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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, 1996
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 1-11797
__________________________
INFOSEEK CORPORATION
(Exact name of registrant as specified in its charter)
California 77-0353450
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
2620 Augustine Drive, Suite 250, 95054
Santa Clara, California 95054 ----------
---------------------------------------- (zip code)
(address of principal executive offices)
Registrant's telephone number, including area code: (408) 567-2700
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: Common Stock,
$0.01 par value
(Title of Class)
______________________________
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 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. [ ]
Indicate by check mark whether the registrant (1) has 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 .
----- -----
The aggregate market value of voting stock held by non-affiliates of
the registrant as of March 14, 1997, was $90,980,644 based upon the last
sales price reported for such date on the NASDAQ National Market System. For
purposes of this disclosure, shares of Common Stock held by persons who hold
more than 5% of the outstanding shares of Common Stock and shares held by
officers and directors of the registrant, have been excluded in that such
persons may be deemed to be affiliates. This determination is not necessarily
conclusive.
At March 27, 1997, registrant had outstanding 26,007,760 shares of
Common Stock.
__________________________________
DOCUMENTS INCORPORATED BY REFERENCE
(1) Parts II and IV incorporate by reference from the Annual
Report to Stockholders for the fiscal year ended December 31,
1996 (the "Annual Report").
(2) Part III incorporates certain information by reference from
the definitive proxy statement for the Annual Meeting of
Stockholders to be held on May 29, 1997 (the "Proxy
Statement").
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PART I
ITEM 1. BUSINESS
This Annual Report on Form 10-K (the "Report") contains certain
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. Actual results and the timing of certain events could differ
materially from those projected in the forward-looking statements as a result of
the Risk Factors set forth on page 19 of this Report and other factors discussed
elsewhere in this Report.
Infoseek develops and provides branded, comprehensive Web-based
navigational services that help users access and personalize the vast resources
of the Internet. Infoseek Service is a free service targeted at individual
business and consumer users. The Company believes that Infoseek Service goes
beyond the functionality offered by other search engines and directory
services, by aggregating and packaging the resources of the Internet to serve
the unique and personal interests of each user and create a rich Internet
experience. Infoseek's search engine is able to deliver high accuracy due to
its sophisticated technology that is able to respond to "natural language"
queries.
The Company is based in Santa Clara, California, and was incorporated
under the laws of the State of California on August 30, 1993.
INDUSTRY BACKGROUND
The Internet was originally created by the U.S. government to
facilitate the exchange of information and electronic mail ("email") between a
limited number of academic institutions, defense contractors and government
agencies. The Internet was commercialized in the late 1980s and 1990s and
technological enhancements have since extended the Internet's reach to
consumers and businesses. The most important technological enhancement to the
Internet was the creation of the World Wide Web (the "Web") in the early 1990s.
The Web is an interactive environment, which facilitates the exchange of
multimedia-rich information and entertainment resources among users worldwide.
In addition, technological developments have enabled consumers and businesses
to use the Web for buying and selling products and services.
Navigating the Web
The rapid growth in content on the Web combined with the Web's
unindexed nature presents significant challenges for business and consumers
seeking Internet-based information and resources. Until the emergence of
navigational tools, users had to know a lengthy Web address for each specific
site, or had to move from Web site to Web site using hypertext links, searching
for relevant information. Content providers and advertisers also faced
difficulties in making the existence and location of their Web sites widely
known and available to their target audiences.
A number of tools have emerged to assist users in locating information
on the Web, including Web directories and search engines. Web directories are
typically compiled manually and list Web sites
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by specific topics of interest. Directories generally list Web sites by their
hypertext address, enabling a user to go directly to the listed site by
clicking on the address. Entries in a directory also may contain Web site
descriptions or reviews. Search engines offer users the ability to search Web
sites based upon specific word or phrase queries. Search engines typically use
automated software that "crawls" the Web to continuously capture and store
updated Web site information. The information is then indexed in a database in
order to provide immediate retrieval of relevant Web site listings in response
to a query.
Although search engines and directories help users navigate the Web,
the Company believes that these tools have certain limitations and that there
is an opportunity to provide added value to the user experience. One of the
problems not solved by most search engines and directories is that once users
have found specific Web sites of interest, the services do not place that
information in a broader context of other related and relevant Web resources.
Users must often make iterative searches or move from Web site to Web site in
order to achieve a complete response to their search, find related information
and feel that they have fully explored the Internet resources available to
them.
The Company believes that there is an opportunity to provide more
comprehensive services that not only provide specific and relevant responses to
business and consumer searches, but also point the user to related content
resources of the Web in a way that serves a user's unique and personal
interests and creates a richer, more relevant Internet experience. The Company
believes that users will respond to services that aggregate specific and
relevant responses to queries with other relevant and related Web sites,
targeted advertising, personalized news services, discussion groups, and other
resources. The Company believes that services which bring together relevant
content from among the vast resources on the Internet will enhance the user's
Internet experience, attract a high volume of traffic and build brand loyalty.
Advertising on the Web
As the number of Internet users and content providers increase, the
Internet has begun to develop the attributes of a conventional mass medium,
where advertising subsidizes content delivered to users. Advertisers have
recognized that the interactive nature of the Internet can provide an
environment where advertising may become a more effective relationship building
media than it is in other more conventional print and broadcast media. The
interactive and global nature of the Internet has the potential to enable
advertisers to target specific audiences, measure the popularity of advertising
content and make timely changes in response, reach worldwide audiences
cost-effectively, and create innovative and interactive advertisements. The
Company believes that increases in transmission bandwidth through higher speed
Internet connections, and wider multimedia enabling technologies for the Web,
such as Java, VRML and others, will also increase the appeal and effectiveness
of advertisements and make the Web an even more attractive platform for
advertising.
Advertisers currently face difficulties, however, in understanding the
volume and demographics of the user base on the Web. As a result, advertisers
can find it difficult to make the existence and location of their
advertisements widely known and target their audiences effectively. The
Company believes that, in the near term, advertisers will migrate to sites
which can offer a high number of impressions per day. The Company also
believes that, over time, advertisers will be attracted to those
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services that experience a high volume of traffic, track users carefully and
deliver advertisers audiences that fit specific buying profiles. In order to
provide such audiences to advertisers, services and sites must develop
technologies to enable them to conduct complex demographic and psychographic
profiling of their consumers. By understanding their audiences, services and
sites will be able to match advertisements with buyers, resulting in targeted,
high impact advertising ("narrowcasting" or "microcasting"). The Company
believes that those sites and services which both garner a high volume of
traffic and offer advertisers the ability to target specific audiences
effectively will be in the best position to take advantage of the advertising
opportunity on the Web.
THE INFOSEEK SOLUTION
Infoseek develops and provides branded, comprehensive Web-based
navigational services that help users access and personalize the vast resources
of the Internet. Infoseek Service not only provides specific and relevant
responses to business and consumer searches, but also aggregates and packages
the resources of the Internet in order to serve a user's unique and personal
interests. By integrating the capabilities of a search engine and a directory,
Infoseek packages specific responses to search queries with communities of
relevant Web, USENET and branded third party content and targeted, related
advertising. By creating communities of related information in real-time for
users, Infoseek Service satisfies the needs of businesses and consumers to
access relevant and related information, the needs of content providers to
reach interested audiences, and the needs of advertisers to deliver
advertisements to a targeted group of potential buyers.
With every search on Infoseek Service, the user receives some or all
of the following: specific and relevant Web site listings in response to the
query, a directory of other related Web sites listed by topic, related and
appropriate advertising, unique editorials on related subjects by well-known
third party content providers and links to relevant discussion groups and other
resources.
The Company's search service integrates search and directory
functions, providing not only specific responses to user queries, but also
direct links in real-time to areas of content that are related to the specific
request. Infoseek Service offers an intelligent way to guide accurate,
organized, and comprehensive query results. Through this approach, users can
either find specific answers to a search query or access a broader environment
of other relevant and related information on the Internet.
Infoseek Service incorporates timely and unique third party content
from a variety of leading media publishers. The range and breadth of material
on the Web is often confusing for consumers, which makes branded, credible
information providers more visible and valuable. Infoseek believes it adds
value to the consumer experience by including editorial material from these
branded content providers in response to user searches. Current third party
content providers include Reuters, PR Newswire and Business Wire.
Infoseek Service also offers a focused search tool, Ultraseek, which
gives power users, or those who want a "search only" service, a way to fully
exploit Infoseek's technology and search the entire real-time index of the Web
using either natural language queries or special search expressions. A search
from
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within Ultraseek will return only a list of relevant Web pages and exclude
related information included in a general Infoseek search.
The Company plans to continue to enhance the attractiveness of its
service to users through additional features and functionality. Infoseek has
developed several enhancements to Infoseek Service, which allow for
personalization of content and advertising according to user interests. This
feature allows users to create permanent filters for Internet-based information
such as newswires, stock quotes, USENET listings and other Internet resources.
A personalization option also prompts users to enter the city, state and zip
code where they are located to obtain information such as local weather, movie
or television listings.
The Company believes that by matching the interests of users with
appropriate content and advertisements and by offering the significant traffic
generated by Infoseek's services, it delivers better value to content providers
and advertisers seeking to reach larger or more targeted audiences. The
Company believes that through its service, content providers gain increased
exposure to interested users since these users are linked to broader
communities of related content when undertaking search requests. For example,
Sportsline, one of the Company's third-party providers, would be listed in
response to most queries regarding sports related items.
Infoseek's services provide advertisers with an increased ability to
undertake measurable, targeted, cost-effective and interactive advertising on
the Internet. The Company's services provide advertisers with the flexibility
to target the mass audience of the Internet by advertising on the Company's
general search pages, to target special interest groups by placing
advertisements on directory pages, or, to narrowcast advertisements to specific
audiences by placing advertising only when the user's query contains a specific
word that has been designated as a key word for a particular advertiser. The
Company believes that each of these types of advertising can provide
significant value to advertisers. While larger, mass market campaigns increase
brand awareness, narrower campaigns through directory ads or keyword ads
provide opportunities to engage in high response, product specific advertising.
The Company currently is testing Ultramatch, an advertising and
management system designed to create a user profile based on real, anonymously
observed user behavior to allow precise, targeted advertising. Ultramatch,
developed jointly with Aptex Software, a division of HNC Software, Inc.
("Aptex"), utilizes real time behavioral tracking technology and is based upon
neural network technology developed by Aptex and is expected to be released in
1997. The Company believes that this innovative advertising approach, which
will allow advertisers to microcast advertisements to specific user types based
on sophisticated analysis of searching behavior, should significantly
differentiate the Company's services. The Company's current estimate of the
timing of the commercial release of the Ultramatch technology is a
forward-looking statement that involves risks and uncertainties. The actual
timing of such release could differ materially from that noted in this forward-
looking statement as a result of certain factors, including the complexity of
this software and the risks inherent in the development and deployment of this
technology. See "Risk Factors -- Dependence on Technology Suppliers."
The Company's objective is to establish itself as the dominant branded
media navigation and content aggregation service provider on the Internet. The
Company seeks to build a high volume of
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traffic on its services to provide a preferred platform for content providers
and advertisers to reach their target audiences. At the core of the Company's
strategy, the Company seeks to provide real-time, content rich Web communities
that create value for the user and establish the Company's platform as an
attractive medium for advertisers.
THE INFOSEEK SERVICE
Infoseek Service, is a navigation and content aggregation service
targeted towards individuals, whether in businesses or at home, and offered
free to users. The Company plans to continue to introduce new services for
individual and organizational markets over time. Infoseek Service provides to
the user fast and relevant search results in response to the user's query.
Moreover, Infoseek Service's integrated search and browse functions guide the
user to a real-time generated, personalized, Web community related to the area
of inquiry. Infoseek Service is offered free of charge to Internet users.
Infoseek Service integrates multiple methods of obtaining information
from the Internet. Users are presented with four principal resources --
Search, Directory, Content Feeds and Service Links -- from which they can
launch specific queries, browse or access proprietary content.
. Search: The Search function allows the user to effect
query-based searches of the Web, USENET News and other premium
content databases or the Directory. To perform a search, a
user types a query in the search box and is then presented a
highly specific response from a search of the entire database.
A search can be effected using either simple keywords,
phrases, full text (natural languages) or more advanced
formalogic formats using expanded syntax. The Search function
utilizes sophisticated techniques to allow users to obtain
specific results for queries, such as "AT&T", "NeXT," "49ers"
or "Vitamin C," which can pose significant challenges to other
search services, due to the case sensitive, numerical or
singular letter aspect of the query. Infoseek Service has won
a number of industry awards including "Best of the Test"
(Internet World May 96), "Number 1 Rated Search Engine" (PC
Computing Sept. 95) and "MVP: Internet Tools" (PC Computing
Dec. 95).
. Directory: The Infoseek Directory is a hierarchical listing of
Web pages that have been selected and abstracted by the
Company and organized by category. Directory enables a user
to click on a directory entry such as Arts & Entertainment or
Sports, and to look through a hierarchy of relevant Internet
sites for areas of interest. For example, under Sports, the
user can proceed from Baseball to Players, and finally, to Ken
Griffey Jr. Directory assists the user by providing abstracts
of each directory entry. In addition, the Company has
licensed certain technology from Aptex which allows the
Company to automatically and continuously update the Company's
Web Directory. Infoseek has been using this technology to
automate the construction of Directory categories, the
assignment of Web pages to each Directory category, as well as
to increase the number of entries in the Directory. As of
December 31, 1996 the Company had increased its directory of
Web sites to over 500,000, the most sites in a directory
provided by a search and navigation service at that time.
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. Content Feeds: Content feeds from a variety of third party
services provide users with high quality, up-to-date
information from a variety of familiar, reputable sources.
For example, the Infoseek News Center offers users the latest
business, world, political, technology and sports news from a
variety of data sources such as Reuters, Business Wire, PR
Newswire, and Usenet news groups. News that matches the
user's query is delivery as part of a search result. These
content feeds allow the Company to provide a vast amount of
information that is attractive to businesses and consumers
without the need for the Company to expend its resources to
generate and update this data.
