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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): APRIL 29, 1998
EXCITE, INC.
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(Exact name of Registrant as specified in its charter)
CALIFORNIA
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(State or other jurisdiction of incorporation)
0-28064 77-0378215
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(Commission (IRS Employer
File Number) Identification No.)
555 Broadway, Redwood City, CA 94063
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(Address of principal executive offices) (Zip Code)
(650) 568-6000
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(Registrant's telephone number, including area code)
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(Former name or former address, if changed since last report)
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Item 5 of the Company's Current Report on Form 8-K originally filed
on May 11, 1998 is amended to read as follows:
ITEM 5: OTHER EVENTS.
Netcenter Services Agreement
On April 29, 1998, Excite, Inc. (the "Company"), entered into a
Netcenter Services Agreement (the "Netcenter Agreement") with Netscape
Communications Corporation ("Netscape"). Under the Netcenter Agreement, the
Company will provide programming and content for Netscape's recently announced
Netcenter service. The Netcenter service is expected to feature topical content
channels, nine of which will be co-branded with Excite. The Company will provide
programming and content for these nine co-branded channels (Education, Games,
Lifestyle, Autos, Health, Arts & Leisure, Real Estate, Auctions and Shopping).
The Netcenter service will also include a Web search function (the
"Netcenter Widget Tool") featuring, in addition to the Excite Network's and
other companies' search services, a search service and a directory service that
will be developed and operated by the Company (subject to Netscape's right to
assume responsibility for programming all or part of the directory service).
Furthermore, the Company's Classifieds2000 service will be featured as the
provider of classified advertising, excluding career-related advertising,
throughout Netcenter.
The Company will continue to be featured as a "Premier Provider" on
Netscape's Net Search page and will be similarly featured on the Netcenter
Widget Tool. Excite's services have been allocated 25% of the random rotation of
premier provider listings from the Net Search page for the two-year term of the
Netcenter Agreement, with Netcenter receiving 25% and 50% of the rotation during
the first and second years of the term of the agreement, respectively. Netscape
has guaranteed that Excite will receive a certain number of impressions from the
Net Search page and a certain number of click-throughs from the Netcenter Widget
Tool over the term of the Netcenter Agreement. Netscape has also guaranteed that
the Netcenter search service will receive a certain number of page views and
that the co-branded Netcenter channels will receive a certain number of page
views over the term of the Netcenter Agreement.
In addition to the possibility of obtaining the potential benefits
of the potential for increased revenues and brand visibility described in the
attached press release, the Company entered into the Netcenter Agreement to
position itself to develop a strategic relationship with Netscape in the future
and to reduce exposure on the Netscape site for the Company's competitors.
The Netcenter Agreement expires two years from the date of the
launch of the Netcenter service and may be terminated sooner in the event of
certain types of changes in control with respect the Company or Netscape.
The Netcenter Agreement involves a number of substantial risks and
uncertainties. These risks and uncertainties including those discussed below.
Payments. The Company has paid to Netscape $50.0 million, and is
obligated to pay by June 30, 1998 an additional $20.0 million (together, the
"Cash Payment"). Also in connection with the Netcenter Agreement, the Company
has issued to Netscape a warrant to purchase 423,079 shares of the Company's
Common Stock at an exercise price of approximately $59.09 per share and a second
warrant to purchase shares of the Company's Common Stock at an aggregate
exercise price of up to $25.0 million (together, the "Warrants"). The aggregate
exercise price of the second warrant will be reduced to $10.0 million if certain
terms and conditions relating to a contract between Netscape and the Company's
MatchLogic subsidiary are not met by May 22, 1998. The fair value of the first
warrant and the aggregate $10.0 million exercise price of the second warrant
that is not subject to contingencies initially has been estimated to be $16.1
million. A portion of the Cash Payment and the value assigned to the Warrants
totaling $56.8 million is anticipated to be expensed to distribution license
fees and data acquisition costs during the second quarter of 1998. The remaining
$29.3 million of Cash Payment and warrant valuation will be amortized over the
two-year term of the Netcenter Agreement and charged to distribution license
fees and data acquisition costs.
Accounting. The Company expects to expense approximately $56.8
million in the second quarter of 1998. The amount expensed in the second
quarter of 1998 represents the amount by which the sum of the prepayment
guarantees ($70.0 million) and the independent valuation of the warrants issued
($16.1 million) exceeds the anticipated future net revenues from the Netcenter
Agreement over its two year term. Future net revenues were calculated using
estimated gross revenues less the probable future costs of all goods and
services necessary to earn the revenues. The remaining capitalized amount of
approximately $29.3 million will be amortized ratably over the remainder of the
term of the Netcenter Agreement.
