -- Strategic Alliances," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Certain
Transactions."
RELIANCE ON ADVERTISING REVENUES
There is a lack of proven business models for companies like Excite which
rely substantially upon the sale of advertisements on the Web. The Company's
current business model, which evolves as the Web develops, is based on deriving
substantially all of its revenues from selling advertising space on its network
as consumers utilize the Company's services for their Web search and retrieval
needs. A majority of the Company's advertising customers purchase advertisements
on a short-term basis. There can be no assurance that current advertisers will
continue or increase the level of, or that potential new advertisers will
purchase, advertisements on the Excite Network. The Company's ability to
generate significant advertising revenues will depend, among other things, on
advertisers' acceptance of the Web as an effective and sustainable advertising
medium, the
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development of a large base of users of the Company's services possessing
demographic characteristics attractive to advertisers and the ability of the
Company to develop and update effective advertising delivery and measurement
systems. The Company believes that establishing and maintaining the Excite and
WebCrawler brands is a critical aspect of developing a large user base and that
the importance of brand recognition will increase as competition increases. In
addition, there is intense competition in the sale of advertising on the Web,
resulting in a wide range of rates quoted and a variety of pricing models
offered by different vendors for a variety of advertising services which makes
it difficult to project future levels of advertising revenues and rates. It is
also difficult to predict which pricing models will be adopted by the industry
or advertisers. For example, advertising rates based on the number of "click
throughs" from the Company's network to the advertiser's pages, instead of rates
based solely on the number of impressions, would materially adversely affect the
Company's revenues. Moreover, "filter" software programs that limit or remove
advertising from a Web user's desktop are available. Widespread adoption of such
software by users could have a material adverse effect upon the viability of
advertising on the Web. Accordingly, there can be no assurance that the Company
will be successful in generating significant future advertising revenues, and a
failure to do so would have a material adverse effect on the Company's business,
results of operations and financial condition. See "-- Developing Market;
Validation of the Web as an Effective Advertising Medium," "-- Intense
Competition," "-- Technological Change; Dependence on New and Enhanced Services;
Risk of Delays," "Business -- Industry Background" and "-- Advertising and
Sales."
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FINANCING
The Company currently anticipates that the net proceeds of this offering,
together with its bank line of credit and available funds will be sufficient to
meet its anticipated needs for working capital, capital expenditures and
business expansion for at least the next 12 months. Thereafter, the Company may
need to raise additional funds. The Company may need to raise additional funds
sooner in order to fund more rapid expansion, to develop new or enhanced
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 the Company will be reduced,
shareholders may experience additional dilution and such securities may have
rights, preferences or privileges senior to those of the holders of the
Company's Common Stock. There can be no assurance that additional financing will
be available on terms favorable to the Company, or at all. If adequate funds are
not available or are not available on acceptable terms, the Company may not be
able to fund its expansion, take advantage of unanticipated acquisition
opportunities, develop or enhance services or products or respond to competitive
pressures. Such inability could have a material adverse effect on the Company's
business, results of operations and financial condition. See "Use of Proceeds"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
ACQUISITION STRATEGY; INTEGRATION OF PAST AND FUTURE ACQUISITIONS
The Company has in the past and may, in the future, acquire businesses,
technologies, services, product lines, content databases, or access to content
databases that are complementary to the Company's business. In August 1996, the
Company completed the acquisition of McKinley and in March 1997, the Company
closed the acquisition of the WebCrawler Assets from AOL (the "Acquisition").
Although the Company believes that its previous acquisitions were in the
best interests of the Company and its shareholders, acquisitions involve a
number of special risks. For example, the assimilation of McKinley's and the
Company's operations required, among other things, the integration of service
offerings, coordination of the research and development and sales and marketing
efforts of the two companies, the assumption by the Company of approximately
$10.0 million in liabilities, the addition of approximately 50 personnel and the
distraction of the Company's management from the day-to-day business of the
Company. The Company could face similar integration issues with respect to the
Acquisition. There can also be no assurance that a given acquisition, if
consummated, would not have a material adverse effect on the Company's business,
results of operations and financial condition. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
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DEVELOPING MARKET; VALIDATION OF THE WEB AS AN EFFECTIVE ADVERTISING MEDIUM
The market for the Company's services has recently begun to develop, is
rapidly evolving and is characterized by an increasing number of market entrants
who have introduced or developed services and products for use on the Web or who
seek to derive significant revenues from the sale of advertisements on the Web.
As a result, the Company's mix of services and advertising packages may undergo
substantial changes as the Company reacts to competitive and other developments
in the overall Web market. The Company is highly dependent upon the increased
use of the Web for information, publication, distribution and commerce. In
particular, the Web is an unproven medium for advertising supported services.
Accordingly, the Company's future operating results will depend substantially
upon the increased use of the Web for information, publication, distribution and
commerce and the emergence of the Web as an effective advertising medium. Many
of the Company's advertisers have only limited experience with the Web as an
advertising medium, have not yet devoted a significant portion of their
advertising expenditures to Web-based advertising, and may not find such
advertising to be effective for promoting their products and services relative
to traditional print and broadcast media. For instance, advertisers of consumer
products have not yet engaged in significant advertising on the Web and may not
do so in the future. No standards have been widely accepted for the measurement
of the effectiveness of Web-based advertising, and there can be no assurance
that such standards will develop sufficiently to support the Web as an effective
advertising medium. Moreover, critical issues concerning the commercial use of
the Web (including security, reliability, cost, ease of use, access, quality of
service and acceptance of advertising) remain unresolved and may impact the
growth of Web use or the placement of advertisements on the Web. If widespread
commercial use of the Web does not develop, or if the Web does not develop as an
effective advertising medium, the Company's business, results of operations and
financial condition will be materially and adversely affected. See "-- Reliance
on Advertising Revenues," "-- Risk of Capacity Constraints; Dependence on
Computer Infrastructure" and "-- Dependence on the Web Infrastructure."
INTENSE COMPETITION
The market for Web advertising and Web search and retrieval services is
intensely competitive. The Company believes that the principal competitive
factors in these markets are name recognition, amount of user traffic, pricing,
performance, ease of use and functionality. The Company's primary competitors
are Web search and retrieval companies such as Infoseek Corporation, Lycos,
Inc., and Yahoo!, Inc. and specific search and retrieval services and products
offered by other companies, including Digital Equipment Corporation's Alta
Vista, HotWired Venture's and Inktomi's HotBot, and OpenText. The Company also
competes indirectly with Web content broadcasting services, such as The
PointCast Network's PointCast, and with services from other database vendors,
such as Lexis/Nexis, Dialog and other companies that offer information search
and retrieval capabilities with their core database products. In the future, the
Company may encounter competition from ISPs, OSPs, Web site operators, providers
of Web browser software (such as Netscape or Microsoft) and other Internet
services and products that incorporate search and retrieval features into their
offerings, whether through internal development or by acquisition of one or more
of the Company's direct competitors.
In addition, the Company also competes with ISPs, OSPs, Web browsers and
other Web content providers for the sale of advertisements. The Company believes
that the number of companies relying on fees from Web-based advertising has
increased substantially during the past year. Accordingly, the Company may face
increased pricing pressure for the sale of advertisements on its network, which
would have a material adverse effect on the Company's business, results of
operations and financial condition. Companies offering advertising-supported
services on the Web have also begun to compete with other providers of Web
content and services for user traffic and the number of page views on their Web
sites. As a result, many providers of Web services have been entering into
distribution arrangements, co-branding arrangements, content arrangements and
other strategic partnering arrangements with ISPs, OSPs, Web browsers, operators
of high traffic Web sites and other businesses in an attempt to increase traffic
and page views, and thereby making their Web sites more attractive to Web
advertisers. To the extent that direct competitors or other Web site operators
are able to enter into successful strategic relationships, these competitors and
Web sites could experience
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increases in traffic and page views, which could have the effect of making these
Web sites appear more attractive to advertisers, which could materially and
adversely affect the amount of advertisements sold on the Company's network and
the Company's business, results of operations and financial condition would be
materially and adversely affected.
Many of the Company's existing competitors, as well as a number of
potential new competitors, have longer operating histories in the Web market,
greater name recognition, larger customer bases and databases and significantly
greater financial, technical and marketing resources than the Company. Such
competitors may be able to undertake more extensive marketing campaigns, adopt
more aggressive pricing policies and make more attractive offers to potential
employees, distribution partners, advertisers and content providers. Further,
there can be no assurance that the Company's competitors will not develop Web
search and retrieval services that are equal or superior to those of the Company
or that achieve greater market acceptance than the Company's offerings in the
area of name recognition, performance, ease of use and functionality. There can
also be no assurance that ISPs, OSPs, Web browsers and other Web content
providers will not be perceived by advertisers as having more desirable Web
sites for placement of advertisements. In addition, a number of the Company's
current advertising customers and strategic partners also have established
collaborative relationships with certain of the Company's competitors and a
number of the Company's competitors have established collaborative relationships
with ISPs, OSPs and other Web content providers. Accordingly, there can be no
assurance that the Company will be able to retain a customer base of
advertisers, maintain or increase traffic on its network, that competitors will
not experience greater growth in traffic than the Company as a result of such
relationships, which could have the effect of making their Web sites more
attractive to advertisers or that strategic partners will not sever or will
elect to renew their agreements with the Company. There can also be no assurance
that the Company will be able to compete successfully against its current or
future competitors or that competition will not have a material adverse effect
on the Company's business, results of operations and financial condition.
The Web, in general, and the Company, specifically, also must compete with
traditional advertising media such as print, radio and television for a share of
advertisers' total advertising budgets. To the extent that the Web is not
perceived as an effective advertising medium, advertisers may be reluctant to
devote a significant portion of their advertising budget to the Web. See
"-- Reliance on Advertising Revenues," "-- Developing Market; Validation of the
Web as an Effective Advertising Medium" and "Business -- Competition."
TECHNOLOGICAL CHANGE; DEPENDENCE ON NEW AND ENHANCED SERVICES; RISK OF DELAYS
The market in which the Company competes is characterized by rapidly
changing technology, evolving industry standards, frequent new service and
product announcements, introductions and enhancements and changing customer
demands. These market characteristics are exacerbated by the emerging nature of
the Web and the apparent need of companies from a multitude of industries to
offer Web-based products and services. Accordingly, the Company's future success
will depend on its ability to adapt to rapidly changing technologies, its
ability to adapt its services to evolving industry standards and its ability to
continually improve the performance, features and reliability of its network in
response to both evolving demands of the marketplace and competitive service and
product offerings. The failure of the Company to adapt to such changes and
evolution would have a materially adverse effect on the Company's business,
results of operations and financial condition.
Because the attractiveness of the Excite Network to advertisers is based
substantially upon the amount of traffic on the Excite Network, broad acceptance
of the Excite Network by consumers is critical to the Company's future success.
The Company's business model contemplates offering a variety of Web-related
services. Some of these services have been recently introduced, including its
Excite Live!, Excite NewsTracker, ExciteSeeing Tours and Excite Reference
services. Failure of the Company to successfully design, develop, test,
introduce and market such new services or the failure of the Company's recently
introduced services to achieve market acceptance could result in reduced traffic
on the Excite Network. Furthermore, there can be no assurance that the Company
will not experience difficulties that could delay or prevent the successful
design, development, testing, introduction or marketing of these services, or
that its new
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services and enhancements will adequately meet the requirements of the
marketplace and achieve any degree of significant market acceptance.
Furthermore, existing services or new releases by the Company, whether improved
versions of existing services or introductions of new services, may contain
undetected errors that require significant design modifications, resulting in a
loss of consumer confidence and consumer support. Delays in the commencement of
or errors contained in new services and enhancements may result in customer
dissatisfaction and delay or loss of advertising revenue. If the Company is
unable, for technological or other reasons, to develop and introduce new
services or enhancements in a timely manner in accordance with its business
model or in response to changing market conditions or consumer requirements, or
if the recently introduced services or enhancements contain errors or do not
achieve a significant degree of market acceptance, the Company's business,
results of operations and financial condition would be materially and adversely
affected.
MANAGEMENT OF GROWTH
The rapid execution necessary for the Company to successfully offer
services and implement its business plan requires an effective planning and
management process. The Company's rapid growth has placed, and is expected to
continue to place, a significant strain on the Company's managerial, operational
and financial resources. As of March 31, 1997, the Company had grown to 206
employees from 38 employees at March 1, 1996. As a result of the acquisition of
McKinley by the Company in August 1996, the Company added approximately 50
employees. The Company expects that the number of its employees will
significantly increase over the next 12 months. In addition, the Company has
recently hired, and expects to continue to hire, a number of new executive
officers. The Company's financial and management controls, reporting systems and
procedures are also very limited. Although the Company has implemented controls,
systems and procedures, it has limited experience with such controls, systems
and procedures. The Company still must improve its financial and management
controls, reporting systems and procedures and expand, train and manage its work
force. Further, the Company is required to manage multiple relationships with
various customers, strategic partners and other third parties. These
requirements will be exacerbated in the event of further growth in the Company
or in the number of its third-party relationships. Although the Company believes
that it has made adequate allowances for the costs and risks associated with
this expansion, there can be no assurance that the Company's systems, procedures
or controls will be adequate to support the Company's operations or that Company
management will be able to achieve the rapid execution necessary to successfully
offer its services and implement its business plan. The Company's future
operating results will also depend on its ability to expand its sales and
marketing organization and expand its support organization commensurate with the
growth of its business and the Web. If the Company is unable to manage growth
effectively, the Company's business, results of operations and financial
condition will be materially and adversely affected. See "Business -- Employees"
and "Management."
DEPENDENCE ON THIRD-PARTY RELATIONSHIPS
The Company is currently and will be in the future significantly dependent
on a number of third-party relationships to create traffic and provide content
on the Excite Network, and to make it more attractive to advertisers and
consumers. These relationships include arrangements relating to the positioning
of the Excite Network on Web browsers such as those offered by Netscape and
Microsoft and agreements with ISPs and OSPs such as AOL and Microsoft and also
include arrangements for providing content for certain services offered by the
Company. The Company is also generally dependent on other Web site operators
that provide links to the Excite Network. Most of these arrangements do not
require future minimum commitments to use the Company's services, to provide
access or links to the Excite Network or to provide content to the Company, are
not exclusive and are short-term or may be terminated at the convenience of the
other party. Moreover, the Company does not have agreements with many Web site
operators who provide links to the Excite Network, and such Web site operators
may terminate such links at any time without notice to the Company. In addition,
there can be no assurance that such third parties regard their relationship with
the Company as important to their own respective businesses and operations, that
they will not reassess their commitment to the Excite Network at any time in the
future, or that they will not develop their own competitive services or
products, either during their relationship with the Company or after their
relationship
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with the Company expires. Further, there can be no assurance that the services
of those companies that provide access or links to the Excite Network will
achieve market acceptance or commercial success. Accordingly, there can be no
assurance that the Company's existing relationships will result in sustained
business partnerships, successful service offerings, or the generation of
significant traffic on the Excite Network or significant revenues for the
Company.
The Company believes that certain of its third-party relationships are
important to its ability to attract traffic and advertisers. The failure of one
or more of the third-party relationships which the Company regards as strategic
to achieve or maintain market acceptance or commercial success or the
termination of one or more of such strategic relationships could significantly
reduce traffic on the Excite Network, which would have a material adverse effect
on the Company's business, results of operations and financial condition. In
addition, the termination of, or the failure of the Company to renew, the
Company's position on a Web browser or its relationship with an ISP or OSP would
significantly reduce traffic on the Company's Web sites or could otherwise
adversely affect the Company's advertising revenues which would also have a
material adverse effect on the Company's business, results of operations and
financial condition. See "-- Dependence on Netscape and AOL" and
"Business -- Strategic Alliances."
RISK OF CAPACITY CONSTRAINTS; DEPENDENCE ON COMPUTER INFRASTRUCTURE
The Company is dependent on its ability to generate a high volume of
traffic to the Excite Network. Accordingly, the performance of the Excite
Network is critical to the Company's reputation, its ability to attract
advertisers and to achieve market acceptance of the network. Any system failure
that causes interruptions in the availability or increases response time of the
Company's services could reduce user satisfaction and traffic to the Excite
Network and, if sustained or repeated, would reduce the attractiveness of the
Excite Network to advertisers and consumers. An increase in the volume of
searches conducted through the Excite Network could strain the capacity of the
software or hardware deployed by the Company, which could lead to slower
response time or system failures. In addition, as the amount of Web pages and
traffic increases, there can be no assurance that the Excite Network will be
able to scale proportionately. The Company is also dependent upon Web browsers,
ISPs, OSPs and other Web site operators, which have experienced significant
outages in the past, for access to its network, and consumers have experienced
difficulties due to system failures unrelated to the Company's systems and
services. Additional difficulties could also materially and adversely affect
consumer and advertiser satisfaction. The Company is also dependent on hardware
suppliers for prompt delivery, installation and service of servers and other
equipment and services used to provide its services. In addition, in order to
improve performance, the Company may have to make substantial investments to
deploy one or more copies of its Web sites in order to mirror its online
resources. To the extent that the capacity restraints described above are not
effectively addressed by the Company, such constraints would have a material
adverse effect on the Company's business, results of operations and financial
condition.
Substantially all of the Company's communications hardware and certain of
its computer hardware operations are located at leased facilities in Redwood
City, California, an area susceptible to earthquakes. The Company has
experienced system failures or outages from time to time in the past, which have
disrupted the operation of the Excite Network. There can be no assurance that a
system failure at these locations would not adversely affect the performance of
the Excite Network. These systems are vulnerable to damage from fire, floods,
earthquakes, power loss, telecommunications failures, break-ins and similar
events. The Company does not presently have a disaster recovery plan. Although
the Company carries property and business interruption insurance with low
coverage limits, its coverage may not be adequate to compensate the Company for
all losses that may occur. Despite the implementation of network security
measures by the Company, its servers are also vulnerable to computer viruses,
physical or electronic break-ins and similar disruptive problems. Computer
viruses, break-ins or other problems caused by third parties could lead to
interruptions, delays or cessations in service to users of the Excite Network.
The occurrence of any of these risks could have a material adverse effect on the
Company's business, results of operations and financial condition. See
"Business -- Facilities."
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DEPENDENCE ON THE WEB INFRASTRUCTURE
The success of the Excite Network will depend in large part upon the
development of a Web infrastructure, such as a reliable network backbone with
the necessary speed, data capacity and security, or timely development of
complementary products such as high speed modems, for providing reliable Web
access and services. Because global commerce and online exchange of information
on the Web and other similar open wide area networks are new and evolving, it is
difficult to predict with any assurance whether the Web will prove to be a
viable commercial marketplace. The Web has experienced, and is expected to
continue to experience, significant growth in the number of users and amount of
traffic. To the extent that the Web continues to experience increased numbers of
users, frequency of use or increased bandwidth requirements of users, there can
be no assurance that the Web infrastructure will continue to be able to support
the demands placed on it by this continued growth or that the performance or
reliability of the Web will not be adversely affected by this continued growth.
In addition, the Web could lose its viability due to delays in the development
or adoption of new standards and protocols (for example, the next-generation
Internet Protocol) to handle increased levels of activity or due to increased
governmental regulation. There can be no assurance that the infrastructure or
complementary products or services necessary to make the Web a viable commercial
marketplace will be developed, or, if they are developed, that the Web will
become a viable commercial marketplace for services such as those offered by the
Company. If the necessary infrastructure standards or protocols or complementary
products, services or facilities are not developed, or if the Web does not
become a viable commercial marketplace, the Company's business, results of
operations and financial condition will be materially and adversely affected.
Even if such infrastructure, standards or protocols or complementary products,
services or facilities are developed and the Web becomes a viable commercial
marketplace, there can be no assurance that the Company will not be required to
incur substantial expenditures in order to adapt its services to changing Web
technologies, which could have a material adverse effect on the Company's
business, results of operations and financial condition.
GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES
The Company is not currently subject to direct regulation by any government
agency, other than regulations applicable to businesses generally, and there are
currently few laws or regulations directly applicable to access to or commerce
on the Web. However, due to the increasing popularity and use of the Web, it is
possible that a number of laws and regulations may be adopted with respect to
the Web, covering issues such as user privacy, pricing, characteristics and
quality of products and services. For example, the Company may be subject to the
provisions of the recently enacted Communications Decency Act (the "CDA").
Although the constitutionality of the CDA, the manner in which the CDA will be
interpreted and enforced and its effect on the Company's operations cannot be
determined, it is possible that the CDA could expose the Company to substantial
liability. The CDA could also dampen the growth in use of the Web generally and
decrease the acceptance of the Web as a communications and commercial medium,
and could, thereby, have a material adverse effect on the Company's business,
results of operations and financial condition. Other nations, including Germany,
have taken actions to restrict the free flow of material deemed to be
objectionable on the Web. In addition, several telecommunications carriers are
seeking to have telecommunications over the Web regulated by the Federal
Communications Commission (the "FCC") in the same manner as other
telecommunications services. For example, America's Carriers Telecommunications
Association ("ACTA") has filed a petition with the FCC for this purpose. In
addition, because the growing popularity and use of the Web has burdened the
existing telecommunications infrastructure and many areas with high Web use have
begun to experience interruptions in phone service, local telephone carriers,
such as Pacific Bell, have petitioned the FCC to regulate ISPs and OSPs in a
manner similar to long distance telephone carriers and to impose higher access
fees on the ISPs and OSPs. If either of these petitions are granted, or the
relief sought therein is otherwise granted, the costs of communicating on the
Web could increase substantially, potentially slowing the growth in use of the
Web. The adoption of any additional laws or regulations may decrease the growth
of the Web, which could in turn decrease the demand for the Excite Network and
increase the Company's cost of doing business or otherwise have an adverse
effect on the Company's business, results of operations and financial condition.
Moreover, the applicability to the Web of existing laws in various jurisdictions
governing issues such as property ownership, libel and personal privacy is
uncertain and will take
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years to resolve. Any such new legislation or regulation or application or
interpretation of existing laws could have a material adverse effect on the
Company's business, results of operations and financial condition.
Due to the global nature of the Web, it is possible that, although
transmissions of the Excite Network originate in the State of California, the
governments of other states and foreign countries might attempt to regulate the
Company's transmissions or prosecute the Company for violations of their laws.
There can be no assurance that violations of local laws will not be alleged or
charged by state or foreign governments, that the Company might not
unintentionally violate such law or that such laws will not be modified, or new
laws enacted, in the future. Any of the foregoing developments could have a
material adverse effect on the Company's business, results of operations and
financial condition.
LIABILITY FOR INFORMATION RETRIEVED FROM THE WEB
Because materials may be downloaded through the services offered by the
Company and be subsequently distributed to others, there is a potential that
claims may be made against the Company for defamation, negligence, copyright or
trademark infringement or other theories based on the nature and content of such
materials. Such types of claims have been brought, and sometimes successfully
pressed, against OSPs and ISPs in the past. Although the Company carries general
liability insurance, the Company's insurance may not cover potential claims of
this type, or may not be adequate to indemnify the Company for all liability
that may be imposed. Any imposition of liability that is not covered by
insurance or is in excess of insurance coverage could have a material adverse
effect on the Company's business, results of operations and financial condition.
DEPENDENCE ON KEY PERSONNEL
The Company's performance is substantially dependent on the performance of
its executive officers and other key employees, most of whom have worked
together for only a short period of time. Given the Company's early stage of
development, the Company is dependent on its ability to retain and motivate high
quality personnel, especially its management and engineering and development
teams. The Company does not have "key person" life insurance policies on any of
its employees. The loss of the services of any of its other executive officers
or key employees could have a material adverse effect on the business, results
of operations or financial condition of the Company. The Company's future
success also depends on its continuing ability to identify, hire, train and
retain other highly qualified technical and managerial personnel. Competition
for such personnel is intense, particularly in Northern California, and there
can be no assurance that the Company will be able to identify, attract,
assimilate or retain other highly qualified technical and managerial personnel
in the future and the failure to do so could have a material adverse effect on
the Company's business, results of operations and financial condition. See
"Business -- Employees" and "Management."
PROPRIETARY TECHNOLOGY; POTENTIAL LITIGATION
The Company regards its technology as proprietary and attempts to protect
it with copyrights, trademarks, trade secret laws, restrictions on disclosure
and transferring title and other methods, and has been issued a patent with
respect to certain aspects of its searching and indexing technology. The Company
is also in the process of preparing three patent applications with respect to
other aspects of its technology. There can be no assurance that the patent that
has been issued or that any patents that may issue from these pending
applications will be sufficiently broad to protect the Company's technology. In
addition, there can be no assurance that any patents that have been issued or
that may be issued will not be challenged, invalidated or circumvented, or that
any rights granted thereunder would provide proprietary protection to the
Company. Failure of any patents to provide protection of the Company's
technology may make it easier for the Company's competitors to offer technology
equivalent to or superior to the Company's technology. The Company also
generally enters into confidentiality or license agreements with its employees
and consultants, and generally controls access to and distribution of its
documentation and other proprietary information. Despite these precautions, it
may be possible for a third party to copy or otherwise obtain and use the
Company's services or technology without authorization, or to develop similar
technology independently. In addition, effective copyright, trademark and trade
secret protection may be unavailable or limited in certain foreign countries,
and the global nature of the Web makes it virtually impossible to control the
ultimate
16
<PAGE> 18
destination of the Company's products. Policing unauthorized use of the
Company's technology is difficult. There can be no assurance that the steps
taken by the Company will prevent misappropriation or infringement of its
technology. In addition, litigation may be necessary in the future to enforce
the Company's intellectual property rights, to protect the Company's trade
secrets or to determine the validity and scope of the proprietary rights of
others. Such litigation could result in substantial costs and diversion of
resources and could have a material adverse effect on the Company's business,
results of operations and financial condition.
Many parties are actively developing search, indexing and related Web
technologies at the present time. The Company believes that they will take steps
to protect these technologies, including seeking patent protection. As a result,
the Company believes that disputes regarding the ownership of such technologies
are likely to arise in the future.
From time to time, the Company has received, and may receive in the future,
notice of claims of infringement of other parties' proprietary rights, including
claims for infringement resulting from the downloading of materials by the
service operated by the Company. Although the Company investigates claims and
responds as it deems appropriate, there can be no assurance that infringement or
invalidity claims (or claims for indemnification resulting from infringement
claims) will not be asserted or prosecuted against the Company or that any
assertions or prosecutions will not materially and adversely affect the
Company's business, results of operations and financial condition. Irrespective
of the validity or the successful assertion of such claims, the Company would
incur significant costs and diversion of resources with respect to the defense
thereof which could have a material adverse effect on the Company's business,
results of operations and financial condition. If any claims or actions were
asserted against the Company, the Company might seek to obtain a license under a
third party's intellectual property rights. There can be no assurance, however,
that under such circumstances a license would be available on commercially
reasonable terms, or at all. See "-- Liability for Information Retrieved from
the Web."
The Company currently owns and also licenses from third parties certain of
its technologies. As it continues to introduce new services that incorporate new
technologies, it anticipates that it may be required to license additional
technology from others. There can be no assurance that these third-party
technology licenses will be available to the Company on commercially reasonable
terms, if at all. The inability of the Company to obtain any of these technology
licenses could result in delays or reductions in the introduction of new
services or could materially and adversely affect the performance of its
services until equivalent technology could be identified, licensed and
integrated. Any such delays or reductions in the introduction of services or
adverse impact on service quality could materially and adversely affect the
Company's business, results of operations and financial condition. See
"Business -- Licenses and Intellectual Property."
CONTROL BY DIRECTORS, EXECUTIVE OFFICERS AND AOL
Upon completion of this offering, the present directors, executive officers
and certain shareholders of the Company and their respective affiliates will, in
the aggregate, beneficially own approximately 65.7% of the outstanding Common
Stock. As a result, these shareholders will possess significant influence over
the Company, giving them the ability, among other things, to elect a significant
portion of the Company's Board of Directors (or the entire Board of Directors
when and if cumulative voting is eliminated) and approve significant corporate
transactions. In addition, upon completion of this offering AOL will
beneficially own approximately 19.0% of the outstanding Common Stock and, so
long as it holds at least an aggregate of 1,315,165 shares of Series E Preferred
Stock, will be able to elect one member to the Company's Board of Directors.
Such control or share ownership may also have the effect of delaying or
preventing a change in control of the Company, impede a merger, consolidation,
takeover or other business combination involving the Company or discourage a
potential acquiror from making a tender offer or otherwise attempting to obtain
control of the Company. See "Principal Shareholders."
VOLATILITY OF STOCK PRICE
The market price of the Company's Common Stock is highly volatile and is
subject to wide fluctuations (for example, during the six month period ended
April 30, 1997, the high and low closing prices of the Common Stock were $21.13
and $5.50, respectively) in response to quarterly variations in operating
results, announcements of technological innovations or new services by the
Company or its competitors, changes in
17
<PAGE> 19
financial estimates by securities analysts, or other events or factors. In
addition, the stock market has experienced significant price and volume
fluctuations that have particularly affected the market prices of equity
securities of many high technology companies and that often have been unrelated
to the operating performance of such companies. In the past, following periods
of volatility in the market price of a company's securities, securities class
action litigation has often been instituted against such a company. If brought,
such litigation could result in substantial costs and a diversion of
management's attention and resources, which would have a material adverse effect
on the Company's business, results of operations and financial condition. These
broad market fluctuations may adversely affect the market price of the Company's
Common Stock. See "Price Range of Common Stock."
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS
Sales of a substantial number of shares of Common Stock in the public
market following this offering could adversely affect the market price for the
Company's Common Stock. The number of shares of Common Stock available for sale
in the public market is limited by restrictions under the Securities Act of
1933, as amended (the "Securities Act"). Upon completion of this offering, the
Company will have outstanding approximately 15,247,397 shares of Common Stock
and 1,950,000 shares of Convertible Preferred Stock which is convertible into
Common Stock on a one-for-one basis (assuming no exercise of options, warrants
or the Exchange Right). Of such shares, the 2,900,000 shares offered hereby
(other than those purchased by affiliates of the Company) and 12,347,397 other
outstanding shares of Common Stock (except to the extent held by officers of the
Company or subject to resale restrictions pursuant to Rule 144) will be freely
tradable, and the remaining 1,950,000 shares (which include the shares of Common
Stock issuable upon conversion of the Convertible Preferred Stock currently
owned by AOL and exclude shares of Convertible Preferred Stock and the shares of
Common Stock issuable upon conversion thereof subject to the AOL Warrant and the
Exchange Right and Common Stock issuable upon exercise of options and warrants)
will be restricted shares ("Restricted Shares") under the Securities Act. Upon
the completion of this offering, the Restricted Shares will become eligible for
sale (subject, in some instances, to certain repurchase rights of the Company)
in the public market, subject to the provisions of Rule 701 and/or Rule 144
including certain volume limitations and other resale restrictions. As of March
31, 1997, options to purchase a total of approximately 3,608,046 shares were
outstanding (which number includes options to purchase approximately 939,748
shares of Common Stock which were granted subject to shareholder approval), of
which approximately 333,347 shares issuable upon the exercise of stock options
will be eligible for sale in the public market immediately or, in some cases,
upon the expiration of lock-up agreements. Furthermore, the Company's Board of
Directors has approved an increase, subject to shareholder approval, in the
number of shares of Common Stock reserved for issuance under the 1996 Plan by
3,255,000 shares (and has granted, subject to such shareholder approval, options
to purchase 939,748 shares of Common Stock). The Company intends to register the
additional shares covered by the 1996 Plan under the Securities Act after this
offering. Holders of 9,205,283 shares of Common Stock (including shares of
Common Stock issuable upon conversion of Preferred Stock and upon conversion of
Preferred Stock issuable upon exercise of the AOL Warrant) have certain rights
to require the Company to register those shares of Common Stock for offer and
sale to the public. If such holders, by exercising their registration rights,
cause a large number of shares to be registered and sold in the public market,
such sales could have a material adverse effect on the market price for the
Company's Common Stock. The Company has filed a Registration Statement on Form
S-3 with respect to the shares of Common Stock issuable to AOL upon conversion
of Convertible Preferred Stock held by AOL or issuable to AOL upon exercise of
the AOL Warrant and the Exchange Right. See "Description of Capital
Stock -- Registration Rights," "Shares Eligible for Future Sale" and
"Underwriting."
IMMEDIATE AND SUBSTANTIAL DILUTION
Purchasers of the Common Stock offered hereby will incur immediate and
substantial dilution of approximately $9.42 in the net tangible book value per
share of Common Stock (assuming a public offering of $11.88 per share). To the
extent outstanding options and warrants to purchase Common Stock or Preferred
Stock are exercised, there will be further dilution.
18
<PAGE> 20
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,900,000 shares of
Common Stock offered hereby are estimated to be $33.9 million (assuming a public
offering price of $11.88 per share), after deducting estimated offering
expenses. The Company expects to use the net proceeds for general corporate
purposes, including working capital. Furthermore, from time to time the Company
expects to evaluate the acquisition of products, businesses and technologies
that complement the Company's business or the Company may enter into
distribution agreements for which a portion of the net proceeds may be used.
Currently, however, the Company does not have any understandings, commitments or
agreements with respect to any such acquisitions or distribution agreements.
Pending use of the net proceeds for the above purposes, the Company intends to
invest such funds in investment-grade, short-term and medium-term,
interest-bearing securities. See "Risk Factors -- Acquisition Strategy;
Integration of Past and Future Acquisitions."
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its Common
Stock. The Company currently anticipates that it will retain all future earnings
for use in its business and does not anticipate paying any cash dividends in the
foreseeable future. The Company's credit agreement with its bank prohibits the
payment of dividends without the bank's written consent.
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is quoted on the Nasdaq National Market under
the symbol "XCIT." Public trading of the Common Stock commenced on April 4,
1996.
The following table sets forth, for the period indicated, the high and low
closing prices per share for the Company's Common Stock, all as reported by the
Nasdaq National Market.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
YEAR ENDED DECEMBER 31, 1996
Second Quarter (from April 4, 1996)...................................... $20.00 $ 8.25
Third Quarter............................................................ $ 8.38 $ 5.13
Fourth Quarter........................................................... $15.25 $ 5.50
YEAR ENDED DECEMBER 31, 1997
First Quarter............................................................ $21.13 $ 8.75
Second Quarter (through May 30, 1997).................................... $12.88 $ 7.88
</TABLE>
On May 30, 1997, the last reported sale price of the Common Stock on the
Nasdaq National Market was $11.88 per share. On May 30, 1997, there were
approximately 200 holders of record of the Company's Common Stock, although the
Company believes that there is a larger number of beneficial owners of its
Common Stock.
19
<PAGE> 21
CAPITALIZATION
The following table sets forth, as of March 31, 1997, (i) the actual
capitalization of the Company and (ii) such capitalization as adjusted to give
effect to the sale of the 2,900,000 shares of Common Stock offered hereby at an
assumed public offering price of $11.88 per share (after deducting estimated
offering expenses) and the application of the net proceeds therefrom.
<TABLE>
<CAPTION>
MARCH 31, 1997
--------------------------
ACTUAL AS ADJUSTED
--------- ------------
(In thousands)
<S> <C> <C>
Long-term obligations............................................. $ 3,889 $ 3,889
Shareholders' equity:
Preferred Stock, no par value; 4,000,000 shares authorized,
1,950,000 shares issued and outstanding actual and as
adjusted(1).................................................. 17,441 17,441
Common Stock, no par value; 25,000,000 shares authorized,
12,347,397 shares issued and outstanding, actual; 25,000,000
shares authorized, 15,247,397 issued and outstanding, as
adjusted(1).................................................. 59,101 92,953
Deferred compensation........................................... (348) (348)
Unrealized loss on available-for-sale investments............... (185) (185)
Accumulated deficit............................................. (58,986) (58,986)
--------- ------------
Total shareholders' equity................................. 17,023 50,875
--------- ------------
Total capitalization.................................... $ 20,912 $ 54,764
========= ===========
</TABLE>
- ---------------
(1) Excludes 680,330 shares of Convertible Preferred Stock issuable to AOL upon
exercise of the Exchange Right. See "Certain Transactions."
(2) Excludes (i) 3,608,046 shares of Common Stock issuable upon the exercise of
stock options outstanding as of March 31, 1997 (which number includes
options to purchase approximately 939,748 shares of Common Stock granted
subject to shareholder approval,) under the Company's 1995 Equity Incentive
Plan, the 1996 Plan and the 1996 Directors Stock Option Plan at a weighted
average exercise price of approximately $5.18 per share, (ii) 297,500 shares
of Common Stock reserved for future grants or sale under the 1996 Directors
Stock Option Plan and 1996 Employee Stock Purchase Plan, (iii) an additional
2,315,252 shares of Common Stock reserved for future grants under the 1996
Plan, subject to shareholder approval, (iv) 9,451 shares of Common Stock
issuable upon the exercise of warrants to purchase Common Stock, (v)
1,950,000 shares of Common Stock issuable upon conversion of Convertible
Preferred Stock issued to AOL in connection with the Acquisition, and (vi)
650,000 shares of Common Stock issuable upon conversion of Convertible
Preferred Stock issuable upon exercise of the AOL Warrant and (vii) 680,330
shares of Convertible Preferred Stock issuable to AOL upon exercise of the
Exchange Right. See "Management -- Employee Benefit Plans," "-- Director
Compensation," "Certain Transactions," "Description of Capital Stock" and
Notes 7 and 8 of Notes to Consolidated Financial Statements.
20
<PAGE> 22
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with the Consolidated Financial Statements and notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" appearing elsewhere in this Prospectus. During 1996, Excite acquired
McKinley in a transaction accounted for as a pooling of interests. All financial
information has been restated to reflect the combined operations of Excite and
McKinley. The statements of operations data for each of the years in the three
year period ended December 31, 1996 and the balance sheet data at December 31,
1995 and 1996, are derived from, and are qualified by reference to, the audited
consolidated financial statements of the Company included elsewhere in this
Prospectus and should be read in conjunction with those financial statements and
notes thereto. The statement of operations data for the three months ended March
31, 1996 and 1997 and the balance sheet data at March 31, 1997 have been derived
from unaudited financial statements included elsewhere in this Prospectus and
which include all adjustments (consisting only of normal recurring adjustments)
that the Company considers necessary for a fair presentation of its financial
position and results of operations for these periods. The balance sheet data at
December 31, 1994 are derived from unaudited financial statements of the Company
not included in this Prospectus. The results of operations for the three months
ended March 31, 1997 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1997 or any other period.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
-------------------------------- -------------------
1994(1) 1995 1996(2) 1996 1997
------- ------- -------- ------- -------
(unaudited)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS
DATA
(In thousands, except per share data):
Revenues:
Advertising revenues.................. $ 57 $ 145 $ 14,030 $ 1,154 $ 7,478
Contract and other revenues........... 236 808 727 220 37
------- ------- -------- ------- -------
Total revenues................ 293 953 14,757 1,374 7,515
Cost of revenues:
Cost of revenues excluding
amortization....................... 88 228 3,963 389 2,392
Amortization of purchased
technology......................... -- -- 186 -- 2,399
------- ------- -------- ------- -------
Total cost of revenues........ 88 228 4,149 389 4,791
------- ------- -------- ------- -------
Gross profit............................ 205 725 10,608 985 2,724
Operating expenses:
Product development................... 415 2,810 8,030 1,376 3,066
Sales and marketing................... 37 1,648 21,103 2,489 6,281
Distribution license fees(3).......... -- -- 11,878 1,625 30
General and administrative............ 399 2,326 7,081 1,141 1,289
Charge for purchased in-process
technology......................... -- 331 3,500 -- --
Other merger and acquisition related
costs, including amortization of
goodwill and other purchased
intangibles........................ -- -- 3,134 -- 953
------- ------- -------- ------- -------
Total operating expenses...... 851 7,115 54,726 6,631 11,619
------- ------- -------- ------- -------
Operating loss.......................... (646) (6,390) (44,118) (5,646) (8,895)
Interest income (expense) and other..... (4) (45) 1,001 2 111
------- ------- -------- ------- -------
Net loss................................ $ (650) $(6,435) $(43,117) $(5,644) $(8,784)
======== ======= ======== ======= ========
Net loss per share...................... $ (0.06) $ (0.58) $ (3.65) $ (0.50) $ (0.72)
======== ======= ======== ======= ========
Shares used in computing net loss per
share(4).............................. 10,576 11,070 11,818 11,341 12,214
======== ======= ======== ======= ========
</TABLE>
21
<PAGE> 23
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------- MARCH 31,
1994 1995 1996 1997
------- ------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
(In thousands)
Cash, cash equivalents and short-term
investments................................... $ 12 $ 1,118 $ 20,834 $13,259
Working capital (deficit)....................... (442) (878) 8,124 1,636
Total assets.................................... 157 3,801 47,698 40,747
Long-term obligations........................... 100 995 3,985 3,889
Redeemable convertible preferred stock.......... -- 3,847 -- --
Total shareholders' equity (net capital
deficiency)................................... (542) (4,034) 25,097 17,023
</TABLE>
- ---------------
(1) The year ended December 31, 1994 includes the results of operations from
Inception to December 31, 1994. Inception date is June 9, 1994 for Excite
and December 7, 1993 for McKinley. The operating results for McKinley from
December 7, 1993 through December 31, 1993 were immaterial.
(2) During the fourth quarter of 1996, the Company entered into an agreement to
acquire the WebCrawler Assets from AOL. See "Risk Factors -- Acquisition
Strategy; Integration of Past and Future Acquisitions," "Certain
Transactions" and Notes 3 and 13 of Notes to Consolidated Financial
Statements for a discussion of the Acquisition and associated costs.
(3) During the second quarter of 1996, the Company entered into two distribution
license agreements with Netscape. See Notes 12 and 13 of Notes to
Consolidated Financial Statements for a discussion of these agreements and
associated costs.
(4) See Note 1 of Notes to Consolidated Financial Statements for an explanation
of shares used in computing net loss per share.
22
<PAGE> 24
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations contains forward-looking statements which involve
risks and uncertainties. The Company's actual results could differ materially
from those anticipated in these forward-looking statements as a result of
certain factors, including those set forth under "Risk Factors" and elsewhere in
this Prospectus. The following discussion also should be read in conjunction
with the consolidated financial statements and notes thereto included elsewhere
in this Prospectus.
OVERVIEW
The Company operates the Excite Network, which includes the Excite and
WebCrawler brands, and provides a gateway to the Web that organizes, aggregates
and delivers information to meet the needs of individual consumers. Excite,
formerly Architext Software, Inc., was formed in June 1994 and, from its
inception to September 1995, its operating activities related primarily to
recruiting personnel, raising capital, purchasing operating assets, providing
custom product development and consulting, and developing services. The Company
first launched its Excite search and directory service in October 1995.
The Company has achieved only limited revenues to date, has incurred
significant operating losses since inception and as of March 31, 1997, the
Company had an accumulated deficit of approximately $59.0 million. The Company
has also experienced significant increases in operating losses on an annual and
quarterly basis since inception. Although the Company has experienced
significant revenue growth during 1996, there can be no assurance that this
growth rate will be sustained or that revenues will continue to grow. There can
also be no assurance that any revenue growth that the Company experiences will
be indicative of future operating results. In addition, the Company has
increased, and plans to increase further, its operating expenses in order to
increase its sales and marketing efforts, fund greater levels of product
development and increase its general and administrative costs to support the
enlarged organization. To the extent that revenues do not grow at anticipated
rates or that increases in such operating expenses precede or are not
subsequently followed by commensurate increases in revenues, or that the Company
is unable to adjust operating expense levels accordingly, the Company's
business, results of operations and financial condition will be materially and
adversely affected. Given the level of planned expenditures, the Company
anticipates that it will continue to incur operating losses through at least the
end of 1997. As a result of the acquisition of the WebCrawler Assets and other
acquisitions, operating results will be negatively affected by approximately
$10.1 million in amortization in 1997, and $1.1 million in amortization in 1998,
assuming no additional acquisitions and no significant adjustments to the
economic lives of the underlying intangible assets. The extent of the future
losses will be contingent on the amount of the growth in the Company's
advertising revenues which in turn depends on a variety of factors, including,
without limitation, the factors described under "Risk Factors" and elsewhere in
this Prospectus.
The Company intends to fund these operating losses with a portion of the
net proceeds of this offering and has also obtained a $6.0 million line of
credit with a bank. If the net proceeds of this offering together with its bank
line of credit and revenues are insufficient to fund the Company's operations or
if anticipated operating results are not achieved, the Company may need to seek
additional financing. See "Risk Factors -- Future Capital Needs; Uncertainty of
Additional Financing."
On August 30, 1996, the Company acquired by merger McKinley, a private
company and creator of the Magellan On-Line Guide. The transaction was effected
through the issuance of 850,000 shares of the Company's Common Stock and was
accounted for as a pooling of interests. In connection with the transaction, the
Company incurred approximately $2.2 million in merger related expenses,
including $1.0 million for legal and other professional consulting fees,
$901,000 for personnel severance and outplacement expenses and $345,000 for
termination of contracts and discontinuation of duplicate operations and
facilities. McKinley has experienced operating losses since inception. Because
the merger has been accounted for as a pooling of interests, all financial
information for dates and periods prior to the merger has been restated to
23
<PAGE> 25
reflect the combined operations of the Company and McKinley. See "Risk
Factors -- Acquisition Strategy; Integration of Past and Future Acquisitions."
On November 25, 1996, the Company announced an expansion of its previous
agreement with AOL pursuant to which a co-branded version of the Excite brand
became the exclusive Web search and directory service on AOL and to acquire the
WebCrawler Assets (the "Acquisition") for an aggregate of 1,950,000 shares of
the Company's Convertible Preferred Stock. The Acquisition, which was
consummated in March 1997 (the "Closing"), was recorded by the Company for
accounting purposes as of December 1, 1996. The transaction was accounted for as
an acquisition of rights to developed and purchased in-process technology and
distribution rights. Of the total purchase price, $3.5 million was allocated to
purchased in-process technology and the remaining excess purchase price of
approximately $12.6 million was allocated to trademarks, distribution rights,
bookmarks, trade names, goodwill and other. The amount of the purchase price
allocated to purchased in-process technology was charged to the Company's
operations as of December 1, 1996. The identified intangible assets and goodwill
are being amortized over periods ranging from four months to three years.
In connection with the Acquisition, the Company and AOL have agreed that a
co-branded version of the Company's Excite brand will be the exclusive provider
of Web search and directory services to AOL's customers for a minimum of two
years. The Company will receive a share of any advertising revenues generated by
the co-branded version of the Excite brand hosted on AOL as royalties, and AOL
will incur all hosting, advertising and selling expenses. See "Certain
Transactions."
The Company expects to derive substantially all of its revenue for the
foreseeable future from selling advertising space on the Excite Network as
consumers use its services for their search and retrieval needs. The Company's
advertising revenues are derived principally from short-term advertising
contracts in which the Company guarantees a minimum number of impressions (a
view of an advertisement by a consumer) for a fixed fee. Advertising revenues
are recognized ratably over the term of the contract. To the extent minimum
guaranteed impression levels are not met, the Company defers recognition of the
corresponding revenues until guaranteed levels are achieved. At December 31,
1996, the Company had deferred revenues of $1.8 million.
Revenues from the sale of certain advertising space are shared with third
parties pursuant to the terms of certain agreements. To date, amounts allocable
to third parties have not been significant. Contract and other revenues during
the years ended December 31, 1994 and 1995 consisted primarily of contract
revenues earned under agreements to modify the Company's Web directory
technology and fees for the licensing of Web directory content and technology.
Contract revenues are recognized as the work is performed using the percentage
of completion method. License revenues are recognized at the time of delivery,
provided that no significant obligations remain and collection of the resulting
receivable is considered probable. See "Risk Factors -- Reliance on Advertising
Revenues."
The Company's operating results have varied on a quarterly basis during its
limited operating history, and the Company expects to experience significant
fluctuations in operating results in the future. In addition, because of the
rapidly changing nature of its business and its extremely limited operating
history, the Company believes that period-to-period comparisons of its financial
results are not necessarily meaningful and should not be relied upon as an
indication of future performance. See "Risk Factors -- Extremely Limited
Operating History; Accumulated Deficit and Anticipation of Continued Losses" and
"-- Potential Fluctuations in Quarterly Results; Unpredictability of Future
Revenues."
24
<PAGE> 26
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage
of total revenues represented by certain items from the Company's Consolidated
Statement of Operations.
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER ENDED
31, MARCH 31,
---------------------- -------------
1994 1995 1996 1996 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues:
Advertising revenues................................ 19% 15% 95% 84% 99%
Contract and other revenues......................... 81 85 5 16 1
---- ---- ---- ---- ----
Total revenues.............................. 100 100 100 100 100
---- ---- ---- ---- ----
Cost of revenues:
Cost of revenues excluding amortization............. 30 24 27 28 32
Amortization of purchased technology................ -- -- 1 -- 32
---- ---- ---- ---- ----
Total cost of revenues...................... 30 24 28 28 64
---- ---- ---- ---- ----
Gross profit.......................................... 70 76 72 72 36
Operating expenses:
Product development................................. 141 295 54 100 41
Sales and marketing................................. 13 173 143 181 83
Distribution license fees........................... -- -- 81 119 --
General and administrative.......................... 136 244 48 83 17
Charge for purchased in-process technology.......... -- 35 24 -- --
Other merger and acquisition related costs,
including amortization of goodwill and other
purchased intangibles............................ -- -- 21 -- 13
---- ---- ---- ---- ----
Total operating expenses.................... 290 747 371 483 154
---- ---- ---- ---- ----
Operating loss........................................ (220) (671) (299) (411) (118)
Interest income (expense) and other................... (1) (4) 7 -- 1
---- ---- ---- ---- ----
Net loss.............................................. (221)% (675)% (292)% (411)% (117)%
==== ==== ==== ==== ====
</TABLE>
THREE MONTHS ENDED MARCH 31, 1996 AND 1997
Revenues
Revenues increased $6.1 million from $1.4 million for the three months
ended March 31, 1996 to $7.5 million for the comparable period in 1997. This
increase is due to increased sales of advertisements, an increase in sales of
targeted advertising with higher rates charged to advertisers and an increase in
the number of advertisers purchasing advertising banners on the Company's Web
sites. The Company expects to continue to derive substantially all of its total
revenue from selling advertisements on its network. Because the market for
advertising on the Web is intensely competitive, advertising rates could be
subject to pricing pressures in the future. If the Company is forced to reduce
its advertising rates or experiences lower CPMs as a result of such competition
or otherwise, future revenues could be materially and adversely affected. See
"Risk Factors -- Reliance on Advertising Revenues."