. Service Links: Users can be directly linked to third party
sites by clicking on several different title bars listed at the
side of the search screen or icons presented on the Infoseek
page. Pursuant to arrangements with NYNEX and UPS, users can
access the BigYellow on-line yellow pages directory or the UPS
tracking system by clicking on those links. The standard
Internet advertising on Infoseek also contains direct links to
the advertisers' home page. Without direct hypertext links
such as these a user must either conduct a new search or know
and enter a precise URL to move to another site.
Infoseek Service operates with most popular Web browsers. Although
browser features vary by manufacturer and version, Infoseek Service
automatically configures itself to conform to the specific features of each
user's browser. Where available, Infoseek Service employs advanced features
such as frames, which organize the screen format into clickable areas to
enhance the usability of the service and the appeal to advertisers.
TECHNOLOGY
The Company believes it can differentiate itself by developing
innovative proprietary technology and integrating technology licensed from
third parties where appropriate. The Company's strategy is to develop and
license only technologies that are able to scale with the growth in content on
the Internet, in order to enable the Company to cost-effectively adapt and grow
with the Internet.
Core Search Engine Technology
The Company's current search engine technology is based upon
Ultraseek, an enhanced search technology that was integrated into Infoseek's
services in the fourth quarter of 1996 to offer a new approach to information
retrieval that provides users enhanced levels of accuracy, currency,
comprehensiveness and speed. Ultraseek includes built-in intelligence with
features such as phrase, capitalization and proper name recognition.
The Company's award-winning search engine seeks to deliver high
accuracy, which is characterized by the level of precision and the level of
recall. Precision and recall are two criteria by which the effectiveness of a
search engine technology is often measured. Precision is a measure of how
effectively a search engine calculates the relevance of documents that match
the query. Recall is a measure of what percentage of the total number of
relevant documents in the database are found during
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the search. Together, these two measures of search engine performance tend to
be the most important factors to users in evaluating the accuracy and
usefulness of a search engine. For example, in a database of 100 documents
with two documents that exactly match the desired query, the ideal search
engine would retrieve only the two matching documents, thereby achieving both
100% precision and 100% recall.
In addition, due to the dynamic nature of the Internet, the retrieval
of up-to-date information has become another key factor for the evaluation of
Internet search services. To bring current information to the user, the
Company is developing technology to refresh its entire database of Web pages no
less frequently than every four weeks, while regularly updating with new Web
pages. This enables Infoseek Service to deliver accurate, relevant and
up-to-date search results.
Infoseek's search engine is able to recognize proper nouns and analyze
keyword proximity. A request in Infoseek Service for "Pete Rose" will return
the former baseball player and not a large selection of flowers or other
persons named "Pete," thereby retrieving more accurate results. In addition,
the technology is case-sensitive, so that it can distinguish between a search
for "NeXT," the technology company recently acquired by Apple Computer, Inc.,
and "next," the common word. Another key element of the technology include its
ability to "stem" words so that tenses and inflections of a word (such as stop,
stops, stopped and stopping) are considered in the search. Stemming,
improperly performed, results in the retrieval of large volumes of irrelevant
information. The technology also makes use of operators that can filter
documents by either requiring a specific term to appear in all search results
or rejecting any results containing a specific term. Field operators are also
used so that a search term may be linked to or excluded from a specific
portion, or field, of a document, such as the title of a document.
To facilitate the ease of use of the service, Infoseek Service
includes a sophisticated technology to interpret "natural language" queries.
Although many current search engines also provide natural language
capabilities, the results achieved may differ dramatically. The Infoseek
technology is based upon a weighting of various factors such as the case of the
words in the search phrase, how common the words appear in usage, word
proximity and how the words appear in the pages searched. By using the
stemming, case-sensitivity, word proximity, operators and other algorithms in
the search engine, Infoseek Service is able to retrieve highly accurate and
relevant results.
The Company has also provided a proprietary Web spider which works to
enhance the performance of the search engine. A Web spider is software that
identifies and catalogs pages on the Web. This catalog, when indexed with text
retrieval software such as the Company's search engine, can be quickly accessed
by keyword or phrase. Together, the search engine technology and the Web
spider technology are used to index Web pages, the Directory and other sources
of content. When the user submits a query, such as "Explain the lyrics to
Penny Lane", the engine searches the Web index created by the Web spider, the
pages indexed in the Directory and other content, to provide a list of 'hits'
ordered by the relevance of the hits to the user's query.
The Company has also licensed certain software technologies from XSoft,
a unit of XEROX, which the Company uses for the linguistic analysis of Web pages
and search terms. This
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technology has been licensed to the Company on a partially exclusive basis for
the first year of the five-year contract, which began on March 31, 1996.
In addition, in May 1996 the Company licensed certain technology from
Aptex that allows the Company to update and to enhance the Company's Web
Directory feature automatically. This technology has automated the assignment
of Web pages to each Directory category. This process was previously performed
manually by Infoseek, as it still is at many other Internet search and
navigation technology companies. This technology has been licensed to the
Company for an initial five year term beginning in October 1996. There can be
no assurance that the Aptex technology will function as anticipated or will
provide the intended benefits, and any such deficiency could require the
Company to incur significant increased costs to expand its Directory as
planned. See "Risk Factors -- Technological Change and New Products and
Services" and "-- Dependence on Technology Suppliers."
Advertising Management
Infoseek has developed certain proprietary systems for the
instantaneous placement of advertisements with targeted audiences on
appropriate Infoseek Service Web pages. Infoseek's advertising management
systems are capable of presenting in real-time advertising that corresponds to
a user's inquiry. If certain key words have been purchased by more than one
advertiser, the system automatically determines which advertisement is
displayed based upon the number of impressions under contract and delivered to
date. As part of the Company's proprietary advertising management system,
Infoseek also maintains a database that tracks the number of searches of each
word queried by Infoseek users, the number of browses through each Directory
category and the number of impressions of each advertisement. This system
assists the Company in estimating the number of expected impressions of
specific advertisement options marketed by the Company or otherwise sought by
advertisers.
In April 1996, the Company licensed certain software technology from
Aptex which the Company used to develop its Ultramatch technology, which is
currently in beta testing and is expected to be released in 1997. Ultramatch
is an advertising and audience management system which utilizes real time
behavioral tracking technology to optimize the matching of advertisements with
the appropriate audience. The Aptex technology underlying Ultramatch has been
licensed to the Company for an initial five year term beginning in October
1996. The Company expects that Ultramatch will provide significant
technological improvements to the Company's advertising and audience management
systems. The Company's current estimate of the timing of the commercial
release of the Ultramatch technology is a forward-looking statement that
involves risks and uncertainties. The actual timing of such release could
differ materially from that noted in this forward-looking statement as a result
of certain factors, including the complexity of this software and the risks
inherent in the development and deployment of this technology. As a result,
there can be no assurance that Ultramatch technology will be developed and
deployed on a timely basis, or at all. See "Risk Factors -- Developing Market;
Unproven Acceptance of Internet Advertising and of the Company's Products and
Services," "-- Reliance on Advertising Revenues" and "-- Dependence on
Technology Suppliers."
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ADVERTISING SALES
Infoseek derives substantially all of its revenues from the sale of
advertisements. These advertisements appear on the Infoseek Service Web page
when a user enters the service, performs a search, or browses through the
Directory or Toolbar. Advertising revenues represented 82% and 99% of the
Company's total revenues for fiscal 1995 and fiscal 1996, respectively. The
Company believes it has been able to achieve its advertising revenues to date
primarily through the extensive knowledge and relationship-base of its
direct-sales force and through the products and technological advantages it can
offer advertisers.
Sales Force
As of December 31, 1996, Infoseek's advertising sales staff consisted
of 19 representatives located in Santa Clara, New York, San Francisco, Atlanta
and Boston. The staff collectively has advertising experience at media firms
such as Anderson Lembke, Cahners Publishing, Foote Cone & Belding, Inc.,
Hachette Filipacchi, Hearst New Media, Time Warner, New York Times Magazine, US
News & World Report, Inc., and Yankee Publishing Inc. The Company believes
that having an internal sales force with significant prior experience will
allow it to better understand and meet advertisers' needs, increase its access
to potential advertisers and maintain strong relationships with its existing
base of advertising clients.
In November of 1996 the Company introduced Infoseek Network, a new
initiative to allow the Company to sell advertising on third-party Internet
sites. The Infoseek Network benefits both advertisers and third-party hosts by
allowing advertisers to increase the reach and frequency of their messages and
enabling third-party sites to more easily sell their ad space. In March
1997 the Company and Hoover's, Inc. ("Hoover's") entered into a strategic
agreement which integrates Hoover's Company Information Service and the
Infoseek Service as part of the Infoseek Network.
International Advertising
Infoseek is expanding internationally to maintain its popular presence
on the Web. In 1996 the Company launched translated versions of its Infoseek
Service in French, Spanish and German. To further capitalize on the
foreign-language capabilities of the Infoseek Service in 1996 the Company
established strategic advertising sales partnerships with advertising
representative firms in Germany and Italy. The Company also is pursuing
advertising sales partnerships in other European countries and Sweden. In
addition, Infoseek's U.S. sales force is able to sell advertising on the
Company's foreign sites to U.S. advertisers who want to reach non-English
speaking customers. See "Risk Factors -- Risks Associated with International
Expansion."
The Company launched a Japanese language version of the Infoseek
Service in the latter half of 1996. In Japan, advertising the Infoseek
products is accomplished through a strategic development, marketing and
advertising sales agreement with Digital Garage Inc., established in the third
quarter of 1996. Digital Garage also is responsible for maintaining the
Japanese section of the Infoseek site and for
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marketing and sales activities in Japan. See "Risk Factors -- Risks Associated
with International Expansion."
Advertising Products and Pricing
The Company offers advertisers four main advertising options that may
be purchased individually or in packages -- search results, topic directory,
keyword and special placement. These options all contain hypertext links to
the advertiser's home page.
. Search Results: Search results advertisements rotate on a
random basis throughout Infoseek Service. Search results
advertising offers advertisers seeking to establish brand
recognition across the broad, general population the broadest
reach of Infoseek users. Search results advertisements are
typically sold in blocks of one thousand impressions to be
generated over a four week period. The current cost per
thousand impressions, ("CPM") ranges from $18 to $26 depending
upon the number of impressions purchased.
. Topic Directory: Topic directory advertisements appear when
an Infoseek user browses through Directory topic pages, such
as Business, Computers, Entertainment and Travel. These
advertisements allow advertisers to target an audience with a
specific area of interest. Like search results
advertisements, topic directory advertisements are sold in
blocks of impressions over a four week period. Because of the
greater selectivity of the audience, current CPMs range from
$35 to $45.
. Keyword: Keyword advertisements are displayed when an
Infoseek user's search contains a particular keyword selected
by the advertiser. This option offers the advertiser a highly
targeted, self-selected audience. Through its proprietary
advertising management system, the Company tracks every word
that is queried by Infoseek users. From it, the Company has
identified keywords that are most frequently queried by
Infoseek users and requested by advertisers. The current four
week rate card CPM for a keyword is $55 for a non-exclusive
buy.
. Special Placement: Special placement advertisements are
displayed on special feature pages, within certain Directory
topic pages and in other manners customized to the needs or
requests of the advertiser. Special placement advertisements
include Infoseek Spotlight, introduced in the fourth quarter
of 1996, which allows advertisers to sponsor a designated
Directory page by placing information about the company at the
bottom of the Directory page with a direct link to the
advertiser's home page. Advertisers may also purchase
advertisements placed on special editorial pages. The Company
seeks to bundle these advertising options to create packages
that offer the greatest value to advertisers. Pricing for
special placements is determined on a case-by-case basis.
In November of 1996 the Company introduced Infoseek Network, a new
initiative to allow the Company to sell advertising on third-party Internet
sites. The Infoseek Network benefits both advertisers and third-party hosts by
allowing advertisers to increase the reach and frequency of their messages and
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enabling third-party sites to more easily sell their ad space. In the first
quarter of 1997, Hoover's Company Information Service was integrated with the
Infoseek Service as part of the Infoseek Network.
During 1996, over 400 advertisers placed advertisements on the
Company's service. For the year ended December 31, 1996 one customer, NYNEX,
which has a representative on the Company's Board of Directors and owns a
substantial amount of the Company's common stock, accounted for 13% of
revenues. Other than NYNEX, no one advertiser accounted for 10% or more of the
Company's revenues for the year ended December 31, 1996. To date, most of
Infoseek's contracts with advertisers have terms of three months or less.
Technological Advantages for Advertisers
The online medium offers advertisers the ability to "narrowcast" their
advertisements. For example, car manufacturers can display their
advertisements when a user executes a car-related search. Infoseek's
technology additionally enables clients to monitor the effectiveness of their
advertisements by tracking click-through rates (the number of viewers who click
to an advertiser's site) to learn more about their target audiences. Infoseek
advertising sales representatives work closely with advertisers to understand
the data and integrate it into their overall advertising strategy. The Company
is exploring new technologies to enhance user behavior tracking and advertising
management capabilities.
The Company currently is testing Ultramatch, an advertising and
management system designed to create a user profile based on real, observed
user behavior to allow precise, targeted advertising. Ultramatch, developed
jointly with Aptex, is based upon neural network technology developed by Aptex
and is scheduled for release in 1997. The Company believes that this
innovative advertising approach, which will allow advertisers to microcast
advertisements to specific user types based on analysis of searching behavior,
should significantly differentiate the Company's services. The Company's
current estimate of the timing of the commercial release of the Ultramatch
technology is a forward-looking statement that involves risks and
uncertainties. The actual timing of such release could differ materially from
that noted in this forward-looking statement as a result of certain factors,
including the complexity of this software and the risks inherent in the
development and deployment of this technology. As a result, there can be no
assurance that Ultramatch technology will be developed and deployed on a timely
basis, or at all. See "Risk Factors -- Developing Market; Unproven Acceptance
of Internet Advertising and of the Company's Products and Services," "--
Reliance on Advertising Revenues" and "-- Dependence on Technology Suppliers."
