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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER _________________
EXCITE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 77-0378215
(STATE OR JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
555 BROADWAY, REDWOOD CITY, CALIFORNIA 94063
(Address of principal executive offices)
TELEPHONE: (650) 568-6000
(Registrant's Telephone Number, Including Area Code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $0.001 PER SHARE PAR VALUE
PREFERRED STOCK PURCHASE RIGHTS
Check whether the registrant: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days.
YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
As of January 29, 1999, 53,829,408 shares of Common Stock, $0.001 per share
par value, of the registrant were outstanding. The aggregate market value of
voting stock held by non-affiliates of the registrant was approximately
$5,074,187,064 as of January 29, 1999, based on the closing sale price per share
of the registrant's Common Stock as reported on the Nasdaq Stock Market on such
date. Shares of Common Stock held by each executive officer and director and by
each person who owns 10% or more of the outstanding Common Stock have been
excluded in that such persons may be deemed to be affiliates. This determination
of affiliate status is not necessarily conclusive for other purposes.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Excite, Inc. Proxy Statement for the 1998 Annual Meeting of
Stockholders to be held in June 1999 are incorporated by reference into Part III
of this Annual Report on Form 10-K where indicated.
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EXCITE, INC.
1998 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
<TABLE>
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PART 1
<S> <C> <C>
ITEM 1: Business 3
ITEM 2: Properties 14
ITEM 3: Legal Proceedings 14
ITEM 4: Submission of Matters to a Vote of Security Holders 14
PART II
ITEM 5: Market for the Registrant's Common Equity and Related
Stockholder Matters 17
ITEM 6: Selected Consolidated Data 18
ITEM 7: Management's Discussion and Analysis of Financial Condition
and Results of Operations 19
ITEM 7A: Quantitative and Qualitative Disclosure About Market Risk 34
ITEM 8: Financial Statements and Supplementary Data 35
ITEM 9: Changes In and Disagreements with Accountants and
Accounting and Financial Disclosure 59
PART III
ITEM 10: Directors and Executive Officers of the Registrant 60
ITEM 11: Executive Compensation 60
ITEM 12: Security Ownership of Certain Beneficial Owners and Management 60
ITEM 13: Certain Relationships and Related Transactions 60
PART IV
ITEM 14: Exhibits, Financial Statement Schedules and Reports of Form 8-K 61
Signatures 62
</TABLE>
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PART I
ITEM 1. BUSINESS
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 may differ materially from
those anticipated in these forward-looking statements as a result of the Merger
with At Home, which is expected to close during the second quarter of 1999, and
certain other factors, including, without limitation, those risk factors set
forth under "Risk Factors that May Affect Future Results" included in this
Management's Discussion and Analysis of Financial Condition and Results of
Operations. The following discussion should be read in conjunction with the
consolidated financial statements and notes thereto included elsewhere in this
Report.
SUMMARY
Excite, Inc., or "Excite", is a global Internet media company offering
consumers and advertisers comprehensive Internet navigation services with
extensive personalization and targeting capabilities. The Excite Network,
consists of the Excite, WebCrawler and Classifieds2000 brands. Excite provides a
gateway to the World Wide Web, or the "Web", that organizes, aggregates and
delivers information to meet the needs of individual consumers. Designed to help
consumers navigate the Web, the Excite Network contains a suite of specialized
information services, organized under numerous topical channels that combine
proprietary search technology, editorial Web reviews, aggregated content from
third parties, bulletin boards, chat and other community features and
personalization capabilities. Through its MatchLogic subsidiary, Excite provides
innovative Internet ad campaign management tools and services in the form of
reporting, measurement and analytical techniques and sophisticated direct and
database marketing services. In addition, Excite believes there will be a
significant opportunity to derive revenues from online transactions and,
therefore, Excite has entered into, and is continuing to pursue,
transaction-based arrangements which are designed to allow Excite to benefit
from online purchases directed through advertisements on the Excite Network.
THE COMPANY
Excite was formed in June 1994. Excite first launched its Excite search and
directory service in October 1995. In April 1997, Excite launched a
channels-based format to provide consumers with an interface that reflects the
way they navigate through other forms of media and enables advertisers to more
effectively reach target consumers. In April 1998, Excite launched, My Excite
Start Page that enables consumers to personalize their home page Web interface
and choose the information they want delivered to their personal page, thereby
delivering a personalized Web experience for each consumer. In addition, the
Classifieds2000 brand, acquired by Excite in April 1998, provides consumers with
access to a nationwide database of online classified advertisements in a number
of categories. Localized versions of Excite are available in Australia, China,
France, Germany, Italy, Japan, Sweden, the Netherlands and the United Kingdom.
Over the past several years, Excite has grown by both developing new
services, and by acquiring a number of businesses, technologies, services and
content.
- - In 1996, Excite acquired The McKinley Group Inc., or "McKinley", the creator
of the Magellan Internet Guide.
- - During 1997, Excite completed its acquisition of the WebCrawler search and
directory technology, or the "WebCrawler Acquisition", from America Online,
Inc., or "AOL", and acquired Netbot, Inc., or "Netbot", an Internet software
developer of advanced search technology.
- - In 1998, Excite acquired MatchLogic, Inc., or "MatchLogic", a provider of
solutions for the management and optimization of Internet advertising
campaigns, Classifieds2000, Inc., or "Classifieds2000", a provider of online
classified ads, and Throw, Inc., or "Throw", a development stage company
focused upon the creation of community products.
All of the above acquisitions were accounted for as pooling of interests,
except for the acquisition of Throw and WebCrawler, which were accounted for as
purchases. See Note 2 of Notes to Consolidated Financial Statements.
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On January 19, 1999, Excite, At Home Corporation, "At Home", an Internet
service provider aimed at broadband cable subscribers, and Countdown Acquisition
Corporation entered into a definitive Agreement and Plan of Reorganization, or
the "Merger Agreement". Pursuant to the Merger Agreement, Excite will become a
wholly-owned subsidiary of At Home. At the effective time of the Merger, all
outstanding shares of Excite's Capital Stock will be exchanged for shares of At
Home's Series A Common Stock, and options and warrants to purchase Excite's
Capital Stock will be exchanged for options or warrants, as applicable, to
purchase shares of At Home's Series A Common Stock. Each share of Excite's
Common Stock will be exchanged for 1.041902 shares of At Home's Series A Common
Stock. The exercise price and number of shares of Excite's Capital Stock subject
to Company options or warrants, will be appropriately adjusted to reflect the
exchange ratio. Any outstanding convertible debt at the effective time of the
Merger, will thereafter be convertible into the number of shares of At Home's
Series A Common Stock to which a holder of Excite's Common Stock would have been
entitled to receive if the holder had converted the convertible debt into
Excite's Common Stock prior to the Merger. The transaction is intended to
qualify as a tax-free reorganization and will be accounted for as a purchase.
In connection with the execution of the Merger Agreement, Excite and At Home
entered into a Stock Option Agreement, or the "Stock Option Agreement", pursuant
to which Excite granted to At Home an option to purchase up to 19.9% of the
outstanding shares of Excite's Common Stock, which is exercisable upon the
occurrence of certain events specified in the Stock Option Agreement.
The Merger, which is expected to close in the second quarter of 1999, is
subject to various conditions, including clearance under the Hart-Scott-Rodino
Antitrust Improvements Act and approval of the Excite's and At Home's
stockholders.
Excite may be required to pay a substantial termination fee if the Merger
Agreement is terminated for certain specific reasons. Excite has filed the
Merger Agreement with the Securities and Exchange Commission on January 20, 1999
under its Report on Form 8-K.
THE EXCITE NETWORK
As the Web has evolved, Excite has grown from being a provider of a
single-function Web search utility to offering a branded Internet media network
consisting of Excite, WebCrawler and Classifieds2000 brands.
EXCITE SERVICES
Excite's services consist of:
- - navigation, such as Excite Search and Excite Channels, which help consumers
more easily find relevant information;
- - community, such as chat, email, bulletin board and instant messaging
services, which help consumers connect and communicate;
- - and personalization services, such as My Excite Start Page, a personalized
home page which can be customized simply and easily by a consumer to satisfy
his or her personal interests.
EXCITE SEARCH. Excite maintains an extensive index of Web documents which is
refreshed by its automatic spider technology on a regular basis. Excite's search
technology allows consumers to search the Web in multiple ways, including by
keyword, phrase, concept, Boolean logic or proper name. Excite's "More Like
This" feature, which utilizes 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
and accurate abstract of each document returned by a search. Excite Search also
permits users to search news articles, Usenet newsgroups, the Excite City.Net
travel index or Excite's Web Guide of approximately 100,000 Web sites.
EXCITE CHANNELS. Excite's channels-based format for its services and content
provides consumers with a more intuitive interface that reflects the way they
navigate through other forms of media, such as television. This format also
enables advertisers and retailers 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 and services from
leading content providers, Excite provides channel-specific content including
topical news, links to related Web sites, products and services and directories.
Excite also has channel specific bulletin boards, communities, chat and search
capabilities.
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The Excite brand currently includes the following channels:
<TABLE>
<S> <C>
Autos Home & Real Estate
Careers Lifestyle
Classifieds & Auctions Money & Investing
Computers & Internet News
Education People & Chat
Entertainment Shopping
Games Sports
Health Travel
</TABLE>
MY EXCITE START PAGE. Excite delivers a personalized Web experience for each
consumer by allowing them to personalize their home page Web interface and
choose the information they want delivered. After registering with Excite,
consumers create a personal profile which selects and automatically updates
information of interest such as personalized stock quotes, news stories, local
and national sports scores, horoscopes, local and national weather, television
listings and special reminders. As of December 31, 1998, Excite had
approximately 4.5 million registered users of My Excite Start Page.
EXCITE COMMUNITIES. Excite offers a number of services, which allow users to
connect and communicate with each other. Excite believes that users who
habitually check their email on Excite's Mail or their instant messages on
Excite PAL are more likely to visit more frequently, spend more time on the
Excite Network and use other Excite services as well. Community-building
services, such as Excite Communities, Excite Boards and Excite Chat, allow users
to join communities of other users with similar interests or needs, thereby
enhancing the user experience within the Excite Network with the goal of
improving customer retention.
EXCITE SHOPPING. The Excite Shopping Channel offers a safe and convenient
online shopping service for consumers. This channel is arranged around 20
departments, including: automobiles, books, clothes, computers and software,
flowers and gifts, music and movies and other items. The Shopping Channel
features links to a number of leading retailers' Web sites and also offers
Excite Product Finder powered by Jango. After the consumer enters a product
request, Excite Product Finder determines the best sources of information. The
service then assembles the relevant information and displays the final shopping
results in an easy-to-browse report that typically includes product reviews,
specifications, pricing, secure transaction information and other essential
shopping details. When a consumer is ready to buy, the purchase is completed on
the merchant's Web site. In addition, to simplifying shopping on the Web for
consumers, the Excite Shopping Channel also provides online retailers the
opportunity to market products to shoppers at the point of decision.
WEBCRAWLER SERVICES
WebCrawler was created in early 1994 and was one of the first Internet search
engines. In November 1996, Excite acquired the WebCrawler search and directory
technology from AOL. In March 1998, Excite redesigned the WebCrawler service to
focus on speed, simplicity and practicality.
Similar to the Excite brand, content on WebCrawler is organized within 21
channels such as Autos, Business & Investing, Entertainment, Home & Real Estate,
News, Travel and Relationships. WebCrawler offers all of the community features
offered throughout the Excite brand. WebCrawler users can also create a
personalized home page with the My Page feature, which, like the My Excite Start
Page feature, selects and delivers information of interest such as stock quotes
and news headlines.
CLASSIFIEDS SERVICES
Excite's Classifieds service provides consumers with access to a nationwide
database of online classified advertisements in a number of categories. Users
can place their own advertisements directly and can search the aggregated
classifieds of Excite and its partners. Excite's Classifieds service is featured
as the provider of classified advertising, other than career-related
advertising, on Netscape's Netcenter.
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The Classifieds2000 brand currently includes the following channels:
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Collectibles Personals & Friends
Computers & Software Real Estate
Employment Rentals & Roommates
General Merchandise Travel
Opportunities & Services Vehicles
</TABLE>
Excite believes it will need to constantly update its service offerings in
order to attract and retain users. If any new service is not favorably received,
it may adversely affect Excite's reputation, brand and user traffic. Excite may
also experience difficulties or delays in developing new services. In addition
new services may contain undetected errors. Excite may need to significantly
redesign these services to correct any errors. Any difficulty or delays may
cause user dissatisfaction or result in lost or delayed advertising revenues.
Excite's business may be adversely affected if it does not successfully develop
new services that are well received.
ADVERTISING AND COMMERCE
Excite currently derives substantially all of its revenues from the sale of
advertisements on the Excite Network through sponsorships, banner advertisements
and, through its MatchLogic subsidiary, database and direct marketing
arrangements. See MatchLogic below. In the future, Excite also intends to pursue
revenues from online transactions.
SPONSORSHIP ADVERTISING. During the second quarter of 1997, Excite began
selling advertising placements and links outside of the space normally reserved
for banner advertisements. These arrangements are known as sponsorships because
they typically involve the placement of an advertisement or link in a topical
channel as though the advertiser was sponsoring the content on a specific page.
The ad or link is programmed to appear prominently in the same spot on the page
each time the user calls for that page of channel content. Some of these
sponsorships include relationships with Amazon.com, Inc., AT&T, Barnes & Noble,
Inc., Foot Locker, Office Depot and Preview Travel, Inc.
Sponsorships have a longer duration than Excite's banner advertisement
agreements and typically have a two or three year term. In some instances,
Excite has entered into exclusive sponsorship arrangements for certain channels.
Some sponsorship arrangements provide that Excite will participate in the
revenue or profit margin from a purchase made by a consumer who responded to an
ad placed on the Excite Network. Excite has not received any online transaction
revenues to date from these sponsorship arrangements and does not anticipate
receiving any significant amount of online transaction revenues in 1999. Through
December 31, 1998, Excite had entered into approximately 74 sponsorship
arrangements, of which approximately 42 included some form of transaction
revenue or margin sharing arrangement.
Through Excite's various advertising programs, advertisers can combine
multiple advertising packages in order to develop an 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 for mass exposure. The advertising
campaign could be enhanced by using a topical affinity consumer targeting
approach, by either sponsoring a section of the Travel Channel or purchasing
keywords such as "travel" or "airfare" on any of Excite's related services.
BANNER ADVERTISEMENTS. Banner advertisements are prominently displayed
throughout the Excite Network and as the consumer interacts with the Excite
Network, new advertisements are displayed. Excite offers a variety of banner
advertising programs that enable advertisers to target their audiences at
various levels of market segmentation. Mass market placements deliver general
rotation banner advertisements throughout the Excite's Network but do not have
any particular market segmentation. Targeted advertising for an audience with a
specific content interest on one of Excite's services; these advertisers can
target general interest topics such as "sports" or can target advertisements to
more specific sub-categories such as "college basketball" or a particular team.
Excite charges higher per impression fees for advertising products based upon
the specificity of the target audience. Excite's standard rates for advertising
range from $24 per thousand impressions, or "CPMs", for general rotation across
undifferentiated users to $170 per thousand impressions for targeted affinity or
keyword packages.
Excite's banner advertising agreements generally are for a relatively short
term and provide for a minimum number of guaranteed impressions for a fixed fee.
Accordingly, actual CPM rates depend upon a
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variety of factors, including, without limitation, the duration of the
advertising contract and the number of impressions purchased. These advertising
purchases are also often negotiated on a case-by-case basis. Because of these
factors, actual CPM rates experienced by Excite have been lower than its
standard rates.
NETCENTER
CO-BRANDED SERVICES. In April 1998, Excite and Netscape Communications
Corporation, or "Netscape", entered into a two-year agreement, or the "Netcenter
Agreement", with respect to Netscape's "Netcenter" online service. Under the
Netcenter Agreement, Excite provides programming and content for certain
channels on Netcenter which are co-branded and provides a Web search and
directory service for Netscape, collectively, the "co-branded services". In
addition, Excite's Classifieds service is featured as the provider of classified
advertising, excluding career and job posting classified ads, for the Netcenter
service. Excite is responsible for advertising sales for, and will pay to
Netscape a percentage of advertising revenues generated from, the co-branded
services and is also required to make payments based upon the amount of traffic
generated from the Net Search page and the Netcenter Widget Tool.
DISTRIBUTION. Under the Netcenter Agreement, Excite is featured as a "premier
provider" on Netscape's Net Search page and will be similarly featured on the
Netcenter Widget Tool accessible from Netscape's Home Page. Excite's services
were 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 Excite
receiving 25% and 50% of the rotation during the first and second years of the
term of the agreement, respectively. Netscape guaranteed that Excite will
receive a certain minimum number of impressions from the Net Search page and a
certain minimum number of click-throughs from the Netcenter Widget Tool over the
term of the Netcenter Agreement. Netscape also guaranteed that the co-branded
search service will receive a certain minimum number of impressions and
click-throughs, and that the co-branded channels will receive a certain minimum
number of initial page views over the term of the Netcenter Agreement. Excite
will be responsible for developing, programming and hosting the co-branded
services. Excite will also be responsible for selling advertising on the
co-branded services. Excite will bear all costs incurred by it in connection
with the Netcenter Agreement, without a right of reimbursement. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Netscape and Sales and Marketing."
TERMINATION. The Netcenter Agreement expires in June 2000 and may be
terminated sooner in the event of certain types of changes in control with
respect to Excite or Netscape. If the proposed acquisition of Netscape by
America Online is consummated, Excite would have the right to terminate the
Netcenter Agreement. Excite has not determined whether it will exercise this
termination right if that acquisition is consummated. The early termination
provisions will not be triggered as a result of the proposed acquisition of
Excite by At Home. Neither party is obligated to renew the Netcenter Agreement
at the end of its two-year term.
Upon the termination of the Netcenter Agreement, other than a termination in
connection with certain acquisitions of or by Netscape, Excite will be obligated
to deliver to Netscape certain technology used in connection with the operation,
production, development, management and support of the co-branded services for
which Excite has granted Netscape a license, or the "Licensed Technology". This
license is a perpetual, royalty-free license, including the right to sublicense
the Licensed Technology. If Excite elects to terminate the Netcenter Agreement
as a result of the proposed acquisition by America Online, Netscape would be
required to repay Excite a certain portion of the $70 million cash prepayment
Excite previously paid to Netscape, as well as reimburse Excite for certain
costs and expenses. Excite will be required to provide Netscape certain limited
engineering support with respect to the Licensed Technology. In addition, if
Netscape believes that Excite's own service, or the content provided by Excite
for the Netcenter service, contains material that Netscape deems likely to cause
it material harm, and if Excite does not revise such objectionable content in a
timely manner, Netscape may terminate the Netcenter agreement with no obligation
to repay any portion of the $70.0 million cash prepayment or to reimburse Excite
for any costs or expenses.
DISTRIBUTION
Excite believes that maintaining a presence on Web access points and other
high-traffic Web sites, known as gateways, is an important factor in obtaining
traffic and attracting advertisers. Excite seeks to obtain new consumers by
providing multiple gateways into the Excite Network, thereby increasing its
visibility on Web access points. Excite has established premier positions on the
Web through the Netcenter Agreement, a co-branding relationship with AOL, as
well as
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co-branding relationships with several major personal computer manufacturers, or
"OEMs", to make Excite the personal computer's default website for their
consumers. In addition, Excite has established a number of distribution
relationships under which the Excite brand is typically featured as the default
Web navigation network. These distribution relationships include AT&T, Prodigy
and PointCast.
Excite also has a five-year distribution agreement with AOL which expires in
November 2001 under which a co-branded version of the Excite search and
directory service, AOL NetFind Powered by Excite, is designated as the exclusive
Web search and directory service for the AOL service.
MATCHLOGIC
In February 1998, Excite acquired MatchLogic, a provider of Internet
advertising campaign management and database and direct marketing solutions.
Excite operates MatchLogic as an independent subsidiary, in order to assure Web
advertisers and agencies of the independence of MatchLogic campaign management
services, and of the confidentiality of consumer data collected from these
services.
CAMPAIGN MANAGEMENT. Today, there are two methods of delivering advertising
messages on the Web, one is via the Web sites themselves, the other is via third
party ad servers such as MatchLogic. Prior to third-party ad serving, ads were
delivered exclusively by Web sites. For large advertisers planning to place
advertisements on multiple sites, this process was inefficient and ineffective,
because a single Web site only provides information about its own activity and
cannot provide consistent reporting of advertising results from multiple Web
sites. MatchLogic provides campaign management services directly to large
advertisers and agencies that are planning targeted ad campaigns across multiple
sites. Using MatchLogic's services, individual advertisers or advertising
agencies can deliver ads based on a user's particular demographic traits,
geographic location, connection capabilities and/or keyword and virtual keyword
data input. MatchLogic serves ad campaigns simultaneously to multiple Web sites
or e-mail messages to "opt-in" e-mail audiences. MatchLogic measures results
immediately, produces consolidated results reports on the success of the entire
campaign, and analyzes these results to enable advertisers to quickly assess the
effectiveness of the campaign. Changes to the campaign are then made quickly and
centrally by MatchLogic in order to maximize the effectiveness of the
advertiser's investment.
DATABASE AND DIRECT MARKETING. The principal challenge for direct marketers
is to continually increase response rates. In order to accomplish this goal,
direct marketers need to have access to a robust, continually refreshed consumer
database, which provides them with current, relevant demographic information.
MatchLogic acquires, packages and distributes consumer data through digital and
land-based data channels. Land-based data channels, such as warranty cards, are
costly to create and may require longer periods of time to collect and assemble,
and may become obsolete in a short period of time. On the other hand, the
digital Web-based data channels are a new and emerging market from which current
demographic information and data on purchase intentions can be gathered and
analyzed online and in real time.
MatchLogic operates as an independent subsidiary of Excite with its own sales
force, research and development and operations departments; however, Excite
intends to utilize the ad serving, "opt-in" e-mail direct marketing and
targeting technology of MatchLogic to improve results for advertisers on the
Excite Network.
MatchLogic maintains four data centers in the U.S. which served an average of
approximately 39 million advertising impressions per day during the quarter
ended December 31, 1998 to over 1,200 Web sites for approximately 350
advertisers. MatchLogic's customers include large advertisers, such as General
Motors Corporation, Bank One, Schwab, Procter & Gamble, AT&T and leading
advertising agencies, such as, DDB Needham, Thunderhouse Online Marketing
Communications and Bronner SIG. MatchLogic is based in Westminster, Colorado,
and as of December 31, 1998 had 173 full-time employees.
TECHNOLOGY, RESEARCH AND DEVELOPMENT
PERSONALIZATION. Excite has devoted significant resources in developing its
personalization technology, which provides users the ability to personalize
their Web experience. Excite uses a flexible architecture, which allows the
reuse of a user's personalized information throughout the Excite Network. With
Excite's dynamic page generation technology, customized and personalized pages
can be delivered to each Excite user, allowing for many different types of
frequently updated content, such as sports, stock quotes or
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news, to be displayed each time a user returns to the Excite Network. Modular
templates allow Excite to quickly add new types of data to personal pages or
produce different appearances for use with different sponsorship arrangements.
AD SERVING. Excite's ad serving technology delivers targeted advertising in a
fast, accurate and efficient manner. Scheduling algorithms ensure delivery of ad
impressions in the quantities required and support a pool of general rotation
ads. Excite's reporting infrastructure provides advertisers with daily online
reports of advertising performance.
"OPT-IN" ELECTRONIC-MAIL MESSAGING. MatchLogic, offers an e-mail push program
called DeliverE which is an "opt-in" e-mail service. DeliverE gives advertisers
the ability to distribute their selling offers and branding messages to highly
targeted audiences on the Web via e-mail.
EXCITE'S SHOPPING SEARCH. Excite's Shopping Search, which built upon Excite's
proprietary programming language, called the Adapter Language, is used to
aggregate and homogenize data gathered from various Web sites in response to
user queries regarding a particular product.
UNIVERSAL REGISTRATION. Excite has developed a user registration system that
allows users to register for the Excite Network and subsequently authenticates
them when they access specific services. Excite's universal registration
utilizes front-end caching which enables fast read access to user data needed to
support the Excite Network's user volume. Users can be authenticated even if
they have multiple user names and Excite also stores user demographic
information with its universal registration system.
As of December 31, 1998, there were 228 employees on Excite's research and
development staff. Excluding charges for purchased in-process technology,
research and development costs were $29.2 million, $16.7 million and $8.0
million for the years ended December 31, 1998, 1997, and 1996, respectively.
Excite believes that developing new and enhanced services and technology is
necessary to remain competitive. Accordingly, Excite intends to continue to make
investments in research and development, including developing, licensing or
acquiring new technologies.
The market in which Excite 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, Excite's future success will
depend on its ability to adapt to rapidly changing technologies, to adapt its
services to evolving industry standards and to continually improve the
performance, features and reliability of its network in response to competitive
service and product offerings, and evolving demands of the marketplace. The
failure of Excite to adapt to such changes and evolution would have a material
adverse affect on Excite's business. In addition, if new Internet, networking or
telecommunications technologies are adopted or if other technological changes
occur, Excite may incur substantial expenses to modify or adapt its services or
infrastructure.
SALES AND MARKETING
As of December 31, 1998, Excite had a direct sales organization of 74
professionals located in Chicago, Dallas, Detroit, Los Angeles, New York and San
Francisco. This direct sales force sells to advertisers and advertising agencies
and is responsible for selling banner advertisements and sponsorships on the
Excite Network. Excite believes that an internal sales force dedicated to
selling advertising on the Excite Network provides a higher level of customer
service and satisfaction to advertisers during both the buying and reporting
process. In addition, Excite has a dedicated group of professionals focused on
advertising reporting and measurement. Because of the campaign management,
digital marketing and data asset management capabilities of MatchLogic,
advertisers on the Excite Network can receive one cohesive aggregated report on
the placement, analysis and effectiveness of their online advertisements. Excite
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. As part of the
Netcenter Agreement, Excite's sales organization is responsible for selling
advertising on the co-branded services and on most of the Netcenter classified
advertisement services. Therefore, Excite has significantly expanded its
direct sales force.
9
<PAGE> 10
Excite's marketing goal is to build the brands of the Excite Network and its
services into well recognized consumer brands. Excite utilizes a variety of
marketing programs, including traditional "off-Web" programs such as joint
marketing programs with strategic partners and television, print, radio and
billboard promotions as well as online advertising. In December 1998, Excite
launched a national television advertising campaign, which it refers to as the
"You Can Too" campaign, designed to raise consumer brand and product benefit
awareness.
USER SUPPORT
Excite offers user support via telephone and also offers a comprehensive
online help guide, which offers searching tips and provides a complete guide to
the Excite Network. As of December 31, 1998, Excite had 23 support personnel.
Excite also offers a "New to the Net" section of its help service for Web
novices. This service offers an overview of the Web and the Excite Network as
well as Excite Seeing Tours, which is a "how to" service designed to instruct a
consumer how to perform a particular task using information from the Web. In
addition, Excite offers Web and e-mail based support for it's My Excite Start
Page, Mail, Excite Chat, Excite PAL and Excite Communities services.
INTERNATIONAL
Excite believes that there are significant opportunities to leverage the
Excite service internationally and offers localized versions of the Excite
service in Australia, China, France, Germany, Italy, Japan, Sweden, the
Netherlands and the United Kingdom. Excite seeks to enter relationships with
business partners who offer content, technology and distribution capabilities as
well as marketing and cross-promotional opportunities internationally. Excite
has established the following international relationships.
In October 1997, Excite and Itochu Corporation and certain affiliated
entities, or collectively "Itochu", entered into a joint venture agreement with
respect to Excite's wholly-owned subsidiary, Excite Japan, in order to provide
comprehensive localized Excite services in Japan. Advertising sales are made
through CTC Create Corporation, a wholly-owned subsidiary of Itochu. Excite
currently holds 50% of the outstanding capital stock of Excite Japan.
In August 1998, Excite and Telecom Italia S.p.A. formed Excite Italia BV,
which is owned 50% by Excite and 50% by Telecom Italia. Excite Italia will
program certain portions of www.tin.lit, the Internet site of TIN, a division of
Telecom Italia and one of Italy's Internet access providers, as well as provide
an Italian language search directory service under the Excite brand. Telecom
Italia has committed to provide the initial start-up capital for the venture,
while Excite will provide the core technology, related services and brand name.
In August 1998, Excite and LibertyOne Limited, a publicly listed Australian
corporation, formed Excite Asia Pacific Pty Ltd, which is owned 50% by Excite
and 50% by LibertyOne. Excite Asia Pacific will build an Excite branded,
advertising and commerce supported Web portal for the Australian and the
Asia-Pacific Internet markets. Liberty One will contribute cash as its
contribution to the venture, while Excite will provide the core technology,
related services and brand name.
In January 1999, Excite and BT Holdings Ltd, or "BT", a subsidiary of British
Telecommunications, entered into a joint venture agreement whereby BT purchased
50% of the shares of Excite UK Ltd, that had been a wholly-owned subsidiary of
Excite. The joint venture company, which will continue to be known as Excite UK
Ltd, will be owned 50% by Excite and 50% by BT, and will continue to provide an
Excite branded, advertising and commerce supported Web portal for the United
Kingdom market. BT will contribute cash as its contribution to the venture and
Excite will contribute the core technology, related services and brand name.
Excite has a multi-year agreement with Netscape under which it is producing a
local navigation service with topical channels and other features for Netscape's
International Netscape Guide for Australia, France, Germany, Japan and the
United Kingdom, and is also featured on Netscape's international search page.
During 1998, 1997 and 1996, less than 10% of Excite's user traffic and less
than 10% of Excite's total revenues were derived from international sources.
See Note 10 of Notes to Consolidated Financial Statements.
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<PAGE> 11
Expansion into international markets has required and will continue to
require management attention and resources. Excite has limited experience in
localizing its services and many of Excite's competitors are also undertaking to
expand into foreign markets. Excite may not succeed in expanding into
international markets. In addition to the uncertainty regarding Excite's ability
to generate revenues from foreign operations and expands its international
presence, there are certain risks inherent in doing business on an international
basis. These include, among others:
- - regulatory requirements, legal uncertainty regarding liability, tariffs and
other trade barriers;
- - difficulties in staffing and managing foreign operations;
- - longer payment cycles, different accounting practices, problems in
collecting accounts receivable;
- - and political instability, seasonal reductions in business activity and
potentially adverse tax consequences.
To the extent Excite expands its international operations and has additional
portions of its international revenues denominated in foreign currencies, Excite
may become subject to increased risks relating to foreign currency exchange rate
fluctuations. Any one or more of the factors discussed above may adversely
affect Excite's future international operations and, consequently, Excite's
business.
COMPETITION
The market for Web services and Web advertising is intensely competitive.
There are no substantial barriers to entry in these markets and Excite expects
competition to intensify. Excite believes that the number of companies relying
on fees from Web-based advertising has increased substantially during the past
year. Accordingly, Excite may face increased pricing pressure for the sale of
advertisements on its network, which may have a material adverse affect on
Excite's business. Excite believes the main competitive factors in this market
are brand recognition, user base, performance, ease of use, variety of
value-added services, features and quality of support.
Excite competes with a number of companies both for users and advertisers.
Excite expects this competition will intensify, particularly because there are
few barriers to entry in Excite's market. Excite's competitors include:
- - Web "portal" companies such as Infoseek's Go Network, Lycos, Netscape's
Netcenter, Yahoo!, Alta Vista, and Snap;
- - online service providers such as America Online, CompuServe, Microsoft's MSN
and Prodigy services;
- - Web content broadcasting services, such as PointCast;
- - large media companies, such as CBS, NBC and Time-Warner, who have announced
initiatives to develop Web services;
- - and other smaller companies providing Web-based and advertising supported
content.
As Excite increases the content offerings and services on the Excite Network,
it will increasingly face competition from a large number of businesses which
offer Web services such as e-mail, stock quotes, news and chat features and who
publish information and content on the Web.
Excite also expects to compete with Internet and online service providers,
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. Many of these potential competitors
have announced plans to offer competing Web services and may take actions that
make it more difficult for consumers to find and use the Excite Network. For
example, Netscape introduced Netcenter, which competes directly with the Excite
Network for traffic and advertisers. Microsoft recently licensed products and
services from Inktomi Corporation, a direct competitor of Excite, and has
announced that it will feature and promote Inktomi services in the Microsoft
Network and other Microsoft online properties. In addition, Microsoft has
announced that it will offer personalized Web services through Microsoft's Start
service. Such search services may be tightly integrated with Microsoft's
operating systems, Internet Explorer Web browser and other software
applications, and Microsoft may promote such services within MSN or through
other end-user services such as MSNBC or WebTV. As Microsoft's search services
may be more conveniently accessed, this may provide Microsoft with significant
competitive advantages that may have a material adverse affect on Excite's user
traffic.
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<PAGE> 12
As the market continues to develop and competition intensifies, Excite's
competitors may merge or form strategic alliances that would increase their
ability to compete with Excite for traffic and advertisers. Such mergers may
also negatively impact Excite's ability to form or maintain strategic
relationships with those companies. For example, in November 1998, AOL announced
that it will acquire Netscape in a transaction that will extend AOL's services.
This merger is expected to close in the spring of 1999 and is subject to various
conditions including regulatory approvals and approval by AOL's and Netscape's
shareholders. If approved, the merger may strengthen Netscape's Netcenter and
AOL as competitors of Excite for traffic and advertisers. In addition, this
merger may also reduce the probability of the renewal of any existing or new
strategic relationships with either company in the future.
Many providers of Web services have been entering into distribution
arrangements, co-branding arrangements, content arrangements and other strategic
partnering arrangements with Internet and online service providers, providers of
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 while also making it more difficult for
consumers to utilize Excite's services. In addition, many large media companies
have either launched or have announced that they are contemplating developing
Internet navigation services and are attempting to become Web "gateway" sites
for Web users. For example, Infoseek Corporation and the Walt Disney Company
have partnered to launch Go Network, which features ABCNEWS.com for news,
ESPN.com for sports, Disney.com for kids and family, Infoseek for search, and
Disney and ABC for entertainment and will compete directly with the Excite
Network for traffic and advertisers. In addition, both Time-Warner and CBS
have announced initiatives to develop Web services in order to have their Web
sites become the starting point for users navigating the Web. In the event such
companies develop such "gateway" sites, Excite could lose a substantial portion
of its user traffic, which would have a material adverse affect on Excite's
advertising revenues and on its business.
As a result of Excite's acquisition of MatchLogic, a portion of its revenues
were derived from providing advertisers and advertising agencies with services
designed to manage targeted Internet advertising campaigns. This market is also
a new and evolving market which is increasingly competitive and in which there
are no substantial barriers to entry. MatchLogic competes in this area primarily
with CMG Information Services, Inc., and competes indirectly in this area with
DoubleClick Inc., which offers Internet advertising solutions for advertisers
and Web sites, and NetGravity, Inc. and AdForce, Inc., which provide advertising
management software. MatchLogic expects to face competition in this area from
additional companies in the future.
Many of Excite'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 significantly greater financial,
technical and marketing resources than Excite. 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, these competitors may
develop Web search and retrieval services or other online services that are
equal or superior to those of Excite or that achieve greater market acceptance
than Excite's offerings.
Excite also competes with traditional advertising media, such as print, radio
and television, for a share of advertisers' total advertising budgets. If
advertisers do not perceive Internet advertising to be as effective as
traditional media, Excite's business may be adversely affected.
INTELLECTUAL PROPERTY
Excite 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. Excite has filed
two patent applications with respect to other aspects of its technology. These
applications may not result in a patent being issued. Furthermore, any patents
that may be issued from these pending applications, may not be sufficiently
broad to protect Excite's technology. In addition, despite having patents, it is
possible that Excite's patents may be challenged, invalidated or circumvented.
The failure of any patents to protect Excite's technology may make it easier for
Excite's competitors to offer technology equivalent or superior to Excite's
technology.
Excite 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
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<PAGE> 13
information. Despite these precautions, it may be possible for a third party to
copy or otherwise obtain and use Excite'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. Policing unauthorized use of Excite's
technology is difficult. The steps taken by Excite may not prevent
misappropriation or infringement of its technology. In addition, litigation may
be necessary in the future to enforce Excite's intellectual property rights, to
protect Excite's trade secrets or to determine the validity and scope of the
proprietary rights of others. Such litigation may result in substantial costs
and diversion of resources and may have a material adverse affect on Excite's
financial condition.
Many parties, including competitors of Excite, are actively developing
search, indexing and related Web technologies. Some of these parties have taken,
and Excite believes that others will take, steps to protect these technologies,
including seeking patent protection and enforcement of such patents through
licensing and litigation. As a result, Excite believes that disputes regarding
the use of such technologies are likely to arise in the future. Competitors or
others may initiate lawsuits against Excite asserting patent infringement.
Excite may not be able to defend successfully any such litigation either on the
grounds that patents are invalid or that Excite's search technology does not
infringe on patents of others. Even if Excite is successful, there can be no
assurance that the costs and resources required to defend any such litigation
will not have a material adverse affect on Excite's financial condition.
In addition, from time to time, Excite has received, and may receive in the
future, notice of claims of infringement of other parties' proprietary rights,
including claims for infringement resulting from users downloading of materials
by the service operated by Excite. Although Excite 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, may not be asserted or prosecuted against Excite or that any assertions
or prosecutions will not materially and adversely affect Excite's financial
condition. Irrespective of the validity or the successful assertion of such
claims, Excite would incur significant costs and diversion of resources to
defend any such claims which may have a material adverse affect on Excite's
financial condition. If any claims or actions were asserted against Excite,
Excite might seek to obtain a license under a third party's intellectual
property rights. Such a license may not be available on commercially reasonable
terms, or at all.
Excite also licenses from third parties certain of its technologies. As it
continues to introduce new services that incorporate new technologies, it may be
required to license additional technology from others. These third-party
technology licenses may not be available on commercially reasonable terms, if at
all. If Excite does not obtain any of these technology licenses it may
experience delays or reductions in the introduction of new services or may
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
may materially and adversely affect Excite's business.
GOVERNMENT REGULATION
There are currently few laws or regulations that specifically regulate
communications or commerce on the Internet or other online services. However,
laws and regulations may be adopted in the future that address issues such as
user privacy, pricing and other aspects of the sale of products or services. Any
new laws or regulations may increase the costs of conducting business or
transmitting data over the Internet or online services or may otherwise affect
Excite's business.
EMPLOYEES
As of December 31, 1998, Excite had 711 full-time employees, including 228 in
research and development, 370 in sales and marketing, 74 in finance and
administration and 39 in operations and support. Excite's employees are not
represented by any collective bargaining unit, and Excite has never experienced
a work stoppage. Excite believes its relations with its employees are good.
Excite depends on the performance and continued performance of its executive
officers and other key employees. Excite must also attract, train, retain and
motivate high quality personnel, especially its management and engineering and
development teams. Competition for such personnel is intense, particularly in
the San Francisco Bay Area. The loss of the services of any of Excite's
executive officers or other key employees or the failure of Excite to attract,
integrate, motivate and retain additional key
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<PAGE> 14
employees may adversely affect Excite's business. Excite does not have "key
person" life insurance policies on any of its employees.
ITEM 2. PROPERTIES
Excite's headquarters are located in, and substantially all of its operations
are conducted out of, leased facilities in Redwood City, California. In
addition, MatchLogic's facilities are located in, and substantially all of its
operations are conducted out of, leased facilities in Westminster, Colorado.
Excite and MatchLogic's leases include:
<TABLE>
<CAPTION>
SQUARE EXPIRATION
LOCATION FOOTAGE TERM DATE RENEWAL OPTION
- -------- ------- ---- ---- --------------
EXCITE
<S> <C> <C> <C> <C>
Redwood City, California 88,000 10 years March 2007 One additional 5 year term
Redwood City, California 50,000 10 years September 2008 One additional 5 year term
MATCHLOGIC
Westminster, Colorado 46,000 10 years July 2009 Two additional 3 to 5 year terms
</TABLE>
In addition, Excite has leased an additional 23,000 square feet of office
space adjacent to its headquarters under a ten-year lease expiring in March
2007, which Excite has subleased through June 1999 with an additional three
month renewal option through September 1999. In relation to the acquisition of
Classifieds2000, Excite assumed a 20,000 square foot leased facility located in
Sunnyvale, California, under a lease expiring in March 2003, which Excite has
subleased through that date.
Excite believes that its existing facilities and offices are adequate to meet
its requirements for the foreseeable future.
Excite has also leased additional space, primarily for sales offices, in
London, England; New York, New York; Austin, Texas; Seattle, Washington; and
other cities in the United States. Excite's success largely depends on the
uninterrupted operation of its computer and communications systems. Accordingly,
a system failure at Excite's operations facilities may materially and adversely
affect the performance of Excite's services.
ITEM 3. LEGAL PROCEEDINGS
On November 18, 1996, Kristine Paaso and Laura Lindsey filed a complaint in
the California Superior Court, Santa Clara County, against Excite 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
Excite's business plan and were entitled to participate as officers and
stockholders of Excite. The complaint seeks an unspecified amount of damages,
including punitive damages. In February 1998, the Court granted Excite a motion
for summary judgment to this complaint and entered judgment in favor of Excite
and the individual defendants on all claims. The plaintiffs have subsequently
filed a notice of appeal from the judgment. Excite intends to continue to defend
this action vigorously. It may not be possible to ascertain the definitive
outcome of this litigation at this time, an unfavorable outcome may have an
adverse affect on Excite's financial condition. The cost of litigation,
regardless of the outcome, may also adversely affect Excite's financial
condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no submissions of matters to a vote of security holders during
the quarter ended December 31, 1998.
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<PAGE> 15
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information regarding the executive
officers of Excite:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
George Bell 42 Chief Executive Officer and a Director
John Polumbo 46 President and Chief Operating Officer
Robert C. Hood 57 Executive Vice President, Chief Administrative Officer
and Chief Financial Officer
Brett T Bullington 45 Executive Vice President
Pete Estler 36 President and Chief Executive Officer, MatchLogic
Joseph R. Kraus, IV 27 Senior Vice President and a Director
Kenneth Wachtel 46 Senior Vice President, Advertising Sales
Fred Siegel 45 Senior Vice President, Marketing
Chris Vail 38 Vice President, General Counsel and Secretary
</TABLE>
Mr. Bell has been Chief Executive Officer and a director of Excite since
January 1996 and was also the President of Excite from January 1996 to August
1998. From December 1995 until January 1996, he was a consultant to Excite. 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. Polumbo has been President and Chief Operating Officer of Excite since
August 1998. From June 1995 to August 1998, he was employed by Pacific Bell, a
telecommunications company, most recent as President and Chief Executive Officer
of Pacific Bell Mobile Services and previously as President of Pacific Bell's
Consumer Markets Group. Before joining Pacific Bell, Mr. Polumbo served as Vice
President of Sybase, Inc.'s Worldwide Customer Service and Support business
unit. Prior to joining Sybase in 1994, Mr. Polumbo served as Sprint
Communications' Senior Executive on the West Coast, a position that he assumed
in 1990. He received a B.A. in Social Sciences from the University of Pittsburgh
and an M.B.A. from Stanford University (Sloan Program).
Mr. Hood has been Executive Vice President, Chief Administrative Officer and
Chief Financial Officer of Excite since December 1996. From November 1996 to
December 1996, he was a consultant to Excite. 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. He received a B.A. in Economics from Bates
College and an M.B.A. from Dartmouth College.
Mr. Bullington has been Executive Vice President of Excite since January
1997. From November 1995 to January 1997, he served as Senior Vice President,
Marketing and Sales of Excite and, from August 1995 until November 1995, he was
a consultant to Excite. 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. He received a B.A. in Political Science from the University of
California at Santa Barbara.
Mr. Estler has been President and Chief Executive Officer of MatchLogic
since inception. Prior to joining Matchlogic, Mr. Estler was President and
founder of dbINTELLECT Technologies, a Colorado-based division of EDS, since
September 1993. Mr. Estler graduated with honors in Computer Science from
Chattanooga University.
Mr. Kraus has been a Senior Vice President of Excite since January 1997 and
a director of Excite since June 1994. He served as Senior Vice President,
Business Development of Excite from January 1996 to January 1997 and, from June
1994 to January 1996, served as President of Excite. Prior to joining Excite,
Mr. Kraus was a student at Stanford University. He received a B.A. in Political
Science from Stanford University.
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<PAGE> 16
Mr. Wachtel has been Senior Vice President, Advertising Sales since March
1997. Prior to joining Excite and since 1976, Mr. Wachtel was employed by CBS
television network, most recently as Vice President, News Sales. He received an
A.B. in Economics and Government from Dartmouth College and an M.B.A. from the
University of Chicago Graduate School of Business.
Mr. Seigel has been Senior Vice President, Marketing of Excite since October
1998. From July 1993 to October 1998, Mr. Seigel served as Senior Vice
President, Marketing of QVC, Inc., a home shopping company. He received a B.A.
in Behavior Sciences from Drew University.
Mr. Vail has been Vice President, General Counsel since October 1997 and
Secretary of Excite since May 1997. From April 1997 to September 1997, Mr. Vail
served as Associate General Counsel of Excite and from September 1996 to March
1997 he served as Contracts Manager of Excite. From January 1996 to September
1996, Mr. Vail maintained his own law practice. From May 1989 to January 1996,
Mr. Vail was a member of the legal department of AT&T, a communications
company. He received a B.A. in Government from Georgetown University and a J.D.
from the University of California, Los Angeles. Mr. Vail is a member of the
State Bar Association of California.
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<PAGE> 17
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Excite's Common Stock has been traded on the Nasdaq Stock Market under the
symbol "XCIT" since April 4, 1996. The following table sets forth the high and
low closing sales prices of Excite's Common Stock for the periods indicated and
are reported by the Nasdaq Stock Market, adjusted for the July 1998 two-for-one
stock split:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31, 1997 HIGH LOW
- ----------------------------------- -------- -------
<S> <C> <C>
First quarter $ 10.57 $ 4.38
Second quarter 7.94 3.94
Third quarter 17.13 7.13
Fourth quarter 17.19 10.06
FISCAL YEAR ENDED DECEMBER 31, 1998 HIGH LOW
- ----------------------------------- -------- -------
First quarter $ 27.94 $ 14.94
Second quarter 46.75 25.69
Third quarter 53.50 21.75
Fourth quarter 56.63 29.03
</TABLE>
As of December 31, 1998, there were approximately 981 stockholders of record
of Excite's Common Stock, although Excite believes that there is a larger number
of beneficial owners of its Common Stock. Excite has never paid cash dividends
on its stock, and anticipates that it will continue to retain its earnings, if
any, to finance the growth of its business. In addition, Excite's bank line of
credit prohibits the payment of cash dividends on capital stock without the
bank's prior written consent. See Note 4 of Notes to Consolidated Financial
Statements.
The market price of Excite's Common Stock is highly volatile and is subject
to wide fluctuations in response to a wide variety of factors including
quarterly variations in operating results, announcements of technological
innovations or new services by Excite or its competitors, conditions affecting
the Internet industry, changes in financial estimates by securities analysts, or
other events or factors. For example, during the thirteen months ended January
31, 1999, Excite's Common Stock closed as low as $14.94 and as high as $118.50.
In addition, the stock market, particularly the market for securities of
Internet related companies, 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. These broad market fluctuations
may adversely affect the market price of Excite's Common Stock. In the past,
following periods of volatility in the market price of a company's securities,
securities class action litigation has often been instituted. Such litigation
may result in substantial costs and a diversion of management's attention and
resources, which may have a material adverse affect on Excite's business
financial condition.
RECENT SALE OF UNRESTRICTED SECURITIES AND USE OF PROCEEDS
Not applicable.
USE OF PROCEEDS FROM SALE OF REGISTERED SECURITIES
Not applicable.
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<PAGE> 18
ITEM 6: 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 Annual Report on Form 10-K.
FINANCIAL SUMMARY (1):
<TABLE>
<CAPTION>
AS OF OR FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA) 1998 1997 1996 1995 1994
--------- --------- --------- ------- -------
<S> <C> <C> <C> <C> <C>
Revenues $ 154,105 $ 54,114 $ 14,757 $ 953 $ 293
Gross Profit 125,032 33,079 10,608 725 205
Operating Expenses (2) 158,649 73,880 54,726 7,115 851
Net loss (36,974) (41,392) (43,117) (6,435) (650)
Net loss per share (3) (0.78) (1.47) (2.38) (3.08) (0.94)
Total assets 220,673 76,693 47,698 3,801 157
Working capital (deficit) 89,480 22,970 8,124 (878) (442)
Long-term obligations 18,236 9,689 3,985 995 100
Stockholders' equity (net capital deficiency) 143,399 34,852 25,097 (4,034) (542)
</TABLE>
(1) Reflects restatements for all material pooling of interests. See Note 2 of
Notes to Consolidated Financial Statements.
(2) Includes charges of $6.2 million, $2.3 million, $3.5 million and $331,000
for the years ended December 31, 1998, 1997, 1996 and 1995, respectively,
for in-process technology charges. For the years ended December 31, 1998,
1997 and 1996, merger and acquisition related costs, including amortization
of goodwill and other purchased intangibles of $4.9 million, $4.0 million
and $3.1 million, respectively, were included. In addition, amortization of
prepaid Netscape service of $17.7 million was included for the year ended
December 31, 1998.
(3) The net loss per share amounts prior to 1997 have been restated as required
to comply with Statement of Financial Standards No. 128, "Earnings Per
Share" and Staff Accounting Bulletin No. 98. For further discussion of loss
per share and the impact of Statement No. 128 and Staff Accounting Bulletin
No. 98, see Note 1 of Notes to Consolidated Financial Statements.
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<PAGE> 19
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD LOOKING STATEMENTS
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations contains forward-looking statements, which involve
risks and uncertainties. Excite's actual results may differ materially from
those anticipated in these forward-looking statements as a result of the Merger
with At Home, which is expected to close during the second quarter of 1999, and
certain other factors, including, without limitation, those risk factors set
forth under "Risk Factors that May Affect Future Results" included in this
Management's Discussion and Analysis of Financial Condition and Results of
Operations. The following discussion should be read in conjunction with the
consolidated financial statements and notes thereto included elsewhere in this
Report.
OVERVIEW
Excite, Inc., or "Excite", operates the Excite Network, which includes the
Excite, WebCrawler and Classifieds2000 brands, and provides a gateway to the Web
that organizes, aggregates and delivers information to meet the needs of
individual consumers. Excite was formed in June 1994 and first launched its
Excite search and directory service in October 1995.
Historically, Excite's advertising revenues have been derived principally
from short-term advertising contracts in which Excite guarantees a minimum
number of impressions, a view of an advertisement banner by a consumer, for a
fixed fee. Such banner advertising revenue is dependent upon both the number of
impressions and the rate per thousand impressions, or "CPMs", charged. Excite
generally charges higher rates for advertisements focused on targeted groups,
either by keyword associations or affiliations with specific content, than for
general rotation advertisements. During its limited operating history, Excite
has experienced seasonal fluctuations in the amount of banner advertisements
sold on its network, with advertisers historically purchasing fewer
advertisements in the first calendar quarter of each year. Because the market
for Web advertising is an emerging market, additional seasonal patterns in Web
advertising may develop in the future as the market matures.