Cost of Revenues
Cost of revenues consists primarily of expenses related to the maintenance
and technical support of the Excite Network, which are comprised principally of
personnel costs, telecommunications costs, equipment depreciation, royalties,
overhead allocations and costs related to revenue sharing agreements. Cost of
revenues, excluding the amortization of purchased technology increased $2.0
million from $389,000 for the three months ended March 31, 1996 to $2.4 million
for the comparable period in 1997 and represented 28% and 32% of revenues for
the three months ended March 31, 1996 and 1997, respectively. The increase is
due primarily to increased personnel expenses and equipment costs relating to
maintaining and supporting the Company's Web sites and increasing revenue
sharing costs for the distribution of the Company's services and the acquisition
of content. Cost of revenues in future periods are expected to increase in
absolute dollars and may increase as a percentage of revenues as the Company
increases costs to support expanded services.
25
<PAGE> 27
In the three month period ended March 31, 1997, the Company also
recognized, as a component of total cost of revenues, amortization of purchased
technology of $2.4 million related to the purchase of the WebCrawler Assets,
which represents 32% of revenues. Amortization expense is expected to be
approximately $1.9 million in each of the remaining three quarters of 1997,
assuming no additional acquisitions and no significant adjustments to the
economic lives of the underlying intangible assets.
Gross Margin
Gross margin as a percentage of revenues was 72% and 36% (68% excluding
amoritization of purchased technology related to the purchase of the WebCrawler
Assets) for the three month periods ended March 31, 1996 and 1997, respectively.
The decline in the gross margin as a percentage of revenues was due primarily to
the amortization of purchased technology discussed above. In addition, the
growth in infrastructure associated with the merger with McKinley and the
acquisition of the WebCrawler Assets, and expansion of operations to support
expanded Web site offerings contributed to the decrease. In the future, gross
margins may be affected by the types of advertisements sold and revenue-sharing
provisions of certain access and content provider agreements. Advertisements
which target a specific audience typically have higher gross margins than
advertisements which target the mass Web consumer market. Furthermore, pursuant
to the provisions of certain agreements with operators of Web access points and
with content providers, the Company shares advertising revenues based upon the
number of consumers directed to its network. A low level of targeted advertising
as a percentage of total advertising sold, a decrease in targeted or mass Web
advertising rates or an increase in the Company's advertising revenue sharing
obligations could adversely affect gross margins.
Operating Expenses
The Company's operating expenses have generally increased in absolute
dollar amounts since inception through March 31, 1997. This trend reflects the
Company's rapid transition from the product development stage to marketing and
offering its services. The Company believes that continued expansion of
operations is essential to achieving and maintaining market leadership. As a
consequence, the Company intends to continue to increase expenditures in all
operating areas for the foreseeable future.
Product Development. Product development expenses consist principally of
engineering and editorial personnel costs, allocation of overhead, equipment
depreciation, consulting and supplies. Costs related to research, design and
development of products have been charged to product development expense as
incurred. See Note 1 of Notes to Consolidated Financial Statements. Product
development expenses increased $1.7 million or 123% from $1.4 million for the
three months ended March 31, 1996 to $3.1 million for the comparable period in
1997. These expenses represented 100% and 41% of revenues in the three month
periods ended March 31, 1996 and 1997, respectively. The increase in absolute
dollars was primarily attributable to an increase in engineering and editorial
headcount as well as increased product development activities resulting from the
acquisition of the WebCrawler Assets and the merger with McKinley. The Company
believes that a significant level of product development expense is required to
remain competitive and, accordingly, the Company anticipates that it will
continue to devote substantial resources to product development and that these
costs will increase in absolute dollars in future periods.
Sales and Marketing. Sales and marketing expenses consist principally of
sales and marketing personnel costs, consulting fees, commissions, allocation of
overhead, creative services and promotional and advertising expenses. Sales and
marketing expenses increased $3.8 million or 152%, from $2.5 million for the
three months ended March 31, 1996 to $6.3 million. These expenses represented
approximately 181% and 83% of revenues in the three month periods ended March
31, 1996 and 1997, respectively. This increase was due primarily to the hiring
of additional sales and marketing personnel and increased advertising and
promotional expenses, in particular, continuation of the Company's media
campaign that was launched during the fourth quarter of 1996. The Company
expects to incur additional promotional and advertising expenses, and
anticipates that these costs will increase in absolute dollars, although the
Company has no current plans to undertake any additional promotional and
advertising campaign similar to that during the fourth quarter of 1996.
Distribution License Fees. Distribution license fees decreased from $1.6
million for the three months ended March 31, 1996 to $30,000 for the comparable
period in 1997. The first quarter of 1996 included a
26
<PAGE> 28
one-time, non-cash charge of approximately $1.6 million related to the issuance
of the AOL Warrant in connection with a nonexclusive agreement entered into in
March 1996, which was amended on March 27, 1997 to be exercisable into an
equivalent number of shares of Series E-3 Convertible Preferred Stock. In March
1997, the Company entered into an agreement with Netscape to continue the
Premier Provider arrangement for the Excite brand, and entered into a Marquee
Provider agreement for the WebCrawler brand. Under the terms of these new
agreements, the Company is committed to minimum aggregate payments of $8.25
million of which $5.75 million will be paid in cash ($5.25 million in 1997 and
$500,000 in 1998) and $2.5 million will be applied towards advertising by
Netscape on the Excite Network over the one year term of the agreements based
upon delivery of a specified number of advertising impressions. See Notes 12 and
13 of Notes to Consolidated Financial Statements. See "Risk
Factors -- Dependence on Netscape and AOL."
General and Administrative. General and administrative expenses consist
principally of administrative and executive personnel costs, provisions for
doubtful accounts, allocation of overhead and fees for professional services.
General and administrative expenses increased approximately $148,000, or 13%
from $1.1 million for the three months ended March 31, 1996 to $1.3 million for
the comparable period in 1997. These expenses represented 83% and 17% of
revenues for the three month periods ended March 31, 1996 and 1997,
respectively. The dollar increase in general and administrative expenses was due
to increased personnel, professional service fees, provision for doubtful
accounts and relocation to new facilities to support the Company's growth. The
Company anticipates that its general and administrative expenses will continue
to increase in absolute dollars as the Company expands its administrative and
executive staff, adds infrastructure, relocates to a new facility during the
second quarter of 1997, negotiates and assimilates acquisitions of acquired
technologies and businesses and incurs costs related to operating as a public
company, such as expenses related to directors' and officers' insurance,
investor relations programs and increased professional fees.
Merger and Acquisition Costs. During the three months ended March 31,
1997, the Company incurred merger and acquisition costs of $953,000 relating to
the amortization of goodwill and other purchased intangibles resulting primarily
from the acquisition of the WebCrawler Assets in December 1996.
Interest Income (Expense) and Other. Interest income for the three months
ended March 31, 1996 and 1997 were $30,000 and $230,000, respectively. This
increase reflects larger amounts of interest being earned on higher average
investment balances, due primarily to cash received from the Company's initial
public offering in April 1996. Interest expense and other increased from $28,000
to $119,000 for the three months ended March 31, 1996 and 1997, respectively.
This increase was due primarily to increased expenses associated with capital
lease obligations and interest paid on bank borrowings.
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
Revenues
In October 1995, the Company began selling advertising space on its
network. Accordingly, there were no significant advertising revenues for 1994 or
1995. Prior to October 1995, contract and other revenues consisted primarily of
revenues derived from custom product development, licensing of the McKinley
database, royalties from sales of the McKinley Internet Yellow Pages and
consulting fees, which are not expected to be significant sources of revenues in
future periods. Total revenues increased from $293,000 for 1994 to $953,000 for
1995, and to $14.8 million for 1996. The increase in 1995 was due to the
introduction of the Company's services in October 1995 and the increase in 1996
was due primarily to increased sales of advertisements on the Company's Web
sites, increased capacity resulting from the merger with McKinley as well as the
creation and increased size of the Company's direct sales force. For 1995 and
1996, 97% and 27%, respectively, of advertising revenues were derived through
two advertising sales agencies. With the addition of its direct sales force, the
Company does not expect to derive a significant portion of its advertising
revenues from advertising sales agencies in the future. There can be no
assurance that advertising over the Web will become widespread, that a market
for the Company's proposed services will emerge, or that the Company's services
will become generally adopted. See "Risk Factors -- Reliance on Advertising
Revenues," "-- Developing Market; Validation of the Web as an Effective
Advertising Medium" and "-- Dependence on Web Infrastructure."
27
<PAGE> 29
Two customers accounted for 26% and 16%, respectively, of total revenues in
1995. One customer accounted for approximately 12% of total revenues in 1996.
The increase in advertising revenues is due to increased sales of
advertisements and an increase in sales of targeted advertising with higher
rates per thousand impressions ("CPM") charged to advertisers.
In connection with its prior Premier Provider Agreements with Netscape, the
Company entered into advertising agreements with Netscape to deliver a
guaranteed number of Netscape advertising impressions on the Excite Network. As
consideration for such advertising services, Netscape agreed to reduce the
Company's $10.0 million in obligations under the Company's prior Premier
Provider Agreements with Netscape by $3.0 million, which was classified as
deferred revenues to be recognized over the one year term of the agreements
based upon delivery of a specified number of advertising impressions. For the
year ended December 31, 1996, the Company recognized approximately $1.8 million
in revenue as a result of these agreements. See Notes 12 and 13 of Notes to
Consolidated Financial Statements.
Cost of Revenues
Cost of revenues was $4.1 million, or 28% of total revenues for 1996. Cost
of revenues for 1994 and 1995 was not comparable to 1996 as the nature of the
Company's revenues changed significantly from 1995 with the launch of the
Company's services in October 1995. In the fourth quarter of 1996, the Company
recognized $186,000 in non-cash expenses for the amortization of purchased
technology relating to the acquisition of the WebCrawler Assets.
Gross Margin
Gross margin was 72% of total revenues for 1996. Gross margins for 1994 and
1995 were not comparable to 1996 as the nature of the Company's revenues changed
significantly from 1995 with the launch of the Company's services in October
1995.
Operating Expenses
Included in operating expenses for 1996 was a $3.5 million charge for
purchased in-process technology related to the Acquisition, $3.1 million in
merger and acquisition related costs relating to the merger with McKinley and
the Acquisition and $11.9 million in distribution license fees including $1.6
million relating to the issuance of the AOL Warrant during the first quarter of
1996 and $10.0 million for distribution license agreements with Netscape ($6.5
million of which had been paid in cash or services as of December 31, 1996)
during the second quarter of 1996. The Company has recorded deferred
compensation of $640,000 for the difference between the exercise price and the
deemed fair value of the Company's Common Stock for shares subject to options
granted in 1995. The majority of this deferred compensation is being charged to
general and administrative expenses and is being amortized over the vesting
period of the options, generally on a monthly basis over a four year period.
Deferred compensation amortized was $9,000 and $243,000 for 1995 and 1996,
respectively. The amortization of this deferred compensation will continue to
have an adverse effect on the Company's results of operations. See Note 8 of
Notes to Consolidated Financial Statements.
Product development. Product development expenses increased from $415,000,
or 141% of total revenues for 1994, to $2.8 million, or 295% of total revenues
for 1995, and increased in absolute dollars to $8.0 million, or 54% of total
revenues for 1996. This dollar increase is due primarily to increased
engineering and editorial staff required to develop and enhance the Company's
services as well as increased product development activities resulting from the
Acquisition and the merger with McKinley.
Sales and marketing. Sales and marketing expenses were immaterial for 1994
and increased in absolute dollars from $1.6 million, or 173% of total revenues
for 1995, to $21.1 million, or 143% of total revenues for 1996. This dollar
increase was due primarily to the launch of a significant media advertising
campaign during the fourth quarter of 1996 and to increased sales personnel
costs resulting from the transition during the first half of 1996 from the use
of outside advertising sales firms for the sales of advertisements to a direct
sales force and, to a lesser extent, the hiring of other additional sales and
marketing personnel and to increases in other advertising and promotional
expenses.
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<PAGE> 30
Distribution license fees. Distribution license fees were $11.9 million
for 1996. There were no distribution license fees for 1994 or 1995. Distribution
license fees included a one-time, non-cash charge of approximately $1.6 million
during the first quarter of 1996 related to the issuance of the AOL Warrant in
connection with a nonexclusive agreement entered into in March 1996, which will
be amended to be exercisable into an equivalent number of shares of Series E-3
Preferred Stock. See "Certain Transactions." Distribution license fees also
included a $10.0 million charge in the second quarter of 1996 relating to the
Company's prior Premier Provider Agreements with Netscape, which expire in April
1997. See "Risk Factors -- Dependence on Netscape and AOL."
General and administrative. General and administrative expenses increased
from $399,000, or 136% of total revenues for 1994, to $2.3 million, or 244% of
total revenues for 1995, to $7.1 million, or 48% of total revenues for 1996.
This dollar increase in general and administrative expenses was due to increased
personnel, professional service fees, provision for doubtful accounts and
relocation to new facilities to support the Company's growth.
Charge for purchased in-process technology. The Company recognized a charge
of $3.5 million in the fourth quarter of 1996 for purchased in-process
technology related to the Acquisition. The $331,000 charge for purchased
in-process technology related to the acquisition of City.Net in November 1995.
There were no charges for purchased in-process technology for 1994.
Other merger and acquisition related costs, including amortization of
goodwill and other purchased intangibles. Other merger and acquisition related
costs, including amortization of goodwill and other purchased intangibles,
totaled $3.1 million in 1996. The charge included approximately $2.2 million
related to the merger with McKinley, which consisted primarily of legal and
other professional consulting fees, personnel severance and outplacement
expenses and expenses related to the termination of contracts and
discontinuation of duplicate operations and facilities in the third quarter of
1996, and approximately $769,000 related to the amortization of goodwill and
other intangible assets in 1996 resulting from the Acquisition and the
acquisition of City.Net and other intangible assets. There were no other
significant merger and acquisition related costs for 1994 and 1995.
Interest income (expense) and other. Interest income increased from $5,000
for 1995 to $1.4 million for 1996. This increase reflects larger amounts of
interest being earned on higher average investment balances, due primarily to
cash received from the Company's Series D Preferred Stock financing and initial
public offering in the first half of 1996. Interest expense increased from
$50,000 for 1995 to $409,000 for 1996. This increase was due primarily to
increased expenses associated with capital lease obligations and, to a lesser
extent, interest paid on bank borrowings. Interest income and interest expense
were immaterial for 1994.
Income Taxes
At December 31, 1996, the Company had federal and state net operating loss
carryforwards of approximately $37.9 million and $37.7 million, respectively.
The federal net operating loss carryforwards will expire beginning in 2009
through 2010, if not utilized. The state net loss operating carryforwards will
expire at various dates beginning in 1999 through 2001. An ownership change, as
defined in the Tax Reform Act of 1986, may restrict the utilization of
carryforwards. 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 the Company. See Note 9 of Notes to
Consolidated Financial Statements.
29
<PAGE> 31
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth a summary of the Company's unaudited
quarterly results for the nine quarters in the period ended March 31, 1997,
together with the percentage of total revenues represented by such results. This
information has been derived from unaudited consolidated financial statements of
the Company that, in the opinion of management, reflect all recurring
adjustments necessary to fairly present this information when read in
conjunction with the Company's Consolidated Financial Statements and Notes
thereto appearing elsewhere herein. The Company believes that quarterly
operating results for 1995 are not comparable to those for 1996 as the nature of
the Company's business changed significantly from 1995 with the launch of the
Company's services in October 1995. The results of operations for any quarter
are not necessarily indicative of the results to be expected for any future
period. See "Risk Factors -- Potential Fluctuations in Quarterly Results;
Unpredictability of Future Revenues."
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1995 1995 1995 1995 1996 1996 1996 1996 1997
-------- -------- --------- -------- -------- -------- --------- -------- --------
(IN THOUSANDS UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total revenues................ $ 28 $ 314 $ 37 $ 574 $ 1,374 $ 2,816 $ 4,049 $ 6,518 $ 7,515
Cost of revenues:
Cost of revenues excluding
amortization.............. 20 104 19 85 389 427 1,165 1,982 2,392
Amortization of purchased
technology................ -- -- -- -- -- -- -- 186 2,399
-------- -------- -------- -------- -------- -------- -------- -------- -------
Total cost of
revenues............ 20 104 19 85 389 427 1,165 2,168 4,791
-------- -------- -------- -------- -------- -------- -------- -------- -------
Gross profit.................. 8 210 18 489 985 2,389 2,884 4,350 2,724
-------- -------- -------- -------- -------- -------- -------- -------- -------
Operating expenses:
Product development......... 258 403 785 1,364 1,376 2,109 2,038 2,507 3,066
Sales and marketing......... 31 193 460 964 2,489 3,203 6,304 9,107 6,281
Distribution license fees... -- -- -- -- 1,625 10,000 253 -- 30
General and
administrative............ 158 386 495 1,287 1,141 2,782 1,753 1,405 1,289
Charge for purchased
in-process technology..... -- -- -- 331 -- -- -- 3,500 --
Other merger and acquisition
related costs including
amortization of goodwill
and other purchased
intangibles............... -- -- -- -- -- 73 2,292 769 953
-------- -------- -------- -------- -------- -------- -------- -------- -------
Total operating
expenses............ 447 982 1,740 3,946 6,631 18,167 12,640 17,288 11,619
-------- -------- -------- -------- -------- -------- -------- -------- -------
Operating loss................ (439) (772) (1,722) (3,457) (5,646) (15,778) (9,756) (12,938) (8,895)
-------- -------- -------- -------- -------- -------- -------- -------- -------
Net loss...................... $ (442) $ (769) $(1,739) $(3,485) $(5,644) $(15,408) $ (9,354) $(12,711) $(8,784)
======== ======== ======== ======== ======== ======== ======== ======== =======
</TABLE>
AS A PERCENTAGE OF TOTAL REVENUES:
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1995 1995 1995 1995 1996 1996 1996 1996 1997
-------- -------- --------- -------- -------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total revenues............... 100% 100% 100% 100% 100% 100% 100% 100% 100%
Cost of revenues:
Cost of revenues excluding
amortization............. 71 33 51 15 28 15 29 30 32
Amortization of purchased
technology............... -- -- -- -- -- -- -- 3 32
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total cost of
revenues........... 71 33 51 15 28 15 29 33 64
-------- -------- -------- -------- -------- -------- -------- -------- --------
Gross profit................. 29 67 49 85 72 85 71 67 36
-------- -------- -------- -------- -------- -------- -------- -------- --------
Operating expenses:
Product development........ 921 129 2,122 237 100 75 50 38 41
Sales and marketing........ 111 61 1,243 168 181 114 156 140 83
Distribution license
fees..................... -- -- -- -- 119 355 6 -- --
General and
administrative........... 564 123 1,338 224 83 99 43 21 17
Charge for purchased
in-process technology.... -- -- -- 58 -- -- -- 54 --
Other merger and
acquisition related costs
including amortization of
goodwill and other
purchased intangibles.... -- -- -- -- -- 2 57 12 13
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total operating
expenses........... 1,596 313 4,703 687 483 645 312 265 154
-------- -------- -------- -------- -------- -------- -------- -------- --------
Operating loss............... (1,567) (246) (4,654) (602) (411) (560) (241) (198) (118)
-------- -------- -------- -------- -------- -------- -------- -------- --------
Net loss..................... (1,579)% (245)% (4,700)% (607)% (411)% (547)% (231)% (195)% (117)%
======== ======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
30
<PAGE> 32
With the exception of the third quarter of 1995, the Company's total
revenues have increased in each of the nine quarters ending March 31, 1997. The
decline in revenues in the third quarter of 1995 was due primarily to a
reduction in contract revenue, which was not a significant source of revenues in
1996 or the first quarter of 1997. Gross margins for 1995 are not comparable to
gross margins for 1996 as the nature of the Company's revenues changed
significantly in 1996 with the launch of the Company's services in October 1995.
Gross margins have generally declined during 1996, due primarily to the growth
in infrastructure associated with the acquisition of McKinley, the amortization
of purchased in-process technology arising from the Acquisition and the
expansion of operations to support an expanded Excite Network.
During the fourth quarter of 1996, the Company entered into an agreement,
which closed in March 1997, to acquire the WebCrawler Assets from AOL in
exchange for 1,250,000 and 700,000 shares of the Company's Series E-1 and E-2
Convertible Preferred Stock, respectively, and recorded the Acquisition as of
December 1, 1996. As a result of the Acquisition, during the fourth quarter of
1996, the Company expensed $3.5 million for purchased in-process technology and
recorded amortization of other purchased intangibles of $769,000. See Notes 3
and 13 of Notes to Consolidated Financial Statements. During the second quarter
of 1996, the Company entered into two distribution license agreements with
Netscape for total consideration of $10.0 million, which was expensed during the
second quarter of 1996. In the future, it is anticipated that any such
consideration will be expensed over the term of the agreement. See Notes 12 and
13 of Notes to Consolidated Financial Statements.
Operating expenses other than distribution license fees and other merger
and acquisition related costs including amortization of goodwill and other
purchased intangibles generally increased during 1996. The increase in such
other operating expenses during 1996 is due to: increased personnel costs to
support the growth in headcount across all operating departments; recording of
the merger with McKinley in the third quarter of 1996 and of the Acquisition in
the fourth quarter of 1996, which resulted in additional product development and
general and administrative expenses; and the creation and launch of the Excite
brand advertising and promotion campaign, which resulted in additional sales and
marketing expenses of approximately $5.0 million in the fourth quarter of 1996.
The increase in sales and marketing expenses during the fourth quarter of 1996
was due primarily to the Company's brand-building advertising campaign during
that period.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1997, the Company had $13.3 million in unrestricted cash, cash
equivalents and short-term investments. Prior to its initial public offering,
the Company financed its operations and met its capital expenditure requirements
primarily from proceeds of the private sale of equity and debt securities
totaling approximately $18.2 million. In April 1996, the Company completed its
initial public offering of Common Stock. The Company sold 2,300,000 shares of
its Common Stock for net proceeds of approximately $35.4 million, net of
underwriting discounts and other offering costs. During the third quarter of
1996, the Company completed its merger with McKinley, resulting in a significant
increase in headcount and overhead, as well as the assumption and payment of
additional liabilities. The Company maintains its cash and cash equivalents in
short-term and medium-term investment-grade interest-bearing securities until
required for other purposes.
In connection with the merger with McKinley, the Company assumed McKinley's
obligations pursuant to a commitment letter with a bank. Pursuant to this
commitment, McKinley had a revolving line of credit and note of up to $1.1
million which bear interest at the bank's prime rate plus 1%. Outstanding
amounts under this commitment were due March 31, 1997. In March 1997, the
Company entered into a new $6.0 million line of credit which replaced the
McKinley line of credit, $3.0 million of this new line of credit will mature in
six months, with the remainder maturing in one year. This line of credit bears
interest at rates ranging from the bank's prime rate to prime plus .25%, and is
secured by substantially all of the Company's assets. This line of credit
agreement also contains certain financial covenants, including minimum
requirements for tangible net worth, quick ratio and accounts receivable
balances, as well as prohibiting the declaration and payment of cash dividends
on the Company's capital stock without the prior written consent of the bank. As
of March 31, 1997, the Company had outstanding borrowings against this line of
credit of $6.0 million and therefore, this line of credit will not represent a
source of liquidity in the future unless it has been
31
<PAGE> 33
previously repaid. As of March 31, 1997, the Company was in compliance with all
financial covenants. See Notes 4 and 13 of Notes to Consolidated Financial
Statements.
The Company's operating activities used cash of $4.7 million, $26.1 million
and $10.4 million in 1995, 1996 and the three months ended March 31, 1997,
respectively. The increased use of cash in 1996 was primarily attributable to
increased operating expenses and increases in accounts receivable and prepaid
expenses, reduced in part by increases in accrued distribution license fees,
accounts payable and other accrued liabilities. The increased use of cash during
the three months ended March 31, 1997 was primarily attributable to increased
payments related to the Company's advertising campaign during the fourth quarter
of 1996 as well as payments to Netscape under the Company's prior Premier
Provider Agreements.
Investing activities used cash of $1.3 million, $19.4 million in 1995 and
1996. For the three months ended March 31, 1997, investing activities generated
$9.5 million of cash. For all periods, the cash used and generated from
investing activities resulted primarily from net purchases and maturities of
short-term investments and purchases of property and equipment. Financing
activities generated cash of $6.7 million, $48.7 million and $4.8 million in
1995, 1996 and the three months ended March 31, 1997, respectively, due to the
issuance of Preferred and Common Stock and promissory notes, proceeds from the
exercise of warrants and options and draws against the Company's line of credit.
The Company's principal commitments at December 31, 1996 consisted of
obligations under operating and capital leases comprising $15.7 million and $7.1
million, respectively. In addition, under its new Premier Provider and Marquee
Provider Agreements with Netscape, the Company is obligated to make minimum cash
payments of $5.25 million during 1997. See Note 13 of Notes to Consolidated
Financial Statements.
Capital expenditures have been, and future expenditures are anticipated to
be, primarily for facilities and equipment to support expansion of the Company's
operations and management information systems. The Company expects that its
capital expenditures will increase as its employee base grows. As of March 31,
1997, the Company did not have any material commitments for capital
expenditures, although the Company anticipates that its planned purchases of
capital equipment and leasehold improvements will require additional
expenditures of approximately $5.0 million for the remainder of 1997, a portion
of which may be financed from proceeds of this offering and a portion of which
may be financed through equipment leases and bank borrowings.
The Company expects to use the net proceeds of this offering for general
corporate purposes, including working capital. Furthermore, from time to time
the Company expects to evaluate the acquisition of products, businesses and
technologies that complement the Company's business, or the Company may enter
into distribution agreements, for which a portion of the net proceeds may be
used. Currently, however, the Company does not have any understandings,
commitments or agreements with respect to any such acquisitions or distribution
agreements. Management expects that cash in excess of current requirements will
be invested in investment-grade, short-term and medium-term interest-bearing
securities. See "Use of Proceeds."
The Company believes that the net proceeds from this offering and available
funds will be sufficient to meet its anticipated cash needs for working capital,
capital expenditures and business expansion for at least the next 12 months. See
"Risk Factors -- Future Capital Needs; Uncertainty of Additional Financing."
32
<PAGE> 34
BUSINESS
The following Business section contains forward-looking statements which
involve risks and uncertainties. The Company's actual results could differ
materially from those anticipated in these forward-looking statements as a
result of certain factors, including those set forth under "Risk Factors" and
elsewhere in this Prospectus.
The Excite Network, which includes the Excite and WebCrawler brands,
provides a gateway to the Web that organizes, aggregates and delivers
information to meet the needs of individual consumers. Designed to help
consumers make sense of the Web, the Excite Network contains a suite of
specialized information services, organized under 14 topical channels, which
combine proprietary search technology, editorial Web reviews, aggregated content
from third parties, bulletin boards, chat and personalization capabilities. The
Company's goal is to be the Web's leading branded media network with the largest
consumer reach, thereby creating an efficient means of advertising on the Web.
To this end, the Excite Network serves as a home base where consumers can
gather, interact and return to during each Web experience. For the most recent
month reported, February 1997, PC Meter, an independent Web tracking service,
estimated that the Excite Network was used by 44% of online households at least
once during this month which was more than any other service reported by PC
Meter. For the month of March 1997, the Company had an average of approximately
14.6 million page views per day (including page views attributable to the
WebCrawler Assets).
INDUSTRY BACKGROUND
The Web as a new medium
International Data Corporation estimates that the Web consumer population
will grow from approximately 35 million users in 1996 to approximately 160
million users by 2000. Veronis, Suhler & Associates estimates U.S. brand
advertising spending by U.S. companies will exceed $106 billion in 1997, and
reach approximately $136 billion by the year 2000. The Company believes that the
Web's emergence as a mass medium with attractive consumer demographics and
interactive capabilities make it a compelling medium for advertisers to deliver
their messages. Jupiter Communications reported that approximately $301 million
was spent on Web and online advertising in 1996, and estimates that this amount
will grow to approximately $5 billion in the year 2000.
The Web is an attractive advertising medium because of its interactivity,
flexibility, targetability, proactivity and accountability. The interactive
nature of Web advertising enables advertisers to establish dialogues and more
meaningful relationships with potential customers. The flexible nature of a
digital medium like the Web enables advertisers to change their messages on a
daily basis in response to real world events and consumer feedback. The ability
to target advertisements to broad audiences, specific regional populations,
affinity groups or select individuals makes Web advertising versatile. Unlike
traditional advertising where advertisements are presented to consumers who may
or may not have an interest in them, Web advertisements are only delivered when
a consumer calls for a piece of information or a particular Web page. Unlike
more traditional media, the Company believes that the Web is a more accountable
medium where advertisers can receive reports on the impression levels,
demographic viewership and effectiveness of their advertisements.
The growing diversity of Web advertisers is one measurement of the Web's
emergence as an effective advertising medium. Web advertising pioneers were
mostly technology and Internet-related companies. Today, a growing percentage of
Web advertisers consist of more traditional business and consumer companies and
represent a growing percentage of Web advertisers. For example, Jupiter
Communications reported that Toyota, Proctor & Gamble and American Express spent
over $2.2 million, $1.6 million and $1.7 million, respectively, on Web
advertising in 1996. In addition, the Company believes that financial service,
packaged goods, automotive and pharmaceutical companies are beginning to use the
Web to deliver advertising messages.
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Challenges facing the new medium
The rapid growth of the Web and proliferation of Web sites has made it
increasingly difficult for consumers, content providers and advertisers to
effectively reach one another. Consumers are challenged to quickly find the most
relevant information, products or services related to a particular interest or
topic. Content providers are challenged to differentiate their offerings in an
increasingly crowded medium and to improve the visibility of their sites.
Advertisers are challenged to more effectively deliver their advertising
messages to both large interested audiences and targeted groups, and to measure
the impact of their messages.
THE EXCITE SOLUTION
The Excite Network, which includes both the Excite and WebCrawler brands,
provides a gateway to the Web that organizes, aggregates and delivers
information to meet the needs of individual consumers. Designed to help
consumers make sense of the Web, the Excite Network contains a suite of
specialized information services, organized under 14 topical channels, which
combine proprietary search technology, editorial Web reviews, aggregated content
from third parties and personalization capabilities.
The Company seeks to make the Excite Network a leading branded media
network that is the principal gateway for all of a consumer's information needs
on the Web. As such, the Excite Network is intended to serve as a home base
where consumers will gather, interact and return to during each Web experience.
For the most recent month reported, February 1997, PC Meter, an independent Web
tracking service, estimated that the Excite Network was used by 44% of online
households at least once during that month, which was more than any other
service reported by PC Meter. In addition, for the month of March 1997, the
Company had an average of approximately 14.6 million page views per day
(including page views attributable to the WebCrawler Assets).
The Excite Network's heavy consumer traffic, specialized information
services, channels-based content, targeting technology and direct sales
organization offer advertisers an efficient method of advertising on the Web.
With a single monthly advertising buy on the Excite Network, advertisers have
the potential to reach nearly half of all home-based Web consumers. Excite's
specialized services, channels-based content and targeting technology also
enable advertisers to either target the mass audience of Web consumers or tailor
an advertising strategy for specific affinity groups or consumers possessing
certain demographic traits or requesting information relevant to certain
advertisers. The Company has also developed proprietary tools to measure the
effectiveness of and provide meaningful feedback with respect to advertisements
on the Excite Network.
STRATEGY
The Company's goal is to be the Web's leading branded media network with
the largest consumer reach. The key elements of the Company's strategy include:
Expand and enhance the Excite Network
The Company intends to broaden and deepen its network of information
services by leveraging its search technology, editorial reviews, strategic
partners' content and personalization capabilities. To this end, in April 1997,
the Company launched its channels-based content format. The Company expects to
continue marketing its network under both the Excite and WebCrawler brands. By
offering a network of complementary services, the Company seeks to increase the
amount of time consumers spend using the Excite Network. By offering a network
of brands, the Company seeks to build loyalty and awareness from different
consumer demographics and to market this large, segmented audience to
advertisers.
Build brand loyalty and consumer retention
The Company seeks to expose as many consumers as possible to the services
available on the Excite Network. To this end, the Company has entered into
arrangements which give the Excite Network highly visible placements on heavily
trafficked Web sites. In addition, the Company intends to continue to market and
advertise its Excite brand and WebCrawler brand in order to increase consumer
awareness among both
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experienced and new Web consumers. For example, the Company launched a national
brand-building campaign centered around the Jimi Hendrix song "Are You
Experienced?" and incurred expenses of $5.0 million for this campaign during the
fourth quarter of 1996. The Company believes that frequent exposure to its
services and brands leads to increased levels of consumer loyalty and retention.
Maximize value for advertisers
The Company intends to continually develop innovative approaches for its
advertisers through advancements in demographic targeting, consumer tracking and
measurement technologies. The Company seeks to aggregate the largest possible
Web audience in order to give advertisers the most efficient and effective
advertising placements. The Company has developed and will continue to develop
services which encourage consumers to provide demographic and interest
information which the Company can then use to more effectively target
advertising. The Company also believes it has the strongest Web advertising
sales organization, consisting of 32 professionals who educate, guide and advise
advertisers on optimizing their Web advertising purchases.
Increase traffic through distribution
The Company seeks to maximize traffic by increasing the number and
visibility of entry points to the Excite Network. The Company has established
premier positions, on Web sites operated by Microsoft and Netscape, two of the
most heavily trafficked Web sites, and has entered into an exclusive co-branding
agreement with AOL, the leading OSP. The Company has agreed to develop a
comprehensive directory for PointCast's new Connections Channel and integrate
its Excite Search service throughout the PointCast Network. There also exist
hundreds of thousands of hypertext links from across the Web pointing to the
Excite Network. In addition, the Company has established a number of hardware
distribution relationships with companies such as Apple, Sega and WebTV.
Expand content relationships
The Company has entered into relationships with third-party information
providers seeking to exchange their content for distribution on the Excite
Network. These content providers typically share revenues with the Company in
exchange for such distribution. The Company believes that these relationships
will enable it to increase the breadth of content it offers consumers without
incurring significant development or maintenance costs. The Company also
believes that these relationships, particularly with the launch of its new
channels format, will help solidify its position as an easy-to-use interface for
Web services and information. The Company currently has such relationships with
Preview Travel, Big Book, WhoWhere, MapQuest and Quote.com.
Pursue global opportunities
The Company believes that there are significant opportunities to leverage
the Excite Network internationally. The Company is localizing its services for
Germany, France, Scandinavia, the United Kingdom and Japan and is exploring
other international markets. The Company is focused on international
distribution opportunities and has established relationships with Netscape, the
Microsoft Network ("MSN"), Virgin and NETCOM.
THE EXCITE NETWORK
The Company offers a network of services under the Excite brand and the
WebCrawler brand that target different segments of Web consumers.
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Excite channels
In April 1997, the Company launched a channels-based format for its service
and content to provide consumers with a more intuitive interface that reflects
the way they navigate through other forms of media and enables advertisers to
more effectively reach target consumers. The entire suite of Excite services can
be accessed from each channel. By combining existing services with specialized
information from leading content providers, Excite provides channel specific
content including topical news, directories, bulletin boards, chat and search
capabilities.
The Excite brand includes the following channels of topical interest:
<TABLE>
<S> <C>
Arts & Entertainment My Channel
Business & Investing News
Careers & Education People & Chat
Computers & Internet Politics & Government
Games Shopping
Health & Science Travel
Lifestyle
</TABLE>
Excite services
Excite Search. The Excite Search Web search service helps consumers find
information on the Web by searching through Excite's index of Web documents.
Since October 1995, the Company has substantially increased the size of its
index of Web documents, from 1.5 million Web documents to over 50 million. The
Company's automatic spider technology completely refreshes this index in less
than a month. Excite's search technology allows consumers to search in multiple
ways: by keyword; by concept; by Boolean logic; and by proper name. Excite's
query-by-example technology allows users who find a document of interest to find
similar documents with the click of a button. In addition, Excite's automatic
abstract technology provides consumers with a brief abstract of each document
returned by a search.
Excite Reviews. The Excite Reviews Web site review service contains over
60,000 professionally-authored reviews of Web sites. Each site reviewed is also
ranked on a scale of one to four. Consumers can find these reviews by browsing a
series of categories and subcategories within one of Excite's 14 channels or by
searching directly using the Company's concept-based searching technology.
Excite's reviews are intended to help narrow information choices to only
high-quality and relevant Web sites and to present information in a lively and
entertaining style.
Excite City.Net. The Excite City.Net travel and destination service helps
consumers locate regional and travel oriented content using a geographically
organized database. This Web database is continually updated to provide access
to information on travel, entertainment, local business, government and
community services for a number of major cities and regions throughout the
world. Currently, the Excite City.Net database provides access to information on
over 4,300 cities and regions.
Excite Live! The Excite Live! personalized information service permits
consumers to personalize their Web interface. Consumers using Excite Live!
create a personal profile to select and update information of interest, such as
personalized stock quotes, news headlines, local and national sports scores,
updates on local and national weather, weekly television listings and horoscopes
as well as personal reminders. In order to use this service, consumers must
register and volunteer interest and demographic information which the Company
then uses to target both content and advertising. Currently, Excite Live! has
approximately 300,000 registered users.
Excite NewsTracker. The Excite NewsTracker personalized news service is a
personalizable news clipping service. Consumers can define custom topics that
they would like to monitor such as business competition, a local sports team, or
a favorite hobby. Using Excite's "spider" technology, Excite NewsTracker scans
300 magazines and newspapers on the Web twice daily (including such sources as
The New York Times, The Washington Post, The Boston Globe, Sports Illustrated,
Forbes and Fortune) for articles relevant to that consumer's selected topics and
provides the consumer with a listing of relevant articles. Consumers can
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also search a database containing the last two weeks of news from these
publications or browse the news headlines from these sources by general
category, such as top stories, business or entertainment.
ExciteSeeing Tours. The ExciteSeeing Tours Web guide service is a "how to"
service designed to instruct a consumer how to perform a particular task using
information from the Web. Tours are professionally written and contain a mix of
narrative and hypertext links to relevant Web resources related to a topic.
Currently Excite has over 500 Web tours on such topics as researching
investments, choosing wines and financing a college education. Tours are
organized and can be accessed from a hierarchical menu of categories.
Excite Talk! The Excite Talk! Web community service is a bulletin board
and chat service which permits consumers to discuss topics of mutual interest.
Consumers can create their own discussions or choose to participate in ongoing
discussions. The Company believes that its Excite Talk! service encourages
consumer and brand loyalty by fostering a sense of community and encouraging
return visits.
Excite Reference. The Excite Reference online reference service provides
consumers with an interface into multiple information services such as yellow
pages, white pages, email finders, people finders, maps and shareware. The
Company does not develop any of these services itself, but instead has
relationships with third-party providers of these services. Generally, these
third parties co-brand their services and share advertising revenue with the
Company in exchange for distribution on the Company's Excite Reference pages.
Current partners include Big Book, WhoWhere, MapQuest and Quote.com. The Company
believes that this type of relationship is beneficial as it enables the Company
to offer a variety of services to consumers without having to incur development
and maintenance costs while enabling the Company to have the opportunity to
receive revenue from these services.
WebCrawler services
WebCrawler Search. The WebCrawler Web Search service helps consumers find
information on the Web by searching through WebCrawler's index of Web documents.
WebCrawler Search enables consumers to search the Web in multiple ways: by
keyword, by Boolean logic, by phrase and by example, or by document similarity.
Search results can be listed by title only or by full listing with an abstract.
Listings which have been reviewed are identified and consumers can easily click
to the review.
WebCrawler Select. The WebCrawler Select Web site review service contains
over 4,600 professionally-authored Web site reviews organized into 18 top-level
categories. Consumers can find these reviews by selecting one of the top-level
categories, by searching on a topic of interest or by browsing the "what's new"
page. WebCrawler's Select database is intended to help consumers narrow
information choices to only the most valuable Web sites.
The Company also offers on the WebCrawler service, WebCrawler Map, Search
the Web Backwards and Web Roulette.
MARKETING
The Company endeavors to achieve broad market penetration and increased
usage of the Excite Network services by:
Building distribution
The Company believes that maintaining a presence on Web access points and
other high-traffic Web sites is an important factor in obtaining traffic and
attracting advertisers and that many Web site operators are increasingly focused
on obtaining distribution for their Web content. The Company seeks to obtain new
consumers by providing multiple gateways into the Excite Network, thereby
increasing its visibility on Web access points. The Company has established
premier positions on Web sites operated by Microsoft and Netscape, two of the
most highly-trafficked Web sites, and has entered into a co-branding
relationship with AOL, the leading OSP. On the Microsoft and Netscape Web sites,
the Company has such positions, for both its Excite and WebCrawler brands. In
addition, the Company has established a number of hardware distribution
opportunities with companies such as Apple, Sega and WebTV. Typically, these
arrangements
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feature Excite as the default Web navigation network. See "-- Strategic
Alliances," and "Risk Factors -- Dependence on Netscape and AOL" and
"-- Dependence on Third-Party Relationships."
Building brand awareness and recognition
The Company's marketing goal is to build the brands of the Excite Network
into well-recognized consumer brands. During the fourth quarter of 1996, the
Company launched a national brand-building campaign centered around the Jimi
Hendrix song "Are You Experienced?" and incurred expenses of $5.0 million for
this campaign. This campaign included television, national print, radio and
outdoor advertising. The Company believes this campaign resulted in increased
Excite brand awareness. The Company is continuing its brand advertising
campaign, although at lower spending levels as compared with the fourth quarter
of 1996. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations." The Company believes that the WebCrawler brand has
strong consumer awareness today and the Company will make selective marketing
investments to maintain that awareness.
Increasing usage by existing consumers
The Company believes that in an effort to increase page views, Web site
operators are increasingly adding content and other features to their sites to
encourage users to spend more time on their Web sites. The Company regularly
enhances its services and updates the content hosted on the Excite Network in
order to encourage consumers to utilize the Excite Network more frequently. In
April 1997, the Company launched a channels-based format for its services and
content to provide consumers with a more intuitive interface that reflects the
way they navigate through other forms of media. The Company has also developed
personalized services, such as Excite Live! and Excite NewsTracker, that enable
consumers to establish a personal profile and receive information targeted to
their interests. Because customizing these personalized services typically
requires some effort and time on the part of the consumer, the Company believes
that consumers who use these personalized services will continue to use the
Excite Network and not switch to a competitive service. The Company also offers
community building services, such as Excite Talk!, designed to increase consumer
usage and loyalty.
ADVERTISING AND SALES
The Company derives substantially all of its revenues from the sale of
advertisements. Advertisements on the Excite Network are banner or billboard
style advertisements and are prominently displayed throughout the Excite
Network. As the consumer interacts with the Excite Network, new advertisements
are displayed. From each advertisement screen, consumers can hyperlink directly
to an advertiser's own Web site, thus enabling the advertiser an opportunity to
directly interact with a consumer who has expressed interest in the
advertisement. The Company believes that since consumers view advertisements
only after they request a new page, the focus of the consumer's attention to the
advertisement is likely to be higher than it is in other forms of media. With
the Company's new channels format, growing number of services and ability to
finely target consumer interest with appropriate and related advertising, the
Company believes it can further increase the effectiveness of advertisements
placed on the Excite Network.
The Company generally enters into agreements with advertisers pursuant to
which the Company guarantees a minimum number of impressions for a fixed fee.
The Company charges higher per impression fees for advertising products that
target a specific audience. The Company's list prices for advertising currently
range from $26 to $65 CPM. The Company offers a variety of advertising programs
that enable advertisers to target their audiences at various levels of market
segmentation; mass market placement, which does not have any market
segmentation; and affinity placement, which delivers advertisements to an
audience with a specific content interest. In April 1997, the Company launched
its channels format which is intended to offer advertisers the ability to more
effectively target their advertisements to consumers. Each channel focuses on
specific topics such as Arts & Entertainment, Sports, Business and Computing,
among others. Through its channel format, the Company intends to provide
advertisers with the ability to purchase targeted advertising such as they do in
more traditional channels-based media.
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The Company's existing and planned advertising programs range from those
with a broad reach to those that are specifically targeted:
General Rotation (at a CPM of $26). The Company offers a general
rotation program that enables advertisers to reach a large number of Web
consumers. Advertising banners rotate through well-trafficked Excite
Network pages, including the home page and results pages of Excite and
WebCrawler. This program delivers a higher volume of mass market consumers
and provides frequent exposure for advertisers.
Content (at a CPM of $35). The Company provides a set of programs
that provide advertisers with the opportunity to target advertising by
content within services such as Excite Reviews, Excite NewsTracker,
ExciteSeeing Tours and WebCrawler Select pages. These programs deliver
targeted messages to preselected affinity groups in categories such as
sports, computing, automotive and finance.
City.Net (at a CPM of $40-$45). The Company provides a program on its
Excite City.Net service that enables advertisers to direct advertisements
to geographical affinity groups. This targeted approach can be used to
complement a national marketing strategy with local or regional messages.
Keywords (at a CPM of $48-$65). The Company's keyword program offers
advertisers an opportunity to target specific audiences by assigning
advertisement banners to certain key words or concepts. For example, when
Windows 95 is searched, a Microsoft advertisement could be displayed on the
search results page. Because of the ability to customize the targeted
nature of potential customers, the Company is able to charge premium rates
for such keyword advertising.
Excite Live! (to be offered at a CPM of $60-$80). The Company plans
to enable advertisers to target Excite Live! consumers at a greater level
of detail and precision than other advertising methods. Based upon the
demographic and psychographic information collected from subscribers of
Excite Live!, advertisers will be able to deliver targeted messages to
groups of individuals.
Currently, a substantial majority of the advertisements sold on the Excite
Network are general rotation advertisements. The Company's strategy is to
migrate advertisers to more targeted advertisement placements such as on its new
channels pages. The CPM rates listed above are based on the Company's standard
rate card. Actual CPM rates depend upon a variety of factors, including, without
limitation, the duration of the advertising contract and the number of
impressions purchased, and are often negotiated on a case-by-case basis and
actual CPM rates experienced by the Company have been lower than its standard
rate card rates.
Through Excite's various advertising programs, advertisers can combine
multiple advertising packages in order to develop a complete advertising plan
that reaches many audience types and that is designed to maximize reach,
frequency of exposure and consumer response. For example, an airline company
might utilize a general rotation advertisement as a base of mass exposure. The
advertising campaign could be enhanced by using a topical affinity consumer
targeting approach, by either sponsoring or advertising on the Excite Network
travel channel or purchasing keywords such as "travel" or "airfare" on any of
the Company's related services including Excite Search, Excite Reviews, Excite
Talk! or WebCrawler Select.
The Company has built a direct sales organization of 32 professionals
located in San Francisco, New York and Los Angeles. The Company believes that
such a sales force dedicated to selling advertising only on the Excite Network
provides a higher level of customer service and satisfaction to advertisers
during both the buying and reporting process. Because the Company's direct sales
organization is focused and educated on the Excite Network, they can best match
high value advertising opportunities with companies who can benefit from them.
Because the Company has a dedicated group of professionals focused on
advertising reporting and measurement, advertisers can receive up-to-date
information on the placement and effectiveness of their advertisements. In
addition, the Company believes that in order to be a leader in Web advertising
and provide the highest level of service, it must continue to develop
technologies for the precise and timely placement, targeting and measurement of
advertising.
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For 1996, over 500 brands from various industries were advertised on the
Excite Network as compared with 13 as of December 31, 1995. The following is a
list of brands or companies for which advertisers purchased more than $10,000 in
advertising on the Excite Network during 1996:
AUTOMOTIVE
Ford
Honda
Saturn
Toyota
CONSUMER
American Greetings
Disney
Duracell
FTD
Glaxo Wellcome
J. C. Penney
Kodak
L.L. Bean
Proctor & Gamble
Sears, Roebuck
Time Warner
FINANCIAL
American Express
Charles Schwab
Chemical Bank
Kaufmann Fund
Metlife
Prudential
Scudder
Wells Fargo Bank
PUBLISHING
The Atlanta Journal Constitution
The Chicago Tribune
Encyclopedia Brittanica
Newsweek
The New York Times
The Wall Street Journal
TECHNOLOGY
Apple
Fujitsu
Hewlett-Packard
Hitachi
IBM
Intel
Microsoft
Netscape
Silicon Graphics
Sun Microsystems
Toshiba
TELECOMMUNICATIONS
AT&T
GTE
MCI
Pacific Bell
Sprint
U S West
During 1996 and the first quarter of 1997, Netscape accounted for
approximately 12% of total revenues. No other customer accounted for more than
10% of revenues during such periods.
TECHNOLOGY
Search and retrieval technology
The Company's search services are based on proprietary retrieval technology
designed to permit efficient and highly effective searches by emphasizing
quality and precision in the search process. This technology combines a
concept-based retrieval technology with sophisticated browsing tools. In
addition, the Company has developed proprietary spider technology designed to
enhance the quantity and quality of information contained in the Company's
databases, thereby enhancing the quality of information retrieved in a search.