MARKETING AND DISTRIBUTION
Marketing
The Company's strategy is to build brand awareness for Infoseek
through online and trade advertising, trade shows, broadcast radio, print media
and promotions. The Company's current print media campaign includes
aggressively marketing in publications such as Businessweek, Newsweek, Time,
the New York Times, the Wall Street Journal and Advertising Age. In addition,
the Company cross-
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promotes with content providers through advertising swaps both in online media
and traditional print and broadcast media.
In addition, the Company seeks to establish relationships with key
marketing partners. To that effect, the Company has entered into a
co-marketing relationship with Sun Microsystems, Inc. ("Sun") under which
Infoseek has agreed to use Sun equipment exclusively for use with the Infoseek
branded search service. In return, Infoseek will receive advantageous terms on
its purchases of certain Sun equipment and the two companies shall widely
promote each other's products and services.
Distribution
The Company seeks to form relationships that maximize audience reach
and create alternate distribution channels to the Company's services. The
Company has developed the following significant distribution relationships:
Browser Vendors: The Company has relationships with Netscape,
Microsoft, and Backweb, each of which distributes software to its customers
which is used to navigate the Web. Infoseek Service is listed by each of these
companies as a navigational service available to their users. The terms of
these relationships vary widely, both in the prominence given to Infoseek
Service relative to other alternatives and the compensation paid by Infoseek
for advertising. All of these companies feature Infoseek Service as a key
navigational tool and engage in certain promotional activities.
Since March 1995 the Company's service has been listed as a navigational
service on the Netscape Web page accessible via the "Net Search" button. Through
March 1996, the Company's service was listed as the sole premier navigational
service on Netscape. In March 1996, Infoseek entered into a new agreement with
Netscape which provided for Infoseek to be listed as a non-exclusive provider of
navigational services on Netscape's Web page for the period April 10, 1996 to
March 31, 1997. Currently, Netscape's Web page displays four additional premier
providers and Infoseek's current agreement with Netscape provides for payments
of up to an aggregate of $5 million to Netscape over the one-year term of the
agreement. In March 1997 the Company renewed its agreement with Netscape under
terms which extend the current contract through April 1997 and thereafter
provides for Infoseek Service to be one of five premier providers displayed on
Netscape's Web page for the period of May 1, 1997 through April 30, 1998.
Infoseek's agreement with Netscape provides for payments of up to an aggregate
of $12,500,000 to Netscape over the term of the agreement. There can be no
assurance that the Company will be able to maintain or increase its current
level of traffic and any failure to do so could materially and adversely impact
advertising revenues. In addition, the Company cannot anticipate the impact of
any changes Netscape may make to this service, to its Web page or its other
services, or the effect on advertising revenues that may be generated from such
traffic. For example, is possible that any increased presence on Netscape under
the terms of the March 1997 agreement could generate traffic that exceeds the
Company's service capacity. Any interruption in service would adversely affect
advertising revenues. In the alternative, if traffic is decreased significantly
as a result of changes in the Netscape relationshipo or for other reasons, and
the Company is unable to develop alternative viable distribution channels,
advertising revenues would be adversely affected yet the remaining Netscape
obligation due in the first quarter of 1997, $1,250,000, would not be reduced,
the result being that the Company's business, results of operations and
financial condition would be materially and adversely affected. See "Risk
Factors -- Change in Strategic
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Relationships" and "--Capacity Constraints and System Failure".
Since August 1995, the Infoseek Service has been listed as a
navigational search service available to users from various "Search Referral
Sources" by Microsoft. Effective as of January 1997, the Company renewed its
Search Services Agreement with Microsoft under terms which extend the search
referral relationship through April 1997. As consideration for the listing of
the Infoseek Service by Microsoft, the Company will display the Microsoft
Internet Explorer logo and Microsoft advertising banners on the Infoseek Service
search results page in relative proportion to the number of search referrals
originating from Microsoft.
Strategic Relationships: In March 1996, the Company and NYNEX entered
into a one year agreement which provided that from May 1996 until May 1997 the
Company prominently display the BigYellow logo, representing NYNEX's
interactive shopping directory, as the exclusive comprehensive shopping
directory within Infoseek Service. NYNEX agreed to pay to the Company up to an
aggregate of $4.6 million in monthly payments, which amount could be decreased
proportionately if the number of impressions of the BigYellow logo fell below a
specified number. NYNEX may extend the term of this original agreement for
additional one year periods, with the fee to be determined based upon
Infoseek's then current advertising rate structure. In addition, NYNEX has the
right to cancel or renegotiate the agreement based upon certain relative
traffic volumes on the BigYellow and Infoseek Service sites. In February 1997
the Company and NYNEX amended this agreement to extend its terms through June
1998 in exchange for an additional $1.4 million, for a total of $6.0 million
in monthly payments ($2.5 million of which was previously paid under the terms
of the original agreement). Pursuant to the amended contract, the companies
have eliminated certain exclusivity and reimbursement provisions but otherwise
have retained substantially the same terms and conditions as the original
agreement. There can be no assurance, however, that the NYNEX arrangement will
prove to be mutually beneficial, that it will be continued after its amended
term or that the Company will be able to produce the levels of traffic required
to maintain the contract under its present terms or at all. See "Risk Factors
- -- Potential Fluctuations in Future Results" and "-- Changes in Strategic
Relationships."
In March 1997 Infoseek and Cable News Network ("CNN") signed an
agreement to feature the Infoseek Service exclusively on CNN's three Web sites
- -- CNN Interactive, CNNfn Interactive, and AllPolitics -- giving users the
ability to search instantly within CNN's sites or the entire Web for
additional information related to a news story. Under the terms of the
agreement, the Company is required to pay certain monthly minimums over the one
year term of the agreement. An Infoseek button will be prominently featured on
all pages of each of CNN's sites. In addition, most CNN news stories will
include an option to instantly search the Internet, using the Infoseek Service,
for information related to the article's subject. As part of the agreement,
CNN will also use Infoseek's search technology within the CNN sites to allow
users to search CNN Interactive, CNNfn Interactive and AllPolitics, and future
CNN and Turner Entertainment Web sites will also feature Infoseek's search and
navigation services. These new services are scheduled to be available on the
CNN web sites beginning in March. The Company's current estimate of the timing
of the commercial availability of the Infoseek Service on the current or future
CNN sites is a forward-looking statement that involves risks and uncertainties.
The actual timing of such availability could differ materially from that noted
in this forward-looking statement as a result of certain factors, including the
success of the Company and CNN in deploying the technology linking the sites
and establishing Company search technology within the CNN sites. As a result,
there can be no assurance that the Infoseek Service will become commercially
available on the CNN sites within the time frame stated above, or at all. See
"Risk Factors -- Change in Strategic Relationships."
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In March 1997 the Company and Hoover's, Inc. ("Hoover's") entered into
an agreement which integrates Hoover's Company Information Service and the
Infoseek Service. As part of this relationship, the Company made an equity
investment of approximately $750,000 in Hoover's and received warrants
exercisable for approximately $750,000 of Hoover's common stock. The Company
has also agreed to make available to Hoover's a revolving credit loan of up to
$250,000. Beginning in March 1997 the Company will be the exclusive
advertising provider to Hoover's advertising- and subscriber-supported Web
sites, including Hoover's Online, IPO Central and Cyberstocks and is required
to pay certain monthly minimums to Hoover's during the term of the contract.
In addition, Infoseek will place advertising sales on the Hoover's Business
Resource site provided through America Online.
The Company has expanded its advertising internationally and in the
third quarter of 1996 established a strategic development, marketing and
advertising sales agreement with the Japanese company Digital Garage Inc.
Digital Garage also is responsible for maintaining the Japanese language
section of the Infoseek site and for marketing and sales activities in Japan.
Other Web Sites: Infoseek promotes the creation of hyperlinks between
Infoseek Service and other Web sites. More than 75,000 pages on the Web
currently contain pointers to Infoseek Service, often with the Infoseek logo
prominently displayed on the pages.
COMPETITION
The market for Internet products and services is highly competitive,
with no substantial barriers to entry, and the Company expects that competition
will continue to intensify. In addition, the market for the Company's products
and services continues to develop, is rapidly evolving and is characterized by
an increasing number of market entrants with competing products and services.
A number of companies offer competitive products and services addressing
certain of the Company's target markets. These companies include America
Online, Inc., CompuServe Corporation, Digital Equipment Corporation, Excite,
Inc., Lycos, Inc., Open Text Corporation, Prodigy Services Company and Yahoo!
Corporation. In addition, the Company competes with metasearch services that
allow a user to search the databases of several catalogs and directories
simultaneously. The Company also competes indirectly with database vendors
that offer information search and retrieval capabilities with their core
database products. In the future, the Company may encounter competition from
providers of Web browser software, including Netscape and Microsoft, online
services and other providers of other Internet products and services who elect
to incorporate their own search and retrieval features into their offerings.
Many of the Company's existing and potential competitors have
significantly greater financial, technical and marketing resources than the
Company. The Company may also be adversely affected by competition from
licensees of its products and technology, current and future advertisers, as
well as from its current, future and former content providers. There can be no
assurance that the Company's competitors will not develop Internet products and
services that are superior to those of the Company or that achieve greater
market acceptance than the Company's offerings. Moreover, a number of the
Company's current advertising customers, licensees and licensors have also
established relationships with certain of the Company's competitors and future
advertising customers, licensees and licensors may establish similar
relationships. In addition, the Company competes with online services and
other Web
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site operators as well as traditional offline media such as print and
television for a share of advertisers' total advertising budgets. There can be
no assurance that the Company will be able to compete successfully against its
current or future competitors or that competition will not have a material
adverse effect on the Company's business, results of operations and financial
condition. See "Risk Factors -- Intense Competition."
RESEARCH AND DEVELOPMENT
During 1995 and 1996, the Company spent approximately $1,175,000 and
$4,550,000, respectively, on research and development activities. As of
December 31, 1996, the Company had a research and development staff of 41
full-time employees located at the Company's headquarters in Santa Clara,
California.
The Company has developed a new search engine technology, Ultraseek
which has been designed to significantly improve retrieval and Web page
indexing capabilities beyond the ACSIOM technology that the Company licensed
from the University of Massachusetts. The Company has also licensed certain
software technologies from XSoft, a unit of XEROX, which the Company intends to
use for the linguistic analysis of Web pages and search terms. This technology
has been licensed to the Company on a partially exclusive basis for the first
year of the five-year contract, which began on March 31, 1996. Infoseek has
licensed certain technology from Aptex which automates the development of the
Company's Web Directory feature. Infoseek has used this technology to enhance
the Directory development process by automating the creation of Directory
entries, as well as the abstracts within the Directory entries. In addition to
these technologies and services under development, many of the Company's new
products and product enhancements have been only recently introduced and it is
not yet clear that such products will achieve significant market acceptance.
See "Risk Factors -- Technological Change and New Products and Services."
The Company has been working to establish a mirror, or
duplicate, Infoseek Service site and expects this site to be complete and
functioning in 1997. The Company's current estimate of the timing of the
completion of this duplicate service site is a forward-looking statement that
involves risks and uncertainties. The actual timing of such completion and the
capacity of the service provided could differ materially from that noted in
this forward-looking statement as a result of certain factors, including
hardware or software difficulties and the amount of traffic on Infoseek
Service. As a result, there can be no assurance that a duplicate service site
will be operational within the time frame stated above, or at all. In
addition, any duplicate site will create additional operational and management
complexities, including the need for continual updating and maintenance of
directory listings, possibly among geographically dispersed network servers.
See "Risk Factors--Capacity Constraints and System Failure".
INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
The Company's success depends significantly upon its proprietary
technology. The Company currently relies on a combination of copyright and
trademark laws, trade secrets, confidentiality procedures and contractual
provisions to protect its proprietary rights. The Company seeks to protect
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its software, documentation and other written materials under trade secret,
patent and copyright laws, which afford only limited protection. The Company
holds one patent and currently has five United States patent applications
pending. There can be no assurance that the pending applications will be
approved, or that if issued, such patents will not be challenged, and if such
challenges are brought, that such patents will not be invalidated. There can
be no assurance that the Company will develop proprietary products or
technologies that are patentable, that any issued patent will provide the
Company with any competitive advantages or will not be challenged by third
parties, or that the patents of others will not have a material adverse effect
on the Company's ability to do business. The Company has registered and
applied for registration for certain service marks and trademarks, and will
continue to evaluate the registration of additional service marks and
trademarks, as appropriate. The Company generally enters into confidentiality
agreements with its employees and with its consultants and customers.
Litigation may be necessary to protect the Company's proprietary technology.
Any such litigation may be time-consuming and costly. Despite the Company's
efforts to protect its proprietary rights, unauthorized parties may attempt to
copy aspects of the Company's products or services or to obtain and use
information that the Company regards as proprietary. In addition, the laws of
some foreign countries do not protect proprietary rights to as great an extent
as do the laws of the United States. There can be no assurance that the
Company's means of protecting its proprietary rights will be adequate or that
the Company's competitors will not independently develop similar technology or
duplicate the Company's products or design around patents issued to the Company
or other intellectual property rights of the Company.
There have been substantial amounts of litigation in the computer
industry regarding intellectual property rights. There can be no assurance
that third parties will not in the future claim infringement by the Company
with respect to current or future products, trademarks or other proprietary
rights, or that the Company will not counterclaim against any such parties in
such actions. Any such claims or counterclaims could be time-consuming, result
in costly litigation, cause product release delays, require the Company to
redesign its products or require the Company to enter into royalty or licensing
agreements, any of which could have a material adverse effect upon the
Company's business, operating results and financial condition. Such royalty or
licensing agreements, if required, may not be available on terms acceptable to
the Company or at all. See "Risk Factors -- Intellectual Property and
Proprietary Rights" and "-- Government Regulation and Legal Uncertainties."