In 1997, Excite also began entering into longer-term advertising and
commerce sponsorship agreements. These agreements generally involve more
integration with the Excite Network and provide for more varied sources of
revenue to Excite over the term of the agreements, which average from two to
three years. Under these agreements, Excite earns fees for generating
impressions that in some instances are guaranteed. Sponsorship customers
accounted for approximately 25% and 24% of advertising revenues for 1998 and
1997, respectively. Revenues are generally recognized ratably over the term of
the agreement, provided that Excite does not have any significant remaining
obligations and collection of the resulting receivable is probable. To the
extent that impression deliveries are falling short of the guarantees, Excite
defers recognition of the corresponding revenues. A number of these agreements
also provide that revenues or gross margins from advertising and electronic
commerce transactions are to be shared between the advertiser and Excite as
realized. Revenues or margin sharing recognized from such electronic commerce
transactions were insignificant through 1998, and are expected to be
insignificant through 1999. See "Risk Factors that May Affect Future Results -
Excite Depends on Sponsorship Agreements for Revenues" and " - Risks Associated
with Banner Advertising."
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Over the past several years, Excite has grown by both developing new products
and services, and by acquiring a number of businesses, technologies, services
and content through mergers and acquisitions. During the three years ended
December 31, 1998, Excite completed the following acquisitions:
<TABLE>
<CAPTION>
SHARES OF EXCITE
SHARES OF SERIES E SHARES OF
EXCITE CONVERTIBLE OPTIONS AND
COMPANY OR TECHNOLOGY COMMON PREFERRED STOCK WARRANTS
ACQUIRED DATE ACQUIRED STOCK ISSUED ISSUED ASSUMED
- -------- ------------- ------------ ------ -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
McKinley August 1996 1,700 - 28
AOL's WebCrawler November 1996 - 1,950 -
Netbot November 1997 1,708 - 422
MatchLogic February 1998 6,122 - 1,049
Classifieds2000 April 1998 1,730 - 50
Throw April 1998 330 - 318
</TABLE>
All of the above acquisitions were accounted for as pooling of interests,
except for the acquisition of Throw and WebCrawler which were accounted for as
purchases. Excite's financial information has been restated to reflect all
material pooling of interests. See "Risk Factors that May Affect Future
Results-Acquisition Strategy; Integration of Past and Future Acquisitions" and
Note 2 of Notes to Consolidated Financial Statements.
Excite has incurred significant operating losses since inception, and as of
December 31, 1998, Excite had an accumulated deficit of approximately $135.6
million. Although Excite experienced significant revenue growth during 1998 and
1997, Excite may not be able to sustain the growth of its revenues. Excite's
historical operating results may not be indicative of future operating results.
In addition, as Excite has grown, its operating expenses have increased, and
Excite expects that its operating expenses will continue to increase as a result
of its acquisitions, the performance of its obligations under the Netcenter
Agreement, its increased sales and marketing efforts, its increased funding for
development activities and the increased general and administrative staff needed
to support Excite's growth. 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, Excite's
financial condition will be materially and adversely affected. Excite may never
attain profitability on a quarterly or annual basis.
NETSCAPE AGREEMENT
In April 1998, Excite and Netscape Communications Corporation, or
"Netscape", entered into a two-year agreement, or "Netcenter Agreement," under
which Excite will, among other things, provide, host and sell advertising for
certain co-branded services for Netscape's Netcenter service. In connection with
the Netcenter Agreement, Excite has paid to Netscape a total of $70.0 million,
or the "Cash Payment". Also in connection with the Netcenter Agreement, Excite
has issued to Netscape a warrant to purchase 846,158 shares of Excite's Common
Stock at an exercise price of approximately $29.55 per share, or the "First
Warrant", and a second warrant to purchase shares of Excite's Common Stock at an
aggregate exercise price of $10.0 million, or the "Second Warrant". The First
Warrant is exercisable for a two-year period commencing on April 30, 1998. The
Second Warrant will be exercisable for a two year period commencing April 30,
1999. The exercise price per share of Common Stock covered by the Second Warrant
will be determined by dividing $10 million by the average closing price of
Excite's Common Stock for the 30 most recent trading days ending on the third
trading day preceding April 30, 1999. The fair value of the First Warrant and
the aggregate $10.0 million exercise price of the Second Warrant was valued at
$19.9 million. The Cash Payment and the value assigned to the warrants totaling
$89.9 million were capitalized as Prepaid Netscape Distribution Costs and
Trademarks during the second quarter of 1998 and are being amortized ratably
over the two-year term of the Netcenter Agreement. The unamortized amount to be
expensed under the Netcenter Agreement as of December 31, 1998, is separated
into two components as follows: the amount which represents the anticipated
future net revenues from the Netcenter Agreement, or $23.5 million, will be
charged to Distribution License Fees and Data Acquisition Costs; and the
remaining amount, or $42.9 million, representing the combined value of marketing
and distribution rights, trademarks and other exclusive benefits derived from
the agreement will be charged ratably over the term of the agreement to
Amortization of Prepaid Netscape Service.
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Under the Netcenter Agreement, Excite will only recognize revenues generated
from the co-branded services and not from any other part of Netcenter. A portion
of the revenues will be credited against Excite's revenue-sharing obligation to
Netscape until Excite recoups a specified amount of the Cash Payment.
Thereafter, Excite must pay Netscape a portion of additional revenues generated
from the co-branded services. Excite does not expect that the revenue generated
from the co-branded services will exceed 10% of Excite's total revenue over the
term of the Netcenter Agreement. Excite has incurred expenses for the start-up
and development of the services contemplated in the Netcenter Agreement,
including the costs of personnel, content creation, facilities and depreciation
of assets purchased for Netcenter. Unless Netscape generates impressions
significantly greater than the guaranteed amount as specified in the agreement,
the increased revenues to Excite resulting from the co-branded services under
the Netcenter Agreement will not be sufficient to recover the combined costs of
the prepayment, the warrant value and the incremental operating costs that will
be incurred by Excite as a result of the agreement. On this basis, Excite
anticipates that the Netcenter Agreement will serve to generate losses for
Excite during its term.
Netscape has made guarantees for the number of times a link to Excite is
displayed on the NetSearch page. The actual delivery of impressions between the
launch of the Netcenter co-branded service in June 1998 to September 1998 were
significantly below expectations. However, during the fourth quarter of 1998,
the delivery of impressions improved from the previous quarter due to the
implementation of certain changes made by Netscape and Excite. Such improvements
include: Excite's search rotation increased on Netscape's home page search and
Netscape added another slot to its list of providers on the NetSearch page,
which is dedicated to Excite and has the same prominence as all the "premier
providers". There are no interim, month to month or quarterly performance
milestones to the agreement. If Netscape does not achieve its impression
guarantees within the two-year term of the agreement, then the term would be
extended until the guarantees are met. To the extent the impression flow from
Netscape falls short of the guaranteed level, Excite's ability to recover the
prepayment within the term of the agreement may be impaired. See "Risk Factors
that May Affect Future Results - Significant Risks Associated with the Netcenter
Agreement" and see Note 13 of Notes to Consolidated Financial Statements.
RESULTS OF OPERATIONS
REVENUES
Revenues increased 185% to $154.1 million in 1998 as compared to $54.1
million in 1997 and $14.8 million in 1996. The increase in 1998 revenue compared
to 1997 and 1996 revenue resulted primarily from an increase in the amount of
advertisements sold, an increase in the number of advertisers purchasing
advertising banners on Excite's Web sites, an increase in sponsorship
advertising revenue, and to a lesser extent, an increase in sales of targeted
advertisements with higher rates. Also contributing to the increase in revenues
was the increased revenues attributable to MatchLogic, which began operations in
May 1997.
No one customer accounted for more than 10% of revenues for 1998 and 1997.
One customer accounted for approximately 12% of revenues for 1996. Revenues
generated from international operations was approximately 3% and 2% of revenues
in 1998 and 1997, respectively. There were no revenues generated from
international operations in 1996. See Note 1 and 11 of Notes to Consolidated
Financial Statements.
Excite expects to continue to derive a substantial majority of its total
revenues from selling advertisements. Because the market for advertising on the
Web is intensely competitive, advertising rates may be subject to pricing
pressures in the future. If Excite is forced to reduce its advertising rates or
experiences lower CPMs as a result of such competition or otherwise, future
revenues may be adversely affected. Beginning in the second quarter of 1997,
Excite started to sell a combination of sponsorship and banner advertising
contracts in addition to the banner advertising contracts historically sold by
Excite. Excite does not expect revenue growth relating to sponsorship
advertising revenues to continue at the current rate in future periods as
availability of exclusive sponsorships may be limited.
COST OF REVENUES
Cost of revenues consists primarily of hosting costs; royalties and other
cost of revenues; and amortization of purchased technology. Hosting costs relate
to the maintenance and technical support of the Excite Network, and are
comprised principally of personnel costs, telecommunications costs, equipment
depreciation and overhead allocations. Royalties and other cost of revenues
include expenses related to
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royalties, license agreements and revenue sharing agreements for content and
other services such as e-mail and chat room services. In 1997 and 1996, Excite
recognized, as a component of cost of revenues, amortization of purchased
developed technology of $8.2 million and $186,000, respectively, related to the
WebCrawler acquisition. There were no corresponding costs for 1998 as the cost
of this technology was fully amortized at December 31, 1997.
Total cost of revenues increased in absolute dollars by $8.0 million to
$29.1 million, or 19% of revenues in 1998 from $21.0 million, or 39% of revenues
in 1997 and by $16.9 from $4.1 million, or 28% of revenues for 1996 as compared
with 1997. Hosting costs for 1998 increased in absolute dollars to $16.2
million, or 10% of revenues, from $8.6 million, or 16% of revenues for 1997 and
from $3.3 million, or 22% of revenues for 1996. The increase in hosting costs is
due primarily to an increase in personnel expenses and equipment costs relating
to maintenance and support of Excite's Web sites and services. Royalties and
other cost of revenues increased in absolute dollars to $12.9 million, or 8% of
revenues for 1998, from $4.2 million, or 8% of revenues for 1997, and from
$667,000, or 5% of revenues for 1996. The increase in royalties and other cost
of revenues was primarily due to increased royalties and margin sharing payments
from revenue sharing agreements.
Cost of revenues in future periods is expected to increase in absolute
dollars and may increase as a percentage of revenues as Excite increases costs
to support expanded services and content.
GROSS PROFIT
Gross profit was $125.0 million or 81% of revenues, $33.1 million or 61% of
revenues and $10.6 million or 72% of revenues for 1998, 1997 and 1996,
respectively. The increase in gross profit in absolute dollars and as a
percentage of revenues in 1998 compared to 1997 was primarily due to the fact
that revenues grew at a faster rate than hosting costs and royalties and other
cost of revenues, a favorable mix of advertising services, and the elimination
of amortization of purchased technology. The decline in gross profit as a
percentage of revenues from 1997 compared to 1996 was due primarily to the
amortization of purchased technology discussed above, as well as increased
hosting costs to support expanded Web site offerings and increased royalties and
margin sharing costs, offset in part by increased revenues. In the future, gross
profit may be affected by the types of advertisements sold and revenue sharing
provisions of distribution and content agreements.
These items have negatively affected gross profit in the past and may
continue to negatively affect it in the future. Furthermore, pursuant to the
provisions of certain agreements with operators of Web access points and with
content providers, Excite 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 Excite's advertising revenue sharing
obligations may adversely affect gross margins in the future.
OPERATING EXPENSES
Excite's operating expenses have generally increased in absolute dollar
amounts since inception. This trend reflects Excite's rapid transition from the
product development stage to marketing and offering its services. Excite
believes that continued expansion of its operations is essential to achieving
and maintaining market leadership. As a consequence, Excite intends to continue
to increase expenditures in all operating areas for the foreseeable future.
RESEARCH AND DEVELOPMENT. Research and development expenses consist
principally of engineering and editorial personnel costs, equipment
depreciation, consulting fees, supplies and allocation of overhead. Research and
development expenses increased to $29.2 million or 19% of revenue in 1998, from
$16.7 million or 31% of revenues in 1997 and $8.0 million or 54% of revenues in
1996. The increase in absolute dollars in 1998 compared to 1997 was primarily
attributable to increased expenses as a result of the Classifieds2000 and Throw
acquisitions, and the acquisition of Netbot in November 1997, as well as an
increase in engineering and editorial headcount to support Excite's channels
format and personalization capabilities for the Excite Network. The increase in
absolute dollars for 1997 compared to 1996 was due to an increase in engineering
and editorial headcount to support Excite's channels format and personalization
capabilities for the Excite Network as well as the commencement of operations of
MatchLogic in May 1997.
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Excite believes that a significant level of research and development expense
is required to remain competitive and, accordingly, Excite anticipates that it
will continue to devote substantial resources to research and development and
that these costs will increase in absolute dollars in future periods. Excite
also expects to continue to experience increased research and development
expenses in order to integrate any technologies acquired in the future and
provide programming and content for the co-branded services of Netcenter.
SALES AND MARKETING. Sales and marketing expenses consist principally of
sales and marketing personnel costs, agency and consulting fees, commissions,
promotional and advertising expenses and allocation of overhead. Sales and
marketing expenses were $62.4 million or 40% of revenue in 1998, compared to
$32.0 million or 59% of revenue in 1997 and $21.1 million or 143% of revenue in
1996. The increase in absolute dollars in 1998 compared to 1997 was primarily
due to the hiring of additional sales and marketing personnel, increased sales
and marketing expenses resulting from the acquisition of Classifieds2000, and to
a lesser extent, a national television advertising campaign that launched in
December 1998. The increase in absolute dollars in 1997 from 1996 was primarily
due to the continuation of a significant media advertising campaign that
launched in the fourth quarter of 1996 and continued into the first quarter of
1997, and the hiring of additional sales and marketing personnel and the
launching of the redesigned WebCrawler brand.
Excite expects to continue to incur significant promotional and advertising
expenses and anticipates that these costs will increase in absolute dollars in
future periods as Excite promotes its brands and introduces new services in
order to create and maintain brand loyalty among consumers. Excite also expects
to continue to experience increased sales and marketing expenses as it is
responsible for all advertising sales on the co-branded services of Netcenter.
Excite may also seek to enter into additional third party relationships which it
believes will help promote its brand. As a result, Excite may need to divert
resources from other areas. These brand building efforts may not be successful,
which may adversely affect Excite's business.
DISTRIBUTION LICENSE FEES AND DATA ACQUISITION COSTS. Distribution license
fees and data acquisition costs consist principally of fees paid to third-party
Internet companies such as Netscape to provide entry points to the Excite
Network and costs to update and maintain the ad targeting and tracking database
which is continually being updated by Excite's MatchLogic subsidiary.
Distribution license fees and data acquisition costs increased to $21.7 million
in 1998 from $9.4 million in 1997 and $11.9 million in 1996. The 1998 and 1997
costs included distribution license fees related to agreements previously
entered into with Netscape in March 1997, which have expired, as well as data
acquisition costs incurred by MatchLogic during the period. In addition, during
1998, a total of $5.8 million was amortized to Distribution License Fees and
Data Acquisition Costs relating to the April 1998 Netcenter Agreement. See "Risk
Factors that May Affect Future Results--Significant Risks Associated with the
Netcenter Agreement."
In June 1997, Excite entered into a co-marketing services agreement and a
trademark license agreement with Netscape. Under these agreements, Excite is
responsible for the programming, production, operations and advertising sales of
"International Netscape Guide by Excite," a service being made available in
Australia, France, Germany, Japan and the United Kingdom. In connection with
these agreements, Excite made a payment of $4.0 million to Netscape in July
1997, which is being amortized over the terms of these agreements to
distribution license fees expense. In March 1997, Excite 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 agreements, Excite made a payment of $8.3
million.
In 1996, distribution license fees included a one-time, non-cash charge of
approximately $1.6 million related to the issuance of a warrant to AOL during
the first quarter of 1996, and a $10.0 million charge relating to Excite's
premier provider agreements with Netscape in the second quarter of 1996.
In the future, high traffic Web sites, Internet service providers, providers
of Web browsers or other distribution channels may require cash payments or
other types of consideration as compensation for listing or promoting the Excite
Network, which may result in increased distribution license fees.
GENERAL AND ADMINISTRATIVE. General and administrative expenses consist
principally of administrative and executive personnel costs, provision for
doubtful accounts, fees for professional services and allocation
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of overhead. General and administrative expenses increased in absolute dollars
to $16.6 million or 11% of revenue in 1998, from $9.5 million or 18% of revenue
in 1997 and $7.1 million or 48% of revenue in 1996. The increase in absolute
dollars in 1998 compared to 1997 is primarily due to increased personnel costs
to support the expansion and infrastructure of Excite's operations and
international expansion efforts. In particular, the acquisition of
Classifieds2000 and the growth in Excite's finance and administrative
departments contributed to this increase. The increase in absolute dollars in
1997 compared to 1996 was primarily due to increased personnel, professional
service fees, provision for doubtful accounts and relocation to new facilities
to support Excite's growth.
Excite anticipates that its general and administrative expenses may continue
to increase in absolute dollars as Excite expands its administrative and
executive staff, adds infrastructure and integrates acquired technologies and
businesses. In addition, Excite plans to continue to run MatchLogic as an
independent subsidiary with its own administrative function.
IN-PROCESS TECHNOLOGY. During 1998, 1997 and 1996, Excite incurred
charges for in-process technology of $6.2 million, $2.3 million and $3.5 million
respectively.
In April 1998, Excite acquired all of the assets of Throw, Inc.,
including an Internet-based community technology that creates environments,
centered around common themes, where users can interact on both an asynchronous
as well as a synchronous basis. These communities are being developed to contain
numerous linked features that facilitate communication amongst multiple users,
including event calendars, photo albums, address books, chat rooms and threaded
discussions.
The purchase price approximated $17.0 million, which consisted of $16.2
million of stock issued and $800,000 of direct acquisition costs. In connection
with the acquisition, Excite accounted for the transaction as a purchase and
allocated $6.2 million to in-process technology and $10.8 million to goodwill.
Purchased in-process technology represents the present value of the estimated
after-tax cash flows expected to be generated by the purchased technology,
which, at the acquisition date, had not yet reached technological feasibility
and does not have alternative future uses. The goodwill is being amortized on a
straight-line basis over three years.
The technology projects in-process as of the acquisition date consisted of
the development of the system's Solaris 2.6 platform, the Oracle database, and
the objects, areas and applications that will comprise the templates and
supporting feature applets.
These projects were grouped into three categories as of the acquisition
date:
<TABLE>
<CAPTION>
PROJECT PERCENT COMPLETE
- ------- ----------------
<S> <C>
Standard templates and features 35%
First generation templates and features 65%
Second generation templates and features 55%
</TABLE>
The expected costs to complete these projects in aggregate as of the
acquisition date totaled approximately $1.5 million. The standard templates and
features were completed in the third quarter of 1998 and had reached
technological feasibility. The first and second generation templates and
features are projected by Excite's management to be completed by May 1999.
The cash flow projections for revenues were based on the projected
incremental increase in revenue attributable to the in-process technology that
Excite will receive as a result of the acquisition. Revenues derived from the
in-process technology were expected to increase through 2000 and then decrease
in 2001. No revenue was assigned to in-process technology in 2002 or beyond
because 2001 is estimated to be the end of the in-process technology's economic
life. Estimated operating expenses and income taxes were deducted from estimated
revenue projections to arrive at estimated after-tax cash flows. Projected
operating expenses include:
- - cost of revenues;
- - general and administrative expenses;
- - sales and marketing expenses;
- - and research and development, including estimated costs to maintain the
technology once it has achieved technological feasibility.
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Operating expenses were estimated as a percentage of revenue and were based
primarily on projections prepared by Excite's management and industry averages.
The discount rate used to discount the net cash flow back to their present
values is based on the weighted average cost of capital, or "WACC". A discount
rate of 35% was used for valuing the in-process technology. This discount rate
is higher than the implied WACC due to the inherent uncertainties surrounding
the successful development of the purchased in-process technology, the useful
life of such technology, the profitability levels of such technology, and the
uncertainty of technological advances that are unknown at this time. As is
standard in the appraisal of high growth markets, projected revenues, expenses
and discount rates reflect the probability of technical and marketing success.
The 1997 charge of $2.3 million related to the value of acquired in-process
technology that had not reached technological feasibility at the time of
MatchLogic's formation in May 1997. The 1996 charge of $3.5 million for
purchased in-process technology related to the acquisition of the WebCrawler
search and directory technology. See Note 2 of Notes to Consolidated Financial
Statements.
OTHER MERGER AND ACQUISITION RELATED COSTS, INCLUDING AMORTIZATION OF
GOODWILL AND OTHER INTANGIBLE ASSETS. During 1998, 1997 and 1996, Excite
incurred merger and acquisition related costs of $4.9 million, $4.0 million and
$3.1 million respectively. In 1998, Excite incurred charges of approximately
$700,000 and $743,000 for the acquisition of MatchLogic and Classifieds2000,
respectively, which primarily related to legal and other professional fees. In
addition, Excite incurred charges during 1998 of approximately $2.7 million
relating to the amortization of goodwill and other purchased intangibles
resulting from the acquisition of Throw and approximately $800,000 relating to
the amortization of goodwill and other purchased intangibles resulting from the
WebCrawler acquisition. In 1997, Excite incurred other merger and acquisition
costs of $1.8 million resulting from the amortization of other WebCrawler
intangible assets, $1.5 million from the Netbot merger and $700,000 from the
amortization of other acquired intangible assets. The 1996 charge included
approximately $2.2 million associated with the merger with McKinley, and
approximately $769,000 related to the amortization of goodwill and other
intangible assets resulting from the WebCrawler acquisition and the acquisition
of City.Net.
AMORTIZATION OF PREPAID NETSCAPE SERVICE. During 1998, Excite incurred costs
of $17.7 million related to the amortization of the Prepaid Netscape Service
associated with the April 1998 Netcenter Agreement, which has an original term
of two years. Excite anticipates incurring a total amortization charge of
approximately $7.6 million per quarter relating to the Netcenter Agreement for
the duration of the agreement, which is currently scheduled to expire in June
2000.
INTEREST INCOME (EXPENSE) AND OTHER. Interest income was $1.6 million, $1.3
million and $1.4 million for 1998, 1997 and 1996, respectively. The increase in
interest income for 1998 was primarily due to interest earned on cash received
in June 1998 from Excite's public offering, which was used to fund operations
and to satisfy Excite's obligations under the Netcenter Agreement. The decrease
in 1997 was primarily the result of the use of cash received from the 1996
initial public offering to fund operations, offset in part by interest earned on
the proceeds of approximately $38.4 million from the sale of Common Stock to
Intuit in the second quarter of 1997. The increase in 1996 reflected interest
earned on investments from cash received from Excite's Series D Preferred Stock
financing and its initial public offering. Interest expense and other increased
to $2.8 million for 1998, from $1.4 million for 1997 and $409,000 for 1996. The
increase in 1998 was due primarily to an increase in interest expense resulting
from the $50 million note payable due to Intuit, as well as additional capital
lease obligations, non-lease financing obligations and interest on the
convertible note issued to Itochu Corporation in October 1997. The increases in
1997 from 1996 were due primarily to increased expenses associated with an
increased amount of capital lease obligations and bank borrowings.
INVESTMENT PORTFOLIO. Excite does not use derivative financial instruments in
its investment portfolio. Excite considers investments in highly liquid
instruments purchased with an original maturity of 90 days or less to be cash
equivalents. Excite places its investments in instruments that meet high credit
quality standards, as specified in Excite's investment policy guidelines; the
policy also limits the amount of credit exposure to any one issue, issuer, and
type of instrument. All of Excite's cash equivalents and short-term investments,
consisting principally of commercial paper, equity securities and governmental
securities, are classified as available-for-sale as of December 31, 1998. Excite
does not expect any material loss with respect to its investment portfolio.
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The table below provides information about Excite's investment portfolio. For
investment securities, the table presents principal cash flows for 1999 and the
related average interest rates. Excite maintains its cash and cash equivalents
in short-term investment-grade interest-bearing securities until required for
other purposes. Excite's investment policy requires that all investments mature
in one year or less.
Principal (Notional) Amounts by Expected Maturity in U.S. Dollars:
<TABLE>
<CAPTION>
FAIR VALUE AT
1999 DECEMBER 31, 1998
---- -----------------
(IN THOUSANDS, EXCEPT INTEREST RATES)
<S> <C> <C>
Cash Equivalents $ 11,382 $ 11,389
Average Interest Rate 4.00%
Investments $ 11,265 $ 11,270
Average Interest Rate 6.63%
Total Portfolio, excluding Equity Securities $ 22,647 $ 22,659
Average Interest Rate 6.34%
Equity Securities $ 4,411
</TABLE>
EQUITY SHARE OF LOSSES OF AFFILIATED COMPANY. In October 1997, Excite and
Itochu Corporation and certain affiliated entities, or collectively "Itochu",
entered into a joint venture agreement with respect to Excite's wholly-owned
subsidiary, Excite Japan, in order to provide Web-based information services to
the Japanese market. Excite currently holds, and intends to retain, a 50% equity
interest in Excite Japan. As of December 31, 1998, Excite held a 50% equity
interest in Excite Japan. Excite's share of the losses of Excite Japan for 1998
and 1997 was $2.1 million and $477,000, respectively. Excite expects that it
will record increased losses from Excite Japan during 1999. See Note 10 of Notes
to Consolidated Financial Statements.
INCOME TAXES. At December 31, 1998, Excite had federal and state net
operating loss carryforwards of approximately $143.4 million and $71.0 million,
respectively. The federal net operating loss carryforwards will expire beginning
in 2009 through 2013, if not utilized. The state net operating loss
carryforwards will expire at various dates beginning in 1999 through 2003. 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 Excite. See Note 9 of Notes
to Consolidated Financial Statements.
YEAR 2000 IMPLICATIONS
Many currently installed computer systems, hardware and software products
are coded to accept only two digit entries in the date code field and cannot
distinguish 21st century dates from 20th century dates. These date code fields
will need to distinguish 21st century dates from 20th century dates and, as a
result, many companies' software and computer systems may need to be upgraded or
replaced in order to comply with such "Year 2000" requirements. Excite's
business is dependent on the operation of numerous systems that may potentially
be adversely impacted by Year 2000 related problems. Those systems include,
among others:
- - hardware and software systems used by Excite to deliver services to its
consumers, including Excite's proprietary software systems as well as
hardware and software supplied by third parties;
- - communications networks, such as the Internet, which Excite depends on to
provide services;
- - the internal systems of Excite's consumers, users and suppliers;
- - the hardware and software systems used internally by Excite in the
management of its business;
- - and non-information technology systems and devices used by Excite in its
business, such as telephone and building systems.
Excite has implemented a six-phase plan to mitigate possible Year 2000
affects on Excite's business and systems. Excite has designated a Year 2000
project team to develop and implement that plan. This plan has executive
sponsorship and is regularly reviewed by senior management. This six-phase plan
includes the following:
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- - Phase one, awareness: involves increasing company awareness by educating and
involving all appropriate levels of management regarding the need to address
Year 2000 issues.
- - Phase two, inventory: consists of identifying all of Excite's systems,
technology, services and relationships that may be impacted by Year 2000.
- - Phase three, assessment: involves determining Excite's current state of Year
2000 readiness for those areas identified in the inventory phase and
prioritizing areas that need to be addressed.
- - Phase four, remediation: consists of developing a plan and repairing,
replacing or retiring those systems identified as needing correction in the
assessment phase.
- - Phase five, validation: involves developing test plans, conducting tests and
analyzing the results of these tests to assure all key systems are Year 2000
compliant.
- - Phase six, implementation and contingency planning: consists of moving
compliant systems back into the production environment and to assure
systems' Year 2000 status remains unaffected by subsequent changes. The
contingency plan includes developing Excite's response to failure of mission
critical systems, and other major risks related to Year 2000 compliance.
Excite has completed phase one, awareness and currently is in phase two,
inventory, which is scheduled to be substantially complete by the end of the
first quarter of 1999. Phase three, assessment, and phase four, remediation, are
scheduled to be substantially complete by the end of the second quarter of 1999.
Phase five, validation, is scheduled to be substantially complete by the third
quarter of 1999 and phase six, implementation and contingency planning, is
scheduled to be substantially complete early in the fourth quarter of 1999.
In addition to the systems used by Excite in its business, Excite utilizes
third-party equipment and software in the delivery of its services and in the
management of its business that may not be Year 2000 compliant. As part of phase
two, inventory, Excite will make inquiries of other equipment and software
vendors and take steps to monitor vendor compliance. Failure of such third-party
equipment or software, or of non-information technology systems and devices used
by Excite, to operate properly with regard to the Year 2000 and thereafter may
require Excite to incur unanticipated expenses to remedy problems, which may
have a material adverse affect on Excite's financial condition.
Excite relies, both domestically and internationally, upon various vendors,
governmental agencies, utility companies, telecommunication service companies,
including Internet service and online service providers, delivery service
companies and other service providers who are outside Excite's control. Further,
Excite has not fully determined the progress of its joint venture partners and
content partners in identifying and addressing systems that may potentially be
impacted by Year 2000 related problems. Failure of such parties to operate
properly with regards to the onset of Year 2000 and thereafter, may have a
material adverse affect on Excite's business.
In the event any third parties cannot timely provide Excite with content,
products, services or systems that are Year 2000 ready or if there are
remediated problems with Excite's proprietary systems, the content on Excite's
services, access to Excite's services, the ability to offer page views,
products, services and the ability to recognize or process sales may be
materially adversely affected. Further, consumers may experience outages, delays
and other difficulties due to system failures unrelated to Excite's services or
systems which may have a material adverse affect on the satisfaction of Excite's
consumers and advertisers. In addition, any failure of the equipment or systems
utilized by consumers of Excite's services as a result of failure to be Year
2000 compliant may result in decreased utilization of Excite's services and
adversely affect Excite's advertising relationships.
Any failure of Excite to address Year 2000 issues may have a material adverse
affect on Excite's business. These affects may include, but are not be limited
to:
- - a reduction in Excite's ability to provide services for Excite's customers
or advertisers;
- - and consumers could experience outages, delays and other difficulties due to
system failures.
Excite is also subject to external forces that generally affect similarly
situated business over which it has no control, such as possible interruptions
of utility or data network services as a result of Year 2000 failures, any of
which may have similar material affects.
Furthermore, the purchasing patterns of advertisers may be affected by Year
2000 issues as companies expend significant resources to correct their current
systems for Year 2000 readiness. These expenditures
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may result in reduced funds available for Internet advertising or sponsorship of
Internet services, which may have a material adverse affect on Excite's
financial condition.
While Excite has identified tasks to be accomplished and plans to attain Year
2000 readiness, there is no assurance that Excite will succeed in its efforts to
address all Year 2000 issues. In an effort to reduce the risks associated with
the Year 2000, Excite has incorporated contingency planning as part of its
six-phase plan, building upon disaster recovery and contingency planning that
Excite already has in place. This includes identifying areas where Excite is
most vulnerable to Year 2000 risk and employing contingency plans in advance of
potential failures.
While Year 2000 costs incurred to date by Excite have not been material,
Excite does expect to incur internal staff costs and expenditures to remedy any
Year 2000 related problems. Such costs have been and will be funded through
current operations or available lines of credit and Excite has not separately
accounted for these costs. Based on preliminary assessments resulting from the
early phases of the plan, Excite is unable at this time to determine whether
additional costs to achieve Year 2000 readiness will be material.
The above discussion regarding costs, risks and estimated completion dates
for the Year 2000 is based on Excite's best estimates given information that is
currently available, and is subject to change.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1998 Excite had $61.0 million in unrestricted cash, cash
equivalents and short-term investments, an increase of $29.3 million from
December 31, 1997. Excite maintains its cash and cash equivalents in short-term
and medium-term investment-grade interest-bearing securities until required for
other purposes.
Excite's operating activities used cash of $53.7 million, $35.5 million,
$26.1 million in 1998, 1997, and 1996, respectively. The increased use of cash
in 1998 was mainly attributable to the $70.0 million cash prepayment to Netscape
under the Netcenter Agreement, see Note 13 of Notes to Consolidated
Financial Statements. Excite borrowed $50.0 million from Intuit, which is a
principal stockholder of Excite, in April 1998 to fund a portion of this payment
to Netscape. In June 1998, Excite repaid the loan in full, plus interest of
approximately $410,000, with proceeds from Excite's public offering, which
closed in June 1998. Excite's cash flows from operating activities
was positive for the third and fourth quarters of 1998. The increased use of
cash in 1997 was primarily attributable to the payment of previously accrued
expenses, including but not limited to, payments to Netscape and to Excite's
advertising agency for an advertising campaign launched during the fourth
quarter of 1996, a $4.0 million license fee payment to Netscape in July 1997,
see Note 14 of Notes to Consolidated Financial Statements and an increase
in accounts receivable resulting from the sales of sponsorship advertising
contracts, offset in part by a decrease in net losses and an increase in accrued
liabilities. 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. Excite has in the past, and may
in the future, acquire businesses which result in significant increases in
headcount and overhead, as well as the assumption and payment of additional
liabilities, resulting in an increase in the use of cash to support operations.
Investing activities used cash of $15.5 million, $5.7 million and $19.4
million in 1998, 1997 and 1996, respectively. In 1998 and 1997, cash was used
for purchases of short-term investments, property and equipment, and
contributions towards its investment in Excite Japan, offset by the sales of
short-term investments. The decrease in cash used in 1997 was primarily the
result of cash being invested in cash equivalents rather than short-term
investments and net sales of short-term investments, partially offset by
increased purchases of property and equipment. The 1996 increase was primarily
attributable to net purchases of short-term investments as well as property and
equipment from cash proceeds of Excite's initial public offering in April 1996.
Capital expenditures have been, and future expenditures are anticipated to be,
primarily for facilities and equipment to support expansion of Excite's
operations and management information systems. Excite expects that its capital
expenditures will increase as its employee base grows. As of December 31, 1998,
Excite did not have any material commitments for capital expenditures, although
Excite anticipates that its planned purchases of capital equipment and leasehold
improvements will require additional expenditures during 1999, a portion of
which may be financed through equipment leases and bank borrowings. At December
31, 1998 Excite had $5.5 million available
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on equipment lease lines, and Excite believes that additional lease financing
will be available to it if necessary.
Financing activities generated cash of $99.2 million, $52.6 million and $48.7
million in 1998, 1997 and 1996, respectively. Financing activities for 1998
primarily consisted of cash received in connection with the issuance of stock
through Excite's public offering which was completed in June 1998 for net
proceeds of $84.3 million and, to a lesser extent, option exercises under
Excite's equity incentive plan and warrants exercised by Netscape in July 1998.
Financing activities for 1997 primarily consisted of a bank line of credit
borrowing of $6.0 million, a convertible promissory note of $5.0 million, the
sale of convertible preferred stock by an acquired company for net proceeds of
$6.4 million, and the sale of Common Stock for net proceeds of $40.0 million, of
which $38.4 million represented net proceeds from the sale of Common Stock to
Intuit. Financing activities in 1996 primarily consisted of the sale of
Redeemable Convertible Preferred Stock and debt securities totaling $12.3
million and the sale of Excite's Common Stock for net proceeds of $37.2 million,
of which $35.4 million represented net proceeds from Excite's initial public
offering.
In January and February 1999, Netscape exercised a portion of the warrant
issued under the Netcenter Agreement and paid approximately $19.1 million to
purchase 646,158 shares of Excite's Common Stock.
Excite's commitments at December 31, 1998 consisted of obligations under
operating leases, capital leases and other non-lease financings of $45.0
million, $21.8 million and $3.4 million, respectively, as well as bank and other
borrowings. See Note 5 of Notes to Consolidated Financial Statements.
In March 1997, Excite entered into and borrowed on a $6.0 million line of
credit. This line of credit bears interest at the bank's prime rate,
approximately 7.75% at December 31, 1998 and is secured by substantially all of
Excite'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 capital stock. Excite was in compliance with these
covenants at December 31, 1998. This line of credit expired in 1998 and Excite
has subsequently received extensions through February 15, 1999, which is the
current maturity of the note. Excite is currently negotiating a new line of
credit. See Note 4 of Notes to Consolidated Financial Statements.
The joint venture agreement with respect to Excite Japan obligates Excite and
Itochu to make capital contributions in the aggregate amount of $10.0 million by
March 31, 1999. In 1997, Excite entered into a convertible promissory note with
Itochu for the principal amount of $5.0 million. The note bears interest at the
London Interbank Offered Rate plus 1%, approximately 6.1% at December 31, 1998,
is payable in United States dollars, and matures on October 17, 2002, although
earlier payment is permitted. The entire unpaid principle amount at the maturity
date, or earlier in the event Excite elects to prepay the note, is convertible,
in whole but not in part, at the option of the holder, into fully paid shares of
Excite Common Stock at a conversion price equal to the average closing price of
the shares for the 30 trading day period ending on the date of conversion. See
Note 6 of Notes to Consolidated Financial Statements.
To date, Excite has had limited international operations and its exposure to
foreign currency exchange rate fluctuations has been minimal. Excite evaluates
its foreign currency exchange rate exposure on an ongoing basis.
Excite believes the existing working capital balance together with cash flows
generated from advertising revenues will be sufficient to meet its anticipated
cash needs for working capital, capital expenditures and business expansion for
at least the next twelve months. Excite 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 stockholders of Excite will be reduced,
stockholders may experience additional dilution and such securities may have
rights, preferences or privileges senior to those of the holders of Excite's
Common Stock.
RISK FACTORS THAT MAY AFFECT FUTURE RESULTS
LIMITED OPERATING HISTORY; NO ASSURANCE OF PROFITABILITY. Excite generated
only limited revenues prior to 1996. Accordingly, Excite has a limited operating
history upon which to evaluate its current business. In addition, Excite's
business model is evolving and relies substantially upon the sale of
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advertising on the Web, which is a developing industry. Excite's business must
be considered in light of the risks, expenses and problems frequently
encountered by companies in their early stages of development, particularly
companies in new and rapidly evolving markets such as Web advertising.
Specifically, such risks include, without limitation:
- - the inability of Excite to maintain and increase levels of traffic on the
Excite Network;
- - the failure of the market to adopt the Web as an advertising and commercial
medium;
- - reductions in market prices for Web advertising as a result of competition
or otherwise;
- - the inability of Excite to achieve higher cost per thousand impression,
or "CPM", rates for targeted advertising or to increase the percentage of
its advertising inventory sold;
- - the inability of Excite to derive sufficient revenues from the co-branded
services of Netcenter and the additional costs Excite expects to incur in
order to perform its obligations under the Netcenter Agreement;
- - the inability of Excite to effectively integrate the technology and
operations of acquired businesses or technologies with its operations,
increased operating expenses as a result of Excite's recent acquisitions;
- - the inability of Excite to expand its international operations, particularly
in light of Excite's limited operating experience in the international
market;
- - the failure by Excite to continue to develop and extend the Excite
Network brands;
- - the inability of Excite to meet minimum guaranteed impressions under
sponsorship agreements;
- - the inability of Excite to develop or acquire content for its services;
- - the inability of Excite to generate commerce-related revenues;
- - the failure of Excite to anticipate and adapt to a developing market;
- - the introduction and development of equal or superior services or products
by competitors, particularly in light of the fact that Microsoft and
Netscape, operators of two of the most heavily-trafficked Web sites, offer
competitive services;
- - government regulation;
- - the inability of Excite to identify, attract, retain and motivate qualified
personnel;
- - and general economic conditions.
Excite may not be able to succeed in addressing such risks.
POTENTIAL FLUCTUATIONS IN QUARTERLY RESULTS. Excite's operating results have
varied on a quarterly basis during its limited operating history and Excite
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 Excite's control, including but not limited
to:
- - specific economic conditions relating to the Internet and the Web;
- - usage of the Web and demand for Excite's services;
- - 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 and the advertising budgeting cycles of
advertisers;
- - mix of types of advertisements sold, such as the amount of targeted
advertising, which generally has higher CPM rates, sold as a percentage of
total advertising sold;
- - incurrence of charges in connection with the Netcenter Agreement;
- - Excite's distribution relationships and acquisitions;
- - incurrence of costs relating to acquisitions of businesses or technologies;
introduction or enhancement of new or existing services by Excite and its
competitors;
- - market acceptance of new services;
- - delays in the introduction of services or enhancements by Excite or its
competitors;
- - capacity constraints and dependencies on computer infrastructure;
- - and general economic conditions.
Due to all of the foregoing factors, Excite's quarterly revenues and
operating results are difficult to forecast. Excite 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. Also, it is likely that in some future quarter or quarters Excite's
operating results will be below the expectations of public market
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analysts and investors. In such event, the price of Excite's Common Stock would
be materially and adversely affected.
SIGNIFICANT RISKS ASSOCIATED WITH THE NETCENTER AGREEMENT. Excite's Netcenter
services agreement with Netscape has many substantial risks and uncertainties
including:
REVENUE RISKS
Excite will only receive revenues from the portions of Netcenter that are
co-branded with Excite. Excite will not receive any revenues from other areas of
the Netcenter service. If Netscape-programmed channels, such as News, Sports and
Entertainment, are more popular than co-branded channels with users and
advertisers, Excite's revenues may be adversely affected.
EXCITE MAY NOT RECOVER ITS INITIAL INVESTMENT
Excite paid Netscape a cash payment of $70 million when it signed the
Netcenter Agreement. A substantial portion of this amount represented a
prepayment of Excite's royalty obligations under this agreement. If the
co-branded portions of the Netcenter service does not generate enough revenues
over the two-year term of the agreement, Excite would not be able to realize a
sufficient return on its investment. Netscape has not guaranteed any minimum
revenues to Excite. The ability of Netcenter to generate revenues involves a
number of risks, including:
- - general risks relating to an advertising supported service discussed
elsewhere in this section;
- - pricing competition from Netscape;
- - Netscape's ability to attract users to Netcenter, particularly in light of
the fact that while Netscape's Web browser features Netcenter, Microsoft's
Web browser does not;
- - risks that Netscape-programmed channels will have more user traffic;
- - risks that the "premier provider" placements of Excite will not generate
sufficient traffic to Excite;
- - and risks that Excite may not be able to sell a sufficient number of
advertisements on the co-branded portions of Netcenter.
NETSCAPE HAS A LICENSE TO USE EXCITE'S SEARCH TECHNOLOGY
At the end of the term of the Netcenter Agreement, Netscape will retain a
license to use Excite's Internet search technology. Therefore, after the term of
the Netcenter Agreement, Netscape will be able to operate a competitive service
without paying Excite. Netscape may also sublicense this technology to a third
party. As a result, Excite may face increased competition.
NON-RENEWAL AND TERMINATION RISKS
Netscape has no obligation to renew the Netcenter Agreement. In addition, if
Netscape believes that Excite is delivering objectionable content on Netcenter,
it could elect to terminate the agreement if Excite does not remove that
content. If this occurred, Netscape would not be required to refund Excite any
amounts it prepaid or costs it incurred in performing under the Netcenter
Agreement.
DISTRIBUTION RISKS
As part of the Netcenter Agreement, Excite will also be featured on the Net
Search page as well as on the Netcenter Widget Tool. Netscape has guaranteed
Excite that it will deliver only a specified number of "impressions," rather
than users who "click through" to Excite's services from the Net Search page.
Therefore, despite this featured position, Excite may not receive a substantial
amount of user traffic from the Net Search page. Although Netscape has
guaranteed the number of times users "click through" from the Widget Tool,
Netscape is under no obligation to maintain this tool on Netcenter after
December 1998. Therefore, Excite may not receive substantial amounts of traffic
from this tool either.
Excite had assumed that it would experience similar "click-through" rates as
it had under its previous agreements with Netscape. This rate is influenced not
only by the brand strength of the search service provider, but also by the
layout and programming of the Netcenter pages. Thus user traffic from these
sources will also depend on Netscape's ability to program the site and maintain
the historical "click-through"
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rates. Any failure of Netcenter to gain acceptance may also adversely affect
Excite's business, as there would be a smaller pool of users who would be
exposed to the Net Search page and the Widget Tool.
The distribution of traffic from Netcenter over the term of the agreement
also affects Excite's ability to recoup the amount it has paid under the
Netcenter Agreement. Netscape may not be able to meet the exposure guarantees
over the term of the agreement. In addition, there is no guarantee as to the
timing and delivery over the term of the agreement. If the fulfillment of these
guarantees is more heavily weighted towards the end of the contract term than
Excite had anticipated, its expectations as to the present value of the
agreement, as well as Excite's future operating results, would be negatively
impacted.
NETCENTER COMPETES WITH EXCITE
Most of the services offered on Netcenter compete directly with Excite's
services. Therefore, Excite faces additional competition for both users and
advertisers from Netcenter. If Excite devotes significant resources towards
programming or selling and marketing the co-branded portions of Netcenter, these
efforts may adversely affect Excite's ability to perform similar activities for
the Excite services.
AMERICA ONLINE'S ACQUISITION OF NETSCAPE
America Online is a competitor of Excite. In November, 1998, America Online
agreed to acquire Netscape. Excite does not know what effect this acquisition by
America Online will have on its current relationship with Netscape or on any
future potential relationship with Netscape.
ACQUISITIONS MAY AFFECT EXCITE'S BUSINESS. Excite has in the past acquired,
and may in the future acquire, businesses, technologies, services, product
lines, content databases, or access to content databases. Acquisitions involve a
number of special risks, including, among other things:
- - the difficulty of assimilating the technologies, operations and personnel of
acquired companies with those of Excite;
- - the potential disruption of Excite's business;
- - the diversion of resources, the incurrence of acquisition-related expenses,
the write-off or amortization of intangible assets, the assumption of
unknown liabilities;
- - and the inability to maintain uniform standards, controls, procedures and
policies and the impairment of relationships with employees and strategic
partners as a result of such acquisitions or the integration of new
personnel.
Any failure to successfully address these acquisition-related risks may have
a material adverse affect on Excite's business.
EXCITE DEPENDS ON SPONSORSHIP AGREEMENTS FOR REVENUES. Excite derives a
substantial portion of its revenues from third parties to provide sponsored
services and placements on Excite's Web sites. These sponsorships typically last
for a longer period of time than traditional banner advertisement purchases. If
these sponsorship arrangements do not meet the advertisers' expectations as to
new customers or increased sales or brand awareness, the sponsors may not renew
their arrangements with Excite. If Excite does not renew its existing
sponsorships or obtain new sponsors, for any reason, its business would be
adversely affected.
Excite also typically grants exclusivity provisions to certain of its
sponsors. These provisions may prevent Excite from accepting additional sponsors
or advertisers with respect to all or a portion of a channel or across the
entire Excite Network. Certain of these provisions could also conflict with
similar provisions in At Home's sponsorship agreements.
RISKS ASSOCIATED WITH BANNER ADVERTISING. Excite derives a significant
portion of its revenues from the sale of banner advertisements on the Excite
Network. A majority of Excite's customers purchasing banner advertisements
purchase these advertisements on a short-term basis, and many of these customers
may terminate their advertising commitments at any time without penalty.
Consequently, there can be no assurance that these customers will continue or
increase their level of advertising on the Excite Network or that these
customers will not move their advertising to competing Web sites or to other
traditional media. Therefore, there can be no assurance that Excite will be
successful in maintaining or increasing the amount
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of banner advertising on the Excite Network, and the failure to do so would have
a material adverse affect on Excite's business.
EXCITE'S BUSINESS DEPENDS ON THE CONTINUED GROWTH IN INTERNET USE. Excite
operates in a new and rapidly evolving market. Excite's business may be
adversely affected if usage of the Internet or other online services does not
continue to grow. This growth could be hindered by a number of factors
including: the adequacy of the Internet's infrastructure to meet increased usage
demands; privacy and security concerns; and availability of cost-effective
service. Any of these issues could cause Internet's performance or level of
usage to decline.
RISKS ASSOCIATED WITH DEVELOPING WEB ADVERTISING MARKETS. The Web as an
advertising medium has not been available for a sufficient period of time to
gauge its effectiveness as compared with traditional advertising media.
Therefore the Web is an unproven medium for advertising-supported services.
Accordingly, Excite'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.
Excite's ability to generate significant advertising revenues will also
depend on, among other things, the development of a large base of users of
Excite's services possessing demographic characteristics attractive to
advertisers, the ability of Excite to accurately measure its user base and the
ability of Excite to develop or acquire effective advertising delivery and
measurement systems. Many of Excite'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. The adoption of Web
advertising, particularly by those entities that have historically relied upon
traditional media for advertising, requires the acceptance of a new way of
conducting business and exchanging information. Entities that already have
invested substantial resources in other methods of conducting business may be
reluctant to adopt a new strategy that may limit or compete with their existing
efforts. The market for Web advertising may not continue to emerge or become
sustainable. If the market fails to develop or develops more slowly than
expected, Excite's business may be materially and adversely affected. 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.
Advertisers may not continue to accept Excite's or other third-party
measurements of impressions, and such measurements may contain errors. In such
event, Excite's advertising revenues may be materially adversely affected, which
may have a material adverse affect on Excite's business.
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.
This 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," or user requests for additional information made by
clicking on the advertisement from Excite's network to the advertiser's Web
pages, instead of rates based solely on the number of impressions displayed on
users' computer screens, would materially adversely affect Excite's revenues. As
a result of these risks, Excite may not succeed in generating significant future
advertising revenues from Web-based advertising. The failure to do so may have a
material adverse affect on Excite's business.
Advertisers may also determine that banner advertising is not an effective
or attractive advertising medium. Excite may not be able to effectively
transition to any other forms of Web advertising should they develop and achieve
market acceptance. Moreover, "filter" software programs that limit or prevent
advertising from being delivered to a Web user's computer are available.
Widespread adoption of such software by users may have a material adverse affect
upon the commercial viability of Web advertising.
EXCITE WILL DEPEND ON A NUMBER OF THIRD PARTY RELATIONSHIPS. Excite will
depend on a number of third party relationships to provide users and content for
its services. Examples of some of these important relationships include:
- - relationships with respect to the positioning of Excite's service on Web
browsers or other high-traffic Web sites or;
- - arrangements under which third parties provide content for Excite's services;
- - arrangements under which third parties provide services such as games or
e-mail;
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- - and relationships with Internet and online service providers and other third
parties to provide communications infrastructure for Excite.
If Excite cannot renew these relationships on favorable terms, or if these
relationships terminate, Excite would have to enter into new relationships.
Excite may not be able to replace any of its important third party relationships
on reasonable terms, if at all. If Excite cannot replace any important
relationship, it could lose users or advertisers, which may adversely affect
Excite's revenues. Even if Excite replaces any relationships or enters into new
relationships, Excite may incur increased costs such as distribution license
fees or selling and marketing expenses in order to pay for these relationships.
These third parties may not regard their relationship with Excite as
important to their business. Therefore, they could elect to reassess their
commitment to their relationship with Excite in the future or develop
competitive services. Furthermore, the services offered by third parties with
whom Excite has relationships may not be successful. Therefore, Excite's
existing or future relationships may not result in increased user traffic or
revenues.
RISK OF CAPACITY CONSTRAINTS; SYSTEM FAILURES. Excite 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 Excite's reputation, its
ability to attract advertisers and to achieve market acceptance of the Excite
Network. Any system failure that causes interruptions in the availability of or
that increases response time of Excite'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 Excite, which could
lead to slower response time or system failures. In addition, as the amount of
Web pages and traffic on Excite's services increases, there can be no assurance
that the Excite Network will be able to scale proportionately. Excite is also
dependent upon timely feeds and downloads of information from content providers
and is dependent upon providers of Web browsers and on Internet and online
service providers and other Web site operators, which have experienced
significant outages in the past, for access to its network. In the past, Web
consumers have experienced outages, delays and other difficulties due to system
failures unrelated to Excite's systems and services. Additional difficulties may
also materially and adversely affect consumer and advertiser satisfaction. To
the extent that the capacity constraints described above are not effectively
addressed by Excite, such constraints may have a material adverse affect on
Excite's business.