Concept-based retrieval. The Company believes that most Web navigation
companies use "keyword" searching in their retrieval process, in which only
those documents that contain the keywords specified in the query are retrieved.
While keyword searching is effective in some instances (and may be enhanced by
the use of a built-in thesaurus,) it does not allow the user to retrieve
information relevant to a search that does not include the exact text of a
keyword (or synonym, if a thesaurus is used.) For example, a keyword search of
the words "intellectual property" may not return documents relating to software
piracy or copyright law if such documents do not contain the words
"intellectual" or "property." Keyword searching may also result in the retrieval
of a great deal of irrelevant information that happens to contain the keyword.
The Company's concept-based retrieval technology uses advanced statistical
methods which it believes increase the precision
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or relevance of information retrieved. The Company's retrieval technology
analyzes information for statistical correlations between terms and documents.
These correlations, which can be loosely described as "concepts," are then used
to improve the retrieval process. Accordingly, a search can retrieve information
that is relevant to the consumer's query even if that information contains none
of the keywords in the original query.
Scalability. Because of the size of its database (approximately 50 million
Web documents) as well as the number of searches conducted (approximately 4 to 5
million pages per day,) the Company must maintain a strong core competency in
searching large databases efficiently. To this end, the Company has developed a
number of advanced, proprietary techniques to accelerate queries over large
databases while accommodating a large number of users.
Relevance enhancement. Retrieval of relevant documents on the Web can be
particularly challenging. Many documents may contain keywords which a consumer
may search but which are not relevant to the query. In addition, some authors
create documents which use frequently searched words, an activity referred to as
"stuffing," in an attempt to artificially enhance their relevance to certain
queries. Consequently, the Company has developed technology that is designed to
enhance the relevance of "high-quality" documents and reduce the relevance of
documents that are "low-quality."
Browsing tools. The Company's technology includes sophisticated browsing
tools that help consumers better understand the information that has been
retrieved. These browsing tools include:
Query-by-example. If a consumer retrieves a document that he or she
finds particularly appropriate, the consumer can click on a
"query-by-example" button. Without requiring the consumer to reformulate
the query, the system then executes an additional search and retrieves
documents that it finds to be statistically similar to the example
document.
Automatic abstracting. The Company's technology automatically creates
an abstract or summary of a Web document by selecting sentences from the
document that it finds to be statistically likely to closely describe its
core concepts. This technology lets consumers evaluate the relevancy of Web
documents without taking the time to visit them or read the entire
document. The Company believes that this abstracting function is superior
to abstracting functions of most competitive systems, which it believes
generally select the first few sentences of a document or select one or
more sentences containing the keywords of the search.
Spider technology. Information for the Company's databases is collected
through the use of "spiders," which are software programs that autonomously roam
the Web by following hypertext links, automatically identifying and collecting
material to be included in the Company's databases. The Company's spider
technology completely refreshes its index of 50 million pages in less than a
month. The Company's technology also allows it to refresh millions of the most
popular Web pages on a much more frequent basis (every few days.)
Personalization technology
The Company has developed a flexible set of tools to allow access to
customized content for each individual consumer. This technology is utilized in
the Excite Live! service. The Company also utilizes sophisticated learning
technology in its Excite NewsTracker service, which examines the concepts in a
consumer's profile and, over time, suggests related concepts that might also
interest the consumer.
Network operations
The Company believes that Web site operational performance is a significant
factor in attracting and maintaining a customer base on the Web. Operational
performance includes reliable 24 hour accessibility and fast page download time.
The Company has built a network operations center at its headquarters in
California. This center will enable the Company to provide direct control over
its main Web sites. In addition, in connection with its distribution agreement
with AOL, AOL maintains a mirrored computer hosting site in Reston, Virginia.
The Company believes that this will provide better access for customers in the
Eastern half of the country.
As of March 31, 1997, there were 75 employees on the Company's research and
development staff. Excluding charges for purchased in-process technology,
product development costs were $415,000, $2.8 mil-
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lion, $8.0 million and $3.1 million in 1994, 1995, 1996 and the three months
ended March 31, 1997, respectively. See "Risk Factors -- Technological Change;
Dependence on New and Enhanced Services; Risk of Delays" and "-- Risk of
Capacity Constraints; Dependence on Computer Infrastructure."
STRATEGIC ALLIANCES
Companies offering advertising-supported services on the Web compete with
other providers of Web content and services for user traffic and the number of
page views on their Web sites. As a result, many providers of Web services have
been entering into distribution arrangements, co-branding arrangements, content
arrangements and other strategic partnering arrangements with ISPs, OSPs, Web
browsers, operators of high traffic Web sites and other businesses in an attempt
to increase traffic and page views, with a view to making their Web sites more
attractive to Web advertisers. Accordingly, a key element of the Company's
business strategy is to enter into relationships with both Web access points and
content providers. To this end, the Company has entered into a number of
strategic alliances.
Netscape
The Company entered into agreements with Netscape in April 1996 pursuant to
which the Company's Excite and McKinley brands were each one of the five
"Premier Providers" on Netscape's "Net Search" page for a one year period. In
March 1997, the Company entered into new agreements which commence in May 1997
whereby the Excite brand will be one of four "Premier Providers" and the
Company's WebCrawler brand will be one of several "Marquee Providers" of search
and navigation services accessible from Netscape's "Net Search" page. The
Company believes that a substantial amount of its historic traffic on a weekly
basis has been attributable to Netscape. See "Risk Factors -- Dependence on
Netscape and AOL."
AOL
In November 1996, the Company entered into a five-year distribution
agreement with AOL pursuant to which the Company will provide to AOL a
co-branded version of Excite to be named NetFind powered by Excite, and, for a
minimum of a two year period, the NetFind powered by Excite service will be the
exclusive provider of Web search and directory services for AOL. The NetFind
service became available on AOL in March 1997. AOL and Excite will share
advertising revenues derived from the use of this service by AOL subscribers. If
either of the parties does not elect to continue the exclusivity period for the
remaining three year period of the agreement, AOL will be permitted to offer
other Web navigation services on its online service; however, NetFind powered by
Excite will remain as the "default" Web navigation service and Excite will
receive a larger percentage of the advertising revenues derived from the use of
NetFind powered by Excite. Excite will also advertise AOL's service on Excite
and AOL will pay a commission to the Company for new AOL subscribers referred
from these advertisements. The Company is also required to satisfy certain
technical, product feature and editorial criteria. As a result of its
implementation of a flat-rate pricing program, there have been numerous reports
in the press and potential litigation regarding, among other things, AOL's
capacity to handle a large number of subscribers. The Company's operating
results could be adversely affected if AOL were to lose significant market
share, experience a significant decrease in the number of its subscribers, or
experience a significant decrease in the number of its subscribers utilizing AOL
for their Web search and retrieval needs, whether as a result of such reports,
litigation or otherwise. See "Risk Factors -- Dependence on Netscape and AOL,"
"-- Acquisition Strategy; Integration of Past and Future Acquisitions" and
"Certain Transactions."
Microsoft
The Company has entered into a distribution and license agreement with
Microsoft pursuant to which Excite is accessible to Microsoft's customers
through MSN, Microsoft's Internet Explorer Web Browser and, at Microsoft's
discretion, other channels. The Company and Microsoft share advertising space
availability, or barter, for the traffic that is generated by Microsoft. This
agreement expires in May 1997. The Company is currently negotiating to extend
the term of this agreement. There can be no assurance that the duration of this
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<PAGE> 44
agreement will be extended or that a replacement agreement will be entered into
between the Company and Microsoft. To date, this arrangement has not accounted
for a significant portion of the Company's traffic.
Preview Travel
In April 1997, the Company and Preview Travel, Inc. launched a co-branded
reservations service on the Excite Network through Excite City.Net travel
service, which will be featured on the new Excite travel channel. The new
service gives Excite users online access to complete travel reservation services
for airline tickets, car rentals and hotels.
PointCast
In April 1997, the Company agreed to develop a comprehensive directory for
PointCast's new Connections channel and integrate its Excite Search service
throughout the PointCast Network. This service will enable any Web publisher
from a local business, soccer league or real estate newsletter to the most
popular sites on the Web -- to broadcast its content to PointCast's viewers by
publishing on the Connections channel. In addition, the Excite service will be
the default Web navigation service for PointCast viewers.
Content alliances
The Company has strategic alliances with a number of content providers
pursuant to which the Company engages in licensing of content or technology,
revenue sharing, syndication and co-branding arrangements. For example, Tribune
Media Services ("Tribune") syndicates rights to Excite Reviews. Excite also
licenses television listings and horoscopes from Tribune, stock quotes from
Quote.com, scores from SportsLine U.S.A., yellow pages from Big Book, white page
listings from WhoWhere, weather reports from Weatherlabs and maps from Mapquest.
See "Risk Factors -- Dependence on Third-Party Relationships."
International
The Company has entered into a Premier Provider arrangement with Netscape
for the United Kingdom, France, Germany and Japan and, as of May 1, 1997, the
Company's services will be one of three global search services offered to MSN
subscribers in the United Kingdom, France and Germany. The Company has also
entered into distribution arrangements with Virgin and NETCOM and a content
relationship with EMAP, a leading magazine publisher, radio network and producer
of many United Kingdom-based online directories, pursuant to which the Company
will introduce a European Directory.
COMPETITION
The market for Web advertising and Web search and retrieval services is
intensely competitive. The Company believes that the principal competitive
factors in these markets are name recognition, amount of user traffic, pricing,
performance, ease of use and functionality. The Company's primary competitors
are Web search and retrieval companies such as Infoseek Corporation, Lycos, Inc.
and Yahoo!, Inc. and specific search and retrieval services and products offered
by other companies, including Digital Equipment Corporation's Alta Vista,
HotWired Venture's and Inktomi's HotBot, and OpenText. The Company also competes
indirectly with Web content broadcasting services, such as The PointCast
Network's PointCast, and with services from other database vendors, such as
Lexis/Nexis, Dialog and other companies that offer information search and
retrieval capabilities with their core database products. In the future, the
Company may encounter competition from ISPs, OSPs, Web site operators, providers
of Web browser software (such as Netscape or Microsoft) and other Internet
services and products that incorporate search and retrieval features into their
offerings, whether through internal development or by acquisition of one or more
of the Company's direct competitors.
In addition, the Company also competes with ISPs, OSPs, Web browsers and
other Web content providers for the sale of advertisements. The Company believes
that the number of companies relying on fees for Web-based advertising has
increased substantially in the past year. Accordingly, the Company may face
increased pricing pressure for the sale of advertisements on its network, which
would have a material adverse
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<PAGE> 45
effect on the Company's business, results of operations and financial condition.
Companies offering advertising-supported services on the Web have also begun to
compete with other providers of Web content and services for user traffic and
the number of page views on their Web sites. As a result, many providers of Web
services have been entering into distribution arrangements, co-branding
arrangements, content arrangements and other strategic partnering arrangements
with ISPs, OSPs, Web browsers, operators of high traffic Web sites and other
businesses in an attempt to increase traffic and page views, and thereby making
their Web sites more attractive to Web advertisers. To the extent that direct
competitors or other Web site operators are able to enter into successful
strategic relationships, these competitors and Web sites could experience
increases in traffic and page views, which could have the effect of making these
Web sites appear more attractive to advertisers, which could materially and
adversely affect the amount of advertisements sold on the Company's network and
the Company's business, results of operations and financial condition would be
materially and adversely affected.
Many of the Company's existing competitors, as well as a number of
potential new competitors, have longer operating histories in the Web market,
greater name recognition, larger customer bases and databases and significantly
greater financial, technical and marketing resources than the Company. Such
competitors may be able to undertake more extensive marketing campaigns, adopt
more aggressive pricing policies and make more attractive offers to potential
employees, distribution partners, advertisers and content providers. Further,
there can be no assurance that the Company's competitors will not develop Web
search and retrieval services that are equal or superior to those of the Company
or that achieve greater market acceptance than the Company's offerings in the
area of name recognition, performance, ease of use and functionality. There can
also be no assurance that ISPs, OSPs, Web browsers and other Web content
providers will not be perceived by advertisers as having more desirable Web
sites for placement of advertisements. In addition, a number of the Company's
current advertising customers and strategic partners also have established
collaborative relationships with certain of the Company's competitors and a
number of the Company's competitors have established collaborative relationships
with ISPs, OSPs and other Web content providers. Accordingly, there can be no
assurance that the Company will be able to retain a customer base of
advertisers, maintain or increase traffic on its network, that competitors will
not experience greater growth in traffic than the Company as a result of such
relationships, which could have the effect of making their Web sites more
attractive to advertisers or that strategic partners will not sever or will
elect to renew their agreements with the Company. There can also be no assurance
that the Company will be able to compete successfully against its current or
future competitors or that competition will not have a material adverse effect
on the Company's business, results of operations and financial condition.
The Web, in general, and the Company, specifically, also must compete with
traditional advertising media such as print, radio and television for a share of
advertisers' total advertising budgets. To the extent that the Web is not
perceived as an effective advertising medium, advertisers may be reluctant to
devote a significant portion of their advertising budget to the Web. See "Risk
Factors -- Developing Market; Validation of the Web as an Effective Advertising
Medium" and "-- Intense Competition."
LICENSES AND INTELLECTUAL PROPERTY
The Company regards its technology as proprietary and attempts to protect
it with copyrights, trademarks, trade secret laws, restrictions on disclosure
and transferring title and other methods, and has been issued a patent with
respect to certain aspects of its searching and indexing technology. The Company
is also in the process of preparing three patent applications with respect to
other aspects of its technology. There can be no assurance that the patent that
has been issued or that any that may issue from these pending applications will
be sufficiently broad to protect the Company's technology. In addition, there
can be no assurance that any patents that have been issued or that may be issued
will not be challenged, invalidated or circumvented, or that any rights granted
thereunder would provide proprietary protection to the Company. Failure of any
patents to provide protection of the Company's technology may make it easier for
the Company's competitors to offer technology equivalent to or superior to the
Company's technology. The Company also generally enters into confidentiality or
license agreements with its employees and consultants, and generally controls
access to and distribution of its documentation and other proprietary
information. Despite these precautions, it may be possible for a third party to
copy or otherwise obtain and use the Company's services or technology without
authorization, or to develop similar technology independently. In
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<PAGE> 46
addition, effective copyright, trademark and trade secret protection may be
unavailable or limited in certain foreign countries, and the global nature of
the Web makes it virtually impossible to control the ultimate destination of the
Company's services. Policing unauthorized use of the Company's technology is
difficult. There can be no assurance that the steps taken by the Company will
prevent misappropriation or infringement of its technology. In addition,
litigation may be necessary in the future to enforce the Company's intellectual
property rights, to protect the Company's trade secrets or to determine the
validity and scope of the proprietary rights of others. Such litigation could
result in substantial costs and diversion of resources and could have a material
and adverse effect on the Company's business, results of operations and
financial condition.
Many parties are actively developing search, indexing and related Web
technologies at the present time. The Company believes that they will take steps
to protect these technologies, including seeking patent protection. As a result,
the Company believes that disputes regarding the ownership of such technologies
are likely to arise in the future.
From time to time, the Company has received, and may receive in the future,
notice of claims of infringement of other parties' proprietary rights, including
claims for infringement resulting from the downloading of materials by the
online or Web services operated or facilitated by the Company. Although the
Company investigates claims and responds as it deems appropriate, there can be
no assurance that infringement or invalidity claims (or claims for
indemnification resulting from infringement claims) will not be asserted or
prosecuted against the Company or that any assertions or prosecutions will not
materially and adversely affect the Company's business, results of operations
and financial condition. Irrespective of the validity or the successful
assertion of such claims, the Company would incur significant costs and
diversion of resources with respect to the defense thereof which could have a
material adverse effect on the Company's business, results of operations and
financial condition. If any claims or actions were asserted against the Company,
the Company might seek to obtain a license under a third party's intellectual
property rights. There can be no assurance, however, that under such
circumstances a license would be available on commercially reasonable terms, or
at all. See "Risk Factors -- Liability for Information Retrieved from the Web."
The Company currently owns and also licenses from third parties its
technologies. As it continues to introduce new services that incorporate new
technologies, it may be required to license technology from others. There can be
no assurance that these third-party technology licenses will be available to the
Company on commercially reasonable terms, if at all. The inability of the
Company to obtain any of these technology licenses could result in delays or
reductions in the introduction of new services or could adversely affect the
performance of its services until equivalent technology could be identified,
licensed and integrated. See "Risk Factors -- Liability for Information
Retrieved from the Web" and "-- Proprietary Technology; Potential Litigation."
EMPLOYEES
As of March 31, 1997, the Company had 206 full-time employees, including 75
in research and development, 88 in marketing and sales, 26 in finance and
administration and 17 in operations and support. The Company's future success
will depend, in part, on its ability to continue to attract, retain and motivate
highly qualified technical and management personnel, particularly highly skilled
technical personnel and engineers involved in new product development, for whom
competition is intense. From time to time, the Company also employs independent
contractors to support its research and development, marketing, sales and
support and administrative organizations. The Company's employees are not
represented by any collective bargaining unit, and the Company has never
experienced a work stoppage. The Company believes its relations with its
employees are good. See "Risk Factors -- Management of Growth" and
"-- Dependence on Key Personnel."
FACILITIES
The Company's headquarters are currently located in and substantially all
of its operations are conducted out of a leased facility in Redwood City,
California, consisting of approximately 88,000 square feet of office space under
a ten year lease with a renewal option for an additional five years. The Company
has also leased an additional 25,000 square feet of office space adjacent to its
headquarters. The Company believes that its existing facilities and offices are
adequate to meet its requirements for the foreseeable future. There can be no
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<PAGE> 47
assurance that a system failure at its operations facilities would not adversely
affect the performance of the Company's services. See "Risk Factors -- Risk of
Capacity Constraints; Dependence on Computer Infrastructure."
LEGAL PROCEEDINGS
On November 18, 1996, Kristine Paaso and Laura Lindsey filed a complaint in
the California Superior Court, Santa Clara County, against the Company and
certain of its founders alleging breach of an alleged oral agreement, breach of
fiduciary duty and fraud. The plaintiffs allege that they participated in the
creation of the Company's business plan and were entitled to participate as
officers and shareholders of the Company. The complaint seeks an unspecified
amount of damages, including punitive damages. The Company has filed a demurrer
to this complaint and intends to defend this action vigorously. Although it is
too early to ascertain the possible outcome of this litigation, any litigation,
regardless of outcome, could have an adverse effect on the Company's business,
results of operations and financial condition.
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<PAGE> 48
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information regarding the executive
officers and directors of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------- ---- ---------------------------------------------------------
<S> <C> <C>
George Bell........................ 40 President, Chief Executive Officer and Director(1)
Brett T. Bullington................ 43 Executive Vice President
Robert C. Hood..................... 55 Executive Vice President, Chief Administrative Officer
and Chief Financial Officer
Cary H. Masatsugu.................. 40 Vice President, Development
Richard B. Redding................. 41 Vice President, Finance and Administration and Secretary
Jed L. Simmons..................... 36 Senior Vice President and Managing Director, Excite
International
Graham F. Spencer.................. 25 Chief Technology Officer
Kenneth Wachtel.................... 44 Senior Vice President, Advertising Sales
Joseph R. Kraus, IV................ 25 Senior Vice President and Director
Stephen M. Case.................... 38 Director
Donn M. Davis...................... 34 Director(1)
Vinod Khosla....................... 42 Director(2)
Geoffrey Y. Yang................... 37 Director(1)(2)
</TABLE>
- ---------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
Mr. Bell has been President, Chief Executive Officer and a director of the
Company since January 1996. From December 1995 until January 1996, he was a
consultant to the Company. From May 1991 to December 1995, Mr. Bell was employed
by The Times Mirror Company, a publishing and cable television company, most
recently as President -- The Skiing Company for Times Mirror Magazines and
previously as President -- The Outdoor Company and Vice President, Multimedia
for Times Mirror Magazines. Prior to joining The Times Mirror Company, Mr. Bell
worked as an independent producer, writer and packager of television sports and
documentary programming and as a staff producer and writer for the ABC
television network. Mr. Bell has received four Emmy Awards. He received a B.A.
in English from Harvard College.
Mr. Bullington has been Executive Vice President of the Company since
January 1997. From November 1995 to January 1997, he served as Senior Vice
President, Marketing and Sales of the Company and, from August 1995 until
November 1995, he was a consultant to the Company. From May 1995 to August 1995,
Mr. Bullington worked as an independent marketing and sales consultant. From May
1994 to May 1995, Mr. Bullington served as Vice President of Marketing and Sales
for Planning & Logic, Inc., a software company. From January 1992 to May 1994,
he was employed by Taligent, Inc., a software company, as Director of Worldwide
Channel Development. From 1986 to January 1992, Mr. Bullington was employed by
Computer Associates, a software company, where he served most recently as Vice
President, Sales and Marketing. He received a B.A. in Political Science from the
University of California at Santa Barbara.
Mr. Hood has been Executive Vice President, Chief Administrative Officer
and Chief Financial Officer of the Company since December 1996. From November
1996 to December 1996, he was a consultant to the Company. From July 1995 to
February 1996, Mr. Hood served as Chief Operating Officer of RockShox Inc., a
mountain bike component manufacturer. From March 1992 to April 1995, he served
as Senior Vice President and Chief Financial Officer of Crowley Maritime
Corporation, a transportation services company. From April 1991 to February
1992, Mr. Hood served as Executive Vice President and Chief Financial Officer of
Qume Corp., a computer peripherals company. He received a B.A. in Economics from
Bates College and an M.B.A. from Dartmouth College.
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<PAGE> 49
Mr. Masatsugu has been employed by the Company since April 1996, most
recently as Vice President, Development. From February 1996 to April 1996, he
was a consultant to the Company. From May 1995 to April 1996, Mr. Masatsugu was
employed by Caere Corporation, a software company, most recently as Vice
President, Engineering. From July 1994 to December 1994, he served as Vice
President, Engineering for Calera Recognition, a software company. From February
1994 to July 1994, Mr. Masatsugu was employed by EO, Inc., a computer company,
most recently as Vice President, Engineering. From 1988 to February 1994, he was
employed by GO Corporation, a software company, most recently as Director of
Product Marketing. Mr. Masatsugu received a B.S. in Electrical Engineering from
Stanford University.
Mr. Redding has been Vice President, Finance and Administration since
January 1997 and Secretary of the Company since February 1996. From February
1996 to January 1997, Mr. Redding served as Director of Finance and Acting Chief
Financial Officer of the Company, and from October 1995 until February 1996, he
was a consultant to the Company. From July 1994 to January 1996, Mr. Redding was
employed by Vivus, Inc., a medical technology company, as Controller and
Manager, Financial Planning & Analysis. From November 1993 to July 1994, he
worked as an independent consultant. From 1990 to November 1993, Mr. Redding was
employed by Scios Nova Inc., a biotechnology company, most recently as
Treasurer. He received a B.A. in Biology from the University of California at
Santa Cruz and an M.B.A. from the University of Santa Clara.
Mr. Simmons has been Senior Vice President and Managing Director, Excite
International of the Company since January 1997. From November 1996 to January
1997, he was a consultant to the Company. From January 1992 to December 1996,
Mr. Simmons was employed by Hanna-Barbera Cartoons, Inc., an entertainment
company, most recently as Executive Vice President, International. Mr. Simmons
has a B.A. in Public Policy from Duke University and an M.B.A. from Dartmouth
College.
Mr. Spencer has been Chief Technology Officer of the Company since June
1994. From June 1994 to January 1997, he also served as Vice President,
Technology of the Company, and from June 1994 to March 1996, he was also a
director of the Company. Prior to joining the Company, Mr. Spencer was a student
at Stanford University and worked as an engineer for Apple Computer during June
1992 to September 1992 and June 1993 to September 1993. Mr. Spencer was also
employed, on a part-time basis, as an engineer at Stanford University from 1989
to 1994. He received a B.S. and an M.S. in Computer Science from Stanford
University.
Mr. Wachtel has been Senior Vice President, Advertising Sales since March
1997. Prior to joining the Company and since 1976, Mr. Wachtel was employed by
CBS Television Network, most recently as Vice president, News Sales. He received
a A.B. in Economics and Government from Dartmouth College and an M.B.A. from the
University of Chicago Graduate School of Business.
Mr. Kraus has been Senior Vice President of the Company since January 1997
and a director of the Company since June 1994. He served as Senior Vice
President, Business Development of the Company from January 1996 to January 1997
and, from June 1994 to January 1996, served as President of the Company. Prior
to joining the Company, Mr. Kraus was a student at Stanford University. He
received a B.A. in Political Science from Stanford University.
Mr. Case has served as a director of the Company since December 1996. He is
currently also a director of AOL. Mr. Case has been President of AOL since July
1996 and Chief Executive Officer of AOL since April 1993. He also served as
President of AOL from January 1991 to February 1996. Mr. Case received a B.A. in
Political Science from Williams College. See "Certain Transactions."
Mr. Davis has served as a director of the Company since March 1996. He is
currently also a director of StarSight Telecast, Inc. Mr. Davis has been
President of Tribune Ventures, a Venture investment unit of Tribune Company,
since February 1995. From August 1992 to February 1995, Mr. Davis served as
Senior Counsel for Tribune Company. From 1988 to July 1992, Mr. Davis was an
associate with the law firm of Sidley & Austin. Mr. Davis received a B.S. in
Finance from Miami University (Ohio) and a J.D. from the University of Michigan
Law School.
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<PAGE> 50
Mr. Khosla has served as a director of the Company since July 1995. He is
currently also a director of Picture Tel, Spectrum Holobyte, The 3DO Company and
several privately held companies. He has been a general partner at Kleiner
Perkins Caufield & Byers since 1986. Mr. Khosla received a Bachelor of
Technology in Electrical Engineering from the Indian Institute of Technology, an
M.S. in Biomedical Engineering from Carnegie Mellon University and an M.B.A.
from Stanford University.
Mr. Yang has served as a director of the Company since July 1995. He is
currently also a director of several privately held companies. He has been a
general partner of Institutional Venture Partners since 1987. He received a B.A.
in Economics and a B.S.E. in Information Systems Engineering from Princeton
University and an M.B.A. from Stanford University.
Directors are elected by the shareholders at each annual meeting of
shareholders to serve until the next annual meeting of shareholders or until
their successors are duly elected and qualified. Certain shareholders have
entered into a voting agreement pursuant to which they have agreed to vote their
shares to elect one director designated by AOL for so long as AOL holds at least
1,315,165 shares of the Company's Common Stock on an as-converted-to-Common
Stock basis.
Executive officers are chosen by, and serve at the discretion of, the Board
of Directors. There are no family relationships among any of the directors and
executive officers of the Company.
EXECUTIVE COMPENSATION
The following table sets forth all compensation awarded to, earned by, or
paid for services rendered to the Company in all capacities during the year
ended December 31, 1996 by (i) the Company's Chief Executive Officer and (ii)
the Company's four other executive officers who were serving as executive
officers at the end of that year and whose total annual salary and bonus in such
year exceeded $100,000 (together, the "Named Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION SECURITIES
--------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY(1) BONUS OPTIONS COMPENSATION
- ------------------------------------------ --------- ------- ------------ ------------
<S> <C> <C> <C> <C>
George Bell............................... $185,000 $60,000 48,458 $53,575(2)
President and Chief Executive Officer
Brett T. Bullington....................... 155,000 -- 45,774 --
Executive Vice President
Graham F. Spencer......................... 116,333 -- -- --
Chief Technology Officer
Joseph R. Kraus, IV(3).................... 115,000 -- -- --
Senior Vice President
Cary H. Masatsugu......................... 107,941 20,000 200,000 --
Vice President, Development
</TABLE>
- ---------------
(1) Robert C. Hood, who joined the Company in December 1996 as Executive Vice
President, Chief Administrative Officer and Chief Financial Officer, is
compensated at an annual base salary rate of $175,000. Jed L. Simmons, who
joined the Company in January 1997 as Senior Vice President and Managing
Director, Excite International, is compensated at an annual base salary rate
of $210,000. Mr. Simmons is also provided with an annual allowance of up to
$70,000 for housing and utilities in the United Kingdom. See
"-- Compensation Arrangements with Executive Officers."
(2) Represents reimbursement for certain expenses in connection with the sale of
Mr. Bell's residence in New York.
(3) Mr. Kraus also served as President of the Company from June 1994 to January
1996, and currently serves as Senior Vice President of the Company.
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<PAGE> 51
The following table sets forth further information regarding option grants
pursuant to the Company's 1995 Equity Incentive Plan (the "1995 Plan") and the
1996 Plan during 1996 to each of the Named Officers. In accordance with the
rules of the Commission, the potential realizable values for such options shown
in the table are based on assumed rates of stock price appreciation of 5% and
10% compounded annually from the date the respective options were granted to
their expiration date. The assumed rates of appreciation do not represent the
Company's estimate or projection of the appreciation of the Common Stock.
OPTION GRANTS IN 1996
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
VALUE AT
ASSUMED ANNUAL
NUMBER OF PERCENTAGE OF RATES OF STOCK
SECURITIES TOTAL OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED TO FOR OPTION TERM
OPTIONS EMPLOYEES IN EXERCISE PRICE EXPIRATION -------------------
NAME GRANTED(1) 1996 PER SHARE DATE 5% 10%
- -------------------------- ---------- ------------- -------------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
George Bell............... 18,458 0.6% $ 2.50 2/07/06 $ 29,020 $ 73,543
30,000 1.1 6.125 9/26/06 115,559 292,850
Brett T. Bullington....... 25,774 0.9 2.50 2/07/06 40,523 102,693
20,000 0.7 6.125 9/26/06 77,040 195,233
Cary H. Masatsugu......... 200,000 7.1 2.50 2/07/06 314,447 796,871
Graham F. Spencer......... -- -- -- -- -- --
Joseph R. Kraus, IV....... -- -- -- -- -- --
</TABLE>
- ---------------
(1) Options granted under the 1995 Plan and the 1996 Plan in 1996 were incentive
stock options or nonqualified stock options that were granted at fair market
value at the time of grant and that generally vest over a four-year period
so long as the individual is employed by the Company. The options granted to
George Bell and Brett T. Bullington on February 7, 1996 were immediately
exercisable on the date of grant. Options expire ten years from the date of
grant. In addition to the option grants set forth in the table above, in
November 1996, the Company granted to Robert C. Hood and Jed L. Simmons, who
were at the time consultants to the Company, options to purchase 200,000
shares and 220,000 shares, respectively, of Common Stock at an exercise
price of $6.125 per share. The options granted to Mr. Hood and Mr. Simmons
are contingent upon shareholder approval of an amendment to the 1996 Plan to
increase the number of shares reserved under such plan.
The following table sets forth the number of shares covered by both
exercisable and unexercisable stock options held by each of the Named Officers
at December 31, 1996. Also reported are values of "in-the-money" options which
represent the positive spread between the respective exercise prices of
outstanding stock options and the fair market value of the Company's Common
Stock as of December 31, 1996 ($10.25) based on the last sales price of the
Common Stock on the Nasdaq National Market on such date.
AGGREGATE OPTION EXERCISES IN 1996 AND FISCAL YEAR-END VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS IN-THE-MONEY OPTIONS
SHARES AT FISCAL YEAR-END AT FISCAL YEAR-END
ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------- ------------ ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
George Bell.......... 20,000 $ 296,075 100,313 297,302 $ 947,385 $ 2,797,019
Brett T.
Bullington(1)...... 122,974 1,138,517 -- 117,200 -- 1,066,650
Cary H. Masatsugu.... -- -- -- 200,000 -- 1,550,000
Graham F. Spencer.... -- -- -- -- -- --
Joseph R. Kraus,
IV................. -- -- -- -- -- --
</TABLE>
- ---------------
(1) The value realized for options exercised immediately prior to the initial
public offering (IPO) of the Company is calculated using a fair market value
on the date of exercise equal to the IPO of $17.00 per share.
DIRECTOR COMPENSATION
None of the members of the Company's Board of Directors (the "Board")
currently receives any fees associated with his attendance at Board meetings or
at Board Committee meetings. In March 1996, the
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<PAGE> 52
Company granted Mr. Davis an option to purchase 15,000 shares of Common Stock at
an exercise price of $8.045 per share which option was subsequently returned by
Mr. Davis and cancelled by the Company.
In February 1996, the Board adopted, and in March 1996, the shareholders of
the Company approved, the 1996 Directors Stock Option Plan (the "Directors
Plan") and reserved a total of 150,000 shares of the Company's Common Stock for
issuance thereunder. The Directors Plan was amended by the Board in March 1996.
Members of the Board who (i) are not employees of the Company (or of any parent,
subsidiary or affiliate of the Company,) (ii) do not represent a venture capital
investor, or (iii) do not own more than 5% of the Company's Common Stock are,
subject to certain exclusions, eligible to participate in the Directors Plan.
Each eligible person who first becomes a member of the Board will automatically
be granted an option for 15,000 shares on the date such person becomes a
director. Also, at each annual meeting of the Company, each eligible director
will receive an additional grant of 7,500 shares if such director has served
continuously as a member of the Board since the later of the date the Board
adopted the Directors Plan or the date such director first became a member of
the Board. Each option will vest as to 2.08% of the shares covered thereby on
the last date of each month following the grant date. All options granted under
the Directors Plan will be granted at an exercise price equal to the fair market
value of the Company's Common Stock on the date of grant, and, in the event of a
merger, consolidation or certain other change of control transactions, the
vesting of all options granted pursuant to the Directors Plan will accelerate
and the options will become exercisable in full. The Directors Plan will
terminate in February 2006, unless terminated earlier in accordance with the
provisions thereof. As of March 31, 1997, 147,500 shares of Common Stock are
available for issuance under the Directors Plan.
COMPENSATION ARRANGEMENTS WITH EXECUTIVE OFFICERS
The Company has entered into compensation arrangements pursuant to offer
letters with the following executive officers of the Company: George Bell, the
Company's President and Chief Executive Officer; Brett T Bullington, the
Company's Executive Vice President; Cary H. Masatsugu, the Company's Vice
President, Development; Robert C. Hood, the Company's Executive Vice President,
Chief Administrative Officer and Chief Financial Officer; Jed L. Simmons, the
Company's Senior Vice President and Managing Director, Excite International;
Richard B. Redding, the Company's Vice President, Finance and Administration and
Secretary; and Kenneth Wachtel, the Company's Senior Vice President, Advertising
Sales. See "Certain Transactions."
Mr. Bell receives an annual base salary of $185,000 and was granted an
option to purchase an aggregate of 18,458 shares of Common Stock. In May 1997,
Mr. Bell was granted a further option to purchase 83,000 shares of Common Stock.
Mr. Bell received a guaranteed bonus of $60,000 during his first year of
employment and the Company reimbursed Mr. Bell for certain expenses in
connection with the sale of his residence in New York. Mr. Bell is eligible to
receive a bonus of at least $60,000 in each year subsequent to his first year of
employment, subject to certain performance criteria. This agreement may be
terminated by the Company or Mr. Bell at any time for any reason.
Mr. Bullington initially received an annual base salary of $150,000 and was
granted an option to purchase an aggregate of 25,774 shares of Common Stock. Mr.
Bullington's annual base salary has subsequently been increased to $170,000.
This agreement may be terminated by the Company or by Mr. Bullington at any time
for any reason.
Mr. Masatsugu receives an annual base salary of $140,000 and received a
signing bonus of $20,000 that was paid in April 1996. This agreement may be
terminated by the Company or by Mr. Masatsugu at any time for any reason. If Mr.
Masatsugu is terminated during the first 12 months of his employment, he will
continue to receive his base salary for an additional three months.
Mr. Hood receives an annual base salary of $175,000. In the event that the
Company is acquired by a company that does not continue to employ Mr. Hood
before Mr. Hood's option granted under a consulting arrangement (see "Certain
Transactions -- Consulting Arrangements") is fully vested, he will receive a
consultant fee of $175,000 that will entitle the Company to retain Mr. Hood for
consulting services for a period of one year following the acquisition. Mr. Hood
is also eligible to receive a bonus in 1997 that is based
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on profit-oriented goals and has a target of 20% of his annual base salary. This
agreement may be terminated by the Company or Mr. Hood at any time for any
reason. If Mr. Hood is terminated for reasons other than cause, he will continue
to receive his base salary for an additional six months.
Mr. Simmons receives an annual base salary of $210,000. Mr. Simmons is also
eligible to receive an annual bonus that is based on certain performance
criteria and has a target of 20-30% of his annual base salary. The Company will
reimburse Mr. Simmons for up to $20,000 of moving expenses, will pay the United
Kingdom portion of Mr. Simmons' taxes and will provide Mr. Simmons with an
annual allowance of up to $70,000 for housing, utilities and other expenses.
This agreement may be terminated by the Company or Mr. Simmons at any time for
any reason. If Mr. Simmons is terminated for reasons other than cause, he will
continue to receive his base salary for an additional six months.
Mr. Redding initially received an annual base salary of $80,000. Mr.
Redding's annual base salary has subsequently been increased to $125,000. This
agreement may be terminated by the Company or Mr. Redding at any time for any
reason. If Mr. Redding is terminated without cause, he will continue to receive
his base salary for an additional six months.
Mr. Wachtel receives an annual base salary of $145,000 and received a
signing bonus of $15,000. Mr. Wachtel has an annual targeted bonus of $95,000.
This agreement may be terminated by the Company or Mr. Wachtel at any time for
any reason.
EMPLOYEE BENEFIT PLANS
1996 Equity Incentive Plan
In February 1996, the Board adopted, and in March 1996, the shareholders of
the Company approved, the 1996 Plan. The 1996 Plan serves as the successor
equity incentive program to the Company's 1995 Plan. Options granted under the
1995 Plan before its termination in April 1996 remain outstanding in accordance
with their terms, but no further options have been granted under the 1995 Plan
after the date of its termination. The Company reserved 1,500,000 shares of the
Company's Common Stock for issuance under the 1996 Plan. In November 1996 and
January 1997, the Board approved amendments to the 1996 Plan to increase the
number of shares thereunder by 800,000 shares and 2,455,000 shares,
respectively. These amendments to the 1996 Plan to increase the total number of
shares thereunder to 4,755,000 shares will be submitted for shareholder approval
at the annual meeting of shareholders to be held in June 1997. Shares that (i)
are subject to issuance upon exercise of an option but cease to be subject to
such stock option for any reason other than exercise of such stock option, (ii)
are subject to an award granted under the 1996 Plan but are forfeited or are
repurchased by the Company at the original issue price or (iii) are subject to
an award that otherwise terminates without shares being issued will again be
available for grant and issuance in connection with future awards under the 1996
Plan.
The 1996 Plan provides for the grant of stock options and stock bonuses and
the issuance of restricted stock by the Company to its employees, officers,
directors, consultants, independent contractors and advisers. No person is
eligible to receive more than 500,000 shares in any calendar year pursuant to
grants under the 1996 Plan, other than new employees of the Company who will be
eligible to receive up to a maximum of 800,000 shares in the calendar year in
which they commence employment with the Company. The 1996 Plan is administered
by the Compensation Committee of the Board, consisting of Messrs. Khosla and
Yang, both of whom are "non-employee directors" as that term is defined under
the Exchange Act, and "outside directors" as that term is defined in Section
162(m) of the Internal Revenue Code of 1986, as amended (the "Code"). The 1996
Plan permits the Compensation Committee to grant options that are either
incentive stock options (as defined in Section 422 of the Code) or non qualified
stock options, on terms (including the exercise price, which may not be less
than 85% of the fair market value of the Company's Common Stock, and the vesting
schedule) determined by the Compensation Committee, subject to certain statutory
and other limitations in the 1996 Plan. In addition to, or in tandem with,
awards of stock options, the Compensation Committee may grant participants
restricted stock awards to purchase the Company's Common Stock for not less than
85% of its fair market value at the time of grant. The other terms of such
restricted stock awards may be determined by the Compensation Committee. The
Compensation Committee may also grant stock bonus awards of the
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<PAGE> 54
Company's Common Stock either in addition to, or in tandem with, other awards
under the 1996 Plan, under such terms, conditions and restrictions as the
Compensation Committee may determine. Under the 1996 Plan, stock bonuses may be
awarded for the satisfaction of performance goals established in advance. The
1996 Plan will terminate in February 2006, unless terminated earlier in
accordance with the provisions of the 1996 Plan.
1996 Employee Stock Purchase Plan
In February 1996, the Board adopted, and in March 1996, the shareholders of
the Company approved, the 1996 Employee Stock Purchase Plan (the "Purchase
Plan") and reserved a total of 150,000 shares of the Company's Common Stock for
issuance thereunder. The Purchase Plan became effective in April 1996. The
Purchase Plan permits eligible employees to acquire shares of the Company's
Common Stock through payroll deductions. The Purchase Plan is intended to
qualify as an "employee stock purchase plan" under Section 423 of the Code.
Except for the first offering, each offering under the Purchase Plan will be for
a period of 24 months (the "Offering Period") commencing on the first day of
February and August of each year. Except for the first offering, each Offering
Period will consist of four six-month purchase periods (each a "Purchase
Period"). The Board has the power to set the duration of Offering Periods or
Purchase Periods without shareholder approval, provided that the change is
announced at least fifteen days prior to the scheduled beginning of the first
Offering Period or Purchase Period to be affected. The first Offering Period
began on December 1, 1996 and will end on July 31, 1998. Eligible employees may
select a rate of payroll deduction between 2% and 10% of their compensation, up
to an aggregate total payroll deduction not to exceed $21,250 in any calendar
year. The purchase price for the Company's Common Stock purchased under the
Purchase Plan will be 85% of the lesser of the fair market value of the
Company's Common Stock on the first day of the applicable Offering Period or the
last day of the respective Purchase Period. The Purchase Plan will terminate on
the earlier of termination by the Board, issuance of all of the shares reserved
under the Purchase Plan or ten years from the date the Purchase Plan was adopted
by the Board.
401(k) Plan
The Company maintains the Excite, Inc. 401(k) Plan (the "401(k) Plan"), a
defined contribution 401(k) salary reduction plan intended to qualify under
Section 401 of the Code. Employees of the Company are eligible to participate in
the 401(k) Plan on the first day of each month coinciding with or immediately
following the date of their employment. A participating employee, by electing to
defer a portion of his or her compensation, may make pre-tax contributions to
the 401(k) Plan, subject to limitations under the Code, of a percentage (not to
exceed 15%) of his or her total compensation. Employee contributions and the
investment earnings thereon will be fully vested at all times. The Company is
not required to contribute to the 401(k) Plan and has made no contributions
since the inception of the 401(k) Plan.
INDEMNIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS AND LIMITATION OF LIABILITY
The Company's Amended and Restated Articles of Incorporation (the
"Articles") include a provision that eliminates to the fullest extent permitted
by law the personal liability of its directors to the Company and its
shareholders for monetary damages for breach of the directors' fiduciary duties.
This limitation has no effect on a director's liability (i) for acts or
omissions that involve intentional misconduct or a knowing and culpable
violation of law, (ii) for acts or omissions that a director believes to be
contrary to the best interests of the Company or its shareholders or that
involve the absence of good faith on the part of the director, (iii) for any
transaction from which a director derived an improper personal benefit, (iv) for
acts or omissions that show a reckless disregard for the director's duty to the
Company or its shareholders in circumstances in which the director was aware, or
should have been aware, in the ordinary course of performing a director's
duties, of a risk of a serious injury to the Company or its shareholders, (v)
for acts or omissions that constitute an unexcused pattern of inattention that
amounts to an abdication of the director's duty to the Company or its
shareholders, (vi) under Section 310 of the California Corporations Code (the
"California Code") concerning contracts or transactions between the Company and
a director or (vii) under Section 316 of the California Code concerning
directors' liability for improper dividends, loans and guarantees. The provision
does not extend to acts or omissions of a director in his capacity as an
officer. Further, the provision will not affect the
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availability of injunctions and other equitable remedies available to the
Company's shareholders for any violation of a director's fiduciary duty to the
Company or its shareholders.
The Company's Articles also include an authorization for the Company to
indemnify its agents (as defined in Section 317 of the California Code), through
bylaw provisions, by agreement or otherwise, to the fullest extent permitted by
law. Pursuant to this provision, the Company's Bylaws provide for
indemnification of the Company's directors and officers. In addition, the
Company, at its discretion, may provide indemnification to persons whom the
Company is not obligated to indemnify. The Bylaws also allow the Company to
enter into indemnity agreements with individual directors, officers, employees
and other agents. These indemnity agreements have been entered into with all
directors and provide the maximum indemnification permitted by law. These
agreements, together with the Company's Bylaws and Articles, may require the
Company, among other things, to indemnify these directors or executive officers
against certain liabilities that may arise by reason of their status or service
as directors (other than liabilities resulting from willful misconduct of a
culpable nature), to advance expenses to them as they are incurred, provided
that they undertake to repay the amount advanced if it is ultimately determined
by a court that they are not entitled to indemnification, and to obtain and
maintain directors' and officers' insurance if available on reasonable terms.
Section 317 of the California Code and the Company's Bylaws make provision for
the indemnification of officers, directors and other corporate agents in terms
sufficiently broad to indemnify such persons, under certain circumstances, for
liabilities (including reimbursement of expenses incurred) arising under the
Securities Act. At present, there is no pending litigation or proceeding
involving a director, officer or employee of the Company pursuant to which
indemnification is sought, nor is the Company aware of any threatened litigation
that may result in claims for indemnification.
The Company maintains directors' and officers' liability insurance with a
per claim and annual aggregate coverage limit of $5,000,000.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons pursuant to the
foregoing provisions, or otherwise, the Company has been advised that in the
opinion of the Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable.
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CERTAIN TRANSACTIONS
Since June 9, 1994 (the date of the Company's inception), there has not
been, nor is there currently proposed, any transaction or series of similar
transactions to which the Company was or is to be a party in which the amount
involved exceeds $60,000 and in which any director, executive officer or holder
of more than 5% of any class of voting securities of the Company or members of
such person's immediate family had or will have a direct or indirect material
interest other than (i) the compensation agreements which are described in
"Management," and (ii) the transactions described below.
PROMOTERS TRANSACTIONS
Each of Joseph R. Kraus, IV, Graham F. Spencer, Benjamin E. Lutch, Ryan A.
McIntyre, Martin R. Reinfried and Mark A. Van Haren (collectively the
"Founders") was involved in the founding and organization of the Company and may
be considered a promoter of the Company. Described below are items of value
received by each of the Founders in connection with services provided to the
Company.
In connection with the formation of the Company in June 1994, each of the
Founders assigned to the Company as a capital contribution all of their right,
title and interest in and to all assets and liabilities of their former
partnership, which was doing business as Architext Software. This assignment
included all technology and all derivative works of the technology of the former
partnership including but not limited to, certain searching and browsing
technology.
In September 1994, the Company issued an aggregate of 888,884 shares of
Common Stock to the Founders at a purchase price of $.00045 per share, which was
paid in cash. Each of the Founders, individually, purchased the number of shares
set forth immediately following his name: Joseph R. Kraus, IV (158,888); Graham
F. Spencer (172,222); Benjamin E. Lutch (148,888); Ryan A. McIntyre (148,888);
Martin R. Reinfried (111,110); and Mark A. Van Haren (148,888).
In July 1995, the Founders purchased an aggregate of 891,136 additional
shares of Common Stock at a purchase price of $0.035 per share which was paid in
cash. Each of the Founders purchased the number of shares of Common Stock set
forth immediately following his name: Joseph R. Kraus, IV (236,672); Graham F.
Spencer (421,118); Benjamin E. Lutch (48,892); Ryan A. McIntyre (48,892); Martin
R. Reinfried (86,670); and Mark A. Van Haren (48,892).
SECURITIES ISSUANCES
In July 1995, the Company sold shares of its Series A Preferred Stock
convertible into an aggregate of 2,250,000 shares of Common Stock to six
entities for an aggregate purchase price of $1.5 million which amount was paid
with a combination of cash and the cancellation of promissory notes issued by
the Company to four of the six entities. The following entities, which are 5%
shareholders or affiliates of a Board member or 5% shareholder, purchased shares
of Series A Preferred Stock convertible into the number of shares of Common
Stock indicated in parentheses as follows: Institutional Venture Partners VI
("IVP") (882,000); Institutional Venture Management VI ("IVM") (18,000); Kleiner
Perkins Caufield & Byers VII ("KPCB") (810,000); and KPCB VII Founders Fund
("KPCB Founders") (90,000). In March 1996, shares of the Series A Preferred
Stock convertible into 18,900 and 3,600 shares of Common Stock, respectively,
were transferred by KPCB and KPCB Founders, respectively, to KPCB Information
Sciences Zaibatsu Fund II ("KPCB Information").
In November 1995, the Company sold shares of its Series B Preferred Stock
convertible into an aggregate of 1,220,000 shares of Common Stock to seven
entities for an aggregate purchase price of approximately $1.5 million which
amount was paid in cash. The following entities, which are 5% shareholders or
affiliates of a Board member or 5% shareholder, purchased shares of Series B
Preferred Stock convertible into the number of shares of Common Stock indicated
in parentheses as follows: IVP (564,000); IVM (12,000); IVP Founders Fund I,
L.P. ("IVP Founders") (24,000); KPCB (527,400); KPCB Founders (57,600); and KPCB
Information (15,000). Each of these 5% shareholders, or affiliates of a Board
member or 5% shareholder also received warrants to purchase an equivalent number
of shares of the Company's Common Stock at an exercise
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<PAGE> 57
price of $0.125 per share, subject to certain adjustments. These warrants were
net exercised at the initial public offering price of $17.00 per share,
resulting in the issuance of an aggregate 1,191,176 shares of Common Stock.