EMPLOYEES
As of December 31, 1996, the Company had 113 full-time employees,
including 41 in research and development, 49 in sales and marketing and 23 in
finance and administration. The Company's future performance depends in
significant part upon the continued service of Robert E.L. Johnson, III, the
Company President and Chief Executive Officer and Steven T. Kirsch, a founder
and the Chairman of the Board of the Company, as well as its other key
technical and senior management personnel, none of whom is bound by an
employment agreement. The Company provides incentives such as salary, benefits
and option grants (which are typically subject to vesting over four years) to
attract and retain qualified employees. The loss or substantial diversion of
the services of the Company's officers or other key employees could have a
material adverse effect on the Company's business, operating results and
financial condition. The Company's future success also depends on its
continuing ability to attract and retain
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highly qualified technical and management personnel. See "Risk Factors --
Management of Growth; Need to Establish Infrastructure."
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RISK FACTORS
This Report contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. Actual results and
the timing of certain events could differ materially from those projected in
the forward-looking statements as a result of the risk factors set forth below
and other factors discussed elsewhere in this Report. In addition to the other
information contained in this Report, investors should carefully consider the
following risk factors:
Limited Operating History; Anticipation of Continued Losses. The
Company has a limited operating history, which makes it difficult to manage
future operations or predict future operating results. The Company was formed
in August 1993 and did not commence generating revenues until January 1995.
The Company has incurred significant net losses since inception and expects to
continue to incur significant losses on a quarterly and annual basis for the
foreseeable future. As of December 31, 1996, the Company had an accumulated
deficit of $20.8 million. The Company and its prospects must be considered in
light of the risks, costs and difficulties frequently encountered by companies
in their early stage of development, particularly companies in the new and
rapidly evolving Internet market. There can be no assurance that the Company
will be able to address any of these challenges or will be able to sustain
revenue growth or achieve profitability. Moreover, in 1996 the Company
significantly increased its operating expenses to substantially increase its
sales and marketing operating, develop new distribution channels, broaden its
customer support capabilities and fund greater levels of research and
development. Further increases in operating expenses are planned in 1997. To
the extent that any such expenses are not subsequently and timely followed by
increased revenues, the Company's business, results of operations and financial
condition would be materially adversely affected.
Potential Fluctuations in Future Results. As a result of the
Company's limited operating history as well as the very recent emergence of the
Internet market addressed by the Company, the Company has neither internal nor
industry-based historical financial data for any significant period of time
upon which to base planned operating expenses. The Company expects that its
results of operations may also fluctuate significantly in the future as a
result of a variety of factors, including: the continued rate of growth, usage
and acceptance of the Internet; the rate of acceptance of the Internet as an
advertising medium; demand for the Company's products and services; the
advertising budgeting cycles of individual advertisers; the introduction and
acceptance of new or enhanced products or services by the Company or by its
competitors; the Company's ability to anticipate and effectively adapt to a
developing market and to rapidly changing technologies; the Company's ability
to attract, retain and motivate qualified personnel; initiation, renewal or
expiration of significant contracts with NYNEX, Netscape or others; pricing
changes by the Company or its competitors; specific economic conditions in the
Internet market; general economic conditions and other factors. In addition,
the Infoseek Network, which was recently introduced by the Company, is expected
to generate advertising revenues that would typically carry lower gross profit
margins than those associated with advertising sold on the Company's own Web
site. As a result the Company expects that its gross margins may decline
somewhat to the extent that Network sales become material in amount.
Substantially all of the Company's revenues have been generated from the sale
of advertising and the Company expects revenue for the foreseeable future to
continue to be derived
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substantially from advertising sales. Moreover, most of the Company's
contracts with advertising customers have terms of three months or less with
options to cancel at any time. Accordingly, future sales and operating results
are difficult to forecast. The Company's expense levels are based in part on
its expectations as to future revenues and to a significant extent are
relatively fixed, at least in the short term. The Company may not be able to
adjust spending in a timely manner to compensate for any unexpected revenue
shortfall. Accordingly, any significant shortfall in relation to the Company's
expectations would have an immediate adverse impact on the Company's business,
results of operations and financial condition. In addition, the Company may
elect from time to time to make certain pricing service or marketing decisions
or acquisitions that could have a short-term material adverse effect on the
Company's business results of operations and financial condition and may not
generate the long-term benefits intended. Due to all of the foregoing factors,
it is likely that in some future period the Company's operating results may be
below the expectations of public market analysis and investors. In such event,
the price of the Company's Common Stock would likely be materially adversely
affected.
The Company's revenues are also dependent on its relationship with
NYNEX. In March 1996, the Company and NYNEX entered into a one year agreement
which provides for the Company's display of the BigYellow logo with Ultraseek.
Amending the terms of the agreement, NYNEX agreed to pay to the Company up to
an aggregate of $4,600,000 in monthly payments, which amount will be decreased
proportionately if the number of impressions of the BigYellow logo is below a
specified number. NYNEX could extend the term of the agreement for additional
one year periods with the fee to be determined based upon Infoseek's then
current advertising rate structure. In addition, NYNEX has the right to cancel
or renegotiate the agreement based upon Infoseek's then current advertising
rate structure. NYNEX also had the right to cancel or renegotiate the
agreement based upon certain relative traffic volumes on the BigYellow and
Infoseek Guide sites. In February 1997 the Company and NYNEX amended this
agreement to extend the term through June 1998 in exchange for a total of
$6,000,000 in monthly payments ($2,500,000 of which was previously paid under
the terms of the original agreement). Pursuant to the amended contract, the
companies have eliminated certain exclusivity and reimbursement provisions but
otherwise have retained substantially the same terms and conditions as the
original agreement. There can be no assurance, however, that the NYNEX
arrangement will prove to be mutually beneficial, that it will be continued
after its amended term or that the Company will be able to produce the levels
of traffic required to maintain the contract under its present terms or at all.
Developing Market; Unproven Acceptance of Internet Advertising and of
the Company's Products and Services. The market for the Company's products and
services has only recently begun to develop, is rapidly evolving and is
characterized by an increasing number of market entrants with products and
services for use on the Internet. The Company's future success is highly
dependent upon the increased use of the Internet for information publication,
distribution and commerce. In particular, because the Company expects to
derive substantially all of its revenues in the foreseeable future from sales
of Internet advertising, the future success of the Company is highly dependent
on the development of the Internet as an advertising medium.
The Company is in a new and rapidly evolving industry with demand for
and market acceptance of recently introduced products and services being
subject to a high level of uncertainty. Accordingly, it is difficult to
predict its size, stability and the extent of its growth, if any. There can be
no assurance
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that the market for the Company's products and services will develop that
demand for the Company's products or services by Internet users or by
advertisers will emerge or become sustainable. If the market fails to develop,
develops more slowly than expected or becomes saturated with competitors, or if
the Company's products and services do not achieve or sustain acceptance by the
Internet users or advertisers, the Company's business, results of operations
and financial condition will be materially adversely affected.
Reliance on Advertising Revenues. The Company has derived
substantially all of its revenues to date from the sale of advertisements and
expects such dependence of advertising revenue to continue. The Company's
current business model to generate revenues through the sale of advertising on
the Internet is unproven. The Internet as an advertising medium has not been
available for a sufficient period of time to gauge its effectiveness as
compared with traditional advertising media. In addition, most of the
Company's current advertising customers have limited or no experience using the
Internet as an advertising medium, have not devoted a significant portion of
their advertising expenditures to such advertising and may not find such
advertising to be effective for promoting their products and services relative
to advertising in traditional media. In addition, the Company's advertising
revenues to date have been derived from a limited number of advertising
customers. There can be no assurance that current advertisers will continue to
purchase advertising space and services from the Company or that sufficient
impressions will be achieved or available or that the Company will be able to
successfully attract additional advertisers. Furthermore, with the rapid
growth of available inventory on the Internet and the intense competition among
sellers of advertising space it is difficult to project future levels of
advertising revenues and pricing models that will be adopted by the industry or
individual companies. Accordingly, there can be no assurance that the Company
will be successful in generating significant future advertising revenues and
failure to do so will have a material adverse effect on the Company's business,
results of operations and financial condition.
Change in Strategic Relationships. From March 1995 through March 1996,
the Company's service was listed as the sole premier navigational service on
the Netscape Web page accessible via the "Net Search" button. In March 1996,
Infoseek entered into a new agreement with Netscape which provides that
Infoseek will be listed as a non-exclusive premier provider of navigational
services on Netscape's Web page for the period of April 10, 1996 to March 31,
1997. Currently, Netscape's Web page displays four additional premier
providers. Infoseek's agreement with Netscape provides for payments of up to
an aggregate of $5,000,000 to Netscape over the term of the agreement. In
March 1997 the Company renewed its agreement with Netscape under terms which
extend the current contract through April 1997 and thereafter provides for
Infoseek Service to be one of five premier providers displayed on Netscape's
Web page for the period of May 1, 1997 through April 30, 1998. Infoseek's
agreement with Netscape provides for payments of up to an aggregate of
$12,500,000 to Netscape over the term of the agreement. There can be no
assurance that the Company will be able to maintain or increase its current
level of traffic and any failure to do so could materially and adversely impact
advertising revenues. In addition, the Company cannot anticipate the impact of
any changes Netscape may make to this service, to its Web page or its other
services, or the effect on advertising revenues that may be generated from such
traffic. For example, is possible that any increased presence on Netscape
under the terms of the March 1997 agreement could generate traffic that exceeds
the Company's service capacity. In the alternative, if traffic is decreased
significantly as a result of changes in the Netscape relationship or for other
reasons, and the Company is unable to develop alternative viable distribution
channels, advertising revenues would
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be adversely affected yet the remaining $1,250,000 Netscape obligation due
under the March 1996 contract and any amounts due under the March 1997 contract
would not be reduced, the result being that the Company's business, results of
operations and financial condition would be materially and adversely affected.
The Company's revenues are also dependent on its relationship with
NYNEX. In March 1996, the Company and NYNEX entered into a one year agreement
which provides for the Company's display of the BigYellow logo with Ultraseek.
Amending the terms of the agreement, NYNEX agreed to pay to the Company up to
an aggregate of $4,600,000 in monthly payments, which amount will be decreased
proportionately if the number of impressions of the BigYellow logo is below a
specified number. NYNEX could extend the term of the agreement for additional
one year periods with the fee to be determined based upon Infoseek's then
current advertising rate structure. In addition, NYNEX has the right to cancel
or renegotiate the agreement based upon Infoseek's then current advertising
rate structure. NYNEX also had the right to cancel or renegotiate the
agreement based upon certain relative traffic volumes on the BigYellow and
Infoseek Guide sites. In February 1997 the Company and NYNEX amended this
agreement to extend the term through June 1998 in exchange for a total of
$6,000,000 in monthly payments ($2,500,000 of which was previously paid under
the terms of the original agreement). Pursuant to the amended contract, the
companies have eliminated certain exclusivity and reimbursement provisions but
otherwise have retained substantially the same terms and conditions as the
original agreement. There can be no assurance, however, that the NYNEX
arrangement will prove to be mutually beneficial, that it will be continued
after its amended term or that the Company will be able to produce the levels
of traffic required to maintain the contract under its present terms or at all.
Technological Changes and New Products and Services. The market for
Internet products and services is characterized by rapid technological change,
changing customer needs, frequent new product introductions and evolving
industry standards. These market characteristics are exacerbated by the
emerging nature of this market and the fact that many companies are expected to
introduce new Internet products and services in the near future. The Company's
future success will depend on its ability to continually and on a timely basis
introduce new products, services and technologies and to continue to improve
the performance, features and reliability of the Company's products and
services in response to both evolving demands of the marketplace and
competitive product offerings.
There can be no assurance that any new or proposed product or service
will attain market acceptance. Failure of the Company to successfully design,
develop, test, market and introduce new and enhanced technologies and services,
in particular, Ultraseek or any enhancements of the Company's current search
technology or the failure of the Company's recently introduced products and
services to achieve market acceptance could have a material adverse effect upon
the Company's business, operating results and financial condition. While the
Company's Ultramatch technology is currently in beta testing and is expected to
be commercially released in 1997, this new technology, which is being developed
with Aptex Software, is complex and subject to risks inherent in the
development and deployment process. There can be no assurance that the Company
will not experience difficulties that could delay or prevent the successful
development, introduction or marketing of new or enhanced technologies,
products and services, or that the Company's new or recently introduced
products and services will adequately meet the requirements of the marketplace
and achieve significant market acceptance. Due to certain market
characteristics, including technologic change, changing customer needs,
frequent new product and service introductions and evolving industry standards,
timeliness of introduction of these new products and services is critical.
Delays in the introduction of new products and services may result in customer
dissatisfaction and may delay or cause a loss of advertising revenue. There
can be no assurance that the Company will be successful in developing new
products or services or improving existing products and services that respond
to technological changes or evolving industry standards, that the Company will
not experience difficulties that could delay or prevent the successful
development, introduction and marketing of new or improved products and
services, or that its new products and services will adequately meet the
requirements of the marketplace and achieve market acceptance. In addition,
new or enhanced products and services introduced by the Company may contain
undetected errors that require significant design modifications. This could
result in a loss of customer confidence and user support, thus adversely
affecting the use of the Company's products and services, which in turn would
have a material adverse effect upon the Company's business, results of
operations or financial condition. If the Company is unable to develop and
introduce new or improved products or services in a timely manner in response
to changing market conditions or customer requirements, the Company's business,
operating results and financial condition will be materially adversely
affected.
-22-
<PAGE> 23
Dependence on Technology Suppliers. The Company is dependent
currently upon several suppliers for the integral components of its current and
future technologies. In April 1996, the Company licensed certain software
technology from Aptex which the Company used to develop its Ultramatch
technology, which is currently in beta testing and is expected to be released
in 1997. Ultramatch is an advertising and audience management system which
utilizes real time behavioral tracking technology to optimize the matching of
advertisements with the appropriate audience. The Aptex technology underlying
Ultramatch has been licensed to the Company for an initial five year term,
beginning in October 1996. The Company expects that Ultramatch will provide
significant technological improvements to the Company's advertising and
audience management systems. The Company expects the proposed technology to
provide significant technological improvements to the Company's advertising and
audience management systems. The actual timing of such release could differ
materially as a result of certain factors, including the Company's success in
completing the development and deployment of this technology. As a result,
there can be no assurance that Ultramatch technology will be developed and
deployed on a timely basis, or at all.