Substantially all of Excite's communications hardware and certain of its
computer hardware operations are located at leased facilities in Redwood City,
California, an area susceptible to earthquakes. Excite has experienced system
failures or outages from time to time in the past, which have disrupted the
operation of the Excite Network. A system failure at this location may adversely
affect the performance of the Excite Network. These systems are also vulnerable
to damage from fire, floods, earthquakes, power loss, telecommunications
failures, break-ins and similar events. In the event that Excite seeks to
replicate its systems at other locations, it would face a number of technical
challenges, particularly with respect to database replication and the need to
constantly update distributed databases, Excite may not be able to successfully
address these challenges. Although Excite carries property and business
interruption insurance, its low coverage limits likely will not be adequate to
compensate Excite for all losses that may occur. Excite's 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 may have a
material adverse affect on Excite's business.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Information relating to quantitative and qualitative disclosure about market
risk is set forth under the captions "Investment Portfolio" in Item 7,
Management's Discussion and Analysis of Financial Condition and Results of
Operations, and in "Cash, Cash Equivalents and Short-Term Investments" in Note 3
of Notes to Consolidated Financial Statements. Such information is incorporated
herein.
34
<PAGE> 35
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Excite, Inc.
We have audited the accompanying consolidated balance sheets of Excite, Inc.
as of December 31, 1998 and 1997, and the related consolidated statements of
operations, stockholders' equity (net capital deficiency) and cash flows for
each of the three years in the period ended December 31, 1998. Our audits also
included the financial statement schedule listed in the Index at Item 14(a).
These financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Excite, Inc. at December 31, 1998 and 1997, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
Also, in our opinion, the related financial statement schedule, when considered
in relation to the basic financial statement taken as a whole, presents fairly
in all material respects the information set forth therein.
/s/ ERNST & YOUNG LLP
Palo Alto, California
January 19, 1999
35
<PAGE> 36
EXCITE, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PAR VALUE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1998 1997
--------- ---------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 45,366 $ 15,366
Short-term investments 15,681 16,398
Restricted investments 558 302
Accounts receivable, net of allowance for doubtful accounts
of $1,422 in 1998 and $1,120 in 1997 36,592 20,907
Prepaid Netscape distribution costs and trademarks, current portion 45,473 --
Other prepaid and current assets 4,848 2,149
--------- ---------
Total current assets 148,518 55,122
Property and equipment, net 35,937 15,143
Investment in affiliated company 2,243 --
Prepaid Netscape distribution costs and trademarks 20,954 --
Intangible assets, net 8,792 1,771
Other assets 4,229 4,657
--------- ---------
Total assets $ 220,673 $ 76,693
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank line of credit and other notes payable $ 6,100 $ 6,100
Accounts payable 13,079 5,717
Accrued compensation 9,038 4,794
Deferred revenue 2,843 4,588
Capital lease obligations, current portion 7,133 3,178
Non-lease financing, current portion 1,531 1,176
Other equipment financing 7,481 --
Related party liabilities 5,092 1,575
Other accrued liabilities 6,741 5,024
--------- ---------
Total current liabilities 59,038 32,152
Capital lease obligations 11,668 3,076
Non-lease financing 1,568 1,613
Convertible note 5,000 5,000
Commitments and contingencies
Stockholders' equity:
Convertible preferred stock, $0.001 par value
Authorized - 4,000 shares issuable in series
Issuable and outstanding - none and 2,291 shares at
December 31, 1998 and 1997, respectively 813 9,518
Common stock, $0.001 par value
Authorized - 100,000 shares
Issued and outstanding - 52,660 and 38,892 shares at
December 31, 1998 and 1997, respectively 52 39
Additional paid-in-capital ("APIC") 277,759 122,874
Deferred compensation (907) (1,440)
Unrealized gain on available-for-sale securities 1,319 15
Accumulated deficit (135,637) (96,154)
--------- ---------
Total stockholders' equity 143,399 34,852
========= =========
Total liabilities and stockholders' equity $ 220,673 $ 76,693
========= =========
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
36
<PAGE> 37
<TABLE>
EXCITE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Revenues(1) $ 154,105 $ 54,114 $ 14,757
Cost of revenues:
Hosting costs 16,161 8,586 3,296
Royalties and other cost of revenues 12,912 4,235 667
Amortization of purchased technology -- 8,214 186
--------- --------- ---------
Total cost of revenues 29,073 21,035 4,149
--------- --------- ---------
Gross profit 125,032 33,079 10,608
Operating expenses:
Research and development 29,205 16,694 8,030
Sales and marketing 62,372 32,009 21,103
Distribution license fees and data acquisition costs 21,723 9,365 11,878
General and administrative 16,573 9,477 7,081
In-process technology 6,200 2,346 3,500
Merger and acquisition related costs, including
amortization of goodwill and other purchased intangibles 4,903 3,989 3,134
Amortization of prepaid Netscape service 17,673 -- --
--------- --------- ---------
Total operating expenses 158,649 73,880 54,726
--------- --------- ---------
Operating loss (33,617) (40,801) (44,118)
Interest income 1,620 1,303 1,410
Interest expense and other (2,843) (1,417) (409)
Equity share of losses of affiliated company (2,134) (477) --
--------- --------- ---------
Net loss $ (36,974) $ (41,392) $ (43,117)
========= ========= =========
Basic and diluted net loss per share $ (0.78) $ (1.47) $ (2.38)
========= ========= =========
Shares used in computing net loss per share 47,475 28,154 18,152
========= ========= =========
(1) Includes $4.8 million from America Online and $3.5 million from another
related party for the year ended December 31, 1998. See Note 12.
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
37
<PAGE> 38
EXCITE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK
PREFERRED STOCK AND APIC DEFERRED
---------------------- -------------------
SHARES AMOUNT SHARES AMOUNT COMPENSATION
-------- --------- ------ --------- ---------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995 -- $ -- 4,896 $ 3,530 $ (631)
Net loss -- -- -- -- --
Unrealized loss on available-for-sale investments -- -- -- -- --
Comprehensive loss -- -- -- -- --
Issuance of common stock for cash -- -- 566 1,412 --
Notes payable conversions -- -- 174 400 --
Issuance of warrants in connection with
distribution agreement -- -- -- 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 -- -- 7,302 36,418 --
Conversion of redeemable preferred stock
in connection with the Company's IPO -- -- 10,648 16,129 --
Issuance of common stock under employee plans -- -- 600 375 --
Amortization of deferred compensation, net
of cancellations -- -- -- 7 243
Issuance of common and preferred stock in
connection with asset purchase agreements 1,950 15,816 30 103 --
-------- --------- ------ --------- ---------
Balance at December 31, 1996 1,950 15,816 24,216 59,999 (388)
Net loss -- -- -- -- --
Unrealized gain on available-for-sale investments -- -- -- -- --
Comprehensive loss -- -- -- -- --
Issuance of common stock for cash, net of
issuance costs of $800 -- -- 5,800 38,350 --
Conversion of common stock warrant to
preferred stock warrant -- 1,625 -- (1,625) --
Exercise of outstanding warrants 229 -- 86 -- --
Issuance of common stock under employee plans -- -- 1,184 2,319 --
Compensation expense from accelerated deferred
compensation and stock option vesting -- -- -- 1,658 --
Deferred compensation related to stock options,
net of amortization and cancellations -- -- -- 1,407 (1,052)
Acquisition of Netbot, Inc.:
Issuance of common stock -- -- 1,708 3,731 --
Accumulated deficit -- -- -- -- --
Issuance of preferred stock by acquired company
for cash, net of issuance costs of $115 1,772 6,385 -- -- --
Other equity transactions of acquired company 519 2,320 1,540 446 --
Conversion of preferred stock to common stock (2,179) (16,628) 4,358 16,628 --
-------- --------- ------ --------- ---------
Balance at December 31, 1997 2,291 9,518 38,892 122,913 (1,440)
Net loss -- -- -- -- --
Unrealized gain on available-for-sale investments -- -- -- -- --
Comprehensive loss -- -- -- -- --
Acquisition of MatchLogic, Inc.:
Conversion of preferred stock to
common stock (2,291) (8,705) 4,582 8,705 --
Acquisition of Classifieds2000, Inc.:
Issuance of common stock -- -- 1,730 3,522 --
Accumulated deficit -- -- -- -- --
Acquisition of Throw, Inc.:
Issuance of common stock -- -- 330 16,242 --
Issuance of common stock for cash, net of
issuance costs of $650 -- -- 2,870 84,331 --
Issuance of warrants -- -- -- 19,876 --
Exercise of outstanding warrants -- -- 432 6,130 --
Issuance of common stock under employee plans -- -- 3,774 13,269 --
Compensation expense from accelerated deferred
compensation and stock option vesting -- -- -- 298 --
Amortization of deferred compensation, net
of cancellations -- -- -- -- 533
Issuance of common stock for equity securities -- -- 50 2,525 --
-------- --------- ------ --------- ---------
Balance at December 31, 1998 -- $ 813 52,660 $ 277,811 $ (907)
======== ========= ====== ========= =========
</TABLE>
<TABLE>
<CAPTION>
OTHER
COMPREHENSIVE
INCOME/(LOSS) DEFICIT TOTAL
--------- --------- ---------
<S> <C> <C> <C>
Balance at December 31, 1995 $ 152 $ (7,085) $ (4,034)
---------
Net loss -- (43,117) (43,117)
Unrealized loss on available-for-sale investments (280) -- (280)
--------
Comprehensive loss -- -- (43,397)
--------
Issuance of common stock for cash -- -- 1,412
Notes payable conversions -- -- 400
Issuance of warrants in connection with
distribution agreement -- -- 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 -- -- 36,418
Conversion of redeemable preferred stock
in connection with the Company's IPO -- -- 16,129
Issuance of common stock under employee plans -- -- 375
Amortization of deferred compensation, net
of cancellations -- -- 250
Issuance of common and preferred stock in
connection with asset purchase agreements -- -- 15,919
--------- --------- ---------
Balance at December 31, 1996 (128) (50,202) 25,097
---------
Net loss -- (41,392) (41,392)
Unrealized gain on available-for-sale investments 143 -- 143
---------
Comprehensive loss -- -- (41,249)
---------
Issuance of common stock for cash, net of
issuance costs of $800 -- -- 38,350
Conversion of common stock warrant to
preferred stock warrant -- -- --
Exercise of outstanding warrants -- -- --
Issuance of common stock under employee plans -- -- 2,319
Compensation expense from accelerated deferred
compensation and stock option vesting -- -- 1,658
Deferred compensation related to stock options,
net of amortization and cancellations -- -- 355
Acquisition of Netbot, Inc.:
Issuance of common stock -- -- 3,731
Accumulated deficit -- (4,560) (4,560)
Issuance of preferred stock by acquired company
for cash, net of issuance costs of $115 -- -- 6,385
Other equity transactions of acquired company -- -- 2,766
Conversion of preferred stock to common stock -- -- --
--------- --------- ---------
Balance at December 31, 1997 15 (96,154) 34,852
---------
Net loss -- (36,974) (36,974)
Unrealized gain on available-for-sale investments 1,304 -- 1,304
---------
Comprehensive loss -- -- (35,670)
Acquisition of MatchLogic, Inc.:
Conversion of preferred stock to
common stock -- -- --
Acquisition of Classifieds2000, Inc.:
Issuance of common stock -- -- 3,522
Accumulated deficit -- (2,509) (2,509)
Acquisition of Throw, Inc.:
Issuance of common stock -- -- 16,242
Issuance of common stock for cash, net of
issuance costs of $650 -- -- 84,331
Issuance of warrants -- -- 19,876
Exercise of outstanding warrants -- -- 6,130
Issuance of common stock under employee plans -- -- 13,269
Compensation expense from accelerated deferred
compensation and stock option vesting -- -- 298
Amortization of deferred compensation, net
of cancellations -- -- 533
Issuance of common stock for equity securities -- -- 2,525
--------- --------- ---------
Balance at December 31, 1998 $ 1,319 $(135,637) $ 143,399
========= ========= =========
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
38
<PAGE> 39
EXCITE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS, IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS USED BY OPERATING ACTIVITIES:
Net loss $ (36,974) $ (41,392) $ (43,117)
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization of deferred compensation 534 355 243
Compensation expense from accelerated deferred compensation
charges and stock option vesting 298 1,658 --
Depreciation 12,868 6,360 2,189
Issuance of warrants -- 55 1,625
Amortization of intangibles 3,780 10,670 954
In-process technology 6,200 2,346 3,500
Amortization of Netscape service, distribution costs and trademarks 23,451 -- --
Loss on disposal of property and equipment 90 -- 96
Provision for loan impairment -- -- 629
Equity share of losses in affiliated company 2,134 477 --
Changes in assets and liabilities:
Accounts receivable (15,185) (17,567) (2,957)
Prepaid Netscape distribution costs and trademarks (70,000) -- --
Prepaid expenses and other current assets (2,901) (1,001) (863)
Other assets 428 (4,203) (873)
Accounts payable 7,069 (1,378) 5,515
Accrued compensation 3,746 4,492 425
Related party liabilities 3,691 1,575 --
Other accrued liabilities 7,041 2,092 6,512
--------- --------- ---------
Net cash used by operating activities (53,730) (35,461) (26,122)
--------- --------- ---------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchases of property and equipment (16,709) (6,925) (892)
Proceeds from disposal of property and equipment 186 -- --
Purchases of investments (25,210) (47,433) (49,765)
Sales and maturities of investments 30,618 49,235 31,936
Investment in affiliated company (4,377) -- --
Notes and advances to Novo MediaGroup, Inc. -- -- (629)
Payments for acquisitions, net of cash received -- (598) --
--------- --------- ---------
Net cash used in investing activities (15,492) (5,721) (19,350)
--------- --------- ---------
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
Payments on capital lease and other financing obligations (3,929) (3,737) (1,875)
Net (payments) proceeds on bank line of credit and other notes payable (574) 4,900 1,064
Proceeds from issuance of convertible note -- 5,000 --
Proceeds from sale of redeemable convertible preferred stock -- 6,385 12,282
Proceeds from issuance of common stock 103,725 40,029 37,212
--------- --------- ---------
Net cash provided by financing activities 99,222 52,577 48,683
--------- --------- ---------
Net increase in cash and cash equivalents 30,000 11,395 3,211
Cash and cash equivalents at beginning of period 15,366 3,971 760
--------- --------- ---------
Cash and cash equivalents at end of period $ 45,366 $ 15,366 $ 3,971
========= ========= =========
NON-CASH FINANCING ACTIVITIES:
Conversion of convertible preferred stock to common stock $ 8,705 $ 16,628 $ 16,129
Property and equipment acquired under capital leases and other non-
lease financing $ 16,763 $ 7,400 $ 7,564
Preferred stock issued by acquired company for ownership interest $ -- $ 1,720 $ --
Conversion of notes payable to common stock $ -- $ -- $ 1,400
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Cash paid for interest $ 2,725 $ 1,050 $ 379
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
39
<PAGE> 40
EXCITE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
Excite, Inc. ("Excite" or the "Company"), formerly Architext Software, Inc.,
which was formed in June 1994, is a global Internet media company offering
consumers and advertisers comprehensive Internet navigation services with
extensive personalization capabilities. The Excite Network consists of the
Excite (www.excite.com), WebCrawler (www.webcrawler.com) and Classifieds2000
(www.classifieds2000.com) brands, which provide 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 navigate the Web, the
Excite Network contains a suite of specialized information services, organized
under numerous topical channels which combine proprietary search technology,
editorial Web reviews, aggregated content from third parties, bulletin boards,
chat and other community features and personalization capabilities. Localized
versions of Excite are available in Australia, China, France, Germany, Italy,
Japan, Sweden, the Netherlands and the United Kingdom. The Company conducts its
business within two industry segments, including the selling of banner and
sponsorship advertising on the Excite Network to customers in various
industries, and, through the merger with MatchLogic, Inc. ("MatchLogic"), ad
serving and targeting services. See Note 2 and "Risk Factors that May Affect
Future Results-Acquisition Strategy; Integration of Past and Future
Acquisitions."
The Company has incurred operating losses to date and incurred a net loss of
approximately $37.0 million for the year ended December 31, 1998. Management
believes that available resources will provide sufficient funding to enable the
Company to meet its obligations through at least December 31, 1999. 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.
Basis of Presentation
The consolidated financial statements include the accounts of the Company and
its subsidiaries. All significant intercompany accounts and transactions have
been eliminated. The consolidated financial statements have been restated for
all material pooling of interests. See Note 2.
Foreign Currency
Exchange gains and losses arising from transactions denominated in a currency
other than the functional currency of the entity involved are included in other
expense. Such gains and losses have been insignificant in all years to date. To
date the Company has entered into no foreign currency forward exchange contracts
or other such derivative instruments.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the consolidated financial statements and
accompanying notes. Actual results may differ from those estimates.
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 and have not been material in
any year. The Company's services are provided to customers in several
industries, primarily in North America.
No customers accounted for 10% or more of total revenues for the year ended
December 31, 1998 and 1997. One customer accounted for approximately 12% of
total revenues for the year ended December 31, 1996.
Property and Equipment
Property and equipment are stated at cost, net of accumulated depreciation
and amortization, which includes the amortization of assets recorded under
capital leases. Property and equipment are depreciated on a straight-line basis
over the estimated useful lives of the assets (generally 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:
40
<PAGE> 41
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
(IN THOUSANDS) 1998 1997
-------- --------
<S> <C> <C>
Computer equipment and internal use software $ 43,746 $ 18,168
Furniture and fixtures 6,581 2,950
Leasehold improvements 7,125 2,607
-------- --------
57,452 23,725
Less: accumulated depreciation and amortization (21,515) (8,582)
-------- --------
$ 35,937 $ 15,143
======== ========
</TABLE>
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.
Goodwill represents the excess of the aggregate purchase price over the fair
value of the tangible and intangible assets acquired in various acquisitions.
These purchased intangibles and goodwill relate to the acquisitions of certain
assets from other companies. See Note 2.
<TABLE>
<CAPTION> DECEMBER 31,
LIFE IN ---------------------------
(IN THOUSANDS) MONTHS 1998 1997
------- -------- --------
<S> <C> <C> <C>
Goodwill 36 $ 11,163 $ 362
Trademarks, trade names and other 24-36 2,346 2,346
Developed technology 13 8,400 8,400
Operating agreement 4 1,200 1,200
Distribution agreement 24 500 500
-------- --------
23,609 12,808
Less: accumulated amortization (14,817) (11,037)
-------- --------
$ 8,792 $ 1,771
======== ========
</TABLE>
Long-Lived Assets
In accordance with Financial Accounting Standards Board ("FASB") Statement of
Financial Accounting Standard ("SFAS") No. 121 "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of", the carrying
value of intangible assets and other long-lived 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
recognize the amount of the impairment based on discounted 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.
Fair Value of Financial Instruments
The carrying amount of certain of the Company's financial instruments,
including accounts receivable and accrued liabilities, approximate fair value
because of their short maturities. Because the interest rates on the Company's
notes payable and convertible debt are adjusted periodically to reflect market
rates, the fair value of these instruments approximates their carrying amounts.
The carrying amount of the Company's capital lease and other equipment financing
obligations approximates the fair value of such instruments based upon
management's best estimate of interest rates that would be available to the
Company for similar debt obligations at December 31, 1998. See Note 3.
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. The Company has
recently entered into a number of longer-term advertising and commerce
sponsorship agreements. These agreements generally involve more integration with
Excite services and provide for more varied sources of revenue to Excite over
the term of the agreements, which average between 2 to 3 years. Under these
agreements, Excite earns fees for initial programming, initiation of service and
access to the Excite Network, and for generating impressions, which in some
instances are guaranteed. These revenues, as well as contract and other
revenues, are generally recognized ratably over the term of the agreements,
provided that the Company does not have any significant remaining obligations
and collection of the resulting receivable is probable. To the extent that
impression deliveries are falling short of the guarantees, the Company defers
recognition of the
41
<PAGE> 42
corresponding revenues. The terms of a number of these agreements provide that
revenues from advertising and electronic commerce transactions are to be shared
between the advertiser and Excite as realized.
Advertising
Costs related to advertising are expensed as incurred. Advertising expense
was approximately $13.9 million, $7.1 million and $10.4 million for the years
ended December 31, 1998, 1997 and 1996, respectively.
Per Share Data
In 1997, the FASB issued SFAS No. 128, "Earnings per Share." SFAS No. 128
replaced the calculation of primary and fully diluted earnings per share with
basic and diluted earnings per share. Unlike primary earnings per share, basic
earnings per share excludes any dilutive effect of options, warrants,
convertible securities and unvested securities issued subject to repurchase.
Diluted earnings per share is very similar to the previously reported fully
diluted earnings per share. All earnings per share amounts for all periods have
been restated to conform to the SFAS No. 128 requirements. The Company has
excluded all convertible debt, convertible preferred stock, warrants and
employee stock options from the computation of basic and diluted earnings per
share because all such securities are anti-dilutive for all periods presented.
See Notes 7 and 8 for further information on these securities. The following
table sets forth the computation of basic and diluted earnings per share:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA) 1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Net loss $(36,974) $(41,392) $(43,117)
======== ======== ========
Weighted average shares outstanding 48,180 29,288 19,372
Weighted average common shares issued subject
to repurchase agreements (705) (1,134) (1,220)
-------- -------- --------
Shares used to compute basic and diluted net loss
per share 47,475 28,154 18,152
======== ======== ========
Basic and diluted net loss per share $ (0.78) $ (1.47) $ (2.38)
======== ======== ========
</TABLE>
Stock Split
In June 1998, the Board of Directors of the Company declared a two-for-one
stock split which was in the form of a 100% stock dividend. The dividend was
paid on July 20, 1998 to stockholders of record on July 6, 1998. All of the
Common Stock share and per share data have been adjusted to reflect this stock
split.
Reclassifications
Certain previously reported amounts have been reclassified to conform to the
current presentation format.
Recent Accounting Pronouncements
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income",
which establishes standards for reporting and display of income and its
components (revenue, expenses, gains, and losses) in a full set of
general-purpose financial statements. The Company adopted SFAS No. 130 as of
December 31, 1997 and has presented comprehensive income for all periods
presented in the Consolidated Statements of Stockholders' Equity (Net Capital
Deficiency).
In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information", which changes the way public companies
report information about operating segments. SFAS No. 131, which is based on the
management approach to segment reporting, establishes requirements to report
selected segment information quarterly and to report entity-wide disclosures
about products and services, major customers, and the material countries in
which the entity holds assets and reports revenue. The Company adopted SFAS No.
131 as of December 31, 1997. Previously reported information has been restated
to reflect the addition of an operating segment resulting from the merger with
MatchLogic in 1998. See Note 2.
In March 1998, the AICPA issued SOP 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use", which establishes
guidelines for the accounting for the costs of all computer software developed
or obtained for internal use. The Company adopted SOP 98-1 effective for the
year ended December 31, 1998. The adoption of SOP 98-1 is not expected to have a
material impact on the Company's consolidated financial statements.
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<PAGE> 43
In April, 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of
Start-Up Activities." The statement is effective for fiscal years beginning
after December 15, 1998. The statement requires costs of start-up activities and
organization costs to be expensed as incurred. The Company is required to adopt
SOP 98-5 for the year ended December 31, 1999. The adoption of SOP 98-5 is not
expected to have a material impact on the Company's consolidated financial
statements.
In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 is effective for all fiscal
quarters of all fiscal years beginning after June 15, 1999. SFAS No. 133
requires that all derivative instruments be recorded on the balance sheet at
their fair value. Changes in the fair value of derivatives are recorded each
period in current earnings or other comprehensive income, depending on whether a
derivative is designed as part of a hedge transaction and, if it is, the type of
hedge transaction. The Company does not expect that the adoption of SFAS No. 133
will have a material impact on its consolidated financial statements because the
Company does not currently hold any derivative instruments.
2. BUSINESS COMBINATIONS AND PURCHASED PRODUCT RIGHTS
During the three years ended December 31, 1998, Excite completed the
following acquisitions:
<TABLE>
<CAPTION>
SHARES OF EXCITE
SHARES OF SERIES E SHARES OF
EXCITE CONVERTIBLE OPTIONS AND
COMMON PREFERRED STOCK WARRANTS
COMPANY OR TECHNOLOGY ACQUIRED DATE ACQUIRED STOCK ISSUED ISSUED ASSUMED
- ------------------------------ ------------- ------------ ------ -------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS)
McKinley August 1996 1,700 -- 28
AOL's WebCrawler November 1996 -- 1,950 --
Netbot November 1997 1,708 -- 422
MatchLogic February 1998 6,122 -- 1,049
Classifieds2000 April 1998 1,730 -- 50
Throw April 1998 330 -- 318
</TABLE>
In August 1996, the Company acquired McKinley, the creator of the Magellan
Internet Guide, in a transaction accounted for as a pooling of interests. 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. All consolidated financial information for 1996 was restated to
reflect the combined operations of the Company and McKinley.
In November 1996, the Company entered into a series of agreements with AOL, a
provider of Internet 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
assets. The series of agreements were accounted for as the acquisition of rights
to developed and in-process technologies and distribution rights. The intangible
assets were recorded based on their 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 purchase price of approximately $12.6
million was capitalized as 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.
In November 1997, the Company acquired Netbot, a private company and
developer of advanced search technology utilized for electronic commerce, in a
transaction accounted for as a pooling of interests. The Company incurred
approximately $1.5 million in merger related expenses, including $1.3 million
for accelerated deferred compensation charges and $217,000 in professional fees
and other expenses. The results of operations and financial position of Netbot
were not material to the Company's consolidated financial statements in any
period, and therefore, amounts prior to the date of acquisition were not
combined with the Company's financial statements.
In February 1998, the Company acquired MatchLogic, a private company
providing advertisers and agencies with Internet advertising management services
that began operations in May 1997, in a transaction accounted for as a pooling
of interests. In connection with the acquisition of MatchLogic, the Company
incurred approximately $700,000 in merger related expenses primarily for legal
and other professional fees. All consolidated financial information to the
inception of MatchLogic has been restated to reflect the combined operations of
the two companies.
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<PAGE> 44
Separate results of the combined entities through the periods preceding the
merger (February 2, 1998) are as follows:
<TABLE>
<CAPTION>
PERIOD ENDED YEARS ENDED DECEMBER 31,
FEBRUARY 2, ---------------------------
(IN THOUSANDS) 1998 1997 1996
------------- ------------ -------------
<S> <C> <C> <C>
Revenues:
Excite $ 5,598 $ 50,151 $ 14,757
MatchLogic 376 3,963 --
------------- ------------ -------------
$ 5,974 $ 54,114 $ 14,757
============= ============ =============
Net Loss:
Excite $ (1,656) $ (30,159) $ (43,117)
MatchLogic (1,388) (11,233) --
------------- ------------- -------------
$ (3,044) $ (41,392) $ (43,117)
============= ============ =============
</TABLE>
There were no significant inter-company transactions between the two
companies and no significant conforming accounting adjustments.
In April 1998, the Company acquired Classifieds2000, a provider of Web-based
classified ads that began operations in July 1996, in a transaction accounted
for as a pooling of interests. In connection with the acquisition of
Classifieds2000, the Company incurred approximately $743,000 in merger-related
expenses primarily for legal and other professional fees. The results of
operations and financial position of Classifieds2000 were not material to the
Company's consolidated financial statements in any period, and therefore,
amounts prior to the date of acquisition were not combined with the Company's
financial statements.
In April 1998, the Company acquired Throw, a development stage company
focused on community products that began operations in April 1996, in a
transaction accounted for as a purchase. The total purchase price was allocated
to the acquired assets and liabilities based on their estimated fair values as
of the date of the acquisition. This included an original purchase price
allocation of approximately $800,000 to other intangibles assets, which were
being amortized on a straight-line basis through 1999 and approximately, $16.2
million was allocated to in-process technology and charged to operations at the
time of acquisition. Accordingly, the Company expensed this amount in its
originally reported June 30, 1998 operating results.
In response to recent Securities and Exchange Commission ("SEC")
interpretative guidance surrounding acquisition-related in-process research and
development, the Company has revised the original accounting for the purchase
price allocation related to the 1998 acquisition of Throw and the related
amortization of intangibles. This adjustment decreased the amount previously
allocated to in-process technology by $10.0 million, which has been capitalized
as goodwill and will be amortized on a straight-line basis over three years. As
a result, in the second quarter of 1998, the Company allocated $6.2 million to
in-process technology, and during the year ended December 31, 1998, the Company
amortized a total of $2.7 million of goodwill to operations. Pro-forma results
of operations have not been presented because the effect of this acquisition was
not material to the Company's consolidated financial position, results of
operations, and cash flows.
To determine the value of the in-process research and development, the
Company considered, among other factors, the state of development of each
project, the time and cost needed 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. This
analysis results in amounts assigned to in-process research and development
projects that had not yet reached technological feasibility and does not have
alternative future uses.
3. CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
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, equity securities and government securities, are classified as
available-for-sale as of December 31, 1998. These securities are recorded at
fair market value. Unrealized gains and losses on these investments are included
in stockholders' 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, 1998 and 1997. The fair value of
investments presented herein 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.
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<PAGE> 45
The estimated fair value of cash, cash equivalents and short-term investments
are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
(IN THOUSANDS) 1998 1997
------- -------
<S> <C> <C>
Cash and cash equivalents:
Cash $33,977 $ 5,288
Money market funds 126 62
Commercial paper -- 1,958
U.S. Government securities 11,263 8,058
------- -------
$45,366 $15,366
======= =======
Short-term investments:
Commercial paper $ 3,104 $ 7,791
Equity securities 4,411 --
U.S. Government securities 8,166 8,607
------- -------
$15,681 $16,398
======= =======
Restricted investments:
Cash $ 223 $ --
Certificates of deposit 335 --
Equity securities -- 302
------- -------
$ 558 $ 302
======= =======
</TABLE>
The restricted cash at December 31, 1998 is being held for tenant
improvements at the Company's corporate facilities in Redwood City, California.
The restricted certificates of deposit at December 31, 1998 includes a $250,000
security deposit for one of the Company's facilities. The restricted investment
in common stock at December 31, 1997 was being held as collateral by a financial
institution against the Company's line of credit borrowings. See Note 4.
The net unrealized gains for the year ended December 31, 1998 was $1.3
million, which is attributable to equity securities that the Company held during
1998. The net unrealized gains for the year ended December 31, 1997, were not
material. At December 31, 1998, the fair values of cash and cash equivalents,
available-for-sale investments and restricted investments approximated cost. The
realized gains and losses on sales of each type of security for the years ended
December 31, 1998 and 1997, were not material. For the purpose of determining
gross realized gains and losses, the cost of the securities sold is based upon
specific identification.
4. BORROWINGS UNDER BANK LINE OF CREDIT AND OTHER NOTES PAYABLE
Borrowings under bank line of credit and other notes payable, all of which
are current liabilities, are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
(IN THOUSANDS) 1998 1997
--------- ---------
<S> <C> <C>
Borrowings under bank line of credit $ 6,000 $ 6,000
Other notes payable 100 100
--------- ---------
$ 6,100 $ 6,100
========= =========
</TABLE>
In March 1997, the Company entered into and borrowed on a $6.0 million line
of credit. This line of credit bears interest at the bank's prime rate
(approximately 7.75% at December 31, 1998) 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 capital stock. The Company was in
compliance with these covenants at December 31, 1998. This line of credit
expired in 1998 and the Company has subsequently received extensions through
February 15, 1999, which is the current maturity of the note. The Company is
currently negotiating a new line of credit.
5. COMMITMENTS
Capital Leases
The Company leases certain computer equipment and office furniture under
capital leases. The leases generally provide for the Company to pay taxes,
maintenance and insurance. Most of the leases contain purchase options as well
as renewal provisions at the end of the initial lease terms, which generally
range from 30 to 36 months. At December 31, 1998 the Company had an additional
$5.5 million available under a lease line of credit expiring on March 31, 1999.
45
<PAGE> 46
Equipment under capital leases consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
(IN THOUSANDS) 1998 1997
--------- ---------
<S> <C> <C>
Computer equipment and internal use software $ 25,855 $ 9,914
Furniture and fixtures 3,232 785
--------- ---------
29,087 10,699
(13,929) (5,490)
--------- ---------
$ 15,158 $ 5,209
========= =========
</TABLE>
Non-lease Financing Arrangements
During 1998 and 1997, the Company entered into several non-lease equipment
financing arrangements. These liabilities are secured by specified computer
equipment, internal use software and office furniture of the Company and are
payable over 36 months. At December 31, 1998, property and equipment under
non-lease financing arrangements totaled $2.7 million, net of $2.3 of
accumulated depreciation. At December 31, 1997, property and equipment under
non-lease financing arrangements totaled $2.5 million, net of $401,000 of
accumulated depreciation.
Building Leases
During the three years ended December 31, 1998, the Company entered into
several leases relating to its corporate facilities located in Redwood City,
California. In 1998, the Company's subsidiary, MatchLogic, entered into a lease
for its new facility located in Westminster, Colorado. The Company leases these
facilities under non-cancelable operating leases that have terms of
approximately ten years. The Company leases additional space, primarily for
sales offices, in various states as well as in the United Kingdom. Rent expense
under operating leases was approximately $4.6 million, $2.6 million and $722,000
for the years ended December 31, 1998, 1997 and 1996, respectively. The Company
has subleased a portion of its facilities to third parties under non-cancelable
sublease agreements, which expire in June 1999 and March 2003. Sublease rental
income was $852,000 for the year ended December 31, 1998. There was no sublease
rental income for the years ended December 31, 1997 and 1996.
Annual minimum commitments under these leases and other financing
arrangements are as follows:
<TABLE>
<CAPTION>
CAPITAL OTHER OPERATING SUBLEASE
(IN THOUSANDS) LEASES FINANCING LEASES RENT
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Years Ended December 31,
1999 $ 8,873 $ 1,756 $ 5,434 $ (911)
2000 7,857 1,176 4,970 (445)
2001 4,981 495 5,065 (457)
2002 113 -- 4,858 (469)
2003 -- -- 4,454 (120)
Thereafter -- -- 20,264 --
--------- --------- --------- ---------
Total minimum payments required $ 21,824 $ 3,427 $ 45,045 $ (2,402)
========= ========= ========= =========
Less amounts representing interest (3,023) (328)
--------- ---------
Present value of future lease payments 18,801 3,099
Less current portion (7,133) (1,531)
--------- ---------
$ 11,668 $ 1,568
========= =========
</TABLE>
Other Equipment Financing
Other equipment financing consists of the liability for computer equipment,
which the Company may enter into capital leases in 1999. Due to the timing of
these computer equipment purchases at the end of 1998, $7.5 million has been
recorded as other equipment financing at December 31, 1998. Equipment under
other equipment financing arrangements totaled $7.1 million, net of $400,000 of
accumulated depreciation at December 31, 1998.
6. CONVERTIBLE NOTE
In 1997, the Company entered into a convertible promissory note with Itochu
Corporation and certain affiliated entities (collectively "Itochu") for the
principal amount of $5.0 million. See Note 12. The note bears
46
<PAGE> 47
interest at the London Interbank Offered Rate plus 1% (approximately 6.1% at
December 31, 1998), is payable in United States dollars, and matures on October
17, 2002, although earlier payment is permitted. The entire unpaid principle
amount at the maturity date (or earlier in the event the Company elects to
prepay the note) is convertible, in whole but not in part, at the option of the
holder, into fully paid shares of Excite Common Stock at a conversion price
equal to the average closing price of the shares for the 30 trading day period
ending on the date of conversion.
7. STOCKHOLDERS EQUITY
The Company was incorporated on June 9, 1994 in California and reincorporated
in Delaware on August 27, 1998. The Company's Preferred Stock and Common Stock
have a par value of $0.001 per share. The classification of the capital accounts
reflects the effect of the reincorporation for all periods presented.
Convertible Preferred Stock
Of the 4,000,000 authorized shares of Convertible Preferred Stock ($0.001 par
value), 3,280,000 shares were designated as Series E. In November 1996, the
Company issued to AOL in connection with the acquisition of AOL's WebCrawler
Assets, 1,950,000 shares of Series E and a warrant to purchase 650,000 shares of
Series E (see Note 2). As a result of the Company's two-for-one stock split in
July 1998, which was in the form of a stock dividend, the Series E are
convertible into Common Stock at a ratio of two-for-one. In September 1997, AOL
exercised 325,000 of its 650,000 warrant to purchase shares of Series E, with
the holder electing to receive a lesser number of shares in exchange for a
reduction in the total exercise price, resulting in the issuance of 229,000
shares of Series E. The 2,179,000 outstanding shares of Series E were converted
into 4,358,000 shares of Common Stock in December 1997. The remaining shares of
Preferred Stock authorized and unissued at December 31, 1997 were retired in
August 1998.
The Company had 2,291,000 shares of Convertible Preferred Stock outstanding
at December 31, 1997 related to equity transactions of MatchLogic prior to its
merger with Excite. These shares were converted into an equivalent number of
shares of Excite Common Stock upon the closing of the merger in February 1998
(see Note 2).
In August 1998, the Company authorized 4,000,000 shares of Convertible
Preferred Stock ($0.001 par value) of which 350,000 shares are designated as
Series E for the unexercised portion of AOL's warrant to purchase Series E
shares and 230,000 shares are designated as Series F for the Stock Holders Right
Plan dated September 24, 1998. At December 31, 1998, the remaining 3,420,000
authorized shares of Convertible Preferred Stock are undesignated.
Common Stock
In April 1996, the Company completed its initial public offering and issued
4,600,000 shares of its Common Stock at a price of $8.50 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 $8.50 per share, resulting in the issuance of 2,382,000 shares of
Common Stock, and $1.0 million principal amount of notes payable was converted
into 320,000 shares of Common Stock.
On March 3, 1997 the Company filed a registration statement on Form S-1 with
the Securities and Exchange Commission with respect to the sale of shares of the
Company's Common Stock. The Company sold all of the 5,800,000 shares of the
Company's Common Stock offered to Intuit Inc. ("Intuit") on June 26, 1997 at a
price of $6.75 per share (see Note 14). Proceeds to the Company from this
offering were approximately $38.4 million net of offering costs. Intuit was also
granted a right of first refusal to participate in certain future issuances of
the Company's securities in order to prevent dilution of Intuit's percentage
ownership, as well as registration rights with respect to the shares originally
purchased, and any shares that might be purchased pursuant to the right of first
refusal. The agreements also place certain conditions on Intuit's ability to
dispose of its shares of, or acquire additional shares of, the Company's Common
Stock.
In May 1998, the Company filed a registration statement on Form S-3 with the
Securities and Exchange Commission for the sale of shares of the Company's
Common Stock in a public offering. The Company sold 3,105,000 shares of Common
Stock in June 1998 at a price of $31.50 per share. Of the 3,105,000 shares sold,
2,870,000 shares (including 405,000 shares, which were purchased on the exercise
of the underwriters over-allotment option) were offered directly by the Company
and 235,000 shares were offered by selling stockholders. The Company did not
receive any proceeds from the sale of shares by selling stockholders. Proceeds
to the Company from this offering were approximately $84.3 million net of
offering costs.
47
<PAGE> 48
At December 31, 1998, 705,000 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.
In December 1998, the Company issued 50,000 shares of Common Stock to
LibertyOne Ltd. ("LibertyOne"), a partner in the Company's Australian joint
venture (see Note 10), in exchange for 1,000,000 shares of LibertyOne. These
equity securities were recorded at the fair market value of the Company's stock
at the date of the transaction. As a result, the fair market value of $2.5
million was recorded to short-term investments and the unrealized gain as of
December 31, 1998 of $1.4 million was included in stockholder's equity. The
Company has classified this equity security as an available-for-sale investment.
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 an
exercise price 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 87,000 shares of Common Stock.
During 1995, the Company issued warrants to purchase 2,400,000 shares of
Common Stock at an exercise price of $0.0625 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. Also during 1995, the Company issued warrants to purchase 72,000 and
57,000 shares of Common Stock at an exercise price of $0.34 and $0.63 per share,
respectively, in connection with an employment offer. These warrants were
exercised in 1996.
In connection with the acquisition of McKinley, in August 1996, the Company
assumed warrants under which the holder can purchase 4,712 shares and 14,190
shares of Common Stock at an exercise price of $16.33 and $50.64 per share,
respectively. The warrant for 4,712 shares of Common Stock was exercised in
1998. At December 31, 1998, 14,190 warrants were outstanding at an exercise
price of $50.64 per share 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
1,300,000 shares of Common Stock at an exercise price of $4.00 per share. The
warrant expires in March 2001. The value of the warrant was established through
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 WebCrawler, this warrant to purchase 1,300,000 shares of Common
Stock was converted into a warrant to purchase 650,000 shares of Series E
("Series E warrant") at the same exercise price per share. The value attributed
to the amendment of the warrant terms from Common Stock warrant to the Series E
warrant was minimal, as the expiration date of the warrant was also amended such
that 325,000 shares exercisable under this warrant would expire, if unexercised,
on September 30, 1997, instead of in March 2001. In September 1997, 325,000
shares were exercised under this Series E warrant, with the holder electing to
receive a lesser number of shares in exchange for a reduction in the total
exercise price, resulting in the issuance of 229,000 shares of Series E, which
were converted into 458,000 shares of Common Stock in December 1997. The
remaining Series E warrant for 325,000 shares outstanding at December 31, 1998,
if exercised, is convertible into 650,000 shares of Common Stock.
In connection with the acquisition of Netbot, in November 1997, the Company
assumed warrants under which the holder can purchase 4,100 shares of the
Company's Common Stock at an exercise price of approximately $5.75 per share.
In connection with the acquisition of MatchLogic, in February 1998, the
Company assumed warrants under which the holder can purchase 167,000 shares of
the Company's Common Stock at an exercise price of approximately $2.36 per
share. These warrants were exercised in 1998.
In April 1998, the Company acquired Classifieds2000 and Throw. In connection
with these acquisitions, the Company assumed warrants under which the holder can
purchase 4,000 and 68,000 shares of the Company's Common Stock at an exercise
price of approximately $16.67 and $0.345 per share, respectively. These warrants
were exercised in 1998.
In April 1998, the Company issued a warrant to Netscape Communication
Corporation ("Netscape") to purchase 846,158 shares of the Company's Common
Stock at an exercise price of approximately $29.55 per
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<PAGE> 49
share, exercisable for a two-year period commencing on April 30, 1998, and a
second warrant to purchase shares of the Company's Common Stock at an aggregate
exercise price of $10.0 million, which is exercisable for a two year period
commencing April 30, 1999. The exercise price per share of Common Stock covered
by the second warrant will be determined by dividing $10 million by the average
closing price of the Company's Common Stock for the 30 most recent trading days
ending on the third trading day preceding April 30, 1999.
8. EMPLOYEE BENEFIT PLANS
Stock Option Plans
During 1995, the Company adopted the 1995 Equity Incentive Plan (the "1995
Plan") which authorized for issuance under the 1995 Plan 3,300,000 shares of
Common Stock, under which incentive stock options and 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. In March
1996, the Company increased the number of shares authorized under the 1995 Plan
from 3,300,000 to 4,400,000 shares. The 1995 Plan was terminated in April 1995.
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.
In March 1996, the Company adopted the 1996 Equity Incentive Plan ("1996
Plan") which authorized for issuance under the 1996 Plan 3,000,000 shares of
Common Stock for granting of either incentive or non-qualified stock options.
The Company increased the number of shares authorized under the 1996 Plan from
3,000,000 shares to 4,600,000 shares in November 1996 and from 4,600,000 shares
to 9,928,000 in June 1997. Additionally, the company increased the number of
shares authorized under the 1996 Plan from 9,928,000 share to 16,528,000 in June
1998.
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 or the issuance of restricted stock,
at a price no less than 85% of the fair value on the date of grant as well as
stock bonuses by the Company to eligible participants. 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. As
of December 31, 1998, 4,676,000 shares of Common Stock were reserved for future
grants.
Assumed Options
In connection with the acquisition of McKinley in August 1996, the Company
assumed 9,000 outstanding options to purchase Common Stock originally issued
under McKinley's stock option plan. In 1997, the Company acquired Netbot, and in
connection with this acquisition, the Company assumed 418,000 outstanding
options to purchase Common Stock originally issued under Netbot's stock option
plan. In connection with the acquisitions of MatchLogic, Classifieds2000 and
Throw during 1998, the Company assumed options to purchase Common Stock under
these companies' stock option plans of 882,000, 46,000 and 250,000,
respectively. Additionally, the Company assumed 854,000 options authorized for
future grants under the MatchLogic stock option plan, which increased the total
number of shares authorized in 1997. See Note 2.
Directors Plan
In February 1996, the Company adopted the 1996 Directors Stock Option Plan
(the "Directors Plan") under which it authorized 300,000 shares of Common Stock
for granting of non-qualified stock options to directors of the Company who are
not employees of the Company ("Outside Directors") at exercise prices not less
than the fair market value on the date of grant. Upon initial election or
appointment, an Outside Director shall be automatically be granted an Option for
30,000 shares of Common Stock. An Outside Director is automatically granted an
additional 15,000 shares of Common Stock on each of the Outside Directors
anniversary dates. The options granted under the Directors Plan generally vest
at a rate of 2.08% each month and have a term of ten
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<PAGE> 50
years. During 1998 the Company granted 30,000 shares of Common Stock under the
Directors Plan. As of December 31, 1998, 265,000 shares of Common Stock were
reserved for future grants.
Stockholders Rights Plan
On September 24, 1998, the Board of Directors of the Company approved a
Stockholders Rights Plan, which declared a dividend of one Preferred Share
purchase right (a "Right") for each outstanding share of Common Stock, par value
$0.001 per share (the "Common Shares"), of the Company. The dividend is payable
to stockholders of record on October 30, 1998 (the "Record Date"). In addition,
one Right shall be issued with each Common Share that becomes outstanding (i)
between the Record Date and the earliest of the Distribution Date, the
Redemption Date and the Final Expiration Date (as such terms are defined in the
Rights Agreement) or (ii) following the Distribution Date and prior to the
Redemption Date or Final Expiration Date, pursuant to the exercise of stock
options or under any employee plan or arrangement or upon the exercise,
conversion or exchange of other securities of the Company, which options or
securities were outstanding prior to the Distribution Date. Each Right entitles
the registered holder to purchase from the Company one one-thousandth of a share
of Series F Junior Participating Preferred Stock, par value $0.001 per share
(the "Preferred Shares"), of the Company, at a price of $175.00, subject to
adjustment. The description and terms of the Rights are set forth in a Rights
Agreement (the "Rights Agreement") between the Company and BankBoston, as Rights
Agent.
A summary of activity under the Plans is as follows:
<TABLE>
<CAPTION>
SHARES OPTIONS OUTSTANDING WEIGHTED
AVAILABLE ------------------------------------------ AVERAGE
FOR NUMBER OF EXERCISE
(SHARES IN THOUSANDS) GRANT SHARES PRICE PER SHARE PRICE
--------- --------- ------------------------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 550 2,748 $ 0.018 -- $ 17.306 $ 0.16
Additional shares authorized 6,000 -- -- --
Options granted and assumed (5,672) 5,672 1.250 -- 33.879 3.40
Options exercised -- (600) 0.018 -- 2.875 0.17
Options canceled 526 (526) 0.018 -- 33.879 5.25
Options expired (1,056) -- -- --
------ ------- ------------------------------ --------
Balance at December 31, 1996 348 7,294 0.018 -- 33.879 2.33
Additional shares authorized 6,182 -- -- --
Options granted and assumed (4,776) 4,776 0.018 -- 14.188 5.44
Options exercised -- (1,128) 0.018 -- 8.063 1.31
Options canceled 1,272 (1,272) 0.018 -- 33.879 2.58
Options expired (420) -- -- --
------ ------- ------------------------------ --------
Balance at December 31, 1997 2,606 9,670 0.018 -- 33.879 3.60
Additional shares authorized 6,896 -- -- --
Options granted and assumed (6,057) 6,057 0.315 -- 52.375 28.64
Options exercised -- (3,630) 0.018 -- 44.313 3.34
Options canceled 1,741 (1,741) 0.063 -- 35.875 6.24
Options expired (245) -- -- --
------ ------- ------------------------------ --------
Balance at December 31, 1998 4,941 10,356 $ 0.018 -- $ 52.375 $ 17.21
====== ======= ============================== ========
</TABLE>
Employee Stock Purchase Plan
In February 1996 the Company's Board of Directors adopted, and in March 1996
the Company's stockholders 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, 900,000 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 price is equal to 85% of the
lower of (i) the fair market price of the Company's Common Stock on the offering
date of the applicable period or (ii) the fair market price of the Company's
Common Stock on the purchase date. As of December 31, 1998 and 1997, 165,000 and
55,000 shares respectively, had been purchased under the ESPP.
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<PAGE> 51
Included in the accrued compensation at December 31, 1998 and 1997, the Company
has accrued $1.2 million and $329,000, respectively for employee contributions
under the ESPP. At December 31, 1998, 680,000 shares of Common Stock were
reserved for future purchases under the ESPP.
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 plans because, as discussed
below, the alternative fair value accounting provided for under SFAS No. 123,
"Accounting for Stock-Based Compensation" 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 SFAS No. 123, which also requires that the information be determined as if
the Company had accounted for its employee stock plans granted subsequent to
December 31, 1994 under the fair value method of SFAS No. 123. The fair value
for these options was estimated at the date of grant using a Black-Scholes
option pricing model, assuming no expected dividends and the following
weighted-average assumptions:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------
1998 1997 1996
-------- -------- ---------
<S> <C> <C> <C>
Average risk-free interest rate 5.1% 6.1% 5.9%
Average expected life (in years) 3.0 3.0 4.5
Volatility (1) 106% 75% 75%
</TABLE>
(1) Options granted prior to the Company's initial public offering and by
non-public companies prior to their merger with Excite were valued using the
minimum value method.
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 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 and the
six-month purchase period (for stock purchases under the ESPP). The Company's
pro forma information follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA) 1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Net loss:
As reported $ (36,974) $ (41,392) $ (43,117)
Pro forma $ (79,494) $ (48,681) $ (44,104)
Basic and diluted net loss per share:
As reported $ (0.78) $ (1.47) $ (2.38)
Pro forma $ (1.67) $ (1.73) $ (2.43)
</TABLE>
The weighted average fair value of options granted during 1998, 1997 and 1996
was approximately $21.99, $2.81 and $1.77 per share, respectively, and was
approximately $7.42 and $3.87, respectively, for shares granted under the ESPP
in 1998 and 1997.
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<PAGE> 52
The following table summarizes information about fixed stock options
outstanding at December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------------- --------------------------
WEIGHTED-AVERAGE
NUMBER REMAINING WEIGHTED- NUMBER WEIGHTED-
RANGE OF OUTSTANDING CONTRACTUAL LIFE AVERAGE EXERCISABLE AVERAGE
EXERCISE PRICES (IN THOUSANDS) (IN YEARS) EXERCISE PRICE (IN THOUSANDS) EXERCISE PRICE
- --------------- ------------- --------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
$ 0.018-$ 0.220 1,014 7.5 $ 0.16 362 $ 0.13
$ 0.290-$ 2.875 500 7.8 $ 1.41 148 $ 1.46
$ 2.938-$ 4.375 1,699 8.0 $ 3.39 329 $ 3.38
$ 4.500-$10.063 1,427 8.4 $ 6.81 292 $ 6.24
$10.969-$14.938 568 8.9 $12.70 88 $ 12.17
$18.750-$28.250 2,614 9.3 $23.90 106 $ 23.79
$28.907-$43.625 2,208 9.6 $34.52 89 $ 34.45
$44.313-$52.375 326 9.8 $49.13 5 $ 45.36
------ --- ------ ----- -------
$ 0.018-$52.375 10,356 8.8 $17.21 1,419 $ 7.10
====== === ====== ===== =======
</TABLE>
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% or $10,000 per year, whichever is less) of their pretax earnings up
to the Internal Revenue Service's annual contribution limit. All full time
employees on the United States payroll of the Company are eligible to
participate in the Plan. The Company is not required to contribute to the
Savings Plan and has made no contributions to the Savings Plan since its
inception.