In December 1995, the Company sold shares of its Series C Preferred Stock
convertible into 309,278 shares of Common Stock to ten entities for an aggregate
purchase price of approximately $900,000, which amount was paid in cash. The
following entities, which are 5% shareholders, or affiliates of a Board member
or 5% shareholder, purchased shares of Series C Preferred Stock convertible into
the number of shares of Common Stock indicated in parentheses as follows: IVP
(58,104); IVM (1,236); IVP Founders (2,472); KPCB (54,332); KPCB Founders
(5,934); and KPCB Information (1,546).
Vinod Khosla, a member of the Company's Board, is a general partner of
KPCB, KPCB Founders and KPCB Information. Geoffrey Y. Yang, a member of the
Company's Board, is a general partner of IVM which is the general partner of IVP
and IVP Founders.
On March 8, 1996, the Company sold shares of its Series D Preferred Stock
to AOL and Tribune, convertible into 621,506 and 745,806 shares of Common Stock,
respectively, for an aggregate purchase price of $11.0 million. As a result of
the issuance of the Series D Preferred Stock, the Company believes that AOL and
Tribune became affiliates of the Company. In connection with the purchase of
Series D Preferred Stock, AOL and Tribune have agreed to certain "standstill"
agreements which provide that, subject to certain limitations, neither party
will acquire beneficial ownership of more than 20% of the outstanding securities
of the Company without the Company's consent for a five year period. In
connection with the acquisition of the WebCrawler Assets, the "standstill"
provision with respect to AOL was amended to provide that, subject to certain
limitations, AOL will not acquire beneficial ownership of more than 25% of the
outstanding securities of the Company for a five year period. At the time of its
purchase of Series D Preferred Stock, AOL purchased the AOL Warrant which was
exercisable into 650,000 shares of Common Stock at an exercise price of $8.00
per share and was amended to be exercisable into an equivalent number of shares
of Series E-3 Preferred Stock. AOL and Tribune purchased an aggregate of 117,647
shares of Common Stock in the Company's initial public offering. See
"-- Additional Transactions with AOL."
Each of the shares of the Company's Series A, B, C and D Preferred Stock
described above were converted into shares of the Company's Common Stock prior
to the completion of the Company's initial public offering in April 1996. The
holders of such converted shares of Preferred Stock are entitled to certain
registration rights with respect to the shares of Common Stock which were issued
upon conversion thereof. AOL and Tribune also have certain registration rights
with respect to the shares of Common Stock which they purchased in the Company's
initial public offering. AOL is also entitled to certain registration rights
with respect to the shares of Common Stock issuable upon the exercise of its
warrant described above. See "Description of Capital Stock -- Registration
Rights."
In May 1997, the Company granted to George Bell, the Company's President
and Chief Executive Officer and a member of the Company's Board, an option to
purchase 83,000 shares of the Company's Common Stock at a purchase price of
$9.13. This option will vest over four years commencing January 1, 1998.
PROMISSORY NOTES TO AND FROM THE COMPANY
In February 1995, the Company issued promissory notes in the principal
amount of $4,500, $220,500, $202,500 and $22,500 to IVM, IVP, KPCB and KPCB
Founders, respectively. These promissory notes were canceled in consideration
for the issuance of the shares of Series A Preferred Stock in July 1995.
In February 1996, the Company entered into a Bridge Line of Credit
Agreement (the "Credit Agreement") with KPCB, KPCB Founders, KPCB Information,
IVM, IVP and IVP Founders (collectively, the "Lenders"). Pursuant to the terms
of the Credit Agreement, the Lenders agreed to make loans of funds to the
Company from time to time on a non-revolving basis, in an aggregate cumulative
principal amount not to exceed $2.0 million. As of March 1, 1996, the Company
had outstanding $2.0 million under the Credit Agreement. Such amount was
evidenced by Convertible Promissory Notes and Promissory Notes, each dated as of
February 23 and February 26, 1996, respectively (collectively, the "Notes") and
bore interest at a rate of 8 3/4% per annum. The Company repaid $1.0 million in
principal amount of the Notes with the proceeds of the
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Company's Series D Preferred Stock financing in March 1996. The remaining $1.0
million in principal amount of the Notes was converted at the time of the
Company's initial public offering into 160,000 shares of Common Stock of the
Company at a price of $6.25 per share.
In February 1996, the Company loaned $100,000 to Graham F. Spencer. The
loan is evidenced by a promissory note which bears interest at a rate of 5.32%
per annum and is payable in 35 successive monthly installments of $3,221.11
each, and the 36th and final payment of $3,221.15 is due on February 28, 1999.
Monthly installment payments will be deducted from Mr. Spencer's salary
beginning March 31, 1996. However, for each month in which an installment
payment is due and in which Mr. Spencer is providing full time services as an
employee of the Company to the reasonable satisfaction of the Board, the
installment payment due under this note is forgiven by the Company. The
promissory note will immediately become due and payable in full in the event Mr.
Spencer is no longer employed by the Company.
In March 1996, the Company loaned $64,435 to Brett T. Bullington in
connection with his purchase of 25,774 shares of Common Stock pursuant to the
exercise of a stock option. The loan was evidenced by a secured full recourse
promissory note which bore interest at a rate of 5.32% per annum and was payable
in 60 successive monthly installments of $1,073.92 commencing April 1, 1996. The
promissory note was paid in full in January 1997.
CONSULTING ARRANGEMENTS
Prior to their employment by the Company, Messrs. Bell, Bullington,
Masatsugu, Hood, Simmons, Redding and Wachtel served as consultants to the
Company. In December 1995, Mr. Bell was granted an option to purchase 369,156
shares of Common Stock at an exercise price of $0.29 per share. Mr. Bullington
earned consulting fees of $70,000 in 1995 and, in November 1995, was issued
4,000 shares of Common Stock and was granted an option to purchase 194,400
shares of Common Stock at an exercise price of $0.125 per share. In February
1996, Mr. Masatsugu was granted an option to purchase 200,000 shares of Common
Stock at an exercise price of $2.50 per share. In November 1996, Mr. Hood and
Mr. Simmons were granted options to purchase 200,000 shares and 220,000 shares,
respectively, of Common Stock at an exercise price of $6.125 per share. In
October 1995, Mr. Redding was granted an option to purchase 30,000 shares of
Common Stock at an exercise price of $0.125 per share. In January 1997, Mr.
Wachtel was granted an option to purchase 100,000 shares of Common Stock at an
exercise price of $8.75 per share. In each case of options discussed above, such
options are subject to vesting contingent upon such individual providing
substantial services to the Company as a consultant or an employee.
ADDITIONAL TRANSACTIONS WITH AOL
On November 25, 1996, the Company, AOL and a wholly-owned subsidiary of AOL
entered into an Acquisition Agreement (the "Acquisition Agreement") pursuant to
which the Company agreed to acquire the WebCrawler Assets from AOL. The closing
under the Acquisition Agreement occurred in March 1997. In addition, the Company
entered into a Technology License, Distribution, Services and Co-Marketing
Agreement (the "Distribution Agreement") with AOL. In consideration of the
Acquisition and the rendering of services to the Company, the Company issued to
AOL 1,250,000 and 700,000 shares of its Series E-1 and Series E-2 Preferred
Stock, respectively. In addition, as part of the transactions contemplated by
the Acquisition Agreement and the Distribution Agreement (i) pursuant to the
Exchange Right, AOL will have the right, for a 90-day period following March 27,
1997, to have the 680,330 shares of Common Stock beneficially owned by AOL
cancelled and an equivalent number of shares of Series E-4 Preferred Stock
issued to it, and (ii) the AOL Warrant, which previously was exercisable into
650,000 shares of Common Stock at an exercise price of $8.00 per share, was
amended to become exercisable into 650,000 shares of Series E-3 Preferred Stock
at the same exercise price per share. In addition, the expiration date of the
AOL Warrant was amended so that the expiration date with respect to 325,000
shares of Series E-3 Preferred Stock, will be September 30, 1997 and the
expiration date for the remaining shares will remain March 8, 2001. See
"Description of Capital Stock -- Preferred Stock" and "-- Voting Trust" for a
description of the material terms of such Preferred Stock.
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So long as AOL beneficially owns at least 1,315,165 shares of Series E
Preferred Stock, AOL shall be entitled to elect one member of the Board. In
addition, the shares of Preferred Stock (and the shares of Common Stock issuable
upon conversion thereof) to be issued to AOL or AOL Ventures directly, or
indirectly upon exercise of warrants, will be subject to a Voting Trust
Agreement. AOL will also have registration rights with respect to the Preferred
Stock (and Common Stock issuable upon conversion thereof) issuable directly or
indirectly, upon exercise of the AOL Warrant. See "Description of Capital
Stock -- Registration Rights."
The Acquisition was recorded by the Company for accounting purposes as of
December 1, 1996 and was valued at $16.1 million. Pursuant to the Distribution
Agreement, a co-branded version of the Excite service will be the exclusive
provider of Web search and directory services to AOL's customers for a minimum
of two years. After the initial two-year exclusivity period, either party may
elect to terminate the exclusivity arrangement by prior written notice. In the
event of such a termination, the co-branded search and directory service will be
the "default" search and directory service for AOL. The Distribution Agreement
has a term of five years and can be renewed by AOL for an additional five year
period and provides that the Company will receive a share of revenues generated
on the AOL search and directory site, with AOL incurring all hosting,
advertising and selling expenses. In addition, after the term of the
Distribution Agreement, AOL will have a non-exclusive, non-transferable license
to any navigation service owned or controlled by Excite for successive one-year
periods at "customary fair market rates" and other terms to be mutually agreed
upon by the Company and AOL. See "Risk Factors -- Acquisition Strategy;
Integration of Past and Future Acquisitions."
The Company believes that all of the transactions set forth above were made
on terms no less favorable to the Company than could have been obtained from
unaffiliated third parties. All future transactions between the Company and its
officers, directors and principal shareholders and their affiliates will be
approved by a majority of the Board, including a majority of the independent and
disinterested directors of the Board, and will be on terms no less favorable to
the Company than could be obtained from unaffiliated third parties.
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PRINCIPAL SHAREHOLDERS
The following table sets forth certain information known to the Company
regarding beneficial ownership of the Company's Common Stock as of March 31,
1997, and as adjusted to reflect the sale of shares offered hereby, by (i) each
person known by the Company to be the beneficial owner of more than 5% of the
Company's Common Stock, each of whom the Company believes to be an affiliate of
the Company, (ii) each of the Company's directors, (iii) each Named Officer (see
"Management -- Executive Compensation") and (iv) all executive officers and
directors as a group.
<TABLE>
<CAPTION>
SHARES SHARES
BENEFICIALLY BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
OFFERING(1) OFFERING(1)(2)
------------------ ------------------
NAME OF BENEFICIAL OWNERS NUMBER PERCENT NUMBER PERCENT
- ------------------------------------------------------ -------- ------- -------- -------
<S> <C> <C> <C> <C>
America Online, Inc.(3)............................... 3,280,330 21.9% 3,280,330 19.0%
Vinod Khosla.......................................... 2,593,322 21.0 2,593,322 17.7
Kleiner Perkins Caufield & Byers(4)
Geoffrey Y. Yang...................................... 2,293,322 18.6 2,293,322 15.7
Institutional Venture Partners(5)
Tribune Company(6).................................... 804,629 6.5 804,629 5.5
Graham F. Spencer(7).................................. 569,340 4.6 569,340 3.9
Joseph R. Kraus, IV(8)................................ 371,395 3.0 371,395 2.5
George Bell(9)........................................ 141,891 1.1 134,199 *
Brett T. Bullington(10)............................... 123,457 1.0 123,457 *
Cary H. Masatsugu(11)................................. 62,500 * 62,500 *
Donn M. Davis(12)..................................... -- * -- *
Stephen M. Case(13)................................... -- * -- *
All executive officers and directors as a group (13
persons)(14)........................................ 6,165,666 49.0 6,165,666 41.4
</TABLE>
- ---------------
* Less than 1%.
(1) Unless otherwise indicated below, the persons and entities named in the
table have sole voting and sole investment power with respect to all shares
beneficially owned, subject to community property laws where applicable.
Shares of Common Stock subject to options or warrants that are currently
exercisable or exercisable within 60 days of March 31, 1997 are deemed to
be outstanding and to be beneficially owned by the person holding such
options or warrants for the purpose of computing the percentage ownership
of such person but are not treated as outstanding for the purpose of
computing the percentage ownership of any other person. Shares of Common
Stock subject to conversion privileges upon conversion of the Preferred
Stock to be issued to AOL are deemed to be outstanding for purposes of
computing the percentage ownership of all persons named in the table.
(2) Assumes that all of the shares of Common Stock offered hereby are sold.
(3) Includes (i) 1,250,000 and 700,000 shares of Series E-1 and E-2 Preferred
Stock, respectively, issued to AOL in connection with the Acquisition, (ii)
680,330 shares of Series E-4 Preferred Stock to be issued to AOL Ventures,
Inc. a wholly-owned subsidiary of AOL ("AOL Ventures") upon exercise of the
Exchange Right and (iii) 650,000 shares of Series E-3 Preferred Stock
issuable upon exercise of the AOL Warrant. The AOL Warrant is held by AOL
Ventures. All of the shares of Series E Preferred Stock are convertible
into Common Stock on a one-for-one basis. All shares of the Series E
Preferred Stock beneficially owned by AOL are subject to the terms of a
Voting Trust Agreement in the event that under California law a separate
class vote of the Series E Preferred Stock is required to be taken. See
"Certain Transactions" and "Description of Capital Stock -- Voting Trust."
AOL has also entered into a standstill agreement with the Company in
connection with its inital investment in the Company and the acquistion of
the WebCrawler Assets. See "Certain Transactions -- Securities Issuances."
AOL's address is 22000 AOL Way, Dulles, Virginia 20166.
59
<PAGE> 61
(4) Represents 2,235,990 shares of Common Stock held of record by KPCB, 57,332
shares of Common Stock held of record by KPCB Information and 300,000
shares of Common Stock held of record by Mr. Khosla. Mr. Khosla, a director
of the Company, is a general partner of KPCB and KPCB Information and may
be deemed to beneficially own the shares owned by those entities. Mr.
Khosla disclaims beneficial ownership of such shares except to the extent
of his indirect pecuniary interest therein. The address of Mr. Khosla and
Kleiner Perkins Caufield & Byers is 2750 Sand Hill Road, Menlo Park,
California 94025.
(5) Represents 45,864 shares of Common Stock held of record by IVM, 2,191,722
shares of Common Stock held of record by IVP, and 55,736 shares of Common
Stock held of record by IVP Founders. Mr. Yang, a director of the Company,
is a general partner of IVM, which is the general partner of IVP and of IVP
Founders and may be deemed to beneficially own the shares beneficially
owned by these entities. Mr. Yang disclaims beneficial ownership of such
shares except for his proportional interest therein. The address of Mr.
Yang and Institutional Venture Partners is 3000 Sand Hill Road, Building 2,
Suite 290, Menlo Park, California 94025.
(6) Tribune has entered into a standstill agreement in connection with its
initial investment in the Company. See "Certain Transactions -- Securities
Issuances." Tribune's address is 435 North Michigan Avenue, Suite 600,
Chicago, Illinois 60611.
(7) Includes approximately 147,098 shares of Common Stock subject to a
repurchase right of the Company upon cessation of Mr. Spencer's service to
the Company. Such repurchase right lapses with respect to approximately
8,653 of such shares per month.
(8) Includes approximately 78,067 shares of Common Stock subject to a
repurchase right of the Company upon cessation of Mr. Kraus's service to
the Company. Such repurchase right lapses with respect to approximately
5,769 of such shares per month.
(9) Represents 141,891 shares of Common Stock subject to options that are
currently exercisable or exercisable within 60 days of March 31, 1997.
(10) Includes 15,483 shares of Common Stock subject to options that are
currently exercisable or exercisable within 60 days of March 31, 1997.
(11) Represents 62,500 shares of Common Stock subject to options that are
currently exercisable or exercisable within 60 days of March 31, 1997.
(12) Mr. Davis, a director of the Company, is the President of Tribune Ventures,
a unit of Tribune Company. Mr. Davis disclaims beneficial ownership of
shares held by Tribune Company.
(13) Mr. Case, a director of the Company, is the President, Chief Executive
Officer and a director of AOL. Mr. Case disclaims beneficial ownership of
shares held by AOL.
(14) Includes an aggregate of 230,313 shares of Common Stock subject to options
or warrants that are currently exercisable or exercisable within 60 days of
March 31, 1997. Also includes approximately 245,165 shares of Common Stock
subject to a repurchase right of the Company upon cessation of the
officers' or director's service to the Company. Such repurchase right
lapses with respect to approximately 14,422 shares per month.
60
<PAGE> 62
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 25,000,000 shares
of Common Stock, no par value, and 4,000,000 shares of Preferred Stock, no par
value. As of March 31, 1997, there were outstanding 12,347,397 shares of Common
Stock beneficially held by approximately 200 record holders and 1,950,000 shares
of Convertible Preferred Stock outstanding, 1,250,000 and 700,000 shares of
which are designated as Series E-1 and Series E-2 Convertible Preferred Stock,
respectively.
COMMON STOCK
Holders of Common Stock are entitled to one vote per share on all matters
to be voted upon by the shareholders. The Company's shareholders currently may
cumulate their votes for the election of directors. Cumulative voting will no
longer be permitted under the Articles at such time as (i) the Common Stock is
listed on the Nasdaq National Market and the Company has at least 800 holders of
its equity securities as of the record date of the Company's most recent annual
meeting of shareholders or (ii) the Company's shares of Common Stock are listed
on the New York Stock Exchange or the American Stock Exchange. The Company may
have at least 800 holders of its equity securities by the record date for its
next annual meeting of shareholders. The holders of Common Stock have no
preemptive or other rights to subscribe for additional shares. All outstanding
shares of Common Stock are, and those offered hereby will be, validly issued,
fully paid and nonassessable. Subject to preferences that may be applicable to
holders of any Preferred Stock then outstanding, holders of Common Stock are
entitled to such dividends as may be declared by the Board out of funds legally
available therefor. Upon liquidation, dissolution or winding up of the Company,
the assets legally available for distribution to shareholders are distributable
ratably among the holders of the Common Stock at that time outstanding, subject
to prior distribution rights of creditors of the Company and to the preferential
rights of any shares of Preferred Stock then outstanding.
CONVERTIBLE PREFERRED STOCK
The Board has the authority, subject to any limitations prescribed by
California law, to issue shares of Preferred Stock in one or more series, to
establish from time to time the number of shares to be included in each such
series, to fix the rights, preferences and privileges of the shares of each
wholly unissued series and any qualifications, limitations or restrictions
thereon, and to increase or decrease the number of shares of any such series
(but not below the number of shares of such series then outstanding); without
any further vote or action by the shareholders. The Board has the authority to
authorize the issuance of Preferred Stock with voting or conversion rights that
could adversely affect the voting power or other rights of the holders of Common
Stock. Thus, the issuance of Preferred Stock may have the effect of delaying,
deferring or preventing a change in control of the Company.
In connection with the Acquisition and the Distribution Agreement,
1,250,000 shares of Series E-1 Convertible Preferred Stock and 700,000 shares of
Series E-2 Convertible Preferred Stock were issued to AOL at the Closing. In
addition, pursuant to the Exchange Right, AOL has the right, for a 90 day period
following the Closing, to have the 680,330 shares of Common Stock beneficially
owned by AOL cancelled and exchanged for an equivalent number of shares of
Series E-4 Convertible Preferred Stock. Furthermore, the AOL Warrant was amended
to become exercisable into 650,00 shares of Series E-3 Convertible Preferred
Stock. Such Series E Convertible Preferred Stock will, upon the liquidation,
dissolution or winding up of the Company, be entitled to receive a liquidation
preference of $1.15, $0.01, $8.00 and $8.819 per share for the Series E-1, E-2,
E-3 and E-4 Convertible Preferred Stock, respectively. Each share of Series E
Convertible Preferred Stock will be convertible into shares of Common Stock at
the option of the holder thereof, with such conversion to occur on a one-to-one
basis, as adjusted for certain events. The holders of outstanding shares of
Series E Convertible Preferred Stock shall be entitled to vote together with the
holders of Common Stock, on an as converted to Common Stock basis. In addition,
so long as at least an aggregate of 1,640,165 shares of Series E Convertible
Preferred Stock are outstanding, the holders of the Series E Convertible
Preferred Stock, voting as a class shall be entitled to elect one director of
the Company. See "-- Voting Trust."
61
<PAGE> 63
WARRANTS
As of March 31, 1997, two warrants to purchase an aggregate of 9,451 shares
of Common Stock and the AOL Warrant, which represents a warrant to purchase
650,000 shares of Series E-3 Convertible Preferred Stock were outstanding. The
AOL Warrant has an exercise price of $8.00 per share and expires with respect to
325,000 shares on September 30, 1997 and expires with respect to the remaining
shares on March 8, 2001. The remaining warrants, which consist of a warrant
covering 2,356 shares of Common Stock with an exercise price of $32.66 per share
and a warrant covering 7,095 shares of Common Stock with an exercise price of
$101.27 per share, expire in September 2001 and January 31, 1999, respectively.
See "Business -- Strategic Alliances" and "Certain Transactions."
REGISTRATION RIGHTS
Certain investors holding an aggregate of 5,909,953 shares of Common Stock
of the Company (the "Registrable Securities") have certain "demand" rights to
register those shares under the Securities Act. If requested by holders of more
than 50% of the Registrable Securities then outstanding and assuming a
reasonably anticipated aggregate price to the public of at least $7.5 million,
the Company must file a registration statement under the Securities Act covering
all Registrable Securities requested to be included by holders of Registrable
Securities. The Company is required to effect up to two such "demand"
registrations. The Company has the right to delay any such registration for up
to 120 days under certain circumstances.
In addition, holders of Registrable Securities have certain "piggyback"
registration rights. If the Company proposes to register any of its securities
under the Securities Act other than in connection with the Company's employee
benefit plans or a corporate reorganization, the holders of Registrable
Securities may require the Company to include all or a portion of their shares
in such registration, although the managing underwriter of any such offering has
certain rights to limit the number of shares in such registration. The Company
is required to effect two such "piggyback" registrations. In addition, certain
shareholders holding an aggregate of 15,000 shares of Common Stock that do not
have such "demand" registration rights have the right to participate in
"piggyback" registrations.
Further, if requested by (i) holders of more than 50% of the then
outstanding Registrable Securities (assuming there is a reasonably anticipated
aggregate price to the public of at least $1.75 million) or (ii) either Tribune
or CUC International Inc. (two former holders of the Company's Series D
Preferred Stock, which Preferred Stock was converted into Common Stock in
connection with the Company's initial public offering), the Company must file a
registration statement on Form S-3 when such form becomes available to the
Company, subject to certain conditions. The Company has the right to delay any
such registration for up to 90 days under certain circumstances. The Company is
required to effect up to two such registrations that are requested by holders of
more than 50% of the then outstanding Registrable Securities and one such
registration for each of Tribune and CUC International Inc.
All expenses incurred in connection with the above registrations (other
than the underwriters' and brokers' discounts and commissions) will be borne by
the Company. The rights of any particular holder of Registrable Securities, with
respect to such registration rights, will expire on April 4, 200l.
In addition to the above described registration rights, in connection with
the Acquisition, AOL was granted certain registration rights with respect to all
of the shares of Common Stock owned or issuable to AOL (the "AOL Registrable
Securities"). Within thirty (30) days of the Closing, the Company must use its
best efforts to effect a "shelf" registration statement (and maintain the
effectiveness of such registration statement for up to two years) providing for
the resale by AOL of all of the AOL Registrable Securities no more than four 30
day periods which must be at least 90 days apart in time and in accordance with
the manner of sale provisions set forth in Rule 144(f) under the Securities Act
or in other customary brokerage transactions in the public market. The Company
has the right to delay the shelf registration, or the sale of the AOL
Registrable Securities under such shelf registration, for up to 60 or 90 days
under certain circumstances. All expenses in connection with the shelf
registration will be borne by the Company. This "shelf" registration statement
was filed with the Commission on April 28, 1997.
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<PAGE> 64
In addition, upon the request of AOL the Company must file a registration
statement on Form S-3 during such period that Form S-3 is available to the
Company (an "S-3 Registration"), subject to certain conditions. The Company has
the right to delay any S-3 Registration for up to 60 days under certain
circumstances. The Company is required to effect only two S-3 Registrations. All
expenses (including registration and qualification fees, printers' and
accounting fees and fees and disbursements of counsel for the Company) incurred
in connection with such registrations will be borne by AOL.
AOL also has certain "piggyback" registration rights. All expenses incurred
in connection with any piggyback registrations on behalf of AOL (other than the
underwriters' and brokers' discounts and commissions) will be borne by the
Company.
The Company's obligation to register AOL Registrable Securities will
terminate upon the earlier of (i) the time that all AOL Registrable Securities
have been registered and sold or (ii) such time as all AOL Registrable
Securities held by AOL may be sold within a three month period under Rule 144.
VOTING TRUST
The Company and AOL have entered into a Voting Trust Agreement (the "Voting
Trust") with respect to the shares of Series E Preferred Stock issued (or to be
issued upon exercise of the AOL Warrant) to AOL in connection with the
Acquisition and the entering into of the Distribution Arrangement. The Voting
Trust provides that all of such shares shall be deposited into a voting trust
such that in the event that California law should require a separate class vote
of the Preferred Stock owned by AOL, such shares are to be voted consistently
with the majority of the Company's Common Stock. The trustee under the Voting
Trust is Richard B. Redding, the Company's Vice President, Finance and
Administration and Secretary. His address is c/o Excite, Inc., 555 Broadway,
Redwood City, California 94063. The Voting Trust will terminate upon the earlier
to occur of (i) the date on which AOL no longer holds shares of Preferred Stock;
(ii) the effective date of any merger, consolidation, exchange or other
reorganization where the Company is not the surviving corporation; (iii) the
dissolution of the Company; or (iv) ten years from the date of the creation of
the Voting Trust.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Company's Common Stock is The
First National Bank of Boston.
LISTING
The Common Stock is reported on the Nasdaq National Market under the
trading symbol "XCIT."
63
<PAGE> 65
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have outstanding an
aggregate of 15,247,397 shares of Common Stock and 1,950,000 shares of
Convertible Preferred Stock which is convertible into Common Stock on a
one-for-one basis (assuming no exercise of options or warrants, and no exercise
of the Exchange Right). Of the total number of shares of Common Stock
outstanding upon consummation of this offering, all shares of Common Stock,
including the 2,900,000 shares of Common Stock offered hereby, will be freely
tradeable without restriction or further registration under the Securities Act,
unless they are purchased by "affiliates" of the Company as that term is used
under the Securities Act or are subject to resale restrictions pursuant to Rule
144. The remaining 1,950,000 shares of Convertible Preferred Stock (which
include the shares of Common Stock issuable upon conversion of the Convertible
Preferred Stock held by AOL and exclude shares of Convertible Preferred Stock
subject to the AOL Warrant and the Exchange Right, and Common Stock issuable
upon exercise of options and warrants) are "restricted securities" as defined in
Rule 144 ("Rule 144") promulgated under the Securities Act (the "Restricted
Shares") and will be eligible for public sale, subject to resale restrictions of
Rule 144, commencing in March 1998.
In general, under Rule 144, as recently amended, any person (or persons
whose shares are aggregated) who has beneficially owned his or her restricted
securities (as that term is defined in Rule 144) for at least one year is
entitled to sell, within any three-month period, a number of such securities
that does not exceed the greater of 1% of the then outstanding shares of the
Company's Common Stock (approximately 146,474 shares immediately after the
offering) or the average weekly trading volume during the four calendar weeks
preceding the date on which notice of such sale was filed under Rule 144,
provided certain requirements concerning availability of public information,
manner of sale and notice of sale are satisfied. A person who is not an
affiliate, has not been an affiliate within three months prior to such sale and
has beneficially owned the restricted securities for at least two years is
entitled to sell such shares under Rule 144(k) without regard to any of the
limitations described above. In meeting the one year and two year holding
periods described above, a holder of Restricted Shares may include the holding
period of a prior owner who is not an affiliate of the Company.
As of March 31, 1997, options to purchase a total of approximately
3,608,046 shares were outstanding (which number includes options to purchase
approximately 939,748 shares of Common Stock which were granted subject to
shareholder approval), of which approximately 333,347 shares issuable upon the
exercise of stock options will be eligible for sale in the public market,
immediately or, in some cases, upon the expiration of lock-up agreements.
Furthermore, the Company's Board has approved an increase, subject to
shareholder approval, in the number of shares of Common Stock reserved for
issuance under the 1996 Plan by 3,255,000 shares (and has granted, subject to
such shareholder approval, options to purchase approximately 939,748 shares of
Common Stock). The Company has filed a registration statement under the
Securities Act to register shares of Common Stock currently reserved for
issuance under the 1995 Plan, the 1996 Plan and the Directors Plan, thus
permitting the resale of such shares by non-affiliates and affiliates subject to
Rule 144 volume limitations applicable thereto, in the public market without
restrictions under the Securities Act. The Company intends to file an additional
registration statement under the Securities Act with respect to the additional
3,255,000 shares of Common Stock to be covered by the 1996 Plan.
Also, holders of an aggregate of 9,205,283 shares of Common Stock and AOL,
who beneficially owns 3,280,330 shares of Common Stock (which includes shares
subject to the AOL Warrant and the Exchange Right), will be entitled to certain
rights to require the Company to register these shares of Common Stock
beneficially owned for offer and sale to the public. See "Description of Capital
Stock -- Registration Rights."
The Company has filed a Registration Statement on Form S-3 with respect to
the shares of Common Stock issuable to AOL upon conversion of Convertible
Preferred Stock held by AOL or upon exercise of the AOL Warrant and the Exchange
Right. See "Description of Capital Stock -- Registration Rights."
64
<PAGE> 66
PLAN OF DISTRIBUTION
The shares being offered hereby are being offered for sale by the Company
principally to selected strategic investors. No underwriters are being utilized
in connection with this offering.
It is anticipated that the Company will obtain indications of interest from
potential investors for the amount of the offering and confirm orders after the
Registration Statement of which this Prospectus is a part has been declared
effective. The Company may sell less than all of the shares offered hereby.
There is no required minimum number of shares that must be sold as a condition
to completion of the offering. Confirmations containing requests for written
commitments from investors purchasing in the offering and final prospectuses
will be distributed to all investors as soon as practicable after pricing. After
such time, investors will be asked to execute and deliver a stock purchase
agreement. No investor funds will be accepted prior to the effective date of the
Registration Statement of which this Prospectus is a part or prior to the
expiration of any applicable waiting period under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended. Upon closing, (i) the Company
will deliver to each investor the number of shares purchased by such investor in
accordance with instructions delivered by or on behalf of the investors, and
(ii) each investor will deliver to the Company immediately available funds in an
amount equal to the aggregate purchase price of the shares being sold to such
investor. The offering will not continue after the closing.
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock offered hereby
will be passed upon for the Company by Fenwick & West LLP, Palo Alto,
California. Certain members of the firm of Fenwick & West LLP own an aggregate
of 20,588 shares of the Company's Common Stock.
EXPERTS
The consolidated financial statements of Excite, Inc. at December 31, 1996
and 1995, and for each of the three years in the period ended December 31, 1996,
appearing in this Prospectus and Registration Statement have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report thereon
appearing elsewhere herein which, as to the years 1995 and 1994, is based in
part on the report of Price Waterhouse LLP, independent accountants. The
consolidated financial statements referred to above are included in reliance
upon such report given upon the authority of such firm as experts in accounting
and auditing.
The financial statements of The McKinley Group, Inc. for the years ended
December 31, 1995 and 1994, not separately presented in this Prospectus, have
been audited by Price Waterhouse LLP, independent accountants, whose report
thereon appears herein. Such financial statements, to the extent they have been
included in the consolidated financial statements of Excite, Inc., have been so
included in reliance on their report given on the authority of said firm as
experts in auditing and accounting.
65
<PAGE> 67
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 under the Securities Act with respect to the shares of Common Stock offered
hereby. This Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits thereto. For further information with
respect to the Company and the Common Stock offered hereby, reference is made to
the Registration Statement and the exhibits thereto. Statements contained in
this Prospectus regarding the contents of any contract or any other document to
which reference is made are necessarily summaries of the material terms of such
contracts or documents, and in each instance reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference. A copy of the Registration Statement and the exhibits thereto may be
inspected without charge at the principal office of the Commission at Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the Public Regional
Office, 5670 Wilshire Boulevard, 11th Floor, Los Angeles, California 90036-3848,
and copies of all or any part of the Registration Statement may be obtained from
the Public Reference Section of the Commission in Washington, D.C. upon the
payment of the fees prescribed by the Commission.
66
<PAGE> 68
EXCITE, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
Report of Ernst & Young LLP, Independent Auditors................................... F-2
Report of Price Waterhouse LLP, Independent Accountants............................. F-3
Consolidated Balance Sheets as of December 31, 1995 and 1996 and March 31, 1997..... F-4
Consolidated Statements of Operations for the years ended December 31, 1994, 1995
and 1996 and the three month periods ended March 31, 1996 and 1997................ F-5
Consolidated Statements of Shareholders' Equity (Net Capital Deficiency) for the
years ended December 31, 1994, 1995 and 1996 and the three month period ended
March 31, 1997.................................................................... F-6
Consolidated Statements of Cash Flows for the years ended December 31, 1994, 1995
and 1996 and the three month periods ended March 31, 1996 and 1997................ F-7
Notes to Consolidated Financial Statements.......................................... F-8
</TABLE>
F-1
<PAGE> 69
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Excite, Inc.
We have audited the accompanying consolidated balance sheets of Excite,
Inc. as of December 31, 1995 and 1996, and the related consolidated statements
of operations, shareholders' equity (net capital deficiency) and cash flows for
each of the three years in the period ended December 31, 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits. In August 1996, the Company merged
with the McKinley Group, Inc. in a transaction that was accounted for as a
pooling of interests. We did not audit the financial statements of The McKinley
Group, Inc. for the years ended December 31, 1994 or 1995, which statements
reflect total assets constituting approximately 54% of the related consolidated
financial statement totals at December 31, 1995, and net losses constituting
approximately 92% and 49% of the consolidated financial statement totals for the
years ended December 31, 1994 and 1995, respectively. Those statements were
audited by other auditors whose report has been furnished to us, and our
opinion, insofar as it relates to data included for The McKinley Group, Inc. is
based solely on the report of the other auditors.
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 and the report of other auditors provides a
reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Excite, Inc. at
December 31, 1995 and 1996, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended December 31,
1996, after giving retroactive effect to the business combination with The
McKinley Group, Inc. as described in the notes to the consolidated financial
statements, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Palo Alto, California
January 29, 1997
F-2
<PAGE> 70
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
The McKinley Group, Inc.
In our opinion, the balance sheets and the related statements of
operations, stockholders' deficit, and cash flows present fairly, in all
material respects, the financial position of The McKinley Group, Inc. at
December 31, 1994 and 1995, and the results of its operations and its cash flows
for each of the two years in the period ended December 31, 1995, in conformity
with generally accepted accounting principles. These financial statements are
the responsibility of the Company's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits in accordance with generally accepted auditing standards which require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
The financial statements have been prepared assuming the Company will
continue as a going concern. The Company has suffered recurring losses from
operations, has a net capital deficiency and is not in compliance with certain
covenants underlying outstanding bank borrowings. These factors raise
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.
On August 6, 1996, the Company entered into an Agreement and Plan of
Reorganization (the "Agreement") with Excite, Inc. Upon the effectiveness of the
Agreement, the Company's stockholders will exchange all of their shares of
Common Stock for shares of Common Stock of Excite, Inc., in a business
combination to be accounted for as a pooling of interests.
PRICE WATERHOUSE LLP
San Jose, CA
August 6, 1996
F-3
<PAGE> 71
EXCITE, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH
-------------------- 31,
1995 1996 1997
------- -------- --------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 760 $ 3,971 $ 7,809
Short-term investments.................................... 358 16,863 5,450
Restricted investments.................................... 452 1,496 1,790
Accounts receivable, net.................................. 338 3,340 5,118
Prepaid expenses and other current assets................. 207 1,070 1,304
------ ------- -------
Total current assets.............................. 2,115 26,740 21,471
Property and equipment, net................................. 1,450 8,194 9,663
Intangible assets........................................... 190 11,841 8,489
Other assets................................................ 46 923 1,124
------ ------- -------
$ 3,801 $ 47,698 $ 40,747
====== ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
Current liabilities:
Notes payable, current portion............................ $ 899 $ 1,200 $ 6,100
Accounts payable.......................................... 1,111 6,699 5,129
Accrued compensation...................................... 428 861 1,169
Accrued distribution license fees......................... -- 2,300 230
Capital lease obligations, current portion................ 213 2,325 2,664
Deferred revenues......................................... 105 1,784 1,205
Other accrued liabilities................................. 237 3,447 3,338
------ ------- -------
Total current liabilities......................... 2,993 18,616 19,835
------ ------- -------
Notes payable............................................... 587 -- --
Capital lease obligations................................... 408 3,985 3,889
Commitments and contingencies
Redeemable convertible preferred stock, no par value;
issuable in series: 4,000 shares authorized at December
31, 1995 (none at December 31, 1996 and March 31, 1997),
1,890 shares issued and outstanding at December 31, 1995
(none at December 31, 1996 and March 31, 1997)............ 3,847 -- --
Shareholders' equity (net capital deficiency):
Convertible preferred stock, no par value
Authorized - 4,000 shares issuable in series
Issuable at December 31, 1996 - 1,950 shares and issued
at March 31, 1997 -- 1,950 shares; aggregate
liquidation preference of $1,445 at December 31, 1996
and March 31, 1997................................... -- 15,816 17,441
Common stock, no par value
Authorized - 25,000 shares.............................
Issued and outstanding - 2,448, 12,108 and 12,347
shares at December 31, 1995, 1996 and March 31, 1997,
respectively......................................... 3,530 59,999 59,101
Deferred compensation..................................... (631) (388) (348)
Unrealized gain (loss) on available-for-sale
investments............................................ 152 (128) (185)
Accumulated deficit....................................... (7,085) (50,202) (58,986)
------ ------- -------
Total shareholders' equity (net capital
deficiency)..................................... (4,034) 25,097 17,023
------ ------- -------
$ 3,801 $ 47,698 $ 40,747
====== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 72
EXCITE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTH PERIOD
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
-------------------------------- -------------------
1994 1995 1996 1996 1997
------- ------- -------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Advertising revenues................ $ 57 $ 145 $ 14,030 $ 1,154 $ 7,478
Contract and other revenues......... 236 808 727 220 37
------- ------- -------- ------- -------
Total revenues.............. 293 953 14,757 1,374 7,515
Cost of revenues:
Cost of advertising revenues........ -- 65 3,296 246 2,392
Cost of contract and other
revenues......................... 88 163 667 143 --
Amortization of purchased
technology....................... -- -- 186 -- 2,399
------- ------- -------- ------- -------
Total cost of revenues...... 88 228 4,149 389 4,791
------- ------- -------- ------- -------
Gross profit.......................... 205 725 10,608 985 2,724
Operating expenses:
Product development................. 415 2,810 8,030 1,376 3,066
Sales and marketing................. 37 1,648 21,103 2,489 6,281
Distribution license fees........... -- -- 11,878 1,625 30
General and administrative.......... 399 2,326 7,081 1,141 1,289
Charge for purchased in-process
technology....................... -- 331 3,500 -- --
Other merger and acquisition related
costs, including amortization of
goodwill and other purchased
intangibles...................... -- -- 3,134 -- 953
------- ------- -------- ------- -------
Total operating expenses.... 851 7,115 54,726 6,631 11,619
------- ------- -------- ------- -------
Operating loss........................ (646) (6,390) (44,118) (5,646) (8,895)
Interest income....................... -- 5 1,410 30 230
Interest expense and other............ (4) (50) (409) (28) (119)
------- ------- -------- ------- -------
Net loss.............................. $ (650) $(6,435) $(43,117) $(5,644) $(8,784)
======= ======= ======== ======= =======
Net loss per share.................... $ (0.06) $ (0.58) $ (3.65) $ (0.50) $ (0.72)
======= ======= ======== ======= =======
Shares used in computing net loss per
share............................... 10,576 11,070 11,818 11,341 12,214
======= ======= ======== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 73
EXCITE, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
<TABLE>
<CAPTION>
TOTAL
SHAREHOLDERS'
PREFERRED STOCK COMMON STOCK UNREALIZED EQUITY
--------------- --------------- DEFERRED GAIN/(LOSS) ACCUMULATED (NET CAPITAL
SHARES AMOUNT SHARES AMOUNT COMPENSATION ON INVESTMENTS DEFICIT DEFICIENCY)
------ ------- ------ ------- ------------ -------------- ----------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993.......... -- $ -- 35 $ 1 $ -- $ -- $ -- $ 1
Issuance of common stock for cash... -- -- 899 100 -- -- -- 100
Issuance of common stock for
services.......................... -- 356 7 -- -- -- 7
Net loss............................ -- -- -- -- -- -- (650) (650)
----- ------- ------ ------- ----- ----- -------- --------
Balance at December 31, 1994.......... -- -- 1,290 108 -- -- (650) (542)
Issuance of common stock for cash... -- -- 1,024 1,921 -- -- -- 1,921
Exercise of stock options........... -- -- 1 6 -- -- -- 6
Issuance of common stock for equity
securities........................ -- -- 33 300 -- -- -- 300
Issuance of common stock for
services.......................... -- -- 8 196 -- -- -- 196
Note payable conversion............. -- -- 22 275 -- -- -- 275
Issuance of common stock and warrant
in connection with asset purchase
agreement......................... -- -- 70 84 -- -- -- 84
Deferred compensation related to
stock options, net of
amortization...................... -- -- -- 640 (631) -- -- 9
Unrealized gain on
available-for-sale investments.... -- -- -- -- -- 152 -- 152
Net loss............................ -- -- -- -- -- -- (6,435) (6,435)
----- ------- ------ ------- ----- ----- -------- --------
Balance at December 31, 1995.......... -- -- 2,448 3,530 (631) 152 (7,085) (4,034)
Issuance of common stock for cash... -- -- 283 1,412 -- -- -- 1,412
Notes payable conversion............ -- -- 87 400 -- -- -- 400
Issuance of warrant in connection
with distribution agreement....... -- -- -- 1,625 -- -- -- 1,625
Issuance of shares, note payable
conversion and exercise of
outstanding warrants in connection
with the Company's IPO, net of
issuance costs of $3,682.......... -- -- 3,651 36,418 -- -- -- 36,418
Conversion of redeemable preferred
stock in connection with the
Company's IPO..................... -- -- 5,324 16,129 -- -- -- 16,129
Exercise of stock options........... -- -- 300 375 -- -- -- 375
Amortization of deferred
compensation, net of
cancellations..................... -- -- -- 7 243 -- -- 250
Issuance of common and preferred
stock issuable in connection with
asset purchase agreements......... 1,950 15,816 15 103 -- -- -- 15,919
Unrealized loss on
available-for-sale investments.... -- -- -- -- -- (280) -- (280)
Net loss............................ -- -- -- -- -- -- (43,117) (43,117)
----- ------- ------ ------- ----- ----- -------- --------
Balance at December 31, 1996.......... 1,950 15,816 12,108 59,999 (388) (128) (50,202) 25,097
Amendment of common stock
warrant to preferred stock warrant
(unaudited)....................... -- 1,625 -- (1,625) -- -- -- --
Exercise of warrant, on a net basis
(unaudited)....................... -- -- 43 -- -- -- -- --
Exercise of stock options and
issuance of stock (unaudited)..... -- -- 196 727 -- -- -- 727
Amortization of deferred
compensation (unaudited).......... -- -- -- -- 40 -- -- 40
Unrealized loss on
available-for-sale investments
(unaudited)....................... -- -- -- -- -- (57) -- (57)
Net loss (unaudited)................ -- -- -- -- -- -- (8,784) (8,784)
----- ------- ------ ------- ----- ----- -------- --------
Balance at March 31, 1997
(unaudited)......................... 1,950 $17,441 12,347 $59,101 $ (348) $ (185) $ (58,986) $ 17,023
===== ======= ====== ======= ===== ===== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 74
EXCITE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTH PERIOD
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------ ---------------------
1994 1995 1996 1996 1997
----- ------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss....................................... $(650) $(6,435) $(43,117) $ (5,644) $ (8,784)
Adjustments to reconcile net loss to net cash
used in operating activities:
Amortization of deferred compensation....... -- 9 243 40 40
Issuance of warrants........................ -- -- 1,625 1,625 --
Equity securities issued for services....... 7 196 -- -- --
Depreciation................................ 11 140 2,189 143 1,221
Amortization of intangible assets........... -- 19 954 -- 3,352
Charge for purchased in-process
technology................................ -- 331 3,500 -- --
Loss on disposal of property and
equipment................................. -- -- 96 26 --
Provision for loan impairment............... -- -- 629 -- --
Changes in assets and liabilities:
Accounts receivable....................... (3) (335) (2,957) (718) (1,778)
Prepaid expenses and other current
assets................................. (11) (168) (863) (402) (234)
Other assets.............................. (23) (36) (873) (466) (201)
Accounts payable.......................... 136 1,021 5,515 1,207 (1,570)
Accrued compensation...................... 44 384 425 63 308
Accrued distribution license fees......... -- -- 2,300 -- (2,070)
Other accrued liabilities................. 122 117 2,533 395 (109)
Deferred revenues......................... -- 105 1,679 28 (579)
----- ------- -------- -------- --------
Net cash used in operating
activities........................... (367) (4,652) (26,122) (3,703) (10,404)
----- ------- -------- -------- --------
Cash flows from investing activities:
Purchases of property and equipment............ (85) (811) (892) (65) (1,605)
Purchases of investments....................... -- (358) (49,765) -- (3,121)
Sales and maturities of investments............ -- -- 31,936 -- 14,183
Notes and advances to Novo MediaGroup, Inc..... -- -- (629) -- --
Payment on asset purchase...................... -- (150) -- -- --
----- ------- -------- -------- --------
Net cash provided by (used in)
investing activities................. (85) (1,319) (19,350) (65) 9,457
----- ------- -------- -------- --------
Cash flows from financing activities:
Payments on capital lease obligations.......... -- (69) (1,875) (80) (842)
Proceeds from notes payable.................... 344 1,277 3,490 2,350 6,000
Payments on notes payable...................... -- (263) (2,426) (1,226) (1,100)
Proceeds from sale of redeemable convertible
preferred stock............................. -- 3,847 12,282 12,335 --
Proceeds from sale of common stock and common
stock warrants.............................. 100 1,927 37,212 1,485 727
----- ------- -------- -------- --------
Net cash provided by financing
activities........................... 444 6,719 48,683 14,864 4,785
----- ------- -------- -------- --------
Net increase (decrease) in cash and cash
equivalents.................................... (8) 748 3,211 11,096 3,838
Cash and cash equivalents at beginning of
period......................................... 20 12 760 760 3,971
----- ------- -------- -------- --------
Cash and cash equivalents at end of period....... $ 12 $ 760 $ 3,971 $ 11,856 $ 7,809
===== ======= ======== ======== ========
Non-cash financing activities:
Amendment of common stock warrant to preferred
stock warrant............................... $ -- $ -- $ -- $ -- $ 1,625
Conversion of redeemable convertible preferred
stock to common stock....................... $ -- $ -- $ 16,129 $ -- $ --
Conversion of notes payable to common stock.... $ -- $ 275 $ 1,400 $ 250 $ --
Fixed assets acquired under capital leases..... $ -- $ 676 $ 7,564 $ 558 $ 1,084
Supplemental cash flow disclosure:
Cash paid for interest......................... $ -- $ 17 $ 379 $ 19 $ 31
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE> 75
EXCITE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company and Basis of Presentation
Excite, Inc. ("Excite" or the "Company"), formerly Architext Software,
Inc., which was formed in June 1994, provides a gateway to the World Wide Web
("the Web") that organizes, aggregates and delivers information to meet the
needs of individual consumers. Designed to help consumers make sense of the Web,
the Excite Network, including the Excite and WebCrawler brands, contains a suite
of specialized information services which combine proprietary search technology,
editorial Web reviews, aggregated content from third parties, bulletin boards,
chat and personalization capabilities. The Company's goal is to be the Web's
leading branded media network with the largest consumer reach, thereby creating
an efficient means of advertising on the Web. To this end, the Excite Network
serves as a home base where consumers can gather, interact and return to during
each Web experience. The Company derives a substantial portion of its revenues
from selling advertising on its Web sites to customers in various industries.
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All significant intercompany balances and
transactions have been eliminated. On August 30, 1996, the Company acquired The
McKinley Group, Inc. ("McKinley") in a merger transaction accounted for as a
pooling of interests (see Note 3.) McKinley was incorporated in December 1993.
All financial information has been restated to reflect the combined operations
of the Company and McKinley. From December 7, 1993 (inception) through December
31, 1993, McKinley had no revenues and insignificant operating expenses which
have been included in the consolidated results of operations for the year ended
December 31, 1994.
The Company has incurred operating losses to date and incurred a net loss
of approximately $43.1 million for the year ended December 31, 1996. The Company
believes that additional funding will be needed to finance expected operations
in the year ending December 31, 1997. If such additional funding is not
available, management believes that available resources will provide sufficient
funding to enable the Company to meet its obligations through at least December
31, 1997. If anticipated operating results are not achieved, management has the
intent and believes it has the ability to delay or reduce expenditures so as not
to require additional financial resources if such resources were not available.