Revenues. Under the Netcenter Agreement, the Company will only
receive revenues generated from the co-branded content channels and the
co-branded search and directory service and not from any other part of
Netcenter. In addition, the Company must pay Netscape a portion of such revenues
after recouping part of the Cash Payment. Thereafter, the Company must pay
Netscape a percentage of the revenues received from the co-branded channels and
the co-branded search and directory service. There are no minimum guaranteed
revenues to the Company under the Netcenter Agreement, and there can be no
assurance as to the level of revenues that the Company will generate from the
co-branded channels or the co-branded search and directory service. The level of
advertising revenues generated by the Company from the co-branded channels and
co-branded search and directory services is subject to a number of risks and
uncertainties, many of which are beyond the Company's control. These include
general risks associated with providing an advertising-supported Internet
service, uncertainty as to whether the Company can increase its sales and
marketing capabilities in order to sell sufficient advertising on the co-branded
channels and co-branded search and directory services, pricing competition from
Netscape as a result of advertising sold on the other parts of Netcenter, and
risks that channels on Netcenter other than the Co-Branded Channels (which
channels will include a business channel and a sports channel) may be
potentially more attractive to advertisers than the co-branded channels. As a
result, there can be no assurance that the Company can generate sufficient
revenues from the co-branded channels and co-branded search and directory
services to recoup the portion of the Cash Payment against which the Company's
revenue sharing obligations will be offset, or to recoup costs incurred by the
Company under the Netcenter Agreement.
Increased Expenses. The Company will be required to hire a
significant number of technical and sales personnel and to incur additional
overhead costs in order to develop, host and sell advertising on its allocated
portions of Netcenter. The Company will not be reimbursed for these costs. The
failure to generate revenues from the co-branded channels and co-branded search
and directory services sufficient to recoup these additional costs would have a
material adverse effect on the Company's business, results of operations and
financial condition. As a result, the Company anticipates that it will
experience increased cost of revenues as the Company incurs hosting costs to
perform its obligations under the Netcenter Agreement and increased royalties
and other costs of revenuers as a result of the revenue sharing provisions of
the Netcenter Agreement. The Company also expects to experience increased sales
and marketing expenses, as the Company will be responsible for selling
advertising on the co-branded channels and co-branded search and directory
service, and increased research and development expenses as the Company will be
required to provide programming and content.
Netcenter Traffic Risks. The success of Netcenter and the co-branded
channels and co-branded search and directory services in particular, will be
substantially dependent on the amount of traffic on Netcenter. Although, as
described above, Netscape has made certain exposure guarantees to the Company
over the term of the Netcenter Agreement, there can be no assurance that such
guarantees will be fulfilled. In addition, the timing of the distribution of
traffic over the term of the Netcenter Agreement is not guaranteed. As a result,
the Company is not able to predict with certainty as to the timing of any
traffic that may be delivered by Netscape as a result of these guarantees. There
is intense competition for attracting Web users, which competition may be
exacerbated by the upcoming release of Microsoft's Windows 98 operating system.
Furthermore, many current Web users may not choose to utilize Netcenter over the
Internet services they currently use. Any failure of Netcenter to attract
substantial user traffic would materially and adversely affect the Company's
business, results of operations and financial condition. Because Netscape is
responsible for programming the Netcenter home page and other portions of
Netcenter that are not co-branded, Excite is relying upon Netscape's programming
of the Netcenter home page and other portions of Netcenter to create a
demographic mix of traffic flows that is similar to that experienced by the
Company. Netscape has no experience in such activities. As a result, the Company
has little means of controlling the programming on these pages so as to maximize
the exposure of the co-branded channels and search services. As a result, the
Company also has little means of controlling the mix of traffic to the
co-branded channels and search service, which could have different revenue
opportunities to the Company as advertisers may be willing to pay more to
advertise on certain content channels.
Page View and Traffic Attribution. The Netcenter Agreement provides
that all page views generated from the Co-Branded Services shall be deemed to be
traffic attributable to Netscape. As a result, the Company may not receive
credit under certain audience measurement statistics which are commonly used by
advertisers in making their advertising placements for traffic generated through
the Co-Branded Services.
Distribution Risks. As part of the Netcenter Agreement, the
Company's Excite services will also be featured as a "premier provider" on
Netscape's Net Search page, and will be similarly featured on the "Netcenter
Widget" tool which will be accessible from Netcenter. Because Netscape only
guarantees a specified number of impressions from its Net Search page (as
compared to a number of users who "click through" to the Company's services),
there can be no assurance that this new "premier provider" arrangement will
result in significant increases in traffic on the Company's services. Although
Netscape has guaranteed a minimum number of users who "click through" to the
Company's services from the Netcenter Widget, Netscape is not obligated to keep
this tool on Netcenter after the first six months of the term of the Netcenter
Agreement. Accordingly, there can also be no assurance that this tool will
provide the Company with significant amounts of user traffic.