9. INCOME TAXES
Due to operating losses and the inability to recognize an income tax benefit
therefrom, there is no provision for income taxes for 1998, 1997 or 1996.
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,
--------------------------------
(IN THOUSANDS) 1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Net operating loss carryforwards $ 53,000 $ 29,160 $ 15,200
Research credits 1,900 910 400
Acquired intangible assets 5,700 5,670 1,865
Depreciation 4,300 1,730 390
Capitalized research & development expenses 1,100 -- --
Other 2,300 710 1,345
--------- --------- ---------
Total deferred tax assets $ 68,300 $ 38,180 $ 19,200
Valuation allowance for deferred tax assets (68,300) (38,180) (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 $30.1 million and $19.0 million during the years ended December 31,
1998 and 1997, respectively. Approximately $26.0 million of the valuation
allowance at December 31, 1998 is attributable to stock option deductions, the
benefit of which will be credited to paid in capital when realized.
As of December 31, 1998, the Company had federal and state net operating loss
carryforwards of approximately $143.4 million and $71.0 million, respectively.
The federal net operating loss carryforwards will expire at various dates
beginning in 2009 through 2013, and the state net operating loss carryforwards
will expire at various dates beginning in 1999 through 2003. As of December 31,
1998 the Company also had federal and California research and development credit
carryforwards of approximately $1.0 and $1.4 million, respectively. The federal
credits will expire in 2009 through 2013 if not utilized.
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<PAGE> 53
Utilization of the net operating losses and tax credit carryforwards 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 full
utilization.
10. JOINT VENTURES
Excite Japan
In October 1997, the Company and Itochu Corporation and certain affiliated
entities (collectively "Itochu") entered into a joint venture agreement with
respect to the Company's wholly-owned subsidiary, Excite Japan, Co. Ltd.
("Excite Japan") in order to provide Web based information services to the
Japanese market. The Company intends to retain a 50% equity interest in Excite
Japan. Advertising sales responsibilities will be assumed by CTC Create
Corporation, a wholly-owned subsidiary of Itochu Corporation. The joint venture
agreement with respect to Excite Japan obligates Excite and Itochu to make
capital contributions in the aggregate amount of $10.0 million by March 31,
1999. Itochu loaned Excite $5.0 million (see Note 6) in 1997 in order to fund
Excite's capital contributions. As of December 31, 1998 and 1997 Excite had
invested $4.9 million and $168,000, respectively, in the joint venture, and had
recognized 50% of the losses through December 31, 1998 and 1997 totaling $2.1
million and $477,000. Condensed financial information of Excite Japan has not
been presented as its operating results and financial position are not material
to the consolidated financial statements of the Company.
Excite Italia
In August 1998, the Company and Telecom Italia S.p.A. ("Telecom Italia")
entered into a joint venture agreement to form Excite Italia BV ("Excite
Italia"). The new company, Excite Italia, which is owned 50% by Excite and 50%
by Telecom Italia, will program certain portions of www.tin.lit, the Internet
site of TIN, a division of Telecom Italia and one of Italy's Internet access
providers, as well as provide an Italian language search directory service under
the Excite brand. Telecom Italia has committed to provide the initial start-up
capital for the venture, while Excite will provide the core technology, related
services and brand name. The cash contributed by Telecom Italia to Excite Italia
is in the form of a loan and is capped at approximately 10.5 billion Lira.
Excite will account for its interest in the joint venture under the equity
method.
Excite Asia Pacific
In August 1998, the Company and LibertyOne Limited ("LibertyOne") entered
into a joint venture agreement to form Excite Asia Pacific Pty Ltd ("Excite Asia
Pacific"). The new company, Excite Asia Pacific, is owned 50% by Excite and 50%
by LibertyOne and will build an Excite branded, advertising and commerce
supported Web portal for the Australian and the Asia-Pacific Internet markets.
LibertyOne will contribute a total of 10.0 million Australian Dollars for a 50%
equity ownership in Excite Asia Pacific. Excite will provide the core
technology, related services and brand name for the remaining 50% equity
ownership in Excite Asia Pacific. Excite will account for its interest in the
joint venture under the equity method.
Excite UK
In January 1999, the Company and British Telecom Holdings Ltd ("BT") entered
into a joint venture agreement whereby BT purchased 50% of the shares of Excite
UK Ltd, that had been a wholly-owned subsidiary of the Company. The new joint
venture company, which will continue to be known as Excite UK Ltd., will be
owned 50% by the Company and 50% by BT, and will continue to provide an Excite
branded, advertising and commerce supported Web portal for the market in the
United Kingdom. BT will contribute a total of 6,250,000 Pounds Sterling. Excite
will contribute the core technology, related services and brand name. Excite
will account for its interest in the joint venture under the equity method.
11. SEGMENT INFORMATION
The Company operates in the Internet navigation industry and the Internet ad
serving and targeting business segments. Prior to the merger with MatchLogic,
which began operations in May 1997, the Company operated only in the Internet
navigation industry. The Company's management has determined the operating
segments based upon how the business is managed and operated. MatchLogic, which
provides Internet ad serving and targeting services, operates as an independent
subsidiary of the Company with its own sales force, research and development and
operations departments.
53
<PAGE> 54
Information by Operating Segment:
<TABLE>
<CAPTION>
INTERNET AD SERVING
(IN THOUSANDS) NAVIGATION & TARGETING TOTAL
---------- ----------- -----------
<S> <C> <C> <C>
Year ended December 31, 1998
Operating information:
Revenues from external customers $ 125,115 $ 28,990 $ 154,105
Gross profit $ 99,466 $ 25,566 $ 125,032
Distribution license fees and data acquisition costs $ 14,899 $ 6,824 $ 21,723
Segment operating loss $ (28,698) $ (4,919) $ (33,617)
Balance sheet information at December 31, 1998:
Total assets $ 205,662 $ 15,011 $ 220,673
Year ended December 31, 1997
Operating information:
Revenues from external customers $ 50,151 $ 3,963 $ 54,114
Gross profit $ 29,542 $ 3,537 $ 33,079
Distribution license fees and data acquisition costs $ 7,615 $ 1,750 $ 9,365
Segment operating loss $ (29,870) $ (10,931) $ (40,801)
Balance sheet information at December 31, 1997:
Total assets $ 73,430 $ 3,263 $ 76,693
</TABLE>
Information by Geographic Area:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
(IN THOUSANDS) 1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Revenues:
United States operations
United States customers $ 149,880 $ 52,086 $ 14,721
International customers 211 831 36
--------- --------- ---------
150,091 52,917 14,757
International operations:
International customers 4,014 1,197 --
--------- --------- ---------
Total revenues $ 154,105 $ 54,114 $ 14,757
========= ========= =========
Operating loss:
United States operations $ (31,296) $ (37,405) $ (43,989)
International operations (2,321) (3,396) (129)
--------- --------- ---------
Total operating loss $ (33,617) $ (40,801) $ (44,118)
========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------
(IN THOUSANDS) 1998 1997 1996
--------- -------- --------
<S> <C> <C> <C>
Long-lived assets:
United States operations $ 72,074 $ 21,258 $ 20,958
International operations 81 313 --
--------- -------- --------
$ 72,155 $ 21,571 $20,958
========= ======== ========
Total assets:
United States operations $ 217,789 $ 75,588 $ 47,668
International operations 2,884 1,105 30
--------- -------- --------
$ 220,673 $ 76,693 $ 47,698
========= ======== ========
</TABLE>
12. RELATED PARTY TRANSACTIONS
Intuit
In June 1997, the Company sold 5,800,000 shares of the Company's Common Stock
to Intuit at a price of $6.75 per share. Proceeds from this offering were
approximately $38.4 million net of offering costs. Also in June
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<PAGE> 55
1997, the Company entered into a Joint Activities Agreement with Intuit. Under
this agreement, Intuit became the exclusive provider and aggregator of financial
content on all of Excite's services, and Excite became the exclusive search and
navigation service featured in the U.S. versions of Intuit's Quicken, Quickbooks
and TurboTax products. Under this agreement, the two companies share certain
revenues and expenses at varying amounts throughout the seven year term of this
agreement. For the years ended December 31, 1998 and 1997 the Company recorded
approximately $8.3 million and $1.5 million due to Intuit under this agreement,
of which approximately $5.1 was unpaid as of December 31, 1998.
The Company borrowed $50.0 million from Intuit, which is a principal
stockholder of the Company, in April 1998 to fund a portion of the Company's
cash payment obligation to Netscape under the Netcenter Agreement. The loan bore
interest at 5.9% per annum and was due no later than October 30, 1998. In June
1998, the Company repaid the loan in full, plus interest of approximately
$410,000, with proceeds from the Company's public offering, which closed in June
1998. See Note 7.
America Online
In November 1996, the Company entered into a five-year distribution agreement
with America Online which expires in November 2001 under which a co-branded
version of the Excite search and directory service, AOL NetFind Powered by
Excite, is designated as the exclusive Web search and directory service for the
AOL service for an initial two-year period ending in November 1998. In 1998, the
exclusive period was extended by AOL beyond the initial two-year term through
December 31, 1999. If the exclusive period is not extended by AOL beyond
December 31, 1999, the co-branded service would become the "default" search and
directory service of AOL. 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. Revenues associated with this agreement
for the year ended December 31, 1998 was $4.8 million. Revenues and expenses
associated with this agreement for the years ended December 31, 1997 and 1996
were not material.
Notes Receivable from an Officer
In 1998, the Company provided an officer of the Company a loan option for
$750,000. In December 1998, the officer exercised this loan option and borrowed
$675,000 from the Company. This note receivable bears interest at 4.4%
compounded quarterly and is secured by the officer's stock options of the
Company. This note receivable is due upon the earlier of the following events:
at the end of the officer's third year of employment with the Company (August
2001); the fair value of the stock option falls below $750,000; or if employment
with the Company is terminated for any reason. At December 31, 1998, the
outstanding $675,000 note receivable is included in other current assets.
Accrued interest as of December 31, 1998 was not material.
Other Related Party Transactions
In December 1998, MatchLogic, a wholly-owned subsidiary of Excite, invested
in a small company that collects and provides user profiles. MatchLogic
contributed targeting technology in exchange for an ownership of 19% in the
company. Revenues associated with providing clickstream data and anonymous
profiles to the Company for the year ended December 31, 1998, was $3.5 million.
This amount was paid in full to the Company in December 1998.
13. NETSCAPE AGREEMENT
In April 1998, the Company and Netscape entered into a two-year agreement
(the "Netcenter Agreement") with respect to Netscape's "Netcenter" online
service. Under the Netcenter Agreement, the Company will provide programming and
content for the Co-Branded channels to be offered on Netscape's Netcenter online
service and will develop a Web search and directory service for Netscape
(collectively, the "Co-Branded Services"). In addition, the Company's
Classifieds2000 service will be featured as the provider of classified
advertising (excluding career and job posting classified ads) for the Netcenter
service. The Company will also be featured as a "premier provider" on the "Net
Search" of Netscape's site and will also be similarly featured on the Netcenter
Widget Tool. The Company will be responsible for advertising sales for, and will
pay to Netscape a percentage of advertising revenues generated from, the
Co-Branded Netcenter channels, the search service and the directory service, and
will also be required to make payments based upon the amount of traffic
generated from the Net Search page and the Netcenter Widget Tool. The Company
has paid a total of $70.0 million as a prepayment of its obligations under the
Netcenter Agreement. In addition, the Company has issued a warrant to Netscape
to purchase 846,158 shares of the Company's Common Stock at an exercise price of
approximately $29.55 per
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<PAGE> 56
share and a second warrant to purchase shares of the Company's Common Stock at
an aggregate exercise price of $10.0 million. The original fair value assigned
to the warrants was $16.1 million.
In the second quarter of 1998 the Company capitalized $29.3 million as
Prepaid Distribution Fees and charged $56.8 million to operations as a
non-recoverable portion of the prepayment to Netscape. The Company had
previously concluded that there was no reasonable basis to assume a probable
recovery of the value of the prepayment and warrants issued to Netscape.
Specifically, the Company had developed a valuation model to calculate the
anticipated incremental net revenues that would be earned from the Netcenter
Agreement over its term of two-years. This model determined that an amount of
$56.8 million was not expected to be recovered from anticipated future revenue
streams. Accordingly, the Company expensed this amount in its originally
reported June 30 1998 operating results.
After discussions with the Staff of the Securities and Exchange Commission,
the Company revised the original accounting for this transaction and increased
the fair value of the warrants issued to Netscape by $3.8 million. The total
consideration of $89.9 million has been capitalized as Prepaid Netscape
Distribution Costs and Trademarks. The amount capitalized represents the amount
of the sum of the prepayments ($70.0 million) and the revised valuation of the
warrants issued ($19.9 million) from the Netcenter Agreement. The $89.9 million,
representing the combined value of marketing and distribution rights, trademarks
and other exclusive rights, which extend over the term of the Netcenter
Agreement, will be recognized ratably over the term of the agreement as
distribution services are received, commencing with the launch of the service in
June 1998. Prepaid Netscape Distribution Costs and Trademarks consists of the
following:
<TABLE>
<CAPTION>
CAPITALIZED AMORTIZATION
AMOUNTS AS OF JUNE 1, 1998 TO BALANCE AS OF
APRIL 30 DECEMBER 31, DECEMBER 31,
(IN THOUSANDS) 1998 1998 1998
---------- ---------- ----------
<S> <C> <C> <C>
Prepaid distribution license fees and data acquisition costs $ 29,285 $ (5,776) $ 23,509
Prepaid Netscape service 50,591 (14,757) 35,834
Prepaid trademark license 10,000 (2,916) 7,084
---------- ---------- ----------
$ 89,876 $ (23,449) $ 66,427
========== =========== ==========
</TABLE>
During the year ended December 31, 1998, the Company amortized $23.5 million
to operations. The $23.5 million charge to operations is as follows: $5.8
million is included in Distribution License Fees and Data Acquisition Costs and
$17.7 million is reported separately as Amortization of Prepaid Netscape
Service.
In July 1998, Netscape exercised a portion of the warrant issued under the
Netcenter Agreement and paid approximately $5.9 million to purchase 200,000
shares of the Company's Common Stock.
14. OTHER SIGNIFICANT AGREEMENTS
In April 1996, Excite and McKinley each entered into agreements with Netscape
under which they were each designated as one of five "premier providers" of
search and navigation services accessible from the "Net Search" button on the
Netscape home 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 in cash and delivery of advertising impressions totaling
$10.0 million over the course of the year. These contracts were subsequently
extended to April 30, 1997.
In March 1997, the Company entered into an agreement to continue the premier
provider arrangement for the Excite brand, and a marquee provider agreement for
the WebCrawler brand covering the period from May 1, 1997 through April 30,
1998. Under the terms of these agreements, the Company was committed to make
minimum payments of $8.25 million in exchange for a guaranteed number of
impressions. Of the $8.25 million minimum, a portion was being applied towards
advertising by Netscape on the Excite Network over the one year term of the
agreements based upon delivery of such advertisements, with the remainder being
paid in cash at intervals over the term of the agreements.
In June 1997, the Company entered into a Co-Marketing Services Agreement and
a Trademark License Agreement with Netscape. Under these agreements, the Company
is responsible for the programming, production, operations and advertising sales
of "International Netscape Guide by Excite", a new service being made available
in Australia, France, Germany, Japan and the United Kingdom. In connection with
these agreements, the Company made a payment of $4.0 million to Netscape in July
1997, which is being
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<PAGE> 57
amortized over the terms of these agreements to distribution license fees
expense. At December 31, 1998, the unamortized portion of this payment of $2.5
million was included in other assets.
15. 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 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 stockholders of the Company. The complaint seeks an unspecified
amount of damages, including punitive damages. In February 1998, the Court
granted the Company a motion for summary judgment to this complaint and entered
judgment in favor of the Company and the individual defendants on all claims.
The plaintiffs have subsequently filed a notice of appeal from the judgment. The
Company intends to continue to defend this action vigorously. It may not be
possible to ascertain the definitive outcome of this litigation at this time, an
unfavorable outcome may have an adverse effect on the Company's business,
results of operations and financial condition.
The Company is also 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 may be material. Furthermore, any litigation,
regardless of the outcome, may have an adverse impact on the Company's results
of operations as a result of defense costs, diversion of management resources,
and other factors.
16. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA) MAR. 31 JUN. 30 SEP. 30 DEC. 31
--------- --------- --------- --------
<S> <C> <C> <C> <C>
1998:
Revenues $23,001 $33,005 $44,004 $54,095
Cost of revenues:
Hosting costs 2,788 3,667 4,447 5,259
Royalties and other cost of revenues 2,806 2,792 3,277 4,037
--------- --------- --------- --------
Total cost of revenues 5,594 6,459 7,724 9,296
Gross profit 17,407 26,546 36,280 44,799
Operating expenses:
Research and development 5,900 7,291 8,151 7,863
Sales and marketing 10,074 14,918 16,294 21,086
Distribution license fees and data acquisition costs 3,986 5,179 5,664 6,894
General and administrative 2,756 3,928 4,264 5,625
In-process technology -- 6,200 -- --
Merger and acquisition related costs, including
amortization of goodwill and other purchased
intangibles 977 1,920 1,177 829
Amortization of prepaid Netscape service - 2,525 7,574 7,574
--------- --------- --------- --------
Total operating expenses 23,693 41,961 43,124 49,871
Operating loss (6,286) (15,415) (6,844) (5,072)
Interest income 397 385 420 418
Interest expense and other (591) (1,034) (561) (657)
Equity share of losses of affiliated company (479) (551) (614) (490)
--------- --------- --------- --------
Net loss $ (6,959) $(16,615) $ (7,599) $(5,801)
========= ======== ========= =======
Basic and diluted net loss per share $ (0.17) $ (0.36) $ (0.15) $ (0.11)
========= ======== ========= =======
Shares used in computing net loss per share 41,450 46,600 50,339 51,511
========= ======== ========= =======
</TABLE>
57
<PAGE> 58
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------
MAR. 31 JUN. 30 SEP. 30 DEC. 31
-------- -------- -------- --------
<S> <C> <C> <C> <C>
1997:
Revenues $ 7,515 $ 10,089 $15,962 $ 20,548
Cost of revenues:
Hosting costs 1,852 1,684 2,518 2,532
Royalties and other cost of revenues 540 556 1,145 1,994
Amortization of purchased technology 2,399 1,938 1,939 1,938
-------- -------- -------- --------
Total cost of revenues 4,791 4,178 5,602 6,464
Gross profit 2,724 5,911 10,360 14,084
Operating expenses:
Research and development 3,066 3,617 4,332 5,679
Sales and marketing 6,281 7,199 7,858 10,671
Distribution license fees and data acquisition costs 30 1,707 3,216 4,412
General and administrative 1,289 1,843 2,837 3,508
In-process technology -- 2,346 -- --
Merger and acquisition related costs, including
amortization of goodwill and other purchased
intangibles 953 463 530 2,043
-------- -------- -------- --------
Total operating expenses 11,619 17,175 18,773 26,313
Operating loss (8,895) (11,264) (8,413) (12,229)
Interest income 230 136 512 425
Interest expense and other (119) (248) (348) (702)
Equity share of losses of affiliated company -- -- -- (477)
-------- -------- -------- --------
Net loss $ (8,784) $(11,376) $(8,249) $(12,983)
======== ======== ======== ========
Basic and diluted net loss per share $ (0.37) $ (0.46) $ (0.27) $ (0.39)
======== ======== ======== ========
Shares used in computing net loss per share 23,598 24,686 31,104 33,231
======== ======== ======== ========
1996:
Revenues $ 1,374 $ 2,816 $ 4,049 $ 6,518
Cost of revenues:
Hosting costs 246 413 1,015 1,622
Royalties and other cost of revenues 143 14 150 360
Amortization of purchased technology -- -- -- 186
-------- -------- -------- --------
Total cost of revenues 389 427 1,165 2,168
Gross profit 985 2,389 2,884 4,350
Operating expenses:
Research and development 1,376 2,109 2,038 2,507
Sales and marketing 2,489 3,203 6,304 9,107
Distribution license fees and data acquisition costs 1,625 10,000 253 --
General and administrative 1,141 2,782 1,753 1,405
In-process technology -- -- -- 3,500
Merger and acquisition related costs, including
amortization of goodwill and other purchased
intangibles -- 73 2,292 769
-------- -------- -------- --------
Total operating expenses 6,631 18,167 12,640 17,288
Operating loss (5,646) (15,778) (9,756) (12,938)
Interest income 30 491 513 376
Interest expense and other (28) (121) (111) (149)
-------- -------- -------- --------
Net loss $ (5,644) $(15,408) $(9,354) $(12,711)
======== ======== ======== ========
Basic and diluted net loss per share $ (1.35) $ (0.68) $ (0.41) $ (0.55)
======== ======== ======== ========
Shares used in computing net loss per share 4,170 22,637 22,786 23,011
======== ======== ======== ========
</TABLE>
17. SUBSEQUENT EVENTS (UNAUDITED)
At Home Merger
On January 19, 1999, Excite, At Home Corporation ("At Home"), an Internet
service provider aimed at broadband cable subscribers, and Countdown Acquisition
Corporation entered into a definitive Agreement and Plan of Reorganization (the
"Merger Agreement"). Pursuant to the Merger Agreement, Excite will become a
wholly-owned subsidiary of At Home. At the effective time of the Merger, all
outstanding shares of Excite's Capital Stock will be exchanged for shares of At
Home's Series A Common Stock, and options and warrants to purchase Excite's
Capital Stock will be exchanged for options or warrants, as applicable, to
purchase shares of At Home's Series A Common Stock. Each share of Excite's
Common Stock will be exchanged for 1.041902 shares of At Home's Series A Common
Stock. The exercise price and number of shares of Excite's Capital Stock subject
to Company options or warrants, will be appropriately adjusted to reflect the
exchange ratio. Any outstanding convertible debt at the effective time of the
Merger, will thereafter be convertible into the number of shares of At Home's
Series A Common Stock to which a holder of Excite's Common Stock would have been
entitled to receive if the holder had converted the convertible debt into
Excite's Common Stock prior to the Merger. The transaction is intended to
qualify as a tax-free reorganization and will be accounted for as a purchase.
In connection with the execution of the Merger Agreement, Excite and At Home
entered into a Stock Option Agreement (the "Stock Option Agreement"), pursuant
to which Excite granted to At Home an option to purchase up to 19.9% of the
outstanding shares of Excite's Common Stock, which is exercisable upon the
occurrence of certain events specified in the Stock Option Agreement.
The Merger, which is expected to close in the second quarter of 1999, is
subject to various conditions, including clearance under the Hart-Scott-Rodino
Antitrust Improvements Act and approval of the Excite's and At Home's
stockholders.
Excite may be required to pay a substantial termination fee if the Merger
Agreement is terminated for certain specific reasons. Excite has filed the
Merger Agreement with the Securities and Exchange Commission on January 20, 1999
under its Report on Form 8-K.
58
<PAGE> 59
Netscape Warrant Exercise
In January and February 1999, Netscape exercised a portion of the warrant issued
under the Netcenter Agreement and paid approximately $19.1 million to purchase
646,158 shares of the Company's Common Stock.
Related Party Transaction
In January 1999, AOL sold approximately 4,900,000 shares of Excite Common
Stock. As a result, of this sale, AOL ceased to be the beneficial owner of more
than five percent of Excite's Common Stock on that date.
ITEM 9. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS IN ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
59
<PAGE> 60
PART III
Certain information required by Part III is omitted from this Report in that
the Company will have filed its definitive proxy statement pursuant to
Regulation 14A no later than 120 days after the end of the fiscal year covered
by this report, and certain information included therein is incorporated herein
by reference.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information relating to the directors of the Company is set forth under the
caption "Proposal No. 1 - Election of Directors" in the Company's definitive
Proxy Statement (the "Proxy Statement") in connection with the Annual Meeting of
Stockholders to be held in June 1999. Such information is incorporated herein by
reference. Information relating to the executive officers of the Company is set
forth in Part I of this report under the caption "Executive Officers of the
Registrant." Information relating to compliance with Section 16(a) of the
securities Exchange Act of 1934 is set forth under the caption "Executive
Compensation and Other Matters - Section 16(a) Beneficial Ownership Reporting
Compliance" in the Proxy Statement and incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information relating to executive compensation is set forth under the
caption "Executive Compensation" in the Proxy Statement. Such information is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information relating to ownership of equity securities of the Company by
certain beneficial owners and management is set forth under the caption
"Security Ownership of Certain Beneficial Owners and Management" in the Proxy
Statement. Such information is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information relating to certain relationships and related transactions is
set forth under the caption "Executive Compensation-Certain Transactions" in
the Proxy Statement. Such information is incorporated herein by reference.
60
<PAGE> 61
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
Upon written request, the Company will provide, without charge, a copy of this
Report on Form 10-K, including the consolidated financial statements and any
exhibits for the Company's most recent fiscal year. All requests should be sent
to:
Excite, Inc.
Investor Relations
555 Broadway
Redwood City, CA 94063
(650) 568-6000
(a) 1. List of Financial Statements.
Report of Independent Auditors.
Consolidated balance sheets at December 31, 1998.
Consolidated statements of operations for the three years ended December 31,
1998.
Consolidated statements of stockholders' equity (net capital deficiency) for
the three years ended December 31, 1998.
Consolidated statements of cash flows for the three years ended December 31,
1998.
Notes to consolidated financial statements, which includes quarterly
financial data (unaudited).
2. Financial Statement Schedule.
Schedule II valuation accounts for the three years ended December 31, 1998.
All other financial statement schedules have been omitted since the required
information is not present in amounts sufficient to require submission of
the schedules, or because the information required is included in the
consolidated financial statements or notes thereto.
3. List of Exhibits.
The exhibits filed as part of this Form 10-K are listed in the Index to
Exhibits immediately preceding such exhibits, which Index to Exhibits is
incorporated herein by reference.
(b) Reports on Form 8-K.
On October 19, 1998, the Company filed a Form 8-K under Item 5 which amended
the Company's Current Report on Form 8-K originally filed on May 19, 1998
announcing its results of operations for the 30 day period subsequent to its
acquisition of Classifieds2000, Inc. on April 1, 1998.
On October 20, 1998, the Company filed a From 8-K under Item 5 announcing
its financial results for the three and nine months ended September 30,
1998.
On October 22, 1998, the Company filed a Form 8-K under Item 5 announcing
the approval of a Stockholders Rights Plan.
(c) See Item 14(a)(3) above.
(d) See Item 14(a)(2) above.
61
<PAGE> 62
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
EXCITE, INC.
Date: February 8, 1999 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 Exchange Act of 1934, this
Registration Statement has been signed below by the following persons on behalf
of the Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- -------------------------------- ---------------------------------- ----------------
<S> <C> <C>
PRINCIPAL EXECUTIVE OFFICERS:
/s/ GEORGE BELL Chief Executive Officer and February 8, 1999
- -------------------------------- Director
George Bell
PRINCIPAL FINANCIAL AND PRINCIPAL ACCOUNTING OFFICER:
/s/ Robert C. Hood Executive Vice President, Chief February 8, 1999
- -------------------------------- Administrative Officer and Chief
Robert C. Hood Financial Officer
ADDITIONAL DIRECTORS:
/s/ JOSEPH R. KRAUS Senior Vice President and Director February 8, 1999
- --------------------------------
Joseph R. Kraus
/s/ VINOD KHOSLA Director February 8, 1999
- --------------------------------
Vinod Khosla
/s/ JEFFREY BERG Director February 8, 1999
- --------------------------------
Jeffrey Berg
/s/ GEOFFREY Y. YANG Director February 8, 1999
- --------------------------------
Geoffrey Y. Yang
</TABLE>
62
<PAGE> 63
SCHEDULE II
EXCITE, INC.
VALUATION ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT BALANCE
BEGINNING AT END OF
ALLOWANCE FOR DOUBTFUL ACCOUNTS: OF PERIOD EXPENSE WRITE-OFFS PERIOD
- -------------------------------- ---------- -------- ---------- ---------
<S> <C> <C> <C> <C>
December 31, 1998 $ 1,120 $ 2,772 $(2,470) $ 1,422
======== ======== ======== ========
December 31, 1997 $ 670 $ 1,370 $ (920) $ 1,120
======== ======== ======== ========
December 31, 1996 $ - $ 1,299 $ (629) $ 670
======== ======== ======== ========
</TABLE>
63
<PAGE> 64
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
<S> <C>
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, which is incorporated herein by reference to
the Registrant's Report on Form 8-K (File No. 000-28064) filed with
the Securities and Exchange Commission, or the "Commission", on
September 12, 1996.
2.02 Agreement of Merger dated as of August 30, 1996 by and between Excite
Acquisition Corporation and the McKinley Group, Inc., which is
incorporated herein by reference to the Registrant's Registration
Statement on Form 8-K (File No. 000-28064) filed with the Commission
on September 12, 1996.
2.03 Agreement and Plan of Reorganization dated as of October 30, 1997 by
and among the Registrant, Excite Merger Corporation, Netbot, Inc. and
certain stockholders of Netbot, Inc., which is incorporated herein by
reference to the Registrant's Registration Statement Form 8-K (File
No. 000-28064) filed with the Commission on December 4, 1997.
2.04 Agreement and Plan of Reorganization dated as of January 15, 1998 by
and among the Company, XCite Acquisition Corporation, Matchlogic, TL
Ventures III, L.P., TL Ventures III Offshore, TL Ventures III
Interfund L.P., Sequel Limited Partnership, Sequel Euro Limited
Partnership, Internet Capital Group, L.L.C., Data Strategies, Inc.,
and Gary Anderson, which is incorporated herein by reference to the
Registrant's Report on Form 8-K (File No. 000-28064), filed with the
Commission on February 17, 1998.
2.05 Agreement and Plan of Reorganization dated as of March 31, 1998 by and
among the Registrant, Excite 2000 Acquisition Corporation,
Classifieds2000, Inc., Sani El-Fishway and Karim El-Fishway, which is
incorporated herein by reference to the Registrant's Registration
Statement on Form 8-K (File No. 000-28064) filed with the Commission
on April 17, 1998.
2.06 Agreement and Plan of Merger for the reincorporation into Delaware
dated August 27, 1998, which is incorporated herein by reference to
the Registrant's Quarterly Report on Form 10-Q (File No. 000-28064)
filed with the Commission on November 13, 1998.
3.01 Certificate of Amendment to Restated Articles of Incorporation, which
is incorporated herein by reference to the Registrant's Registration
Statement on Form S-8 (File No. 333-59329) filed with the Commission
on July 17, 1998.
3.02 Amended and Restated Articles of Incorporation, dated June 11, 1998,
which is incorporated herein by reference to the Registrant's Report
on Quarterly (File No. 000-28064) filed with the Commission on
November 13, 1998.
3.03 Amended Bylaws dated June 11, 1998, which is incorporated herein by
reference to the Registrant's Quarterly Report on Form 10-Q (File No.
000-28064) filed with the Commission on November 16, 1998.
4.01 Form of Specimen Certificate for Registrant's Common Stock, which is
incorporated herein by reference to the Registrant's Amendment No. 1
to the Registrant's Registration Statement on Form SB-2 (File No.
333-2328-LA) filed with the Commission on March 29, 1996.
4.02 Restated and Amended Investors' Rights Agreement, which is
incorporated herein by reference to the Registrant's Amendment No. 1
to the Registrant's Registration Statement on Form SB-2 (File No.
333-2328-LA) filed with the Commission on March 29, 1996.
4.03 Amendment to Restated and Amended Investors' Rights Agreement dated as
of August 1, 1996, which is incorporated herein by reference to the
Registrant's Registration Statement on Form S-1 (File No. 333-22669)
filed with the Commission on March 3, 1997.
4.04 Amendment to Restated and Amended Investors' Rights Agreement dated as
of November 25, 1996, which is incorporated herein by reference to the
Registrant's Annual Report on Form 10-K (File No. 000-28064) filed
with the Commission on March 31, 1997.
4.05 Registration Rights Agreement dated as of November 25, 1996 by and
among the Registrant, America Online, Inc. and AOL Ventures, Inc.,
which is incorporated herein by reference to the Registrant's
Registration Statement on Form S-1 (File No. 333-22669) filed with the
Commission on March 3, 1997.
</TABLE>
<PAGE> 65
<TABLE>
<S> <C>
4.06 Voting Agreement dated as of November 25, 1996 by and among the
Registrant and certain of its shareholders, which is incorporated
herein by reference to the Registrant's Annual Report on Form 10-K
(File No. 000-28064) filed with the Commission on March 31, 1997.
4.07 Letter Agreement dated as of November 25, 1996 by and among certain
shareholders of the Registrant, which is incorporated herein by
reference to the Registrant's Annual Report on Form 10-K (File No.
000-28064) filed with the Commission on March 31, 1997.
4.08 Nomination and Observer Rights Agreement dated as of June 25, 1997
between the Registrant and Intuit Inc., which is incorporated herein
by reference to the Registrant's Registration Statement on Form S-3
(File No. 333-32123) filed with the Commission on July 25, 1997.
4.09 Registration Rights Agreement dated as of June 25, 1997 between the
Registrant and Intuit Inc., which is incorporated herein by reference
to the Registrant's Registration Statement on Form S-3 (File No.
333-32123) filed with the Commission on July 25, 1997.
4.10 Right of First Refusal Agreement dated as of June 25, 1997 between the
Registrant and Intuit Inc., which is incorporated herein by reference
to the Registrant's Registration Statement on Form S-3 (File No.
333-32123) filed with the Commission on July 25, 1997.
4.11 Amendment to Restated and Amended Investors' Rights Agreement dated as
of June 25, 1997 among the Registrant, Institutional Venture Partners
VI, Institutional Venture Management VI, IVP Founders Fund I, L.P.,
Kleiner Perkins Caufield & Byers VII, KPCB VII Founders Fund, KPCB
Information Sciences Zaibatsu Fund II and Intuit Inc., which is
incorporated herein by reference to the Registrant's Registration
Statement on Form S-3 (File No. 333-32123) filed with the Commission
on July 25, 1997.
4.12 Stock Purchase Agreement dated as of June 11, 1997 between the
Registrant and Intuit Inc., which is incorporated herein by reference
to the Registrant's Registration Statement on Form S-3 (File No.
333-32123) filed with the Commission on July 25, 1997.
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, which is incorporated herein by reference to the Registrant's
Registration Statement on Form S-1 (File No. 333-22669) filed with the
Commission on March 3, 1997.
10.01* 1995 Equity Incentive Plan, which is incorporated herein by reference
to the Registrant's Registration Statement on Form SB-2 (File No.
333-2328-LA) filed with the Commission on March 11, 1996.
10.02* 1996 Equity Incentive Plan, as amended on June 16, 1998, which is
incorporated herein by reference to the Registrant's Registration
Statement on Form S-8 (File No. 333-59329) filed with the Commission
on July 17,1998.
10.03* 1996 Directors Stock Option Plan, which is incorporated herein by
reference to the Registrant's Registration Statement on Form SB-2
(File No. 333-2328-LA) filed with the Commission on March 11, 1996.
10.04* 1996 Employee Stock Purchase Plan, as amended on June 16, 1998, which
is incorporated by reference to the Registrant's Registration
Statement on Form S-8 (File No. 333-59329) filed with the Commission
on July 17,1998.
10.05* 401(k) Plan, which is incorporated herein by reference to the
Registrant's Registration Statement on Form S-1 (File No. 333-22669)
filed with the Commission on March 3, 1997.
10.06* Form of Assumed Stock Option Grant Agreement, together with Netbot,
Inc. 1996 Stock Option Plan and Related Agreements, which is
incorporated herein to the Registrant's Registration Statement on Form
S-8 (File No. 333-41523) filed with the Commission on December 5,
1997.
10.07* Form of Assumed Stock Option Grant Agreement, together with
MatchLogic, Inc. 1997 Equity Compensation Plan and Related Agreements,
which is incorporated herein by reference to the Registrant's
Registration Statement on Form S-8 (File No. 333-46591) filed with the
Commission on February 19, 1998
10.08 Form of Indemnity Agreement entered into by Registrant with each of
its directors, which is incorporated herein by reference to the
Registrant's Registration Statement on Form SB-2 (File No.
333-2328-LA) filed with the Commission on March 11, 1996.
</TABLE>
<PAGE> 66
<TABLE>
<S> <C>
10.09 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, which is incorporated herein
by reference to the Registrant's Registration Statement on Form SB-2
(File No. 333-2328-LA) filed with the Commission on March 11, 1996.
10.10* Promissory Note, dated as of February 27, 1996, issued by Graham F.
Spencer to the Registrant, which is incorporated herein by reference
to the Registrant's Registration Statement on Form SB-2 (File No.
333-2328-LA) filed with the Commission on March 11, 1996.
10.11* Secured Full Recourse Promissory Note, dated as of March 15, 1996,
issued by Brett T Bullington to the Registrant, which is incorporated
herein by reference to the Registrant's Registration Statement on Form
S-1 (File No. 333-22669) filed with the Commission on March 3, 1997.
10.12* Stock Pledge Agreement dated as of March 15, 1996 by and between the
Registrant and Brett T Bullington, which is incorporated herein by
reference to the Registrant's Registration Statement on Form S-1 (File
No. 333-22669) filed with the Commission on March 3, 1997.
10.13* Offer Letter dated November 30, 1995, as amended, to Brett T
Bullington, which is incorporated herein by reference to the
Registrant's Registration Statement on Form SB-2 (File No.
333-2328-LA) filed with the Commission on March 11, 1996.
10.14* Offer Letter dated January 16, 1996, as amended, to George Bell, which
is incorporated herein by reference to the Registrant's Registration
Statement on Form SB-2 (File No. 333-2328-LA) filed with the
Commission on March 11, 1996.
10.15* Offer Letter dated as of November 15, 1996 to Robert C. Hood, which is
incorporated herein by reference to the Registrant's Registration
Statement on Form S-1 (File No. 333-22669) filed with the Commission
on March 3, 1997.
10.16* Consulting Agreement dated as of November 19, 1996 by and between the
Registrant and Robert C. Hood, which is incorporated herein by
reference to the Registrant's Registration Statement on Form S-1 (File
No. 333-22669) filed with the Commission on March 3, 1997.
10.17* Offer Letter dated as of July 18, 1997 to James N. Desrosier, which is
incorporated herein by reference to the Registrant's Annual Report on
Form 10-K (File No. 000-28064) filed with the Commission on March 31,
1998.
10.18* Form of standard employment offer letter, which is incorporated herein
by reference to the Registrant's Annual Report on Form 10-K (File No.
000-28064) filed with the Commission on March 31, 1998.
10.19 Office Lease, dated as of January 22, 1996 by and between the
Registrant and McCandless land and Cattle Company, which is
incorporated herein by reference to the Registrant's Registration
Statement on Form SB-2 (File No. 333-2328-LA) filed with the
Commission on March 11, 1996.
10.20# Net Search Program - Premier Provider Agreement dated as of March 28,
1996 between the Registrant and Netscape Communications Corporation,
which is incorporated herein by reference to the Registrant's
Amendment No. 3 of the Registrant's Registration Statement on Form
SB-2 (File No. 333-2328-LA) filed with the Commission on April 3,
1996.
10.21 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, which is
incorporated herein by reference to the Registrant's Quarterly Report
on Form 10-QSB/A (File No. 000-28064) filed with the Commission on
February 28, 1997.
10.22 Series D Preferred Stock Purchase Agreement dated as of March 8, 1996
by and among the Registrant and various investors, which is
incorporated herein by reference to the Registrant's Amendment No. 2
to the Registration's Registration Statement on Form SB-2 (File No.
333-2328-LA) filed with the Commission on April 3, 1996.
10.23 Warrant to purchase 650,000 shares of Common Stock dated March 8, 1996
issued to AOL Ventures, Inc., which is incorporated herein by
reference to the Registrant's Amendment No. 2 to the Registrant's
Registration Statement on Form SB-2 (File No. 333-2328-LA) filed with
the Commission on April 3, 1996.
10.24 Office Lease, dated as of August 9, 1996, by and between the
Registrant and Martin/Campus Associated, L.P., which is incorporated
herein by reference to the Registrant's Amendment No. 3 to the
Registrant's Registration Statement on Form SB-2 (File No.
333-2328-LA) filed with the Commission on April 3, 1996.
</TABLE>
<PAGE> 67
<TABLE>
<S> <C>
10.25 Acquisition Agreement dated as of November 25, 1996 by and among the
Registrant, America Online, Inc. and Global Network Navigator, Inc.,
which is incorporated herein by reference to the Registrant's
Registration Statement on Form S-1 (File No. 333-22669) filed with the
Commission on March 3, 1997.
10.26# Premier Provider Services Agreement between the Registrant and
Netscape Communications Corporation dated as of March 21, 1997, which
is incorporated herein by reference to the Registrant's Report on Form
8-K (File No. 000-28064) filed with the Commission on April 2, 1997.
10.27 Netcenter Services Agreement dated as of April 29, 1998 between the
Registrant and Netscape Communication Corporation, which is
incorporated herein by reference to the Registrant's From 10-Q (File
No. 000-28064) filed with the Commission on August 14, 1998.
10.28* Employment Agreement with John Polumbo, President and Chief Operating
Officer dated August 3, 1998, which is incorporated herein by
reference to the Registrant's Quarterly Report on Form 10-Q (File No.
000-28064) filed with the Commission on November 16, 1998.
10.29 Form of Assumed Stock Option Grant Agreement, together with
Classifieds2000, Inc. and Throw, Inc.'s 1996 Stock Option Plan, which
is incorporated herein to the Registrant's Registration Statement on
Form S-8 (File No. 333-52001) filed with the Commission on May 7,
1998.
10.30 Office Lease, dated as of May 19, 1998, by and between the Registrant
and Martin/Campus Associated, L.P.
10.31 Joint Activities Agreement between the Registrant and Intuit, Inc.
21.01 List of Subsidiaries.
23.01 Consent of Ernst & Young LLP, Independent Auditors.
27.01 Financial Data Schedule for December 31, 1998 (EDGAR version only.)
- -------------
* Indicates a management contract or compensatory plan or arrangement.
# Confidential treatment was ordered or was requested with respect to
certain portions of these agreements. Such portions have been omitted
from this filing and have been filed separately with the Securities and
Exchange Commission.
</TABLE>
<PAGE> 1
EXHIBIT 10.30
LEASE
By and Between
MARTIN/CAMPUS ASSOCIATES NO. 7, L.P.
"Landlord"
and
EXCITE, INC.
"Tenant"
For the approximately 49,510 square foot premises at
475 Broadway
Redwood City, CA 94063
<PAGE> 2
LEASE SUMMARY
Lease Date: As of May 19, 1998
Landlord: Martin/Campus Associates No. 7, L.P.
Address of Landlord: 100 Bush Street, 26th Floor
San Francisco, CA 94104
Tenant: Excite, Inc.
Address of Tenant: 525-555 Broadway
Redwood City, CA 94063
Contact: Robert Hood
Telephone: (415) 943-1203
Building Address: 475 Broadway (Building 3A)
Redwood City, California 94063
Total Premises
Square Footage: approximately 49,510 square feet
Commencement Date: October 1, 1998
Term: ten (10) years
Monthly Rent: $2.30/square foot/month, subject to
adjustments
Security Deposit: $341,619.00, subject to adjustments
Exhibit A: Floor Plan of Premises
Exhibit B: Site Plan of Project
Exhibit C: Work Letter Agreement
Exhibit C-1: Elevation Drawing
Exhibit D: Commencement Date Memorandum
Exhibit E: Termination Date Memorandum
Exhibit F: Subordination, Non-Disturbance and Attornment Agreement
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LEASE
1. Parties.
THIS LEASE (the "Lease"), dated as of May 19, 1998, is entered
into by and between MARTIN/CAMPUS ASSOCIATES NO. 7, L.P., a Delaware limited
partnership ("Landlord"), whose address is 100 Bush Street, Suite 2600, San
Francisco, CA 94104, and EXCITE, INC., a California corporation ("Tenant"),
whose address is 525-555 Broadway, Redwood City, CA 94063.
2. Premises.
Landlord hereby leases to Tenant and Tenant hereby leases from
Landlord those certain premises consisting of a total area of approximately
Forty-Nine Thousand Five Hundred Ten (49,510) square feet (the "Premises"),
comprising the entire building under construction by Landlord, and commonly
known as 475 Broadway (the "Building"), in the City of Redwood City, County of
San Mateo, State of California, as more particularly shown on Exhibit A, which
shall be delivered by Landlord to Tenant on or before the Commencement Date,
Landlord's architect shall measure the Rentable Area of the Premises to the
outside of all exterior walls, and to the middle of the interior demising wall,
that form the boundaries of the Premises, and Landlord and Tenant shall amend
this Lease if necessary to reflect any discrepancy in the size of the Premises
disclosed by the measurement of the Premises by Landlord's architect. The
Premises also includes the Premises by Landlord's architect. The Premises also
includes the appurtenant right to use in common with other tenants of the
Project (as defined below) the Common Area (as defined below) of the Project.
3. Definitions.
The following terms shall have the following meanings in this
Lease:
A. Alterations. Any alterations, additions or improvements made
in, on or about the Premises after the Commencement Date, including, but not
limited to, lighting, heating, ventilating, air conditioning, electrical,
partitioning, drapery and carpentry installations.
B. Building 1 Lease. That certain Lease entered into by and
between Landlord and Tenant dated as of August 9, 1996, as amended by that
certain First Amendment to Lease dated March 14, 1997, pursuant to which
Landlord agreed to lease to Tenant, and Tenant agreed to lease from Landlord,
certain premises located in the building within the Project and commonly known
as 525-555 Broadway.
C. Building 2 Lease. That certain Lease entered into by and
between Landlord and Tenant dated as of March 14, 1997, as amended by that
certain First Amendment to Lease dated October 1, 1997, pursuant to which
Landlord agreed to lease to Tenant and Tenant agreed to lease from Landlord,
certain premises located in the building within the Project and commonly known
as 575-595 Broadway.
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D. Capital Improvements. Those certain improvements to the
Building to be constructed by Landlord pursuant to Paragraph 10.A and the Work
Letter Agreement attached to this Lease as Exhibit C (the "Work Letter").
E. Commencement Date. The Commencement Date of this Lease shall
be October 1, 1998.
F. Common Area. All areas and facilities within the Project not
appropriated to the exclusive occupancy of tenants, including the Parking Area,
sidewalks, pedestrian ways, driveways, signs, service delivery facilities,
common storage areas, common utility facilities and all other areas in the
Project established by Landlord for non-exclusive use. The Common Area may
increase and/or decrease from time to time during the Term, since Landlord may
elect in its sole discretion to make changes to the buildings situated in the
Project, and/or to subdivide, sell, exchange, dispose of, transfer, or change
the configuration of all or any portion of the Common Area from time to time, so
long as Landlord neither unreasonably interferes with ingress to or egress from
the Building, nor reduces the number of parking spaces available for Tenant's
use below the minimum requirements set forth in Paragraph 37.
G. Common Area Maintenance Costs. The total of all costs and
expenses paid or incurred by Landlord in connection with the operation,
maintenance, ownership and repair of the Common Area, the Building, and the
performance of Landlord's obligations under Paragraph 17.A. Without limiting the
generality of the foregoing, Common Area Maintenance Costs include all costs of
and expenses for: (i) maintenance and repairs of the Common Area; (ii)
resurfacing, resealing, remarking, painting, repainting, striping or restriping
the Parking Area; (iii) maintenance and repair of all public or common
facilities; (iv) maintenance, repair and replacement of sidewalks, curbs,
paving, walkways, Parking Area, Project signs, landscaping, planting and
irrigation systems, trash facilities, loading and delivery areas,, lighting,
drainage and common utility facilities, directional or other signs, markers and
bumpers, and any fixtures, equipment and personal property located on the Common
Area; (v) wages, salaries, benefits, payroll burden fees and charges of
personnel employed by Landlord and the charges of all independent contractors
retained by Landlord (to the extent that such personnel and contractors are
utilized by Landlord) for the maintenance, repair, management and/or supervision
of the Project, and of any security personnel retained by Landlord in connection
with the operation and maintenance of the Common Area (although Landlord shall
not be required to obtain security services); (vi) maintenance, repair and
replacement of security systems and alarms; (vii) premiums for Comprehensive
General Liability Insurance or Commercial General Liability Insurance, casualty
insurance, workers compensation insurance or other insurance on the Common Area,
the Project, the buildings located at the Project, or any portion thereof or
interest therein (but not including premiums for insurance policies that solely
cover the initial Tenant Improvements); (viii) all personal property or real
property taxes and assessments levied or assessed on the Project, or any portion
thereof or interest therein, including without limitation Tenant's Percentage
Share of the Real Property Taxes for the Project, if applicable under Paragraph
15.A; (ix) cleaning, collection, storage and removal of trash, rubbish, dirt and
debris, and sweeping and cleaning the Common Area; (x) any alterations,
additions or improvements
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required to be made to the Common Area in order to comply with applicable
governmental laws, ordinances, rules, regulations and orders that become
effective after the date of this Lease; (xi) legal, accounting and other
professional services for the Project, including costs, fees and expenses of
contesting the validity or applicability of any law, ordinance, rule, regulation
or order relating to the Building, and of contesting, appealing or otherwise
attempting to reduce any Real Property Taxes assessed against the Project; (xii)
all costs and expenses incurred by Landlord in performing its obligations under
Paragraph 17.A, including without limitation all costs and expenses incurred in
performing any alterations, additions or improvements required to be made to the
Building in order to comply with applicable laws, ordinances, rules, regulations
and orders that ` become effective after the date of this Lease, and all capital
improvements required to be made in connection with the operation, maintenance
and repair of the Building, provided that the cost of any such alterations,
additions, improvements or capital improvements, together with interest at the
Interest Rate, shall be amortized over the useful life of the alteration,
addition, improvement or capital improvement in question and included in Common
Area Maintenance Costs for each year over which such costs are amortized; (xiii)
any other cost or expense which this Lease expressly characterizes as a Common
Area Maintenance Cost; and (xiv) any and all payments due and owing on behalf of
the Project or any portion thereof with respect to any covenants, conditions,
and restrictions encumbering the Project, including without limitation any and
all assessments and association dues. In addition, if Tenant approves any
proposal submitted by Landlord for the creation of an amenities center in the
Project (which approval shall not be unreasonably withheld or delayed), Common
Area Maintenance Costs shall also include all costs and expenses of providing,
creating, maintaining, repairing, managing, operating, and supervising such
amenity center for the Project, which may include without limitation a dining
facility, which costs and expenses may include without limitation fair market
rent subsidies granted and fair market rent charged by Landlord for the space
occupied by such amenity center; provided, however, that Landlord shall not
under any circumstances be required to provide or create such an amenity center.