Also in May 1996, the Company licensed certain technology from Aptex
that allows the Company to update and to enhance the Company's Web Directory
feature automatically. This technology has automated the assignment of Web
pages to each Directory category. This process was previously performed
manually by Infoseek, as they still are at many other search and navigation
companies. This technology has been licensed to the Company for an initial
five year term beginning in October 1996. There can be no assurance that the
Aptex technology will function as anticipated or will provide the intended
benefits which could require the Company to incur significantly increased costs
to expand its Directory feature.
The Company has also licensed certain software technologies from XSoft
to be used for the linguistic analysis of search terms. This technology has
been licensed to the Company on a partially exclusive basis for the first year
of the five year contract, which began on March 31, 1996. In addition, the
Company may develop other technology alliances and enter into other license
arrangements with technology vendors.
There can be no assurance that the Aptex or XSoft technologies will be
successfully designed, developed and tested, or, that if the technologies are
successfully developed, any product or service into which the technologies are
incorporated will be successfully accepted by the marketplace. Any failure of
Aptex, XSoft or any future technology vendor to provide prompt and effective
support and maintenance to the Company, or to continue to upgrade their
respective technologies in order to continue to be competitive, could have a
material adverse effect on the Company's business, results of operations and
financial condition.
Dependence Upon Third Party Content Development. A key element of the
Company's strategy involves the use of unique content developed by third
parties exclusively for Infoseek. A significant majority of the Company's
relationships with such third parties, however, have only recently been
developed and are contracted on three month trial bases. There can be no
assurance that these content sponsors will continue to provide content that is
unique to Infoseek, that they will not seek to charge the Company a significant
fee for the supply of such content, that they will not enter into similar
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<PAGE> 24
arrangements with or provide similar content to the Company's competitors, that
they will continue their relationship with the Company, or that they will not
establish their own services to compete against the Company for advertising
revenue. Nor can there be any assurance that the Company's current or future
third-party content providers will provide content that is attractive to Web
users or that their efforts will result in significant revenue to the Company.
Any failure of these parties to develop and maintain high-quality and
attractive content could result in dilution to the Infoseek brand and could
have a material adverse effect on the Company's business, results of operations
and financial condition.
Intense Competition. The market for Internet products and services is
highly competitive with no substantial barriers to entry and the Company
expects that competition will continue to intensify. In addition, the market
for the Company's products and services has only recently begun to develop, is
rapidly evolving and is characterized by an increasing number of market
entrants with competing products and services. The Company does not believe
this market will support the increasing number of competitors and their
products and services. Although the Company believes that the diverse segments
of the Internet market may provide opportunities for more than one supplier of
products and service similar to those of the Company, it is possible that a
single supplier may dominate one or more market segments. Accordingly, any
failure of the Company to provide product and service offerings that achieve
success in the short-term could result in an insurmountable loss in market and
brand acceptance and could, therefore, have a material adverse and long-term
effect upon the Company's business, results of operations and financial
condition.
Management of Growth; Need to Establish Infrastructure. The rapid
growth that the Company believes is necessary to successfully offer its products
and services has placed, and is expected to continue to place, a significant
strain on the Company's managerial, operational and financial resources. The
Company continues to expand its operations and increase its dependence and
reliance on computer generated information. This evolution necessitates
continuous reassessment of the appropriateness of the Company's computerized
data and systems. The Company's current management information system is
cumbersome and inefficient and requires a significant amount of manual effort
using personal computer spreadsheets in order to process and analyze
information. This situation makes it difficult for management to obtain timely
and accurate information. The Company is evaluating a number of new financial
and management controls, reporting systems and procedures, as well as its
information systems and technology. Such expansion efforts will create
significant strain upon the Company's existing resources.
There can be no assurance that the Company will be able to effectively
manage the expansion of its operations, that the Company's new management team
will work together effectively, that the Company will be able to attract and
retain qualified personnel, that the Company's systems, procedures or controls
will be adequate to support the Company's operations or that Company management
will be able to achieve the rapid execution necessary to fully exploit any
potential market opportunity for the Company's products and services and media
properties. In addition, the Company intends to establish at least one mirror,
or duplicate, site, which may be in another geographic location, which will
create additional operational and management complexities, including the need
for continual updating and maintenance of directory listings, possibly among
geographically dispersed network servers. Any inability
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<PAGE> 25
to effectively manage growth could have a material adverse effect on the
Company's business, results of operations and financial condition.
Intellectual Property and Proprietary Rights. The Company's success
depends significantly upon its proprietary technology. The Company currently
relies on a combination of copyright and trademark laws, trade secrets,
confidentiality procedures and contractual provisions to protect its proprietary
rights. The Company generally enters into confidentiality agreements with its
employees and consultants. The Company seeks to protect its software,
documentation and other written materials under trade secret and copyright laws,
which afford only limited protection. In addition, the Company holds one patent
and currently has five United States patent applications pending. There can be
no assurance that any pending applications will be approved, that if issued any
such patent will not be challenged, and that if challenged, any such patent(s)
will not be invalidated. There can be no assurance that any issued patent will
provide the Company with any competitive advantages or will not be challenged by
third parties. The Company has registered and applied for registration for
certain service marks and trademarks, and will continue to evaluate the
registration of additional service marks and trademarks as appropriate. Despite
the Company's efforts to protect its proprietary rights, unauthorized parties
may attempt to copy aspects of the Company's products or services or to obtain
and use information that the Company regards as proprietary. In addition, the
laws of some foreign countries do not protect proprietary rights to as great an
extent as do the laws of the United States. Litigation may be necessary to
protect the Company's proprietary technology. Any such litigation may be
time-consuming and costly. There can be no assurance that the Company's means
of protecting its proprietary rights will be adequate or that the Company's
competitors will not independently develop similar technology or duplicate the
Company's products or services or design around patents or other intellectual
property rights of the Company.
There have been substantial amounts of litigation in the information
technology industry regarding intellectual property rights. There can be no
assurance that the Company will develop proprietary products or services or
technologies that are patentable or that the patents of others will not have a
material adverse effect on the Company's ability to do business. In addition,
there can be no assurance that third parties will not in the future claim
infringement by the Company with respect to current or future products or
services, trademarks or other proprietary rights, or that the Company will not
counterclaim against any such parties in such actions. Any such claims or
counterclaims could be time-consuming, result in costly litigation, cause
product release delays, require the Company to redesign its products or
services or require the Company to enter into royalty or licensing agreements,
any of which could have a material adverse effect upon the Company's business,
operating results and financial condition. Such royalty or licensing
agreements, if required, may not be available on terms acceptable to the
Company or at all.
Capacity Constraints and System Failure. A key element of the
Company's strategy is to generate a high volume of traffic to its products and
services. Accordingly, the performance of the Company's products and services
is critical to the Company's reputation, its ability to attract advertisers to
the Company's Web sites and market acceptance of these products and services.
Any system failure that causes interruptions or that increases response time of
the Company's products and services would result in less traffic to the
Company's Web sites and, if sustained or repeated, would reduce the
attractiveness of the Company's products and services to advertisers and
customers. In addition, an
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<PAGE> 26
increase in the volume of searches conducted through the Company's products and
services could strain the capacity of the software, hardware or
telecommunications lines deployed by the Company, which could lead to slower
response time or system failures. The Company renewed its contract with
Netscape pursuant to which the Company hopes to increase its presence as a
Netscape premier provider. If the Company receives a greater share of Netscape
traffic it is possible that the capacity of the Company's hardware or software
could be exceeded and service interruptions or failures could occur. As the
number of Web pages and users increase, there can be no assurance that the
Company's products, services and systems will be able to scale appropriately.
The Company is also dependent upon Web browser companies and Internet and
online service providers for access to its products and services, and users
have experienced and may in the future experience difficulties due to system or
software failures or incompatibilities not within the Company's control. The
Company is also dependent on hardware suppliers for prompt delivery,
installation and service of servers and other equipment and services used to
provide its products and services. The Company has been working to establish a
duplicate Infoseek Service site and expects this site to be complete and
functioning in 1997. The Company's current estimate of the timing of the
completion of this duplicate service site is a forward-looking statement that
involves risks and uncertainties. The actual timing of such completion and the
capacity of the service provided could differ materially from that noted in
this forward-looking statement as a result of certain factors, including
hardware or software difficulties and the amount of traffic on Infoseek
Service. As a result, there can be no assurance that a duplicate service site
will be operational within the time frame stated above, or at all. In
addition, any duplicate site will create additional operational and management
complexities, including the need for continual updating and maintenance of
directory listings, possibly among geographically dispersed network servers.
Any disruption in the Internet access and service provided by the Company or
its service providers could have a material adverse effect upon the Company's
business, results of operations and financial condition.
The process of managing advertising within large, high traffic Web
sites such as the Company's is an increasingly important and complex task. The
Company relies on internal advertising inventory management and analysis
systems to provide enhanced internal reporting and customer feedback on
advertising. To the extent that any extended failure of the Company's
advertising management system results in incorrect advertising insertions, the
Company may be exposed to "make good" obligations with its advertising
customers, which, by displacing advertising inventory, could have a material
adverse effect on the Company's business, results of operations and financial
condition.
In addition, the Company's operation depends upon its ability to
maintain and protect its computer systems located in Santa Clara, California.
This system is vulnerable to damage from fire, floods, earthquakes, power loss,
telecommunications failures, break-ins and similar events. The Company does
not currently have a disaster recovery plan in effect. Despite the
implementation of network security measures by the Company, its servers are
also vulnerable to computer viruses, break-ins and similar disruptive problems.
Computer viruses, break-ins or other problems caused by third parties could
lead to interruptions, delays in or cessation of service to users of the
Company's products and services. The occurrence of any of these risks could
have a material adverse effect on the Company's business, results of operations
and financial condition.
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<PAGE> 27
Dependence on Key Personnel. The Company's future performance depends
in significant part upon the continued contributions of its key technical and
senior management personnel including, in particular, Robert E.L. Johnson, III,
the Company's President and Chief Executive Officer and Steven T. Kirsch, a
founder and the Chairman of the Board of the Company, none of whom is bound by
an employment agreement. The Company provides incentives such as salary,
benefits and option grants (which are typically subject to vesting over four
years) to attract and retain qualified employees. The loss of the services of
Mr. Johnson or Mr. Kirsch or any of the Company's officers or other key
employees could have a material adverse effect on the Company's business,
operating results and financial condition. The Company's future success also
depends on its continuing ability to attract and retain highly qualified
technical and management personnel. Competition for such personnel is intense,
and there can be no assurance that the Company can retain its key technical and
management employees or that it can attract, assimilate or retain other highly
qualified technical and management personnel in the future.
Government Regulation and Legal Uncertainties. The Company is not
currently subject to direct regulation by any government agency, other than
regulations applicable to businesses generally, and there are currently few
laws or regulations directly applicable to access to or commerce on the
Internet. It is possible that a number of laws and regulations may be adopted
with respect to the Internet, covering issues such as user privacy, pricing and
characteristics and quality of products and services. For example, the
recently enacted Telecommunications Reform Act of 1996 imposes criminal
penalties on anyone who distributes obscene, lascivious or indecent
communications on the Internet. The adoption of any such laws or regulations
may decrease the growth of the Internet, which could in turn decrease the
demand for the Company's products, increase the Company's cost of doing
business, or otherwise have an adverse effect on the Company's business,
results of operations or financial condition. Moreover, the applicability to
the Internet of existing laws governing issues such as property ownership,
copyright, trade secret, libel and personal privacy is uncertain and
developing. Any such new legislation or regulation, or application or
interpretation of existing laws, could have a material adverse effect on the
Company's business, results of operations or financial condition.
Risks Associated with International Expansion. As part of its business
strategy, the Company is seeking opportunities to expand its products and
services into international markets. The Company believes that such expansion
is important to the Company's ability to continue to grow and to market its
products and services. In marketing its products and services internationally,
however, the Company will face new competitors. In addition, the ability of the
Company to enter the international markets will be dependent upon the Company's
ability to create localized versions of its products and services. There can be
no assurance that the Company will be successful in creating localized versions
of its products and services or marketing or distributing its products abroad or
that, if the Company is successful, its international revenues will be adequate
to offset the expense of establishing and maintaining international operations.
To date, the Company has limited experience in marketing and distributing its
products internationally. In addition to the uncertainty as to the Company's
ability to establish an international presence, there are certain difficulties
and risks inherent in doing business on an international level, such as
compliance with regulatory requirements and changes in these requirements,
export restrictions, export controls relating to technology, tariffs and other
trade barriers, protection of intellectual property rights, difficulties in
staffing and managing international operations,
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<PAGE> 28
longer payment cycles, problems in collecting accounts receivable, political
instability, fluctuations in currency exchange rates and potentially adverse
tax consequences. There can be no assurance that one or more of such factors
will not have a material adverse effect on any international operations
established by the Company and, consequently, on the Company's business,
operating results and financial condition.
Liability for Information Retrieved from the Internet. Because
Internet services provided by the Company require the Company to link users to
information which is downloaded, indexed and distributed from Web pages
published by a large number of Internet Web sites and content providers, there
is potential that claims will be made against the Company on theories such as
defamation, negligence, copyright or trademark infringement, distribution of
obscene, lascivious or indecent communications or other theories of liability
based on the nature and content of such materials. Such claims have been
brought, and sometimes successfully pressed, against online services in the
past. Additionally, claims could be made against the Company for copyright
infringement based on the improper dissemination of information. Although the
Company carries general liability insurance, the Company's insurance may not
cover potential claims of this type, or may not be adequate to indemnify the
Company for all liability that may be imposed. Any imposition of liability
that is not covered by insurance or is in excess of insurance coverage could
have a material adverse effect on the Company.