The Company currently derives a large percentage of its revenues from
advertising through the "Net Search" page on Netscape. Under the terms of the
April 1996 agreements with Netscape (see Note 12), this facility expires on
March 31, 1997; however, in March 1997, Netscape agreed to extend the provisions
of these agreements to April 30, 1997, and entered into new agreements covering
the period from May 1, 1997 through April 30, 1998 (see Note 13.)
Interim Financial Statements
The financial information as of March 31, 1997 and for the three months
ended March 31, 1996 and 1997 is unaudited. These interim financial statements
have been prepared on substantially the same basis as the audited financial
statements and in the opinion of management, contain all adjustments, consisting
only of normal recurring adjustments, necessary for the fair presentation of the
financial information set forth therein.
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 amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
F-8
<PAGE> 76
EXCITE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Reclassifications
Certain previously reported amounts have been reclassified to conform to
the current presentation format.
Long-Lived Assets
In 1995, the Financial Accounting Standards Board released Statement of
Financial Accounting Standard No. 121 "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS 121").
SFAS 121 requires recognition of impairment of long-lived assets in the event
the net book value of such assets exceeds the future undiscounted cash flows
attributable to such assets. The adoption of SFAS 121 in fiscal 1996 had no
impact on the Company's financial condition or operating results.
The carrying value of goodwill and intangible assets is reviewed on a
regular basis for the existence of facts or circumstances, both internally and
externally, that may suggest impairment. To date no such impairment has been
indicated. Should there be an impairment in the future, the Company will measure
the amount of the impairment based on undiscounted expected future cash flows
from the impaired assets. The cash flow estimates that will be used will contain
management's best estimates, using appropriate and customary assumptions and
projections at the time.
Revenue Recognition
Advertising revenues are derived principally from short-term advertising
contracts in which the Company guarantees a minimum number of impressions (a
view of an advertisement by a consumer) for a fixed fee. Advertising revenues
are recognized ratably over the term of the contract. To the extent minimum
guaranteed impression levels are not met, the Company defers recognition of the
corresponding revenues until guaranteed levels are achieved.
Revenues from the sale of certain advertising space are shared with third
parties pursuant to the terms of certain agreements. To date, amounts allocable
to third parties have not been significant. Contract and other revenues during
the years ended December 31, 1994 and 1995 consisted primarily of contract
revenues earned under agreements to modify the Company's Internet directory
technology and fees for the licensing of Internet directory content and
technology. Contract revenues are recognized as the work is performed using the
percentage of completion method. License revenues are recognized at the time of
delivery, provided that no significant obligations remain and collection of the
resulting receivable is considered probable.
Advertising
Costs related to advertising are expensed as incurred. Advertising expense
was insignificant for the year ended December 31, 1994 and was approximately
$144,000 and $10.4 million for the years ended December 31, 1995 and 1996,
respectively and $842,000 and $2.1 million for the three months ended March 31,
1996 and 1997, respectively.
Cash, Cash Equivalents, Short-Term Investments and Fair Value of Financial
Instruments
The Company considers investments in highly liquid instruments purchased
with an original maturity of 90 days or less to be cash equivalents. All of the
Company's cash equivalents and short-term investments, consisting principally of
commercial paper and government securities, are classified as available-for-sale
as of the balance sheet date. These securities are recorded at fair market
value. Unrealized gains and losses on these investments are included in
shareholders' equity. The cost of securities sold is based on specific
identification. There were no material gross realized gains or losses from sales
of securities in the periods presented. The fair value of investments is based
on quoted market prices at December 31, 1996. The estimates presented herein
F-9
<PAGE> 77
EXCITE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
are not necessarily indicative of the amounts that the Company could realize in
a current market exchange. All available-for-sale investments generally mature
in one year or less.
<TABLE>
<CAPTION>
GROSS UNREALIZED
HISTORICAL -----------------
COST GAIN LOSS FAIR VALUE
---------- ------ ------ ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Cash and cash equivalents:
Cash............................................... $ 758 $ -- $ -- $ 758
U.S. Government securities......................... 1,604 -- -- 1,604
Money market funds................................. 1,609 -- -- 1,609
--
------ ----- -------
$ 3,971 $ -- $ -- $ 3,971
====== == ===== =======
Short-term investments:
Commercial paper................................... $ 3,882 $ 3 $ -- $ 3,885
U.S. Government securities......................... 12,203 5 -- 12,208
Corporate notes.................................... 770 -- -- 770
--
------ ----- -------
$ 16,855 $ 8 $ -- $ 16,863
====== == ===== =======
Restricted investments:
Restricted certificate of deposit.................. $ 1,332 $ -- $ -- $ 1,332
Restricted investment in common stock.............. 300 -- (136) 164
--
------ ----- -------
$ 1,632 $ -- $ (136) $ 1,496
====== == ===== =======
</TABLE>
The restricted certificate of deposit is being held as collateral by a
financial institution against a letter of credit for tenant improvements at the
Company's new headquarters (see Note 5.)
The restricted investment in common stock is being held as collateral by a
financial institution against the Company's line of credit borrowings (see Note
4.)
Property and Equipment
Property and equipment are stated at cost, net of accumulated amortization
and depreciation. Property and equipment are depreciated on a straight-line
basis over the estimated useful lives of the assets (one to five years.)
Equipment purchased under capital leases is amortized on a straight-line basis
over the lesser of the estimated useful life of the asset or the lease term.
Property and equipment, at cost, consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ MARCH 31,
1995 1996 1997
------ ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Purchased computer equipment and internal use software....... $ 901 $ 1,968 $ 2,916
Leased computer equipment and internal use software.......... 673 7,891 8,975
Purchased furniture and fixtures............................. 13 370 374
Leased furniture and fixtures................................ 3 297 297
Leasehold improvements....................................... 16 60 714
------ ------ ------
1,606 10,586 13,276
Less accumulated depreciation and amortization............... (156) (2,392) (3,613)
------ ------ ------
$1,450 $ 8,194 $ 9,663
====== ====== ======
</TABLE>
F-10
<PAGE> 78
EXCITE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Intangible Assets
Intangible assets consist primarily of goodwill, developed technology,
distribution rights, trademarks, bookmarks and trade names, and are being
amortized generally over periods ranging from four months to three years. These
purchased intangibles and goodwill relate to the acquisitions of certain assets
from other companies.
<TABLE>
<CAPTION>
LIFE DECEMBER 31,
IN ---------------- MARCH 31,
MONTHS 1995 1996 1997
------ ---- ------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
(IN THOUSANDS)
Trademarks, trade names, goodwill and other........... 24-36 $209 $ 2,708 $ 2,708
Developed technology.................................. 13 -- 8,400 8,400
Operating agreement................................... 4 -- 1,200 1,200
Distribution agreement................................ 24 -- 500 500
---- ------- -------
209 12,808 12,808
Less accumulated amortization......................... (19) (967) (4,319)
---- ------- -------
$190 $11,841 $ 8,489
==== ======= =======
</TABLE>
Concentration of Credit Risk
The Company performs ongoing credit evaluations of its customers' financial
condition and, generally, does not require collateral on accounts receivable.
When required, the Company maintains allowances for credit losses and such
losses have been within management's expectations. The Company's services are
provided to customers in several industries, primarily in North America.
Provisions for doubtful accounts were insignificant in 1995, $670,000 for
the year ended December 31, 1996 and $106,000 for the quarter ended March 31,
1997. Accounts receivable are stated net of allowances for doubtful accounts of
$425,000 and $287,000 at December 31, 1996 and March 31, 1997 (none at December
31, 1995.)
Two customers accounted for approximately 52% and 17% respectively, of
total revenues in 1994. Two customers accounted for approximately 26% and 16%
respectively, of total revenues in 1995. One customer accounted for
approximately 12% of total revenues in 1996 and the quarter ended March 31,
1997.
Product Development Costs
Product development expenditures are charged to operations as incurred.
Statement of Financial Accounting Standards No. 86, "Accounting for the Costs of
Computer Software to be Sold, Leased, or Otherwise Marketed," requires
capitalization of certain software development costs subsequent to the
establishment of technological feasibility. Based on the Company's product
development process, technological feasibility is established upon completion of
a working model. Costs incurred by the Company between completion of the working
model and the point at which the product is ready for general release have been
insignificant. Therefore, all product development costs have been charged to
operations as incurred.
Per Share Amounts
Net loss per share is computed using the weighted average number of shares
of Common Stock outstanding during the period and excludes all common stock
equivalents as they are anti-dilutive. However, pursuant to Securities and
Exchange Commission Staff Accounting Bulletins, for the periods prior to the
Company's initial public offering, such computations include all common and
common equivalent shares issued within twelve months of the filing date as if
they were outstanding for all periods presented. Common equivalent shares
consist of the incremental common shares issued upon conversion of Redeemable
F-11
<PAGE> 79
EXCITE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Convertible Preferred Stock (using the if-converted method) and shares issuable
upon the exercise of stock options and warrants (using the treasury stock
method.)
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings per Share," which is required to be adopted on December 31,
1997. At that time, the Company will be required to change the method currently
used to compute earnings per share and to restate all prior periods. Under the
new requirements for calculating primary earnings per share, the dilutive effect
of stock options will be excluded. The impact of Statement 128 on the
calculation of historically reported primary or fully diluted earnings per share
is not expected to be material, as the Company has recorded losses in all
periods to date and has therefore excluded the impact of stock options, as these
would be anti-dilutive.
2. INITIAL PUBLIC OFFERING
In April 1996, the Company completed its initial public offering and issued
2,300,000 shares of its Common Stock at a price of $17.00 per share. The Company
received approximately $35.4 million in cash, net of underwriting discounts,
commissions and other offering costs. Simultaneously with the closing of the
initial public offering, each outstanding share of Redeemable Convertible
Preferred Stock was automatically converted into two shares of Common Stock,
outstanding warrants were exercised (on a net exercise basis) at an exercise
price of $17.00 per share, resulting in the issuance of 1,191,176 shares of
Common Stock, and $1.0 million principal amount of notes payable was converted
into 160,000 shares of Common Stock.
3. MERGER AND ASSET PURCHASES
Merger
In August 1996, the Company acquired McKinley, a closely held private
company and creator of the Magellan On-Line Guide. The transaction was effected
through the issuance of approximately 850,000 shares of the Company's Common
Stock and was accounted for as a pooling of interests. In connection with the
transaction, the Company incurred approximately $2.2 million in merger related
expenses, including $1.0 million for legal and other professional fees, $901,000
for personnel severance and outplacement expenses and $345,000 for termination
of distribution contracts and discontinuation of duplicate operations and
facilities. A total of approximately $524,000 was included in other accrued
liabilities at December 31, 1996 for the remaining merger related liabilities.
Separate results of the combined entities for the years ended December 31,
1994 and 1995, and for the eight month period ended August 30, 1996 (date of
merger) are as follows:
<TABLE>
<CAPTION>
UNAUDITED
YEARS ENDED DECEMBER 31, EIGHT MONTHS
--------------------------- ENDED AUGUST 30,
1994 1995 1996
------------ ------------ ----------------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues:
Excite............................................... $ 83 $ 435 $ 5,182
McKinley............................................. 210 518 1,661
----- ------- --------
$ 293 $ 953 $ 6,843
===== ======= ========
Net loss:
Excite............................................... $ (51) $ (3,257) $(13,793)
McKinley............................................. (599) (3,178) (12,306)
----- ------- --------
$ (650) $ (6,435) $(26,099)
===== ======= ========
</TABLE>
There were no significant inter-company transactions between the two companies
and no significant conforming accounting adjustments.
F-12
<PAGE> 80
EXCITE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Asset Purchases
In November 1995, the Company entered into an asset purchase agreement with
City.Net Express ("City.Net"), a company which develops automated software
systems for managing content and links over the Internet. Under the terms of the
agreement, the Company purchased certain assets of City.Net in exchange for cash
of $150,000, 70,000 shares of Common Stock, a promissory note of $300,000, and a
warrant to purchase 45,000 shares of Common Stock at an exercise price of $3.33
per share for a total purchase consideration valued at $534,000. Of the purchase
price, $203,000 was allocated to identified intangible assets and $331,000 was
allocated to purchased in-process technology which was charged to operations at
the time of the acquisition. The Company determined the amounts to be allocated
to developed and in-process technology based on whether technological
feasibility had been achieved and whether there was an alternative future use
for the technology.
In November 1996, the Company entered into a series of agreements with
America Online, Inc.("AOL"), a provider of Internet and other online services,
whereby a co-branded version of Excite became the exclusive Internet search and
directory service for AOL. Under these agreements, Excite acquired AOL's
WebCrawler search and directory technology (the "WebCrawler Assets") and AOL
performed certain services for the Company, for 1,950,000 shares of the
Company's Series E-1 and E-2 Convertible Preferred Stock, that are issuable upon
closing (see Notes 7 and 13.) In addition, as part of the transactions
contemplated by these agreements, AOL will have the right, for a 90 day period
following the closing, which was effective on March 27, 1997, to have the
680,330 shares of common stock beneficially owned by AOL canceled and an
equivalent number of shares of series E-4 Convertible Preferred Stock issued to
it, and a warrant beneficially owned by AOL (which previously was exercisable
into 650,000 shares of common stock at an exercise price of $8.00 per share)
will be amended to become exercisable into 650,000 shares of series E-3
Convertible Preferred Stock at the same exercise price per share. The Company
valued the Series E-1 and E-2 Convertible Preferred Stock using the average
market price of the Company's Common Stock over a reasonable period of time
before and after the announcement of the asset purchase. In addition, an
independent appraisal of the premium attributable to the preferred stock
preferences for Series E-1, E-2, E-3 and E-4 was obtained. Accordingly, the
value attributed to the issuable Series E-1 and E-2 Convertible Preferred Stock
was $8.08 per share. The acquisition was recorded as of December 1, 1996. Upon
closing, AOL will pay to the Company a percentage of AOL's advertising revenues
with respect to the sales of advertising derived from the WebCrawler Assets for
the period between December 1, 1996 and the closing, less ordinary and customary
reserves, and the Company will reimburse AOL for expenses relating to the
WebCrawler Assets. Revenues recorded in the period ended December 31, 1996 were
immaterial. Shareholders' equity at December 31, 1996 includes the 1,950,000
shares of Convertible Preferred Stock issuable to AOL.
The series of agreements have been accounted for as the acquisition of
rights to developed and in-process technologies and distribution rights. The
intangible assets were recorded based on their independently appraised fair
values as of December 1, 1996. Of the total purchase price, $3.5 million was
allocated to purchased in-process technology and the remaining excess purchase
price of approximately $12.6 million was allocated to trademarks, distribution
rights, bookmarks, trade names, goodwill and other. The amount of the purchase
price allocated to purchased in-process technology was charged to the Company's
operations as of December 1, 1996.
The Company determined the amounts to be allocated to developed and
in-process technology based on whether technological feasibility had been
achieved (as defined and utilized by the Company in assessing software
capitalization) and whether there was any alternative future use for the
technology. Other considerations included the time and cost to complete each
project, expected income, and associated risks which included the inherent
difficulties and uncertainties in completing the project and thereby achieving
technological feasibility and risks related to the viability of and potential
changes to future target markets. The
F-13
<PAGE> 81
EXCITE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Company concluded that the in-process technology had no alternative future use
after taking into consideration the potential for usage of the technology in
different products, resale of the technology and internal usage.
4. BANK LINE OF CREDIT AND NOTES PAYABLE
Bank borrowings and other notes payable are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ MARCH 31,
1995 1996 1997
------ ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Bank line of credit (Note 13)................................ $ 796 $ 1,100 $ 6,000
Note payable in connection with asset purchase (Note 3)...... 300 -- --
Other notes payable.......................................... 390 100 100
----- ----- -------
1,486 1,200 6,100
Less current portion......................................... (899) (1,200) (6,100)
----- ----- -------
$ 587 $ -- $ --
===== ===== =======
</TABLE>
Bank Line of Credit
The Company has a $1.0 million revolving line of credit with a bank
available through March 31, 1997. Additionally, in May 1996, the Company
received $100,000 from the same bank under a demand note. Borrowings at December
31, 1996 totaled $1.1 million and are secured by substantially all of McKinley's
assets and are guaranteed by the Company. Interest on borrowings is payable
monthly at the bank's prime rate (8.25% at December 31, 1996) plus 1%. At
December 31, 1996, a short-term investment with a carrying amount of $164,000
was held by the bank as collateral for borrowings under the line of credit and
is not available to the Company. In March 1997, the Company entered into a new
line of credit for $6.0 million (see Note 13).
Notes Payable
In 1996, the Company repaid $150,000 of the note payable which arose in
connection with an asset purchase, and converted the remaining $150,000 into
45,000 shares of Common Stock. Other notes payable represent amounts due to
individuals with interest rates ranging from 6% to 11%. In 1996, the Company
converted $250,000 of other notes payable into 41,604 shares of Common Stock.
5. COMMITMENTS
Capital Leases
In March 1996, the Company entered into a master equipment lease which
provides for the purchase of up to $2.5 million of property and equipment under
capital leases. At December 31, 1996, $132,000 was available under this lease
line. In the second half of 1996, the Company entered into additional equipment
leases, not included in the master lease line, totaling $4.8 million. These
leases generally have terms of 30 to 36 months.
Building Lease
In August 1996, the Company entered into a lease for new corporate offices
located in Redwood City, California. The Company anticipates that this lease,
which has a ten year term, will commence during the second quarter of 1997 at
which time the Company will move from its present offices in Mountain View,
Sausalito and San Jose, California.
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<PAGE> 82
EXCITE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Annual minimum commitments under these leases are as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
--------- -------
YEARS ENDING DECEMBER 31, (IN THOUSANDS)
<S> <C> <C>
1997.................................................................... $ 1,257 $ 2,812
1998.................................................................... 1,849 2,707
1999.................................................................... 1,586 1,576
2000.................................................................... 1,514 --
2001.................................................................... 1,514 --
Thereafter.............................................................. 7,948 --
------ -------
Total minimum payments required........................................... $15,668 $ 7,095
======
Less amounts representing interest........................................ (785)
-------
Present value of future lease payments.................................... 6,310
Less current portion...................................................... (2,325)
-------
$ 3,985
=======
</TABLE>
Rent expense under operating leases was approximately $24,000, $152,000 and
$722,000 for the years ended December 31, 1994, 1995 and 1996, respectively.
6. REDEEMABLE CONVERTIBLE PREFERRED STOCK
Each share of Redeemable Convertible Preferred Stock outstanding at
December 31, 1995 automatically converted to two shares of Common Stock upon the
closing of the Company's initial public offering in April 1996.
7. SHAREHOLDERS' EQUITY
Convertible Preferred Stock
Information regarding Convertible Preferred Stock, including the amounts
issuable in connection with the acquisition of certain assets from AOL consists
of the following (no par value):
<TABLE>
<CAPTION>
SHARES
ISSUABLE AT
SHARES DECEMBER 31, LIQUIDATION
AUTHORIZED 1996 PREFERENCE
---------- ------------ -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Series E-1................................................... 1,250 1,250 $ 1,438
Series E-2................................................... 700 700 7
Series E-3................................................... 650 -- --
Series E-4................................................... 680 -- --
----- ----- ------
Total Series E..................................... 3,280 1,950 $ 1,445
===== ======
Undesignated................................................. 720
-----
Total authorized................................... 4,000
=====
</TABLE>
Holders of the Series E Convertible Preferred Stock will be entitled to
non-cumulative dividends, as and if declared by the Board of Directors ("The
Board"), on a pro rata basis with the common stock holders.
F-15
<PAGE> 83
EXCITE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The holders of Series E-1, E-2, E-3 and E-4 Convertible Preferred Stock
will be entitled to liquidation preferences of $1.15, $0.01, $8.0 and $8.819 per
share respectively, prior to and in preference to any payment or distribution to
holders of Common Stock.
Each holder of shares of Convertible Preferred Stock shall be entitled to a
number of votes equal to the number of shares of Common Stock into which such
shares of Preferred Stock could convert and, so long as at least 1,640,165
shares of Series E Convertible Preferred Stock are outstanding, the Preferred
Stock as a class shall be entitled to elect one director. Subject to adjustment,
the Preferred Stock holders are entitled, upon conversion, to the same number of
Common shares as represented by their Preferred Stock holdings. At the option of
the holder, each share of Preferred Stock shall be convertible, at any time or
from time to time, into shares of Common Stock.
Common Stock
At December 31, 1996, 1,780,020 shares of Common Stock issued by the
Company were subject to stock repurchase agreements whereby the Company has the
option to repurchase the unvested shares upon termination of employment for any
reason, with or without cause, at the original price paid for the shares.
Generally the stock vests 30% immediately with the remaining 70% vesting ratably
over 48 months from the date of issuance. At December 31, 1996, 493,226 shares
of Common Stock were subject to repurchase at the option of the Company at the
original exercise price ranging from $0.00045 to $0.035.
Warrants
During 1995, the Company issued warrants to purchase 30,000 shares of
Series A and 16,000 shares of Series B Redeemable Convertible Preferred Stock at
exercise prices of $0.67 and $1.25 per share, respectively, in connection with
an equipment lease agreement. These warrants converted into warrants to purchase
Common Stock upon the Company's initial public offering in April 1996. In
January 1997, the holder of these warrants elected to exercise the warrants and
receive a lesser number of shares in exchange for a reduction in the exercise
price resulting in the issuance of 43,466 shares of Common Stock.
During 1995, the Company issued warrants to purchase 1,200,000 shares of
Common Stock at an exercise price of $0.125 per share in connection with the
sale of Series B Redeemable Convertible Preferred Stock. These warrants were
exercised in April 1996 in connection with the Company's initial public
offering.
During 1995, the Company issued warrants to purchase 36,000 and 28,540
shares of Common Stock at exercise prices of $0.67 and $1.25 per share,
respectively, in connection with an employment offer. These warrants were
exercised in 1996.
During 1995, the Company issued warrants to purchase 2,356 shares of Common
Stock at an exercise price of $32.66 per share in connection with obtaining a
working capital line of credit from a bank (see Note 4.) These warrants expire
in September 2001.
In February 1996, the Company issued warrants to purchase 7,095 shares of
Common Stock at an exercise price of $101.27 per share in connection with a
consulting services agreement. These warrants fully vest on January 31, 1997 and
expire on January 31, 1999.
In March 1996, the Company entered into an agreement with AOL whereby, in
return for certain distribution rights, the Company issued a warrant to purchase
650,000 shares of Common Stock at an exercise price of $8.00 per share. The
warrant expires in March 2001. The value of the warrant was established though
an independent appraisal. A charge to operations of $1.6 million for the fair
value of the warrant was recorded at the time of issuance. Upon the closing of
the acquisition of the WebCrawler Assets, this warrant was amended to be
exercisable for an equivalent number of shares of Series E-3 Convertible
Preferred Stock at the same exercise price per share. The value attributed to
the amendment of the warrant terms from Common
F-16
<PAGE> 84
EXCITE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Stock to Series E-3 Convertible Preferred Stock was minimal, as the expiration
date of the warrant was also amended such that this warrant will expire with
respect to 325,000 shares, if unexercised with respect to those shares, on
September 30, 1997, instead of in March, 2001.
Stock Splits
In July 1995, the Company completed a one-for-nine reverse stock split. In
addition, in February 1996, the Company completed a two-for-one stock split. All
of the share and per share data have been adjusted to reflect these stock
splits.
8. EMPLOYEE BENEFIT PLANS
Stock Option Plans
During 1995, the Company adopted the 1995 Equity Incentive Plan (the "1995
Plan") under which incentive stock options or non-qualified stock options to
purchase Common Stock may be granted to eligible participants. Under the 1995
Plan, options to purchase Common Stock may be granted at prices no less than 85%
of the fair market value on the date of grant (110% of fair value in certain
instances.) Options generally vest over a 48-month period. Options granted under
the 1995 Plan before its termination in April 1996 remain outstanding in
accordance with their terms, but no further options have been granted under the
1995 Plan after the date of its termination.
Additionally, in February 1996 the Company's Board of Directors adopted,
and in March 1996 the Company's shareholders approved, increases to the number
of shares authorized for issuance under the 1995 Plan totalling 550,000 shares,
the 1996 Equity Incentive Plan (the "1996 Plan") and 1996 Directors Stock Option
Plan (the "Directors Plan") which authorized the issuance of 1,500,000 and
150,000 shares of Common Stock, respectively, upon exercise of stock options
granted to eligible participants under the 1996 Plan and to directors under the
Directors Plan. In November 1996 and January 1997, the Board approved amendments
to the 1996 Plan, subject to shareholder approval, to increase the number of
shares thereunder by 800,000 and 2,455,000 shares, respectively.
The 1996 Plan serves as the successor equity incentive program to the
Company's 1995 Plan. The 1996 Plan provides for the grant of either incentive
stock options (as defined in Section 422 of the Internal Revenue Code of 1986,
as amended) or non qualified stock options and stock bonuses and the issuance of
restricted stock by the Company to eligible participants at a price no less than
85% of the fair value on the date of grant. Options generally vest over a 48
month period. No person is eligible to receive more than 500,000 shares in any
calendar year pursuant to grants under the 1996 Plan, other than new employees
of the Company who will be eligible to receive up to a maximum of 800,000 shares
in the calendar year in which they commence employment with the Company. Shares
that (i) are subject to issuance upon exercise of an option but cease to be
subject to such stock option for any reason other than exercise of such stock
option, (ii) are subject to an award granted under the 1996 Plan but are
forfeited or are repurchased by the Company at the original issue price or (iii)
are subject to an award that otherwise terminates without shares being issued
will again be available for grant and issuance in connection with future awards
under the 1996 Plan. The 1996 Plan will terminate in February 2006, unless
terminated earlier in accordance with the provisions of the 1996 Plan.
F-17
<PAGE> 85
EXCITE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
A summary of activity under the Plans is as follows:
<TABLE>
<CAPTION>
SHARES OPTIONS OUTSTANDING
AVAILABLE --------------------------- WEIGHTED
FOR NUMBER OF AVERAGE
GRANT SHARES PRICE PER SHARE EXERCISE PRICE
---------- --------- --------------- --------------
(SHARES IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Initial shares authorized...................... 1,650 -- -- --
Options granted.............................. (1,375) 1,375 $0.035- $34.612 $ 0.31
Options exercised............................ -- (1) $ 8.194 $ 8.19
----- -----
Balance at December 31, 1995................... 275 1,374 $0.035- $34.612 $ 0.31
Additional shares authorized................. 3,000 -- -- --
Options granted.............................. (2,836) 2,836 $2.500- $67.757 $ 6.80
Options exercised............................ -- (300) $0.035- $ 5.750 $ 0.33
Options canceled............................. 263 (263) $0.035- $67.757 $10.50
Options expired.............................. (528) -- -- --
----- -----
Balance at December 31, 1996................... 174 3,647 $0.035- $67.757 $ 4.66
===== =====
</TABLE>
At December 31, 1996, options totalling 758,703 shares have been granted
under the 1996 Plan subject to shareholder approval.
Deferred Compensation
The Company has recorded deferred compensation expense of $640,000 for the
difference between the exercise price and the deemed fair value of certain of
the Company's Common Stock options granted in 1995. This amount is being
amortized over the vesting period of the individual options, generally a
48-month period. Deferred compensation expense recognized in the years ended
December 31, 1995 and 1996 totaled $9,000 and $243,000, respectively.
Accounting for Stock-Based Compensation
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" ("APB 25") and related
Interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under FASB
Statement No. 123, "Accounting for Stock-Based Compensation" ("Statement 123"),
requires use of option valuation models that were not developed for use in
valuing employee stock options. Under APB 25, if the exercise price of the
Company's employee stock options equals the market price of the underlying stock
on the date of grant, no compensation is recognized.
Pro forma information regarding net income and earnings per share is
required by Statement 123, which also requires that the information be
determined as if the Company had accounted for its employee stock options
granted subsequent to December 31, 1994 under the fair value method of that
Statement. The fair value for these options was estimated at the date of grant
using a Black-Scholes option pricing model with the following weighted-average
assumptions for 1995 and 1996, respectively: risk-free interest rates of
approximately 5.7%, and 5.9%; dividend yields of 0%, volatility factors of the
expected market price of the Company's Common Stock of 0.0, and 0.75; and a
weighted-average expected life of the options of 4.5 years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
F-18
<PAGE> 86
EXCITE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
31,
----------------------
1995 1996
------- --------
(IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
Net loss -- as reported............................................... $(6,435) $(43,117)
===== ======
Net loss -- pro forma................................................. $(6,437) $(44,104)
===== ======
Net loss per share -- as reported..................................... $ (0.58) $ (3.65)
===== ======
Net loss per share -- pro forma....................................... $ (0.58) $ (3.73)
===== ======
</TABLE>
The following table summarizes information about fixed stock options
outstanding at December 31, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------------------------- -------------------------------------
NUMBER WEIGHTED- NUMBER
OUTSTANDING AT AVERAGE WEIGHTED- EXERCISABLE AT WEIGHTED-
RANGE OF EXERCISE DEC. 31, 1996 REMAINING AVERAGE EXERCISE DEC. 31, 1996 AVERAGE EXERCISE
PRICES (IN THOUSANDS) CONTRACTUAL LIFE PRICE (IN THOUSANDS) PRICE
- ----------------- --------------- ----------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
$ 0.035- $ 0.290 1,005 8.3 years $ 0.19 186 $ 0.20
2.500- 2.500 236 9.1 2.50 18 2.50
5.500- 9.875 2,248 9.5 6.26 24 6.53
11.190- 17.125 155 9.3 12.62 4 12.00
67.757- 67.757 3 9.3 67.67 -- --
3,647 232 1.22
</TABLE>
Employee Stock Purchase Plan
In February 1996 the Company's Board of Directors adopted, and in March
1996 the Company's shareholders approved, the 1996 Employee Stock Purchase Plan
(the "ESPP") to provide employees of the Company with an opportunity to purchase
Common Stock through payroll deductions. Under the ESPP, 150,000 shares of
Common Stock have been reserved for issuance, subject to anti-dilution
adjustments. The ESPP became effective in December 1996. The Board of Directors
has the authority to determine the duration of offering periods, up to a maximum
of 24 months. Eligible employees may participate in the ESPP by authorizing
payroll deductions of an amount determined by the Board of Directors. The amount
of authorized payroll deductions may not be less than 2% nor more than 10% of an
employee's compensation, not to exceed $21,250 per year. Amounts withheld are
applied at the end of every six-month accumulation period to purchase shares of
Common Stock, but not more than the number of shares as the Board of Directors
shall determine.
Participants may withdraw their contributions at any time prior to fifteen
days before the stock is purchased, and such contributions will be returned to
the participants without interest. The purchase prices is equal to 85% of the
lower of (i) the market price of the Company's Common Stock immediately before
the beginning of the applicable period or (ii) the market price of the Company's
Common Stock at the time of the purchase. As of December 31, 1996, no shares had
been purchased under the ESPP.
F-19
<PAGE> 87
EXCITE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Employee Benefit Plan
The Company has a savings plan (the "Savings Plan") that qualifies as a
deferred salary arrangement under Section 401(k) of the Internal Revenue Code.
Under the Savings Plan, participating employees may defer a percentage (not to
exceed 15%) of their pretax earnings up to the Internal Revenue Service's annual
contribution limit. The Company is not required to contribute to the Savings
Plan and has made no contributions since the inception of the Savings Plan.
9. INCOME TAXES
As of December 31, 1996, the Company had federal and state net operating
loss carryforwards of approximately $37.9 million and $37.7 million,
respectively. The federal net operating loss carryforwards will expire at
various dates beginning in 2009 through 2011. The state net operating loss
carryforwards will expire at various dates beginning in 1999 through 2001.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amount used for income tax purposes.
Significant components of the Company's deferred tax assets are as follows:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
1995 1996
------ -------
(IN THOUSANDS)
<S> <C> <C>
Net operating loss carryforwards.......................................... $2,200 $15,200
Research credits (expiring 2009-2011)..................................... 100 400
Non-deductible merger and acquisition costs............................... -- 1,300
Purchased in-process technology........................................... 140 1,400
Other..................................................................... 120 900
------ -------
Total deferred tax assets....................................... 2,560 19,200
Valuation allowance for deferred tax assets............................... (2,560) (19,200)
------ -------
Net deferred tax assets......................................... $ -- $ --
====== =======
</TABLE>
Because of the Company's lack of earnings history, the deferred tax assets
have been fully offset by a valuation allowance. The valuation allowance
increased by $2.5 million and $16.6 million during the years ended December 31,
1995 and 1996, respectively.
Utilization of the net operating losses and credits may be subject to a
substantial annual limitation due to the ownership change provisions of the
Internal Revenue Code of 1986. The annual limitation may result in the
expiration of net operating losses and credits before utilization.
10. NOVO MEDIAGROUP, INC. NOTE RECEIVABLE
During 1996, the Company advanced amounts under notes and advances
receivable to Novo MediaGroup, Inc. ("Novo") in the amount of $629,000, of which
$330,000 was evidenced by an 8% promissory note convertible into shares of Novo
common stock. Based on management's assessment of the financial uncertainty with
regard to Novo's ability to repay the outstanding amounts, an impairment reserve
of $629,000 was provided in the quarter ended June 30, 1996.
11. LITIGATION
On November 18, 1996, Kristine Paaso and Laura Lindsey filed a complaint in
the California Superior Court, Santa Clara County, against the Company and
certain of its founders alleging breach of an alleged oral
F-20
<PAGE> 88
EXCITE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
agreement, breach of fiduciary duty and fraud. The plaintiffs allege that they
participated in the creation of the Company's business plan and were entitled to
participate as officers and shareholders of the Company. The complaint seeks an
unspecified amount of damages, including punitive damages. The Company has filed
a demurrer to this complaint and intends to defend this action vigorously.
Although it is too early to ascertain the possible outcome of this litigation,
an unfavorable outcome could have an adverse effect on the Company's business,
results of operations and financial condition.
The Company is subject to other legal proceedings and claims that arise in
the ordinary course of business. Management currently believes that the ultimate
amount of liability, if any, with respect to any pending actions, either
individually or in the aggregate, will not materially affect the financial
position, results of operations or liquidity of the Company. However, the
ultimate outcome of any litigation is uncertain. If an unfavorable outcome were
to occur, the impact could be material. Furthermore, any litigation, regardless
of the outcome, can have an adverse impact on the Company's results of
operations as a result of defense costs, diversion of management resources, and
other factors.
12. SIGNIFICANT AGREEMENTS
In April 1996, the Company (including McKinley) entered into two agreements
with Netscape Communications Corporation ("Netscape") under which each of the
Company and McKinley were designated as one of five "Premier Providers" of
search and navigation services accessible from Netscape's "Net Search" page.
These agreements provided that the "Premier Provider" status was established for
one year from April 1, 1996, in exchange for which the Company made payments
totaling $10.0 million over the course of the year. Management considered that
there was significant uncertainty regarding the recoverability of the amount
from future operations; therefore, the $10.0 million total consideration was
expensed as distribution license fee costs during the quarter ended June 30,
1996 (see Note 13.)
In May 1996, the Company entered into advertising agreements with Netscape
to deliver a guaranteed number of Netscape advertising impressions through the
Company's services. As consideration for such advertising services, Netscape
agreed to reduce the $10.0 million Premier Provider obligation by $3.0 million,
contingent upon delivery of a specified number of advertising impressions, which
was reclassified to deferred revenue to be recognized over the term of the
agreement (one year) based upon delivery of a specified number of advertising
impressions. As of December 31, 1996, approximately $1.8 million in revenue has
been recognized as a result of these agreements.
13. EVENTS SUBSEQUENT TO DATE OF AUDITOR'S REPORT
On February 25, 1997, the Board of Directors authorized management of the
Company to file a registration statement with the Securities and Exchange
Commission permitting the Company to sell shares of its Common Stock to the
public.
In March 1997, Netscape agreed to extend the provisions of the agreements
discussed in Note 12 to April 30, 1997. In March 1997, the Company entered into
new agreements which commence in May 1997, whereby the Excite brand will be one
of four "Premier Providers" and the WebCrawler brand will be one of several
"Marquee Providers" of search and navigation services accessible from Netscape's
"Net Search" page. Under the terms of these new agreements, the Company is
committed to make minimum aggregate payments of $8.25 million in exchange for a
guaranteed number of impressions. Of the $8.25 million, $5.75 million will be
paid in cash ($5.25 million in 1997 and $500,000 in 1998) and $2.5 million will
be applied towards advertising by Netscape on the Excite Network over the one
year term of the agreements based upon delivery of a specified number of
advertising impressions. To the extent that the number of impressions provided
by Netscape under the Premier Provider and Marquee Provider agreements exceed
the minimum guaranteed number of impressions, the Company will be subject to
additional fees based on the actual number of impressions delivered above the
guaranteed minimum.
F-21
<PAGE> 89
EXCITE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Effective on March 27, 1997, the Company issued to AOL a total of 1,950,000
shares of the Company's Series E-1 and E-2 Convertible Preferred Stock in
connection with the closing of the asset purchase agreement relating to the
WebCrawler Assets.
In March 1997, the Company entered into a $6.0 million line of credit,
which replaced its existing line of credit (see Note 4,) of which $3.0 million
will mature on September 30, 1997 with the remainder maturing in March, 1998.
This line of credit bears interest at rates ranging from the bank's prime rate
to prime plus .25% and is secured by substantially all assets of the Company.
This line of credit agreement also contains certain financial covenants,
including minimum requirements for tangible net worth, quick ratio and accounts
receivable balances, as well as prohibiting the declaration and payment of cash
dividends on capital stock. As of March 31, 1997, the Company had outstanding
borrowings against this line of credit of $6.0 million, and was in compliance
with all financial covenants.
F-22
<PAGE> 90
(PHOTO)
<PAGE> 91
APPENDIX -- DESCRIPTION OF GRAPHICS
COVER: The Front Cover of the Prospectus includes the Excite logo at the
top of the page.
Description of LOGO: The Excite logo consists of the word "excite" in small
letters, with the letter "x" stylized such that it resembles an x-shaped stick
figure.
INSIDE FRONT COVER: The inside front cover of the Prospectus contains three
separate sections, labeled vertically along the left edge of the page as "Access
Points," "Gateway," and "Products," with downward arrows leading from the words
"Access Points" to the word "Gateway" and from the word "Gateway" to the word
"Products." The stylized "x" from the Excite logo appears in the background.
Description #1: Description of the top third of the page: The logos of four
companies, America Online Incorporated, Netscape, Microsoft and WebTV appear in
four equal-sized boxes, each with a downward arrow leading from it. The bracket
along the left edge of the page labels the boxes as "Access Points."
Description #2: Description of the middle third of the page: The Excite
logo (as described above) appears in one box, and the WebCrawler logo
(consisting of a cartoon-depiction of a spider holding a magnifying glass and
the word "WebCrawler") in an equal-sized box adjacent to the box containing the
Excite logo. A bracket along the left edge of the page labels the boxes as
"Gateway," and the words "The Excite Network" appear centered above the two
boxes. A downward arrow leads from each box.
Caption: "WebCrawler -- Just What You're Looking For!" (contained inside
the box with the WebClawer logo) "www.excite.com" and "www.webcrawler.com"
appear below each of the corresponding boxes.
Description #3: Description of bottom third of page: Two equal-sized boxes
appear, one containing a list of Excite serves and the other containing a list
of WebCrawler services. A bracket along the left edge of the page labels the
boxes as "Products."
Caption:
Box #1: "Excite Search," "Excite Reviews," "Excite City.Net,"
"Excite Live!," "Excite News-Tracker," "ExciteSeeing Tours,"
"Excite Talk! and Excite Reference."
Box #2: "WebCrawler Search," "WebCrawler Map," "WebCrawler
Select," "Search the Web Backwards" and "WebRoulette."
The bottom of the page contains a statement that information
contained on the Company's Web sites shall not constitute a part
of the Prospectus and also contains stabilizing legend.
<PAGE> 92
INSIDE BACK COVER: The inside back cover of the Prospectus contains the
words "The Excite Network" at the top of the page, and contains four
screenprints from the Company's services: www.excite.com, www.webcrawler.com,
live.excite.com and talk.excite.com.
Description #1 www.excite.com.
This is a screenprint of the main Excite Web page from which the "Search,"
"Reviews," "City.Net," "Live,!" "Talk!" and "NewsTracker" selections can be
accessed. A number of search or subject matter selections appear below the
headings "Excite Search," "Excite Web Reviews" and "Excite NewsTracker," as well
as under "Reference" and "Live!" An advertising banner is included in the top
portion of the screen.
Description #2 www.webcrawler.com.
This is a screenprint of the main WebCrawler Web page, which provides the
options "Search," "Browse," "Special," "Add URL" and "Help." Furthermore, a
number of topic selections appear, as well as selection buttons for several Web
services. Sample advertising banners are included on the right-hand side and
bottom portions of the screen.
Description #3 live.excite.com.
This is a screenprint of the Excite Live! Web page, containing a number of
topic selections under the headings "Personalize," "Help Menu," "NewsTracker"
and "News." There also appear a number of topic selections along the top of the
page, as well as an advertising banner.
Description #4 talk.excite.com.
This is a screenprint of the Excite Talk! Web page, containing selections
for a number of bulletin boards of various topics, and a beta-version live chat
selection. An advertising banner is included on the top portion of the screen.
BACK COVER: The back cover of the Prospectus displays the Excite logo.
Description of LOGO: The Excite logo consists of the word "excite" in
small letters, with the letter "x" stylized such that it resembles an x-shaped
stick figure.
<PAGE> 93
LOGO
<PAGE> 94
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses to be paid in
connection with the sale of the shares of Common Stock being registered hereby.
All amounts are estimates except for the Securities and Exchange Commission
registration fee, and the Nasdaq National Market filing fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee..................... $ 13,245.74
Nasdaq National Market filing fee....................................... 22,600.00
Accounting fees and expenses............................................ 75,000.00
Legal fees and expenses................................................. 175,000.00
Printing................................................................ 175,000.00
Road show expenses...................................................... 30,000.00
Blue sky fees and expenses.............................................. 5,000.00
Transfer agent fees and expenses........................................ 5,000.00
Miscellaneous........................................................... 99,154.26
-----------
Total......................................................... $600,000.00
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Registrant's Articles of Incorporation include a provision that
eliminates the personal liability of its directors to the Registrant and its
shareholders for monetary damages for breach of the directors' fiduciary duties
to the fullest extent permitted by law. This limitation has no effect on a
director's liability (i) for acts or omissions that involve intentional
misconduct or a knowing and culpable violation of law, (ii) for acts or
omissions that a director believes to be contrary to the best interests of the
Registrant or its shareholders or that involve the absence of good faith on the
part of the director, (iii) for any transaction from which a director derived an
improper personal benefit, (iv) for acts or omissions that show a reckless
disregard for the director's duty to the Registrant or its shareholders in
circumstances in which the director was aware, or should have been aware, in the
ordinary course of performing a director's duties, of a risk of a serious injury
to the Registrant or its shareholders, (v) for acts or omissions that constitute
an unexcused pattern of inattention that amounts to an abdication of the
director's duty to the Registrant or its shareholders, (vi) under Section 310 of
the California Corporations Code (the "California Code") (concerning contracts
or transactions between the Registrant and a director) or (vii) under Section
316 of the California Code (concerning directors' liability for improper
dividends, loans and guarantees). The provision does not extend to acts or
omissions of a director in his capacity as an officer. Further, the provision
will not affect the availability of injunctions and other equitable remedies
available to the Registrant's shareholders for any violation of a director's
fiduciary duty to the Registrant or its shareholders.
The Registrant's Articles of Incorporation also include an authorization
for the Registrant to indemnify its agents (as defined in Section 317 of the
California Code), through bylaw provisions, by agreement or otherwise, to the
fullest extent permitted by law. Pursuant to this latter provision, the
Registrant's Bylaws provide for indemnification of the Registrant's directors
and officers. In addition, the Registrant, at its discretion, may provide
indemnification to persons whom the Registrant is not obligated to indemnify.
The Bylaws also allow the Registrant to enter into indemnity agreements with
individual directors, officers, employees and other agents. These indemnity
agreements have been entered into with all directors and provide the maximum
indemnification permitted by law. These agreements, together with the
Registrant's Bylaws and Articles of Incorporation, may require the Registrant,
among other things, to indemnify such directors against certain liabilities that
may arise by reason of their status or service as directors (other than
liabilities resulting from willful misconduct of a culpable nature), to advance
expenses to them as they are incurred, provided that they undertake to repay the
amount advanced if it is ultimately determined by a court that they are not
entitled to indemnification, and to obtain directors' and officers' insurance if
available on reasonable terms.
Section 317 of the California Code and the Registrant's Bylaws make
provision for the indemnification of officers, directors and other corporate
agents in terms sufficiently broad to indemnify such persons, under certain
circumstances for liabilities (including reimbursement of expenses incurred)
arising under the Securities Act.
II-1
<PAGE> 95
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions or otherwise, the Registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
The Registrant has directors and officers liability insurance with a per
claim and annual aggregate coverage limit of $5,000,000.
Reference is made to the following documents filed as exhibits to this
Registration Statement regarding relevant indemnification provisions described
above and elsewhere herein:
<TABLE>
<CAPTION>
EXHIBIT
DOCUMENT NUMBER
-------------------------------------------------------------------------- -------
<S> <C>
Registrant's Articles of Incorporation.................................... 3.01
Registrant's Bylaws....................................................... 3.02
Form of Indemnity Agreement............................................... 10.05
</TABLE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The following table sets forth information regarding all securities sold by
the Registrant since the Company's inception (June 9, 1994).
<TABLE>
<CAPTION>
AGGREGATE
TITLE OF NUMBER OF PURCHASE FORM OF
PURCHASER DATE OF SALE SECURITIES(1) SHARES PRICE CONSIDERATION
--------------------------------- ------------------ ------------- ---------- ------------ ----------------
<S> <C> <C> <C> <C> <C>
Ryan A. McIntyre................. September 1, 1994 Common Stock 148,888 $ 67.00 Cash
Benjamin E. Lutch................ September 1, 1994 Common Stock 148,888 67.00 Cash
Martin R. Reinfried.............. September 1, 1994 Common Stock 111,110 50.00 Cash
Graham F. Spencer................ September 1, 1994 Common Stock 172,222 77.50 Cash
Mark A. Van Haren................ September 2, 1994 Common Stock 148,888 67.00 Cash
Joseph R. Kraus, IV.............. September 5, 1994 Common Stock 158,888 71.50 Cash
Ken Keller....................... April 3, 1995 Two Warrants (2) 100.00 Cash and
to Purchase Services
Common Stock
Joseph R. Kraus.................. July 26, 1995 Common Stock 141,112 4,938.92 Cash
Benjamin E. Lutch................ July 26, 1995 Common Stock 1,112 38.92 Cash
Ryan A. McIntyre................. July 26, 1995 Common Stock 1,112 38.92 Cash
Martin R. Reinfried.............. July 26, 1995 Common Stock 38,890 1,361.15 Cash
Graham F. Spencer................ July 26, 1995 Common Stock 277,778 9,722.23 Cash
Mark A. Van Haren................ July 26, 1995 Common Stock 1,112 38.92 Cash
Charles River Partnership VII.... July 28, 1995 Series A 112,500 150,000.00 Cash
Preferred
Stock(3)
IDG Holdings, Inc................ July 28, 1995 Series A 112,500 150,000.00 Cash and
Preferred Cancellation of
Stock(3) Indebtedness
Institutional Venture Management
VI Geoffrey Yang............... July 28, 1995 Series A 9,000 12,000.00 Cash and
Preferred Cancellation of
Stock(3) Indebtedness
Institutional Venture Management
VI Geoffrey Yang............... July 28, 1995 Series A 441,000 588,000.00 Cash and
Preferred Cancellation of
Stock(3) Indebtedness
Kleiner Perkins Caufield & Byers
VII, Vinod Khosla.............. July 28, 1995 Series A 405,000 540,000.00 Cash and
Preferred Cancellation of
Stock(3) Indebtedness
KPCB VII Founder's Fund
Vinod Khosla................... July 28, 1995 Series A 45,000 60,000.00 Cash and
Preferred Cancellation of
Stock(3) Indebtedness
Joseph R. Kraus.................. July 31, 1995 Common Stock 95,560 3,344.60 Cash
Benjamin E. Lutch................ July 31, 1995 Common Stock 47,780 1,672.30 Cash
Ryan A. McIntyre................. July 31, 1995 Common Stock 47,780 1,672.30 Cash
Martin R. Reinfried.............. July 31, 1995 Common Stock 47,780 1,672.30 Cash
Graham F. Spencer................ July 31, 1995 Common Stock 143,340 5,016.90 Cash
Mark A. Van Haren................ July 31, 1995 Common Stock 47,780 1,672.30 Cash
Mark A. Vershel.................. August 1, 1995 Common Stock 4,032 141.12 Services
</TABLE>
II-2
<PAGE> 96
<TABLE>
<CAPTION>
AGGREGATE
TITLE OF NUMBER OF PURCHASE FORM OF
PURCHASER DATE OF SALE SECURITIES(1) SHARES PRICE CONSIDERATION
--------------------------------- ------------------ ------------- ---------- ------------ ----------------
<S> <C> <C> <C> <C> <C>
Lighthouse Capital Partners,
L.P............................ August 2, 1995 Warrant to (4) 100.00 Cash
Purchase
Series A
Preferred
Stock
F & W Investments 1994........... November 6, 1995 Series B 10,000 25,000.00 Cash
Preferred
Stock(3)
Institutional Venture Management
VI
Geoffrey Yang.................. November 6, 1995 Series B 6,000 15,000.00 Cash
Preferred
Stock(3)
Institutional Venture Partners VI
Geoffrey Yang.................. November 6, 1995 Series B 282,000 705,000.00 Cash
Preferred
Stock(3)
IVP Founders Fund I, L.L.P.