However, notwithstanding the foregoing, Common Area, Maintenance Costs shall not
include the cost of or expenses for the following: (A) leasing commissions,
attorneys' fees or other costs or expenses incurred in connection with
negotiations or disputes with other tenants of the Project; (B) depreciation of
buildings in the Project-; (C) payments of principal, interest, late fees,
prepayment fees or other charges on any debt secured by a mortgage covering the
Project, or rental payments under any ground lease or underlying lease; (D) any
penalties incurred due to Landlord's violation of any governmental rule or
authority (but not excluding the cost of compliance therewith, if such cost is
chargeable to Tenant pursuant to this Lease); (E) any Real Property Taxes or
costs for which Landlord is separately and directly reimbursed by Tenant or any
other tenant of the Project which are assessed against the Premises or the
premises leased by such other tenant; (F) items for which Landlord is reimbursed
by insurance; (G) any Common Area Maintenance Costs representing an amount paid
to a related or affiliated person or entity of Landlord which is in excess of
the amount which would be paid in the absence of such relationship; (H) costs
and expenses incurred by Landlord in performing its obligations under Paragraph
17.A, to the extent but only to the extent that such costs and expenses are
incurred in performing any alterations, additions or improvements required to be
made to the Building in order to comply with applicable laws, ordinances, rules,
regulations and orders that are in effect as of the date of this Lease; and
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(I) costs and expenses arising from any refinancing of the Project. In addition,
Common Area Maintenance Costs allocable to the Parking Area shall be reduced
(but not below zero (0)) by any and all net income received by Landlord during
the applicable year from the ownership or operation of the Parking Area.
H. HVAC. Heating, ventilating and air conditioning.
I. Impositions. Taxes, assessments, charges, excises and levies,
business taxes, license, permit, inspection and other authorization fees,
transit development fees, assessments or charges for housing funds, service
payments in lieu of taxes and any other fees or charges of any kind at any time
levied, assessed, charged or imposed by any federal, state or local entity, (i)
upon, measured by or reasonably attributable to the cost or value of Tenant's
equipment, furniture, fixtures or other personal property located in the
Premises, or the cost or value of any Alterations; (ii) upon, or measured by,
any Rent payable hereunder, including any gross receipts tax; (iii) upon, with
respect to or by reason of the development, possession, leasing, operation,
management, maintenance, alteration, repair, use or occupancy by Tenant of the
Premises, or any portion thereof; or (iv) upon this Lease transaction, or any
document to which Tenant is a party creating or transferring any interest or
estate in the Premises. Impositions do not include franchise, transfer,
inheritance or capital stock taxes, or income taxes measured by the net income
of Landlord from all sources, unless any such taxes are levied or assessed
against Landlord as a substitute for, in whole or in part, any Imposition.
J. Improvements. Collectively, the Tenant Improvements and the
Capital Improvements.
K. Index. The Consumer Price Index, All Urban Consumers, All
Items, published by the U.S. Department of Labor, Bureau of Labor Statistics for
the San Francisco-Oakland-San Jose Metropolitan Area (1982-84=100). If the Base
Year of the Index is changed, then all calculations pursuant to this Lease which
require the use of the Index shall be made by using the appropriate conversion
factor published by the Bureau of Labor Statistics (or successor agency) to
correlate to the Base Year of the Index herein specified. If no such conversion
factor is published, then Landlord shall, if possible, make the necessary
calculation to achieve such conversion. If such conversion is not in Landlord's
judgment possible, or if publication of the Index is discontinued, or if the
basis of calculating the Index is materially changed, then the term "Index"
shall mean comparable statistics on the cost of living, as computed either (i)
by an agency of the United States Government performing a function similar to
the Bureau of Labor Statistics, or (ii) if no such agency performs such
function, by a substantial and responsible periodical or publication of
recognized authority most closely approximating the result which would have been
achieved by the Index, as may be determined by Landlord in the exercise of its
reasonable good faith business judgment.
L. Interest Rate. The lesser of (i) the reference rate, or
succeeding similar index, announced from time to time by the Bank of America's
main San Francisco office, plus two percent (2%) per annum, or (ii) the maximum
rate of interest permitted by law.
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M. Landlord's Agents. Landlord's authorized agents, partners,
subsidiaries, directors, officers, and employees.
N. Monthly Rent. The rent payable pursuant to Paragraph 5.A, as
adjusted from time to time pursuant to the terms of this Lease.
O. Parking Area. All Common Area (except sidewalks and service
delivery facilities) now or hereafter designated by Landlord for the parking or
access of motor vehicles, including roads, traffic lanes, vehicular parking
spaces, landscaped areas and walkways. The Parking Area may increase and/or
decrease from time to time during the Term, since Landlord may elect in its sole
discretion to make changes to the buildings situated in the Project, and/or to
subdivide, sell, exchange, dispose of, transfer, or change the configuration of
all or any portion of the Parking Area from time to time; provided, however,
that Landlord shall not reduce the number of parking spaces available for
Tenant's use below the minimum requirements set forth in Paragraph 37.
P. Project. That certain real property described in Exhibit B
consisting of approximately 27.8261 acres, upon which are located the Building
and four (4) other buildings, consisting of a total building square footage of
approximately Four Hundred Eleven Thousand Three Hundred Five (411,305) square
feet.
Q. Real Property Taxes. Any form of assessment, license, fee,
rent tax, levy, penalty (if a result of Tenant's delinquency), or tax (other
than net income, estate, succession, inheritance, transfer or franchise taxes),
imposed by any authority having the direct or indirect power to tax, or by any
city, county, state or federal government or any improvement or other district
or division thereof, whether such tax is: (i) determined by the area of the
Premises or any part thereof or the rent and other sums payable hereunder by
Tenant or by other tenants, including, but not limited to, any gross income or
excise tax levied by any of the foregoing authorities with respect to receipt of
such rent or other sums due under this Lease; (ii) upon any legal or equitable
interest of Landlord in the Premises or any part thereof; (iii) upon this
transaction or any document to which Tenant is a party creating or transferring
any interest in the Premises; (iv) levied or assessed in lieu of, in
substitution for, or in addition to, existing or additional taxes against the
Premises whether or not now customary or within the contemplation of the
parties; or (v) surcharged against the Parking Area. To the extent that Landlord
receives during any calendar year any rebate or refund of Real Property Taxes
assessed against the Project, the Real Property Taxes for such year shall be
reduced by the amount of such rebate or refund received by Landlord.
R. Rent. Monthly Rent plus the Additional Rent defined in
Paragraph 5.F.
S. Rentable Area. The aggregate square footage in any one or more
buildings in the Project, as appropriate, as reasonably determined by Landlord
from time to time.
T. Security Deposit. That amount paid by Tenant pursuant to
Paragraph 7.
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U. Sublet. Any transfer, sublet, assignment, license or
concession agreement, or hypothecation of this Lease or the Tenant's interest in
the Lease or in and to all or a portion of the Premises. As used herein, a
Sublet includes the following: (i) if Tenant is a partnership or a limited
liability company, a transfer, voluntary or involuntary, of all or any part of
any interest in such partnership or limited liability company, or the
dissolution of the partnership or limited liability company, whether voluntary
or involuntary; (ii) if Tenant is a corporation, any dissolution of Tenant, or
the transfer, either by a single transaction or in a series of transactions, of
a controlling percentage of the stock of Tenant, unless any such corporate
change results from the trading of shares listed on a recognized public stock
exchange and such trading is not for the purposes of acquiring effective control
of Tenant; (iii) if Tenant is a trust, the transfer, voluntarily or
involuntarily, of all or any part of the controlling interest in such trust; and
(iv) if Tenant is any other form of entity, a transfer, voluntary or
involuntary, of all or any part of any interest in such entity. As used herein,
the phrases "controlling percentage" and "controlling interest" mean the
ownership of, and/or the right to vote, stock, partnership interests, membership
interests, or other indicia of ownership possessing at least fifty-one percent
(5l%) of either the total combined interests in Tenant, or the voting power of
all classes of Tenant's capital stock, partnership interests, membership
interests, or other indicia of ownership, that have been issued, outstanding,
and (if applicable) are entitled to vote.
V. Subrent. Any consideration of any kind received, or to be
received, by Tenant from a Subtenant if such sums are directly related to
Tenant's interest in this Lease or in the Premises, including without limitation
bonus money and payments (in excess of book value) for Tenant's assets,
including without limitation its trade fixtures, equipment and other personal
property, goodwill, general intangibles, and any capital stock or other equity
ownership of Tenant.
W. Subtenant. The person or entity with whom a Sublet agreement
is proposed to be or is made.
X. Tenant Improvements. Those certain improvements to the
Premises to be constructed by Landlord pursuant to Exhibit C, other than the
Capital Improvements.
Y. Tenant's Building Share. The ratio (expressed as a percentage)
of the total Rentable Area of the Premises to the total Rentable Area of the
Building as determined by Landlord from time to time, which as of the
Commencement Date shall equal one hundred percent (100%). Tenant's Building
Share shall be recalculated any time that the amount of Rentable Area contained
in Premises is adjusted, or there is a change in the total Rentable Area of the
Building.
Z. Tenant's Percentage Share. The ratio (expressed as a
percentage) of the total Rentable Area of the Premises to the total Rentable
Area of all of the buildings at the Project, each as of the first (lst) day of
the calendar month in question, as reasonably determined by Landlord. The
parties acknowledge and agree that the total Rentable Area of all of the
buildings in the Project may increase and/or decrease from time to time during
the Term, since Landlord may elect in its sole discretion to make changes to the
buildings situated in the Project
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(so long as Landlord neither unreasonably interferes with ingress to or egress
from the Building, nor reduces the number of parking spaces available for
Tenant's use below the minimum requirements set forth in Paragraph 37). For the
purposes of example only and not by way of limitation, if as of the Commencement
Date (x) Landlord determines that the Premises consists of Forty-Nine Thousand
Five Hundred Ten (49,510) square feet of Rentable Area in the Building, and (y)
the total Rentable Area of all of the buildings in the Project equals Four
Hundred Eleven Thousand Three Hundred Five (411,305) square feet of Rentable
Area, then Tenant's Percentage Share as o f the Commencement Date shall equal
Twelve and 37/100ths percent (12.037%).
AA. Tenant's Personal Property. Tenant's trade fixtures, furniture,
equipment and other personal property in the Premises.
BB. Term. The term of this Lease set forth in Paragraph 4.A, as it
may be extended hereunder pursuant to any options to extend granted herein.
4. Lease Term.
A. Term. The Term shall commence on the Commencement Date and shall
terminate on September 30, 2008. Upon the delivery of possession of the
Premises, Landlord and Tenant shall execute a Commencement Date Memorandum in
the form set forth in Exhibit D and shall execute a Termination Date Memorandum
in the form set forth in Exhibit E.
B. Delays in Completion. The term "Tenant Delay" shall mean any
delay that Landlord may encounter in the performance of Landlord's obligations
under the Lease because of any act or omission of any nature by Tenant or its
agents or contractors, including any: (i) delay by Tenant in the submission of
information or the giving of authorizations or approvals within the time limits
set forth in the Lease or the Work Letter; (ii) delay attributable to the
failure of Tenant to pay, when due, any amounts required to be paid by Tenant
pursuant to the Lease or the Work Letter; and (iii) delay resulting from any
change order request initiated or requested by Tenant. Tenant shall pay all
actual costs and expenses incurred by Landlord which result from any Tenant
Delay, including, without limitation, any actual costs and expenses attributable
to increases in the cost of labor or materials.
C. [Intentionally Deleted).
D. Option to Extend.
(i) Grant of Option. Landlord hereby grants to Tenant one
(1) option (the "Option") to extend the Term of this Lease, for an additional
term of five (5) years, which shall commence upon the expiration of the Term.
The Option is expressly conditioned upon Tenant's not being in default under any
term or condition of this Lease after the expiration of any applicable cure
period granted by this Lease, either at the time the option is exercised or at
the time the Option term would commence. The Option shall be personal to the
Tenant originally named in this Lease and to any successor in interest to Tenant
pursuant to a "Permitted Transfer"
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(as defined in Paragraph 25.G), and shall not be assigned, sold, conveyed or
otherwise transferred to any other party (including without limitation any
assignee or sublessee of such Tenant) without the prior written consent of
Landlord, which consent may be withheld in Landlord's sole discretion; provided,
however, that Landlord's decision to grant or withhold its consent shall be made
in accordance with the provisions of Paragraph 25.F. Under no circumstances
shall Landlord be required to pay any real estate commission to any party with
respect to Tenant's exercise of the Option.
(ii) Manner of Exercise. Tenant may exercise the Option
only by giving Landlord written notice not less than nine (9) months prior to
the expiration of the Term. If Tenant fails to exercise its Option prior to such
nine (9) month period, then the Option automatically shall lapse and thereafter
Tenant shall have no right to exercise the Option.
(iii) Terms and Rent. If the Option is exercised, then the
Monthly Rent for the Premises for the Option term shall be equal to one hundred
percent (100%) of the fair market rent, as determined below, for the Premises as
of the commencement of the Option term, but in no event shall the Monthly Rent
ever be reduced below the Monthly Rent payable immediately preceding the Option
term, as such Monthly Rent would have been increased under Paragraph 5.B if the
commencement date for the Option term had been an Adjustment Date. The fair
market rent for the Premises shall be determined by taking into account all
relevant factors, including without limitation the fact that the Premises are
being leased in shell condition. Landlord shall not under any circumstances be
required to construct or pay for any additional interior improvements to the
Premises. All other terms and conditions of the Lease, as amended from time to
time by the parties in accordance with the provisions of the Lease, shall remain
in full force and effect and shall apply during the option term; provided,
however, that notwithstanding the foregoing, neither the Option, nor Landlord's
obligations under the Work Letter Agreement attached hereto as Exhibit C shall
be of any force or effect during the Option term.
(iv) Determination of Rent. The fair market rent for the
purposes of calculating the Monthly Rent for the Option term shall be determined
by mutual agreement of the parties or, if the parties are unable to agree within
thirty (30) days after Tenant's exercise of the option, then fair market rent
shall be determined pursuant to the procedure set forth in Paragraphs 4.D.(v)
and 4.D.(vi).
(v) Landlord's Initial Determination. If the parties are
unable mutually to agree upon the fair market rent pursuant to Paragraph
4.D.(iv), then the fair market rent initially shall be determined by Landlord by
written notice ("Landlord's Notice") given to Tenant promptly following the
expiration of the 30-day period set forth in Paragraph 4.D.(iv). If Tenant
disputes the amount of fair market rent set forth in Landlord's Notice, then,
within thirty (30) days after the date of Landlord's Notice, Tenant shall send
Landlord a written notice ("Tenant's Notice") which specifically (a) disputes
the fair market rent set forth in Landlord's Notice, (b) demands arbitration
pursuant to Paragraph 4.D.(vi), and (c) states the name and address of the
person who shall act as arbitrator on Tenant's behalf. Tenant's Notice shall be
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deemed defective, and not given to Landlord, if it fails strictly to comply with
the requirements and time period set forth above. If Tenant does not send
Tenant's Notice within thirty (30) days after the date of Landlord's Notice, or
if Tenant's Notice fails to contain all of the required information, then the
Monthly Rent for the Option term shall equal one hundred percent (100%) of the
fair market rent specified in Landlord's Notice. If the arbitration is not
concluded prior to the commencement of the Option term, then for the ninety (90)
day period commencing with the date that the Option term commences, Tenant shall
pay Monthly Rent equal to the Monthly Rent that would have been applicable if
the Term had continued during such ninety (90) day period, except that the date
the Option term commences shall be treated as an "Adjustment Date" (as defined
in Paragraph 5.B), and the Monthly Rent shall be adjusted in accordance with
Paragraph 5.B effective as of the date the Option term commences. If the
arbitration is not concluded prior to the expiration of such ninety (90) day
period, then from and after the expiration of such ninety (90) day period,
Tenant shall pay Monthly Rent equal to one hundred twenty-five percent (125%) of
the Monthly Rent payable immediately prior to the commencement of the Option
term. If the fair market rent determined by arbitration differs from that paid
by Tenant pending the results of arbitration, then any adjustment required to
adjust the amount previously paid shall be made by payment by the appropriate
party within ten (10) days after the determination of fair market rent.
(vi) Arbitration. The arbitration shall be conducted in
the City of San Francisco in accordance with the then prevailing rules of the
American Arbitration Association (or its successor) for the arbitration of
commercial disputes, except that the procedures mandated by such rules shall be
modified as follows:
(a) Each arbitrator must be a real estate appraiser
with at least five (5) years of full-time commercial appraisal experience who is
familiar with the fair market rent of office and research and development
complexes located in the vicinity of the Premises. Within ten (10) business days
after receipt of Tenant's Notice, Landlord shall notify Tenant of the name and
address of the person designated by Landlord to act as arbitrator on Landlord's
behalf.
(b) The two arbitrators chosen pursuant to
Paragraph 4.D.(vi)(a) shall meet within ten (10) business days after the second
arbitrator is appointed and shall either agree upon the fair market rent or
appoint a third arbitrator possessing the qualifications set forth in Paragraph
4.D.(vi)(a). If the two arbitrators agree upon the fair market rent within such
ten (10) business day period, the Monthly Rent for the Option term shall equal
one hundred percent (100%) of such fair market rent. If the two arbitrators are
unable to agree upon the fair market rent and are unable to agree upon the third
arbitrator within five (5) business days after the expiration of such ten (10)
business day period, the third arbitrator shall be selected by the parties
themselves. If the parties do not agree on the third arbitrator within five (5)
business days after the expiration of such five (5) business day period, then
either party, on behalf of both, may request appointment of the third arbitrator
by the Association of South Bay Brokers. The three arbitrators shall decide the
dispute, if it has not been previously resolved, by following the procedures set
forth in Paragraph 4.D.(vi)(c). Each party shall pay the
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fees and expenses of its respective arbitrator and both shall share the fees and
expenses of the third arbitrator. Each party shall pay its own attorneys, fees
and costs of witnesses.
(c) The three arbitrators shall determine the fair
market rent in accordance with the following procedures. Each of Landlord's
arbitrator and Tenant's arbitrator shall state, in writing, his or her
determination of the fair market rent, supported by the reasons therefor, and
shall make counterpart copies for the other arbitrators. All of the arbitrators
shall arrange for a simultaneous exchange of the proposed resolutions within ten
(10) business days after appointment of the third arbitrator. If any arbitrator
fails to deliver his or her own determination to the other arbitrators within
such ten (10) business day period, then the fair market rent shall equal the
average of the resolutions submitted by the other arbitrators. If all three (3)
arbitrators deliver their determinations to the other arbitrators within such
ten (10) business day period, then the two (2) closest determinations of the
arbitrators shall be averaged, and the resulting quotient shall be the fair
market rent, and the Monthly Rent for the option term shall equal one hundred
percent (100%) of such fair market rent; provided, however, that if the
determination of one (1) of the arbitrators (the "Average Determination") is
equal to the average of the determinations of the other two (2) arbitrators,
then the Average Determination shall be the fair market rent. However, the
arbitrators shall not attempt to reach a mutual agreement of the fair market
rent; each arbitrator shall independently arrive at his or her proposed
resolution.
(d) The arbitrators shall have the right to consult
experts and competent authorities for factual information or evidence pertaining
to a determination of fair market rent, but any such consultation shall be made
in the presence of both parties with full right on their part to cross-examine.
The arbitrators shall render the decision and award in writing with counterpart
copies to each party. The arbitrators shall have no power to modify the
provisions of this Lease. In the event of a failure, refusal or inability of any
arbitrator to act, his or her successor shall be appointed by him or her, but in
the case of the third arbitrator, his or her successor shall be appointed in the
same manner as that set forth herein with respect to the appointment of the
original third arbitrator.
5. Rent and Additional Charges.
A. Monthly Rent. Tenant shall pay to Landlord, in lawful money of
the United States, Monthly Rent as follows: commencing on the Commencement Date,
and continuing throughout the Term, the Monthly Rent shall equal Two and
30/100ths Dollars ($2.30) multiplied by the Rentable Area of the Premises (as
determined by Landlord pursuant to Paragraph 2). The Monthly Rent is subject to
adjustment as provided in Paragraphs 5.B and 5.C below. The actual commencement
date for the payment of Monthly Rent (the "Rent Commencement Date") shall be the
Commencement Date.
Monthly Rent shall be paid in advance, on the first day of each
calendar month, without abatement, deduction, claim, offset, prior notice or
demand. The sum of One Hundred Thirteen Thousand Eight Hundred Seventy-Three and
00/100ths Dollars ($113,873.00), representing Landlord's estimate of the first
installment of Monthly Rent for the Premises, shall be paid by Tenant to
Landlord upon the execution of this Lease by Landlord and Tenant.
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Additionally, Tenant shall pay, as and with the Monthly Rent, the management fee
described in Paragraph 5.D, Tenant's share of Common Area Maintenance Costs
pursuant to Paragraph 5.E, the Real Property Taxes and Impositions payable by
Tenant pursuant to Paragraph 15, and the monthly cost of insurance premiums
required pursuant to Paragraph 21.C.
B. Index Adjustments to Monthly Rent. The Monthly Rent shall be
increased as of the first (1st) day of the thirteenth (13th) calendar month
immediately following the Commencement Date, and on each ensuing anniversary of
such date occurring during the Term and any extension thereof (each, an
"Adjustment Date") by the greater of (i) the percentage increase in the Index
from the previous Adjustment Date (or, for the first Adjustment Date, from the
Commencement Date) up to a maximum of seven percent or (ii) three percent (3%).
On each Adjustment Date, the total aggregate amount of Monthly Rent then in
effect shall be multiplied by the greater of (x) the lesser of (A) a fraction,
the numerator of which is the Index published most recently before the
applicable Adjustment Date, and the denominator of which is the Index published
most recently before the prior Adjustment Date (or, in the case of the first
Adjustment Date, the Index published most recently before the Commencement
Date), and (B) one hundred seven percent (107%), or (y) one hundred three
percent and the corresponding product shall be the Monthly Rent in effect until
the next Adjustment Date. In no event shall the Monthly Rent in effect after an
Adjustment Date be less than one hundred three percent (103%), nor more than one
hundred seven percent (107%), of the Monthly Rent in effect immediately prior to
such Adjustment Date. If no Index is published for either of the months set
forth above, the Index for the next preceding month shall be used.
C. [Intentionally Deleted].
D. Management Fee. Tenant shall pay to Landlord monthly, as
Additional Rent, a management fee equal to three percent (3%) of the Monthly
Rent then in effect.
E. Common Area Maintenance Costs.
(i) Estimated Payments. Commencing on the Commencement
Date and continuing throughout the entire Term, Tenant shall pay Tenant's
Percentage Share of all other Common Area Maintenance Costs paid or payable by
Landlord in each year; provided, however, that Tenant shall pay Tenant's
Building Share of those Common Area Maintenance Costs arising from Landlord's
performance of its obligations under Paragraph 17.A. Before commencement of the
Term and during December of each calendar year or as soon thereafter as
practicable, Landlord shall give Tenant notice of its estimate of amounts
payable under this Paragraph 5.E.(i) for the ensuing calendar year. Such notice
shall show in reasonable detail the basis on which the estimate was determined.
on or before the first day of each month during the ensuing calendar year,
Tenant shall pay to Landlord one-twelfth (1/12th) of such estimated amounts,
provided that if such notice is not given in December, Tenant shall continue to
pay on the basis of the prior year's estimate until the month after such notice
is given. If at any time or times it appears to Landlord, in its reasonable
judgment, that the amounts payable under this Paragraph 5.E.(i) for the current
calendar year will vary from its then-current estimate by more than five percent
(5%), Landlord shall by notice to Tenant, showing in reasonable detail the basis
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for such variance, revise its estimate for such year, in which case subsequent
payments by Tenant for such year shall be based upon such revised estimate.
(ii) Adjustment. Within ninety (90) days after the close
of each calendar year or as soon after such 90-day period as reasonably
practicable, Landlord shall deliver to Tenant a reasonably detailed statement of
Common Area Maintenance Costs for such calendar year, certified by Landlord or
its property manager, subject to Tenant's right to audit as hereinafter
provided. At that time, Landlord shall also deliver to Tenant a statement,
certified as correct by Landlord, of the adjustments to be made pursuant to
Paragraph 5.E.(i) above. If Landlord's statement shows that Tenant owes an
amount that is less than the estimated payments for such calendar year
previously made by Tenant, Tenant may offset such overpayment against Rent due
or remaining due under this Lease, or if no Rent remains due, Landlord shall
refund such excess to Tenant within thirty (30) days after delivery of the
statement. if such statement shows that Tenant owes an amount that is more than
the estimated payments for such calendar year previously made by Tenant, Tenant
shall pay the deficiency to Landlord within thirty (30) days after delivery of
the statement.
(iii) Last Year. If this Lease shall terminate on a day
other than the last day of a calendar year, the adjustment in Rent applicable to
the calendar year in which such termination shall occur shall be prorated on the
basis which the number of days from the commencement of such calendar year to
and including such termination date bears to three hundred sixty (360). The
termination of this Lease shall not affect the obligations of Landlord and
Tenant pursuant to Paragraph 5.E.(ii) to be performed after such termination.
(iv) Audit. Within one hundred eighty (180) days after
receipt of Landlord's statement of Common Area Maintenance Costs as provided in
Paragraph 5.E.(ii), Tenant or its designee, on not less than five (5) days,
prior written notice to Landlord, shall have the right to, at Tenant's sole cost
and expense, audit, examine and copy Landlord's books and records with respect
to the Common Area Maintenance Costs for the calendar year pertaining to the
year for which the Landlord's statement pertains. Landlord shall cooperate with
Tenant in any such examination of its books and records.
F. Additional Rent. All monies required to be paid by Tenant
under this Lease, including, without limitation, the management fee described in
Paragraph 5.D, Tenant's share of Common Area Maintenance Costs pursuant to
Paragraph 5.E, Real Property Taxes and Impositions pursuant to Paragraph 15, and
the monthly cost of insurance premiums required pursuant to Paragraph 21.C shall
be deemed Additional Rent.
G. Prorations. If the Rent Commencement Date is not the first
(1st) day of a month, or if the termination date of this Lease is not the last
day of a month, a prorated installment of Monthly Rent based on a 30-day month
shall be paid for the fractional month during which such date occurs or the
Lease terminates.
H. Interest. Any amount of Rent or other charges provided for
under this Lease due and payable to Landlord which is not paid when due shall
bear interest at the Interest
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Rate from the date that is (i) five (5) days after the date such Rent is due
until such Rent is paid, or (ii) ten (10) days after Tenant receives written
notice from Landlord that any other charge provided for under this Lease (other
than Rent) is due and payable, until such other charge is paid.
6. Late Payment Charges.
Tenant acknowledges that late payment by Tenant to Landlord of
Rent and other charges provided for under this Lease will cause Landlord to
incur costs not contemplated by this Lease, the exact amount of such costs being
extremely difficult or impracticable to fix. Therefore, if any installment of
Rent or any other charge due from Tenant is not received by Landlord within five
(5) days after the date such Rent or other charge is due, Tenant shall pay to
Landlord an additional sum equal to five percent (50%) of the amount overdue as
a late charge for every month or portion thereof that the Rent or other charges
remain unpaid. The parties agree that this late charge represents a fair and
reasonable estimate of the costs that Landlord will incur by reason of the late
payment by Tenant.
Initials:
--------------- --------------
Landlord Tenant
7. Security Deposit.
Tenant shall deposit with Landlord upon the execution of this
Lease by Landlord and Tenant, the sum of Three Hundred Forty-One Thousand Six
Hundred Nineteen and 00/100ths Dollars ($341,619.00) as the "Security Deposit"
for the full and faithful performance of every provision of this Lease to be
performed by Tenant. At Tenant's option, the Security Deposit may be in the form
of an irrevocable standby letter of credit ("L-C").
If Tenant defaults with respect to any provision of this Lease,
after the expiration of any applicable cure or grace periods expressly provided
for in this Lease, Landlord may apply all or any part of the Security Deposit
for the payment of any Rent or other sum in default, the repair of such damage
to the Premises or the payment of any other amount which Landlord may spend or
become obligated to spend by reason of Tenant's default or to compensate
Landlord for any other loss or damage which Landlord may suffer by reason of
Tenant's default to the full extent permitted by law. If any portion of a cash
Security Deposit is so applied, or any portion of an L-C posted as the Security
Deposit, if applicable, is drawn upon, by Landlord for such purposes, Tenant
shall either, within ten (10) days after written demand therefor, deposit cash
with Landlord in an amount sufficient to restore the Security Deposit to its
original, amount or deposit a replacement L-C with Landlord in the amount of the
original L-C. If Tenant is not otherwise in default, the Security Deposit or any
balance thereof shall be returned to Tenant within thirty (30) days of
termination of the Lease.
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If at any time Tenant elects to deposit an L-C as the Security
Deposit, the L-C shall be issued by a bank reasonably acceptable to Landlord,
shall be issued for a term of at least twelve (12) months and shall be in a form
and with such content reasonably acceptable to Landlord. Tenant shall either
replace the expiring L-C with an L-C in an amount equal to the original L-C or
renew the expiring L-C, in any event no later than thirty (30) days prior to the
expiration of the term of the L-C then in effect. If Tenant fails to deposit a
replacement L-C or renew the expiring L-C, Landlord shall have the right to draw
upon the expiring L-C for the full amount thereof. Drawing upon the L-C shall be
conditioned upon the presentation to the issuer of the L-C of a certified
statement executed by a general partner or officer of Landlord that (i) Tenant
is in default under the Lease and Landlord is exercising its right to draw upon
so much of the L-C as is necessary to cure Tenant's default, or (ii) Tenant has
not renewed or replaced an expiring L-C as required by this Lease and Landlord
is authorized to draw upon the L-C prior to its expiration. The L-C shall not be
mortgaged, assigned or encumbered in any manner whatsoever by Tenant without the
prior written consent of Landlord. The use, application or retention of the L-C,
or any portion thereof, by Landlord shall not prevent Landlord from exercising
any other right or remedy provided by this Lease or by law, it being intended
that Landlord shall not first be required to proceed against the L-C, and such
use, application or retention shall ,not operate as a limitation on any recovery
to which Landlord may otherwise be entitled.
8. Holding Over.
If Tenant remains in possession of all or any part of the
Premises after the expiration of the Term, with the express or implied consent
of Landlord, such tenancy shall be month-to-month only and shall not constitute
a renewal or extension for any further term. If Tenant remains in possession
either with or without Landlord's consent, Monthly Rent shall be increased to an
amount equal to one hundred fifty percent (150%) of the Monthly Rent payable
during the last month of the Term, and any other sums due under this Lease shall
be payable in the amount and at the times specified in this Lease. Such
month-to-month tenancy shall be subject to every other term, condition, and
covenant contained herein.
9. Tenant Improvements.
Landlord agrees to construct the Tenant Improvements pursuant to
the terms of Exhibit C.
10. Condition of Premises.
A. Capital Improvements. Prior to the Commencement Date, Landlord
shall complete the Capital Improvements in accordance with the terms of Exhibit
C. Landlord represents to Tenant that all Building systems, including plumbing
and electrical, and the Building's roof, shall be in good operating condition
upon the Commencement Date.
B. Acceptance of Premises. Within ten (10) days after completion
of the Tenant Improvements, Tenant shall conduct a walk-through inspection of
the Premises with
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Landlord and complete a punch list of items needing additional work. Other than
the items specified in the punch list, if any, and subject to Landlord's
representations and warranties described below, by taking possession of the
Premises after completion of the Tenant Improvements, Tenant shall be deemed to
have accepted the Premises in good, clean and completed condition and repair,
subject to all applicable laws, codes and ordinances. Any damage to the Premises
caused by Tenant's move-in shall be repaired or corrected by Tenant, at its sole
cost and expense. Tenant acknowledges that neither Landlord nor Landlord's
Agents have made any representations or warranties as to the suitability or
fitness of the Premises for the conduct of Tenant's business or for any other
purpose, nor has Landlord or Landlord's Agents agreed to undertake any
Alterations or construct any Improvements to the Premises except as expressly
provided in this Lease. If Tenant fails to submit a punch-list to Landlord
within such l0-day period, it shall be deemed that there are no Improvement
items needing additional work or repair. Landlord's contractor shall complete
all reasonable punch-list items within thirty (30) days after the walk-through
inspection or as soon as practicable thereafter. Upon completion of such
punch-list items, Tenant shall approve such completed items in writing to
Landlord. If Tenant fails to approve such items within fourteen (14) days of
completion, such items shall be deemed approved by Tenant.
11. Use of the Premises and Common Area.
A. Tenant's Use. Tenant shall use the Premises only for general
office, administration, research and development, and storage purposes, and such
other purposes as shall be specifically and formally approved by the City of
Redwood City, subject to Landlord's approval which shall not be unreasonably
withheld or delayed. Tenant shall not use the Premises or suffer or permit
anything to be done in or about the Premises which will in any way conflict with
any law, statute, zoning restriction, ordinance or governmental law, rule,
regulation or requirement of public authorities now in force or which may
hereafter be in force, relating to or affecting the condition, use or occupancy
of the Premises. Tenant shall not commit any public or private nuisance or any
other act or thing which might or would disturb the quiet enjoyment of any other
tenant of Landlord or any occupant of nearby property. Tenant shall place no
loads upon the floors, walls or ceilings in excess of the maximum designed load
determined by a licensed structural engineer or which endanger the structure;
nor place any harmful liquids in the drainage systems; nor dump or store waste
materials or refuse or allow waste materials or refuse to remain outside the
Building proper, except in the enclosed trash areas provided. Tenant shall not
store or permit to be stored or otherwise placed any other material of any
nature whatsoever outside the Building, except on a temporary basis.
B. Hazardous Materials.
(i) Hazardous Materials Defined. As used herein, the term
"Hazardous Materials" shall mean any wastes, materials or substances (whether in
the form of liquids, solids or gases, and whether or not air-borne), which are
or are deemed to be (a) pollutants or contaminants, or which are or are deemed
to be hazardous, toxic, ignitable, reactive, corrosive, dangerous, harmful or
injurious, or which present a risk to public health or to
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the environment, or which are or may become regulated by or under the authority
of any applicable local, state or federal laws, judgments, ordinances, orders,
rules, regulations, codes or other governmental restrictions, guidelines or
requirements, any amendments or successors) thereto, replacements thereof or
publications promulgated pursuant thereto, including, without limitation, any
such items or substances which are or may become regulated by any of the
Environmental Laws (as hereinafter defined); (b) listed as a chemical known to
the State of California to cause cancer or reproductive toxicity pursuant to
Section 25249.8 of the California Health and Safety Code, Division 20, Chapter
6.6 (Safe Drinking Water and Toxic Enforcement Act of 1986); or (c) a pesticide,
petroleum, including crude oil or any fraction thereof, asbestos or any
asbestos-containing material, a polychlorinated biphenyl, radioactive material,
or urea formaldehyde.
(ii) Environmental Laws Defined. In addition to the laws
referred to in Paragraph 11.B.(i) above, the term "Environmental Laws" shall be
deemed to include, without limitation, 33 U.S.C. Section 1251 et seq., 42 U.S.C.
Section 6901 et seq., 42 U.S.C. Section 7401 et seq., 42 U.S.C. Section 9601 et
seq., and California Health and Safety Code Sections 25100 et seq., and 25300 et
seq., California Water Code, Section 13020 et seq., or any successors) thereto,
all local, state and federal laws, judgments, ordinances, orders, rules,
regulations, codes and other governmental restrictions, guidelines and
requirements, any amendments and successors thereto, replacements thereof and
publications promulgated pursuant thereto, which deal with or, otherwise in any
manner relate to, air or water quality, air emissions, soil or ground conditions
or other environmental matters of any kind.
(iii) Use of Hazardous Materials. Tenant agrees that
during the Term of this Lease, Tenant shall not use, or permit the use of, nor
store, generate, treat, manufacture or dispose of Hazardous Materials on, from
or under the Premises (individually and collectively, "Hazardous Use") except to
the extent that, and in accordance with such conditions as, Landlord may have
previously approved in writing in its sole and absolute discretion.
Notwithstanding the foregoing, Tenant shall be entitled to use and store only
those Hazardous Materials which are (a) set forth in a list prepared by Tenant
and approved in writing by Landlord, which shall be deemed given with respect to
the Approved Hazardous Materials (hereinafter defined), (b) necessary for
Tenant's business, but then only in the amounts and for the purposes previously
disclosed in writing to and approved in writing by Landlord, and (c) in full
compliance with Environmental Laws, and all judicial and administrative
decisions pertaining thereto. All Hazardous Materials approved in writing by
Landlord as provided in the preceding sentence shall collectively be referred to
as the "Approved Hazardous Materials". Within thirty (30) days after request by
Landlord, Tenant shall deliver to Landlord a list of the Approved Hazardous
Materials. Tenant shall not be entitled to install any tanks under, on or about
the Premises for the storage of Hazardous Materials without the express written
consent of Landlord, which may be given or withheld in Landlord's sole
discretion. For the purposes of this Paragraph 11.B.(iii), the term "Hazardous
Use" shall include Hazardous Use(s) on, from or under the Premises by Tenant,
any Subtenant occupying all or any portion-of the Premises during the Term, or
any of their directors, officers, employees, shareholders, partners, invitees,
agents, contractors or occupants (collectively, "Tenant's Parties"; provided,
however, that if Tenant's stock is publicly traded, the
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term "Tenant's Parties" shall not include any shareholder of Tenant who owns
less than ten percent (100%) of Tenant's common stock), whether known or unknown
to Tenant, occurring during the Term of this Lease. The term "Tenant's Parties"
shall not include any tenants of the Project other than Tenant, except that the
term "Tenant's Parties" shall include any Subtenant occupying all or any portion
of the Premises during the Term.
(iv) Hazardous Materials Report; When Required. Tenant
shall submit to Landlord a written report with respect to Hazardous Materials
("Report") in the form prescribed in Paragraph 11.B.(v) below on the following
dates:
(a) At any time within ten (10) days after written
request by Landlord, and
(b) At any time when there has been a violation of
any Environmental Law, or in connection with any proposed request for Landlord's
consent to any change in the list of Approved Hazardous Materials or for an
increase in the intensity of usage or storage of such Approved Hazardous
Materials.
(v) Hazardous Materials Report; Contents. The Report shall
contain, without limitation, the following information:
(a) Whether on the date of the Report and (if
applicable) during the period since the last Report there has been any Hazardous
Use on, from or under the Premises, other than the use of Approved Hazardous
Materials.
(b) If there was such Hazardous Use, the exact
identity of the Hazardous Materials (other than the Approved Hazardous
Materials), the dates upon which such materials were brought upon the Premises,
the dates upon which such Hazardous Materials were removed therefrom, and the
quantity, location, use and purpose thereof.
(c) If there was such Hazardous Use, any
governmental permits maintained by Tenant with respect to such Hazardous
Materials, the issuing agency, original date of issue, renewal dates (if any)
and expiration date. Copies of any such permits and applications therefor shall
be attached.
(d) If there was such Hazardous Use, any
governmental reporting or inspection requirements with respect to such-Hazardous
Materials, the governmental agency to which reports are made and/or which
conducts inspections, and the dates of all such reports and/or inspections (if
applicable) since the last Report. Copies of any such Reports shall be attached.
(e) If there was such Hazardous Use, identification
of any operation or business plan prepared for any government agency with
respect to Hazardous Use.
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(f) Any liability insurance carried by Tenant with
respect to Hazardous Materials, if any, the insurer, policy number, date of
issue, coverage amounts, and date of expiration. Copies of any such policies or
certificates of coverage shall be attached.
(g) Any notices of violation of Environmental Laws,
written or oral, received by Tenant from any governmental agency since the last
Report, the date, name of agency, and description of violation. Copies of any
such written notices shall be attached.
(h) Any knowledge, information or communication
which Tenant has acquired or received relating to (x) any enforcement, cleanup,
removal or other governmental or regulatory action threatened or commenced
against Tenant or with respect to the Premises pursuant to any Environmental
Laws; (y) any claim made or threatened by any person or entity against Tenant or
the Premises on account of any alleged loss or injury claimed to result from any
alleged Hazardous Use on or about the Premises; or (z) any report, notice or
complaint made to or filed with any governmental agency concerning any Hazardous
Use on or about the Premises. The Report shall be accompanied by copies of any
such claim, report, complaint, notice, warning or other communication that is in
the possession of or is available to Tenant.
(i) Such other pertinent information or documents
as are reasonably requested by Landlord in writing.
(vi) Release of Hazardous Materials: Notification and
Cleanup.
(a) At any time during the Term, if Tenant knows or
believes that any release of any Hazardous Materials has come or will come to be
located upon, about or beneath the Premises, then Tenant shall immediately,
either prior to the release or following the discovery thereof by Tenant, give
verbal and follow-up written notice of that condition to Landlord.
(b) At its sole cost and expense, Tenant covenants
to investigate, clean up and otherwise remediate any release of Hazardous
Materials which has occurred during the Term and arose from any act or failure
to act of Tenant or any of Tenant's Parties. Such investigation, clean-up and
remediation shall be performed only after Tenant has obtained, if practicable,
Landlord's written consent, which shall not be unreasonably withheld; provided,
however, that Tenant shall be entitled to respond immediately to an emergency
without first obtaining Landlord's written consent. All clean-up and remediation
shall be done in compliance with Environmental Laws and to the reasonable
satisfaction of Landlord.
(c) Notwithstanding the foregoing, Landlord shall
have the right, but not the obligation, in Landlord's sole and absolute
discretion, exercisable by written notice to Tenant, to undertake within or
outside the Premises all or any portion of any reasonable investigation,
clean-up or remediation with respect to any Hazardous Use of such Hazardous
Materials by Tenant or any of Tenant's Parties (or, once having undertaken any
of such work, to cease same, in which case Tenant shall perform the work), all
at Tenant's sole cost and expense, which shall be paid by Tenant as Additional
Rent within ten (10) days after receipt of written
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request therefor by Landlord (and which Landlord may require to be paid prior to
commencement of any work by Landlord); provided, however, that Tenant's
obligation to pay for such work shall only be applicable if Tenant fails to
perform its obligations under this Paragraph 11 (including without limitation
the obligations described in Paragraph 11.13.(vi)(b)). No such work by Landlord
shall create any liability on the part of Landlord to Tenant or any other party
in connection with such Hazardous Use by Tenant or any of Tenant's Parties or
constitute an admission by Landlord of any responsibility with respect to such
Hazardous Use or Hazardous Materials.
(d) It is the express intention of the parties
hereto that Tenant shall be liable under this Paragraph 11.B.(vi) for any and
all conditions covered hereby which were or are caused or created by Tenant or
any of Tenant's Parties, whether occurring prior to, on, or after the
Commencement Date. Tenant shall not enter into any settlement agreement, consent
decree or other compromise with respect to any claims relating to any Hazardous
Materials in any way connected to the Premises without first (x) notifying
Landlord of Tenant's intention to do so and affording Landlord the opportunity
to participate in any such proceedings, and (y) obtaining Landlord's written
consent, which shall not be unreasonably withheld.
(vii) Inspection and Testing by Landlord. Landlord shall
have the right at all times during the Term of this Lease to (a) inspect the
Premises, as well as such of Tenant's books and records pertaining to the
Premises and the conduct of Tenant's business therein, and to (b) conduct tests
and investigations to determine whether Tenant is in compliance with the
provisions of this Paragraph 11.B. Except in case of emergency, Landlord shall
give reasonable notice to Tenant in accordance with Paragraph 19 before
conducting any inspections, tests, or investigations, shall provide Tenant with
a work plan describing any testing that shall be performed at the Premises, and
shall use reasonable efforts to minimize interference with the conduct of
Tenant's business at the Premises caused by any such inspections, tests, or
investigations. The cost of all such inspections, tests and investigations shall
be borne by Tenant. Neither any action nor inaction on the part of Landlord
pursuant to this Paragraph 11.B.(vii) shall be deemed in any way to release
Tenant from, or in any way modify or alter, Tenant's responsibilities,
obligations, and liabilities incurred pursuant to Paragraph 11.B hereof.
(viii) Tenant's Indemnity. Tenant shall indemnify, defend,
protect, hold harmless, and, at Landlord's option (with such attorneys as
Landlord may approve in advance and in writing), defend Landlord, Landlord's
Agents, and Landlord's officers, directors, shareholders, partners, employees,
contractors, property managers, agents and mortgagees and other lien holders,
from and against any and all Losses (as defined below) whenever such Losses
arise, from or related to: (a) any violation or alleged violation by Tenant or
any of Tenant's Parties of any of the requirements, ordinances, statutes,
regulations or other laws referred to in this Paragraph 11.B, including, without
limitation, the Environmental Laws, whether such violation or alleged violation
occurred prior to, on, or after the Commencement Date; (b) any breach of the
provisions of this Paragraph 11.B by Tenant or any of Tenant's Parties; or (c)
any Hazardous Use on, about or from the Premises by Tenant or any of Tenant's
Parties of any
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Hazardous Materials (whether or not approved by Landlord under this Lease),
whether such Hazardous Use occurred prior to, on, or after the Commencement
Date. The term "Losses" shall mean all claims, demands, expenses, actions,
judgments, damages (whether consequential, direct or indirect, known or unknown,
foreseen or unforeseen), penalties, fines, liabilities, losses of every kind and
nature (including, without limitation, property damage, diminution in value of
Landlord's interest in the Premises, damages for the loss of restriction on use
of any space or amenity within the Premises, damages arising from any adverse
impact on marketing space in the Premises, sums paid in settlement of claims and
any costs and expenses associated with injury, illness or death to or of any
person), suits, administrative proceedings, costs and fees, including, but not
limited to, attorneys, and consultants, fees and expenses, and the costs of
cleanup, remediation, removal and restoration, that are in any way related to
any matter covered by the foregoing indemnity.
(ix) Landlord's Indemnity. Landlord shall indemnify,
defend, protect, hold harmless, and, at Tenant's option (with such attorneys as
Tenant may approve in advance and in writing), defend Tenant, Tenant's agents,
and Tenant's officers, directors, shareholders, partners, employees,
contractors, property managers, agents and mortgagees and other lien holders,
from and against any and all Tenant Losses (as defined below) arising during the
Term from or related to the presence of Hazardous Materials brought onto the
Project by Landlord or Landlord's Agents. The term "Tenant Losses" shall mean
all claims, demands, expenses, actions, judgments, damages (whether
consequential, direct or indirect, known or unknown, foreseen or unforeseen),
penalties, fines, liabilities, losses of every kind and nature (including,
without limitation, property damage, sums paid in settlement of claims and any
costs and expenses associated with injury, illness or death to or of any
person), suits, administrative proceedings, costs and fees, including, but not
limited to, attorneys, and consultants' fees and expenses, and the costs of
cleanup, remediation, removal and restoration, that are in any way related to
any matter covered by the foregoing indemnity.
(x) Survival. The provisions of this Paragraph 11.B shall
survive the expiration or earlier termination of this Lease.
C. Special Provisions Relating to The Americans With Disabilities
Act of 1990.
(i) Allocation of Responsibility to Landlord. As between
Landlord and Tenant, Landlord shall be responsible that the Common Area complies
with the requirements of Title III of the Americans with Disabilities Act of
1990 (42 U.S.C. 32181, et seq., The Provisions Governing Public Accommodations
and Services Operated by Private Entities), and all regulations promulgated
thereunder, and all amendments, revisions or modifications thereto now or
hereafter adopted or in effect in connection therewith (hereinafter collectively
referred to as the "ADA"), and to take such actions and make such alterations
and improvements as are necessary for such compliance; provided, however, that
to the extent such requirements arise from the construction of the Tenant
Improvements or any Alterations to the Premises made by or on behalf of Tenant,
then as between Landlord and Tenant, Tenant shall be responsible that the
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Common Area complies with the requirements of the ADA, and to take such actions
and make such alterations and improvements as are necessary for such compliance.
(ii) Allocation of Responsibility to Tenant. As between
Landlord and Tenant, Tenant, at its sole cost and expense, shall be responsible
that the Premises (and all modifications made by Tenant of access to the
Premises from the street), and all alterations and improvements in the Premises
(including without limitation the Tenant Improvements), and Tenant's use and
occupancy of the Premises, and Tenant's performance of its obligations under
this Lease, comply with the requirements of the ADA, and to take such actions
and make such alterations and improvements as are necessary for such compliance,
to the extent such requirements arise from Tenant's specific use of the
Premises, or the construction and use of the Tenant Improvements or any
Alterations to the Premises made by or on behalf of Tenant; provided, however,
that Tenant shall not make any such alterations or improvements except upon
Landlord's prior written consent (which shall not be unreasonably withheld)
pursuant to the terms and conditions of this Lease. If Tenant fails diligently
to take such actions or make such alterations or improvements as are necessary
for such compliance, Landlord may, but shall not be obligated to, take such
actions and make such alterations and improvements and may recover all of the
costs and expenses of such actions, alterations and improvements from Tenant as
Additional Rent.
(iii) General. Notwithstanding anything in this Lease
contained to the contrary, no act or omission of either party, including any
approval, consent or acceptance by it or its agents, employees or other
representatives, shall be deemed an agreement, acknowledgment, warranty, or
other representation by it that the other party has complied with the ADA as
provided under Paragraphs 11.C.(i) or 11.C.(ii) or that any action, alteration
or improvement by it complies or will comply with the ADA as provided under
Paragraphs 11.C.(i) or 11.(ii) or constitutes a waiver by it of the other
party's obligations to comply with the ADA under Paragraphs 11.C.(i) or
11.C.(ii) of this Lease or otherwise. Any failure of either party to comply with
its obligations of the ADA under Paragraphs 11.C.(i) or 11.C.(ii) shall not
relieve such party from any obligations under this Lease or in the case of
Landlord's failure to comply under Paragraph 11.C.(i), constitute or be
construed as a constructive or other eviction of Tenant or disturbance of
Tenant's use and possession of the Premises.
D. Use and Maintenance of Common Area. Tenant and its employees and
invitees shall have the non-exclusive right to use the Common Area in common
with other persons during the Term of this Lease, subject to such reasonable
rules and regulations as may from time to time be deemed necessary or advisable
in Landlord's reasonable discretion for the proper and efficient operation and
maintenance of the Common Area. Such rules and regulations may include, among
other things, the hours during which the Common Area shall be open for use.
Landlord shall maintain and operate the Common Area in good condition, provided
that any damage thereto, other than normal wear and tear, occasioned by the act
of Tenant or its employees or invitees shall be paid by Tenant upon demand by
Landlord.
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12. Quiet Enjoyment.
Landlord covenants that Tenant, upon performing the terms,
conditions and covenants of this Lease, shall have quiet and peaceful possession
of the Premises as against any person claiming the same by, through or under
Landlord.
13. Alterations.
After the Commencement Date, Tenant shall not make or permit any
Alterations in, on or about the Premises, except for nonstructural Alterations
(which shall not include any modifications to the mechanical or electrical
systems of the Building, nor any penetration of the Building's roof) not
exceeding Twenty-Five Thousand Dollars ($25,000.00) in cost during any period of
twelve (12) consecutive months, without the prior written consent of Landlord,
and according to plans and specifications approved in writing by Landlord, which
consent shall not be unreasonably withheld. Notwithstanding the foregoing Tenant
shall not, without the prior written consent of Landlord, make any:
(i) Alterations to the exterior of the Building;
(ii) Alterations to the roof of the Building; and
(iii) Alterations visible from outside the Building, to
which Landlord may withhold Landlord's consent on wholly aesthetic grounds.