Future Capital Needs; Uncertainty of Additional Financing. The
Company currently anticipates that its cash, cash equivalents and short-term
investment balances, together with cash flows generated from advertising
revenues, will be sufficient to meet its anticipated needs for working capital,
capital expenditures and business expansion for at least the next 12 months.
Thereafter, the Company may need to raise additional funds. The Company may
need to raise additional funds sooner in order to fund more rapid expansion to
develop new or enhanced services or products, to respond to competitive
pressures or to acquire complementary products, businesses or technologies. If
additional funds are raised through the issuance of equity or convertible debt
securities, the percentage ownership of the shareholders of the Company will be
reduced, shareholders may experience additional dilution and such securities
may have rights, preferences or privileges senior to those of the holders of
the Company's Common Stock. There can be no assurance that additional
financing will be available on terms favorable to the Company or at all. If
adequate funds are not available or are not available on acceptable terms, the
Company may not be able to fund its expansion, take advantage of unanticipated
acquisition opportunities, develop or enhance services or products or respond
to competitive pressures. Such inability could have material adverse effect on
the Company's business, results of operations and financial condition.
ITEM 2. PROPERTIES
The Company's principal administrative, sales, marketing, and research
and development facility is located in approximately 13,000 square feet of
space in Santa Clara, California. This facility is leased pursuant to multiple
leases which expire at various dates through February 2000. In June, 1996 the
Company signed a lease for office space in another building in New York, New
York. The lease for this second facility, which totals approximately 3,376
square feet, expires in May 2001. In March of 1997 the Company signed a lease
agreement for a 48,000 square foot facility in Sunnyvale, California.The
Company is obligated to lease an additional 13,500 square feet after the first
six months of the agreement, which commences in mid-April 1997 and extends
through mid-October 2002. In addition, the Company
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<PAGE> 29
has an option for additional space up to a total of 93,000 square feet. This
facility is intended to house the Infoseek corporate headquarters and allow the
Company to consolidate all current corporate operations into one location. The
Company believes that its existing facilities are adequate for its current
needs and that additional space will be available as needed. There can be no
assurance that a system failure at the Company's principal location would not
adversely affect the performance of the Company's products and services.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Incorporated by reference to the information under the headings
"Proposal No. 1--Election of Directors," "Proposal No.2--Ratification and
Approval of Amendment to 1996 Stock Option/Stock Issuance Plan" and "Proposal
No. 3--Ratification of Appointment of Independent Auditors" in the Proxy
Statement to be filed pursuant to Regulation 14A with the Securities and
Exchange Commission not later than 120 days after the end of the fiscal year
covered by this Report.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Incorporated by reference from the information under the caption
"Infoseek Corporate Data -- Stock Symbol," "-- Stock Market" and "-- Stock
Trading" in the Annual Report.
ITEM 6. SELECTED FINANCIAL DATA
Incorporated by reference to the information under the caption
"Summary Financial Data" in the Annual Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Incorporated by reference to the information under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Risk Factors that May Affect Future Results" in the Annual
Report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial statements of the Company at December 31, 1996 and 1995 and
for each of the three years in the period ended December 31, 1996, the report
thereon of Ernst & Young LLP, independent auditors, are incorporated by
reference from the Annual Report.
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<PAGE> 30
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
Certain information required by Part III is omitted from this Report
in that the Registrant intends to file the Proxy Statement pursuant to
Regulation 14A with the Securities and Exchange Commission not later than 120
days after the end of the fiscal year covered by this Report, and such
information is incorporated by reference herein.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information concerning the Company's directors required by this
Item is incorporated by reference to the information under the heading
"Proposal No. 1 -- Election of Directors" in the Company's Proxy Statement.
The information concerning the Company's executive officers required
by this Item is incorporated by reference to the information under the heading
"Other Information -- Executive Officers" in the Company's Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference to
information under the heading "Executive Compensation," "Option Grants in Last
Fiscal Year," and "Aggregate Option Exercises in Last Fiscal Year and Fiscal
Year End Option Values" in the Company's Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference to
the information under the heading "Security Ownership of Certain Beneficial
Owners and Management" in the Company's Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by reference to
the information under the headings "Compensation Committee Interlocks and
Insider Participation" and "Certain Transactions" in the Company's Proxy
Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
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<PAGE> 31
(A) 1. FINANCIAL STATEMENTS
The Financial Statements of Infoseek Corporation and the Report of
Ernst & Young LLP, independent auditors are incorporated herein by reference to
the Annual Report.
2. EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
1.1* Underwriting Agreement filed with the Company's Initial Public
Offering.
3.1* Amended and Restated Articles of Incorporation of the Registrant.
3.2* Bylaws of the Registrant, as amended.
4.1* Reference is made to Exhibits 3.1 and 3.2.
4.3* Third Amended and Restated Investors' Rights Agreement dated April 19,
1996 among the Registrant and the investors and founders named therein.
4.4* Warrant Agreement between the Registrant and Venture Lending and
Leasing, Inc. dated as of October 7, 1995.
10.1* Infoseek Corporation Stock Option Plan, as amended on March 20, 1996,
subject to qualification by the State of California.
10.2* Infoseek Corporation 1996 Stock Option/Stock Issuance Plan.
10.3* Infoseek Corporation Employee Stock Purchase Plan.
10.4* Form of Offer Letter among the Registrant and its officers.
10.5* Form of Indemnification Agreement entered into between the Registrant
and its directors and officers.
10.6* Series A Preferred Stock Purchase Agreement dated February 25, 1994
among the Registrant and the investors named therein, as amended
March 3, 1994.
10.7* Series A Preferred Stock Supplemental Purchase Agreement dated July 22,
1994 between the Registrant and the Applied Computing Systems Institute
of Massachusetts, Inc.
10.8* Series B Preferred Stock Purchase Agreement dated June 30, 1994 among
the Registrant and the investors named therein, as amended July 7,
1994.
10.9* Series C Preferred Stock Purchase Agreement dated May 4, 1995 among the
Registrant and the investors named therein, as amended June 30, 1995.
</TABLE>
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<PAGE> 32
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
10.10* Third Amended and Restated Agreement regarding co-sale dated April 19,
1996 among the Registrant and the investors and founders named therein.
10.11* Third Amended and Restated Co-Sale Agreement dated April 19, 1996 among
the founder and the investors named therein.
10.12* Amended and Restated Put Option Agreement dated May 4, 1995 among the
Registrant and the investors named therein.
10.13* Founders Agreement dated February 1, 1994 among the Registrant and the
founders named therein, as amended June 30, 1994.
10.14*+ Series E Preferred Stock Purchase Agreement dated March 29, 1996 among
the Registrant and the investors named therein.
10.15* Stock Purchase Agreements dated January 24, 1996 between the Registrant
and Robert E.L. Johnson III.
10.16* Employee Stock Purchase Agreement dated January 30, 1996 between the
Registrant and Robert E.L. Johnson. III.
10.17* Employee Stock Purchase Agreement dated March 28, 1996 between the
Registrant and Leonard J. LeBlanc.
10.18* Employee Stock Purchase Agreement dated March 9, 1996 between the
Registrant and John Nauman.
10.19* Employee Stock Purchase Agreement dated March 9, 1996 between the
Registrant and Craig Forman.
10.20* Lease Agreements dated December 13, 1993, November 7, 1995, January 8,
1996 and January 10, 1996 between the Registrant and Spieker
Properties, L.P.
10.21++ Lease extension agreement dated September 11, 1996 and September 17,
1996 between Registrant and Spieker Properties, L.P.
10.22++ Lease agreement dated September 11, 1996 and September 17, 1996 between
Registrant and Spieker Properties, L.P.
10.23* Standard Office Sublease dated May 30, 1995 between the Registrant and
Innovative Information Systems, Inc.
10.24* Standard Form of Office Lease dated April 1996 between the Registrant and
Richfield Investment Company.
10.25* Software Development and Licensing Master Agreement dated July 8, 1994,
as amended on February 13, 1995 and April 24, 1995 between the
Registrant and Applied Computing Systems Institute of Massachusetts,
Inc.
</TABLE>
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<PAGE> 33
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
10.26* Software License Agreement between the Registrant and ADB Inc. dated
December 22, 1995, as amended April 19, 1996.
10.27* Internet Services and Products Master Agreement dated May 22, 1995
between the Registrant and BBN Planet Corporation.
10.28*+ Internet Search Service Access Agreement dated August 23, 1995 between
the Registrant and Microsoft Corporation, as amended on December 18,
1995.
10.29*+ Internet Search Service Access Agreement between the Registrant and
NETCOM Online Communication Services, Inc. dated October 13, 1995, as
amended on March 20, 1996.
10.30* Net Search Program -- Premier Provider Agreement between the Registrant
and Netscape Communications Corporation dated March 22, 1996, as
amended on that date.
10.31** Premier Provider Services Agreement between Registrant and Netscape
Communications Corporation dated March 17,
1997.
10.32*+ Software License and Distribution Agreement between the Registrant and
Personal Library Software, Inc. dated June 17, 1994.
10.33*+ XSoft/Infoseek Software Distribution and License Agreement -- Lexicons,
dated March 31, 1996 between the Registrant and XSoft, a division of
XEROX Corporation.
10.34* Customer Support Program Agreement for Infoseek among the Registrant
and SunService Corporation dated January 1, 1996.
10.35* Purchase Orders dated March 21, 1996, February 1, 1996, December 1,
1995, October 25, 1995, October 6, 1995 between the Registrant and Sun
Microsystems, Inc.
10.36* Form Consulting Services Agreement among the Registrant and its
consultants.
10.37*+ Letter of Agreement dated April 2, 1996 between the Registrant and HNC
Software Inc.
10.38*+ Agreement in Principle dated March 21, 1996 between the Registrant and
HNC Software Inc.
10.39* Joint Marketing Agreement dated effective April 15, 1996 between the
Registrant and Sun Microsystems Inc.
</TABLE>
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<PAGE> 34
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
10.40*+ Online Service Agreement dated February 28, 1995 between the Registrant
and Reuters NewMedia, Inc., as amended January 4, 1996 and April 19,
1996.
10.41** Amendment No. 3 to Online Service Agreement between the Registrant and
Reuters NewMedia, Inc., dated October 30, 1996.
10.42** Fourth Amendment to the On-Line Directory Agreement between the
Registrant and Reuters NewMedia, Inc., dated August 30, 1996.
10.43 Office lease dated March 4, 1997 between Registrant and Linnar Realty
Corp. #8.
10.44*+ Infoseek/NYNEX Agreement between the Registrant and NYNEX Information
Technologies Company, dated March 29, 1996.
10.45*+ Software License Agreement dated March 29, 1996 between the Registrant
and NYNEX Information Technologies Company.
10.46** Amendment No. 1 to Infoseek/NYNEX Agreement between the Registrant and
NYNEX Information Technologies Company, dated May 10, 1996.
10.47** Amendment No. 2 to Infoseek/NYNEX Agreement between the Registrant and
NYNEX Information Technologies Company, dated February 19, 1997.
10.48*+ Agreement between the Registrant and Verity, Inc. dated March 31, 1996.
10.49* Cooperation Agreement between the Registrant and Quarterdeck
Corporation dated April 2, 1996.
10.50* Infoseek Impressions Agreement -- Ad Exchange between the Registrant
and FreeLoader, Inc. dated March 8, 1996.
10.51** Amendment No. 1 to XSoft/Infoseek Software Distribution and License
Agreement, between the Registrant and XSoft, a division of XEROX
Corporation, dated December 16, 1996.
10.52** Amendment No. 2 to XSoft/Infoseek Software Distribution and License
Agreement,between the Registrant and XSoft, a division of XEROX
Corporation, dated December 16, 1996.
</TABLE>
-34-
<PAGE> 35
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
10.53*+ Memorandum of Understanding between the Registrant and IDG
Communications Inc. dated April 22, 1996.
10.54* Loan Agreements between the Registrant and Venture Lending & Leasing,
Inc. dated October 5, 1995 and February 9, 1996 and related Notes (Note
No. 42-002 dated March 28, 1996; Note No. 42-001 dated February 29,
1996; Note No. 27-002 dated November 30, 1995 and Note No. 27-001 dated
October 11, 1995) between the Registrant and Venture Lending & Leasing,
Inc.
10.55*+ License and Software Distribution Agreement between the Registrant and
HNC Software Inc. dated April 25, 1996.
10.56*+ Amendment No. 3 to Software Development and Licensing Master Agreement
between the Registrant and Applied Computing Systems Institute of
Massachusetts, Inc. dated March 18, 1996.
10.57* First Amendment to Series A Preferred Stock Supplemental Purchase
Agreement dated March 18, 1996 between the Registrant and the Applied
Computing Systems Institute of Massachusetts, Inc.
10.58+ Software License Agreement dated May 8, 1996 between the Registrant and
HNC Software Inc.
11.1 Computation of Earnings/(Loss) Per Share.
13.1 Portions of the Annual Report to Stockholders for the fiscal year ended
December 31, 1996 expressly incorporated by reference herein.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
24.1 Power of Attorney (see page 40).
27.1 Financial Data Schedule.
</TABLE>
____________________________________________
* Incorporated by reference to the Company's Registration Statement Form
S-1, as amended, (File No. 333-04142) declared effective June 11, 1996.
** Confidential treatment requested for certain portions of this exhibit.
+ Confidential treatment granted by order effective June 10, 1996.
++ Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1996.
-35-
<PAGE> 36
(B) REPORTS ON FORM 8-K
Not Applicable.
(C) EXHIBITS
See Item 14(A)(2) above.
-36-
<PAGE> 37
INFOSEEK CORPORATION
INDEX TO FINANCIAL STATEMENT SCHEDULES
FINANCIAL STATEMENT SCHEDULES:
Valuation and Qualifying Accounts Year Ended
December 31, 1994, 1995 and 1996 . . . . . . . . . . . . . . . . . . . II
-37-
<PAGE> 38
SCHEDULE II
INFOSEEK CORP.