Geoffrey Yang.................. November 6, 1995 Series B 12,000 30,000.00 Cash
Preferred
Stock(3)
Kleiner Perkins Caufield & Byers
VII
Vinod Khosla..................... November 6, 1995 Series B 263,700 659,250.00 Cash
Preferred
Stock(3)
KPCB Information Sciences
Zaibatsu Fund II
Vinod Khosla................... November 6, 1995 Series B 7,500 18,750.00 Cash
Preferred
Stock(3)
KPCB VII Founders Fund
Vinod Khosla................... November 6, 1995 Series B 28,800 72,000.00 Cash
Preferred
Stock(3)
Institutional Venture Management
VI
Geoffrey Yang.................. November 6, 1995 Warrant to 12,000 (5) (5)
Purchase
Common Stock
Institutional Venture Partners VI
Geoffrey Yang.................. November 6, 1995 Warrant to 564,000 (5) (5)
Purchase
Common Stock
IVP Founders Fund L.L.P.
Geoffrey Yang.................. November 6, 1995 Warrant to 24,000 (5) (5)
Purchase
Common Stock
Kleiner Perkins Caufield & Byers
VII
Vinod Khosla................... November 6, 1995 Warrant to 527,400 (5) (5)
Purchase
Common Stock
KPCB Information Sciences
Zaibatsu
Fund II
Vinod Khosla................... November 6, 1995 Warrant to 15,000 (5) (5)
Purchase
Common Stock
KPCB VII Founders Fund
Vinod Khosla................... November 6, 1995 Warrant to 57,600 (5) (5)
Purchase
Common Stock
Kevin Altis...................... November 9, 1995 Common Stock 70,000 8,750.00 Sale of assets
Kevin Altis...................... November 9, 1995 Warrant to (6) (6) Sale of assets
Purchase
Common Stock
Lighthouse Capital Partners,
L.P. .......................... November 30, 1995 Warrant to (7) 100.00 Cash
Purchase
Series B
Preferred
Stock
Brett T Bullington............... November 30, 1995 Common Stock 4,000 500.00 Services
Institutional Venture Partners VI
Geoffrey Yang.................. December 8, 1995 Series C 29,052 169,082.64 Cash
Preferred
Stock(3)
Institutional Venture Management
VI
Geoffrey Yang.................. December 8, 1995 Series C 618 3,596.76 Cash
Preferred
Stock(3)
</TABLE>
II-3
<PAGE> 97
<TABLE>
<CAPTION>
AGGREGATE
TITLE OF NUMBER OF PURCHASE FORM OF
PURCHASER DATE OF SALE SECURITIES(1) SHARES PRICE CONSIDERATION
--------------------------------- ------------------ ------------- ---------- ------------ ----------------
<S> <C> <C> <C> <C> <C>
IVP Founders Fund I, L.L.P.
Geoffrey Yang.................. December 8, 1995 Series C 1,236 7,193.52 Cash
Preferred
Stock(3)
Kleiner Perkins Caufield & Byers
VII
Vinod Khosla................... December 8, 1995 Series C 27,166 159,106.12 Cash
Preferred
Stock(3)
KPCB VII Founders Fund
Vinod Khosla................... December 8, 1995 Series C 2,967 17,267.94 Cash
Preferred
Stock(3)
KPCB Information Sciences
Zaibatsu
Fund II
Vinod Khosla................... November 6, 1995 Series C 773 4,498.86 Cash
Preferred
Stock(3)
F & W Investments 1994........... November 6, 1995 Series C 294 1,711.08 Cash
Preferred
Stock(3)
Charles River Partnership VII.... November 6, 1995 Series C 3,311 19,270.02 Cash
Preferred
Stock(3)
IDG Holdings, Inc................ November 6, 1995 Series C 3,311 19,270.02 Cash
Preferred
Stock(3)
Rosewood Stone Group, Inc........ November 6, 1995 Series C 85,911 500,002.02 Cash
Preferred
Stock(3)
Kevin Altis...................... February 28, 1996 Common Stock 45,000 150,000.00 Cancellation of
Indebtedness
Ken Keller....................... March 1, 1996 Common Stock 64,540 59,675.00 Cash
AOL Ventures, Inc................ March 8, 1996 Series D 310,753 5,000,015.77 Cash
Preferred
Stock(3)
Tribune Company.................. March 8, 1996 Series D 372,903 6,000,009.27 Cash
Preferred
Stock(3)
Robert Pittman................... March 8, 1996 Series D 6,215 99,999.35 Cash
Preferred
Stock(3)
CUC International Inc............ March 8, 1996 Series D 62,150 999,993.50 Cash
Preferred
Stock(3)
Itochu Technology................ March 8, 1996 Series D 3,107 49,991.63 Cash
Preferred
Stock(3)
Itochu Technology................ March 8, 1996 Series D 12,430 199,998.70 Cash
Preferred
Stock(3)
IDG Holdings, Inc................ March 8, 1996 Series D 5,000 80,450.00 Release of
Preferred Claims
Stock(3)
AOL Ventures, Inc. ("AOL
Ventures")..................... March 8, 1996 Warrant to (8) (8) Cash
Purchase
Common Stock
2 shareholders of GoMedia,
Inc............................ August 1, 1996 Common Stock 15,000 (9) (9)
33 shareholders of The McKinley
Group, Inc..................... August 30, 1996 Common Stock 849,997 (10) (10)
5 optionees...................... February 7,
1996 -- July 1,
1996 Common Stock 132,301 73,262.00 Cash and
Promissory Notes
America Online, Inc. ............ March 27, 1997 Preferred 3,280,330 (11) (11)
Stock
Warrant to
Purchase
Preferred
Stock
Exchange
Right
</TABLE>
- ---------------
(1) All sales, unless otherwise noted, were made in reliance on Section 4(2) of
the Securities Act and/or Regulation D or Rule 701 promulgated under the
Securities Act and were made without general
II-4
<PAGE> 98
solicitation or advertising. The purchasers were sophisticated investors
with access to all relevant information necessary to evaluate these
investments, and who represented to the Registrant that the shares were
being acquired for investment.
(2) Warrant No. 1 to purchase up to 36,000 shares of Common Stock at an
exercise price of $0.8666 per share and Warrant No. 2 to purchase up to
28,540 shares of Common Stock at an exercise price of $1.25 per share.
(3) Each share of Preferred Stock was converted into two shares of Common
Stock.
(4) Warrant to purchase up to 15,000 shares of Series A Preferred Stock
(convertible into 30,000 shares of Common Stock) at an exercise price of
$1.33 per share of Series A Preferred Stock.
(5) Issued in conjunction with the purchase of Series B Preferred Stock. This
Warrant was exercisable at an exercise price of $0.125 per share.
(6) Issued in conjunction with a sale of assets by Purchaser to the Registrant.
45,000 shares of Common Stock were subject to the Warrant.
(7) Warrant to purchase up to 8,000 shares of Series B Preferred Stock
(convertible into 16,000 shares of Common Stock) at an exercise price of
$2.50 per share of Series B Preferred Stock.
(8) Warrant to purchase up to 650,000 shares of Common Stock at an exercise
price of $8.00 per share (the "AOL Warrant"). See "Certain Transactions."
(9) On August 1, 1996, the Registrant merged with GoMedia, Inc. ("GoMedia") and
acquired all of the outstanding shares of common stock of GoMedia in
exchange for 15,000 shares of the Registrant's Common Stock.
(10) On August 30, 1996, Excite Acquisition, Inc., a wholly owned subsidiary of
the Registrant, merged with The McKinley Group, Inc. ("McKinley") and
acquired all of the outstanding shares of common stock of McKinley in
exchange for 849,997 shares of the Registrant's Common Stock issued
pursuant to Section 3(a)(10) of the Securities Act.
(11) On November 25, 1996, the Company agreed to purchase certain assets
relating to America Online, Inc.'s ("AOL") WebCrawler search and retrieval
service (the "WebCrawler Assets") and also entered into a distribution and
license agreement with AOL. As consideration for the purchase of the
WebCrawler Assets, the Company issued to AOL, 1,250,000 and 700,000 shares
of Series E-1 and E-2 Preferred Stock, respectively. In connection with
this acquisition and a distribution agreement, the AOL Warrant was amended
to be exercisable into 650,000 shares of Series E-3 Preferred Stock, rather
than Common Stock and AOL was given the right to exchange for a 90-day
period commencing March 27, 1997 the 680,330 shares of Common Stock
beneficially owned by it into an equivalent number of shares of Series E-4
Preferred Stock. The Company received no monetary consideration in these
transactions.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following exhibits are filed herewith:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- ------ ---------------------------------------------------------------------------------
<C> <C> <S>
2.01 -- Agreement and Plan of Reorganization dated as of August 7, 1996 by and among the
Registrant, Excite Acquisition Corporation, The McKinley Group, Inc., Isabel
Maxwell, Christine Maxwell, David Hayden, Roger Malina and Daniel Lynch.(1)
2.02 -- Agreement of Merger dated as of August 30, 1996 by and between Excite Acquisition
Corporation and the McKinley Group, Inc.(1)
3.01 -- Registrant's Amended and Restated Articles of Incorporation.(2)
3.02 -- Certificate of Determination for Series E-1, E-2, E-3 and E-4 Preferred Stock.
3.03 -- Registrant's Bylaws, as amended.(3)
4.01 -- Form of Specimen Certificate for Registrant's Common Stock.(4)
4.02 -- Restated and Amended Investors' Rights Agreement.(4)
4.03 -- Amendment to Restated and Amended Investors' Rights Agreement dated as of August
1, 1996.+
4.04 -- Amendment to Restated and Amended Investors' Rights Agreement dated as of
November 25, 1996.(9)
4.05 -- Registration Rights Agreement dated as of November 25, 1996 by and among the
Registrant, America Online, Inc. and AOL Ventures, Inc.+
</TABLE>
II-5
<PAGE> 99
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- ------ ---------------------------------------------------------------------------------
<C> <C> <S>
4.06 -- Voting Agreement dated as of November 25, 1996 by and among the Registrant and
certain shareholders.(9)
4.07 -- Letter Agreement dated as of November 25, 1996 by and among certain shareholders
of Excite, Inc.(9)
5.01 -- Opinion of Fenwick & West LLP regarding legality of the securities being issued.
9.01 -- Voting Trust Agreement dated as of November 25, 1996 by and among the Registrant,
America Online, Inc, AOL Ventures, Inc. and Richard Redding.+
10.01 -- Registrant's 1995 Equity Incentive Plan.(3)
10.02 -- Registrant's 1996 Equity Incentive Plan, as amended.+
10.03 -- Registrant's 1996 Directors Stock Option Plan.(3)
10.04 -- Registrant's 1996 Employee Stock Purchase Plan.(3)
10.05 -- Registrant's 401(k) Plan.(3)
10.06 -- Form of Indemnity Agreement entered into by Registrant with each of its
directors.(3)
10.07 -- Bridge Line of Credit Agreement, dated as of February 23, 1996, among the
Registrant and Kleiner Perkins Caufield & Byers VII, KPCB VII Founders Fund, KPCB
Information Sciences Zaibatsu Fund II, Institutional Venture Partners VI,
Institutional Venture Management VI and IVP Founders Fund I, L.P., and Form of
Convertible Promissory Note and Form of Promissory Note, as amended.(3)
10.08 -- Promissory Note, dated as of February 27, 1996, issued by Graham F. Spencer to
the Registrant.(3)
10.09 -- Secured Full Recourse Promissory Note, dated as of March 15, 1996, issued by
Brett T. Bullington to the Registrant.+
10.10 -- Stock Pledge Agreement dated as of March 15, 1996 by and between the Registrant
and Brett T. Bullington.+
10.11 -- Offer Letter dated January 25, 1996, as amended, to Richard B. Redding.(3)
10.12 -- Offer Letter dated November 30, 1995, as amended, to Brett T. Bullington.(3)
10.13 -- Offer Letter dated March 6, 1996, to Cary H. Masatsugu.(3)
10.14 -- Offer Letter dated January 16, 1996, as amended, to George Bell.(3)
10.15 -- Offer Letter dated as of November 15, 1996, to Robert C. Hood.+
10.16 -- Offer Letter dated as of September 23, 1996 to William White Jr.+
10.17 -- Offer Letter dated as of November 21, 1996, to Jed Simmons.+
10.18 -- Consulting Agreement dated as of November 19, 1996 by and between the Registrant
and Robert C. Hood.+
10.19 -- Consulting Agreement dated as of November 22, 1996 by and between the Registrant
and Jed Simmons.+
10.20 -- Office Lease, dated as of January 22, 1996, by and between the Registrant and
McCandless Land and Cattle Company.(3)
10.21 -- Series D Preferred Stock Purchase Agreement dated as of March 8, 1996 by and
among the Registrant and various investors.(5)
10.22 -- Warrant to purchase 650,000 shares of Common Stock dated March 8, 1996 issued to
AOL Ventures, Inc.(5)
10.23 -- Net Search Program -- Premier Provider Agreement dated as of March 28, 1996
between the Registrant and Netscape Communications Corporation.(6)
10.24 -- Office Lease, dated as of August 9, 1996, by and between the Registrant and
Martin/Campus Associated, L.P.(7)
10.25 -- Acquisition Agreement dated as of November 25, 1996 by and among the Registrant,
America Online, Inc. and Global Network Navigator, Inc.+
10.26 -- Net Search Program - Premier Provider Agreement dated as of March 27, 1996, and
as amended March 27, 1996 and January 21, 1997, between The McKinley Group, Inc.
and Netscape Communications Corporation.(8)
10.27 -- Premier Provider Services Agreement between the Registrant and Netscape
Communications Corporation dated as of March 21, 1997 (confidential treatment has
been requested for certain portions of this exhibit).(10)
</TABLE>
II-6
<PAGE> 100
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- ------ ---------------------------------------------------------------------------------
<C> <C> <S>
10.28 -- General Security Agreement between the Registrant and Imperial Bank, dated as of
March 27, 1997.
10.29 -- Security and Loan Agreement between the Registrant and Imperial Bank, dated as of
March 27, 1997.
10.30 -- Collateral Assignment, Patent Mortgage and Security Agreement made by the
Registrant in favor of Imperial Bank, dated as of March 27, 1997.
10.31 -- Form of Stock Purchase Agreement with respect to the securities offered hereby.
11.01 -- Statement of earnings per share.+
21.01 -- List of Subsidiaries+
23.01 -- Consent of Fenwick & West LLP (included in Exhibit 5.01).
23.02 -- Consent of Ernst & Young LLP, Independent Auditors.
23.03 -- Consent of Price Waterhouse LLP, Independent Accountants.
24.01 -- Power of Attorney (included in Part II of this Registration Statement).+
27.01 -- Financial Data Schedule (EDGAR version only).(9)
</TABLE>
- ---------------
+ Previously filed.
(1) Previously filed with the Commission on September 12, 1996, as an exhibit to
the Registrant's Form 8-K (File No. 0-28064) regarding the acquisition of
The McKinley Group, Inc.
(2) Previously filed with the Commission on July 4, 1996, as an exhibit to the
Registrant's Registration Statement on Form S-8 (File No. 333-07625).
(3) Previously filed with the Commission on March 11, 1996, as an exhibit to the
Registrant's Registration Statement on Form SB-2 (File No. 333-2328-LA)
(4) Previously filed with the Commission on March 29, 1996, as an exhibit to
Amendment No. 1 to the Registrant's Registration Statement on Form SB-2
(File No. 333-2328-LA)
(5) Previously filed with the Commission on April 3, 1996, as an exhibit to
Amendment No. 2 to the Registrant's Registration Statement on Form SB-2
(File No. 333-2328-LA)
(6) Previously filed with the Commission on April 3, 1996, as an exhibit to
Amendment No. 3 to the Registrant's Registration Statement on Form SB-2
(File No. 333-2328-LA)
(7) Previously filed with the Commission on November 8, 1996, as an exhibit to
the Registrant's Quarterly Report on Form 10-Q SB (File No. 0-28064) for the
period ended September 30, 1996.
(8) Previously filed with the Commission on February 28, 1997, as an exhibit to
the Registrant's Quarterly Report on Form 10-Q SB/A (File No. 0-28064).
(9) Previously filed with the Commission on March 31, 1997, as an exhibit to the
Registrant's Annual Report on Form 10-K (File No. 0-28064).
(10) Previously filed with the Commission on April 2, 1997, as an exhibit to the
Registrant's Current Report on Form 8-K (File No. 0-28064).
(b) Financial Statement Schedules.
All schedules have been omitted because the information required to be set
forth therein is not applicable or is shown in the financial statements or notes
thereto.
ITEM 17. UNDERTAKINGS.
The Registrant hereby undertakes the following:
(1) For determining liability under the Securities Act, to treat the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant under Rule 424(b)(1) or (4) or 497(h)
under the Securities Act as part of this registration statement as of the
time the Commission declared it effective.
(2) For determining liability under the Securities Act, to treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration
statement, and that offering of the securities at that time as the initial
bona fide offering of those securities.
II-7
<PAGE> 101
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described under Item 14 above, or
otherwise, the Registrant has been advised that in the opinion of the Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
II-8
<PAGE> 102
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Redwood City, State of California, on June 2,
1997.
EXCITE, INC.
By: /s/ ROBERT C. HOOD
--------------------------------------
Robert C. Hood
Executive Vice President, Chief
Administrative
Officer and Chief Financial Officer
Pursuant to the requirements of the Securities Act, this Amendment has been
signed below by the following persons in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- --------------------------------------------- ----------------------------------- ---------------
<C> <S> <C>
PRINCIPAL EXECUTIVE OFFICER:
/s/ GEORGE BELL President, Chief Executive Officer June 2, 1997
- --------------------------------------------- and Director
George Bell
PRINCIPAL FINANCIAL AND PRINCIPAL
ACCOUNTING OFFICER:
/s/ ROBERT C. HOOD Executive Vice President, Chief June 2, 1997
- --------------------------------------------- Administrative Officer and Chief
Robert C. Hood Financial Officer
ADDITIONAL DIRECTORS:
* Senior Vice President and Director June 2, 1997
- ---------------------------------------------
Joseph R. Kraus
* Director June 2, 1997
- ---------------------------------------------
Vinod Khosla
* Director June 2, 1997
- ---------------------------------------------
Donn Davis
* Director June 2, 1997
- ---------------------------------------------
Geoffrey Y. Yang
Director
- ---------------------------------------------
Stephen M. Case
* /s/ ROBERT C. HOOD Attorney-in-Fact June 2, 1997
- ---------------------------------------------
Robert C. Hood
</TABLE>
II-9
<PAGE> 103
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBIT
<C> <C> <S>
3.02 -- Certificate of Determination for Series E-1, E-2, E-3 and E-4 Preferred Stock.
5.01 -- Opinion of Fenwick & West LLP regarding legality of the securities being issued.
10.28 -- General Security Agreement between the Registrant and Imperial Bank, dated as of
March 27, 1997.
10.29 -- Security and Loan Agreement between the Registrant and Imperial Bank, dated as of
March 27, 1997.
10.30 -- Collateral Assignment, Patent Mortgage and Security Agreement made by the
Registrant in favor of Imperial Bank, dated as of March 27, 1997.
10.31 -- Form of Stock Purchase Agreement with respect to the securities offered hereby.
23.02 -- Consent of Ernst & Young LLP, Independent Auditors.
23.03 -- Consent of Price Waterhouse LLP, Independent Accountants.
</TABLE>
<PAGE> 1
EXHIBIT 3.02
CERTIFICATE OF DETERMINATION
OF
EXCITE, INC.
George Bell and Richard B. Redding certify that:
A. They are the President and the Secretary, respectively, of Excite,
Inc., a California corporation.
B. Pursuant to an action by unanimous written consent of the Board of
Directors of the corporation adopted as of November 19, 1996, the following
resolutions were fully adopted.
"WHEREAS, Article V of the Articles of Incorporation (the "Articles of
Incorporation") of Excite, Inc. (the "Company") authorizes a class of
shares designated as Preferred Stock, consisting of 4,000,000 shares, and
Article VI of the Articles of Incorporation authorizes the Board of
Directors to issue such Preferred Stock from time to time in one or more
series, to fix the number of shares to be included in each such series,
and to fix and determine the designation, rights, preferences, privileges
and restrictions of the shares of each such series;
NOW, THEREFORE BE IT RESOLVED, that the Board of Directors does hereby
designate, and provide for the issuance of, a Series E-1 Preferred Stock,
a Series E-2 Preferred Stock, a Series E-3 Preferred Stock and a Series
E-4 Preferred Stock, of the Company (collectively, the "Series E
Preferred Stock"), and does hereby fix the number of shares constituting
the Series E-1 Preferred Stock at 1,250,000 shares, the Series E-2
Preferred Stock at 700,000 shares, the Series E-3 Preferred Stock at
650,000 shares and the Series E-4 Preferred Stock at 680,330 shares, and
does hereby fix and determine the rights, preferences, privileges of, and
restrictions upon, and other matters relating to, each such series of
Series E Preferred Stock, as follows:
1. DEFINITIONS. For purposes of this resolution, the following
definitions shall apply:
1.1 "Board" shall mean the Board of Directors of the Company.
1.2 "Company" shall mean this corporation.
1.3 "Common Stock" shall mean the Common Stock, no par value, of
the Company.
1.4 "Common Stock Dividend" shall mean a stock dividend declared
and paid on the Common Stock that is payable in shares of Common Stock.
1.5 "Original Issue Date" with respect to each series of the
Series E Preferred Stock shall mean the date on which the first share of each
such series of Series E Preferred Stock is issued by the Company.
1
<PAGE> 2
1.6 "Original Issue Price" shall mean $1.15 per share for the
Series E-1 Preferred Stock, $0.01 per share for the Series E-2 Preferred Stock,
$8.00 per share for the Series E-3 Preferred Stock, and $8.819 per share for the
Series E-4 Preferred Stock.
1.7 "Subsidiary" shall mean any corporation of which at least
fifty percent (50%) of the outstanding voting stock is at the time owned
directly or indirectly by the Company or by one or more of such subsidiary
corporations.
2. DIVIDEND RIGHTS.
2.1 Series E Preferred Stock. In each calendar year, the holders
of the then outstanding Series E Preferred Stock shall be entitled to receive,
when, as and if declared by the Board, out of any funds and assets of the
Company legally available therefor, noncumulative dividends in the amount
determined by the Board on a pro rata basis with the Common Stock according to
the number of shares of Common Stock held by such holders, where each holder of
shares of Series E Preferred Stock is to be treated for this purpose as holding
the greatest whole number of shares of Common Stock then issuable upon
conversion of all shares of Series E Preferred Stock held by such holder
pursuant to Section 5. Dividends on the Series E Preferred Stock shall not be
mandatory or cumulative, and no rights or interest shall accrue to the holders
of the Series E Preferred Stock by reason of the fact that the Company shall
fail to declare or pay dividends on the Series E Preferred Stock in any amount
in any calendar year or any fiscal year of the Company, whether or not the
earnings of the Company in any calendar year or fiscal year were sufficient to
pay such dividends in whole or in part.
2.2 Non-Cash Dividends. Whenever a dividend provided for in this
Section 2 shall be payable in property other than cash, the value of such
dividend or distribution shall be deemed to be the fair market value of such
property as determined in good faith by the Board.
3. LIQUIDATION RIGHTS. In the event of any liquidation, dissolution or
winding up of the Company, whether voluntary or involuntary, the funds and
assets of the Company that may be legally distributed to the Company's
shareholders (the "Available Funds and Assets") shall be distributed to
shareholders in the following manner:
3.1 Series E Preferred Stock. Prior to any consolidation or
merger of the Company with or into any other corporation or corporations or
other entity, corporate reorganization, sale, conveyance or disposition of all
or substantially all of the assets of the Company, liquidation, dissolution or
winding up of the Company, whether voluntary or involuntary, the Company shall
give the holders of the Series E Preferred Stock at least ten (10) days notice
thereof and afford such holders the opportunity to convert such shares of Series
E Preferred Stock into shares of the Company's Common Stock pursuant to Section
5.1 hereof. Upon the liquidation, dissolution of winding up of the Company,
whether voluntary or involuntary, the holders of each share of Series E
Preferred Stock then outstanding shall be entitled to be paid, out of the
Available Funds and Assets, and prior and in preference to any payment or
distribution (or any setting apart of any payment or distribution) of any
Available Funds and Assets on any shares of Common Stock, an amount per share
equal to the applicable Original Issue Price for the series of Series E
Preferred Stock held by such holders plus all declared but unpaid dividends on
each series of the Series E Preferred Stock. If upon any liquidation,
dissolution or winding up of the Company, the Available Funds and Assets shall
be
2
<PAGE> 3
insufficient to permit the payment to holders of the Series E Preferred Stock
of their full preferential amount described in this subsection, then all of the
remaining Available Funds and Assets shall be allocated between each series of
Series E Preferred Stock on a pro rata basis according to the total Original
Issue Price for all outstanding shares within each such series and shall then be
distributed among the holders of each series of the then outstanding Series E
Preferred Stock pro rata, according to the number of outstanding shares of each
such series of Series E Preferred Stock held by each holder thereof.
3.2 Remaining Assets. If there are any Available Funds and
Assets remaining after the payment or distribution (or the setting aside for
payment or distribution) to the holders of the Series E Preferred Stock of their
full preferential amounts described above in this Section 3, then all such
remaining Available Funds and Assets shall be distributed among the holders of
the then outstanding Common Stock pro rata according to the number of shares of
Common Stock held by each holder thereof.
3.3 Merger or Sale of Assets. A consolidation or merger of the
Company with or into any other corporation or corporations or other entity, a
corporate reorganization, or a sale, conveyance or disposition of all or
substantially all of the assets of the Company shall not be deemed a
liquidation, dissolution or winding up of the Company within the meaning of this
Section 3.
3.4 Non-Cash Consideration. If any assets of the Company
distributed to shareholders in connection with any liquidation, dissolution, or
winding up of the Company are other than cash, then the value of such assets
shall be their fair market value as determined by the Board, except that any
securities to be distributed to shareholders in a liquidation, dissolution, or
winding up of the Company shall be valued as follows:
(a) The method of valuation of securities not
subject to investment letter or other similar restrictions on free marketability
shall be as follows:
(i) if the securities are then traded on a
national securities exchange or the Nasdaq National Market System (or a similar
national quotation system), then the value shall be deemed to be the average of
the closing prices of the securities on such exchange or system over the 30-day
period ending three (3) days prior to the distribution; and
(ii) if actively traded over-the-counter, then
the value shall be deemed to be the average of the closing bid prices over the
30-day period ending three (3) days prior to the closing of such merger,
consolidation or sale; and
(iii) if there is no active public market, then
the value shall be the fair market value thereof, as determined in good faith by
the Board of Directors of the Company.
(b) The method of valuation of securities subject to
investment letter or other restrictions on free marketability shall be to make
an appropriate discount from the market value determined as above in
subparagraphs (a)(i), (ii) or (iii) of this subsection to reflect the
approximate fair market value thereof, as determined in good faith by the Board.
3
<PAGE> 4
4. VOTING RIGHTS.
4.1 Series E Preferred Stock. In every vote of the shareholders
of the Company, each holder of shares of Series E Preferred Stock shall be
entitled to the number of votes equal to the number of whole shares of Common
Stock into which such shares of Series E Preferred Stock could be converted
pursuant to the provisions of Section 5 below at the record date for the
determination of the shareholders entitled to vote or, if no such record date is
established, the date such vote is taken or any written consent of shareholders
is solicited. Except as required by law, the holders of Series E Preferred Stock
and holders of Common Stock shall vote together and not as separate classes.
4.2 Election of Director. So long as at least 1,640,165 shares
(as adjusted for stock splits, reverse stock splits, or similar events) of
Series E Preferred Stock are outstanding, the holders of the Series E Preferred
Stock, voting separately from the Common Stock, shall be entitled to elect one
(1) director of the Company. The holders of Series E Preferred Stock shall not
otherwise be entitled to vote for any other directors of the Company.
5. CONVERSION RIGHTS. The outstanding shares of Series E Preferred Stock
shall be convertible into Common Stock as follows:
5.1 Optional Conversion.
(a) At the option of the holder thereof, each share of
Series E Preferred Stock shall be convertible, at any time or from time to time.
(b) Each holder of Series E Preferred Stock who elects
to convert the same into shares of Common Stock shall surrender the certificate
or certificates therefor, duly endorsed, at the office of the Company or any
transfer agent for the Series E Preferred Stock or Common Stock, and shall give
written notice to the Company at such office that such holder elects to convert
the same and shall state therein the number of shares of Series E Preferred
Stock being converted. Thereupon the Company shall promptly issue and deliver at
such office to such holder a certificate or certificates for the number of
shares of Common Stock to which such holder is entitled upon such conversion.
Such conversion shall be deemed to have been made immediately prior to the close
of business on the date of such surrender of the certificate or certificates
representing the shares of Series E Preferred Stock to be converted, and the
person entitled to receive the shares of Common Stock issuable upon such
conversion shall be treated for all purposes as the record holder of such shares
of Common Stock on such date.
5.2 Conversion Price. Each share of Series E Preferred Stock
shall be convertible in accordance with subsection 5.1 above into the number of
shares of Common Stock which results from dividing the Original Issue Price for
such series of Series E Preferred Stock by the conversion price for such series
of Series E Preferred Stock that is in effect at the time of conversion (the
"Conversion Price"). The initial Conversion Price for the Series E Preferred
Stock shall be the Original Issue Price for the Series E Preferred Stock. The
Conversion Price of each series of Series E Preferred Stock shall be subject to
adjustment from time to time as provided below.
4
<PAGE> 5
5.3 Adjustment Upon Common Stock Event. Upon the happening of a
Common Stock Event (as hereinafter defined), the Conversion Price of the Series
E Preferred Stock shall, simultaneously with the happening of such Common Stock
Event, be adjusted by multiplying the Conversion Price of such series of Series
E Preferred Stock in effect immediately prior to such Common Stock Event by a
fraction, (i) the numerator of which shall be the number of shares of Common
Stock issued and outstanding immediately prior to such Common Stock Event, and
(ii) the denominator of which shall be the number of shares of Common Stock
issued and outstanding immediately after such Common Stock Event, and the
product so obtained shall thereafter be the Conversion Price for such series of
Series E Preferred Stock. The Conversion Price for a series of Series E
Preferred Stock shall be readjusted in the same manner upon the happening of
each subsequent Common Stock Event. As used herein, the term "Common Stock
Event" shall mean (i) the issue by the Company of additional shares of Common
Stock as a dividend or other distribution on outstanding Common Stock, (ii) a
subdivision of the outstanding shares of Common Stock into a greater number of
shares of Common Stock, or (iii) a combination of the outstanding shares of
Common Stock into a smaller number of shares of Common Stock.
5.4 Adjustments for Other Dividends and Distributions. If at any
time or from time to time after the Original Issue Date the Company pays a
dividend or makes another distribution to the holders of the Common Stock
payable in securities of the Company other than shares of Common Stock, then in
each such event provision shall be made so that the holders of the Series E
Preferred Stock shall receive upon conversion thereof, in addition to the number
of shares of Common Stock receivable upon conversion thereof, the amount of
securities of the Company which they would have received had their Series E
Preferred Stock been converted into Common Stock on the date of such event (or
such record date, as applicable) and had they thereafter, during the period from
the date of such event (or such record date, as applicable) to and including the
conversion date, retained such securities receivable by them as aforesaid during
such period, subject to all other adjustments called for during such period
under this Section 5 with respect to the rights of the holders of the Series E
Preferred Stock or with respect to such other securities by their terms.
5.5 Adjustment for Reclassification, Exchange and Substitution.
If at any time or from time to time after the Original Issue Date the Common
Stock issuable upon the conversion of the Series E Preferred Stock is changed
into the same or a different number of shares of any class or classes of stock,
whether by recapitalization, reclassification or otherwise (other than by a
Common Stock Event or a stock dividend, reorganization, merger, consolidation or
sale of assets provided for elsewhere in this Section 5), then in any such event
each holder of Series E Preferred Stock shall have the right thereafter to
convert such stock into the kind and amount of stock and other securities and
property receivable upon such recapitalization, reclassification or other change
by holders of the number of shares of Common Stock into which such shares of
Series E Preferred Stock could have been converted immediately prior to such
recapitalization, reclassification or change, all subject to further adjustment
as provided herein or with respect to such other securities or property by the
terms thereof.
5.6 Certificate of Adjustment. In each case of an adjustment or
readjustment of the Conversion Price for a series of Series E Preferred Stock,
the Company, at its expense, shall cause its Chief Financial Officer to compute
such adjustment or readjustment in accordance with the provisions hereof and
prepare a certificate showing such adjustment or readjustment, and
5
<PAGE> 6
shall mail such certificate, by first class mail, postage prepaid, to each
registered holder of the Series E Preferred Stock at the holder's address as
shown in the Company's books.
5.7 Fractional Shares. No fractional shares of Common Stock
shall be issued upon any conversion of Series E Preferred Stock. In lieu of any
fractional share to which the holder would otherwise be entitled, the Company
shall pay the holder cash equal to the product of such fraction multiplied by
the Common Stock's fair market value as determined in good faith by the Board as
of the date of conversion.
5.8 Reservation of Stock Issuable Upon Conversion. The Company
shall at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the shares of the Series E Preferred Stock, such number of its shares of Common
Stock as shall from time to time be sufficient to effect the conversion of all
outstanding shares of the Series E Preferred Stock; and if at any time the
number of authorized but unissued shares of Common Stock shall not be sufficient
to effect the conversion of all then outstanding shares of the Series E
Preferred Stock, the Company will take such corporate action as may, in the
opinion of its counsel, be necessary to increase its authorized but unissued
shares of Common Stock to such number of shares as shall be sufficient for such
purpose.
5.9 Notices. Any notice required by the provisions of this
Section 5 to be given to the holders of shares of the Series E Preferred Stock
shall be deemed given upon the earlier of actual receipt or deposit in the
United States mail, by certified or registered mail, return receipt requested,
postage prepaid, addressed to each holder of record at the address of such
holder appearing on the books of the Company.
5.10 No Impairment. The Company shall not avoid or seek to avoid
the observance or performance of any of the terms to be observed or performed
hereunder by the Company, but shall at all times in good faith assist in
carrying out all such action as may be reasonably necessary or appropriate in
order to protect the conversion rights of the holders of the Series E Preferred
Stock against impairment.
6. MISCELLANEOUS
6.1 No Reissuance of Series E Preferred Stock. No share or
shares of Series E Preferred Stock acquired by the Company by reason of
purchase, conversion or otherwise shall be reissued, and all such shares shall
be canceled, retired and eliminated from the shares which the Company shall be
authorized to issue.
6.2 Consent to Certain Transactions. Each holder of shares of
Series E Preferred Stock shall, by virtue of its acceptance of a stock
certificate evidencing Series E Preferred Stock, be deemed to have consented,
for purposes of Sections 502, 503 and 506 of the California Corporations Code,
to all repurchases by the Company of shares of Common Stock held by employees,
officers, directors, consultants, independent contractors, advisors, or other
persons performing services for the Company or a subsidiary that are subject to
restricted stock purchase agreements or stock option exercise agreements under
which the Company has the option to repurchase such shares."
6
<PAGE> 7
C. The authorized number of shares of Series E Preferred Stock of the
Corporation is 4,000,000, none of which have been issued. The number of shares
of Series E Preferred Stock to constitute (i) the Series E-1 Preferred Stock is
1,250,000 shares, (ii) the Series E-2 Preferred Stock is 700,000 shares, (iii)
the Series E-3 Preferred Stock is 650,000 shares, and (iii) the Series E-4
Preferred Stock is 680,330 shares, no shares of any such series having been
issued.
We further declare under penalty of perjury under the laws of
the State of California that the matters set forth in this Certificate of
Determination are true and correct of our own knowledge.
Dated: _________, 199__
George Bell Richard B. Redding
- -------------------------------------- -----------------------------------
President and Chief Executive Officer Secretary
7
<PAGE> 8
We further declare under penalty of perjury under the laws of
the State of California that the matters set forth in this Certificate of
Determination are true and correct of our own knowledge.
Dated: March __, 1997
George Bell Richard B. Redding
- -------------------------------------- -----------------------------------
President and Chief Executive Officer Secretary
8
<PAGE> 1
EXHIBIT 5.01
June 3, 1997
Excite, Inc.
1091 N. Shoreline Boulevard
Mountain View, CA 94043
Gentlemen/Ladies:
At your request, we have examined the Registration Statement on Form
S-1 (the "Registration Statement") originally filed by you with the Securities
and Exchange Commission (the "Commission") on March 3, 1997 in connection with
the registration under the Securities Act of 1933, as amended, of an aggregate
of 2,900,000 shares of your Common Stock (the "Stock").
In rendering this opinion, we have examined the following:
(1) the Registration Statement, together with the Exhibits filed as a
part thereof;
(2) the Prospectus prepared in connection with the Registration
Statement;
(3) the minutes of meetings and actions by written consent of the
shareholders and Board of Directors that are contained in your
minute books;
(4) the stock records for you that you have provided to us
(consisting of a list of shareholders issued by your transfer
agent, The First National Bank of Boston, and a list of option
and warrant holders respecting your capital stock that was
prepared by you and dated March 31, 1997); and
(5) a Management Certificate addressed to us and dated of even date
herewith executed by the Company and certain of its officers
containing certain factual representations.
In our examination of documents for purposes of this opinion, we have
assumed, and express no opinion as to, the genuineness of all signatures on
original documents, the authenticity of all documents submitted to us as
originals, the conformity to originals of all documents submitted to us as
copies, the lack of any undisclosed terminations, modifications, waivers or
amendments to any documents reviewed by us and the due execution and delivery of
all documents where due execution and delivery are prerequisites to the
effectiveness thereof.
As to matters of fact relevant to this opinion, we have relied solely
upon our examination of the documents referred to above and have assumed the
current accuracy and completeness of
<PAGE> 2
Excite, Inc.
June 3, 1997
Page 2
the information obtained from public officials and records included in the
documents referred to above. We have made no independent investigations or other
attempts to verify the accuracy of any of such information or to determine the
existence or non-existence of any other factual matters; however, we are not
aware of any facts that would lead us to believe that the opinions expressed
herein are not accurate.
Based upon the foregoing, it is our opinion that the 2,9000,000 shares
of Stock to be issued and sold by you, when issued and sold in the manner
referred to in the Prospectus associated with the Registration Statement (the
"Prospectus"), will be legally issued, fully paid and nonassessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement and further consent to all references to us, if any, in the
Registration Statement, the Prospectus constituting a part thereof and any
amendments thereto.
This opinion speaks only as of its date and is intended solely for your
use as an exhibit to the Registration Statement for the purpose of the above
sale of the Stock and is not to be relied upon for any other purpose.
Very truly yours,
FENWICK & WEST LLP
<PAGE> 1
EXHIBIT 10.28
GENERAL SECURITY AGREEMENT
(TANGIBLE AND INTANGIBLE PERSONAL PROPERTY)
THIS GENERAL SECURITY AGREEMENT is dated as of March 27, 1997 (this "Security
Agreement"), by EXCITE, INC., a California corporation (hereinafter called
"Grantor"). In consideration of financial accommodations given, to be given or
continued, Grantor hereby grants to IMPERIAL BANK (hereinafter called "Bank") a
security interest in (a) all property (i) delivered to Bank by Grantor, (ii)
which shall be in Bank's possession or control in any matter or for any purpose,
(iii) described below or (iv) now owned or hereafter acquired by Grantor of the
type or class described below and/or in any supplementary schedule hereto, or in
any financing statement filed by Bank and executed by or on behalf of Grantor;
and (b) the proceeds, increase and products of such property, all accessions
thereto, and all property which Grantor may receive on account of such
collateral which Grantor will immediately deliver to Bank (collectively referred
to as "Collateral") to secure payment and performance of all of Grantor's
present or future debts or obligations to Bank, whether absolute or contingent
(hereafter referred to as "Debt"). See Exhibit A attached hereto and
incorporated herein by this reference for a description of the Collateral. The
Collateral which is not in Bank's possession will be located at the locations
set forth on Exhibit B attached hereto and incorporated herein by this
reference. Unless otherwise defined herein, initially capitalized terms used
herein shall have the meanings given them in the California Uniform Commercial
Code or as defined in that certain Security and Loan Agreement (Accounts
Receivable) dated as of the date hereof entered into by and Grantor and Bank
(the "Loan Agreement").
Grantor hereby represents, warrants and agrees:
1. Grantor will immediately pay (a) any Debt when due, (b) Bank's costs
of collecting the Debt, of protecting, insuring or realizing on Collateral, and
any expenditure of Bank pursuant hereto, including attorneys' fees and expenses,
with interest at the rate of twenty-four percent (24%) per year, or the rate
applicable to the Debt, whichever is less, from the date of expenditure, and (c)
any deficiency after realization of Collateral.
2. Grantor will use the proceeds of any loan that becomes Debt hereunder
for the purpose indicated on the application therefor, and will promptly
contract to purchase and pay the purchase price of any property which becomes
Collateral hereunder from the proceeds of any loan made for that purpose.
3. As to all Collateral in Grantor's possession or the possession of its
contract manufacturers (unless specifically otherwise agreed to by Bank in
writing), Grantor will:
(a) Have or has possession of the Collateral at the location disclosed to
Bank and will not remove the Collateral from said location, except for
sales in the ordinary course of Borrower's business.
(b) Keep the Collateral separate and identifiable.
(c) Maintain the Collateral in good and saleable condition, repair
it if necessary and otherwise deal with the Collateral in all such
ways as are considered good practice by owners of like property, use
it lawfully and only as permitted by insurance policies, and permit
Bank to inspect the Collateral at any reasonable time in accordance
with the terms of the Loan Agreement.
(d) Not sell, contract to sell, lease, encumber or transfer the Collateral
(other than the disposition of such inventory Collateral in the
ordinary course of Borrower's business and other assets which are
obsolete or otherwise considered surplus) until the Debt has been paid
or performed in full, even though Bank has a security interest in the
proceeds of such Collateral.
4. As to Collateral which is inventory and accounts, Grantor:
(a) May, until notice from Bank after the occurrence and during the
continuance of an Event of Default, sell, lease or otherwise dispose
of inventory Collateral in the ordinary course of business only, and
collect the cash proceeds thereof.
1.
<PAGE> 2
(b) Will, upon notice from Bank after the occurrence and during the
continuance of an Event of Default, deposit all cash proceeds as
received in a demand deposit account with Bank, containing only such
proceeds and deliver statements identifying units of inventory
disposed of, accounts which gave rise to proceeds, and all
acquisitions and returns of inventory as required by Bank.
(c) Will receive in trust after the occurrence and during the continuance
of an Event of Default, schedule on forms satisfactory to Bank and,
upon notice from Bank, deliver to Bank all non-cash proceeds other
than inventory received in trade.
(d) So long as there does not exist an Event of Default, may obtain
release of Bank's interest in individual units of inventory upon
request, therefore, payment to Bank of the release price of such units
shown on any Collateral schedule supplementary hereto, and compliance
herewith as to proceeds thereof.
5. As to Collateral which are accounts, chattel paper, general
intangibles and proceeds described in Section 4(c) above, Grantor warrants,
represents and agrees:
(a) All such Collateral is genuine, enforceable in accordance with its
terms and conditions precedent (except as disclosed to and accepted by
Bank in writing), and is supported by consecutively numbered invoices
to, or rights against, the debtors thereon. Grantor will supply Bank
with duplicate invoices or other evidence of Grantor's rights on
Bank's request.
(b) All persons appearing to be obligated on such Collateral have
authority and capacity to contract.
(c) All chattel paper is in compliance with applicable law as to form,
content and manner of preparation and execution and has been properly
registered, recorded, and/or filed to protect Grantor's interest
thereunder.
(d) If an account debtor shall also be indebted to Grantor on another
obligation, any payment made by such account debtor not specifically
designated to be applied on any particular obligation shall be
considered to be a payment on the account in which Bank has a security
interest. Should any remittance include a payment not on an account,
it shall be delivered to Bank and, if no Event of Default has
occurred, Bank shall pay Grantor the amount of such payment.
(e) Grantor agrees that following the occurrence and during the
continuance of an Event of Default, Grantor shall not compromise,
settle or adjust any account or renew or extend the time of payment
thereof without Bank's prior written consent.
6. Grantor owns all of the Collateral absolutely and no other person has
or claims any interest in any of the Collateral, except for Permitted Liens and
as disclosed to and accepted by Bank in writing. Grantor will defend any
proceeding which may affect title to or Bank's security interest in any of the
Collateral, and will indemnify and hold Bank free and harmless from all costs
and expenses of Bank's defense.
7. Grantor will pay when due all existing or future charges, liens or
encumbrances on and all taxes and assessments (except for taxes not yet due and
payable or which are contested in good faith and for which Grantor has set aside
adequate reserves) now or hereafter imposed on or affecting the Collateral and,
if the Collateral is in Grantor's possession, the realty on which the Collateral
is located.
8. Grantor will insure the Collateral with Bank as loss payee in form and
amounts with companies, and against risks and liability satisfactory to Bank (to
the extent customarily maintained by businesses similar to Borrower's), and
hereby assigns such policies to Bank, agrees to deliver them to Bank at Banks
request, and authorizes Bank to make any claim thereunder, to cancel the
insurance upon Grantor's default, and to receive payment of and endorse any
instrument in payment of any loss or return premium. If Grantor should fail to
deliver the required insurance policy or policies to Bank, Bank may, at
Grantor's cost and expense, without any duty to do so, get and pay for insurance
naming as the insured, at Bank's option, either both Grantor and Bank, or only
Bank, and the cost thereof shall be secured by this Security Agreement, and
shall be repayable as provided in Section 1 above.
9. Grantor will give Bank any information it requires. All information at
any time supplied to Bank by Grantor (including, but not limited to, the value
and condition of Collateral, financial statements, financing statements, and
statements made in documentary Collateral) is correct and complete, and Grantor
will notify Bank of any adverse change
2.
<PAGE> 3
in such information. Grantor will promptly notify Bank of any change of
Grantor's residence, chief executive office or mailing address.
10. At any time and from time to time, upon the written request of Bank,
and at the sole expense of Grantor, Grantor shall promptly and duly execute and
deliver any and all such further instruments and documents and take such further
action as Bank may reasonably deem desirable to obtain the full benefits of this
Security Agreement and of the rights and powers herein granted, including,
without limitation, (a) using its best efforts to secure all consents and
approvals necessary or appropriate for the grant of a security interest to Bank
in any "Contract" or "License" (as defined in Exhibit A) held by Grantor or in
which Grantor has any rights not heretofore assigned, (b) filing any financing
or continuation statements under the UCC with respect to the security interests
granted hereby, (c) filing or cooperating with Bank in filing any forms or other
documents required to be filed with the United States Patent and Trademark
Office, United States Copyright Office, or any filings in any foreign
jurisdiction or under any international treaty, required to secure or protect
Bank's interest in the Collateral, (d) transferring Collateral to Bank's
possession (if a security interest in such Collateral can be perfected by
possession), (e) placing the interest of Bank as lienholder on the certificate
of title (or other evidence of ownership) of any vehicle owned by Grantor or in
or with respect to which Grantor holds a beneficial interest and (f) using its
best efforts to obtain waivers of liens from landlords and mortgagees. Grantor
also hereby authorizes Bank to file any such financing or continuation statement
without the signature of Grantor. If any amount payable under or in connection
with any of the Collateral is or shall become evidenced by any Instrument, such
Instrument, other than checks and notes received in the ordinary course of
business, shall be duly endorsed in a manner satisfactory to Bank and delivered
to Bank promptly upon Grantor's receipt thereof.
11. Bank is irrevocably appointed Grantor's attorney-in-fact to do,
effective upon the occurrence and during the continuation of an Event of
Default, any act which Grantor is obligated hereby to do, to exercise such
rights as Grantor may exercise, to use such equipment as Grantor might use, to
enter Grantor's premises to give notice of Bank's security interest, and to
collect Collateral and proceeds and to execute and file in Grantor's name any
financing statements and amendments thereto required to perfect Bank's security
interest hereunder, all to protect and preserve the Collateral and Bank's rights
hereunder. After and during the continuance of an Event of Default, Bank may:
(a) Endorse, collect and receive delivery or payment of instruments and
documents constituting Collateral.
(b) Make extension agreements with respect to or affecting Collateral,
exchange it for other Collateral, release persons liable thereon or
take security for the payment thereof, and compromise disputes in
connection therewith.
(c) Use or operate Collateral for the purpose of preserving Collateral or
its value and for preserving or liquidating Collateral.
12. Discharge of Grantor except for full payment, or any extension,
forbearance, change of rate of interest, or acceptance, release or substitution
of Collateral or any impairment or suspension of Bank's rights against Grantor,
or any transfer of Grantor's interest to another shall not affect the liability
of Grantor hereunder. Until the Debt shall have been paid or performed in full,
Bank's rights shall continue even if the Debt is deemed unenforceable. Grantor
hereby waives: (a) any right to require Bank to proceed against Grantor before
any other, or to pursue any other remedy; (b) presentment, protest and notice of
protest, demand and notice of nonpayment, demand or performance, notice of sale,
and advertisement of sale; (c) any right to the benefit of or to direct the
application of any Collateral until the Debt shall have been paid or performed
in full; and (d) any right of subrogation to Bank until the Debt shall have been
paid or performed in full.
13. After and during the continuance of an Event of Default, at Bank's
option, without demand or notice, all or any part of the Debt shall immediately
become due and payable. Bank shall have all rights given by law, and may sell,
in one or more sales, Collateral in any county where Bank has an office. Bank
may purchase at such sale. Sales for cash or on credit to a wholesaler, retailer
or user of the Collateral, or at public or private auction, are all to be
considered commercially reasonable. Bank may require Grantor to assemble the
Collateral and make it available to Bank at the entrance to the location where
the Collateral is stored, or at a place designated by Bank.