All Alterations shall be installed at Tenant's sole expense, in
compliance with all applicable laws, by a licensed contractor, shall be done in
a good and workmanlike manner conforming in quality and design with the Premises
existing as of the Commencement Date, and shall not diminish the value of either
the Building or the Premises. All Alterations made by Tenant shall be and become
the property of Landlord upon installation and shall not be deemed Tenant's
Personal Property; provided, however, that Landlord shall notify Tenant upon
Landlord's consent to such Alterations by Landlord (or if Landlord's consent is
not required, upon written request by Tenant) whether Tenant will be required to
remove, at Tenant's expense, such Alterations from the Premises at the
expiration or sooner termination of this Lease and to return the Premises to
their condition as of the Commencement Date of this Lease, normal wear and tear
excepted and subject to the provisions of Paragraph 23. With respect to any
Alterations as to which Landlords consent is not required, Landlord may require
Tenant to remove, at Tenant's expense, such Alterations from the Premises at the
expiration or earlier termination of this Lease; provided, that upon Tenant's
written request prior to making such Alterations, Landlord shall notify Tenant
whether Tenant will be so required to remove such Alterations from the Premises.
Notwithstanding any other provision of this Lease, Tenant shall be solely
responsible for the maintenance and repair of any and all Alterations made by it
to the Premises. Tenant shall give Landlord written notice of Tenant's intention
to perform work on the Premises at least ten (10),days prior to the commencement
of such work to enable Landlord to post and
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record a Notice of Nonresponsibility or other notice deemed proper before the
commencement of any such work.
14. Surrender of the Premises.
Upon the expiration or earlier termination of the Term, Tenant
shall surrender the Premises to Landlord in its condition existing as of the
Commencement Date, normal wear and tear and fire or other casualty excepted,
with all interior walls repaired if damaged, all broken, marred or nonconforming
acoustical ceiling tiles replaced, all windows washed, the plumbing and
electrical systems and lighting in good order and repair, including replacement
of any burned out or broken light bulbs or ballasts, the HVAC equipment serviced
and repaired by a reputable and licensed service firm, and all floors cleaned,
all to the reasonable satisfaction of Landlord; provided, however, that if
Landlord elects to demolish the Building at the expiration of the Term, Tenant
shall not be required to repair or restore the Building as otherwise provided
herein. Tenant shall remove from the Premises all of Tenant's Alterations
required to be removed pursuant to Paragraph 13, and all Tenant's Personal
Property, and repair any damage and perform any restoration work caused by such
removal. If Tenant fails to remove such Alterations and Tenant's Personal
Property, and such failure continues after the expiration or earlier termination
of this Lease, Landlord may retain such Alterations and Tenant's Property and
all rights of Tenant with respect to it shall cease, or Landlord may place all
or any portion of such Alterations and Tenant's Property in public storage for
Tenant's account. Tenant shall be liable to Landlord for costs of removal of any
such Alterations and Tenant's Personal Property and storage and transportation
costs of same, and the cost of repairing and restoring the Premises, together
with interest at the Interest Rate from the date of expenditure by Landlord. If
the Premises are not so surrendered at the expiration or earlier termination of
this Lease, Tenant shall indemnify Landlord and Landlord's Agents against all
loss or liability, including reasonable attorneys, fees and costs, resulting
from delay by Tenant in so surrendering the Premises.
Normal wear and tear, for the purposes of this Lease, shall be
construed to mean wear and tear caused to the Premises by a natural aging
process which occurs in spite of prudent application of reasonable standards for
maintenance, repair and janitorial practices. It is not intended, nor shall it
be construed, to include items of neglected or deferred maintenance which would
have or should have been attended to during the Term of the Lease if reasonable
standards had been applied to properly maintain and keep the Premises at all
times in good condition and repair.
15. Impositions and Real Property Taxes.
A. Payment by Tenant. Tenant shall pay all Impositions prior to
delinquency. If billed directly, Tenant shall pay such Impositions and
concurrently present to Landlord satisfactory evidence of such payments. If any
Impositions are billed to Landlord or included in bills to Landlord for Real
Property Taxes, then Tenant shall pay to Landlord all such amounts within
fifteen (15) days after receipt of Landlord's invoice therefor. If applicable
law prohibits Tenant from reimbursing Landlord for an Imposition, but Landlord
may lawfully increase the Monthly Rent to account for Landlord's payment of such
Imposition, the Monthly Rent payable
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to Landlord shall be increased so that the amount of such increased Monthly
Rent, together with any accompanying increases in the Real Property Taxes
payable by Tenant with respect to such Imposition, are sufficient to net to
Landlord the same return without reimbursement of such Imposition as would have
been received by Landlord with reimbursement of such Imposition. In addition, on
or before April 10 and December 10 of each year of the Term, Tenant shall pay
directly to the San Mateo County assessor the Real Property Taxes for the
Premises as set forth on the assessor's tax bill for the Premises. If, however,
the Premises are not a separate parcel for tax purposes but constitute a portion
of a larger tax parcel or parcels, the Real Property Taxes payable by Tenant
under this Lease shall be a percentage of the Real Property Taxes payable for
such parcel or parcels, which percentage shall be determined by dividing the
Rentable Area of the Premises by the total Rentable Area of all buildings on
such parcel or parcels and multiplying the result by 100, which Real Property
Taxes shall be payable by Tenant to Landlord monthly as part of the Common Area
Maintenance Costs. Promptly following payment of the Real Property Taxes, Tenant
shall provide Landlord with copies of paid receipts or other documentary
evidence that the Real Property Taxes have been paid by Tenant. If Tenant fails
to pay the Real Property Taxes on or before April 10 and December 10,
respectively, or if Tenant fails to pay its share of Real Property Taxes as part
of the Common Area Maintenance Costs, Tenant shall pay to Landlord any penalty
incurred by such late payment. In addition, Tenant shall pay any Real Property
Tax not included within the county tax assessor's tax bill within ten (10) days
after being billed for same by Landlord. The foregoing dates are based on the
dates established by the county as the dates on which Real Property Taxes become
delinquent if not paid. If such delinquency dates change, the dates on which
Tenant must pay the Real Property Taxes for the Premises shall be at least ten
(10) days prior to the new delinquency dates. Assessments, taxes, fees, levies
and charges may be imposed by governmental agencies for such purposes as fire
protection, street, sidewalk, road, utility construction and maintenance, refuse
removal and for other governmental services which may formerly have been
provided without charge to property owners or occupants. It is the intention of
the parties that all new and increased assessments, taxes, fees, levies and
charges are to be included within the definition of Real Property Taxes for the
purposes of this Lease.
B. Taxes on Tenant Improvements and Personal Property. Tenant shall
pay any increase in Real Property Taxes resulting from any and all Alterations
and Tenant Improvements of any kind whatsoever placed in, on or about the
Premises for the benefit of, at the request of, or by Tenant. Tenant shall pay
prior to delinquency all taxes assessed or levied against Tenant's Personal
Property in, on or about the Premises or elsewhere. When possible, Tenant shall
cause its Personal Property to be assessed and billed separately from the
Premises and the real property or Personal Property of Landlord.
C. Proration. Tenant's liability to pay Real Property Taxes shall
be prorated on the basis of a 360-day year to account for any fractional portion
of a fiscal tax year included at the commencement or expiration of the Term.
With respect to any assessments which may be levied against or upon the Premises
or on all or any portion of the Project, or which under the laws then in force
may be evidenced by improvements or' other bonds or may be paid in annual
installments, only the amount of such annual installment (with appropriate
proration for any
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partial year) and interest due thereon shall be included within the computation
of the annual Real Property Taxes levied against the Premises or such portion of
the Project, as applicable.
16. Utilities and Services.
Tenant shall be responsible for and shall pay promptly all
charges for water, gas, electricity, telephone, refuse pickup, janitorial
service and all other utilities, materials and services furnished directly to or
used by Tenant in, on or about the Premises during the Term, together with any
taxes thereon. If any utility, material or service is not separately charged or
metered to any portion of the Premises, Tenant shall pay to Landlord, within ten
(10) days after written demand therefor, Tenant's pro rata share of the total
cost thereof as may be determined by Landlord. Landlord shall not be liable in
damages or otherwise for any failure or interruption of any utility service or
other service furnished to the Premises, except that resulting from the gross
negligence or willful misconduct of Landlord.
17. Repair and Maintenance.
A. Landlord's Obligations. Landlord shall keep in good order,
condition and repair the structural parts of the Building, which structural
parts include only the foundation, subflooring, exterior walls (excluding the
interior of all walls and the exterior and interior of all windows, doors,
ceilings, and plate glass), and the roof structure of the Building (but not the
roof membrane), all unexposed plumbing and electrical facilities, and all
gutters and downspouts, except for any damage thereto caused by the negligence
or willful acts or omissions of Tenant or of Tenant's agents, employees or
invitees, or by reason of the failure of Tenant to perform or comply with any
terms of this Lease, or caused by Alterations made by Tenant or by Tenant's
agents, employees or contractors. In addition, Landlord shall perform any
alterations, additions or improvements required to be made to the Building in
order to comply with applicable laws, ordinances, rules, regulations and orders
that become effective after the date of this Lease, and all capital improvements
required to be made in connection with the operation, maintenance and repair of
the Building; provided, however, in accordance with Paragraph 5.E, any and all
costs and expenses incurred by Landlord in performing any such alterations,
additions, improvements or capital improvements, together with interest at the
Interest Rate, shall be amortized over the useful life of the alteration,
addition, improvement or capital improvement in question and included in Common
Area Maintenance Costs for each year over which such costs are amortized. It is
an express condition precedent to all obligations of Landlord to repair and
maintain that Tenant shall have notified Landlord of the need for such repairs
or maintenance. Tenant waives the provisions of Sections 1941 and 1942 of the
California Civil Code and any similar or successor law regarding Tenant's right
to make repairs and deduct the expenses of such repairs from the Rent due under
this Lease.
Landlord shall keep in good order, condition, repair and
maintenance the Building's HVAC system and roof, and shall maintain an HVAC
system preventive maintenance service contract from a qualified vendor for the
purpose of maintaining the Building's HVAC system, and a roof maintenance
service contract from a qualified vendor for the purpose of maintaining the
Building's roof. Landlord shall determine in its sole discretion whether any
such
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vendor is qualified. Any and all costs of any maintenance or minor repair of the
HVAC system or the roof (including without limitation the cost of maintaining
HVAC system preventative maintenance contracts and roof maintenance service
contracts) shall be included in the Common Area Maintenance Costs payable solely
by Tenant for the year in which such cost is incurred. Any and all costs of any
replacement or major repair of the HVAC system or the roof, together with
interest at the Interest Rate, shall be amortized on a straight-line basis over
the useful life of the item replaced or repaired (as determined by Landlord in
its sole discretion) (collectively, the "Useful Life"), and the entire amount of
such amortized costs and interest allocable to each month, multiplied by
Tenant's Building Share, shall be included in the monthly Common Area
Maintenance Costs payable solely by Tenant during the entire period over which
such costs are amortized, until Tenant has paid to Landlord that proportion of
the total amount of such amortized costs equal to (a) the number of months
remaining during the Term as of the date such replacement or major repair was
completed, divided by (b) the number of months of the Useful Life, multiplied by
(c) Tenant's Building Share; provided that in no event shall such proportion
exceed one hundred percent (100%). Repairs to the HVAC system or the roof shall
be deemed to be "minor" if the total aggregate cost of such repairs is less than
or equal to Ten Thousand Dollars ($10,000.00), and shall be deemed to be "major"
if the total aggregate cost of such repairs exceeds Ten Thousand Dollars
($10,000.00). For the purposes of example only and not by way of limitation, if
a replacement of part of the HVAC system is completed twenty-five (25) months
before the end of the Term, at a cost of Twenty Thousand Dollars ($20,000.00),
and the Useful Life of such replaced part of the HVAC system is fifty (50)
months, then (a) the cost of such replacement shall be amortized at the rate of
Four Hundred Dollars ($400.00) per month, with interest at the Interest Rate,
and (b) the amount to be included in the monthly Common Area Maintenance Costs
payable solely by Tenant for the balance of the Term shall equal Four Hundred
Dollars ($400.00), with interest at the Interest Rate, until Tenant has paid to
Landlord a total aggregate amount of Three Thousand Dollars ($3,000.00),
together with interest at the Interest Rate, towards such amortized costs (i.e.,
Twenty Thousand Dollars ($20,000.00) multiplied by (Twenty-Five (25) Months
divided by Fifty (50) Months), multiplied by Tenant's Building Share).
It is the express intent of the parties that except as
specifically-set forth in this Paragraph 17.A, Landlord shall have no obligation
whatsoever to incur any costs or expenses whatsoever with respect to the repair,
operation, and maintenance of the Building, and that Tenant shall be responsible
for all costs and expenses arising from the repair, operation, and maintenance
of the Building except those costs and expenses specifically described in this
Paragraph 17.A.
B. Tenant's Obligations. Tenant shall at all times and at its
sole cost and expense clean, keep and maintain in good order, condition and
repair (and replace, if necessary) every part of the Premises which is not
within Landlord's obligation pursuant to Paragraph 17.A. Tenant's repair and
maintenance obligations shall include without limitation all exposed plumbing
and electrical facilities within the Premises, fixtures, interior walls and
ceiling, floors, windows, window frames, doors, entrances, plate glass,
showcases, skylights, all lighting fixtures, lamps, fans and any exhaust
equipment and systems, all mechanical systems (but not the
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HVAC system), any automatic fire extinguisher equipment within the Building, all
security systems and alarms, all electrical motors and all other appliances and
equipment of every kind and nature located in, upon or about the Building or the
Premises. Tenant shall also be responsible for all pest control within the
Premises.
C. Conditions Applicable to Repairs. All repairs, replacements
and reconstruction made by or on behalf of Tenant or any person claiming through
or under Tenant shall be made and performed (i) at Tenant's sole cost and
expense, in a good and workmanlike manner and at such time and in such manner as
Landlord may reasonably designate, (ii) by contractors approved in advance by
Landlord, (iii) so that the repairs, replacements or reconstruction shall be at
least equal in quality, value and utility to the original work or installation,
(iv) in accordance with such reasonable requirements as Landlord may impose with
respect to insurance and bonds to be obtained by Tenant in connection with the
proposed work, and (v) in accordance with any rules and regulations for the
Building as may be adopted by Landlord from time to time and in accordance with
all applicable laws and regulations of governmental authorities having
jurisdiction over the Premises.
D. Landlord's Rights. If Tenant fails to perform Tenant's
obligations under Paragraph 17.B, Landlord may in its sole discretion give
Tenant notice of such work as is reasonably required to fulfill such
obligations. If Tenant fails to commence the work within thirty (30) days after
receipt of such notice and diligently prosecute the work to completion, then
Landlord shall have the right (but not the obligation) to do such acts or expend
such funds at the expense of Tenant as are reasonably required to perform such
work. Any amount so expended by Landlord shall be paid by Tenant to Landlord
promptly after demand with interest at the Interest Rate. Landlord shall have no
liability to Tenant for any damage to, or interference with Tenant's use of, the
Premises, or inconvenience to Tenant as a result of performing any such work.
E. Compliance with Governmental Regulations. Tenant shall, at its
sole cost and expense, comply with, including the making by Tenant of any
Alteration to the Premises, all present and future regulations, rules, laws,
ordinances, and requirements of all governmental authorities (including, without
limitation state, municipal, county and federal governments and their
departments, bureaus, boards and officials) arising from Tenant's use or
occupancy of, or applicable to, the Premises, or in connection with Tenant's
enjoyment of the Premises, or the construction and use of the Tenant
Improvements or any Alterations to the Premises made by or on behalf of Tenant.
Notwithstanding the foregoing, Landlord, and not Tenant, shall be obligated to
make any Alterations to the structural parts of the Building maintained by
Landlord pursuant to Paragraph 17.A that are required to comply with any present
and future regulations, rules, laws, ordinances, and governmental requirements
unless such Alterations to the structural parts of the Building are required
solely as a result of any other Alterations to the Building made by Tenant
during the Term of this Lease, in which case Tenant shall reimburse Landlord for
the cost of any such Alterations to the structural parts of the Building that
are required to comply with regulations, rules, laws, ordinances and
governmental requirements.
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18. Liens.
Tenant shall keep the Building and the Premises free from any
liens arising out of any work performed, materials furnished or obligations
incurred by or on behalf of Tenant and hereby agrees to indemnify, defend,
protect and hold Landlord and Landlord's Agents harmless from and against any
and all loss, claim, damage, liability, cost and expense, including attorneys'
fees and costs, in connection with or arising out of any such lien or claim of
lien. Tenant shall cause any such lien imposed to be released of record by
payment or posting of a proper bond acceptable to Landlord within ten (10) days
after written request by Landlord. Tenant shall give Landlord written notice of
Tenant's intention to perform work on the Premises which might result in any
claim of lien at least ten (10) days prior to the commencement of such work to
enable Landlord to post and record a Notice of Nonresponsibility or any such
other notice(s) as Landlord may deem appropriate. If Tenant fails to so remove
any such lien within the prescribed ten 10-day period, then Landlord may do so
at Tenant's expense and Tenant shall reimburse Landlord for such amounts upon
demand. Such reimbursement shall include all costs incurred by Landlord
including Landlord's reasonable attorneys' fees with interest thereon at the
Interest Rate.
19. Landlord's Right to Enter the Premises.
Tenant shall permit Landlord and Landlord's Agents to enter the
Premises at all reasonable times with reasonable notice, except for emergencies
in which case no notice shall be required, to inspect the same, to post Notices
of Nonresponsibility and similar notices, and real estate "For Sale" signs, to
show the Premises to interested parties such as prospective lenders and
purchasers, to make necessary repairs, to discharge Tenant's obligations
hereunder when Tenant has failed to do so within a reasonable time after written
notice from Landlord, and at any reasonable time within one hundred and eighty
(180) days prior to the expiration of the Term, to place upon the Building
ordinary "For Lease" signs and to show the Premises to prospective tenants. The
above rights are subject to reasonable security regulations of Tenant, and to
the requirement that Landlord shall at all times act in a manner to cause the
least possible interference with Tenant's business.
20. Signs.
Subject to Tenant obtaining all necessary approvals from the City
of Redwood City and subject to Landlord's review and approval of plans and
specifications for any proposed signage, which approval may be withheld in
Landlord's reasonable discretion, Tenant shall have the right to install
identification signage with its corporate name and logo on the exterior of the
Building near the entrance to the Premises, so long as such signage complies
with Landlord's Project sign program. Landlord shall not construct any wing-wall
at the end of the Building at which the entrance to the Premises is located.
Tenant shall have no right to maintain any Tenant identification sign in any
other location in, on or about the Building or the Premises and shall not
display or erect any other Tenant identification sign, display or other
advertising material that is visible from the exterior of the Building. Any
changes to the size, design, color or other physical aspects of Tenant's
identification sign(s) shall be subject to the Landlord's prior written
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approval, which shall not be unreasonably withheld, and any appropriate
municipal or other governmental approvals. The cost of Tenant's sign(s) and
their installation, maintenance and removal shall be Tenant's sole cost and
expense. If Tenant fails to maintain its sign(s), or, if Tenant fails to remove
its sign(s) upon termination of this Lease, Landlord may do so at Tenant's
expense and the amounts expended by Landlord in doing so shall be payable by
Tenant to Landlord as Additional Rent within ten (10) days after Landlord has
delivered written notice to Tenant demanding payment of such amount.
21. Insurance.
A. Indemnification.
(i) Tenant hereby agrees to defend, indemnify, protect and
hold harmless Landlord and Landlord's Agents from and against any and all
damage, loss, cost, claim, liability or expense including reasonable attorneys,
fees and legal costs, suffered directly or by reason of any claim, suit or
judgment brought by or in favor of any person or persons for damage, loss or
expense due to, but not limited to, bodily injury and property damage sustained
by such person or persons which arises out of, is occasioned by or is in any way
attributable to the use or occupancy of the Premises or any part thereof and
adjacent areas by Tenant, the acts or omissions of the Tenant, its agents,
employees or any contractors brought onto the Premises by Tenant, except to the
extent caused by the gross negligence or willful misconduct of Landlord or
Landlord's Agents. Tenant agrees that the obligations assumed herein shall
survive this Lease. Tenant's obligations under this Paragraph 21.A.(i) are
subject to the following conditions: (i) Tenant is promptly notified in writing
of any such claim(s); (ii) Tenant shall have the right to control the defense of
such claim(s) and any settlement negotiations, provided, however, that no action
may be taken by Tenant which may materially and adversely affect Landlord's
rights or obligations without Landlord's consent; and (iii) Landlord shall
cooperate with Tenant in the defense and/or settlement of such claim(s).
Notwithstanding the foregoing, Landlord shall have the right, in its sole
discretion, but without being required to do so, to defend, adjust, settle or
compromise any claim, obligation, debt, demand, suit or judgment against
Landlord arising out of or in connection with the matters covered by the
foregoing indemnity and, in such event, Tenant shall reimburse Landlord for all
reasonable charges and expenses incurred by Landlord in connection therewith,
including reasonable attorneys, fees; provided, however, that Landlord shall not
undertake any unilateral action or settlement so long as Tenant or an insurance
company, at its or their sole expense, is contesting in good faith, diligently
and with continuity such claim, action, obligation, demand or suit, and so long
as such claim, action, obligation, demand or suit does not have or threaten to
have a material adverse impact on Landlord's assets, reputation or business
affairs.
(ii) Landlord hereby agrees to defend, indemnify, protect
and hold harmless Tenant from and against any and all damage, loss, cost, claim,
liability or expense,. including reasonable attorneys, fees and legal costs,
suffered directly or by reason of any claim, suit or judgment brought by or in
favor of any person or persons for damage, loss or expense due to, but not
limited to, bodily injury and property damage sustained by such person or
persons
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which arises out of, is occasioned by or is in any way attributable to the acts
or omissions of Landlord, Landlord's Agents, or any contractors brought onto the
Premises by Landlord, except to the extent caused by the gross negligence or
willful misconduct of Tenant, its agents, employees or contractors. Landlord
agrees that the obligations assumed herein shall survive this Lease. Landlord's
obligations under this Paragraph 21.A.(ii) are subject to the following
conditions: (i) Landlord is promptly notified in writing of any such claim(s);
(ii) Landlord shall have the right to control the defense of such claim(s) and
any settlement negotiations, provided, however, that no action may be taken by
Landlord which may materially and adversely affect Tenant's rights or
obligations without Tenant's consent; and (iii) Tenant shall cooperate with
Landlord in the defense and/or settlement of such claim(s). Notwithstanding the
foregoing, Tenant shall have the right, in its sole discretion, but without
being required to do so, to defend, adjust, settle or compromise any claim,
obligation, debt, demand, suit or judgment against Tenant arising out of or in
connection with the matters covered by the foregoing indemnity and, in such
event, Landlord shall reimburse Tenant for all reasonable charges and expenses
incurred by Tenant in connection therewith, including reasonable attorneys'
fees; provided, however, that Tenant shall not undertake any unilateral action
or settlement so long as Landlord or an insurance company, at its or their sole
expense, is contesting in good faith, diligently and with continuity such claim,
action, obligation, demand or suit, and so long as such claim, action,
obligation, demand or suit does not have or threaten to have a material adverse
impact on Tenant's assets, reputation or business affairs.
B. Tenant's Insurance. Tenant agrees to maintain in full force
and effect at all times during the Term, at its sole cost and expense, for the
protection of Tenant and Landlord, as their interests may appear, policies of
insurance issued by a responsible carrier or carriers acceptable to Landlord
which afford the following coverages:
(i) Commercial general liability insurance in an amount
not less than Three Million and 00/100ths Dollars ($3,000,000.00) combined
single limit for both bodily injury and property damage which includes blanket
contractual liability broad form property damage, personal injury, completed
operations, and products liability, which policy shall name Landlord and
Landlord's Agents as additional insureds and shall contain a provision that "the
insurance provided Landlord hereunder shall be primary and non-contributing with
any other insurance available to Landlord with respect to any damage, loss,
liability or expense covered by Tenant's indemnity obligations under Paragraph
21.A.(i) of the Lease."
(ii) Causes of loss-special form property insurance
(including, without limitation, vandalism, malicious mischief, inflation
endorsement, and sprinkler leakage endorsement) on Tenant's Personal Property
located on or in the Premises. Such insurance shall be in the full amount of the
replacement cost, as the same may from time to time increase as a result of
inflation or otherwise. As long as this Lease is in effect, the proceeds of such
policy shall be used for the repair and replacement of such items so insured.
Landlord shall have no interest in the insurance proceeds on Tenant's Personal
Property. Notwithstanding the foregoing, Tenant shall have the right, at its
election, to self-insure with respect to any loss or damage to Tenant's Personal
Property.
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(iii) Boiler and machinery insurance, including steam
pipes, pressure pipes, condensation return pipes and other pressure vessels and
HVAC equipment, including miscellaneous electrical apparatus, in an amount
satisfactory to Landlord.
(iv) Workers compensation insurance in the manner and to
the extent required by applicable law and with limits of liability not less than
the minimum required under applicable law, covering all employees of Tenant
having any duties or responsibilities in or about the Premises.
C. Premises Insurance. During the Term Landlord shall maintain
causes of loss-special form property insurance (including inflation endorsement,
sprinkler leakage endorsement, and, at Landlord's option, earthquake and flood
coverage) on the Building, excluding coverage of all Tenant's Personal Property
located on or in the Premises, but including the Tenant Improvements. Such
insurance shall also include insurance against loss of rents, including, at
Landlord's option, coverage for earthquake and flood, in' an amount equal to the
Monthly Rent and Additional Rent, and any other sums payable under the Lease,
for a period of at least twelve (12) months commencing on the date of loss. Such
insurance shall name Landlord and Landlord's Agents as named insureds and
include a lender's loss payable endorsement in favor of Landlord's lender (Form
438 BFU Endorsement). Tenant shall reimburse Landlord monthly, as Additional
Rent, for Tenant's Building Share of one-twelfth (12th) of the annual cost of
such insurance on the first day of each calendar month of the Term, prorated for
any partial month, or on such other periodic basis as Landlord shall elect. If
the insurance premiums are increased after the Commencement Date for any reason,
including without limitation due to an increase in the value of the Building or
its replacement cost, or due to Tenant's use of the Premises or any improvements
installed by Tenant, Tenant shall pay for Tenant's Building Share of such
increase within ten (10) days of notice of such increase. Landlord may, in its
sole discretion, maintain the insurance coverage described in this Paragraph
21.C as part of an umbrella insurance policy covering other properties owned by
Landlord.
D. Increased Coverage. Upon demand, Tenant shall provide
Landlord, at Tenant's expense, with such reasonable increased amount of existing
insurance, and such other insurance as Landlord or Landlord's lender may
reasonably require to afford Landlord and Landlord's lender adequate protection;
provided, however, that Tenant shall not be required under this Paragraph 21.D
to increase the amount of its existing insurance more frequently than once
during each calendar year, and shall not be required under this Paragraph 21.D
to provide additional insurance coverage more frequently than once during each
calendar year.
E. Failure to Maintain. If Tenant fails to maintain any insurance
coverage that Tenant is required to maintain under this Paragraph 21, and
Landlord incurs any liability to its insurance carrier arising out of Tenant's
failure to so maintain such insurance coverage, then any and all loss or damage
Landlord shall sustain by reason thereof, including attorneys' fees and costs,
shall be borne by Tenant and shall be immediately paid by Tenant upon its
receipt of a bill therefor and evidence of such loss. Nothing contained in this
Paragraph 21.E shall be deemed to
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limit or affect any other remedies or rights available to Landlord under this
Lease that arise from Tenant's failure to so maintain such insurance coverage.
F. Insurance Requirements. All insurance shall be in a form
satisfactory to Landlord and shall be carried in companies that have a general
policy holder's rating of not less than "All and a financial rating of not less
than Class "X" in the most current edition of Best's Insurance Reports; and
shall provide that such policies shall not be subject to material alteration or
cancellation except after at least thirty (30) days' prior written notice to
Landlord. The policy or policies, or duly executed certificates for them,
together with satisfactory evidence of payment of the premiums thereon shall be
deposited with Landlord prior to the Commencement Date, and upon renewal of such
policies, not less than thirty (30) days prior to the expiration of the term of
such coverage. If Tenant fails to procure and maintain the insurance it is
required to maintain under this Paragraph 21, Landlord may, but shall not be
required to, order such insurance at Tenant's expense and Tenant shall reimburse
Landlord therefor. Such reimbursement shall include all costs incurred by
Landlord in obtaining such insurance including Landlord's reasonable attorneys,
fees, with interest thereon at the Interest Rate.
G. Landlord's Disclaimer. Landlord and Landlord's Agents shall
not be liable for any loss or damage to persons or property resulting from fire,
explosion, falling plaster, glass, tile or sheetrock, steam, gas, electricity,
water or rain which may leak from any part of the Building or from the pipes,
appliances or plumbing works therein or from the roof, street or subsurface, or
from any other cause whatsoever, including loss or reduction in utilities,
except to the extent caused by the gross negligence or willful misconduct of
Landlord. Landlord and Landlord's Agents shall not be liable for any latent
defect in the Premises; provided, however, that notwithstanding the foregoing,
Landlord warrants to Tenant that the Improvements shall be free from defects for
the first twelve (12) months of the Term. Tenant shall give prompt written
notice to Landlord in case of a casualty or accident occurring, or any repair
needed, in the Premises.
22. Waiver of Subrogation.
Landlord and Tenant each hereby waive all rights of recovery
against the other on account of loss or damage occasioned by such waiving party
to its property or the property of others under its control, to the extent that
such loss or damage would be covered by any causes of loss-special form policy
of insurance or its equivalent. Tenant and Landlord shall, upon obtaining
policies of insurance required hereunder, give notice to the insurance carrier
that the foregoing mutual waiver of subrogation is contained in this Lease and
Tenant and Landlord shall cause each insurance policy obtained by such party to
provide that the insurance company waives all right of recovery by way of
subrogation against either Landlord or Tenant in connection with any damage
covered by such policy.
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23. Damage or Destruction.
A. Landlord's Obligation to Rebuild. If all or any part of the
Building is damaged or destroyed, Landlord shall promptly and diligently repair
the same unless it has the right to terminate this Lease as provided herein and
it elects to so terminate.
B. Right to Terminate. Landlord shall have the right to terminate
this Lease in the event any of the following events occur:
(i) Insurance proceeds from the insurance Landlord is
required to carry pursuant to Paragraph 21.C are not available to pay one
hundred percent (100%) of the cost of such repair, excluding the deductible for
which Tenant shall be responsible;
(ii) The Building cannot, with reasonable diligence, be
fully repaired by Landlord within one hundred eighty (180) days after the date
of the damage or destruction; or
(iii) The Building cannot be safely repaired because of
the presence of hazardous factors, including, but not limited to, earthquake
faults, radiation, Hazardous Materials and other similar dangers.
If Landlord elects to terminate this Lease, Landlord may give
Tenant written notice of its election to terminate within thirty (30) days after
such damage or destruction, and this Lease shall terminate fifteen (15) days
after the date Tenant receives such notice and both Landlord and Tenant shall be
released of all further liability under this Lease (except to the extent any
provision of this Lease expressly survives termination). If Landlord elects not
to terminate the Lease, subject to Tenant's termination right set forth below,
Landlord shall promptly commence the process of obtaining necessary permits and
approvals and repair of the Building as soon as practicable, and this Lease will
continue in full force and affect. All insurance proceeds from insurance under
Paragraph 21, excluding proceeds for Tenant's Personal Property, shall be
disbursed and paid to Landlord. Tenant shall be required to pay to Landlord the
amount of any deductibles payable in connection with any insured casualties,
unless the casualty was caused by the sole negligence or willful misconduct of
Landlord.
Tenant shall have the right to terminate this Lease if the
Building cannot, with reasonable diligence, be fully repaired within two hundred
seventy (270) days from the date of damage or destruction. The determination of
the estimated repair periods in this Paragraph 23 shall be made by an
independent, licensed contractor or engineer within thirty (30) days after such
damage or destruction. Landlord shall deliver written notice of the repair
period to Tenant after such determination has been made and Tenant shall
exercise its right to terminate this Lease, if at all, within ten (10) days of
receipt of such notice from Landlord. Upon such termination both Landlord and
Tenant shall be released of all further liability under this Lease (except to
the extent any provision of this Lease expressly survives termination).
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C. Limited Obligation to Repair. Landlord's obligation, should it
elect or be obligated to repair or rebuild, shall be limited to the basic
Building and the Tenant Improvements and shall not include any Alterations made
by Tenant.
D. Abatement of Rent. Rent shall be temporarily abated
proportionately, during any period when, by reason of such damage or destruction
there is substantial interference with Tenant's use of the Premises, having
regard to the extent to which Tenant may be required to discontinue Tenant's use
of the Premises. Such abatement of Rent shall be proportional to the extent of
such interference with Tenant's use of the Premises reasonably attributable to
such damage or destruction (with the extent of such interference to be
reasonably determined by the mutual agreement of Landlord and Tenant), and shall
commence upon such damage or destruction and end upon substantial completion by
Landlord of the repair or reconstruction which Landlord is obligated or
undertakes to perform. Tenant shall not be entitled to any compensation or
damages from Landlord for loss of the use of the Premises, damage to Tenant's
Personal Property or any inconvenience occasioned by such damage, repair or
restoration. Tenant hereby waives the provisions of Section 1932, Subdivision 2,
and Section 1933, Subdivision 4, of the California Civil Code, and the
provisions of any similar law hereinafter enacted.
E. Damage Near End of Term. Anything herein to the contrary
notwithstanding, if the Building is destroyed or materially damaged during the
last twelve (12) months of the Term, then either Landlord or Tenant may, at its
option, cancel and terminate this Lease as of the date of the occurrence of such
damage, by delivery of written notice to the other party and, in such event,
upon such termination both Landlord and Tenant shall be released of all further
liability under this Lease (except to the extent any provision of this Lease
expressly survives termination). If neither Landlord nor Tenant elects to
terminate this Lease, the repair of such damage shall be governed by Paragraphs
23.A and 23.B.
24. Condemnation.
If title to all of the Premises is taken for any public or
quasi-public use under any statute or by right of eminent domain, or so much
thereof is so taken so that reconstruction of the Premises will not, in
Landlord's sole discretion, result in the Premises being reasonably suitable for
Tenant's continued occupancy for the uses and purposes permitted by this Lease,
this Lease shall terminate as of the date that possession of the Premises or
part thereof is taken, and upon such termination both Landlord and Tenant shall
be released of all further liability under this Lease (except to the extent any
provision of this Lease expressly survives termination). A sale by Landlord to
any authority having the power of eminent domain, either under threat of
condemnation or while condemnation proceedings are pending, shall be deemed a
taking under the power of eminent domain for all purposes of this Paragraph 24.
If any part of the Premises is taken and the remaining part is
reasonably suitable for Tenant's continued occupancy for the purposes and uses
permitted by this Lease, this Lease shall, as to the part so taken, terminate as
of the date that possession of such part of the Premises is taken, and upon such
termination both Landlord and Tenant shall be released of all further
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liability under this Lease with respect to that portion of the Premises that is
taken (except to the extent any provision of this Lease expressly survives
termination). The Rent and other sums payable hereunder shall be reduced in the
same proportion that Tenant's use and occupancy of the Premises is reduced. If
any portion of the Common Area is taken, Tenant's Rent shall be reduced only if
such taking materially interferes with Tenant's use of the Common Area and then
only to the extent that the fair market rental value of the Premises is
diminished by such partial taking. If the parties disagree as to the amount of
Rent reduction, the matter shall be resolved by arbitration and such arbitration
shall comply with and be governed by the California Arbitration Act, Sections
1280 through 1294.2 of the California Code of Civil Procedure. Each party hereby
waives the provisions of Section 1265.130 of the California Code of Civil
Procedure allowing either party to petition the Superior Court to terminate this
Lease in the event of a partial taking of the Premises.
All compensation or damages awarded or paid for any taking
hereunder shall belong to and be the property of Landlord, whether such
compensation or damages are awarded or paid as compensation for diminution in
value of the leasehold, the fee or otherwise, except that Tenant shall be
entitled to any award allowed to Tenant for the taking of Tenant's Personal
Property, for the interruption of Tenant's business, for its moving costs, or
for the loss of its good will. Except for the foregoing allocation, no award for
any partial or entire taking of the Premises shall be apportioned between
Landlord and Tenant, and Tenant assigns to Landlord its interest in the balance
of any award which may be made for the taking or condemnation of the Premises,
together with any and all rights of Tenant arising in or to the same or any part
thereof.
25. Assignment and Subletting.
A. Landlord's Consent. Tenant shall not enter into a Sublet
without Landlord's prior written consent, which consent shall not be
unreasonably withheld. Any attempted or purported Sublet without Landlord's
prior written consent shall be void and confer no rights upon any third person
and, at Landlord's election, shall terminate this Lease. Each Subtenant shall
agree in writing, for the benefit of Landlord, to assume, to be bound by, and to
perform the terms, conditions and covenants of this Lease to be performed by
Tenant, as such terms, conditions and covenants apply to the Sublet premises.
Notwithstanding anything contained herein, Tenant shall not be released from
liability for the performance of each term, condition and covenant of this Lease
by reason of Landlord's consent to a Sublet unless Landlord specifically grants
such release in writing.
B. Tenant's Notice. If Tenant desires at any time to Sublet all
or any portion of the Premises, Tenant shall first notify Landlord in writing of
its desire to do so. Within thirty (30) days after Landlord's receipt of
Tenant's notice, Landlord may elect to terminate this Lease with respect to that
portion of the Premises that Tenant proposes to Sublet; provided, however, that
Landlord shall not have the right to terminate the Lease under this Paragraph
25B during the first two (2) years of the Term. In such event, Landlord and
Tenant shall negotiate in good faith the effective date of such termination and
Tenant shall be released of all further liability under
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this Lease with respect to the portion of the Premises for which this Lease is
terminated (except to the extent any provision of this Lease expressly survives
termination).
C. Information to be Furnished. If Landlord elects not to
terminate this Lease with respect to the portion of the Premises that Tenant
desires to Sublet, then Tenant shall submit in writing to Landlord: (i) the name
of the proposed Subtenant; (ii) the nature of the proposed Subtenant's business
to be carried on in the Premises; (iii) the terms and provisions of the proposed
Sublet and a copy of the proposed form of Sublet agreement containing a
description of the subject premises; and (iv) such financial information,
including financial statements, as Landlord may reasonably request concerning
the proposed Subtenant.
D. Landlord's Alternatives. At any time within ten (10) days
after Landlord's receipt of the information specified in Paragraph 25.D.,
Landlord may, by written notice to Tenant, elect: (i) to consent to the Sublet
by Tenant; or (ii) to refuse its consent to the Sublet. If Landlord consents to
the Sublet, Tenant may thereafter enter into a valid Sublet of the Premises or
applicable portion thereof, upon the terms and conditions and with the proposed
Subtenant set forth in the information furnished by Tenant to Landlord, subject,
however, at Landlord's election, to the condition that fifty percent (50%) of
any excess of the Subrent over the Rent required to be paid by Tenant under this
Lease (or, if only a portion of the Premises is Sublet, the pro rata share of
the Rent attributable to the portion of the Premises being Sublet) less
reasonable attorneys' fees and leasing commissions paid by Tenant on the Sublet,
shall be paid to Landlord.
E. Proration. If a portion of the Premises is Sublet, the pro
rata share of the Rent attributable to such partial area of the Premises shall
be determined by Landlord by dividing the Rent payable by Tenant hereunder by
the total square footage of the Premises and multiplying the resulting quotient
(the per square foot rent) by the number of square feet of the Premises which
are Sublet.
F. Parameters of Landlord's Consent. Landlord shall have the
right to base its consent to any Sublet hereunder upon such factors and
considerations as Landlord reasonably deems relevant or material to the proposed
Sublet and the best interest of the Project's operations. Without limiting the
generality of the foregoing, Tenant acknowledges that it shall be reasonable for
Landlord to withhold its consent to any Sublet hereunder if Tenant has not
demonstrated that: (i) the proposed Subtenant is financially responsible, with
sufficient net worth and net current assets, properly and successfully to
operate its business in the Premises and meet the financial and other
obligations of this Lease; (ii) the proposed Subtenant possesses sound and good
business judgment, reputation and experience, and proven management skills in
the operation of a business or businesses substantially similar to the uses
permitted in the Premises under Paragraph 11.A; and (iii) the use of the
Premises proposed by such Subtenant conforms to the permitted uses specified
under Paragraph 11.A, and involves either no Hazardous Use or only such
Hazardous Use as shall be acceptable to Landlord in its sole discretion.
G. Permitted Transfers. Notwithstanding the provisions of
Paragraph 25.A above, Tenant shall have the right to assign its entire interest
under this Lease, and Landlord shall not withhold its consent thereto (provided
that all of the conditions set forth in clauses (A) and
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(B) below shall be met), if such assignment is one of the following "Permitted
Transfers": (i) an assignment to a corporation that is controlled by, controls,
or is under common control with Tenant; or (ii) an assignment in connection with
the non-bankruptcy reorganization or merger of the corporate entity constituting
the Tenant under this Lease, where either (x) the shareholders of the Tenant
originally named in this Lease control (i.e., own fifty-one percent (51%) or
more of the voting stock of) the reorganized or surviving entity, or (y) as of
the effective date of such assignment, the reorganized or surviving entity has a
net worth equal to or greater than the net worth the Tenant originally named
under this Lease had as of the date of this Lease, and the reorganized or
surviving entity devotes all or a substantial portion of its business to
activities involving the Internet, computer hardware, computer software, media
or entertainment. However, the foregoing Permitted Transfers shall be exempt
from the requirement of Landlord's consent only if all of the following
conditions shall be met: (A) there shall be no change in the use or operation of
the Premises; and (B) Tenant shall have provided to Landlord all information to
allow Landlord to determine, and Landlord shall have determined, that the
proposed transfer is a Permitted Transfer which is exempt from the requirement
of Landlord's consent. No transfer of the type described in this Paragraph 25.G,
or any other transfer, shall release Tenant of its obligations under this Lease.
26. Default.
A. Tenant's Default. A default under this Lease by Tenant shall
exist if any of the following occurs:
(i) If Tenant fails to pay when due any Rent or any other
sum required to be paid hereunder within three (3) days from the date of
Landlord's written notice to Tenant (which notice shall constitute the notice
required under California Code of Civil Procedure Section 1161) that such Rent
or other sum is due, including, without limitation, any Excess Costs payable by
Tenant under Exhibit C; or
(ii) If Tenant fails to perform any term, covenant or
condition of this Lease except those requiring the payment of money, and Tenant
fails to cure such breach within thirty (30) days after written notice from
Landlord where such breach could reasonably be cured within such 30-day period;
provided, however, that where such failure could not reasonably be cured within
the 30-day period, that Tenant shall not be in default if it commences such
performance within the 30-day period and diligently thereafter prosecutes the
same to completion; or
(iii) If Tenant assigns its assets for the benefit of its
creditors; or
(iv) If the sequestration or attachment of or execution on
any material part of Tenant's Personal Property essential to the conduct of
Tenant's business occurs, and Tenant fails to obtain a return or release of such
Tenant's Personal Property within thirty (30) days thereafter, or prior to sale
pursuant to such sequestration, attachment or levy, whichever is earlier; or
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(v) If Tenant vacates or abandons the Premises; or
(vi) If a court makes or enters any decree or order other
than under the bankruptcy laws of the United States adjudging Tenant to be
insolvent; or approving as properly filed a petition seeking reorganization of
Tenant; or directing the winding up or liquidation of Tenant and such decree or
order shall have continued for a period of sixty (60) days; or
(vii) If, at any time that Landlord is also the owner of
the premises leased by Tenant under the Building 1 Lease and/or the Building 2
Lease, Tenant is in default under the Building 1 Lease and/or the Building 2
Lease, as applicable, beyond any applicable notice and cure period.
B. Remedies. Upon a default, Landlord shall have the following
remedies, in addition to all other rights and remedies provided by law or
otherwise provided in this Lease, to which Landlord may resort cumulatively or
in the alternative:
(i) Landlord may continue this Lease in full force and
effect, and this Lease shall continue in full force and effect as long as
Landlord does not terminate this Lease, and Landlord shall have the right to
collect Rent when due.
(ii) Landlord may terminate Tenant's right to possession
of the Premises at any time by giving written notice .to that-effect, and relet
the Premises or any part thereof. Tenant shall be liable immediately to Landlord
for all costs Landlord incurs in reletting the Premises or any part thereof,
including, without limitation, broker's commissions, expenses of cleaning and
redecorating the Premises required by the reletting and like costs. Reletting
may be for a period shorter or longer than the remaining term of this Lease. No
act by Landlord other than giving written notice of termination to Tenant shall
terminate this Lease. Neither acts of maintenance, nor efforts to relet the
Premises, nor the appointment of a receiver on Landlord's initiative to protect
Landlord's interest under this Lease shall constitute a termination of Tenant's
right to possession. On termination, Landlord has the right to remove all
Tenant's Personal Property and store the same at Tenant's sole cost and expense
and to recover from Tenant as damages:
(a) The worth at the time of award of the unpaid
Rent and other sums due and payable which had been earned at the time of
termination; plus
(b) The worth at the time of award of the amount by
which the unpaid Rent and other sums due and payable which would have been
payable after termination until the time of award exceeds the amount of such
Rent loss that Tenant proves could have been reasonably avoided; plus
(c) The worth at the time of award of the amount by
which the unpaid rent and other sums due and payable for the balance of the Term
after the time of award exceeds the amount of such Rent loss that Tenant proves
could be reasonably avoided; plus
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(d) Any other amount necessary to compensate
Landlord for all the detriment proximately caused by Tenant's failure to perform
Tenant's obligations under this Lease, or which, in the ordinary course of
things, would be likely to result therefrom, including, without limitation, any
costs or expenses incurred by Landlord: (i) in retaking possession of the
Premises; (ii) in maintaining, repairing, preserving, restoring, replacing,
cleaning, altering or rehabilitating the Premises or any portion thereof,
including such acts for reletting to a new tenant or tenants; (iii) for leasing
commissions; or (iv) for any other costs necessary or appropriate to relet the
Premises; plus
(e) At Landlord's election, such other amounts in
addition to or in lieu of the foregoing as may be permitted from time to time by
the laws of the State of California.
The "worth at the time of award" of the amounts referred to in
Paragraphs 26.B.(ii)(a) and 26.B.(ii)(b) is computed by allowing interest at the
Interest Rate on the unpaid rent and other sums due and payable from the
termination date through the date of award. The "worth at the time of award" of
the amount referred to in Paragraph 26.B.(ii)(c) is computed by discounting such
amount at the discount rate of the Federal Reserve Bank of San Francisco at the
time of award plus one percent (1%). Tenant waives redemption or relief from
forfeiture under California Code of Civil Procedure Sections 1174 and 1179, or
under any other present or future law, in the event Tenant is evicted or
Landlord takes possession of the Premises by reason of any default of Tenant
hereunder.
(iii) Landlord may, with or without terminating this
Lease, re-enter the Premises and remove all persons and property from the
Premises, so long as Landlord gives Tenant advance written notice of its intent
to so re-enter the Premises; such property may be removed and stored in a public
warehouse or elsewhere at the cost of and for the account of Tenant. No reentry
or taking possession of the Premises by Landlord pursuant to this Paragraph
26.B.(iii) shall be construed as an election to terminate this Lease unless a
written notice of such intention is given to Tenant.
C. Landlord's Default. Landlord shall not be deemed to be in
default in the performance of any obligation required to be performed by it
hereunder unless and until it has failed to perform such obligation within
thirty (30) days after receipt of written notice by Tenant to Landlord
specifying the nature of such default; provided, however, that if--the nature of
Landlord's obligation is such that more than thirty (30) days are required for
its performance, then Landlord shall not be deemed to be in default if it shall
commence such performance within such 30-day period and thereafter diligently
prosecute the same to completion.
27. Subordination.
This Lease is or may become subject and subordinate to underlying
leases, mortgages and deeds of trust (collectively, "Encumbrances") which may
now affect the Premises, and to all renewals, modifications, consolidations,
replacements and extensions thereof; provided, however, if the holder or holders
of any such Encumbrance (collectively,
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"Holder") shall require that this Lease be prior and superior thereto, within
fifteen (15) days of written request of Landlord to Tenant, Tenant shall
execute, have acknowledged and deliver any and all documents or instruments, in
the form presented to Tenant, which Landlord or Holder deems necessary or
desirable for such purposes. Landlord shall have the right to cause this Lease
to be and become and remain subject and subordinate to any and all Encumbrances
which are now or may hereafter be executed covering the Premises or any
renewals, modifications, consolidations, replacements or extensions thereof, for
the full amount of all advances made or to be made thereunder and without regard
to the time or character of such advances, together with interest thereon and
subject to all the terms and provisions thereof; provided only, that in the
event of termination of any such lease or upon the foreclosure of any such
mortgage or deed of trust, so long as Tenant is not in default, Holder agrees to
recognize Tenant's rights under this Lease as long as Tenant shall pay the Rent
and observe and perform all the provisions of this Lease to be observed and
performed by Tenant. Within fifteen (15) days after Landlord's written request,
Tenant shall execute any and all documents required by Landlord or the Holder to
make this Lease subordinate to any lien of the Encumbrance, including without
limitation a Subordination, Non-Disturbance and Attornment Agreement in the form
attached hereto as Exhibit F. If Tenant fails to do so, it shall be deemed that
this Lease is subordinated to such Encumbrance.
Notwithstanding anything to the contrary set forth in this
Paragraph 27, Tenant hereby attorns and agrees to attorn to any entity
purchasing or otherwise acquiring the Premises at any sale or other proceeding
or pursuant to the exercise of any other rights, powers or remedies under such
Encumbrance.
28. Notices.
Any notice or demand required or desired to be given under this
Lease shall be in writing and shall be personally served or in lieu of personal
service may be given by certified mail, facsimile, or overnight courier service.
All notices or demands under this Lease shall be deemed given, received, made or
communicated on the date personal delivery is effected; or, if sent by certified
mail, on the delivery date or attempted delivery date shown on the return
receipt; or, if sent by facsimile, on the date sent by the sender; or, if sent
by overnight courier service, on the delivery date or attempted delivery date
shown on such service's records. At the date of execution of this Lease, the
addresses of Landlord and Tenant are as set forth in Paragraph 1. After the
Commencement Date, the address of Tenant shall be the address of the Premises.
Either party may change its address by giving notice of same in accordance with
this Paragraph 28.
29. Attorneys' Fees.
If either party brings any action or legal proceeding for damages
for an alleged breach of any provision of this Lease, to recover Rent, or other
sums due, to terminate the tenancy of the Premises or to enforce, protect or
establish any term, condition or covenant of this Lease or right of either
party, the prevailing party shall be entitled to recover as a part of such
action or proceedings, or in a separate action brought-for that purpose,
reasonable attorneys' fees
41
<PAGE> 43
and costs, including without limitation any and all costs and expenses arising
from (i) collection efforts, (ii) any appellate proceedings, and (iii) any
bankruptcy, insolvency or arbitration proceedings.
30. Estoppel Certificates.
Tenant shall within fifteen (15) days following written request
by Landlord:
(i) Execute and deliver to Landlord any documents,
including estoppel certificates, in the form prepared by Landlord (a) certifying
that this Lease is unmodified and in full force and effect or, if modified,
stating the nature of such modification and certifying that this Lease, as so
modified, is in full force and effect and the date to which the Rent and other
charges are paid in advance, if any, and (b) acknowledging that there are not,
to Tenant's knowledge, any uncured defaults on the part of Landlord, or, if
there are uncured defaults on the part of the Landlord, stating the nature of
such uncured defaults, (c) evidencing the status of the Lease as may be required
either by a lender making a loan to Landlord to be secured by deed of trust or
mortgage covering the Premises or a purchaser of the Premises from Landlord, and
(d) stating such other matters as may be reasonably requested by Landlord.