VALUATION AND QUALIFYING ACCOUNTS
YEAR ENDED DECEMBER 31
(IN THOUSANDS)
<TABLE>
<CAPTION>
Additions
Balance at Charged to
Beginning of Costs and Balance at End
Year Expenses Write-Offs of Year
------------ ---------- ---------- --------------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:
1995 -- $ 42 -- $ 42
1996 $ 42 $ 651 $ (343) $ 350
</TABLE>
There was no allowance for doubtful accounts activity in 1994.
-38-
<PAGE> 39
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Leonard J. LeBlanc, his
attorney-in-fact, each with the power of substitution, for him in any and all
capacities, to sign any amendments to this Report on Form 10-K, and to file the
same, with exhibits thereto and other documents in connection therewith, with
the Securities and Exchange Commission, hereby ratifying and conforming all
that said attorney-in-fact, or his substitute or substitutes, any do or cause
to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act
of 1933, as amended, the Registrant has duly caused report to be signed on its
behalf by the undersigned, thereunto duly authorized.
INFOSEEK CORPORATION
By: /s/Robert E. L. Johnson, III
Robert E. L. Johnson, III
President and Chief Executive Officer
<TABLE>
<CAPTION>
SIGNATURE CAPACITY IN WHICH SIGNED DATE
<S> <C> <C>
/s/Robert E. L. Johnson, III President, Chief Executive Officer, and March 31, 1997
- ---------------------------- Director (Principal Executive Officer)
(Robert E. L. Johnson, III)
/s/Leonard J. LeBlanc Executive Vice President, Finance, Chief March 31, 1997
- ---------------------------- Financial Officer and Assistant Secretary
(Leonard J. LeBlanc) (Principal Financial and Accounting
Officer)
/s/Steven T. Kirsch Director March 31, 1997
- ----------------------------
(Steven T. Kirsch)
/s/H. DuBose Montgomery Director March 31, 1997
- ----------------------------
(H. DuBose Montgomery)
/s/Oliver D. Curme Director March 31, 1997
- ----------------------------
(Oliver D. Curme)
/s/John E. Zeisler Director March 31, 1997
- ----------------------------
(John E. Zeisler)
/s/Matthew J. Stover Director March 31, 1997
- ----------------------------
(Matthew J. Stover)
</TABLE>
-40-
<PAGE> 40
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Exhibits
------ --------
<S> <C>
1.1* Underwriting Agreement filed with the Company's Initial Public
Offering.
3.1* Amended and Restated Articles of Incorporation of the Registrant.
3.2* Bylaws of the Registrant, as amended.
4.1* Reference is made to Exhibits 3.1 and 3.2.
4.3* Third Amended and Restated Investors' Rights Agreement dated April 19,
1996 among the Registrant and the investors and founders named therein.
4.4* Warrant Agreement between the Registrant and Venture Lending and
Leasing, Inc. dated as of October 7, 1995.
10.1* Infoseek Corporation Stock Option Plan, as amended on March 20, 1996,
subject to qualification by the State of California.
10.2* Infoseek Corporation 1996 Stock Option/Stock Issuance Plan.
10.3* Infoseek Corporation Employee Stock Purchase Plan.
10.4* Form of Offer Letter among the Registrant and its officers.
10.5* Form of Indemnification Agreement entered into between the Registrant
and its directors and officers.
10.6* Series A Preferred Stock Purchase Agreement dated February 25, 1994
among the Registrant and the investors named therein, as amended
March 3, 1994.
10.7* Series A Preferred Stock Supplemental Purchase Agreement dated July 22,
1994 between the Registrant and the Applied Computing Systems Institute
of Massachusetts, Inc.
10.8* Series B Preferred Stock Purchase Agreement dated June 30, 1994 among
the Registrant and the investors named therein, as amended July 7,
1994.
10.9* Series C Preferred Stock Purchase Agreement dated May 4, 1995 among the
Registrant and the investors named therein, as amended June 30, 1995.
10.10* Third Amended and Restated Agreement regarding co-sale dated April 19,
1996 among the Registrant and the investors and founders named therein.
10.11* Third Amended and Restated Co-Sale Agreement dated April 19, 1996 among
the founder and the investors named therein.
</TABLE>
-41-
<PAGE> 41
<TABLE>
<CAPTION>
Exhibit
Number Exhibits
------ --------
<S> <C>
10.12* Amended and Restated Put Option Agreement dated May 4, 1995 among the
Registrant and the investors named therein.
10.13* Founders Agreement dated February 1, 1994 among the Registrant and the
founders named therein, as amended June 30, 1994.
10.14*+ Series E Preferred Stock Purchase Agreement dated March 29, 1996 among
the Registrant and the investors named therein.
10.15* Stock Purchase Agreements dated January 24, 1996 between the Registrant
and Robert E.L. Johnson III.
10.16* Employee Stock Purchase Agreement dated January 30, 1996 between the
Registrant and Robert E.L. Johnson. III.
10.17* Employee Stock Purchase Agreement dated March 28, 1996 between the
Registrant and Leonard J. LeBlanc.
10.18* Employee Stock Purchase Agreement dated March 9, 1996 between the
Registrant and John Nauman.
10.19* Employee Stock Purchase Agreement dated March 9, 1996 between the
Registrant and Craig Forman.
10.20* Lease Agreements dated December 13, 1993, November 7, 1995, January 8,
1996 and January 10, 1996 between the Registrant and Spieker
Properties, L.P.
10.21++ Lease extension agreement dated September 11, 1996 and September 17,
1996 between Registrant and Spieker Properties, L.P.
10.22++ Lease agreement dated September 11, 1996 and September 17, 1996 between
Registrant and Spieker Properties, L.P.
10.23* Standard Office Sublease dated May 30, 1995 between the Registrant and
Innovative Information Systems, Inc.
10.24* Standard Form of Office Lease dated April 1996 between the Registrant and
Richfield Investment Company.
10.25* Software Development and Licensing Master Agreement dated July 8, 1994,
as amended on February 13, 1995 and April 24, 1995 between the
Registrant and Applied Computing Systems Institute of Massachusetts,
Inc.
10.26* Software License Agreement between the Registrant and ADB Inc. dated
December 22, 1995, as amended April 19, 1996.
10.27* Internet Services and Products Master Agreement dated May 22, 1995
between the Registrant and BBN Planet Corporation.
</TABLE>
-42-
<PAGE> 42
<TABLE>
<CAPTION>
Exhibit
Number Exhibits
------ --------
<S> <C>
10.28*+ Internet Search Service Access Agreement dated August 23, 1995 between
the Registrant and Microsoft Corporation, as amended on December 18,
1995.
10.29*+ Internet Search Service Access Agreement between the Registrant and
NETCOM Online Communication Services, Inc. dated October 13, 1995, as
amended on March 20, 1996.
10.30* Net Search Program -- Premier Provider Agreement between the Registrant
and Netscape Communications Corporation dated March 22, 1996, as
amended on that date.
10.31** Premier Provider Services Agreement between Registrant and Netscape
Communications Corporation dated March 17,
1997.
10.32*+ Software License and Distribution Agreement between the Registrant and
Personal Library Software, Inc. dated June 17, 1994.
10.33*+ XSoft/Infoseek Software Distribution and License Agreement -- Lexicons,
dated March 31, 1996 between the Registrant and XSoft, a division of
XEROX Corporation.
10.34* Customer Support Program Agreement for Infoseek among the Registrant
and SunService Corporation dated January 1, 1996.
10.35* Purchase Orders dated March 21, 1996, February 1, 1996, December 1,
1995, October 25, 1995, October 6, 1995 between the Registrant and Sun
Microsystems, Inc.
10.36* Form Consulting Services Agreement among the Registrant and its
consultants.
10.37*+ Letter of Agreement dated April 2, 1996 between the Registrant and HNC
Software Inc.
10.38*+ Agreement in Principle dated March 21, 1996 between the Registrant and
HNC Software Inc.
10.39* Joint Marketing Agreement dated effective April 15, 1996 between the
Registrant and Sun Microsystems Inc.
10.40*+ Online Service Agreement dated February 28, 1995 between the Registrant
and Reuters NewMedia, Inc., as amended January 4, 1996 and April 19,
1996.
10.41** Amendment No. 3 to Online Service Agreement between the Registrant and
Reuters NewMedia, Inc., dated October 30, 1996.
</TABLE>
-43-
<PAGE> 43
<TABLE>
<CAPTION>
Exhibit
Number Exhibits
------ --------
<S> <C>
10.42** Fourth Amendment to the On-Line Directory Agreement between the
Registrant and Reuters NewMedia, Inc., dated August 30, 1996.
10.43 Office lease dated March 4, 1997 between Registrant and Linnar Realty
Corp. #8.
10.44*+ Infoseek/NYNEX Agreement between the Registrant and NYNEX Information
Technologies Company, dated March 29, 1996.
10.45*+ Software License Agreement dated March 29, 1996 between the Registrant
and NYNEX Information Technologies Company.
10.46** Amendment No. 1 to Infoseek/NYNEX Agreement between the Registrant and
NYNEX Information Technologies Company, dated May 10, 1996.
10.47** Amendment No. 2 to Infoseek/NYNEX Agreement between the Registrant and
NYNEX Information Technologies Company, dated February 19, 1997.
10.48*+ Agreement between the Registrant and Verity, Inc. dated March 31, 1996.
10.49* Cooperation Agreement between the Registrant and Quarterdeck
Corporation dated April 2, 1996.
10.50* Infoseek Impressions Agreement -- Ad Exchange between the Registrant
and FreeLoader, Inc. dated March 8, 1996.
10.51** Amendment No. 1 to XSoft/Infoseek Software Distribution and License
Agreement, between the Registrant and XSoft, a division of XEROX
Corporation, dated December 16, 1996.
10.52** Amendment No. 2 to XSoft/Infoseek Software Distribution and License
Agreement,between the Registrant and XSoft, a division of XEROX
Corporation, dated December 16, 1996.
10.53*+ Memorandum of Understanding between the Registrant and IDG
Communications Inc. dated April 22, 1996.
</TABLE>
-44-
<PAGE> 44
<TABLE>
<CAPTION>
Exhibit
Number Exhibits
------ --------
<S> <C>
10.54* Loan Agreements between the Registrant and Venture Lending & Leasing,
Inc. dated October 5, 1995 and February 9, 1996 and related Notes (Note
No. 42-002 dated March 28, 1996; Note No. 42-001 dated February 29,
1996; Note No. 27-002 dated November 30, 1995 and Note No. 27-001 dated
October 11, 1995) between the Registrant and Venture Lending & Leasing,
Inc.
10.55*+ License and Software Distribution Agreement between the Registrant and
HNC Software Inc. dated April 25, 1996.
10.56*+ Amendment No. 3 to Software Development and Licensing Master Agreement
between the Registrant and Applied Computing Systems Institute of
Massachusetts, Inc. dated March 18, 1996.
10.57* First Amendment to Series A Preferred Stock Supplemental Purchase
Agreement dated March 18, 1996 between the Registrant and the Applied
Computing Systems Institute of Massachusetts, Inc.
10.58+ Software License Agreement dated May 8, 1996 between the Registrant and
HNC Software Inc.
11.1 Computation of Earnings/(Loss) Per Share.
13.1 Portions of the Annual Report to Stockholders for the fiscal year ended
December 31, 1996 expressly incorporated by reference herein.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
24.1 Power of Attorney (see page 40).
27.1 Financial Data Schedule.
</TABLE>
____________________________________________
* Incorporated by reference to the Company's Registration Statement Form
S-1, as amended, (File No. 333-04142) declared effective June 11, 1996.
** Confidential treatment requested for certain portions of this exhibit.
+ Confidential treatment granted by order effective June 10, 1996.
++ Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1996.
-45-
<PAGE> 1
Exhibit 10.31
[LOGO]
NETSCAPE
NETSCAPE COMMUNICATIONS CORPORATION
U.S. ENGLISH-LANGUAGE NET SEARCH PROGRAM
PREMIER PROVIDER SERVICES AGREEMENT
OBJECTIVE: To direct users of a Netscape client software Internet browser
product ("BROWSER") to U.S. English-language Internet search and directory
services.
TERMS AND CONDITIONS:
1. PREMIER PROVIDER. The entity ("PREMIER PROVIDER") named on the signature page
to this agreement ("AGREEMENT") will be a premier search and directory service
for the U.S. English-language HTML page accessible by the public via the
Internet at the Universal Resource Locator ("URL") http://home.netscape.com/
home/internet-search, or such other URL as Netscape may designate from time to
time in writing (the "PAGE"). The Page is part of the collection of U.S.
English-language HTML documents accessible by the public via the Internet at the
URL http://home.netscape.com and/or at such other URL or URL's as Netscape may
designate ("NETSCAPE'S U.S. ENGLISH-LANGUAGE WEB SITE"). The Page may also be
accessed by Internet users of the Netscape-distributed U.S. English-language
version of the Browser [*] by pressing or "clicking" on the Net Search Button,
by visiting the Page by way of a bookmark pre-loaded in certain versions of the
Browser toolbar as described herein, or such other methods as Netscape may
specify from time to time. [*] Notwithstanding the foregoing, Netscape reserves
the right to determine other means whereby users may access pages which provide
Internet search and directory services on Netscape's U.S. English-language Web
Site including, but not limited to, through the use of mirror sites and pointers
based on a user's IP address, and which pages are separate and distinct from the
Page and Default Page described in this Agreement.