Technology Transfer. Upon the termination of the Netcenter Agreement
(other than a termination in connection with certain acquisitions of or by
Netscape), Netscape will have a perpetual, irrevocable license to utilize
certain technology used by the Company to provide the services to Netscape under
the Netcenter Agreement. Netscape will also have the right to sublicense this
technology to third parties. As a result, upon termination of the Netcenter
Agreement, Netscape will be able to operate Netcenter independently, without any
significant royalty or payment obligations to the Company. In addition, if
Netscape sublicenses this technology to a third party, the Company could face
additional competition, which could have a material adverse effect on the
Company's business, results of operations and financial condition.
Termination Provisions. The Netcenter Agreement is subject to
termination in the event that the Company materially breaches its obligations
under the Netcenter Agreement. In addition, if Netscape believes that the
Company's Excite service or that the content provided by the Company for the
Netcenter service contains any material that Netscape deems likely to cause it
material harm, Netscape may terminate the Netcenter Agreement if the Company has
not revised such objectionable content. In the event of such terminations,
Netscape will not be obligated to refund any portion of the amounts prepaid by
the Company and the Company will not be entitled to receive any reimbursement
for its costs incurred in performing its obligations under the Netcenter
Agreement.
Competition from Netscape. Many of the services to be offered by
Netcenter will compete directly with those offered by the Company. There can be
no assurance that this increased competition for Web users or advertisers will
not have a material adverse effect on the Company's business, results of
operations and financial condition.
The information set forth in the Company's press release dated May
4, 1998 and filed as an exhibit to this report is incorporated herein by
reference.
Warrant Agreement
On April 29, 1998, in connection with the Netcenter Agreement, the
Company and Netscape entered into a Warrant Agreement (the "Warrant Agreement")
pursuant to which Netscape was granted two warrants (the "Warrants") to purchase
shares of Common Stock of the Company having an aggregate exercise price of up
to $50 million. One of the Warrants is immediately exercisable for up to 423,079
shares of Common Stock at an exercise price per share of approximately $59.09
and will expire on April 30, 2000. A second warrant (the "Subsequent Warrant"),
which does not become exercisable until April 30, 1999 and which will expire
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on April 30, 2000, will entitle Netscape to purchase up to a number of shares of
Common Stock as is determined by dividing $25 million by the average closing
sale price of one share of Common Stock for the thirty most recent trading days
ending on the third day preceding April 30, 1999.
In the event that Netscape does not enter into an agreement with a
term of at least two years with the Company's MatchLogic subsidiary on or before
May 22, 1998, whereby Netscape (i) utilizes certain of MatchLogic's services and
(ii) is obligated to pay to MatchLogic a certain minimum payment, then the
foregoing $25 million shall be reduced to $10 million.
The Subsequent Warrant may become exercisable prior to April 30,
1999 in the event of certain corporate transactions involving the Company or
Netscape.
Promissory Note
In order to fund in part the Company's prepayment obligations to
Netscape under the Netcenter Agreement, the Company entered into a $50 million
promissory note (the "Note"). The Note bears interest at a rate of 5.9% per
annum and matures on the earlier to occur of October 30, 1998 or the completion
by the Company of a secondary public offering.
AT&T Agreement
In May 1998 the Company announced it had entered into a three-year
agreement with AT&T Corp. to provide dial-up access to an online service to be
named "Excite Online Powered by AT&T WorldNet." Users of the service will have
dial-up access for a personalized Excite page and will be able to access
Internet-based, multimedia communications services such as click-to-dial
directories, anonymous voice chat, and conference calling controlled from the
Web
Forward-Looking Statements
The press releases filed as exhibits to this report include "safe
harbor" language, pursuant to the Private Securities Litigation Reform Act of
1995, indicating that certain statements about the Company's business contained
in the press releases are "forward-looking" rather than "historic." The press
releases also state that a more thorough discussion of factors affecting the
Company's operating results is included in the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1997 and the Company's other reports
filed with the Securities and Exchange Commission.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
Registrant has duly caused this Amendment to be signed on its behalf by the
undersigned thereunto duly authorized.
EXCITE, INC.
Date: September 9, 1998 By: /s/ ROBERT C. HOOD
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Robert C. Hood
Executive Vice President, Chief
Administrative
Officer and Chief Financial Officer
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