Tenant's failure to deliver an estoppel certificate within fifteen (15) days
after delivery of Landlord's written request therefor shall be conclusive upon
Tenant (a) that this Lease is in full force and effect, without modification
except as may be represented by Landlord, (b) that there are now no uncured
defaults in Landlord's performance, and (c) that no Rent has been paid in
advance.
If Tenant fails to so deliver a requested estoppel certificate
within the prescribed time it shall be conclusively presumed that this Lease is
unmodified and in full force and effect except as represented by Landlord.
(ii) Deliver to Landlord the current financial statements
of Tenant, and financial statements of the two (2) years prior to the current
financial statement's year, with an opinion of a certified public accountant,
including a balance sheet and profit and loss statement for the most recent
prior year, all prepared in accordance with generally accepted accounting
principles consistently applied.
31. Transfer of the Premises by Landlord.
In the event of any conveyance of the Premises and assignment by
Landlord of this Lease, Landlord shall be and is hereby-entirely released from
all liability under any and all of its covenants and obligations contained in or
derived from this Lease arising from events occurring after the date of such
conveyance and assignment, and Tenant agrees to attorn to such transferee
provided such transferee assumes Landlord's obligations under this Lease.
32. Landlord's Right to Perform Tenant's Covenants.
If Tenant shall at any time fail to make any payment or perform
any other act on its part to be made or performed under this Lease, and such
failure shall continue after the
42
<PAGE> 44
expiration of any applicable grace or cure periods provided in this Lease,
Landlord may, but shall not be obligated to (and without waiving or releasing
Tenant from any obligation of Tenant under this Lease), make such payment or
perform such other act to the extent Landlord may deem desirable, and in
connection therewith, pay expenses and employ counsel. All sums so paid by
Landlord and all penalties, interest, expenses and costs in connection therewith
shall be due and payable by Tenant on the next day after any such payment by
Landlord, together with interest thereon at the Interest Rate from such date to
the date of payment by Tenant to Landlord, plus collection costs and attorneys'
fees. Landlord shall have the same rights and remedies for the nonpayment
thereof as in the case of default in the payment of Rent.
33. Tenant's Remedy.
If, as a consequence of a default by Landlord under this Lease,
Tenant recovers a money judgment against Landlord, such judgment shall be
satisfied only against the right, title and interest of Landlord in the
Building, and neither Landlord nor Landlord's Agents shall be liable for any
deficiency.
34. Mortgagee Protection.
If Landlord defaults under this Lease, Tenant shall give written
notice of such default to any beneficiary of a deed of trust or mortgagee of a
mortgage covering the Premises, so long as Tenant has received notice of the
existence of such beneficiary or mortgagee, and offer such beneficiary or
mortgagee a reasonable opportunity to cure the default, including time to obtain
possession of the Premises by power of sale or a judicial foreclosure, if such
should prove necessary to effect a cure.
35. Brokers.
Landlord and Tenant acknowledge and agree that they have each
utilized the services of real estate brokers (with BT Commercial representing
Landlord and Cornish and Carey representing Tenant) with respect to the
transactions between Landlord and Tenant that are represented by this Lease.
Landlord shall pay commissions to such brokers pursuant to separate agreements.
Tenant warrants and represents that it has had no dealings with any other real
estate broker or agent in connection with the negotiation of this Lease, and
that it knows of no other real estate broker or agent who is or might be
entitled to a commission in connection with this Lease.
36. Acceptance.
This Lease shall only become effective and binding upon full
execution hereof by Landlord and delivery of a signed copy to Tenant. Neither
party shall record this Lease nor a short form memorandum thereof.
43
<PAGE> 45
37. Parking.
Tenant shall have the non-exclusive right, in common with any
other tenants or occupants of the Project, to use up to 3.3 unassigned parking
spaces per each one thousand (1,000) square feet of Rentable Area in the
Premises, upon terms and conditions as may from time to time be reasonably
established by Landlord. Should parking charges or surcharges of any kind be
imposed on the parking facilities by a governmental agency, Tenant shall
reimburse Landlord for such charges and/or surcharges or, if possible, shall pay
such charges and/or surcharges directly to the governmental agency and, in such
event, Tenant shall provide Landlord with proof that such charges and/or
surcharges have been paid by Tenant.
38. General.
A. Captions. The captions and headings used in this Lease are for
the purpose of convenience only and shall not be construed to limit or extend
the meaning of any part of this Lease.
B. Executed Copy. Any fully executed copy of this Lease shall be
deemed an original for all purposes.
C. Time. Time is of the essence for the performance of each term,
condition and covenant of this Lease.
D. Separability. If one or more of the provisions contained
herein, except for the payment of Rent, is for any reason held invalid, illegal
or unenforceable in any respect, such invalidity, illegality, or
unenforceability shall not affect any other provision of this Lease, but this
Lease shall be construed as if such invalid, illegal or unenforceable provision
had not been contained herein.
E. Choice of Law. This Lease shall be construed and enforced in
accordance with the laws of the State of California. The language in all parts
of this Lease shall in all cases be construed as a whole according to its fair
meaning and not strictly for or against either Landlord or Tenant.
F. Gender; Singular, Plural. When the context of this Lease
requires, the neuter gender includes the masculine, the feminine, a partnership
or corporation or joint venture, and the singular includes the plural.
G. Binding Effect. The covenants and agreement contained in this
Lease shall be binding on the parties hereto and on their respective successors
and assigns to the extent this Lease is assignable.
H. Waiver. The waiver by Landlord of any breach of any term,
condition or covenant, of this Lease shall not be deemed to be a waiver of such
provision or any subsequent
44
<PAGE> 46
breach of the same or any other term, condition or covenant of this Lease. The
subsequent acceptance of Rent hereunder by Landlord shall not be deemed to be a
waiver of any preceding breach at the time of acceptance of such payment. No
covenant, term or condition of this Lease shall be deemed to have been waived by
Landlord unless such waiver is in writing signed by Landlord.
I. Entire Agreement. This Lease is the entire agreement between
the parties, and there are no agreements or representations between the parties
except as expressed herein. Except as otherwise provided herein, no subsequent
change or addition to this Lease shall be binding unless in writing and signed
by the parties hereto.
J. Authority. If Tenant is a corporation or a partnership, each
individual executing this Lease on behalf of said corporation or partnership, as
the case may be, represents and warrants that he is duly authorized to execute
and deliver this Lease on behalf of said entity in accordance with its corporate
bylaws, statement of partnership or certificate of limited partnership, as the
case may be, and that this Lease is binding upon said entity in accordance with
its terms. Landlord, at its option, may require a copy of such written
authorization to enter into this Lease.
K. Exhibits. All exhibits, amendments, riders and addenda
attached hereto are hereby incorporated herein and made a part hereof.
L. Lease Summary. The Lease Summary attached to this Lease is
intended to provide general information only. In the event of any inconsistency
between the Lease Summary and the specific provisions of this Lease, the
specific provisions of this Lease shall prevail.
M. Nondisturbance. Within thirty (30) business days after this
Lease has been fully executed by Landlord and Tenant, Landlord shall provide
Tenant with a non-disturbance and attornment agreement in form reasonably
acceptable to Tenant executed by Landlord's lender.
N. Consent. Unless otherwise provided in this Lease, whenever
Landlord's approval, consent or satisfaction (collectively, an "approval") is
required pursuant to this Lease or an Exhibit hereto, such approval may be
withheld in Landlord's sole and absolute discretion.
45
<PAGE> 47
THIS LEASE is effective as of the date the last signatory
necessary to execute the Lease shall have executed this Lease.
TENANT:
EXCITE, INC.,
a California corporation
By: /s/ Robert C. Hood
-------------------------------------
Its: EVP-CFO
-------------------------------------
By:
-------------------------------------
Its:
-------------------------------------
Dated: 5/14/98
-----------------------------------
LANDLORD:
MARTIN/CAMPUS ASSOCIATES NO. 7, L.P.,
a Delaware limited partnership
By: Martin/Redwood Partners, L.P.,
a California limited partnership
Its General Partner
By: TMG Redwood LLC,
a California limited liability
company
Its General Partner
By: The Martin Group of
Companies, Inc.
a California corporation
Its General Partner
By: /s/ Kathy Greenwold
-------------------------
Its: Vice President
------------------------
Dated: 5/19/98
----------------------
46
<PAGE> 48
EXHIBIT A
<PAGE> 49
EXHIBIT B
<PAGE> 50
EXHIBIT C
WORK LETTER AGREEMENT
THIS WORK LETTER ("Agreement") is made and entered into by and between Landlord
and Tenant as of the date of the Lease. This Agreement shall be deemed a part of
the Lease to which it is attached. Capitalized terms which are used herein and
defined in the Lease shall have the meanings given in the Lease.
l. General.
1.1. Capital Improvements. At Landlord's sole cost and expense,
Landlord shall construct the Building (which shall be a two story, steel framed
building with glass-curtain wall construction)and the surrounding site
improvements and shall deliver the Premises in -shell" condition, which shall
include construction or installation of the following (collectively, the
"Capital Improvements"):
o Building/Site Improvements. The slab, walls, roof-system, all
exterior glazing, entry doors, parking lot (including all
striping and ADA required signage), landscaping, sidewalks and
exterior lighting as required by the City of Redwood City.
o Electrical/Telephone. Power to the main transformer which shall
be located in the parking lot (PG&E's point of service will be
at the transformer) with conduits into the Building with
pull-wires; and telephone conduits to the Building with
pull-wires. Electrical capacity shall be 2,000 amps at 277/480
volts, three phase, four wire. The electrical panel, meters and
all electrical distribution shall be part of the Tenant
Improvements (as defined below). The connection from PG&E's
point of service to the electrical room shall also be part of
the Tenant Improvements.
o Stairs. Three sets of unfinished building stairs, excluding
walls and finishes.
o Sprinklers. A base building sprinkler system consisting of one
riser, mains, laterals and upright sprinkler heads at the
underside of the roof and underside of the second floor and
dropped heads at the exterior soffit. The system will be
designed for Ordinary Hazard (0.17 gpm/sf/3000 sf). All interior
drops required for Tenant's use and occupancy,, or any
requirement for sprinkler coverage in excess of Ordinary Hazard
as described above, shall be part of the Tenant Improvements.
o Floors. Smooth and level concrete floors in accordance with
industry standards. The first floor shall be concrete slab on
grade and the second floor shall be concrete on metal deck.
o Elevator. An elevator-pit, but no elevator, in a location near
the main entry.
o Water. Main domestic water and sewer service plumbing, which
shall be roughed into the Building.
<PAGE> 51
1.2. Tenant Improvements. Landlord shall cause Contractor (as
defined below) to perform all other improvements within the Building (including
mechanical systems, roof screen, if required, restroom cores and lobby) and all
initial leasehold improvements, in accordance with the approved Final Plans and
as otherwise may be required to comply with applicable law (collectively, the
"Tenant Improvements"). The parties acknowledge and agree that the Capital
Improvements and the Tenant Improvements constitute all of the work required to
enable Tenant to occupy, and operate its business in, the Premises.
1.3. Tenant Improvement Costs. The cost of performing the Tenant
Improvements, including without limitation the costs described in Paragraph 6
below (collectively, the "Tenant Improvement Costs") shall be paid in the manner
set forth in Paragraph 5 below.
2. Approval of Plans for Tenant Improvements.
2.1. Architect; Tenant's Duty to Specify. Tenant shall select an
architect ("Architect") for the design and preparation of plans for the Tenant
Improvements. Tenant shall retain Architect's administrative services throughout
the performance of the Tenant Improvements.
2.2. Submittal of Plans.
2.2.1. Preliminary Plans. Tenant shall cause Architect to
deliver preliminary plans (the "Preliminary Plans") for the Tenant Improvements
to be performed at the Premises to Landlord after the execution of this Lease.
Within five (5) days after Landlord's receipt of the Preliminary Plans, Landlord
shall either approve or disapprove the Preliminary Plans. If Landlord
disapproves the Preliminary Plans, then Landlord shall state in reasonable
detail the changes which Landlord requires to be made thereto. Tenant shall
submit to Landlord revised Preliminary Plans within five (5) days after Tenant's
receipt of Landlord's disapproval notice. Following Landlord's receipt of the
revised Preliminary Plans from Tenant, Landlord shall have the right to review
and approve the revised Preliminary Plans pursuant to this Paragraph 2.2.1.
Landlord shall give Tenant written notice of its approval or disapproval of the
revised Preliminary Plans within five (5) days after the date of Landlord's
receipt thereof. If Landlord disapproves the revised Preliminary Plans, then
Landlord and Tenant shall continue to follow the procedures set forth in this
Paragraph 2.2.1 until either (x) Landlord and Tenant approve the Preliminary
Plans in accordance with this Paragraph 2.2.1, or (y) the date that is thirty (
30) days after submittal of the initial Preliminary Plans, whichever shall first
occur. If Landlord and Tenant do not mutually agree upon the Preliminary Plans
within thirty (30) days after the execution of the Lease, then Landlord may in
its sole discretion terminate the Lease upon written notice to Tenant. If
Landlord neither approves nor disapproves the Preliminary Plans or the revised
Preliminary Plans within the applicable time periods provided above, Landlord
shall be deemed to have disapproved such Preliminary Plans as submitted.
2.2.2. Preliminary Budget. Landlord has retained Devcon
Construction ("Contractor") as the general contractor for the construction of
the Tenant Improvements. Within twelve (12) days after approval by Landlord and
Tenant of the Preliminary Plans,
2
<PAGE> 52
Contractor shall prepare a preliminary budget for the Tenant Improvements based
upon the approved Preliminary Plans, which Contractor shall submit to Tenant for
its review and approval. Within three (3) days after Tenant's receipt of the
preliminary budget, Tenant shall either approve or disapprove the preliminary
budget. If Tenant rejects such preliminary budget, Tenant may in its sole
discretion elect to require Architect to revise the Preliminary Plans to reduce
the cost of the Tenant Improvements. It Tenant makes such election, then Tenant
shall again follow the procedures set forth in Paragraph 2.2.1 and this
Paragraph 2.2.2 with respect to the approval of the Preliminary Plans and to the
submission and approval of the preliminary budget from Contractor. If Tenant
does not approve the preliminary budget for the Tenant Improvements within
thirty (30) days after Contractor's submittal of the initial preliminary budget,
then Landlord may in its sole discretion terminate the Lease upon written notice
to Tenant.
2.2.3. Final Plans. Within twelve (12) days after approval by
Tenant of the preliminary budget for the Tenant Improvements, Tenant shall cause
Architect to commence preparing complete plans, specifications and working
drawings which incorporate and are consistent with the approved Preliminary
Plans and preliminary budget, and which show in detail the intended design,
construction and finishing of all portions of the Tenant Improvements described
in the Preliminary Plans (collectively, the "Final Plans"). Tenant shall cause
Architect to deliver the Final Plans to Landlord, for Landlord's review and
approval. Within five (5) days after Landlord's receipt of the Final Plans,
Landlord shall either approve or disapprove the Final Plans. If Landlord
disapproves the Final Plans, then Landlord shall state in reasonable detail the
changes which Landlord requires to be made thereto. Tenant shall submit to
Landlord revised Final Plans within five (5) days after Tenant's receipt of
Landlord's disapproval notice. Following Landlord's receipt of the revised Final
Plans from Tenant, Landlord shall have the right to review and approve the
revised Final Plans pursuant to this Paragraph 2.2.3. Landlord shall give Tenant
written notice of its approval or disapproval of the revised Final Plans within
five (5) days after the date of Landlord's receipt thereof. If Landlord
disapproves the revised Final Plans, then Landlord and Tenant shall continue to
follow the procedures set forth in this Paragraph 2.2.3 until either (x)
Landlord and Tenant approve such Final Plans in accordance with this Paragraph
2.2.3, or (y) the date that is thirty (30) days after submittal of the initial
Final Plans, whichever shall first occur. If Landlord and Tenant do not mutually
agree upon the Final Plans on or before such date, then Landlord may in its sole
discretion terminate this Lease upon written notice to Tenant. If Landlord
neither approves nor disapproves the Final Plans within the applicable time
periods provided above, Landlord shall be deemed to have disapproved the Final
Plans as submitted.
3. Construction Budget. Upon approval by Landlord and Tenant of the
Final Plans, Landlord shall instruct Contractor to obtain competitive bids for
the Tenant Improvements from at least three (3) qualified subcontractors for
each of the major subtrades (excluding the mechanical, electrical and fire
sprinkler trades, which shall be on a design/build basis) and to submit the same
to Tenant for its review and approval. Upon selection of the subcontractors and
approval of the bids, Contractor shall prepare a cost estimate for the Tenant
Improvements described in such Final Plans, based upon the bids submitted by the
subcontractors selected. Contractor shall submit such cost estimate to Tenant
for its review and approval, and to Landlord for its information. Tenant may
approve or reject such cost estimate in its reasonable-sole
3
<PAGE> 53
discretion. If Tenant rejects such cost estimate, Landlord may in its sole
discretion elect by written notice to Tenant within five (5) days of Landlord's
receipt of Tenant's written rejection notice, to either (i) resolicit bids based
on such Final Plans, in accordance with the procedures specified above, or (ii)
terminate the Lease upon written notice to Tenant. Following any resolicitation
of bids by Landlord pursuant to this Paragraph 3, Landlord and Tenant shall
again follow the procedures set forth in this Paragraph 3 with respect to the
submission and approval of the cost estimate from Contractor.
4. Landlord to Construct. Landlord shall cause Contractor to construct
the Tenant Improvements in a good and workmanlike manner, in accordance with the
approved Final Plans and in compliance with all applicable laws. Architect shall
be responsible for obtaining all necessary building permits and approvals and
other authorizations from governmental agencies required in connection with the
Tenant Improvements. The cost of all such permits and approvals, including
inspection and other building fees required to obtain the permits for the Tenant
Improvements, shall be included as part of the Tenant Improvement Costs. Tenant
shall have the benefit of any warranties provided by Contractor, the
subcontractors and suppliers in connection with the Tenant Improvements.
5. Payment for Tenant Improvements. The Tenant Improvement Costs shall
be paid as follows:
5.1. Tenant Improvement Allowance. Landlord shall provide funds,
to be used for the payment of Tenant Improvement Costs, in an amount not to
exceed Sixteen and 00/100 Dollars per square foot of Rentable Area (the "Tenant
Improvement Allowance"). Tenant shall pay all of the Tenant Improvement Costs in
excess of the Tenant Improvement Allowance (the "Excess Costs") in accordance
with Paragraph 5.2.
5.2. Set-Aside Funds. Within five (5) days after Tenant has
approved the cost estimate for the Tenant Improvements pursuant to Paragraph 3
above, Tenant shall deposit into a separate account with any financial
institution designated by Landlord, subject to restrictions in favor of such
financial institution, an amount (the "Set-Aside Funds") equal to the Excess
Costs, based on the assumption that the Tenant Improvement Costs shall equal
such cost estimate. Landlord shall instruct such financial institution to hold
the Set-Aside Funds in a separate interest-bearing account with interest to
accrue for Tenant's account, and shall utilize the Set-Aside Funds to pay for
the Tenant Improvement Costs in the manner set forth in this Paragraph 5.
5.3. Payment. As and when any Excess Costs become due and
payable, Landlord shall request such financial institution to utilize the
remaining Set-Aside Funds to pay such amounts; provided, however, that if at any
time there are insufficient Set-Aside Funds to pay any amount of the Excess
Costs, Tenant shall pay any and all such Excess Costs to Landlord within ten
(10) days after the date of Tenant's receipt of Landlord's written request
therefor. Any failure by Tenant to pay any Excess Costs as and when required
under this Agreement shall constitute a default by Tenant under the Lease.
4
<PAGE> 54
5.4 Penalties. To the extent that any contractor or subcontractor
working on the Tenant Improvements imposes upon Landlord any penalty or late
charge due to Tenant's failure to pay to Landlord any amount due under this
Paragraph 5 as and when such amount is due, Tenant shall be solely responsible
for paying such penalty or late charge; provided, however, that if Tenant
disputes the imposition of such penalty or late charge, Tenant shall not be
required to pay the penalty or late charge until the dispute has been settled or
otherwise resolved; provided further, that if any penalty or late charge is
imposed due to Tenant's exercise of its rights under this Paragraph 5.4, Tenant
shall pay such penalty or late charge as provided in this Paragraph 5.4.
6. Tenant Improvement Costs. The Tenant Improvement Costs shall include
all reasonable costs incurred in connection with the Tenant Improvements, as
determined by Landlord in its reasonable discretion, including the following:
(a) All costs of space plans and other architectural and
engineering plans and specifications for the Tenant Improvements, including
engineering costs associated with completion of the State of California energy
utilization calculations under Title 24 legislation required in connection with
the Tenant Improvements;
(b) All costs of obtaining building permits and other necessary
authorizations from the City of Redwood City;
(c) All costs of interior design and finish schedule plans and
specifications, including as-built drawings by Architect;
(d) All direct and indirect costs of procuring, constructing and
installing the Tenant Improvements in the Premises, including, but not limited
to, the construction fee payable to the Contractor for overhead and profit, and
the cost of all on-site supervisory and administrative staff, office, equipment
and temporary services rendered by Contractor in connection with construction of
the Tenant Improvements;
(e) All fees payable to Architect and Landlord's engineering firm
if they are required by Tenant to redesign any portion of the Tenant
Improvements following Tenant's approval of the Final Plans;
(f) Sewer connection fees (if any); and
(g) A construction management fee payable to Landlord equal to
three percent (3%) of the total Tenant Improvement Costs.
In no event shall the Tenant Improvement Costs include any costs
of procuring, constructing or installing in the Premises any of Tenant's
Personal Property, trade fixtures, equipment, inventory, computer network,
communications system, promotional materials, signage or related expenses.
7. Change Requests. No revisions to the approved Final Plans shall be
made by either Landlord or Tenant unless approved in writing by both parties.
Landlord agrees to make
5
<PAGE> 55
all changes (i) required by any public agency to conform with governmental
regulations, or (ii) requested in writing by Tenant and approved in writing by
Landlord, which approval shall not be unreasonably withheld. Any costs related
to such changes shall be added to the Tenant Improvement Costs and shall be paid
as Excess Costs in accordance with Paragraph 5.2. The billing for such
additional costs shall be accompanied by evidence of the amounts billed as is
customarily used in the business. Costs related to changes shall include,
without limitation, any architectural, structural engineering, or design fees,
and the Contractor's price for effecting the change.
TENANT:
EXCITE, INC.,
a California corporation
By: /S/ Robert C. Hood
-------------------------------------
Its: EVP - CFO
-------------------------------------
By:
-------------------------------------
Its:
-------------------------------------
Dated: 5/14/98
-----------------------------------
LANDLORD:
MARTIN/CAMPUS ASSOCIATES NO. 7, L.P.,
a Delaware limited partnership
By: Martin/Redwood Partners, L.P.,
a California limited partnership
Its General Partner
By: TMG Redwood LLC,
a California limited liability
company
Its General Partner
6
<PAGE> 56
By: The Martin Group of Companies,
Inc.
a California corporation
Its General Partner
By: /s/ Kathy Greenwold
-----------------------------
Its: Vice President
----------------------------
Dated: 5/19/98
--------------------------
<PAGE> 57
EXHIBIT C-1
<PAGE> 58
EXHIBIT D
COMMENCEMENT DATE MEMORANDUM
LANDLORD: Martin/Campus Associates No. 7, L.P.
TENANT: Excite, Inc.
LEASE DATE: May 1 1998
PREMISES: 475 Broadway, Redwood City, California
Pursuant to Paragraph 4.A. of the above referenced Lease, Landlord and Tenant
acknowledge and agree that the Commencement Date for the Premises at 475
Broadway, Redwood City, California, shall be October 1, 1998.
TENANT:
EXCITE, INC.,
a California corporation
By:
-------------------------------------
Its:
-------------------------------------
By:
-------------------------------------
Its:
-------------------------------------
Dated:
-----------------------------------
LANDLORD:
MARTIN/CAMPUS ASSOCIATES NO. 7, L.P.,
a Delaware limited partnership
By: Martin/Redwood Partners, L.P.,
a California limited partnership
Its General Partner
By: TMG Redwood LLC,
a California limited liability
company
Its General Partner
By: The Martin Group of
Companies, Inc.
a California corporation
Its General Partner
By:
-------------------------
Its:
------------------------
Dated:
----------------------
<PAGE> 59
EXHIBIT E
TERMINATION DATE MEMORANDUM
LANDLORD: Martin/Campus Associates No. 7, L.P.
TENANT: Excite, Inc.
LEASE DATE: May 1 1998
PREMISES: 475 Broadway, Redwood City, California
Pursuant to Paragraph 4.A. of the above referenced Lease, Landlord and Tenant
acknowledge and agree that the Term of the above referenced Lease for the
Premises at 475 Broadway, Redwood City, shall be scheduled to terminate on
September 30, 2008.
TENANT:
EXCITE, INC.,
a California corporation
By:
-------------------------------------
Its:
-------------------------------------
By:
-------------------------------------
Its:
-------------------------------------
Dated:
-----------------------------------
LANDLORD:
MARTIN/CAMPUS ASSOCIATES NO. 7, L.P.,
a Delaware limited partnership
By: Martin/Redwood Partners, L.P.,
a California limited partnership
Its General Partner
By: TMG Redwood LLC,
a California limited liability
company
Its General Partner
By: The Martin Group of
Companies, Inc.
a California corporation
Its General Partner
By:
-------------------------
Its:
------------------------
Dated:
----------------------
<PAGE> 60
EXHIBIT F
RECORDING REQUESTED BY AND
WHEN RECORDED RETURN TO:
__________________________
__________________________
__________________________
__________________________
SUBORDINATION, NONDISTURBANCE AND
ATTORNMENT AGREEMENT
THIS AGREEMENT made this ____ day of _____________, 199__ between
______________________ (hereinafter called "Lender"), __________________________
hereinafter called "Tenant") and _____________________________ (hereinafter
called "Landlord").
WITNESSETH THAT:
WHEREAS, Lender is the owner and holder of a Deed of Trust and Security
Agreement (hereinafter called the "Deed of Trust") dated ______________, 199__,
covering the read property described in Exhibit A and the buildings and
improvements thereon (hereinafter collectively called the "Mortgaged Premises")
accruing the payment of a promissory note in the stated principal amount of
$____________, payable to the order of Lender;
WHEREAS, Tenant is the tenant under a lease (hereinafter called the
"Lease") dated ____________, 199__, executed by and between Landlord and Tenant,
covering certain property (hereinafter called the "Demised Premises") consisting
of all or a party of the Mortgaged Premises; and
WHEREAS, Tenant and Lender desire to confirm their understanding with
respect to the Lease and the Deed of Trust;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, Lender and Tenant hereby agree and covenant as follows:
1. Subordination. The Lease now is, and shall at all times and for all
purposes continue to be, subject and subordinate, in each and every respect, to
the Deed of Trust, with the provisions of the Deed of Trust controlling in all
respects over the provisions of the Lease, it being understood and agreed that
the foregoing subordination shall apply to any and all increases, renewals,
modifications extensions, substitutions, replacements and/or consolidations of
the Deed of Trust, provided that nay and all such increases, renewals,
modifications, extensions, subtitutions, replacements and/or consolidations
shall nevertheless be subject to the terms of this Agreement.
<PAGE> 61
2. Non-Disturbance. So long as (i) Tenant is not in default (beyond any
period given Tenant to cure such default) in the payment of rent or additional
rent or in the performance of any of the other terms, covenants or conditions of
the Lease on Tenant's part to be performed, (ii) the Lease is in full force and
effect according to its original terms, or with such amendments or modifications
as Lender shall have approved, and (iii) Tenant attorns to Lender or a purchaser
of the Mortgaged Premises as provided in Paragraph 3, then (a) Tenant's
possession, occupancy, use and quiet enjoyment of the Demised Premises under the
Lease, or any extensions or renewals thereof or acquisition of additional space
which may be effected in accordance with any option therefor in the Lease, shall
not be terminated, disturbed, diminished or interfered with by Lender in the
exercise of any of is rights under the Deed of Trust, and (b) Lender will not
join Tenant as a party defendant in any action or proceeding for the purpose of
terminating Tenant's interest and estate under the Lease because of any default
under the Deed of Trust.
3. Attornment. If Lender shall become the owner of the Mortgaged
Premises or the Mortgaged Premises shall be sold by reason of nonjudicial or
judicial foreclosure or other proceedings brought to enforce the Deed of Trust
or the Mortgaged Premises shall be conveyed by deed-in-lieu of foreclosure, the
Lease shall continue in full force and effect as a direct Lease between Lender
or other purchaser of the Mortgaged Premises, who shall succeed to the rights
and duties of Landlord, and Tenant, and Tenant shall attorn to Lender or such
purchaser, as the case may be, upon any such occurrence and shall recognize
Lender or such purchaser, as the case may be, as the Landlord under the Lease.
Such attornment shall be effective and self-operative without the execution of
any further instrument on the part of any of the parties hereto. Tenant agrees,
however, to execute and delivery at any time and from time to time, upon request
of Landlord or of any holder(s) of any of the indebtedness or other obligations
secured by Deed of Trust or any such purchaser, any instrument or certificate
which, in the sole reasonable judgment of the requesting party, is necessary or
appropriate, in connection with any such foreclosure or deed-in-lieu of
foreclosure or otherwise, to evidence such attornment. Tenant hereby waives the
provisions of any statute or rule of law, now or hereafter in effect, which may
give or purport to give Tenant any right or election to terminate or otherwise
adversely affect the Lease and the obligations of Tenant thereunder as a result
of any such foreclosure or deed-in-lieu of foreclosure.
4. Obligations and Remedies. If Lender shall become the owner of the
Mortgaged Premises or the Mortgaged Premises shall be sold by reason of
nonjudicial or judicial foreclosure or other proceedings brought to enforce the
Deed of Trust or the Mortgaged Premises shall be conveyed by deed-in-lieu of
foreclosures, Lender or other purchaser of the Mortgaged Premises, as the case
may be, shall have the same remedies by entry, action or otherwise in the event
of any default by Tenant (beyond the period given Tenant to cure such default)
in the payment of rent or additional rent or in the performance of any of the
other terms, covenants and conditions of the Lease on Tenant's part to be
performed that Landlord had or would have had if Lender or such purchaser had
not succeeded to the interest of Landlord. Upon attornment by Tenant as provided
herein, Lender or such purchaser shall be bound to Tenant under all the terms,
covenants and conditions of the Lease and Tenant shall have the same remedies
against Lender or such purchaser for the breach of an agreement contained in the
Lease that Tenant might have had
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under the Lease against Landlord if Lender or such purchaser had not succeeded
to the interest of landlord; provided, however, that Lender or such purchaser
shall not be liable or bound to Tenant:
(a) for any act or omission of any prior landlord (including
Landlord); or
(b) for any offsets or defenses which Tenant might have against
any prior landlord (including Landlord); or
(c) for or by any rent or additional rent which Tenant might
have paid for more than the current month to any prior landlord
(including Landlord); or
(d) by any amendment, modification or consensual termination of
the Lease made without Lender's consent; or
(e) for any security deposit, rental deposit or similar deposit
given by Tenant to a prior landlord (including Landlord) unless such
deposit is actually paid over to Lender or such purchaser by the prior
landlord; or
(f) for any repairs or replacements to or required by the
Demised Premises or the Mortgaged Premises arising prior to the date
Lender or such purchaser taken possession of the Mortgaged Premises; or
(g) for any moving, relocation or refurbishment allowance or any
construction of or payment or allowance for tenant improvements to the
Demised Premises or any part thereof or to the Mortgaged Premises or any
part thereof for the benefit of Tenant; or
(h) for the payment of any leasing commissions or other expenses
for which any prior landlord (including Landlord) incurred the
obligation to pay; or
(i) by any notice given by Tenant to a prior landlord (including
Landlord) unless a copy thereof was also then given to Lender.
The person or entity to which Tenant attorns shall be liable to Tenant
under the Lease only for matters arising during such person's or entity's period
of ownership, and such liability shall terminate upon the transfer by such
person or entity of its interest in the Lease and the Mortgaged Premises.
5. No Abridgment. Nothing herein contained is intended, nor shall it be
construed, to abridge or adversely affect any right or remedy of Landlord under
the Lease in the event of any default by Tenant (beyond any period given Tenant
to cure such default) in the payment of rent or additional rent or in the
performance of any of the other terms, covenants or conditions of the Lease on
Tenant's part to be performed.
6. Notices of Default to Lender. Tenant agrees to give Lender a copy of
any default notice sent by Tenant to Landlord under the Lease.
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7. Representations by Tenant. Tenant represents and warrants to Lender
that Tenant has validly executed the Lease; the Lease is valid, binding and
enforceable and is in full force and effect in accordance with its terms; the
Lease has not been amended except as stated herein; no rent under the Lease has
been paid more than thirty (30) days in advance of its due date; there are not
defaults existing under the Lease; and Tenant, as of this date, has not charge,
lien, counterclaim or claim of offset under the Lease, or otherwise, against the
rents or other charges due or to become due under the Lease.
8. Rent Payment. If Lender shall become the owner of the Mortgaged
Premises or the Mortgaged Premises shall be sold by reason of nonjudicial or
judicial foreclosure or other proceedings brought to enforce the Deed of Trust
or the Mortgaged Premises shall be conveyed by deed-in-lieu of foreclosure,
Tenant agrees to pay all rents directly to Lender or other purchaser of the
Mortgaged Premises, as the case may be, in accordance with the Lease immediately
upon notice of Lender or such purchaser, as the case may be, succeeding to
Landlord's interest under the Lease. Tenant further agrees to pay all rents
directly to Lender immediately upon notice that Lender exercising its rights to
such rents under the Deed of Trust or any other loan documents (including but
not limited to any Assignment of Leases and Rents) following a default by
Landlord or other applicable party.
9. Notice of Deed of Trust. To the extent that the Lease shall entitle
Tenant to notice of any deed of trust or security agreement, this Agreement
shall constitute such notice to the Tenant with respect to the Deed of Trust and
to any and all other deeds of trust and security agreements which may hereafter
be subject to the terms of this Agreement.
10. Landlord Defaults. Tenant agrees with Lender that effective as of
the date of this Agreement: (i) Tenant shall not take any steps to terminate the
Lease for any default by Landlord or any succeeding owner of the Mortgaged
Premises until after giving Lender written notice of such default, stating the
nature of the default and giving Lender thirty (30) days from receipt of such
notice to effect cure for the same, or if cure cannot be effected within said
thirty (30) days due to the nature of the default, Lender shall have a
reasonable time to cure provided that it commences cure within said thirty (30)
day period of time and diligently carries such cure to completion; and (ii)
notice to Landlord under the Lease (oral or written) shall not constitute notice
to Lender.
11. No Amendment, Termination, Assignment or Subletting of Lease. Tenant
agrees that Tenant's interest in and obligations under the Lease shall not be
altered, modified or terminated without the prior written consent of Lender.
Tenant further agrees that Tenant shall not assign the Lease or allow it to be
assigned in any manner or sublet the Demised Premises or any part thereof
without the prior written consent of Lender in any situation where Landlord's
consent to any such action is required under the Lease.
12. Liability of Lender. If Lender shall become the owner of the
Mortgaged Premises or the Mortgaged Premises shall be sold by reason of
foreclosure or other proceedings brought to enforce the Mortgage or the
Mortgaged Premises shall be conveyed by deed-in-lieu of foreclosure, Tenant
agrees that, notwithstanding anything to the contrary contained in the Lease,
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<PAGE> 64
after such foreclosure sale or conveyance by deed-in-lieu of foreclosure, Lender
shall have no personal liability to tenant under the Lease and Tenant shall look
solely to the estate and property of Landlord in the Mortgaged Premises, to the
net proceeds of sale thereof or the rentals received therefrom, for the
satisfaction of Tenant's remedies for the collection of a judgment or other
judicial process requiring the payment of money by Landlord in the event of any
default or breach by Landlord with respect to any of the terms, covenants, and
conditions of the Lease to be observed or performed by Landlord and any other
obligation of Landlord created by or under this Lease, and no other property or
assets of Landlord or of its partners, officers, beneficiaries, co-tenants,
shareholders, or principals (as the case may be) shall be subject to levy,
execution or other enforcement procedures for the satisfaction of Tenant's
remedies. The term "Landlord" as used herein shall be limited to mean and
include only the owner or owners at the time in question of Landlord's interest
in the Lease, which term shall include Lender in the event Lender acquires title
to the Mortgaged Premises. Further, in the event of any transfer by Landlord or
Landlord's interest in this Lease, Landlord (and in the case of any subsequent
transfers or conveyances, the then assignor), including each of its partners,
officers, beneficiaries, co-tenants, shareholders or principals (as the case may
be) shall be automatically freed and released, from and after the date of such
transfer or conveyance, of all liability for the performance of any covenants
and agreements which accrue subsequent to the date of such transfer of
Landlord's interest.
13. Notice. Any notice or communication required or permitted hereunder
shall be given in writing, sent by (a) personal delivery, or (b) expedited
delivery service with proof of delivery, or (c) United States mail, postage
prepaid, registered or certified mail, or (d) telegram, telex or telecopy,
addressed as follows:
To Lender: _________________________________
_________________________________
_________________________________
Attention:_______________________
To Tenant: _________________________________
_________________________________
_________________________________
Attention:_______________________
or such other address or to the attention of such other person as hereafter
shall be designated in writing by the applicable party sent in accordance
herewith. Any such notice or communication shall be deemed to have been given
and received either at the time of personal delivery or, in the case of delivery
service or mail, as of the date of first attempted delivery at the address and
in the manner provided herein, or in the case of telegraph, telex or telecopy,
upon receipt.
14. Modification. This Agreement may not be modified orally or in any
manner than by an agreement in writing signed by the parties hereto or in their
respective successors in interest.
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15. Successor Lender. The term "Lender" as used throughout this
Agreement includes any successor or assign of Lender and any holder(s) of any
interest in the indebtedness secured by the Deed of Trust.
16. Successors and Assigns. This Agreement shall inure to the benefit of
and be binding upon the parties hereto, their successors and assigns, and any
purchaser or purchasers at foreclosure of the Mortgaged Premises, and their
respective heirs, personal representatives, successors and assigns.
17. Paragraph Headings. The paragraph headings contained in this
Agreement are for convenience only and shall in no way enlarge or limit the
scope or meaning of the various and several paragraphs hereof.
18. Gender and Number. Within this Agreement, words of any gender shall
be held and construed to include any other gender, and words in the singular
number shall be held and construed to include the plural and words in the plural
number shall be held and construed to include the singular, unless the context
otherwise requires.
19. Applicable Law. This Agreement and the rights and duties of the
parties hereunder shall be governed for all purposes by the laws of the State of
California and the laws of the United States applicable to transactions within
such state.
20. Counterparts. This Agreement may be executed in multiple
counterparts, and by the different parties hereto in separate counterparts, each
of which when so executed and delivered shall be deemed to be one and the same
instrument with the same signature as if all parties to this Agreement had
signed the same signature page.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties hereto have hereunto caused this
Agreement to be duly executed as of the day and year first above written.
LENDER:
_________________________________________
By: _____________________________________
Name:________________________________
Its:_________________________________
TENANT:
By: _____________________________________
Name:________________________________
Its:_________________________________
LANDLORD:
By: _____________________________________
Name:________________________________
Its:_________________________________
[Add Acknowledgments]
<PAGE> 1
EXHIBIT 10.31
JOINT ACTIVITIES AGREEMENT
THIS JOINT ACTIVITIES AGREEMENT ("Agreement") is entered into as of
June 25, 1997 (the "EFFECTIVE DATE") between Intuit Inc., a Delaware corporation
("INTUIT"), and Excite, Inc., a California corporation ("EXCITE").
RECITALS
A. Intuit and Excite are parties to that certain Letter Agreement dated
as of June 11, 1997, relating to the provision of financial content on Excite's
general purpose Internet search and navigation service and the provision of
financial content for all of Excite's properties and ventures (the "LETTER
AGREEMENT").
B. As contemplated by the Letter Agreement, this Agreement contains the
definitive agreement of the parties relating to the subject matter of the Letter
Agreement and shall supersede the Letter Agreement in its entirety as of the
Effective Date.
AGREEMENT
1. DEFINITIONS. Capitalized terms used and not otherwise defined in
this Agreement shall have the following meanings, respectively:
1.1 "ADVERTISING MARGIN" means Advertising Revenue, less the
sum of:
(a) advertising selling costs,
(b) Hosting, Services costs,
(c) payments made to third parties made or
approved by Intuit for the generation of
traffic to the Financial Channel to the
extent such payments are offset by revenues
resulting from such traffic, and
(d) Bad Debt.
1.2 "ADVERTISING REVENUE" means the sum of the
aggregate amounts billed for the license or sale of any Advertising Rights, less
the sum of:
(a) amounts allocable to any credits granted for
unused Advertising Rights,
(b) agency, camera-ready art and other discounts
actually provided,
(c) refunds, rebates, make goods and similar
credits, and
(d) applicable taxes
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1.3 "ADVERTISING RIGHTS" means any advertising, sponsorship,
linking and similar promotional rights sold or licensed in connection with the
Financial Channel.
1.4 "AFFILIATE" of any party means any entity that controls,
is controlled by or is under common control with such party. For purposes of
this definition, "control" shall mean the possession, directly or indirectly, of
a majority of the voting power of such entity (whether through ownership of
securities or partnership or other ownership interests, by contract or
otherwise).
1.5 "BAD DEBT" means actual bad debt experienced subject to an
initial reserve based on a reasonable estimate not to exceed five percent (5%).
1.6 "CONFIDENTIAL INFORMATION" means any information of a
party disclosed to the other party in the course of this Agreement, which is
identified as, or should be reasonably understood to be, confidential to the
disclosing party, including, but not limited to, know-how, trade secrets, Data,
technical processes and formulas, source codes, product designs, sales, cost and
other unpublished financial information, product and business plans,
projections, marketing data and this Agreement and all exhibits hereto.
"Confidential Information" shall not include information which: (i) is known or
becomes known to the recipient directly or indirectly from a third-party source
other than one having an obligation of confidentiality to the providing party;
(ii) is or becomes publicly available or otherwise ceases to be secret or
confidential, except through a breach of this Agreement by the recipient; or
(iii) is or was independently developed by the recipient without use of or
reference to the providing party's Confidential Information, as shown by
evidence in the recipient's possession.
1.7 "DATA" shall have the meaning set forth in Section 7.2
hereof.
1.8 "DERIVATIVE WORK" means all "derivative works" and
"compilations," within the meaning of such terms as defined in the U.S.
Copyright Act (I 7 U.S.C. Section 101 et seq.).
1.9 "DIRECT COST" means the incremental expenses (i.e., the
expenses that would not be incurred but for the relevant activity) incurred by
either party directly associated with an activity. In the case of personnel
utilized for an activity, this will include salary, benefits, payroll taxes,
bonuses, and a proportionate allocation of rent and utilities. All personnel
fully dedicated to an activity will be automatically included in that activity's
Direct Costs, and partially-dedicated personnel will be included on a pro-rata
basis upon mutual agreement of the parties. In the case of equipment and
services utilized for an activity, this will include the cost of additional
hardware, physical space or services required by the activity, unless such costs
are included in COPS charges (as defined in Section 5.1.6 below) paid by Intuit
for Hosting Services. "Direct Costs" will also include all documented direct
expenses made or approved by Intuit to third parties incurred to support the
activity, including, without limitation, traffic-generation fees and
percentages, co-promotion and co-branding fees and percentages, royalties,
promotion and marketing costs, legal and regulatory costs, content generation
and acquisition costs and development costs. "Direct Costs" will not include
allocations of corporate overhead, direct or indirect, nor costs incurred by
either party to
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<PAGE> 3
develop or obtain hardware, software or services otherwise primarily utilized
for that party's own independent activities; provided, however, that each party
will include a ten percent (10%) markup to its calculation of Direct Costs to
cover administrative overhead.
1.10 "EXCITE BRAND FEATURES" means Excite's trademarks, trade
names, service marks, service names and distinct brand elements that appear in
the Excite Properties from time to time and are protected under U.S. copyright
law or as to which Excite has established trademarks or trade dress rights and
any modifications to the foregoing that may be created during the Term.
1.11 "EXCITE BRAND GUIDELINES" means the guidelines for use of
the Excite Brand Features, which are attached to this Agreement as Exhibit A, as
amended by Excite from time to time during the Term.
1.12 "EXCITE PROPERTIES" means all properties, ventures and
services worldwide marketed under the Excite Brand Features, including, without
limitation, those services currently known as "Excite," "WebCrawler," and
"Magellan," and Excite's component of the "AOL NetFind by Excite" Services, and
all properties, ventures, and services in which Excite owns a fifty percent
(50%) or greater interest during the Term.
1.13 "FINANCIAL CHANNEL" means the Financial Content
(excluding tax and small business content that is not located on the Jointly
Branded Pages or the Multi-Category Personalized Pages, Intuit Desktop Products
and all other Intuit software products that are primarily for desktop use, and
online activities associated directly with the Intuit Desktop Products and such
other Intuit desktop software products) displayed within (a) the Excite
Properties (including, without limitation, the Financial Portion of
Multi-Category Personalized Pages), (b) the Jointly Branded Pages or (c) WWW
sites owned, operated and managed by Intuit or for Intuit by third parties and
Linked to the Excite Properties during the Term. The Financial Channel does not
include Financial Content developed by or for Intuit or any third party and
included within (a) any WWW sites owned, operated or managed by or on behalf of
a third party or (b) any co-branded WWW Pages in which Intuit has an interest
(other than the Jointly Branded Pages) whether or not such co-branded pages
reside on Intuit's servers under Intuit's URL.
1.14 "FINANCIAL CONTENT" means content, channels and services
relating to personal finance, small businesses, tax, general business news and
similar topics, and includes, without limitation:
- stock and mutual fund quotes, rates and portfolio
management;
- online banking;
- online financial services;
- billpay;
- online bill presentment;
- non-bank branded bill payment;
- tax filing and information;
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- small business lending;
- payroll information or services;
- retirement planning;
- checkbook management (personal finance and small
business accounting);
- investments;
- account data (such as investment portfolios, bank
accounts, credit card accounts, loan accounts,
insurance accounts and frequent flyer accounts);
- credit cards and smart cards;
- electronic wallets;
- financial planning;
- personal finance, small business and tax news,
research and information, (including listings,
databases, rates, quotes and charts);
- financial education;
- financial chat, forums and bulletin boards;
- decision making and comparison tools (such as
programs, applets and calculators);
- financial marketspaces including insurance, mortgage,
equity trading and small business lending;
- financial advice from experts; and
- reviews and listings of financial WWW sites and
services.
1.15 "FINANCIAL CONTENT SERVICE" means the Internet-based
consumer financial information and functionality services (exclusive of any
personal tax content or functionality) provided as of the date of this Agreement
by Yahoo!, Infoseek, Lycos, Quote.com, DBC, Stockmaster and Microsoft. For
purposes of this definition, the parties may amend this list of providers
consisting of Intuit's competitors once during each year of the Term, upon
mutual written agreement.
1.16 "FINANCIAL PORTION" means, with respect to a given
Multi-Category Personalized Page, the area on that page devoted to Financial
Content divided by the total area of the page devoted to Financial Content and
all other content (excluding advertising, navigation elements and general
headings).
1.17 "GENERAL SEARCH SERVICE" means a general-purpose Internet
search and navigation service for content other than Financial Content provided
as of the date of this Agreement by Yahoo!, Infoseek, Lycos, Alta Vista, HotBot,
Search.com and Microsoft. For purposes of this definition, the parties may amend
this list of providers consisting of Excite's competitors once during each year
of the Term, upon mutual written agreement.
1.18 "HOSTING SERVICES" means the provision and management of
servers, telecommunications, facilities, maintenance and operations related to
the delivery of internet based services and content.
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1.19 "INNOVATIONS" means all copyrightable works, products,
discoveries, developments, designs, innovations, improvements, inventions,
formulas, processes, techniques, know-how, compilations, content and data
(whether or not patentable, and whether or not at a commercial stage, or
protectable or registrable under copyright or similar statutes) authored,
compiled, fixed in a tangible medium of expression, made, conceived, or reduced
to practice.
1.20 "INTELLECTUAL PROPERTY RIGHTS" means all intellectual
property rights arising under statutory or common law, whether or not perfected,
including, without limitation, all (a) United States and foreign patents, patent
applications, and other patent rights. including, without limitation, divisions,
continuations, renewals, reissues, and extensions of any of the foregoing, (b)
rights associated with works of authorship including copyrights, copyright
applications, copyright registrations, and moral rights, (c) Confidential
Information, (d) any right analogous to those set forth in this definition, and
(e) any other proprietary rights relating to intangible property (other than
trademarks, trade names, trade dress, and service marks which are not included
for purposes of this definition).
1.21 "INTUIT BRAND FEATURES" means Intuit's trademarks, trade
names, service marks, service names and distinct brand elements that appear in
the Financial Channel from time to time and are protected under U.S. copyright
law or as to which Intuit has established trademarks or trade dress rights and
any modifications to the foregoing that may be created during the Term.
1.22 "INTUIT BRAND GUIDELINES" means the guidelines for use of
the Intuit Brand Features, which are attached to this Agreement as Exhibit B, as
amended by Intuit from time to time during the Term.
1.23 "INTUIT DESKTOP PRODUCTS" means the United States version
of Intuit's major desktop software products currently known as "Quicken,"
"QuickBooks," and "TurboTax Personal 1040" and any equivalent or successor
products marketed, distributed or sold, directly or indirectly, by Intuit during
the Term.
1.24 "JOINTLY-BRANDED PAGES" means WWW Pages which carry both
Intuit Brand Features and Excite Brand Features.
1.25 "LICENSED SOFTWARE" means any software, in both source
code and object code formats, and any associated reference, user and other
documentation developed by Excite (either alone or jointly with Intuit or
others) or owned by Excite, which Intuit utilizes or is dependent upon to
create, administer, operate, track or deliver Financial Content, advertising and
transactions and which Intuit elects to license under Section 5.1.4 of this
Agreement, and any updates, new releases, new versions, bug fixes, and other
modifications thereto created by Excite (either alone or jointly with Intuit or
others) to such licensed software.
1.26 "LINK" means a URL hidden behind a formatting option that
may take the form of a colored item of text (such as a URL description), logo or
image, and which allows
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a user to automatically move to or between WWW Pages, WWW sites or within a WWW
document.
1.27 "MULTI-CATEGORY PERSONALIZED PAGES" means WWW Pages
included within the enhanced, personalized Internet search and navigation
service marketed as of the date of this Agreement by Excite as "My Excite
Channel" and WWW Pages included within any service located in the Excite
Properties during the Term that provides substantially similar content and
functionality.
1.28 "SUBSCRIPTION REVENUE" means the sum of the aggregate
amounts billed on either a one-time or periodic basis for access to content,
services or information in the Financial Channel, less the sum of:
(a) refunds, rebates. make goods and similar
credits,
(b) agency and other discounts actually
provided, and
(c) applicable taxes.
1.29 "SUPPORT SERVICES" shall have the meaning set forth in
Section 5.1 hereof
1.30 "TERM" means the term of this Agreement as provided in
Section 11.