3.
<PAGE> 4
14. Bank's acceptance of partial or delinquent payments or the failure of
Bank to exercise any right or remedy shall not waive any obligation of Grantor
or right of Bank to modify this Security Agreement, or waive any other similar
default.
15. Upon the transfer of all or any part of the Debt, Bank may transfer
all or any part of the Collateral. Bank may deliver all or any part of the
Collateral to any Grantor at any time. Any such transfer or delivery shall
discharge Bank from all liability and responsibility with respect to such
Collateral transferred or delivered. This Security Agreement benefits Bank's
successors and assigns and binds Grantor's heirs, legatees, personal
representatives, successors and assigns. Time is of the essence. This Security
Agreement and the exhibit(s) attached hereto contain the entire security
agreement between Bank and Grantor. Grantor will execute any additional
agreements, assignments or documents reasonably required by Bank to carry this
Security Agreement into effect.
16. If one or more Obligor signs this Security Agreement, their liability
hereunder shall be joint and several. Any Obligor who is married hereby agrees
that recourse may be had against his or her separate property for the Debt.
17. This Security Agreement shall be governed by and construed in
accordance with the laws of the State of California, to the jurisdiction of
whose courts Grantor hereby agrees to submit. Grantor agrees that service of
process may be accomplished by any means authorized by California law. All words
used herein in the singular shall be considered to have been used in the plural
where the context and construction so require.
18. Grantor hereby acknowledges receiving a copy of this Security
Agreement and waives all rights to receive from Bank a copy of any financing
statement or financing change statement filed, or any verification statement
received, at any time in respect of this Security Agreement.
Grantor
EXCITE, INC.
a California corporation
By: /s/ Richard B. Redding
---------------------------------------------
Name: Richard B. Redding
------------------------------------------
Title: Vice President Finance & Administration
------------------------------------------
4.
<PAGE> 5
EXHIBIT A
DESCRIPTION OF COLLATERAL
A. Collateral. This Exhibit A covers all right, title and interest
of Grantor in, to and under all of the following, wherever located and whether
now owned or hereafter owned or acquired (collectively, the "Collateral"):
(a) All Accounts of Grantor;
(b) All Chattel Paper of Grantor;
(c) All Contracts of Grantor;
(d) All Deposit Accounts of Grantor;
(e) All Documents of Grantor;
(f) All Equipment of Grantor;
(g) All Fixtures of Grantor;
(h) All General Intangibles of Grantor;
(i) All Instruments of Grantor;
(j) All Inventory of Grantor;
(k) All Investment Property of Grantor;
(1) All Licenses of Grantor;
(m) All property of Grantor held by Bank or any other
party for whom Bank is acting as agent hereunder, including, without limitation,
all property of every description now or hereafter in the possession or custody
of or in transit to Bank or such other party for any purpose, including, without
limitation, safekeeping, collection or pledge, for the account of Grantor, or as
to which Grantor may have any right or power;
(n) All other goods and personal property of Grantor
whether tangible or intangible and whether now or hereafter owned or existing,
leased, consigned by or to, or acquired by, Grantor and wherever located; and
(o) To the extent not otherwise included, all Proceeds
of each of the foregoing and all accessions to, substitutions and replacements
for, and rents, profits and products of each of the foregoing.
B. Defined Terms. Unless otherwise defined herein, the following
terms shall have the following meanings (such meanings being equally applicable
to both the singular and plural forms of the terms defined):
"Accounts" means any "account," as such term is defined in Section
9106 of the UCC, now owned or hereafter acquired by Grantor and, in any event,
shall include, without limitation, all accounts receivable, book debts and other
forms of obligations (other than forms of obligations evidenced by Chattel
Paper, Documents or Instruments) now owned or hereafter received or acquired by
or belonging or owing to Grantor (including, without limitation, under any trade
name, style or division thereof) whether arising out of goods sold or services
rendered by Grantor or from any other transaction, whether or not the same
involves the sale of goods or services by Grantor (including, without
limitation, any such obligation which may be characterized as an account or
contract right under the UCC) and all of Grantor's rights in, to and under all
<PAGE> 6
purchase orders or receipts now owned or hereafter acquired by it for goods or
services, and all of Grantor's rights to any goods represented by any of the
foregoing (including, without limitation, unpaid seller's rights of rescission,
replevin, reclamation and stoppage in transit and rights to returned, reclaimed
or repossessed goods), and all monies due or to become due to Grantor under all
purchase orders and contracts for the sale of goods or the performance of
services or both by Grantor (whether or not yet earned by performance on the
part of Grantor or in connection with any other transaction), now in existence
or hereafter occurring, including, without limitation, the right to receive the
proceeds of said purchase orders and contracts, and all collateral security and
guarantees of any kind given by any Person with respect to any of the foregoing.
"Chattel Paper" means any "chattel paper," as such term is defined in
Section 9105(l)(b) of the UCC, now owned or hereafter acquired by Grantor.
"Contracts" means all contracts, undertakings, franchise agreements or
other agreements (other than rights evidenced by Chattel paper, Documents or
Instruments) in or under which Grantor may now or hereafter have any right,
title or interest, including, without limitation, with respect to an Account,
any agreement relating to the terms of payment or the terms of performance
thereof.
"Copyright License" means all of the following now owned or hereafter
acquired by Grantor: any agreement granting any right in or to any Copyright or
Copyright registration (whether Grantor is the licensee or the licensor
thereunder) including, without limitation, licenses pursuant to which Grantor
has obtained the exclusive right to use a copyright owned by a third party.
"Copyrights" means all of the following in which Grantor now holds or
hereafter acquires any interest: (i) all copyrights, whether registered or
unregistered, held pursuant to the laws of the United States, any State thereof
or of any other country; (ii) registrations, applications and recordings in the
United States Copyright Office or in any similar office or agency of the United
States, any state thereof or any other country or political subdivision thereof;
(iii) any continuations, renewals or extensions thereof; (iv) any registrations
to be issued in any pending applications; (v) prior versions of works covered by
copyright and all works based upon, derived from, or incorporating such works;
(vi) income, royalties, damages, claims, and payments now and hereafter due and
payable with respect to copyrights including, without limitation, damages and
payments for past, present, or future infringement; (vii) rights to sue for
past, present and future infringements of copyright; and (viii) any other rights
corresponding to any of the foregoing rights throughout the world.
"Deposit Account" means any "deposit account" as such term is defined in
Section 9105(e) of the UCC, and should include, without limitation, any demand,
time, savings passbook or like account, now or hereafter maintained by or for
the benefit of Grantor, or in which Grantor now holds or hereafter acquires any
interest, with a bank, savings and loan association, credit union or like
organization (including Bank) and all funds and amounts therein, whether or not
restricted or designated for a particular purpose.
"Documents" means any "documents," as such term is defined in
Section 9105(1)(f) of the UCC, now owned or hereafter acquired by Grantor.
"Equipment" means any "equipment," as such term is defined in
Section 9109(2) of the UCC, now or hereafter owned or acquired by Grantor and,
in any event, shall include, without limitation, all machinery, equipment,
furnishings, vehicle, computers and other electronic data-processing and any
other office equipment of any nature whatsoever, any and all additions,
substitutions and replacements of any of the foregoing, wherever located,
together with all attachments, components, parts, equipment and accessories
installed thereon or affixed thereto.
"Fixtures" means "fixtures," as such term is defined in Section 9313(l)(a)
of the UCC, now or hereafter owned or acquired by Grantor and, in any event,
shall include, without limitation, regardless of where located, all of the
fixtures, systems, machinery, apparatus, equipment and fittings of every kind
and nature whatsoever and all appurtenances and additions thereto and
substitutions or replacements thereof, now or hereafter attached or affixed to
or constituting a part of, or located in or upon, real property wherever
located, including, without limitation, all heating, electrical, mechanical,
lighting, lifting, plumbing, ventilating, air-conditioning and air cooling,
refrigerating, food preparation, incinerating and power, loading and unloading,
signs, escalators, elevators, boilers, communication, switchboards, sprinkler
and other fire
<PAGE> 7
prevention and extinguishing fixtures, systems, machinery, apparatus and
equipment, and all engines, motors, dynamos, machinery, pipes, pumps, tanks,
conduits and ducts constituting a part of any of the foregoing, together with
all right, title and interest of Grantor in and to all extensions, improvements,
betterments, renewals, substitutes, and replacements of, and all additions and
appurtenances to any of the foregoing property, and all conversions of the
security constituted thereby, immediately upon any acquisition or release
thereof or any such conversion, as the case may be.
"General Intangibles" means any "general intangibles," as such term is
defined in Section 9106 of the UCC, now owned or hereafter acquired by Grantor
and, in any event, shall include, without limitation, all right, title and
interest which Grantor may now or hereafter have in or under any Contract, all
customer lists, Copyrights, Trademarks, Patents, rights or Intellectual
Property, interests in partnerships, joint ventures and other business
associations, Licenses, permits, copyrights, trade secrets, proprietary or
confidential information, inventions (whether or not patented or patentable),
technical information, procedures, designs, knowledge, know-how, software, data
bases, data, skill, expertise, recipes, experience, processes, models, drawings,
materials and records, goodwill (including, without limitation, the goodwill
associated with any Trademark, Trademark registration or Trademark licensed
under any Trademark License), claims in or under insurance policies, including
unearned premiums, uncertificated securities, deposit accounts, rights to
receive tax refunds and other payments and rights of indemnification.
"Instruments" means any "instrument," as such term is defined in Section
9105(l)(i) of the UCC now owned or hereafter acquired by Grantor, including,
without limitation, all notes, certificated securities, and other evidences of
indebtedness, other than instruments that constitute, or are a part of a group
of writings that constitute, Chattel Paper.
"Intellectual Property" means all Copyrights, Patents, Trademarks, trade
secrets, customer lists, proprietary or confidential information, inventions
(whether or not patented or patentable), technical information, procedures,
designs, knowledge, know-how, software, data bases, data, skill, expertise,
recipes, experience, processes, models, drawings, materials and records.
"Inventory" means any "inventory," as such term is defined in
Section 9109(4) of the UCC, wherever located, now or hereafter owned or acquired
by, Grantor and, in any event, shall include, without limitation, all inventory,
merchandise, goods and other personal property which are held by or on behalf of
Grantor for sale or lease or are furnished or are to be furnished under a
contract of service or which constitute raw materials, work in process or
materials used or consumed or to be used or consumed in Grantor's business, or
the processing, packaging, promotion, delivery or shipping of the same, and all
furnished goods whether or not such inventory is listed on any schedules,
assignments or reports furnished to Bank from time to time and whether or not
the same is in transit or in the constructive, actual or exclusive occupancy or
possession of Grantor or is held by Grantor or by others for Grantor's account,
including, without limitation, all goods covered by purchase orders and
contracts with suppliers and all goods billed and held by suppliers and all
inventory which may be located on premises of Grantor or of any carriers,
forwarding agents, truckers, warehousemen, vendors, selling agents or other
persons.
"Investment Property" means any "investment property," as such term is
defined in Section 9115(l)(f) of the UCC, now owned or hereafter acquired by
Grantor, including, without limitation, a security, whether certificated or
uncertificated, a security entitlement, a securities account, a commodity
contract or a commodity account.
"License" means any Copyright License, Patent License, Trademark License or
other license of rights or interests now held or hereafter acquired by Grantor.
"Patent License" means any of the following now owned or hereafter acquired
by Grantor: any written agreement granting any right with respect to any
invention on which a Patent is in existence.
"Patents" means all of the following in which Grantor now holds or
hereafter acquires any interest: (a) letters patent of the United States or any
other county, all registrations and recordings thereof, and all applications for
letters patent of the United States or any other country, including, without
limitation, registrations, recordings and applications in the United States
Patent and Trademark Office or in any similar office or agency of the United
States, any State thereof or any other
<PAGE> 8
country or any political subdivision thereof; (b) all reissues, continuations,
continuations-in-part or extensions thereof; (c) all petty patents, divisionals,
and patents of addition; and (d) all patents to issue in any such applications.
"Proceeds" means "proceeds," as such term is defined in Section 9-306(l) of
the UCC and, in any event, shall include, without limitation, (a) any and all
Accounts, Chattel Paper, Instruments, cash or other proceeds payable to Grantor
from time to time in respect of the Collateral, (b) any and all proceeds of any
insurance, indemnity, warranty or guaranty payable to Grantor from time to time
with respect to any of the Collateral, (c) any and all payments (in any form
whatsoever) made or due and payable to Grantor from time to time in connection
with any requisition, confiscation, condemnation, seizure or forfeiture of all
or any part of the Collateral above by any governmental body, authority, bureau
or agency (or any person acting under color of governmental authority), (d) any
claim of Grantor against third parties (i) for past, present or future
infringement of any Patent or Patent License, (ii) for past, present or future
infringement of any Copyright or Copyright License, (iii) for past, present or
future infringement or dilution of any Trademark or Trademark License or for
injury to the goodwill associated with any Trademark, Trademark registration or
Trademark licensed under any Trademark License, (e) all certificates, dividends,
cash, Instruments and other property received or distributed in respect of or in
exchange for any Investment Property and (f) any and all other amounts from time
to time paid or payable under or in connection with any of the Collateral or any
Contract.
"Trademark License" means any written agreement granting any right in and
to any Trademark or Trademark registration (whether Grantor is the licensee or
the licensor thereunder).
"Trademarks" means any of the following now owned or hereafter acquired by
Grantor: (a) any and all trademarks, trade names, corporate names, company
names, business names, trade styles, service marks, logos, other source or
business identifiers, prints and labels on which any of the foregoing have
appeared or appear, designs and general intangibles of like nature, now existing
or hereafter adopted or acquired, all registrations and recordings thereof, and
any applications in connection therewith, including, without limitation,
registrations, recordings and applications in the United States Patent and
Trademark Office or in any similar office or agency of the United States, any
State thereof or any other country or any political subdivision thereof (the
"Marks"), (b) any reissues, extensions or renewals thereof, (c) the goodwill of
the business symbolized by or associated with Marks, (d) income, royalties,
damages and payments now and hereafter due and/or payable with respect to Marks,
including, without limitation, damages, claims and recoveries for past, present
or future infringement, misappropriation, or dilution, and (e) rights to sue for
past, present and future infringements of Marks.
"UCC" means the Uniform Commercial Code as the same may, from time to time,
be in effect in the State of California; provided, however, in the event that,
by reason of mandatory provisions of law, any or all of the attachment,
perfection or priority of Bank's security interest in any collateral is governed
by the Uniform Commercial Code as in effect in a jurisdiction other than the
State of California, the term "UCC" shall mean the Uniform Commercial Code as in
effect in such other jurisdiction for purposes of the provisions hereof relating
to such attachment, perfection of priority and for purposes of definitions
related to such provisions.
<PAGE> 9
EXHIBIT B
LOCATION OF COLLATERAL NOT IN BANK'S POSSESSION
1. 1091 N. Shoreline Boulevard, Mountain View, California 94043
2. Please indicate other address locations, if any. If none, please indicate
"None" below:
555 Broadway
Redwood City, CA 94063
Other Offices: See attached
<PAGE> 10
<TABLE>
<CAPTION>
Excite
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Corporate Office
City.Net Office
1091 N. Shoreline Blvd 2580 N.W. Upshur
Mountain View CA 94043 Portland OR 97210
Phone: 415-943-1200 Phone: 503-229-0792
Fax: 415-943-1299 Fax: 503-229-0793
London Office New York Office
1 Hay Hill-Room 11 230 Park Ave., Ste. 1000
London WIX7LF New York NY 10169
Phone: 011-44-171-495-7665 Phone: 212-808-3076
Fax: 011-44-171-491-8714 Fax: 212-972-1628
Austin Office Sausalito Office
1711 S. Congress 85 Liberty Ship Way Suite 201
Austin TX 78704 Sausalito CA 94965
Phone: 512-326-8222 Phone: 415-331-1884
Fax: 512-326-8309 Fax: 415-331-8609
Terra Bella Office Los Angeles Office
1025 Terra Bella Ave. 575 Antone Blvd. 3rd Floor
Mountain View CA 94043 Costa Mesa CA 92626
Phone: Phone: 714-432-6337
415-237-0105 Fax: 714-432-6338
Fax:
Webcrawler Office
690 Fifth St.
San Francisco CA 94107
Phone: 415-356-5400
Fax: 415-356-5444
Tuesday, February 04,1997 Page 1 of 1
</TABLE>
<PAGE> 1
EXHIBIT 10.29
SECURITY AND LOAN AGREEMENT
(ACCOUNTS RECEIVABLE)
THIS SECURITY AND LOAN AGREEMENT (Accounts Receivable) is entered into as
of March 27, 1997 (this "Loan Agreement") between EXCITE, INC., a California
corporation (herein called "Borrower") and IMPERIAL BANK (herein called "Bank").
1. Facility-A Commitment. Subject to all the terms and conditions of this
Loan Agreement and prior to the termination of its commitment as hereinafter
provided, Bank hereby agrees to make loans (each a "Facility-A Loan") to
Borrower, from time to time and in such amounts as Borrower shall request
pursuant to this Section 1, up to an aggregate principal amount outstanding
under the Facility-A Loan Account (as hereinafter defined) not to exceed the
lesser of: (a) eighty percent (80.0%) of Eligible Accounts (the "Borrowing
Base") and (b) $3,000,000.00 (the "Facility-A Commitment Amount"). If at any
time or for any reason, the outstanding principal amount of the Facility-A Loan
Account (as such may be increased by the exercise of the Facility-B Conversion
Option (as hereinafter defined) is greater than the lesser of: (i) the Borrowing
Base or (ii) the Facility-A Commitment Amount, Borrower shall immediately pay to
Bank, in cash, the amount of such excess. Any commitment of Bank, pursuant to
the terms of this Loan Agreement, to make Facility-A Loans shall expire on the
Facility-A Maturity Date (as hereinafter defined), subject to Bank's right to
renew said commitment in its sole and absolute discretion at Borrower's request.
Any such renewal of said commitment shall not be binding upon Bank unless it is
in writing and signed by an officer of Bank. If Bank decides to terminate this
line of credit prior to the Facility-A Maturity Date, then, provided that no
Event of Default (as hereinafter defined) has occurred and is continuing, Bank
shall give Borrower ninety (90) days prior written notice of such termination.
Provided that no Event of Default has occurred and is continuing, all or any
portion of the Facility-A Loans advanced by Bank which are repaid by Borrower
shall be available for reborrowing in accordance with the terms hereof. Borrower
promises to pay to Bank the entire outstanding unpaid principal balance (and all
accrued unpaid interest thereon) of the Facility-A Loan Account three hundred
sixty-four (364) days from the date hereof ("Facility-A Maturity Date").
A. Facility-A Loans. The amount of each Facility-A Loan made by Bank
to Borrower hereunder shall be debited to the loan ledger account of Borrower
maintained by Bank for the Facility-A Commitment (herein called the "Facility-A
Loan Account") and Bank shall credit the Facility-A Loan Account with all loan
repayments in respect thereof made by Borrower. When Borrower desires to obtain
a Facility-A Loan, Borrower shall notify Bank (which notice shall be signed by
an officer of Borrower and shall be irrevocable) in accordance with Section 4
hereof, to be received no later than 3:00 p.m. Pacific time one (1) business day
before the day on which the Facility-A Loan is to be made. Facility-A Loans may
only be used for general corporate and working capital purposes.
(i) Interest Payments on Facility-A Loans. Borrower further
promises to pay to Bank from the date of the advance of the initial Facility-A
Loan through the Facility-A Maturity Date, on or before the tenth (10th) day of
each month, interest on the average daily unpaid balance of the Facility-A Loan
Account during the immediately preceding month at a rate of interest per annum
which Bank has announced as its prime lending rate (the "Prime Rate"), which
shall vary concurrently with any change in the Prime Rate. Interest shall be
computed at the above rate on the basis of the actual number of days during
which the principal balance of the Facility-A Loan Account is outstanding
divided by 360, which shall for interest computation purposes be considered one
(1) year.
B. Amendment to Facility-A Commitment Upon Conversion of Facility-B
Commitment. Upon the exercise by Borrower of the Facility-B Conversion Option,
beginning on the Facility-B Conversion Date (as hereinafter defined), the
Facility-A Commitment Amount shall be increased by $3,000,000.00 to
$6,000,000.00. Following the date thereof, Bank agrees to make Facility-A Loans
to Borrower, subject to the terms and conditions contained in Sections 1 and 1A
hereof.
(i) Interest Payments on Facility-A Loans Following
Conversion of Facility-B Loans. Borrower further promises to pay to Bank: (a) on
or before October 10, 1997, any unpaid interest accrued on the outstanding
balance of the Facility-B Loan Account through September 30, 1997, at the rate
of interest provided for in
1.
<PAGE> 2
Section 2A(i) hereof, (b) on or before October 10, 1997, any unpaid interest
accrued on the outstanding balance of the Facility-A Loan Account through
September 30, 1997, at the rate of interest provided for in Section 1A(i)
hereof, and (c) on or before November 10, 1997 and on the tenth (10th) day of
each month thereafter, interest on the average daily unpaid balance of the
Facility-A Loan Account following the Facility B Conversion Date during the
immediately preceding month at the rate of interest provided for and computed in
accordance with in Section 1A(i) hereof.
2. Facility-B Commitment. Subject to all the terms and conditions of this
Loan Agreement and prior to the termination of its commitment as hereinafter
provided, Bank hereby agrees to make loans (each a "Facility-B Loan") to
Borrower, in such amounts as Borrower shall request pursuant to this Section 2,
at any time from the date hereof through September 30, 1997 (the "Facility-B
Maturity Date"), in an aggregate principal amount not to exceed $3,000,000.00
(the "Facility-B Commitment Amount"). If at any time or for any reason, the
outstanding principal amount of the Facility-B Loan Account (as hereinafter
defined) is greater than the Facility-B Commitment Amount, Borrower shall
immediately pay to Bank, in cash, the amount of such excess. Any commitment of
Bank, pursuant to the terms of this Loan Agreement, to make Facility-B Loans
shall expire on the Facility-B Maturity Date, subject to Bank's right to renew
said commitment in its sole and absolute discretion at Borrower's request. Any
such renewal of said commitment shall not be binding upon Bank unless it is in
writing and signed by an officer of Bank. If Bank decides to terminate this line
of credit prior to the Facility-B Maturity Date, then, provided that no Event of
Default (as hereinafter defined) has occurred and is continuing, Bank shall give
Borrower ninety (90) days prior written notice of such termination. Provided
that no Event of Default has occurred and is continuing, all or any portion of
the Facility-B Loans advanced by Bank which are repaid by Borrower shall be
available for reborrowing in accordance with the terms hereof.
A. Facility-B Loans. The amount of each Facility-B Loan made by Bank
to Borrower hereunder shall be debited to the loan ledger account of Borrower
maintained by Bank for the Facility-B Commitment (herein called the "Facility-B
Loan Account") and Bank shall credit the Facility-B Loan Account with all loan
repayments in respect thereof made by Borrower. When Borrower desires to obtain
a Facility-B Loan, Borrower shall notify Bank (which notice shall be signed by
an officer of Borrower and shall be irrevocable) in accordance with Section 4
hereof, to be received no later than 3:00 p.m. Pacific time one (1) business day
before the day on which the Facility-B Loan is to be made. Facility-B Loans may
only be used for general corporate and working capital purposes. Borrower
promises to pay to Bank the entire outstanding principal balance (and all
accrued unpaid interest thereon) of the Facility-B Loan Account on the
Facility-B Maturity Date; provided, however, if Borrower delivers at least two
(2) business days' prior written notice to Bank that it does not intend to repay
the outstanding principal balance of the Facility-B Loan Account on the
Facility-B Maturity Date, then on the day immediately following the Facility-B
Maturity Date ("Facility-B Conversion Date"), the outstanding principal balance
of the Facility-B Loan Account shall be added to the outstanding principal
balance of the Facility-A Loan Account (the "Facility-B Conversion Option"), and
thereafter shall be subject to all of the terms and conditions of the Facility-A
Commitment.
(i) Interest Payments on Facility-B Loans. Borrower further
promises to pay to Bank from the date of the advance of the initial Facility-B
Loan through the Facility-B Maturity Date, on or before the tenth (10th) day of
each month, interest on the average daily unpaid balance of the Facility-B Loan
Account during the immediately preceding month at a rate of interest equal to
one-quarter of one percent (0.25 %) per annum in excess of the Prime Rate, which
shall vary concurrently with any change in the Prime Rate. Interest shall be
computed at the above rate on the basis of the actual number of days during
which the principal balance of the Facility-B Loan Account is outstanding
divided by 360, which shall for interest computation purposes be considered one
(1) year.
3. Facility-C Commitment. Upon receipt by Borrower of new or additional
equity investments by any new or existing shareholders of Borrower totalling at
least Fifteen Million Dollars ($15,000,000.00) and delivery of evidence to Bank
of such equity investment, in form satisfactory to Bank, and subject to all the
terms and conditions of this Loan Agreement and prior to the termination of its
commitment as hereinafter provided, Bank hereby agrees to make loans (each a
"Facility-C Loan") to Borrower in such amounts as Borrower shall request
pursuant to this Section 3 at any time from the date hereof through March 31,
1998 (the "Facility-C Availability End Date"), in an aggregate principal amount
not to exceed to exceed $1,500,000.00 (the "Facility-C Commitment Amount"). If
at any time or for any reason, the outstanding principal amount of the
Facility-C Loan Account (as hereinafter defined) is greater than the Facility-C
Commitment Amount, Borrower shall immediately pay to Bank, in cash, the amount
of such excess. Any commitment of Bank, pursuant to the terms of this
2.
<PAGE> 3
Loan Agreement, to make Facility-C Loans shall expire on the Facility-C
Availability End Date (as hereinafter defined), subject to Bank's right to renew
said commitment in its sole and absolute discretion at Borrower's request. Any
such renewal of said commitment shall not be binding upon Bank unless it is in
writing and signed by an officer of Bank. If Bank decides to terminate this line
of credit prior to the Facility-C Maturity Date, then, provided that no Event of
Default (as hereinafter defined) has occurred and is continuing, Bank shall give
Borrower ninety (90) days prior written notice of such termination. Facility-C
Loans which are repaid by Borrower may not be reborrowed. Borrower promises to
pay to Bank the outstanding unpaid principal balance (and all accrued unpaid
interest thereon) of the Facility-C Loan Account on March 31, 2000 ("Facility-C
Maturity Date").
A. Facility-C Loans. The amount of each Facility-C Loan made by Bank
to Borrower hereunder shall be debited to the loan ledger account of Borrower
maintained by Bank for the Facility-C Commitment (herein called the "Facility-C
Loan Account") and Bank shall credit the Facility-C Loan Account with all loan
repayments in respect thereof made by Borrower. When Borrower desires to obtain
a Facility-C Loan, Borrower shall notify Bank (which notice shall be signed by
an officer of Borrower and shall be irrevocable) in accordance with Section 4
hereof, to be received no later than 3:00 p.m. Pacific time one (1) business day
before the day on which the Facility-C Loan is to be made. The notice shall be
signed by an officer of Borrower and include a copy of the invoice for the
equipment to be financed. Facility-C Loans may only be used to purchase
equipment and will be limited to one hundred percent (100%) of the invoice
amount for such equipment, approved from time to time by Bank, less any taxes,
shipping and freight charges or discounts, warranty charges, installation
expenses and other soft costs.
(i) Interest Payments Prior to Facility-C Availability End
Date. Borrower further promises to pay to Bank from the date of the advance of
the initial Facility-C Loan through the Facility-C Availability End Date, on or
before the tenth (10th) day of each month, through and including a payment on
April 10, 1998, interest on the average daily unpaid balance of the Facility-C
Loan Account during the immediately preceding month at a rate of interest equal
to one-quarter of one percent (0.25 %) per annum in excess of the Prime Rate,
which shall vary concurrently with any change in the Prime Rate. Interest shall
be computed at the above rate on the basis of the actual number of days during
which the principal balance of the Facility-C Loan Account is outstanding
divided by 360, which shall for interest computation purposes be considered one
(1) year.
(ii) Principal Repayment and Interest Payments Following
Facility-C Availability End Date. Borrower further promises to pay to Bank, on
or before May 10, 1998 and on or before the tenth (10th) day of each month
thereafter through the Facility-C Maturity Date, (a) the outstanding principal
balance of the Facility-C Loan Account on the Facility-C Availability End Date
in equal monthly installments plus (b) interest on the average daily unpaid
balance of the Facility-C Loan Account accruing from and after April 1, 1998,
during the immediately preceding month at the rate of interest and computed in
accordance with Section 3A(i) hereof.
4. Loan Requests. Requests for Loans hereunder shall be in writing duly
executed by Borrower in a form satisfactory to Bank and shall contain a
certification setting forth the matters referred to in Sections 1, 2 or 3
hereof, which shall disclose that Borrower is entitled to the amount and type of
Loan being requested. Bank is hereby authorized to charge Borrower's deposit
account(s) with Bank for all sums due Bank under this Loan Agreement.
5. Definitions. As used in this Loan Agreement and unless otherwise
defined herein, all initially capitalized terms shall have the meanings set
forth on Exhibit A attached hereto and incorporated herein by this reference.
6. Assignment of Accounts. Borrower hereby assigns to Bank all of
Borrower's present and future Accounts, including all proceeds due thereunder,
all guaranties and security therefor, and hereby grants to Bank a continuing
security interest in all moneys collected as contemplated under Section 7 hereof
as security for any and all obligations of Borrower to Bank, whether now owing
or hereafter incurred and whether direct, indirect, absolute or contingent. So
long as Borrower is indebted to Bank or Bank is committed to extend credit to
Borrower and there shall exist and be continuing an Event of Default, Borrower
will execute and deliver to Bank such assignments, including Bank's standard
forms of Specific or General Assignment covering individual Accounts, notices,
financing statements, and other documents and papers as Bank may require in
order to affirm, effectuate or further assure the assignment to Bank of the
Collateral or to give any third party, including the account debtors obligated
on the Accounts, notice of Bank's interest in the Collateral. Notwithstanding
the
3.
<PAGE> 4
foregoing, so long as no Event of Default has occurred and is continuing,
Borrower shall be entitled to use the proceeds of such Accounts in the ordinary
course of its business.
7. Collection of Accounts. Until Bank exercises its rights to collect the
Accounts pursuant to Section 16 hereof, Borrower will collect with diligence all
Borrower's Accounts. Any collection of Accounts by Borrower, whether in the form
of cash, checks, notes, or other instruments for the payment of money (properly
endorsed or assigned where required to enable Bank to collect same), shall be in
trust for Bank. If an Event of Default has occurred, Borrower shall keep all
such collections separate and apart from all other funds and property so as to
be capable of identification as the property of Bank and deliver said
collections daily to Bank in the identical form received. The proceeds of such
collections when received by Bank may be applied by Bank directly to the payment
of the Loan Account or to any other obligation secured hereby. Any credit given
by Bank upon receipt of said proceeds shall be conditional credit subject to
collection. Returned items at Bank's option may be charged to Borrower's deposit
account with Bank. All collections of the Accounts shall be set forth on an
itemized schedule, showing the name of the account debtor, the amount of each
payment and such other information as Bank may request.
8. Returns and Adjustments. Until Bank exercises its rights to collect
the Accounts pursuant to Section 16 hereof, Borrower may continue its present
policies with respect to returned merchandise and adjustments. However, Borrower
shall immediately notify Bank of all cases involving repossessions, and material
loss or damage of or to merchandise represented by the Accounts.
9. Representations and Warranties. Borrower represents and warrants to
Bank: (a) That Borrower is a corporation, duly organized and existing in the
State of its incorporation and the execution, delivery and performance of each
of the Loan Documents are within Borrower's corporate powers, have been duly
authorized and are not in conflict with law or the terms of any charter, by-law
or other incorporation papers, or of any indenture, agreement or undertaking to
which Borrower is a party or by which Borrower is bound or affected; (b)
Borrower is, and at the time the Collateral becomes subject to Bank's security
interest will be, the true and lawful owner of and has, and at the time the
Collateral becomes subject to Bank's security interest will have, good and clear
title to the Collateral, subject only to Bank's rights therein and to Permitted
Liens; (c) Each Account is, and at the time the Account comes into existence
will be, a true and correct statement of a bona fide indebtedness incurred by
the debtor named therein in the amount of the Account for either merchandise
sold or delivered (or being held subject to Borrower's delivery instructions)
to, or services rendered, performed and accepted by, the account debtor; (d)
That there are and will be no defenses, counterclaims, or setoffs which may be
asserted against the Accounts from time to time represented by Borrower to be
Eligible Accounts, except as permitted in the definition thereof; (e) Any and
all financial information, including information relating to the Collateral,
submitted by Borrower to Bank, whether previously or in the future, is and will
be true and correct; (f) Except for that certain Complaint for Damages filed on
November 18, 1996 in the Superior Court of the State of California for the
County of Santa Clara, Case No. CV762189, a copy of which has been previously
delivered to Bank, which litigation if adversely determined to Borrower would
not have an Material Adverse Effect, there is no litigation or other proceeding
pending or threatened against or affecting Borrower, and Borrower is not in
default with respect to any order, writ, injunction, decree or demand of any
court or other governmental or regulatory authority; (g) (i) The consolidated
and consolidating balance sheets of Borrower dated as of December 31, 1996, and
the related consolidated and consolidating profit and loss statements for the
fiscal year then ended, a copy of which has heretofore been delivered to Bank by
Borrower, and all other statements and data submitted in writing by Borrower to
Bank in connection with Borrower's request for credit are true and correct, and
said balance sheet and profit and loss statement accurately present the
financial condition of Borrower as of the date thereof and the results of the
operations of Borrower for the period covered thereby, and have been prepared in
accordance with GAAP, (ii) since such date, there have been no material adverse
changes in the financial condition of Borrower, and (iii) Borrower has no
knowledge of any material liabilities, contingent or otherwise, at such date not
reflected in said balance sheet, and Borrower has not entered into any special
commitments or substantial contracts which are not reflected in said balance
sheet, other than in the ordinary and normal course of its business, which may
have a Materially Adverse Effect upon its financial condition, operations or
business as now conducted; (h) Borrower has no liability for any delinquent
local, state or federal taxes, and, if Borrower has contracted with any
government agency, it has no liability for renegotiation of profits; and (i)
Borrower, as of the date hereof, possesses all necessary trademarks, trade
names, copyrights, patents, patent rights, and licenses to conduct its business
as now operated, without any known conflict with valid trademarks, trade names,
copyrights, patents, patent rights and license rights of others.
4.
<PAGE> 5
10. Negative Covenants. Borrower agrees that so long as any loans,
obligations or liabilities remain outstanding or unpaid to Bank or the
commitment of Bank hereunder is in effect, neither Borrower, nor any of its
subsidiaries will, without the prior written consent of Bank:
A. Make any substantial change in the character of its business as
now conducted.
B. Create, incur, assume or permit to exist any Indebtedness other
than loans from Bank except obligations now existing as shown in the financial
statements dated December 31, 1996, excluding those being refinanced by Bank,
Subordinated Debt and Permitted Indebtedness; or sell or transfer, either with
or without recourse, any accounts or notes receivable or any monies due or to
become due.
C. Create, incur, assume or permit to exist any mortgage, pledge,
encumbrance, lien or charge of any kind (including the charge upon property at
any time purchased or acquired under conditional sale or other title retention
agreement) upon any asset now owned or hereafter acquired by it, other than
Permitted Liens and liens in favor of Bank.
D. Sell, dispose of or grant a security interest in any of the
Collateral other than to Bank (other than the disposing of such Collateral in
the ordinary and normal course of its business as now conducted or other assets
which are obsolete or otherwise considered surplus), or execute any financing
statements covering the Collateral in favor of any secured party or Person other
than Bank.
E. Make any loans or advances to any Person or other entity other
than in the ordinary and normal course of its business as now conducted
(provided that such loans or advances are not made to any Person or entity which
is controlled by or under common control with Borrower) or make any investment
in the securities of any Person or other entity other than the United States
Government.
F. Purchase or otherwise acquire all or substantially all of the
assets or business of any Person or other entity; or liquidate, dissolve, merge
or consolidate, or commence any proceedings therefore; or, except in the
ordinary and normal course of its business as now conducted, sell (including,
without limitation, the selling of any property or other asset accompanied by
the leasing back of the same) any assets including any fixed assets, any
property, or other assets necessary for the continuance of its business as now
conducted.
G. Declare or pay any dividend or make any other distribution on any
of its capital stock now outstanding or hereafter issued or purchase, redeem or
retire any of such stock other than in dividends or distributions payable in
Borrower's or any such subsidiary's capital stock.
11. Affirmative Covenants. Borrower affirmatively covenants that so long
as any loans, obligations or liabilities remain outstanding or unpaid to Bank or
the commitment of Bank hereunder is in effect, it will:
A. Furnish Bank from time to time such financial statements and
information as Bank may reasonably request and inform Bank immediately upon the
occurrence of a material adverse change therein;
B. Within thirty (30) days from the date hereof and annually
thereafter, permit representatives of Bank to inspect Borrower's books and
records relating to the Collateral and make extracts therefrom, with results
satisfactory to Bank, provided that Bank shall use its best efforts to not
interfere with the conduct of Borrower's business, and to arrange for
verification of the Accounts, under reasonable procedures, acceptable to Bank,
directly with the account debtors or otherwise, all at Borrower's sole expense;
C. Promptly notify Bank of any attachment or other legal process
levied against any of the Collateral and any information received by Borrower
relative to the Collateral, including the Accounts, the account debtors or other
Persons obligated in connection therewith, which may in any way affect the value
of the Collateral or the rights and remedies of Bank in respect thereto;
5.
<PAGE> 6
D. Reimburse Bank upon demand for any and all legal costs, including
reasonable attorneys' fees, and other reasonable expense incurred in collecting
any sums payable by Borrower under the Loan Account or any other obligation
secured hereby, enforcing any term or provision of this Loan Agreement or
collection of the Collateral and the preparation and enforcement of any
agreement relating thereto;
E. Notify Bank of each location and of each office of Borrower at
which records of Borrower relating to the Accounts are kept;
F. Provide, maintain and deliver to Bank policies insuring the
Collateral against loss or damage by such risks and in such amounts, forms and
companies as Bank may require (to the extent customarily maintained by
businesses similar to Borrower) and with loss payable solely to Bank, and, in
the event Bank takes possession of the Collateral, the insurance policy or
policies and any unearned or returned premium thereon shall at the option of
Bank become the sole property of Bank, such policies and the proceeds of any
other insurance covering or in any way relating to the Collateral, whether now
in existence or hereafter obtained, being hereby assigned to Bank;
G. In the event the unpaid balance of the Facility-A Loan Account,
the Facility-B Loan Account and/or the Facility-C Loan Account shall exceed the
maximum amount of outstanding loans to which Borrower is entitled under Sections
1, 2 and 3 hereof, as applicable, Borrower shall immediately pay to Bank for
credit to such Loan Account the amount of such excess;
H. Maintain and preserve all rights, franchises and other authority
adequate and necessary for the conduct of its business and maintain and preserve
its existence in the State of its incorporation and any other state(s) in which
Borrower conducts its business, except with respect to such other state(s), as
the failure to do so would not have a Material Adverse Effect;
I. Maintain public liability, property damage and workers
compensation insurance and insurance on all its insurable property against fire
and other hazards with responsible insurance carriers to the extent usually
maintained by similar businesses. Borrower shall provide evidence of property
insurance in amounts and types acceptable to Bank, and certificates naming Bank
as loss payee;
J. Pay and discharge, before the same becomes delinquent and before
penalties accrue thereon, all taxes, assessments and governmental charges upon
or against it or any of its properties, and any of its other liabilities at any
time existing, except to the extent and so long as: (i) the same are being
contested in good faith and by appropriate proceedings in such manner as not to
cause any Materially Adverse Effect or the loss of any right of redemption from
any sale thereunder; and (ii) it shall have set aside on its books reserves
(segregated to the extent required by (GAAP);
K. Maintain a standard and modern system of accounting in accordance
with GAAP on a basis consistently maintained; permit Bank's representatives to
have access to, and to examine its properties, books and records at all
reasonable times; provided that Bank shall use its best efforts to not interfere
with the conduct of Borrower's business;
L. Maintain its properties, equipment and facilities in good order
and repair; and
M. Prior to allowing any of Borrower's raw materials, work in
process, finished goods inventory and property, plant and equipment to be
transported to or be held at any contract manufacturer, warehouse or other
location (other than with bona fide distributors and retail accounts), Borrower
shall provide notice to Bank and Borrower shall have complied with such filing
and notice requirements as shall, in Bank's opinion, assure Borrower's and
Bank's priority in such property over creditors of such contract manufacturer,
warehouseman or operator of such other location, including, without limitation,
making filings under California Commercial Code Section 2326, providing notice
under California Commercial Code Section 9114 and making filings and
publications as required under California Civil Code Section 3440.1 and Section
3440.5 All such filings, notices and publications shall be in form and substance
satisfactory to Bank.
12. Financial Covenants and Information. All financial covenants and
financial information referenced herein shall be interpreted and prepared in
accordance with GAAP as used in the United States of America applied on a basis
6.
<PAGE> 7
consistent with previous years. Compliance with financial covenants shall be
calculated and monitored on a monthly basis, except as shall be expressly stated
to the contrary. Borrower affirmatively covenants that so long as any loans,
obligations or liabilities remain outstanding or unpaid to Bank, it will, on a
consolidated basis:
A. Maintain a minimum tangible net worth (meaning the excess of all
assets, excluding any value for goodwill, trademarks, patents, copyrights,
organization expense and other similar intangible items, over its liabilities,
plus Subordinated Debt) of not less than $5,000,000.00 and beginning with the
quarter ending September 30, 1997 and thereafter, of not less than
$15,000,000.00.
B. Maintain a minimum quick ratio (meaning all cash plus Accounts
divided by current liabilities less deferred revenues) (1) of 0.50 to one
(0.50:1.0) for the quarter ending 3/31/97, (2) of 0.75 to one (0.75:1.0) for the
quarter ending June 30, 1997 and (3) beginning with the quarter ending 9/30/97
and thereafter, of 1.25 to one (1.25:1.0).
C. As soon as it is available, but not later than forty-five (45)
days after and as of the end of each quarter, deliver to Bank a quarterly 10-Q
report, as filed with the Securities Exchange Commission, and a Compliance
Certificate in the form of Exhibit B attached hereto and incorporated herein by
this reference, certified by an officer of Borrower.
D. As soon as it is available, but not later than ninety (90) days
after the end of Borrower's fiscal year, deliver to Bank an annual 10-K report,
as filed with the Securities Exchange Commission.
E. When requesting Facility-A Loans, as soon as it is available, but
not later than twenty (20) days after and as of the end of each month, deliver
to Bank, in such form and detail as Bank may require, statements showing aging
and reconciliation of the Accounts and collections thereon and Borrower's
accounts payable and a Borrowing Base Certificate in the form of Exhibit C
attached hereto and incorporated herein by this reference, certified by an
officer of Borrower.
F. Upon the reasonable request of Bank, deliver to Bank current
budgets, sales projections, operating plans and other financial exhibits and
information in form and substance satisfactory to Bank.
G. Upon any officer becoming aware, deliver immediately to Bank
written notice of any pending or threatened litigation claiming, or reasonably
likely to result in, damages against Borrower in an amount in excess of
$50,000.00.
13. Loan Fee. In addition to any other amounts due, or to become due,
concurrent with the execution hereof, in connection with: (a) the Facility-A
Commitment, Borrower agrees, in lieu of a loan fee (i) to permit Bank to use the
logo of Borrower in a minimum of two (2) of its advertisements and (ii) to
provide Bank with a full size poster of the logo of Borrower, suitable for
framing; (b) the Facility-B Commitment, Borrower agrees to deliver to Bank a
loan fee in the amount of Five Thousand Dollars ($5,000.00) and (c) the
Facility-C Commitment, Borrower agrees to deliver to Bank a loan fee in the
amount of Five Thousand Dollars ($5,000) upon first advance.
14. Banking Relationship. Borrower will maintain its primary banking
accounts with Bank.
15. Default and Remedies. The occurrence of any one or more of the
following shall constitute an "Event of Default": (a) Default be made in the
payment of any obligation by Borrower under any Loan Document; (b) Subject to
clause (a) above, breach be made in any warranty, statement, promise, term or
condition, contained herein or in any other Loan Document and the same shall not
have been cured to the satisfaction of Bank within fifteen (15) days after
Borrower shall have become aware thereof, whether by written notice from Bank,
or otherwise, (except that no cure period shall exist for breaches in respect of
Borrower's obligations under Section 10, Subsections 11A, B, C, F, G, H and I,
Subsections 12A, B, C, D and E of this Loan Agreement, and Sections 1 and 2 of
the General Security Agreement, if applicable; (c) Any statement, warranty or
representation made by Borrower at any time proves false; (d) Borrower defaults
in the repayment of any principal of or the payment of any interest on any
indebtedness exceeding in the aggregate principal amount $50,000.00 or breaches
or violates any term or provision of any promissory note, loan agreement,
mortgage, indenture or
7.
<PAGE> 8
other evidence of such indebtedness pursuant to which amounts outstanding in the
aggregate exceed $50,000.00 if the effect of such breach is to permit the
acceleration of such indebtedness, whether or not waived by the note holder or
obligee, and such failure shall not have been cured to Bank's satisfaction
within fifteen (15) calendar days after Borrower shall become aware thereof,
whether by written notice from Bank or otherwise, or there has in fact been an
acceleration of such indebtedness; (e) Borrower becomes insolvent or makes an
assignment for the benefit of creditors; (f) Any proceeding be commenced by
Borrower under any bankruptcy, reorganization, arrangement, readjustment of debt
or moratorium law or statute or, any such a proceeding is commenced against
Borrower and is not dismissed or stayed within ten (10) days (provided that no
Loans will be made prior to the dismissal of such proceeding); (g) Any money
judgment, writ of attachment, garnishment, execution or other legal process be
entered against Borrower or issued against any material property of Borrower
which is not fully covered by insurance (subject to reasonable deductibles) and
remains unvacated, unbonded, unstayed or unpaid or undischarged for more than
fifteen (15) days (whether or not consecutive) or in any event later than five
(5) days prior to the date of any proposed sale thereunder, or if any assessment
for taxes against Borrower other than real property, is made by the Federal or
State government or any department thereof; or (h) Any change in Borrower's
financial condition, prospects or operations which has a Material Adverse
Effect. Upon the occurrence and during the continuance of an Event of Default,
Bank may, at its option and without demand first made and without notice to
Borrower, do any one or more of the following: (i) Terminate its obligation to
make loans to Borrower as provided in Sections 1, 2 and 3 hereof; (ii) Declare
all sums secured hereby immediately due and payable; (iii) Immediately take
possession of the Collateral wherever it may be found, using all necessary force
so to do, or require Borrower to assemble the Collateral and make it available
to Bank at a place designated by Bank which is reasonably convenient to Borrower
and Bank, and Borrower waives all claims for damages due to or arising from or
connected with any such taking; (iv) Proceed in the foreclosure of Bank's
security interest and sale of the Collateral in any manner permitted by law, or
provided for herein; (v) Sell, lease or otherwise dispose of the Collateral at
public or private sale, with or without having the Collateral at the place of
sale, and upon terms and in such manner as Bank may determine, and Bank may
purchase same at any such sale; (vi) Retain the Collateral in full satisfaction
of the obligations secured thereby; or (vii) Exercise any remedies of a secured
party under the Uniform Commercial Code. Prior to any such disposition, Bank
may, at its option, cause any of the Collateral to be repaired or reconditioned
in such manner and to such extent as Bank may deem advisable, and any sums
expanded therefor by Bank shall be repaid by Borrower and secured hereby. Bank
shall have the right to enforce one or more remedies hereunder successively or
concurrently, and any such action shall not estop or prevent Bank from pursuing,
any further remedy which it may have hereunder or by law. If a sufficient sum is
not realized from any such disposition of the Collateral to pay all obligations
secured by this Loan Agreement, Borrower hereby promises and agrees to pay Bank
any deficiency.
16. Collection of Accounts by Bank. After and during the continuance
of an Event of Default Bank may, without prior notice to Borrower, collect the
Accounts and may give notice of assignment to any and all account debtors, and
Borrower does hereby make, constitute and appoint Bank its irrevocable, true and
lawful attorney with power (a) to receive, open and dispose of all mail
addressed to Borrower, (b) to endorse the name of Borrower upon any checks or
other evidences of payment that may come into the possession of Bank upon the
Accounts, (c) to endorse the name of Borrower upon any document or instrument
relating to the Collateral, in its name or otherwise, (d) to demand, sue for,
collect and give acquittances for any and all moneys due or to become due upon
the Accounts, (e) to compromise, prosecute or defend any action, claim or
proceeding with respect thereto and (f) to do any and all things necessary and
proper to carry out the purpose herein contemplated.
17. Records Retention. Borrower authorizes Bank to destroy all
invoices, delivery receipts, reports and other types of documents and records
submitted to Bank in connection with the transactions contemplated herein at any
time subsequent to four (4) months from the time such items are delivered to
Bank.
18. Confidentiality. Bank shall not disclose to an Person any
information with respect to Borrower or any of its subsidiaries which is
furnished pursuant to this Loan Agreement, except that Bank may disclose any
such information (a) to its own directors, officers, employees, auditors,
counsel and other professional advisors and to its affiliates if Bank in its
sole discretion determines that any such party should have access to such
information; (b) to another bank or lender; (c) if such information is generally
available to the public; (d) if required or appropriate in any report, statement
or testimony submitted to any governmental authority having, or claiming to have
jurisdiction over Bank; (e) if required or appropriate in response to any
summons or subpoena or in connection with any litigation, to the extent
permitted or deemed advisable by counsel; (f) to comply with any requirement or
law applicable to Bank; (g) to the extent necessary in connection with the
8.
<PAGE> 9
exercise of any right or remedy under any Loan Document; (h) to any participant
or assignee of Bank or any prospective participant or assignee, provided that
such participant or assignee or prospective participant or assignee agrees in
writing to be bound by this Section 18 prior to disclosure; or (i) otherwise
with the prior consent of Borrower; provided, however, that any disclosure made
in violation of this Loan Agreement shall not affect the obligations of Borrower
or any of its subsidiaries under this Loan Agreement or the other Loan
Documents.
19. Miscellaneous Provisions.
A. Nothing herein shall in any way limit the effect of the
conditions set forth in any other security or other agreement executed by
Borrower, but each and every condition hereof shall be in addition thereto.
B. No failure or delay on the part of Bank, in the exercise of any
power, right or privilege hereunder shall operate as a waiver thereof, nor shall
any single or partial exercise thereof.
C. All rights and remedies existing under this Loan Agreement or
any other Loan Document are cumulative to, and not exclusive of, any rights or
remedies otherwise available.
D. All headings and captions in this Loan Agreement and any related
documents are for convenience only and shall not have any substantive effect.
E. This Loan Agreement shall be governed by, and construed in
accordance with, the internal laws of the State of California, without regard to
principles of conflicts of law.
F. This Loan Agreement may be executed in any number of
counterparts, each of which when so delivered shall be deemed an original, but
all such counterparts shall constitute but one and the same instrument. Each
such agreement shall become effective upon the execution of a counterpart
hereof or thereof by each of the parties hereto and telephonic notification that
such executed counterparts has been received by Borrower and Bank.
BANK: BORROWER:
IMPERIAL BANK EXCITE,INC.
a California corporation
By: /s/ ERIN HANEY By: /s/ RICHARD B. REDDING
--------------------------- -------------------------------------------
Name: Erin Haney Name: Richard B. Redding
------------------------- -----------------------------------------
Title: Assistant Vice President Title: Vice President Financial Administration
------------------------- ----------------------------------------
LIST OF EXHIBITS AND SCHEDULES
EXHIBIT A: Definitions
SCHEDULE 1 TO EXHIBIT A: List of Specific Permitted Liens
SCHEDULE 2 TO EXHIBIT A: List of Specific Permitted Indebtedness
EXHIBIT B: Compliance Certificate
EXHIBIT C: Borrowing Base Certificate
9.
<PAGE> 10
EXHIBIT A
DEFINITIONS
"Accounts" means any right to payment for goods sold or leased, or to be
sold or to be leased, or for services rendered or to be rendered no matter how
evidenced, including accounts receivable, contract rights, chattel paper,
instruments, purchase orders, notes, drafts, acceptances, general intangibles
and other forms of obligations and receivables.
"Capital Lease" means, as to any Person, any lease of any Property by such
Person as lessee that is, or should be in accordance with Financing Accounting
Standards Board Statement No. 13, classified and accounted for as a "capital
lease" on the balance sheet of such Person prepared in accordance with GAAP.
"Capital Lease Obligation" means, with respect to any Capital Lease, the
amount of the obligation of the lessee thereunder that, in accordance with GAAP,
would appear on a balance sheet of such lessee in respect of such Capital Lease
or otherwise be disclosed in a note to such balance sheet.
"Collateral" means any and all personal property of Borrower which is
assigned or hereafter is assigned to Bank as security or in which Bank now has
or hereafter acquires a security interest hereunder (including, without
limitation, the Accounts), or pursuant to the terms of the General Security
Agreement, the Intellectual Property Security Agreement or otherwise.
"Contingent Obligation" means, as applied to any Person, any direct or
indirect liability, contingent or otherwise, of that Person with respect to any
indebtedness, lease, dividend, letter of credit or other obligation of another,
including, without limitation, any such obligation directly or indirectly
guaranteed, endorsed (otherwise than for collection or deposit in the ordinary
course of business), co-made or discounted or sold with recourse by that Person,
or in respect of which that Person is otherwise directly or indirectly liable,
including, without limitation, any such obligation for which that Person is in
effect liable through any agreement (contingent or otherwise) to purchase,
repurchase or otherwise acquire such obligation or any security therefor, or to
provide funds for the payment or discharge of such obligation (whether in the
form of loans, advances, capital stock purchases, capital contributions or
otherwise), or to maintain the solvency of the obligor of such obligation, or to
make payment for any products, materials or supplies or for any transportation,
services or lease regardless of the non-delivery or non-furnishing thereof, in
any such case if the purpose or intent of such agreement is to provide assurance
that such obligation will be paid or discharged, or that any agreements relating
thereto will be complied with, or that the holders of such obligation will be
protected (in whole or in part) against loss in respect thereof. The amount of
any Contingent Obligation of any Person shall be deemed to be an amount equal to
the maximum amount of such Person's liability with respect to the stated or
determinable amount of the primary obligation for which such Contingent
Obligation is incurred or, if not stated or determinable, the maximum reasonably
anticipated liability in respect thereof (assuming such Person is required to
perform thereunder).
"Eligible Accounts" means such of Borrower's Accounts as Bank in its sole
reasonable discretion shall determine are eligible from time to time; provided,
however, that in no event shall Eligible Accounts include the following:
(1) all Accounts under which payment is not received within the
earlier of (a) 90 days from the applicable invoice date and (b) 60 days
from the applicable payment due date;
(2) all Accounts against which the account debtor or any other Person
obligated to make payment thereon asserts any defense, offset, counterclaim
or other right to avoid or reduce the liability represented by the Account;
(3) any Accounts if the account debtor or any other Person liable in
connection therewith is insolvent, subject to bankruptcy or receivership
proceedings or has made an assignment for the benefit of creditors or whose
credit standing is unacceptable to Bank and Bank has so notified Borrower;
<PAGE> 11
(4) accounts with respect to which the account debtor is an officer,
director, shareholder, employee, subsidiary or affiliate of Borrower;
(5) accounts due from a customer if more than twenty-five percent
(25%) of the aggregate amount of accounts of such customer have at that
time remained unpaid for more than the earlier of (a) ninety (90) days from
the applicable invoice date and (b) sixty (60) days from the applicable
payment due date;
(6) accounts with respect to international transactions unless either
(a) such Accounts are insured or covered by a letter of credit in a manner
and form acceptable to the Bank or (b) Bank shall have otherwise permitted
in writing in its sole and absolute direction;
(7) salesperson's accounts for promotional purposes;
(8) the amount by which any one account exceeds twenty-five percent
(25.0%) of the total accounts receivable balance;
(9) accounts where the account debtor is a seller to borrower, to the
extent that a potential offset exists; and
(10) accounts where the account debtor is a federal governmental
entity, federal agency or instrumentality thereof.
"Event of Default" has the meaning set forth in Section 15.
"Facility-A Maturity Date" has the meaning set forth in Section 1.
"Facility-B, Maturity Date" has the meaning set forth in Section 2.
"Facility-C Maturity Date" has the meaning set forth in Section 3.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other Person as may be approved by the significant segment of the accounting
profession, which are applicable to the circumstances as of the date of
determination.
"General Security Agreement" means that certain General Security Agreement
(Tangible and Intangible Personal Property) dated of even date herewith, made by
Borrower in favor of Bank.
"Indebtedness" means, as to any Person, without duplication, (a) all
indebtedness of such Person for borrowed money, including, without limitation,
all of such indebtedness outstanding under this Loan Agreement and any of the
other Loan Documents, (b) all Capital Lease Obligations of such Person, (c) to
the extent of the outstanding indebtedness thereunder, any obligation of such
Person representing an extension of credit to such Person, whether or not for
borrowed money, (d) any obligation of such Person for the deferred purchase
price of Property or services (other than (i) trade or other accounts payable in
the ordinary course of business in accordance with customary industry terms and
(ii) deferred franchise fees), (e) all Contingent Obligations, (f) any
obligation of such Person of the nature described in clauses (a), (b), (c), (d)
or (e) above, that is secured by a Lien on assets of such Person and which is
non-recourse to the credit of such Person, but only to the extent of the fair
market value of the assets so subject to the Lien, (g) obligations of such
Person arising under acceptance facilities or under facilities for the discount
of accounts receivable of such Person, (h) any obligation of such Person to
reimburse the issuer of any letter of credit issued for the account of such
Person upon which a draw has been made, and (h) any lease having the effect of
indebtedness, whether or not the same shall be treated as such on the balance
sheet of Borrower under GAAP.
<PAGE> 12
"IP Security Agreement" means that certain Collateral Assignment, Patent
Mortgage and Security Agreement dated of even date herewith, made by Borrower in
favor of Bank.
"Lien" means any mortgage, pledge, security interest, lien or other charge
or encumbrance, including the lien or retained security title of a conditional
vendor, upon or with respect to any property or assets.
"Loan Account" means collectively, the Facility-A Loan Account, the
Facility-B Loan Account and the Facility-C Loan Account.
"Loan Documents" means this Loan Agreement, the General Security Agreement,
IP Security Agreement, that certain Agreement to Provide Insurance (Real or
Personal Property) dated of even date herewith, each as executed by Borrower in
favor of Bank, together with all other documents entered into or delivered
pursuant to any of the foregoing.
"Loans" means collectively, the Facility-A Loans, the Facility-B Loans and
the Facility-C Loans advanced pursuant to Sections 1, 2 and 3 hereof.
"Material Adverse Effect" means any set of circumstances or events which
(a) has or could reasonably be expected to have any material adverse effect upon
the validity or enforceability of any material provision of any Loan Document,
(b) is or could reasonably be expected to be material and adverse to the
condition (financial or otherwise) or business operations of Borrower, (c)
materially impairs or could reasonably be expected to materially impair the
ability of Borrower, to perform its material Obligations, (d) materially impairs
or could reasonably be expected to materially impair the value or priority of
Bank's security interest in any Collateral or (e) materially impairs or could
reasonably be expected to materially impair the ability of Bank to enforce any
of its legal remedies pursuant to the Loan Documents.
"Permitted Indebtedness" means the following:
(1) Indebtedness of Borrower or Indebtedness and Contingent
Obligations of any affiliates or subsidiaries of Borrower ("Borrower's
Subsidiaries") in favor of Bank arising under this Loan Agreement and the
other Loan Documents;
(2) The existing Indebtedness and Contingent Obligations disclosed on
Schedule 1 attached hereto and incorporated herein by this reference;
provided that the principal amount thereof is not increased and the terms
thereof are not modified to impose more burdensome terms upon Borrower or
any of Borrower's Subsidiaries;
(3) The Subordinated Debt;
(4) Extensions, renewals or refinancings of Indebtedness permitted
under this Loan Agreement, other than clause (3) immediately above;
(5) accrued dividends on the preferred stock of Borrower;
(6) Indebtedness and Contingent Obligations as permitted under this
Loan Agreement;
(7) Interest rate and currency hedging agreements;
(8) Guaranties of suppliers to Borrower's Subsidiaries in connection
with the purchase of supplies in the ordinary course of business;
(9) Guaranties of lease obligations incurred in the ordinary course
of business and to the extent otherwise permitted hereunder;
(10) Contingent Obligations constituting Permitted Liens; and
<PAGE> 13
(11) the indebtedness referred to in clause (3)(a) of the definition
of Permitted Liens.
"Permitted Liens" means the following:
(1) liens and security interests existing as of this date and
disclosed in Schedule 2 attached hereto and incorporated herein by this
reference;
(2) liens for taxes, fees, assessments or other governmental charges
or levies, either not delinquent or being contested in good faith by
appropriate proceedings;
(3) liens and security interests (a) upon or in any equipment
acquired or held by Borrower to secure the purchase price of such equipment
or indebtedness incurred solely for the purpose of financing the
acquisition of such equipment and in an amount not greater than the
purchase price thereof or (b) existing on such equipment at the time of its
acquisition, provided that the lien and security interest is confined
solely to the property so acquired and improvements thereon, and the
proceeds of such equipment;
(4) liens consisting of leases or subleases and licenses and
sublicenses granted to others in the ordinary course of Borrower's business
not interfering in any material respect with the business of Borrower and
any interest or title of a lessor or licensor under any lease or license,
as applicable;
(5) liens securing claim or demands of materialmen, mechanics,
carriers, warehousemen, landlords and other like persons or entities
imposed without action of such parties, provided that the payment thereof
is not yet required;
(6) liens incurred or deposits made in the ordinary course of
Borrower's business in connection with worker's compensation, unemployment
insurance, social security and other like laws;
(7) liens arising from judgments, decrees or attachments in
circumstances not constituting an Event of Default;
(8) easements, reservations, rights-of-way, restrictions, minor
defects or irregularities in title and other similar charges or
encumbrances affecting real property not interfering in any material
respect with the ordinary conduct of Borrower's business;
(9) liens in favor of customs and revenue authorities arising as a
matter of law to secure payment of customs duties in connection with the
importation of goods;
(10) liens that are not prior to Bank's security interest which
constitute rights of set-off of a customary nature;
(11) any interest or title of a lessor in equipment subject to any
Capitalized Lease otherwise permitted hereunder; and
(12) any liens arising from the filing of any financing statements
relating to true leases otherwise permitted hereunder.
"Person" means any individual, sole proprietorship, partnership, joint
venture, trust, unincorporated organization, association, corporation, limited
liability company, institution, public benefit corporation, firm, joint stock
company, estate, entity or governmental agency.
"Property" means any interest in any kind of property or asset, whether
real, personal or mixed, whether tangible or intangible.
<PAGE> 14
"Subordinated Debt" means indebtedness of Borrower, the payment of which is
fully subordinated in time and right of payment to the Loans, and has been
approved in Bank's sole and absolute discretion and in writing.
<PAGE> 1
Exhibit 10.30
COLLATERAL ASSIGNMENT, PATENT MORTGAGE AND SECURITY AGREEMENT
THIS COLLATERAL ASSIGNMENT, PATENT MORTGAGE AND SECURITY AGREEMENT
("Assignment") is made as of March 27, 1997, by and between EXCITE, INC., a
California corporation ("Assignor"), and IMPERIAL BANK ("Assignee").
RECITALS
A. Assignee has agreed to lend to Assignor certain funds (the "Loan"),
and Assignor desires to borrow such funds from Assignee pursuant to the terms of
a Security and Loan Agreement dated of even date herewith (the "Loan
Agreement").
B. In order to induce Assignee to make the Loan, Assignor has agreed to
assign certain intangible property to Assignee for purposes of securing the
obligations of Assignor to Assignee.
NOW, THEREFORE, the parties hereto agree as follows:
1. ASSIGNMENT, PATENT MORTGAGE AND GRANT OF SECURITY INTEREST. As
collateral security for the prompt and complete payment and performance of all
of Assignor's present or future indebtedness, obligations and liabilities to
Assignee under the Loan Agreement and the documents executed in connection
therewith, Assignor hereby assigns, transfers, conveys and grants a security
interest and mortgage to Assignee, as security, in and to Assignor's entire
right, title and interest in, to and under the following (all of which shall
collectively be called the "Collateral"):
(a) Any and all copyright rights, copyright applications, copyright
registrations and like protections in each work or authorship and derivative
work thereof, whether published or unpublished and whether or not the same also
constitutes a trade secret, now or hereafter existing, created, acquired or
held, including, without limitation, those set forth on EXHIBIT A attached
hereto and incorporated herein by this reference (collectively, the
"Copyrights").
(b) Any and all trade secrets, and any and all intellectual property
rights in computer software and computer software products nor or hereafter
existing, created, acquired or held;
(c) Any and all design rights which may be available to Assignor now
or hereafter existing, created, acquired or held;
(d) All patents, patent applications and like protections including,
without limitation, improvements, divisions, continuations, renewals, reissues,
extensions and continuations-in-part of the same, including, without limitation,
those set forth on EXHIBIT B attached hereto and incorporated herein by this
reference (collectively, the "Patents");
(e) Any trademark and servicemark rights, whether registered or not,
applications to register and registrations of the same and like protections, and
the entire goodwill of the business of Assignor connected with and symbolized by
such trademarks, including, without limitation, those set forth on EXHIBIT C
attached hereto and incorporated herein by this reference (collectively, the
"Trademarks");
(f) Any and all claims for damages by way of past, present and
future infringement of any of the rights included above, with the right, but not
the obligation, to sue for and collect such damages for said use or infringement
of the intellectual property rights identified above;
(g) All licenses or other rights to use any of the Copyrights,
Patents or Trademarks, and all license fees and royalties arising from such use
to the extent permitted by such license or rights;
(h) All amendments, renewals and extensions of any of the
Copyrights, Patents or Trademarks; and
(i) All proceeds and products of the foregoing, including, without
limitation, all payments under insurance or any indemnity or warranty payable in
respect of any of the foregoing.
THE INTEREST IN THE COLLATERAL BEING ASSIGNED HEREUNDER SHALL NOT BE
1.
<PAGE> 2
CONSTRUED AS A CURRENT ASSIGNMENT, BUT AS A CONTINGENT ASSIGNMENT TO SECURE
ASSIGNOR'S OBLIGATIONS TO ASSIGNEE UNDER THE LOAN AGREEMENT.
2. AUTHORIZATION AND REQUEST. Assignor authorizes and requests that the
Register of Copyrights and the Commissioner of Patents and Trademarks record
this conditional assignment.
3. COVENANTS AND WARRANTIES. Assignor represents, warrants, covenants
and agrees as follows:
(a) Assignor is now the sole owner of the Collateral, except for
non-exclusive licenses granted by Assignor to its customers in the ordinary
course of business;
(b) Performance of this Assignment does not conflict with or result
in a breach of any agreement to which Assignor is party or by which Assignor is
bound, except to the extent that certain intellectual property agreements
prohibit the assignment of the rights thereunder to a third party without the
licensor's or other party's consent and this Assignment constitutes as
assignment;
(c) During the term of this Assignment, Assignor will not transfer
or otherwise encumber any interest in the Collateral, except for (i)
non-exclusive licenses granted by Assignor in the ordinary course of business or
as set forth in this Assignment and (ii) subject to Assignor's execution of
appropriate documents, in form acceptable to Assignee, to perfect or continue
the perfection of Assignee's interest in the Collateral, transfers to affiliates
of Assignor;
(d) To its knowledge, each of the Patents is valid and enforceable,
and no part of the Collateral has been judged invalid or unenforceable, in whole
or in part, and no claim has been made that any part of the Collateral violates
the rights of any third party;
(e) Assignor shall promptly advise Assignee of any material changes
in the composition of the Collateral, including but not limited to any
subsequent ownership right of Assignor in or to any Copyright, Patent or
Trademark not specified in this Assignment;
(f) Assignor shall (i) protect, defend and maintain the validity and
enforceability of the Copyrights, Patents and Trademarks, (ii) use its best
efforts to detect infringements of the Copyrights, Patents and Trademarks and
promptly advise Assignee in writing of material infringements detected and (iii)
not allow any Copyrights, Patents or Trademarks to be abandoned, forfeited or
dedicated to the public without the written consent of Assignee, which shall not
be unreasonably withheld, unless Assignor determines that reasonable business
practices suggest that abandonment is appropriate;
(g) Assignor shall promptly register the most recent version of
Assignor's material Copyrights, if not so already registered, as Assignee may
reasonably request from time to time based on its review of the Quarterly Report
(as hereinafter defined) and shall, from time to time, execute and file such
other instruments, and take such further actions as Assignee may reasonably
request from time to time to perfect or continue the perfection of Assignee's
interest in the Collateral;
(h) This Assignment creates, and in the case of after acquired
Collateral, this Assignment will create at the time Assignor first has rights in
such after acquired Collateral, in favor of Assignee a valid and perfected first
priority security interest in the Collateral in the United States securing the
payment and performance of the obligations evidenced by the Loan Agreement upon
making the filings referred to in SECTION 3(i) below, subject only to Permitted
Liens (as defined in the Loan Agreement);
(i) To its knowledge, except for, and upon, the filing with the
United States Patent and Trademark office with respect to the Patents and
Trademarks and the Register of Copyrights with respect to the Copyrights
necessary to perfect the security interests and assignment created hereunder,
and except as has been already made or obtained, no authorization, approval or
other action by, and no notice to or filing with, any United States governmental
authority or United States regulatory body is required either (i) for the grant
by Assignor of the security interest granted hereby or for the execution,
delivery or performance of this Assignment by Assignor in the United States or
(ii) for the perfection in the United States or the exercise by Assignee of its
rights and remedies hereunder;
(j) All information heretofore, herein or hereafter supplied to
Assignee by or on behalf of Assignor with respect to the Collateral is accurate
and complete in all material respects;
2.
<PAGE> 3
(k) Assignor shall not enter into any agreement that would
materially impair or conflict with Assignor's obligations hereunder without
Assignee's prior written consent, which consent shall not be unreasonably
withheld. Assignor shall not permit the inclusion in any material contract to
which it becomes a party of any provisions that could or might in any way
prevent the creation of a security interest in Assignor's rights and interests
in any property included within the definition of the Collateral acquired under
such contracts, except that certain contracts may contain anti-assignment
provisions that could in effect prohibit the creation of a security interest in
such contracts; and
(l) Upon any executive officer of Assignor obtaining actual
knowledge thereof, Assignor will promptly notify Assignee in writing of any
event that materially adversely affects the value of any Collateral, the ability
of Assignor to dispose of any Collateral or the rights and remedies of Assignee
in relation thereto, including the levy of any legal process against any of the
Collateral.
4. ASSIGNEE'S RIGHTS. Assignee shall have the right, but not the
obligation, to take, at Assignor's sole expense, any actions that Assignor is
required under this Assignment to take but which Assignor fails to take, after
fifteen (15) days' notice to Assignor. Assignor shall reimburse and indemnify
Assignee for all reasonable costs and reasonable expenses incurred in the
reasonable exercise of its rights under this SECTION 4.
5. INSPECTION RIGHTS. Assignor hereby grants to Assignee and its
employees, representatives and agents the right to visit, during reasonable
hours upon prior reasonable written notice to Assignor, any of Assignor's plants
and facilities that manufacture, install or store products (or that have done so
during the prior six-month period) that are sold utilizing any of the
Collateral, and to inspect the products and quality control records relating
thereto upon reasonable written notice to Assignor and as often as may be
reasonably requested.
6. FURTHER ASSURANCES; ATTORNEY IN FACT.
(a) On a quarterly basis, Assignor agrees to deliver to Assignee a
report, in form acceptable to Assignee and certified by an officer of Assignor,
which lists all Copyrights, Patents and Trademarks that are material to the
operation of Assignor's business on an on-going basis, and in which Assignee
does not already have a perfected security interest (the "Quarterly Report");
provided, however, Assignor may provide a general description of the Copyrights
by type. Based upon review of the Quarterly Report, Assignee shall, in its
reasonable discretion, identify which Copyrights, Patents and Trademarks it
deems material to the operation of Assignor's business on an on-going basis or
the value of the Collateral.
(b) On a continuing basis, Assignor will make, execute, acknowledge
and deliver, and file and record in the proper filing and recording places in
the United States, all such instruments, including appropriate financing and
continuation statements and collateral agreements and filings with the United
States Patent and Trademark Office and the Register of Copyrights, and take all
such action as may reasonably be deemed necessary or advisable, or as reasonably
requested by Assignee, to perfect Assignee's security interest in all
Copyrights, Patents and Trademarks, which Assignee reasonably identifies
pursuant to SECTION 6(A) above as material to the operation of Assignor's
business on an on-going basis or the value of the Collateral, and otherwise to
carry out the intent and purposes of this Assignment, or for assuring and
confirming to Assignee the grant or perfection of a security interest in all
Collateral.
(c) Assignor hereby irrevocably appoints Assignee as Assignor's
attorney-in-fact, with full authority in the place and stead of Assignor and in
the name of Assignor, from time to time in Assignee's discretion, to take any
action and to execute any instrument which Assignee may reasonably deem
necessary or advisable to accomplish the purposes of this Assignment, including
(i) to modify, in its reasonable discretion, this Assignment without first
obtaining Assignor's approval of or signature to such modification by amending
Exhibit A, Exhibit B and Exhibit C thereof, as appropriate, to include reference
to any material right, title or interest in any Copyrights, Patents or
Trademarks acquired by Assignor after the execution hereof or to delete any
reference to any right, title or interest in any Copyrights, Patents or
Trademarks in which Assignor no longer has or claims any right, title or
interest, (ii) to file, in its reasonable discretion, one or more financing or
continuation statements and amendments thereto, relative to any of the
Collateral without the signature of Assignor where permitted by law and (iii)
after the occurrence and during the continuance of an Event of Default, to
transfer the Collateral into the name of Assignee or a third party to the extent
permitted under the California Uniform Commercial Code.
7. EVENTS OF DEFAULT. The occurrence of any of the following shall
constitute an "Event of Default" under this Assignment:
(a) An Event of Default occurs under the Loan Agreement; or
3.
<PAGE> 4
(b) Assignor breaches any warranty or agreement in any material
respect made by Assignor in this Assignment and, as to any breach that is
capable of cure, Assignor fails to cure such breach within five (5) days of the
occurrence of such breach if notice thereof has been given to Assignor; or
(c) Assignor fails to provide to Bank within seven (7) days of the
date of this Assignment (i) a true, complete and accurate description of all
Copyrights, Patents and Trademarks to be listed on Exhibits A, B and C hereto,
in accordance with SECTIONS 1(a), 1(d) and 1(e) hereof (ii) a Corporate Borrower
Profile for Intellectual Property Security Agreements, in form satisfactory to
Bank, which has been previously delivered to Assignor prior to the date hereof.
8. REMEDIES. Upon the occurrence and during the continuance of an
Event of Default, Assignee shall have the right to exercise all the remedies of
a secured party under the California Uniform Commercial Code, including, without
limitation, the right to require Assignor to assemble the Collateral and any
tangible property in which Assignee has a security interest and to make it
available to Assignee at a place designated by Assignee. Assignee shall have a
nonexclusive, royalty free license to use the Copyrights, Patents and Trademarks
to the extent reasonably necessary to permit Assignee to exercise its rights and
remedies upon the occurrence and during the continuance of an Event of Default.
Assignor will pay any expenses (including reasonable attorneys' fees) incurred
by Assignee in connection with the exercise of any of Assignee's rights
hereunder, including, without limitation, any expense incurred in disposing of
the Collateral. All of Assignee's rights and remedies with respect to the
Collateral shall be cumulative.
9. INDEMNITY. Assignor agrees to defend, indemnify and hold harmless
Assignee and its officers, employees, and agents against: (a) all obligations,
demands, claims, and liabilities claimed or asserted by any other party in
connection with the transactions contemplated by this Assignment and (b) all
losses or expenses in any way suffered, incurred, or paid by Assignee as a
result of or in any way arising out of, following or consequential to
transactions between Assignee and Assignor, whether under this Assignment or
otherwise (including, without limitation, reasonable attorneys' fees and
reasonable expenses), except for losses arising from or out of Assignee's gross
negligence or willful misconduct.
10. REASSIGNMENT. At such time as Assignor shall completely satisfy all
of the obligations secured hereunder, Assignee shall execute and deliver to
Assignor all deeds, assignments and other instruments as may be necessary or
proper to revest in Assignor full title to the property assigned hereunder,
subject to any disposition thereof which may have been made by Assignee pursuant
hereto.
11. NO FAILURE OR DELAY. No failure or delay on the part of Assignee,
in the exercise of any power, right or privilege hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise thereof.
12. ATTORNEYS' FEES. If any action relating to this Assignment is
brought by either party hereto against the other party, the prevailing party
shall be entitled to recover reasonable attorneys' fees, costs and
disbursements.
13. AMENDMENTS. This Assignment may be amended only by a written
instrument signed by both parties hereto.
14. COUNTERPARTS. This Assignment may be executed in any number of
counterparts, each of which when so delivered shall be deemed an original, but
all such counterparts shall constitute but one and the same instrument. Each
such Assignment shall become effective upon the execution of a counterpart
hereof or thereof by each of the parties hereto and telephonic notification that
such executed counterparts has been received by Assignor and Assignee.
15. CALIFORNIA LAW AND JURISDICTION; JURY WAIVER. This Assignment shall
be governed by, and construed in accordance with, the internal laws of the State
of California, without regard to principles of conflicts of law. Assignor and
Assignee consent to the exclusive jurisdiction of any state or federal court
located in Santa Clara County, California. ASSIGNOR AND ASSIGNEE EACH WAIVE
THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED
UPON OR ARISING OUT OF THE LOAN AGREEMENT, THIS ASSIGNMENT, OR ANY OF THE
TRANSACTIONS CONTEMPLATED HEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH
OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS.
16. CONFLICT. In the event of a conflict between any term and/or
provision contained in this Assignment with any term and/or provision contained
in the General Security Agreement (as defined in the Loan
4.
<PAGE> 5
Agreement), the term and/or provision of this Assignment shall govern.
IN WITNESS WHEREOF, the parties hereto have executed this Assignment on
the day and year first above written.
<TABLE>
<S> <C>
ASSIGNOR ASSIGNEE
EXCITE, INC. IMPERIAL BANK
a California corporation
By: /s/ RICHARD B. REDDING By: /s/ ERIN HANEY
--------------------------------------------- ---------------------------------------------
Printed Name: Richard B. Redding Printed Name: Erin Haney
----------------------------------- -----------------------------------
Title: Vice President, Finance & Administration Title: Assistant Vice President
------------------------------------------ ------------------------------------------
Address of Assignor Address of Assignee
1091 Shoreline Blvd. 2460 Sand Hill Road, Suite 102
Mountain View, California 94043 Menlo Park, California 94025
Attention: Rick Redding Attention: Erin Haney
</TABLE>
5.
<PAGE> 1
EXHIBIT 10.31
EXCITE, INC.
FORM OF STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT (this "Agreement") is made and entered
into as of ___, 1997 by and between EXCITE, INC., a California corporation
(the "Company") and __________, a _________________ (the "Investor").
W I T N E S S E T H:
WHEREAS, the Company desires to sell to Investor, and Investor desires
to purchase from the Company, shares of the Company's Common Stock on the terms
and conditions set forth in this Agreement;
NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:
1. AGREEMENT TO PURCHASE AND SELL STOCK. The Company agrees to sell to
Investor at the Closing, and Investor agrees to purchase from the Company at the
Closing, _________ shares of Common Stock at a price of $_______ per share. The
shares of Common Stock purchased and sold pursuant to this Agreement will be
collectively hereinafter referred to as the "Purchased Shares."
2. CLOSING.
2.1 The Closing. The purchase and sale of the Purchased Shares
will take place at the offices of Fenwick & West LLP, Two Palo Alto Square,
Suite 800, Palo Alto, California, at ____ a.m. Pacific Daylight Time, on _____,
1997 or at such other time and place as the Company and Investor mutually agree
upon (which time and place are referred to in this Agreement as the "Closing").
At the Closing, the Company will deliver to Investor a certificate representing
the number of Purchased Shares that Investor has agreed to purchase hereunder
against delivery to the Company by Investor of the full purchase price of such
Purchased Shares, paid by (i) a check payable to the Company's order, (ii) wire
transfer of funds to the Company, or (iii) any combination of the foregoing.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to Investor that the statements in the following
paragraphs of this Section 3 are all true and correct:
3.1 Organization, Good Standing and Qualification. The Company
is a corporation duly organized, validly existing and in good standing under the
laws of the State of California. The Company is qualified to do business as a
foreign corporation in each jurisdiction where failure to be so qualified would
have a material adverse effect on its financial condition, business, prospects
or operations.
3.2 Capitalization. Immediately prior to the Closing the
capitalization of the Company will consist of the following:
<PAGE> 2
(a) Preferred Stock. A total of 4,000,000 authorized
shares of Preferred Stock, no par value per share (the "Preferred Stock"),
consisting of 1,250,000, 700,000, 650,000 and 680,330 shares designated as
Series E-1 Preferred Stock, Series E-2 Preferred Stock, Series E-3 Preferred
Stock and Series E-4 Preferred Stock, respectively (collectively, the "Series E
Stock"), of which 1,250,000 and 700,000 shares of Series E-1 Preferred Stock and
Series E-2 Preferred Stock, respectively, were issued and outstanding. The
rights, preferences and privileges of the Series E Stock are as stated in the
Company's Amended and Restated Articles of Incorporation (the "Restated
Articles") and as provided by law.
(b) Common Stock. A total of 25,000,000 authorized
shares of Common Stock, no par value per share (the "Common Stock"), of which
shares will be issued and outstanding.
(c) Options, Warrants, Reserved Shares. Except for:
(i) the conversion privileges of the Series E Stock, (ii) the ________ shares of
Common Stock issuable upon exercise of options outstanding as of _________,
1997, (iii) 297,500 shares of Common Stock reserved for issuance under the
Company's 1996 Directors Stock Option Plan and 1996 Employee Stock Purchase
Plan, (iv) ________ shares of Common Stock reserved for future grants or sale
under the Company's 1996 Equity Incentive Plan, (v) 680,330 shares of Series E-4
Preferred Stock issuable to America Online, Inc. upon exercise of an exchange
right, (vi) warrants to purchase an aggregate of 650,000 shares of Series E-3
Preferred Stock and 9,451 shares of Common Stock, there are not outstanding any
options, warrants, rights (including conversion or preemptive rights) or
agreements for the purchase or acquisition from the Company of any shares of its
capital stock or any securities convertible into or ultimately exchangeable or
exercisable for any shares of the Company's capital stock.
3.3 Subsidiaries. Other then The McKinley Group, Inc., a
Delaware corporation, and Excite U.K. Limited, a United Kingdom corporation (the
"Subsidiaries"), the Company does not presently own or control, directly or
indirectly, any interest in any other corporation, partnership, trust, joint
venture, association, or other entity.
3.4 Due Authorization; No Violation. All corporate action on the
part of the Company and its officers, directors and shareholders necessary for
the authorization, execution and delivery of, and the performance of all
obligations of the Company under, this Agreement, and the authorization,
issuance, reservation for issuance and delivery of all of the Purchased Shares
being sold under this Agreement, has been taken or will be taken prior to the
Closing, and this Agreement constitutes a valid and legally binding obligation
of the Company, enforceable in accordance with its terms, except as may be
limited by (i) applicable bankruptcy, insolvency, reorganization or others laws
of general application relating to or affecting the enforcement of creditors'
rights generally and (ii) the effect of rules of law governing the availability
of equitable remedies. Neither the execution, delivery or performance by the
Company of this Agreement nor the consummation by the Company of the
transactions contemplated hereby will (i) conflict with or result in a breach of
any provision of the Restated Articles or the Company's Bylaws, (ii) cause a
default (or give rise to any right of termination, cancellation or acceleration)
under any of the terms, conditions or provisions of any agreement, instrument or
obligation to which the Company is a party, or (iii) violate any law, statute,
rule or regulation or judgment, order, writ, injunction
2
<PAGE> 3
or decree of any governmental authority, in each case applicable to the Company
or its properties or assets.
3.5 Valid Issuance of Stock. The Purchased Shares, when issued,
sold and delivered in accordance with the terms of this Agreement for the
consideration provided for herein, will be duly and validly issued, fully paid
and nonassessable.
3.6 Registration Statement.
(a) A registration statement on Form S-1 (File No.
333-22669) with respect to the Purchased Shares (the "Registration Statement"),
including a prospectus (the "Prospectus") subject to completion, has been
prepared by the Company in conformity with the requirements of the Securities
Act of 1933, as amended (the "Act"), and the applicable rules and regulations
(the "Rules and Regulations") of the Securities and Exchange Commission (the
"Commission") under the Act and has been filed with the Commission;
(b) No order preventing or suspending the use of the
Registration Statement has been issued. The Registration Statement does not
include any untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading at the time the Registration
Statement becomes effective and at all times subsequent thereto up to and on the
Closing; provided, however, that none of the representations and warranties
contained in this subparagraph (b) shall apply to information contained in or
omitted from the Registration Statement or Prospectus, or any amendment or
supplement thereto, in reliance upon, and in conformity with, written
information relating to the Investor furnished to the Company by the Investor
specifically for use in the preparation thereof. The Registration Statement and
the Prospectus, and any amendments or supplements thereto, have contained and
will continue to contain all material information required to be included
therein by the Act and the Rules and Regulations and will in all material
respects conform to the requirements of the Act and the Rules and Regulations.
3.7 Governmental Consents. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state or local governmental authority on the part of
the Company is required in connection with the consummation of the transactions
contemplated by this Agreement, except for qualifications or filings under the
Act and the Rules and Regulations and all other applicable securities laws as
may be required in connection with the transactions contemplated by this
Agreement. All such qualifications will be effective on the Closing, and all
such filings be made within the time prescribed by law.
3.8 Absence of Changes. Subsequent to the respective dates as of
which information is given in the Registration Statement and Prospectus, there
has not been (i) any material adverse change in the condition (financial or
otherwise), earnings, operations, business or business prospects of the Company
and its Subsidiaries taken as a whole, (ii) any transaction that is material to
3
<PAGE> 4
the Company and its Subsidiaries taken as a whole, except transactions entered
into in the ordinary course of business, (iii) any obligation, direct or
contingent, that is material to the Company and its Subsidiaries taken as a
whole incurred by the Company, except obligations incurred in the ordinary
course of business, (iv) any change in the capital stock or outstanding
indebtedness of the Company that is material to the Company and its Subsidiaries
taken as a whole, (v) any dividend or distribution of any kind declared, paid or
made on the capital stock of the Company, or (vi) any loss or damage (whether or
not insured) to the property of the Company which has been sustained or will
have been sustained which has a material adverse effect on the condition
(financial or otherwise), earnings, operations, business or business prospects
of the Company and its Subsidiaries taken as a whole.
3.9 Litigation. There is no action, suit, proceeding, claim,
arbitration or investigation ("Action") pending (or, to the best of the
Company's knowledge, currently threatened) against the Company, its activities,
properties or assets or, to the best of the Company's knowledge, against any
officer, director or employee of the Company in connection with such officer's,
director's or employee's relationship with, or actions taken on behalf of, the
Company which (i) might prevent the consummation of the transactions
contemplated hereby or (ii) is required to be disclosed in the Registration
Statement or Prospectus and is not so disclosed.
3.10 Agreements. There are no agreements, contracts, leases or
documents of the Company of a character required to be described or referred to
in the Registration Statement or Prospectus or to be filed as an exhibit to the
Registration Statement by the Act or the Rules and Regulations which have not
been accurately described in all material respects in the Registration Statement
or Prospectus or filed as exhibits to the Registration Statement.
3.11 Nasdaq Listing. The Common Stock is registered pursuant to
Section 12(g) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") and is listed on the Nasdaq National Market. The Company has taken no
action designed to cause, or likely to result in, the termination of the
registration of the Common Stock under the Exchange Act or the delisting of the
Common Stock from the Nasdaq National Market, nor has the Company received any
notification that the Commission or the National Association of Securities
Dealers, Inc. is contemplating the termination of such registration or listing.
3.12 Exchange Act Filings. The Company has filed in a timely
manner all reports and other information required to be filed with the
Commission pursuant to the Exchange Act during the twelve calendar months and
any portion of a month immediately preceding the filing of the Registration
Statement.
3.13 Hart-Scott-Rodino Act. The Company shall, if required under
the HSR Act (as defined below), promptly file any Notification and Report Forms
and related material that it may be required to file with the Federal Trade
Commission and the Antitrust Division of the United States Department of Justice
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act"),
shall use its best efforts to obtain an early termination of the applicable
waiting period, and shall make any further filings or information submissions
pursuant thereto that may be necessary, proper or advisable.
4. REPRESENTATIONS, WARRANTIES AND CERTAIN AGREEMENTS OF INVESTOR.
Investor hereby represents and warrants to, and agrees with, the Company, that:
4
<PAGE> 5
4.1 Authorization. All ___________ action on the part of
Investor and its ____________________ necessary for the authorization, execution
and delivery of, and the performance of all obligations of Investor under, this
Agreement has been taken or will be taken prior to the Closing, and this
Agreement constitutes a valid and legally binding obligation of Investor,
enforceable in accordance with its terms, except as may be limited by (i)
applicable bankruptcy, insolvency, reorganization or others laws of general
application relating to or affecting the enforcement of creditors' rights
generally and (ii) the effect of rules of law governing the availability of
equitable remedies.
4.2 Purchase for Own Account. The Purchased Shares to be
purchased by Investor hereunder will be acquired for investment for Investor's
own account, not as a nominee or agent, and not with a view to the public resale
or distribution thereof within the meaning of the Act, and Investor has no
present intention of selling, granting any participation in, or otherwise
distributing the same.
4.3 Disclosure of Information. Investor has received a copy of
the Registration Statement and has received or has had full access to all the
information it considers necessary or appropriate to make an informed investment
decision with respect to the Purchased Shares to be purchased by Investor under
this Agreement. Investor further has had an opportunity to ask questions and
receive answers from the Company regarding the terms and conditions of the
offering of the Purchased Shares and to obtain additional information (to the
extent the Company possessed such information or could acquire it without
unreasonable effort or expense) necessary to verify any information furnished to
Investor or to which Investor had access. The foregoing, however, does not in
any way limit or modify the representations and warranties made by the Company
in Section 3.
4.4 Hart-Scott-Rodino Act. Investor shall, if required under the
HSR Act, promptly file any Notification and Report Forms and related material
that it may be required to file with the Federal Trade Commission and the
Antitrust Division of the United States Department of Justice under the HSR Act,
shall use its best efforts to obtain an early termination of the applicable
waiting period, and shall make any further filings or information submissions
pursuant thereto that may be necessary, proper or advisable.
5. CONDITIONS TO INVESTOR'S OBLIGATIONS AT CLOSING. The obligations of
Investor under Section 2 of this Agreement are subject to the fulfillment or
waiver, on or before the Closing, of each of the following conditions.
5.1 Representations and Warranties True. Each of the
representations and warranties of the Company contained in Section 3 shall be
true and correct on and as of the Closing with the same effect as though such
representations and warranties had been made on and as of the date of the
Closing.
5.2 Performance. The Company shall have performed and complied
with all agreements, obligations and conditions contained in this Agreement that
are required to be performed or complied with by it on or before the Closing and
shall have obtained all approvals, consents and qualifications necessary to
complete the purchase and sale described herein.
5
<PAGE> 6
5.3 Compliance Certificate. The Company shall have delivered to
Investor at the Closing a certificate signed on its behalf by its President,
Chief Executive Officer, or Chief Financial Officer certifying that the
conditions specified in Sections 5.1 and 5.2 have been fulfilled and stating
that there shall have been no material adverse change in the business, affairs,
prospects, operations, properties, assets or condition of the Company not
previously disclosed to Investor in writing.
5.4 Registration; Securities Exemptions. The offer and sale of
the Purchased Shares to Investor pursuant to this Agreement shall be registered
under the 1933 Act and no stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for that
purpose shall have been instituted or are pending or threatened, and shall be
exempt from the qualification requirements of the California Corporate
Securities Law of 1968, as amended, and the rules thereunder (the "Law") and the
registration and/or qualification requirements of all other applicable state
securities laws.
5.5 Proceedings and Documents. All corporate and other
proceedings in connection with the transactions contemplated at the Closing and
all documents incident thereto shall be reasonably satisfactory in form and
substance to Investor and to Investor's special counsel, and they shall each
have received all such counterpart originals and certified or other copies of
such documents as they may reasonably request. Such documents shall include (but
not be limited to) the following:
(a) Certified Charter Documents. A copy of the
Restated Articles and the Bylaws of the Company (as amended through the date of
the Closing), certified by the Secretary of the Company as true and correct
copies thereof as of the Closing.
(b) Corporate Actions. A copy of the resolutions of
the Board of Directors evidencing the approval of this Agreement, the issuance
of the Purchased Shares and the other matters contemplated hereby.
5.6 No Material Change. There shall have been no material
adverse change in the business, affairs, prospects, operations, properties,
assets or condition of the Company.
5.7 Hart-Scott-Rodino Act. All applicable waiting periods (and
all extensions thereof) under the HSR Act shall have expired or otherwise been
terminated.
6. CONDITIONS TO THE COMPANY'S OBLIGATIONS AT CLOSING. The obligations
of the Company to Investor under this Agreement are subject to the fulfillment
or waiver on or before the Closing of each of the following conditions by
Investor:
6.1 Representations and Warranties. The representations and
warranties of Investor contained in Section 4 shall be true and correct on the
date of the Closing with the same effect as though such representations and
warranties had been made on and as of the Closing.
6.2 Payment of Purchase Price. Investor shall have delivered to
the Company the purchase price specified for Investor in Section 1 hereof in
accordance with the provisions of Section 2.
6
<PAGE> 7
6.3 Registration; Securities Exemptions. The offer and sale of
the Purchased Shares to Investor pursuant to this Agreement shall be registered
under the 1933 Act and no stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for that
purpose shall have been instituted or are pending or threatened, and shall be
exempt from the qualification requirements of the Law and the registration
and/or qualification requirements of all other applicable state securities laws.
6.4 Proceedings and Documents. All corporate and other
proceedings in connection with the transactions contemplated at the Closing and
all documents incident thereto shall be reasonably satisfactory in form and
substance to the Company and to the Company's legal counsel, and the Company
shall have received all such counterpart originals and certified or other copies
of such documents as it may reasonably request.
6.5 Hart-Scott-Rodino Act. All applicable waiting periods (and
all extensions thereof) under the HSR Act shall have expired or otherwise been
terminated.
7. MISCELLANEOUS.
7.1 Survival of Warranties. The representations, warranties and
covenants of the Company and Investor contained in or made pursuant to this
Agreement shall survive the execution and delivery of this Agreement and the
Closing and shall in no way be affected by any investigation of the subject
matter thereof made by or on behalf of Investor, its counsel or the Company, as
the case may be.
7.2 Successors and Assigns. The terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties.
7.3 Governing Law. This Agreement shall be governed by and
construed under the internal laws of the State of California as applied to
agreements among California residents entered into and to be performed entirely
within California, without reference to principles of conflict of laws or choice
of laws.
7.4 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
7.5 Headings. The headings and captions used in this Agreement
are used for convenience only and are not to be considered in construing or
interpreting this Agreement. All references in this Agreement to sections,
paragraphs, exhibits and schedules shall, unless otherwise provided, refer to
sections and paragraphs hereof and exhibits and schedules attached hereto, all
of which exhibits and schedules are incorporated herein by this reference.
7.6 Notices. Unless otherwise provided, any notice required or
permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon personal delivery to the party to be notified or upon
deposit with the United States Post Office, by registered or certified mail,
postage prepaid and addressed to the party to be notified in the case of the
Company, at 555 Broadway, Redwood City, California 94063 with a copy to Mark C.
7
<PAGE> 8
Stevens, Fenwick & West LLP, Two Palo Alto Square, Palo Alto, California 94306,
or in the case of Investor, at _________________________ with a copy to:
___________ or at such other address as any party may designate by giving ten
(10) days advance written notice to the other party.
7.7 No Finder's Fees. Each party represents that it neither is
nor will be obligated for any finder's or broker's fee or commission in
connection with this transaction. Investor agrees to indemnify and
to hold harmless the Company from any liability for any commission or
compensation in the nature of a finders' or broker's fee (and any asserted
liability) for which Investor or any of its officers, partners, employees, or
representatives is responsible. The Company agrees to indemnify and hold
harmless Investor from any liability for any commission or compensation in the
nature of a finder's or broker's fee (and any asserted liability) for which the
Company or any of its officers, employees or representatives is responsible.
7.8 Costs, Expenses. Each party shall pay its own costs in
connection with the preparation, execution and delivery of this Agreement.
7.9 Amendments and Waivers. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and Investor. Any
amendment or waiver effected in accordance with this Section shall be binding
upon each holder of any Purchased Shares at the time outstanding, each future
holder of such securities, and the Company.
7.10 Severability. If one or more provisions of this Agreement
are held to be unenforceable under applicable law, such provision(s) shall be
excluded from this Agreement and the balance of the Agreement shall be
interpreted as if such provision(s) were so excluded and shall be enforceable in
accordance with its terms.
7.11 Entire Agreement. This Agreement, together with any
exhibits or schedules hereto, constitutes the entire agreement and understanding
of the parties with respect to the subject matter hereof and supersedes any and
all prior negotiations, correspondence, agreements, understandings duties or
obligations between the parties with respect to the subject matter hereof.
7.12 Further Assurances. From and after the date of this
Agreement, upon the request of Investor or the Company, the Company and Investor
shall execute and deliver such instruments, documents or other writings as may
be reasonably necessary or desirable to confirm and carry out and to effectuate
fully the intent and purposes of this Agreement.
8
<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
THE COMPANY: INVESTOR:
Excite, Inc.
a California corporation Name: _____________________________
By: ___________________________ By: _______________________________
Title: ________________________ Title: ____________________________
9
<PAGE> 1
EXHIBIT 23.02
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated January 29, 1997, in Amendment No. 2 to the
Registration Statement (Form S-1 No. 333-22669) and related Prospectus of
Excite, Inc. for the Registration of 2,900,000 shares of its common stock.
ERNST & YOUNG LLP
Palo Alto, California
June 3, 1997
<PAGE> 1
EXHIBIT 23.03
CONSENT OF PRICE WATERHOUSE LLP, INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated August 6, 1996, relating
to the financial statements of The McKinley Group, Inc., which do not appear in
this Prospectus. We also consent to the reference to us under the heading
"Experts" in such Prospectus.
/s/ PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
San Jose, California
June 3, 1997