1.31 "TERRITORY" means the entire world.
1.32 "TRANSACTION MARGIN" means Transaction Revenues less the
sum of:
(a) all associated Direct Costs, and
(b) Bad Debt.
1.33 "TRANSACTION REVENUE" means all the sum of the aggregate
amounts billed on a per transaction basis for financial and commercial
transactions initiated and/or completed in the Financial Channel, less the sum
of:
(a) refunds, rebates, make goods and similar
credits,
(b) agency and other discounts actually
provided, and
(c) applicable taxes
1.34 "THIRD PARTY SOFTWARE" shall have the meaning set forth
in Section 6.5 hereof.
1.35 "URL" means Universal Resource Locator, which provides a
unique Internet protocol address for accessing a WWW page.
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1.36 "WWW" means the World Wide Web, a system for accessing
and viewing text, graphics, sound and other media via the collection of computer
networks known as the Internet.
1.37 "WWW PAGE" means a page or view on WWW sites or which are
delivered to Internet users via e-mall, desktop "channels" or Internet "push"
technologies which display content in the form of text, graphics, data and/or
HTML code for the purpose of providing access to content, products and/or
services.
2. FINANCIAL CHANNEL
2.1 DEVELOPMENT OF FINANCIAL CHANNEL. During the Term, Intuit
will use commercially reasonable efforts, at Intuit's sole expense, to develop,
maintain and promote the Financial Channel so as to be the exclusive provider of
Financial Content on all Excite Properties; provided, that Intuit makes no
representation or warranty as to the actual level of traffic that will be
achieved in the Financial Channel. Notwithstanding Intuit's exclusive right set
forth in Section 2.2 below, Intuit will determine in its sole discretion the
breadth and scope of the content and functionality that it will provide with
respect to small business and tax.
2.2 EXCLUSIVE RIGHT TO PROVIDE FINANCIAL CONTENT. During the
Term and subject to the mutual agreement of the parties as to any exceptions,
(a) Intuit shall have the exclusive right within the Territory to provide
Financial Content for all Excite Properties, and (b) no other Financial Content,
whether provided by Excite or by third parties, nor Links to any other such
Financial Content or Financial Content Service, will appear in any of the Excite
Properties.
2.3 TITLE; PRESENTATION OF BRAND FEATURES. The title of the
Financial Channel shall be jointly branded or as otherwise titled by mutual
agreement of the parties. The presentation of the Excite Brand Features and the
Intuit Brand Features in the Financial Channel shall adhere to the Excite Brand
Guidelines and the Intuit Brand Guidelines, respectively.
2.4 CONTROL OF FINANCIAL CHANNEL. Intuit will have complete
editorial authority as to content and programming presented in the Financial
Channel, provided that (i) Excite and Intuit shall cooperate to establish common
technology platforms and technical specifications, and (ii) Excite shall
establish reasonable standards and practices (including graphic design templates
and content guidelines) to be observed on all Jointly-Branded Pages. Intuit
shall have the right to sell, and establish the rates and other terms and
conditions for all transactions and activities generating revenue in the
portions of the Financial Channel located at Intuit URLs subject to the sale of
Advertising Rights as provided in Section 2.5 below.
2.5 SALE OF ADVERTISING RIGHTS. Each party shall have the
right to sell the Advertising Rights located on its URLs - unless such rights
are otherwise assigned by mutual agreement. Each party shall have the right to
establish the rates and other terms and conditions for the sale of its
Advertising Rights. Each party shall be responsible for billing and collection
(including the collection and/or payment of any taxes, if applicable) and the
risk of such
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collection for sales of Advertising Rights located on its URLS. Within fifteen
days of close of each month, Excite shall provide Intuit with a report setting
forth in reasonable detail the calculation of the amount of Advertising Revenue
sold for such month for the Jointly-Branded Pages located at the Excite URLs and
the Financial Portion of the Multi-Category Personalized Pages, and the Direct
Costs associated with such activity. During the Term, Excite shall use its best
efforts to permit Intuit to sell up to fifty percent (50%) of the ad inventory
for the Jointly Branded Pages on terms and conditions that are not inconsistent
with the terms and conditions under which such Advertising Rights are sold by
Excite.
2.6 REVENUE. During the Term, Intuit will be entitled to
receive all revenue, generated in the Financial Channel. Excite will recognize
all Advertising Revenues from the Excite Properties and from any Jointly Branded
Pages which are located at the Excite Network's URLS. Notwithstanding the
foregoing, Excite will pay Intuit all revenues (including Advertising Revenue,
Subscription Revenue and Transaction Revenue), generated by pages or views
containing only Financial Content. Excite will also pay Intuit the Financial
Portion of the Advertising Revenues, generated on Multi-Category Personalized
Pages. This revenue sharing by Excite will accrue at the end of each calendar
quarter and Excite will make payment to Intuit within 45 days after the end of
each calendar quarter.
3. PROMOTION AND BRANDING.
3.1 INTUIT PROMOTION. During the Term, Intuit will exclusively
promote Excite's general-purpose Internet search and navigation services by
including Links to the Excite's Properties in all Intuit Desktop Products
beginning with the first major update (as identified by a change in the number
to the left of the decimal in version designation) introduced in general
distribution following the Effective Date. During the Term, Intuit (a) will
display Excite Brand Features exclusively within such Intuit Desktop Products
wherever it refers to general-purpose Internet search and navigation services
and (b) will not promote any General Search Service within such Intuit Desktop
Products.
3.2 EXCITE PROMOTION. During the Term, Excite (a) will
exclusively promote Intuit's consumer financial information and functionality
services in all of the Excite Properties and (b) will not promote any Financial
Content Service in any of the Excite Properties. Excite shall display a Link to
the Financial Channel prominently above the fold (x) on the home page of each of
the Excite Properties and (y) on all WWW Pages included in the Excite Properties
which contain one or more Links to Excite Channels (other than a Link (i) within
a WWW Page that is generated in response to query submitted to the general
purpose Internet search and navigation service or (ii) to WWW Pages owned
operated and managed by or for the co-sponsor of a co-branded WWW Page (other
than the Jointly Branded Pages)). Except as mutually agreed by the parties, on
any WWW Page in the Excite Properties on which a Link to the Financial Channel
is displayed, such Link shall be equal in size and prominence as any other Link
displayed on such WWW Page.
3.3 LOCATION AND BRANDING. During the Term, the portions of
all Excite Properties that do not contain Financial Content and the
Multi-Category Personalized Pages
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will reside solely on Excite's servers and will carry Excite Brand Features and
Excite URLs. The initial interfaces (at a minimum, the first two (2) WWW Pages)
from the portions of all Excite Properties that do not contain Financial Content
to the Financial Channel will be Jointly Branded Pages, will reside solely on
Excite's servers and will carry both Excite Brand Features and Intuit Brand
Features, displayed in substantially equivalent location, size and prominence,
and Excite URLs. The parties will cooperate in good faith to develop and
maintain the content displayed on the Jointly Branded Pages. The remainder of
the Financial Channel will reside solely on Intuit's servers (except to the
extent that Intuit contracts with Excite or a third party to provide hosting
services) and carry Intuit Brand Features and Intuit URLs.
4. PAYMENTS.
4.1 MARGIN SHARING. During the first two (2) years of the
Term, Intuit will pay Excite an amount equal to (a) fifty percent (50%) of the
Advertising Margin from all of the parties' advertising-supported businesses
utilizing the Financial Channel and (b) fifty percent (50%) of the net positive
Transaction Margin if any, from all transaction-oriented businesses utilizing
Intuit's consumer financial content.
4.2 JOINT PROFITS. The sum of all revenues associated with the
Financial Channel minus the sum of (i) all Direct Costs associated with the
Financial Channel and (ii) Bad Debt will be deemed the Joint Profits. Direct
Costs associated with the provision of small business and/or tax content will be
allocated between the Financial Channel pages (Jointly Branded Paces and
Multi-Category Pages), and non-Financial Channel pages (to the extent that such
small business and/or tax content appears both in the Financial Channel and
non-Financial Channel pages) based on the number of page views or transactions,
as applicable, originating from such pages. Commencing at the second anniversary
of the Term and continuing during the remainder of the Term, Excite will receive
one-third (33 1/3%) of the Joint Profits.
4.3 PAYMENT AND REPORTING. The payment amounts described in
the Section 4.1 will be determined at the end of each applicable calendar
quarter, and Intuit will make payment within forty-five (45) days after the end
of such quarter. The payment amounts described in Section 4.2 will be determined
at the end of each applicable Intuit fiscal quarter, and Intuit will make
payment within forty-five (45) days after the end of such fiscal quarter. Intuit
shall provide to Excite, together with its payment (or, if no payment is due for
any applicable quarter, within forty-five (45) days after the end of such
quarter), a report in reasonable detail setting forth the calculation of the
amounts payable.
4.4 AUDIT RIGHTS.
4.4.1. Excite shall have the right, at its own
expense, to direct an independent certified public accounting firm to inspect
and audit of all the accounting and sales books and records of Intuit that are
relevant to amounts payable by Intuit hereunder; provided, that (a) any such
inspection and audit shall be conducted during regular business hours in such a
manner as not to interfere with normal business activities; (b) in no event
shall audits be made hereunder more frequently than once each calendar year; (c)
if any audit should disclose an
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underpayment, Intuit shall immediately pay such amount to Excite; and (d) the
reasonable fees and expenses relating to any audit which reveals an underpayment
in excess of ten percent (10%) of the amount owing for the reporting period in
question shall be borne entirely by Intuit.
4.4.2. Intuit shall have the right, at its own
expense, to direct an independent certified public accounting firm to inspect
and audit of all the accounting and sales books and records of Excite that are
relevant to Advertising Revenue arising out of or associated with Financial
Content displayed within the Excite Properties; provided that (a) any such
inspection and audit shall be conducted during regular business hours in such a
manner as not to interfere with normal business activities; (b) in no event
shall audits be made hereunder more frequently than once each calendar year; (c)
if any audit should disclose an underpayment, Excite shall immediately pay such
amount to Intuit; and (d) the reasonable fees and expenses relating to any audit
which reveals an underpayment in excess of ten percent (10%) of the amount owing
for the reporting period in question shall be borne entirely by Excite.
5. ADDITIONAL AGREEMENT OF THE PARTIES.
5.1 SUPPORT SERVICES. Subject to this Section 5.1, during the
Term, upon the reasonable written request of Intuit and subject to Intuit's
approval of any Direct Costs or COPS charges to be incurred for Hosting
Services, Excite will use commercially reasonable efforts to provide any or all
of the following services to Intuit (collectively, the "SUPPORT SERVICES"):
5.1.1 DEVELOPMENT OF FINANCIAL CONTENT. Excite will
assist Intuit in the development of Financial Content.
5.1.2 ADVERTISING SALES. Excite will provide
advertising sales services for Intuit. The anticipation of the parties is that
one (1) advertising sales representative will be hired or assigned in each of
Excite's four (4) sales offices to work exclusively on selling Advertising
Rights associated with the Financial Channel; these representatives will be
Excite employees and report on a dotted-line basis to Excite's sales management,
but will report directly to an Intuit-employed sales manager. Excite and Intuit
will cooperate in good faith to coordinate the sales commission structures of
their respective advertising sales personnel so as to maximize sales
opportunities for both parties' services. Each party shall have the right to
reasonably refuse any advertising sold by the other on the Jointly-Branded
Pages.
5.1.3 HOSTING AND SOFTWARE SERVICES. Excite will
provide Hosting Services and software services for Intuit, including the hosting
and operation of both Excite-developed and Intuit-developed systems stems and
software. Intuit will have the right to utilize Excite's software, systems,
Hosting Services and operations to deliver Financial Content that is either (a)
included in the Financial Channel and jointly branded, (b) included in the
Financial Channel and Intuit branded, or (c) not included in the Financial
Channel (such as tax or small business content, or content co-branded by other
third parties). Intuit will have the right to interface any Excite servers
hosting Financial Content with Intuit hosted systems for the sole purpose of
accessing data associated with the Financial Content. Such Intuit hosted systems
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shall include without limitation, accounts receivable, financial or customer
information systems.
5.1.4 STATEMENT OF WORK. In connection with any
request on the part of Intuit for the performance of Support Services by Excite,
Intuit shall prepare for Excite's approval, a statement of work (each, a
"STATEMENT OF WORK"), in form and substance reasonably acceptable to the
parties. Excite shall not withhold approval of any reasonable Statement of Work
submitted by Intuit. The Statement of Work shall reference this Agreement and
shall set forth each of the following in detail, if applicable to the Support
Services to be provided: a schedule of deliverables; a detailed specification
for the deliverables; a detailed description of the scope of Support Services to
be provided; a schedule for completion of the Support Services; performance,
monitoring and uptime standards for hosting services to be provided; performance
standards for systems to be operated; training, maintenance and support services
to be provided for systems and software; termination rights, procedure and cure
period; a good faith estimate of the Direct Costs, or if Hosting Services are
provided the COPS charges; arising out of or associated with the Support
Services to be provided for a minimum period of twelve (12) months (unless the
Support Services are to be completed in a shorter period); arrangements
regarding the ownership of Innovations developed in the course of provided the
Support Services; and any additional terms mutually agreed by the parties. Any
Statement of Work approved by the parties shall be executed and attached as an
exhibit to this Agreement and is incorporated herein by this reference.
5.1.5 PERFORMANCE OF SERVICES. All Support Services
will be provided by Excite using Excite employees, resources and consultants
(under written contract to Excite and bound by non-disclosure agreements
applicable to this Agreement), unless otherwise expressly agreed by the parties
in a Statement of Work or otherwise. All of the Support Services will be
performed in a diligent and workmanlike manner and in accordance with the
specifications, scope of work and schedule, if any, set forth in a Statement of
Work. All Excite employees and/or consultants performing Support Services shall
possess the requisite skill and experience to provide such Support Services. On
Intuit's reasonable request, Excite will replace any employee or consultant
assigned to provide Support Services.
5.1.6 CONSIDERATION FOR SUPPORT SERVICES. For
Support Services other than Hosting Services provided by Excite pursuant to this
Section 5, Intuit will pay Excite the Direct Costs incurred by Excite in
connection therewith. For Hosting Services, Intuit will pay Excite its then
current costs per page served ("COPS") for Hosting Services for comparable types
of pages, or other pricing mechanisms which may be mutually agreed from time to
time by the parties. COPS shall be calculated in a manner consistent with the
methodology used to calculate such costs in Excite's internal management reports
as of the date of this Agreement. Such Direct Costs and/or COPS charges shall be
invoiced by Excite each calendar quarter and such invoices shall be payable by
Intuit within forty-five (45) days following the date of the invoice. Each
invoice relating to Support Services shall be accompanied by a statement setting
forth in reasonable detail the calculation of the Direct Costs and/or COPS
charges covered by the invoice.
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5.2 RECRUITING. During the Term and for a period of one (1)
year thereafter, neither party nor any Affiliate thereof will, directly or
indirectly, solicit or hire employees (or prospective employees) of the other
party or any Affiliate thereof, or take any action reasonably anticipated to
result in hiring such employees (or prospective employees) without the prior
written consent of the other party.
5.3 PERFORMANCE REVIEW. During the Term the parties will meet
at least once each calendar quarter to review their financial and operational
performance under this Agreement. Such meetings shall be held at the executive
offices of Intuit or Excite in alternating quarters or at a neutral location,
subject to the mutual agreement of the parties, and shall be attended by the
operational, editorial and financial mangers directly responsible for the
collaboration that is the subject of this Agreement.
5.4. NEW MARKETS. Intuit will have the right, but not the
obligation, to provide Financial Content localized into languages other than
English or promote the Excite Properties in its software outside of the United
States. The parties recognize that Excite offers or may offer general-purpose
Internet search and navigation services in countries in which Intuit does not
offer localized Financial Content. Intuit will have a right of first refusal to
provide such localized Financial Content to Excite if it can do so without
delaying Excite's service launch. Excite will not enter into arrangements with
third parties that would prevent the Financial Content from being offered in
connection with non-U.S. Excite Properties when localized Financial Content
becomes available.
5.5 SMALL BUSINESS AND TAX OPPORTUNITIES. If, at any time
during the Term, Intuit shall investigate establishing a relationship with a
third party pursuant to which Intuit would (i) create a multi-year agreement to
share profits on all of Intuit's tax or small business related online activates
regardless of whether the customers generating those profits originate from such
third party or from other sources, or (ii) promote general-purpose Internet
search and navigation services in any Intuit small business or tax software
products other than the Intuit Desktop Products, then Intuit shall deliver to
Excite written notice of its intention and enter into discussions with Excite in
good faith on a non-exclusive basis for a period of thirty (30) days regarding
the establishment of such a relationship. If at the conclusion of such thirty
(30) day period Intuit and Excite are unable to reach agreement with respect to
the material terms of such a relationship, then Intuit shall be free to enter
into such a relationship with a third party other than Excite, without liability
to Excite.
5.6 CHANGES OVER TIME. The parties acknowledge that, because
of the rapid pace of technological change and evolution in the industries
associated with the Internet and software related thereto, many of the
underlying facts and circumstances (including assumptions regarding the facts
and circumstances) that were the basis for the allocation of various rights and
obligations pursuant to this Agreement are likely to change over time. In
drafting this Agreement, the parties have addressed relevant facts and issues as
they exist with current technologies and today's business models; however, the
parties also intend for this Agreement to remain in force throughout the Term as
such technologies and business models change over time, with appropriate
modifications to reflect such equitable adjustments as are
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required to maintain a substantially comparable allocation of rights and
obligations in light of changed circumstances. The parties do not intend for
this Agreement to be effectively nullified or abrogated because of changed
circumstances, but rather intend that the intent and purpose of this Agreement
be preserved as circumstances change. To such end, the parties agree that
certain provisions regarding the parties' respective rights and obligations
under this Agreement, while drafted to address current circumstances, are also
intended to reflect general principles to be implemented by the parties in a
pragmatic and meaningful way as such circumstances change. Notwithstanding the
foregoing, the provisions of this Section 5.6 shall not apply to those rights
and/or obligations that should not be affected by changes in technology and/or
business models.
6. LICENSES.
6.1 GRANT OF LICENSES BY EXCITE.
(a) Excite hereby grants and agrees to grant to
Intuit during the Term a nonexclusive, royalty-free (subject to Section 6.5),
worldwide license under all of Excite's Intellectual Property Rights to use,
reproduce (for back-up purposes only), and prepare Derivative Works from the
Licensed Software, and portions thereof, either alone or as part of or embedded
or incorporated in other products for the exclusive purpose of creating,
administering, operating, tracking or delivering the Financial Content,
advertising and transactions. Any Derivative Works created by Intuit hereunder
will be the exclusive property of Intuit. After the expiration or termination of
this Agreement, this license will continue in full force and effect so long as
(i) Intuit pays Excite its porportionate share of any incremental third party
royalties incurred by Excite due to Intuit's use of any Third Party Software
incorporated into the Licensed Software and (ii) the Licensed Software is not
used by Intuit to provide general-purpose Internet search and navigation
services.
(b) Excite further grants and agrees to grant Intuit
during the Term a nonexclusive, royalty-free, worldwide license under all of
Excite's Intellectual Property Rights to distribute, reproduce, transmit and
display the Excite Brand Features in the Financial Channel and the Intuit
Desktop Products (in the manner described in this Agreement), and in connection
with the distribution, marketing and promotion of the Financial Channel and the
Intuit Desktop Products, subject in each case to compliance with the Excite
Brand Guidelines.
6.2 GRANT OF LICENSE BY INTUIT. Intuit hereby grants and
agrees to grant to Excite a nonexclusive, royalty-free, worldwide license under
all of Intuit's Intellectual Property Rights to distribute, reproduce, transmit
and display the Intuit Brand Features in the Excite Properties (in the manner
described in this Agreement), and in connection with the distribution, marketing
and promotion of the Excite Properties, subject in each case to compliance with
the Intuit Brand Guidelines.
6.3 DELIVERY. Excite shall deliver to Intuit, promptly upon
receipt of Intuit's written request, one (1) copy each of the software component
of the Licensed Software, in object code and source code formats, and one copy
of each item of documentation included in the Licensed Software.
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6.4 OWNERSHIP. Except for the licenses granted in this Section
6, as between Excite and Intuit, (a) Excite shall have full and exclusive right,
title and ownership interest in and to the Licensed Software, the Excite Brand
Features and the Intellectual Property Rights therein and (b) Intuit shall have
full and exclusive right, title and ownership interest in and to (i) the Intuit
Brand Features and the Intellectual Property Rights therein and (ii) the
Derivative Works of the Licensed Software created by or for Intuit pursuant to
this Agreement and the Intellectual Property Rights therein. subject to the
underlying license to Excite's Licensed Software granted hereunder. Intuit will
not remove any product identification. copyright or other notices from the
Licensed Software contained in any Derivative Works.
6.5 THIRD-PARTY SOFTWARE. If any part of the Licensed Software
has been or in the future is licensed to Excite by a third party software
developer or supplier ("THIRD PARTY SOFTWARE"), such Third Party Software shall
be included within the definition of Licensed Software for the purposes of
Section 6.1 above, and Excite shall grant to Intuit a sublicense thereto;
provided, however, that Excite first obtains any necessary third party consents
related thereto and, provided further, that, Intuit shall be subject to any and
all conditions for, and restrictions on, use of the Third Party Software as
required by the third party licensor thereof. Notwithstanding the foregoing,
Excite will use commercially reasonable efforts to obtain any necessary third
party consents related to any Third Party Software and, to the extent Excite is
unable to obtain any such third party consent, Excite will use commercially
reasonable efforts to ensure that alternate software is available for use by
Intuit so as not to impair in any material respect the functionality of the
Licensed Software.
7. OWNERSHIP.
7.1 OWNERSHIP OF FINANCIAL CONTENT. Intuit shall at all times
have full and exclusive right, title and ownership interest in and to the
Financial Content, including that developed with Excite's assistance pursuant to
Section 5.1.1, and all of the Intellectual Property Rights therein.
7.2 DATA OWNERSHIP. During and after the Term, all data
concerning users and their behavior ("DATA") relating to the use of the Excite
Properties, will be owned by Excite. Data relating to the use of the
Jointly-Branded Pages or the Financial Portion of the Multi-Category
Personalized Pages will be jointly owned by both parties. Data relating to the
use of the Financial Channel (excluding the Jointly-Branded Pages and the
Financial Portion of the Multi-Category Personalized Pages) will be owned solely
by Intuit. Within fifteen (15) days following the end of each month, the parties
will use reasonable commercial efforts to provide each other with usage reports
containing the information described in Exhibit C (as may be modified from time
to time by mutual agreement of the parties). Excite acknowledges that Intuit may
not be able to provide such data for some time after the execution of this
Agreement. Each party will have the right to utilize Data for any customer which
utilizes both parties' content and which is collected by the other party for the
purposes of targeting advertising within its own sites and services; however,
neither party will have the right to sell or license to third parties Data
jointly-owned or owned by the other party, without the prior written approval of
the other party. Each party's use and ownership of Data will be subject to
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any and all restrictions imposed by law, regulation or customer request,
including without limitation restrictions on disclosure of insurance, investment
or mortgage information.
8. CONFIDENTIALITY.
8.1 PROTECTION OF CONFIDENTIAL INFORMATION. The parties
recognize that, in connection with the performance of this Agreement, each of
them may disclose to the other its Confidential Information. The party receiving
any Confidential Information agrees to maintain the confidential status of such
Confidential Information and not to use any such Confidential Information for
any purpose other than the purpose for which it was originally disclosed to the
receiving Party, and not to disclose any of such Confidential Information to any
third party.
8.2 PERMITTED DISCLOSURE. The parties acknowledge and agree
that each may disclose Confidential Information: (a) as required by law,
provided that each party will use commercially reasonable efforts to obtain
confidential treatment of any Confidential Information so disclosed; (b) to
their respective directors, officers. employees, attorneys, accountants and
other advisors, who are under an obligation of confidentiality, on a
"need-to-know" basis; (c) to investors who are under an obligation of
confidentiality, on a "need-to-know" basis; or (d) in connection with disputes
or litigation between the parties involving such Confidential Information; and
each Party will use commercially reasonable efforts to limit disclosure to that
purpose and to ensure maximum application of all appropriate judicial safeguards
(such as placing documents under seal).
8.3 APPLICABILITY. The foregoing obligations of
confidentiality shall apply to directors, officers, employees and
representatives of the parties and any other person to whom the Parties have
delivered copies of, or permitted access to, such Confidential Information in
connection with the performance of this Agreement. and each party shall advise
each of the above of the obligations set forth in this Section 8.
8.4 THIRD PARTY CONFIDENTIAL INFORMATION. Any Confidential
Information of a third party disclosed to either party shall be treated by such
party in accordance with the terms under which such third party Confidential
Information was disclosed; provided, that the party disclosing such third party
Confidential Information shall first notify the other party that such
information constitutes third party Confidential Information and the terms
applicable to such third party Confidential Information; and provided further,
that either party may decline, in its sole discretion, to accept all or any
portion of such third party Confidential Information.
8.5 FUTURE BUSINESS ACTIVITIES. This Agreement shall not limit
either party's present and future business activities of any nature, including
business activities which could be competitive with the other party, except to
the extent such activities would involve a breach of (a) the confidentiality
restrictions contained in this Section 8 or (b) any other express provision of
this Agreement. Nothing in this Agreement will be construed as a representation
or agreement that the recipient of Confidential Information will not develop or
have developed for it products, concepts, systems or techniques contemplated by
or embodied in such Confidential Information, provided that such recipient does
not violate any of its obligations under this Section 8 in connection with such
development.
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8.6 NON-DISCLOSURE AGREEMENT. The confidentiality provisions
contained in this Section 6 supersede any prior Non-Disclosure Agreement between
the parties; provided, that no party shall be relieved of liability for any
breach of' such Non-Disclosure Agreement prior to the Effective Date.
9. REPRESENTATIONS AND WARRANTIES.
9.1 AUTHORITY. Each party represents and warrants to the other
party that:
9.1.1 CORPORATE AUTHORITY; NO CONFLICT; BINDING
AGREEMENT. Such party has the full corporate right, power and authority to enter
into this Agreement and to perform the acts required of it hereunder; and the
execution of this Agreement by such party, and the performance by such party of
its obligations and duties hereunder, do not and will not violate any agreement
to which such party is a party or by which it is otherwise bound; and when
executed and delivered by such party, this Agreement will constitute the legal,
valid and binding obligation of such party, enforceable against such party in
accordance with its terms.
9.1.2 NO IMPLIED REPRESENTATIONS OR WARRANTIES. Such
party acknowledges that the other party makes no representations, warranties or
agreements related to the subject matter hereof that are not expressly provided
for in this Agreement.
9.2 NO INFRINGEMENT. Each party will use commercially
reasonable efforts to ensure that the content which such party includes in or
associates with the Excite Properties or the Financial Channel (including,
without limitation, the Excite Brand Features and the Intuit Brand Features) do
not and will not (i) infringe on or violate any Intellectual Property Right of
any third party; or (ii) violate any applicable law, regulation or third party
right when included in a manner consistent with this Agreement. In the event
that any party becomes aware of any such infringement (or alleged infringement)
or violation, such party will promptly notify the other party and shall provide
all information relating to such matters as such other party may reasonably
request.
10. LIMITATION OF LIABILITY AND INDEMNITY.
10.1 LIMITATION OF LIABILITY. EXCEPT AS PROVIDED IN THIS
SECTION 10, UNDER NO CIRCUMSTANCES SHALL EITHER PARTY BE LIABLE TO THE OTHER
PARTY FOR INDIRECT, INCIDENTAL, CONSEQUENTIAL, SPECIAL OR EXEMPLARY DAMAGES
(EVEN IF THAT PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES),
ARISING FROM ANY PROVISION OF THIS AGREEMENT, SUCH AS, BUT NOT LIMITED TO, LOSS
OF REVENUE OR ANTICIPATED PROFITS OR LOST BUSINESS.
10.2 NO ADDITIONAL WARRANTIES. EXCEPT AS SET FORTH IN SECTION
9 OF THIS AGREEMENT, NEITHER PARTY MAKES, AND EACH PARTY HEREBY SPECIFICALLY
DISCLAIMS, ANY REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, REGARDING THE
PRODUCTS AND SERVICES CONTEMPLATED BY THIS AGREEMENT, INCLUDING ANY IMPLIED
WARRANTY OF
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MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR NON-INFRINGEMENT AND
IMPLIED WARRANTIES ARISING FROM COURSE OF DEALING OR COURSE OF PERFORMANCE.
10.3 EXCITE OBLIGATION TO DEFEND. Subject to the limitations
set forth below, Excite, at its own expense, shall defend, or at its option
settle, any claim, suit or proceeding against Intuit and pay any final judgment
entered or settlement against Intuit in any such claim, suit or proceeding, to
the extent that such claim, suit or proceeding is based upon (a) the
infringement or misappropriation of any patent, copyright or trade secret by the
Licensed Software or any other software or systems developed for Intuit pursuant
to Section 5 or the use thereof or any claim that Excite does not have
sufficient rights to license the Licensed Software or assign the rights such
other software or systems hereunder; (b) the infringement of any trademark or
service mark rights by the Excite Brand Features; or (c) the infringement or
misappropriation of any patent, copyright or trade secret or the violation of
any third party right or any, third party claim resulting form the operation or
use of any Excite Service or the dissemination of content (other than the
Financial Content) on any Excite Property. Excite shall have no obligation to
Intuit pursuant to this Section 10.3 unless: (x) Intuit gives Excite prompt
written notice of the claim, suit or proceeding and cooperates reasonably with
Excite; (y) Excite is given the right to control and direct the investigation,
preparation, defense and settlement of the claim, suit or proceeding; and (z)
with respect to a claim described in part (a), above, the claim, suit or
proceeding is based on modifications to the Licensed Software or such other
software by Intuit, unless the claim, suit or proceeding would not have been
avoided by use of the unmodified Licensed Software or unmodified other software.
10.4 INTUIT OBLIGATION TO DEFEND. Subject to the limitations
set forth below, Intuit, at its own expense, shall defend, or at its option
settle, any claim, suit or proceeding against Excite and pay any final judgment
entered or settlement against Excite in any such claim, suit or proceeding, to
the extent that such claim, suit or proceeding is based upon (a) the
infringement of any trademark or service mark rights by the Intuit Brand
Features; or (b) the infringement or misappropriation of any patent. copyright
or trade secret or the violation of any third party right or any third party
claim resulting from the dissemination or use of the Financial Content on any
Excite Property. Intuit shall have no obligation to Excite pursuant to this
Section 10.4 unless: (x) Excite gives Intuit prompt written notice of the claim.
suit or proceeding and cooperates reasonably with Intuit; and (y) Intuit is
given the right to control and direct the investigation, preparation, defense
and settlement of the claim, suit or proceeding.
10.5 OPTIONS. If either party receives notice of an alleged
infringement, it shall have the right, at its sole option, (a) to obtain the
right for the other party to continue use of the allegedly infringing software,
system, content or Brand Feature, as applicable, or (b) to replace or modify the
allegedly infringing software, system, content or Brand Feature, as applicable,
so that it is no longer infringing but retains equivalent functionality and
value, or (c) to remove the allegedly infringing content.
10.6 EXCLUSIVE REMEDIES. THE RIGHTS AND REMEDIES SET FORTH IN
THIS SECTION 10 CONSTITUTE THE ENTIRE OBLIGATIONS AND THE
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<PAGE> 18
EXCLUSIVE REMEDIES OF THE PARTIES CONCERNING INFRINGEMENT OF THE INTELLECTUAL
PROPERTY RIGHTS OF THIRD PARTIES OR THIRD PARTY CLAIMS.
11. TERM AND TERMINATION.
11.1 TERM. This Agreement shall commence on the Effective Date
and shall remain in force for a term of seven (7) years from the Effective Date.
unless terminated earlier under this Section 11. This Agreement may be renewed
by mutual agreement of the parties.
11.2 TERMINATION FOR FAILURE TO MAINTAIN INDUSTRY STANDARDS.
11.2.1 BY EXCITE. This Agreement may be terminated
by Excite upon ninety (90) days' written notice to Intuit if the Financial
Channel is not among the top three (3) Financial Content Services as determined
by industry standards for quality and breadth applicable to Financial Content
Services, in any calendar quarter, unless the failure is cured within the notice
period. Excite shall have no right to terminate based upon Intuit's provision
of, or any failure of Intuit to provide, small business or tax content or
functionality.
11.2.2 BY INTUIT. This Agreement may be terminated
by Intuit (a) upon ninety (90) days' written notice to Excite if Excite is not
among the top three (3) of General Search Services as determined by industry
standards for quality, breadth and audience size applicable to General Search
Services, in any calendar quarter, unless the failure is cured within the notice
period.
11.3 TERMINATION UPON EXITING MARKET. This Agreement may be
terminated by Intuit upon ninety (90) days' written notice to Excite if it
decides to exit the business of providing Internet consumer financial content
services, and may be terminated by Excite upon ninety (90) days' written notice
to Intuit if it decides to exit the business of providing general-purpose
Internet search and navigation services.
11.4 TERMINATION FOR BANKRUPTCY OR BREACH. Either party may
terminate this Agreement upon giving written notice to the other party:
11.4.1 in the event that the other party files a
petition in bankruptcy, or in the event that all or part of the other party's
assets are assigned to a trustee or receiver, or if an involuntary petition is
filed by a third party against the other party and the other party does not
resolve such petition in its favor within sixty (60) days after the filing
thereof; or
11.4.2 in the event of a material breach of this
Agreement by the other party, including a material breach of any Statement of
Work prepared in accordance with Section 5.1.4, which is not cured within thirty
(30) days after receipt of notice by the terminating party specifying such
breach, or in the event of a breach of a Statement of Work is not cured within
the applicable cure period set forth therein.
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<PAGE> 19
11.5 SURVIVAL. Any expiration or termination of this Agreement
shall not relieve any party from any obligations hereunder which have accrued on
or before the effective date of such expiration or termination, nor affect the
provisions set forth in Sections 1, 2.6, 5.2, 6.1 (a), 6.4, 6.5, 7.1, 8, 10, 12,
and 13, all of which are intended by the parties to survive such expiration or
termination.
11.6 RETURN OF CONFIDENTIAL INFORMATION. Upon expiration or
termination of this Agreement, each party shall promptly return to the other all
Confidential Information of the other party, including all of the physical
embodiments thereof in its possession. including all copies thereof, and shall
cease using the same, except to the extent their use is licensed otherwise
permitted under this Agreement or a Statement of Work. Each party shall certify
to the other party in writing compliance with this section upon the return of
such materials.
11.7 EXCLUSIVITY OF REMEDY. The right of either party to
terminate this Agreement under Section 11.2 is the exclusive remedy of such
party for the conditions described therein. The right of any party to terminate
this Agreement under Section 11.4 is not an exclusive remedy, and any party
shall be entitled, if the circumstances warrant and except as otherwise
expressly provided, alternatively or cumulatively, to damages for breach of this
Agreement, to an order requiring performance of the obligations of this
Agreement or to any other legally available remedy, subject in all cases to
Section 12 below. Neither party shall have any liability to the other as a
result of such party's early termination of this Agreement in accordance with
its terms.
11.8 INJUNCTIVE RELIEF. The parties agree that any material
breach of the exclusivity or confidentiality provisions of this Agreement, or
the infringement of either party's intellectual property rights will cause
irreparable injury and that injunctive relief in a court of competent
jurisdiction will be appropriate to prevent an initial breach or enjoin a
continuing breach in addition to any other relief to which the aggrieved party
may be entitled.
12. ARBITRATION. If a party disputes (a) the calculation of Direct
Costs or (b) termination of the Agreement pursuant to Section 11, such dispute
will, on the written request of one party as described below, be submitted and
settled by binding arbitration in accordance with the rules of the Judicial
Arbitration & Mediation Services, Inc. ("JAMS") then in effect and will comply
with the California Arbitration Act (Sections 1280 through 1294.02 of the
California Code of Civil Procedure) or its successor legislation, except as
herein specifically stated. If JAMS does not then exist, arbitration shall be
conducted under the Commercial Arbitration Rules of the American Arbitration
Association then in effect. Judgment upon the award rendered by the arbitrator
shall be final as provided herein and may be entered in any court having
jurisdiction thereof. The parties hereby submit to the in personam jurisdiction
of the Superior Court of the State of California for the purpose of confirming
any such award and entering judgment thereon. Notwithstanding anything to the
contrary that may now or hereafter be contained in the rules of JAMS:
12.1 APPOINTMENT OF ARBITRATOR. The parties may agree on a
retired judge from the JAMS panel. If they are unable to agree, JAMS will
provide a list of three available
19
<PAGE> 20
judges and each party may strike one. The remaining judge will serve as the
arbitrator. If both parties strike the same judge, JAMS shall assign one of the
other two judges to the case.
12.2 ARBITRATION DEMAND. The aggrieved party can demand
arbitration by sending a written notice of an intention to arbitrate by
registered or certified mail to all parties and to JAMS. The notice must contain
a description of the dispute, the amount involved and the remedy sought. If and
when a demand for arbitration is made by either party, the parties agree to
execute a "Submission Agreement" provided by JAMS.
12.3 COSTS. The costs of the arbitration, including attorneys'
fees, will be paid by the losing party or parties, or will be allocated between
the parties in such proportions as the arbitrator decides.
12.4 FINDINGS OF FACT AND CONCLUSIONS OF LAW. The arbitrator
will, upon the request of any party to such arbitration, issue a written opinion
of his or her findings of fact and conclusions of law.
12.5 RECONSIDERATION. Upon receipt by the requesting party of
the written opinion referred to in Section 12.4, such party will have the right
within ten (10) days after such receipt to file with the arbitrator a motion to
reconsider, and the arbitrator thereupon will reconsider the issues raised by
the motion and either confirm or change his or her decision. The costs of such a
motion for reconsideration and written opinion of the arbitrator, including
attorneys' fees, will be paid by the moving party.
12.6 LOCATION. The arbitration shall take place in Santa Clara
County, California or such other place as the parties shall agree.
13. MISCELLANEOUS PROVISIONS.
13.1 NOTICES. Any notice, demand, or request with respect to
this Agreement shall be in writing and shall be effective only if it is
delivered in the manner prescribed herein, addressed to the appropriate party at
its address set forth on the signature page hereof and to the attention of the
General Counsel of such party. Such communications shall be effective (a) when
they are received by the addressee if personally delivered or transmitted by
confirmed fax or electronic mail; or (b) two (2) days after deposit in the U.S.
mail, if sent by certified or registered mail or (c) one (1) day after deposit
with a nationally recognized overnight courier service. Any party may change its
address for such communications by giving notice to the other party in
conformity with this section.
13.2 ASSIGNMENT. No right may be assigned, and no duty may be
delegated, by either party under this Agreement except upon the written consent
of the other party, and any attempted assignment and delegation without such
consent shall be void. Notwithstanding the foregoing, however, (a) either party
shall be entitled to assign this Agreement, and all rights and obligations
hereunder, to a successor to all or substantially all of such party's assets or
voting securities, whether by sale, merger, or otherwise, and (b) Intuit shall
be entitled to assign this Agreement, and all rights and obligations hereunder,
to a successor to all or substantially
20
<PAGE> 21
all of the assets that comprise the Financial Channel, whether by sale, merger
or otherwise; provided that either party indicating such assignment shall
provide the other party with at least thirty (30) days' prior written notice and
cause such assignee to be bound by this Agreement. This Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective representatives, administrators, successors and permitted assigns
except as otherwise provided herein.
13.3 RELATIONSHIP OF PARTIES. Each party is an independent
contractor of the other, and neither shall be deemed an employee, agent, partner
or joint venturer of the other. Neither party shall make any commitment. by
contract or otherwise, binding upon the other nor represent that it has any
authority to do so.
13.4 FORCE MAJEURE. Neither party shall be responsible or
liable to the other party for nonperformance or delay in performance of any
terms or conditions of this Agreement due to acts of God. acts of governments,
wars, riots, or other causes beyond the reasonable control of the nonperforming
or delayed party, provided, however, that nonperformance or delay in excess of
ninety (90) days shall constitute cause for termination of this Agreement by
either party pursuant to Section 11.4.2.
13.5 GOVERNING LAWS. The laws of the Sate of California
(irrespective of its choice of law principles) shall govern the validity of this
agreement, the construction of its terms, and the interpretation and enforcement
of the rights and duties of the parties. The parties agree that the United
Nations Convention on Contracts for the International Sale of Goods shall not
apply to this agreement. The parties agree that any suit to enforce any
provision of this Agreement or arising out of or based upon this Agreement or
the business relationship between the parties shall be brought in the United
States District Court for the Northern District of California or the Superior or
Municipal Court in and for the County of Santa Clara, California. Each party
agrees that such courts shall have exclusive in personam jurisdiction and venue
with respect to such party, and each party submits to the exclusive in personam
jurisdiction and venue of such courts.
13.6 SEVERABILITY. If any provision of this Agreement is found
to be invalid or unenforceable, the remainder of this Agreement shall be
interpreted so as best to reasonably effect the intent of the parties hereto.
13.7 ENTIRE AGREEMENT. This Agreement and the exhibits hereto
constitute the entire understanding and agreement of the parties hereto with
respect to the subject matter hereof and supersede all prior and contemporaneous
agreements, representations and understandings between the parties, including
without limitation the Letter Agreement.
13.8 AMENDMENT AND WAIVERS. Any term or provision of this
Agreement may be amended, and the observance of any term of this Agreement may
be waived, only by a writing signed by the party to be bound.
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<PAGE> 22
13.9 ATTORNEYS' FEES. The prevailing party in any action or
proceeding to enforce or interpret any part of this Agreement shall be entitled
to recover its reasonable attorneys' fees (including fees on any appeal).
13.10 EXPENSES. Each party shall bear all expenses associated
with negotiation and preparation of this Agreement and the completion of the
transaction contemplated hereby; provided, that Excite shall pay the fees and
out-of-pocket expenses of Intuit's outside legal counsel, incurred in connection
herewith.
13.11 ADVERTISING AND PUBLICLY. Intuit and Excite each hereby
agree that any press, marketing or advertising releases, of either party that
refer to the other party or the other party's products or services shall not be
released or disseminated without the prior written approval of the other party.
Requests for such approval will not be reasonably withheld or delayed.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
INTUIT INC. EXCITE, INC.
By: /s/ WILLIAM HARRIS By: /s/ ROBERT C. HOOD
-------------------------- ---------------------------
Name: William Harris Name: Robert C. Hood
------------------------ -------------------------
Title: EVP Title: EVP-CFO
----------------------- ------------------------
Address for Notice: Address for Notice:
2535 Garcia Street 555 Broadway
Mountain View, CA 94041 Redwood City, CA 94063
Attn: General Counsel
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<PAGE> 23
EXHIBIT A
EXCITE BRAND GUIDELINES
(to be provided)
23
<PAGE> 24
EXHIBIT B
INTUIT INC.
BRAND GUIDELINES
The following are the current usage guidelines for EXCITE, INC'S use of the
QUICKEN(R), INTUIT(R), QUICKBOOKS(R) and TURBOTAX(R)] trademark(s)/service
mark(s).
1. APPROPRIATE SYMBOLS AND LEGENDS
The QUICKEN [....] mark is a registered trademark and must appear with the "(R)"
symbol placed on the right "shoulder" of the mark (i.e., directly next to the
mark in the upper right). Thus, the correct symbol placement is as follows:
QUICKEN(R). The symbol must appear in every instance where the mark appears on
packaging and product labeling. The symbol must appear in at least the first
iteration of the mark when it appears in any collateral materials (including
advertising, press releases, brochures, web pages, company reports and the like)
but may be omitted for convenience in subsequent iterations in the same text.
In addition to the above, the appropriate ownership legend must be included in
the "legal notices" section of any materials in which the QUICKEN mark is
displayed, and must be placed on packaging and documentation for any products
bearing the QUICKEN mark. This legend must read as follows: "QUICKEN is a
trademark and service mark of Intuit Inc., registered in the United States and
other countries, and used by ______________ under license." On packaging and in
advertising, promotional displays and web pages, the legend is typically placed
at the bottom of the box, ad or layout, respectively. The legend may appear in
small type, but must still be legible. In product documentation, press releases,
brochures, company reports and the like, it can be placed near other legal
notices for copyright, authorship and publication information (usually at the
beginning or end of such materials).
2. PROPER CONTEXTUAL USE OF THE OUICKEN MARK
When referencing __________________'s use of the QUICKEN mark, whether in the
body of documentation, press releases, brochures, web pages, etc., you should
attempt to use the QUICKEN mark as an adjective in at least its first iteration
in said materials (i.e., "QUICKEN software"). Subsequently, the generic word
which the QUICKEN mark modifies may be omitted where the immediate context
implies that the word is intended, such as during repetitive mentions of the
software within a single paragraph or section. For example:
First iteration: We recommend using QUICKEN(R) personal finance
software.
Subsequent uses: QUICKEN allows users to better organize their
financial lives.
3. LOGO DESIGN USAGE
_______________________ may display the QUICKEN Logo Design (see attached
Drawing A), just as it may display the wordmark, in accordance with the
guidelines set forth herein and
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<PAGE> 25
pursuant to all limitations set forth in the _________________________ [License]
Agreement. However, INTUIT REQUIRES THAT ____________ OBTAIN ONLY ORIGINAL
DIGITAL OR CAMERA-READY ARTWORK DIRECTLY FROM INTUIT. No resampling or other
attempted duplication is allowed and no alterations, modifications, cropping or
additions to the logo are permitted. In addition, any display created using the
Logo Design must show the Logo by itself --- it may not be touching any other
item in a layout. Please contact Intuit to obtain a digital GIF file ready for
implementation or other camera-ready copy.
4. RESTRICTIONS
The license to use the QUICKEN mark is a non-exclusive, non-transferable,
non-assignable license that extends only to the United States and only for the
term of the ____________________________ [License] Agreement. Licensee may not
make any specific representations concerning the functionality or quality of any
Intuit products or services, nor that Intuit endorses the products and/or
services offered by (Licensee), nor that Intuit recommends such products or
services over those of any other provider.
Nothing in the _______________________ [License] Agreement or this guideline
document gives (Licensee) any right, title or interest in the QUICKEN mark, the
Intuit mark, or any other Intuit-owned mark. (Licensee) acknowledges Intuit's
ownership of the QUICKEN mark, and any use by (Licensee) of the QUICKEN mark
will inure to the sole benefit of Intuit. (Licensee) also acknowledges and
agrees not attack the ownership of, nor to register, or attempt to register, any
of the above-mentioned marks, nor to use or register any marks that would cause
confusion, or be likely to cause confusion, with the QUICKEN mark. The license
to use the QUICKEN mark is subject to approval by Intuit of (Licensee)'s use
prior to any product or other release or publication, which can be withheld, and
its strict adherence to the guidelines contained herein. All rights not
expressly granted in the _____________ [License] Agreement are reserved by
Intuit. In any instance where this guideline document is found to conflict with
the requirements and restrictions set forth in the ______________ [License]
Agreement, the [License] Agreement shall rule.
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<PAGE> 26
EXHIBIT C
USAGE REPORTS
Excite will provide to Intuit:
(a) Data relating to the use of the Financial Content in the
Excite Properties and the Jointly Branded Pages such that
Intuit will have access to all Data that is available to
Excite with respect to such Financial Content, and
(b) Such other Data as may be reasonably requested by Intuit,
including, without limitation, Data regarding traffic from the
Excite Properties to Financial Content Services and Data
regarding the percentage of the total traffic on the Excite
Properties that "clicks through" to the Financial Channel
provided such data is available.
Intuit will provide to Excite:
(a) Data relating to the use of the Financial Content located at
the Intuit URLs and the Jointly Branded Pages located at the
Intuit URLs such that Excite will have access to all Data that
is available to Intuit with respect to such Financial Content,
and
(b) Such other Data as may be reasonably requested by Excite,
including, without limitation. Data regarding traffic from
Intuit's URLs to Financial Content Services, Data regarding
the percentage of the total traffic on Intuit's URLs that
"clicks through" to the Financial Channel, the total number of
page views per day of Intuit's URLs, the average number of
page views per user of the Financial Content Services and the
number of unique users of the Financial Content Services
provided such data is available.
26
<PAGE> 1
EXCITE, INC. EXHIBIT 21.01
LIST OF SUBSIDIARIES
<TABLE>
<CAPTION>
NAME JURISDICTION OF INCORPORATION PERCENT OWNED
- ------------------------------- ----------------------------- -------------
<S> <C> <C>
MatchLogic, Inc. Delaware, USA 100%
The McKinley Group, Inc. Delaware, USA 100%
Netbot, Inc. Delaware, USA 100%
Classifieds2000, Inc. California, USA 100%
E-Media Limited (wholly-owned Ontario, Canada 100%
subsidiary of MatchLogic, Inc.)
Excite UK Ltd United Kingdom 100%
Excite Europe Ltd United Kingdom 100%
Excite Holdings Ltd United Kingdom 100%
</TABLE>
<PAGE> 1
EXHIBIT 23.01
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-3 Nos. 333-26139, 333-32123, 333-46829, 333-53057 and 333-58237, and
Forms S-8 Nos. 333-07625, 333-30831, 333-41523, 333-46591, 333-52001 and
333-59329) pertaining to the resale of shares held by America Online, Inc. or
its subsidiaries, Intuit, Inc., the former stockholders of Netbot, Inc. and
MatchLogic, Inc., Netscape Communications Corporation and the former
shareholders of Throw Inc. and Classifieds2000, Inc., 1995 Equity Incentive
Plan, 1996 Equity Incentive Plan, 1996 Directors Stock Option Plan and 1996
Employee Stock Purchase Plan of Excite, Inc., options to purchase common stock
of Netbot, Inc., options to purchase common stock of MatchLogic, Inc. and
options to purchase common stock of Throw Inc. and Classifieds2000, Inc., of our
report dated January 19, 1999, with respect to the consolidated financial
statements of Excite, Inc. included in this Annual Report (Form 10-K) for the
year ended December 31, 1998.
/s/ ERNST & YOUNG LLP
Palo Alto, California
February 5, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Excite,
Inc.'s Annual Report on Form 10-K for the year ended December 31, 1998 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 45,366
<SECURITIES> 16,239
<RECEIVABLES> 38,014
<ALLOWANCES> (1,422)
<INVENTORY> 0
<CURRENT-ASSETS> 148,518
<PP&E> 57,452
<DEPRECIATION> (21,515)
<TOTAL-ASSETS> 220,673
<CURRENT-LIABILITIES> 59,038
<BONDS> 0
0
813
<COMMON> 52
<OTHER-SE> 142,534
<TOTAL-LIABILITY-AND-EQUITY> 220,673
<SALES> 0
<TOTAL-REVENUES> 154,105
<CGS> 0
<TOTAL-COSTS> 29,073
<OTHER-EXPENSES> 158,649
<LOSS-PROVISION> 2,772
<INTEREST-EXPENSE> 2,843
<INCOME-PRETAX> (36,974)
<INCOME-TAX> 0
<INCOME-CONTINUING> (36,974)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (36,974)
<EPS-PRIMARY> (0.78)<F1><F2>
<EPS-DILUTED> (0.78)<F2>
<FN>
<F1>For purposes of this exhibit, Primary means Basic.
<F2>In June 1998, the Board of Directors declared a two-for-one stock split which
was in the form of a 100% stock dividend. In accordance with Regulation S-K
Item 601, prior period financial data schedules have not been restated for the
stock split.
</FN>
</TABLE>