2. PREMIER PERIOD. Netscape will maintain the Premier Graphic, as defined below,
on the Page and the Default Page for the following one-year period ("PREMIER
PERIOD"):
From: May 1,1997
Until: April 30,1998
3. SERVICES PROVIDED BY NETSCAPE.
3.1. Premier Graphic. The Premier Provider will supply Netscape with
HTML and/or GIF files, or files of such other format as may be designated from
time to time in writing by Netscape, which conform to the specifications in
Exhibit A ("PREMIER GRAPHIC") which Netscape will place on the Page and Default
Page during the Premier Period. Premier Provider shall retain all right, title
and interest in and to the Premier Graphic (including the copyright ownership
thereof), and Premier Provider hereby grants Netscape a royalty-free worldwide
license, without payment or other charge therefor, to use, display, perform,
reproduce and distribute the Premier Graphic, and such other licenses with
respect to the Premier Graphic necessary to fulfill the intention of this
Agreement. The Premier Graphic shall contain a
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE> 2
functional search field and, if available, directory tree. The specifications of
the Premier Graphic and its placement on the Page are set forth on Exhibit A
hereto, and Premier Provider's compliance with the content as well as the
technical, visual and functional specifications set forth in Exhibit A are a
material obligation of Premier Provider under this Agreement. Netscape may, upon
notice to Premier Provider, revise Exhibit A, provided that the Premier Graphics
for each of the participants in this U.S. English-language Net Search Program -
Premier Provider shall remain the largest and most prominent category of search
graphics on the Page, and shall not differ substantially, including, without
limitation, any reduction in the size of the Premier Graphic, from the current
specifications for the Premier Graphics set forth in Exhibit A.
3.2. Stack. Netscape will produce the Page as set forth on Exhibit A.
The Premier Graphic of each of the services appearing in the Premier Provider
category on the Page will appear to be overlapped in a stack (the "STACK"). A
Premier Graphic on the Page will be accessible by the end user by pressing or
"clicking" on a tab (the "TAB") for the relevant Premier Provider's service.
Netscape will produce the Page such that when an end user presses or "clicks"
on hypertext links ("PREMIER LINKS") placed by Premier Provider on the Premier
Graphic, the end user's Browser will access Premier Provider's applicable HTML
pages located at the applicable URL's ("PREMIER URL'S") for such pages on the
collection of English-language HTML documents Premier Provider maintains as its
primary web site whose home page is located at the URL http://www.infoseek.com
("PREMIER PROVIDER'S WEB SITE").
3.3. Rotation. Netscape will rotate the display of (i) Premier Graphics
which will appear on the top of the Stack when the Page is served to an end user
who has not selected a Premier Graphic as a default, as described in Section
3.4, and (ii) the Tab which will appear left-most on the Page. Premier
Provider's Premier Graphic will, (i) subject to the provisions of Section 3.4,
appear on the top of the Stack [*] of the time in which the Page is served up to
end users who have not selected a particular Premier Graphic or selected a
default Premier Graphic when accessing the Page and (ii) appear one hundred
percent (100%) of the time in which the Default Page is served up to end users.
The Tab for Premier Provider's service will appear left-most on the Page [*] of
the time in which the Page is served up to end users. Premier Provider
acknowledges that the above-stated rotation percentages are annualized targets.
Netscape shall use reasonable commercial efforts to serve up the Premier Graphic
and Tab for Premier Provider's service at such rotation frequency [*] throughout
the Premier Period.
3.4. End User Default. Netscape shall produce the Page such that the
end user may select which Premier Graphic, or the premier graphic supplied by
certain marquee providers participating in the Net Search Program, the end user
would prefer to have served on the top of the Stack. If an end user selects a
default Premier Graphic, the Premier Graphic selected by the end user will be
served on top of the Stack when that end user accesses the Page. If an end user
has elected to have a particular Premier Graphic appear on top of the Stack on a
default basis, the other Premier Graphics will not appear on the top of the
Stack unless selected by the end user.
3.5. Alphabetical Listing. Premier Provider will supply Netscape with
text describing Premier Provider's search service ("Alphabetical Text"), which
shall be no more than fifty (50) words in length and which Alphabetical Text
Netscape may edit in Netscape's sole discretion. (The Alphabetical Text together
with Premier Provider's name are collectively referred to herein as the
"ALPHABETICAL LISTING"). During the Premier Period, Netscape will place the
Alphabetical Listing on an HTML page linked to the Page and which linked HTML
page lists Internet search services (the "ALPHA PAGE"). Netscape will produce
the Alpha Page such that when an end user presses or clicks on a link
("ALPHABETICAL LINK") embedded in the Alphabetical Listing, the end user's
Browser will access Premier Provider's applicable HTML page located at the
applicable URL for such page on Premier Provider's Web Site ("ALPHABETICAL
URL"). Premier Provider hereby grants Netscape a worldwide license to use,
display, perform, reproduce and distribute
- ---------------
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
2
<PAGE> 3
the Alphabetical Listing, Alphabetical Link and Alphabetical URL and such other
licenses with respect to the Alphabetical Listing, Alphabetical Link and
Alphabetical URL necessary to fulfill the intention of this Agreement.
3.6. Page Specifications. The specifications of the Premier Graphic,
the Stack, the Alphabetical Listing and their placement on the Page and Alpha
Page are set forth on Exhibit A hereto; provided however, that Netscape may,
within reasonable limits and upon notice to Premier Provider, (i) change the
location of the Stack on the Page, the Premier Graphic or the Alphabetical
Listing on the Page, the Default Page or Alpha Page, (ii) redesign or
reconfigure the Stack, the Page, the Default Page, the Alpha Page, Netscape's
U.S. English-language Web Site, and/or the manner in which an end user interacts
with any of the pages of Netscape's U.S. English-language Web Site, or (iii)
revise Exhibit A, and Premier Provider shall promptly, and in any event, within
no more than thirty (30) days following receipt of the notice, supply Netscape
with a revised Premier Graphic and Alphabetical Listing which conform to the
specifications of the revised Exhibit A. In the event that Netscape revises
Exhibit A and Premier Provider must supply conforming materials, such conforming
materials shall be received by Netscape and fully functional within five (5)
days (excluding holidays) prior to the revised Premier Graphic, Stack or
Alphabetical Listing being posted on Netscape's U.S. English-language Web Site.
If Netscape has not received such revised and conforming materials within such
five (5) day time period described above, or if the materials supplied by
Premier Provider do not function in accordance with the specifications set by
Netscape, then Netscape shall either (i) post previous versions of Premier
Provider's supplied materials, or (ii) make such changes as necessary to bring
the materials into conformity with the new specifications, until such time as
the specifications of Exhibit A are again revised. The schedule of planned
updates for the Page are set forth in Exhibit E, as such Exhibit E may be
revised from time to time.
3.7. Update of Premier Graphic. Premier Provider may elect to revise or
update its Premier Graphic, provided that such Premier Graphic complies with the
specifications of Exhibit A. Netscape shall provide Premier Provider with a
schedule of material due dates and planned Page updates.
3.8. Emergency Engineering Support. Netscape will provide, free of
charge, up to an aggregate of one (1) hour per month of emergency engineering
support services time per update to help Premier Provider service any newly
revised Premier Graphic(s) so that the Premier Graphic complies with the new
specifications. Netscape will use reasonable commercial efforts promptly to
remedy any material malfunctioning of the tabbing mechanism for the Premier
Graphics, any material misplacement of the Alphabetical Listing or any material
malfunctioning of the Premier Links or Alphabetical Link under the control of
Netscape, provided Premier Provider will fully cooperate with Netscape to remedy
any such material malfunctioning or misplacement, and provided further that
Netscape shall not incur liability for any failure to remedy such material
malfunctioning or misplacement if such remedy is not within the reasonable
control of Netscape. Premier Provider may report malfunctions to Netscape at the
email address [email protected]. Notwithstanding the foregoing, Netscape has
no obligation to perform services in connection with malfunctions resulting from
software not supplied by Netscape.
3.9 Default Page. Netscape shall produce the Default Page to include
the Premier Graphic of the Premier Provider when the Default Page is served to
an end user of Netscape Navigator 1.x. Netscape shall also produce the Default
Page such that when an end user presses or "clicks" the Premier links, the end
user's Netscape Navigator 1.x will access Premier Provider's applicable HTML
pages located at the Premier URL's on Premier Provider's Web Site.
3
<PAGE> 4
4. ADDITIONAL PREMIER PROVIDER BENEFITS.
4.1. Advertising Services. During the Premier Period, Netscape will
provide Premier Provider (i) with total advertising services valued at the level
set forth in Section 7.1, and (ii) [*] on Netscape's U.S. English-language Web
Site. During the Premier Period, Premier Provider may purchase additional
advertising on Netscape's U.S. English-language Web Site for advertising that
will run during the Premier Period for the service of Premier Provider at a
discount of [*] off Netscape's then standard rates for such advertising. Premier
Provider shall execute Netscape's Sponsorship Agreement, a copy of which is
attached as Exhibit C, with respect to postings of Premier Provider's
advertisement ("PREMIER PROVIDER'S ADVERTISEMENT"). Premier Provider and
Netscape shall mutually agree to the schedule and the placement of Premier
Provider's Advertisement on Netscape's U.S. English-language Web Site. Premier
Provider shall supply Netscape with the graphic files and other materials and
information within the timeframes and as set forth in the specifications of the
applicable Netscape advertising program and as reasonably requested by Netscape
to produce the Premier Provider's Advertisement. Premier Provider's
Advertisement shall not contain any Internet search functionality as such
Premier Provider's Advertisement is served to end users.
4.2. Limit on Premier Providers. Netscape shall limit the number of
companies whose tabs appear on the Stack at any one time to a total of five (5)
entities, including the "Name Me" provider.
4.3. Preset Bookmark. Netscape shall include a graphic HTML link to
Premier Provider's URL ("PREMIER PROVIDER'S BOOKMARK") in the bookmark section
of the Netscape Communicator client software versions 4.x. Premier Provider
hereby acknowledges that Premier Provider's Bookmark, although preset in the
shipping version of the Netscape Communicator 4.x distributed by Netscape, may
be reconfigured, customized or deleted by an end user. Should a user upgrade
their version of the Communicator, the bookmarks which the user has loaded at
the time of the upgrade will be carried forward and installed as part of the
upgraded Communicator software.
4.4. Infoblock. Premier Provider shall be accorded consideration for
the possible inclusion of Premier Provider's service as a default "Infoblock",
or similar opportunity, in Netscape's Constellation client software or
derivative products thereof, subject to terms and conditions as Netscape may
determine in its sole discretion.
5. EXPOSURE GUARANTEE
5.1. Occurrence of Exposures. An exposure ("EXPOSURE") occurs upon the
serving up to an end user of: (i) Premier Provider's Premier Graphic on the top
of the Stack, (ii) Premier Provider's Premier Graphic on the Default Page, (iii)
Premier Provider's Web Site in conjunction with a search query executed by an
end user through entering the search terms in the URL window of the Browser,
(iv) Premier Provider's Web Site as a result of an end user clicking on a link
(excluding Premier Links) to Premier Provider's Web Site on Netscape's U.S.
English-language Web Site, (v) the page on Premier Provider's Web Site linked to
Premier Provider's Bookmark (the "BOOKMARKED PAGE") in conjunction with the
program described in Section 4.3 of this Agreement, (vi) Premier Provider's Web
Site as a result of an end user clicking on or [*] (as defined below), or (vii)
other Premier Provider content as a consequence of an end user accessing a
promotional page on Netscape's U.S. English-language Web Site if the parties
agree that such promotional page traffic shall constitute an Exposure. The
Premier Graphic may be served on the top of the Stack to an end user by the
following means: (i) the Premier Graphic appears as part of the Stack rotation,
as described in Section 3.3, (ii) the Premier Graphic has been set as an end
user's default selection,
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* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
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<PAGE> 5
as described in Section 3.4, and (iii) an end user selects or clicks on the
Premier Graphic tab in the Stack.
5.2. Minimum Guaranteed Exposures. Netscape guarantees a total of [*]
Exposures (such number of Exposures being referred to as the "MINIMUM
GUARANTEED EXPOSURES") during the Premier Period.
5.3 Make-Good. If, at the end of the Premier Period, Premier Provider's
content has not, in the aggregate, received total Exposures equal to or greater
than the Minimum Guaranteed Exposures, and provided that Premier Provider has
complied with its obligations hereunder, Netscape will: (i) [*], or (ii) [*].
6. PREMIER PROVIDER OBLIGATIONS. In addition to the other obligations set forth
herein, Premier Provider shall:
6.1. Netscape Now. Display the "Netscape Now" button [*] to include
the following statement (or a statement designated by Netscape and generally
used by Netscape as a successor to the following statement or in connection with
any successor program to Netscape's Netscape Now program) next to the Netscape
Now button: "This site is best viewed with Netscape Navigator 3.0. Download
Netscape Now!" (or such higher non-beta version as is then available); provided,
[*] Premier Provider will produce the page such that when an end user presses or
clicks on the Netscape Now button (or such other button used in connection with
any successor program to the Netscape Now program), the end user's Internet
client software will access the applicable HTML page located at a URL supplied
by Netscape. On any page on which the Netscape Now button, or a successor
button, is displayed, the Netscape Now button [*]. Premier Provider shall use
reasonable commercial efforts promptly to remedy any misplacement of the
Netscape Now button on its home page or other pages or any malfunctioning of the
button, provided Netscape will fully cooperate with Premier Provider to remedy
any such misplacement or malfunctioning, and provided further that Premier
Provider shall not incur liability for any failure to remedy such misplacement
or malfunctioning if such remedy is not within the reasonable control of Premier
Provider. In the event that Netscape replaces the Netscape Now program with a
successor program, Netscape shall advise Premier Provider and Premier Provider
shall use commercially reasonable efforts to produce the page to conform to such
successor program, provided Premier Provider's obligations under such successor
program shall not be materially increased. Netscape hereby grants Premier
Provider a nonexclusive, nontransferable, nonassignable, nonsublicensable
license to perform and display the Netscape Now button directly in connection
with fulfilling the foregoing obligation. Premier Provider's use of the Netscape
Now button shall be in accordance with Netscape's reasonable policies regarding
advertising and trademark usage as established from time to time by Netscape,
including the guidelines of the Netscape Now Program published on Netscape's
U.S. English-language Web Site. Premier Provider acknowledges that the Netscape
Now button is a proprietary logo of Netscape and contains Netscape's trademarks.
In the event that Netscape determines that Premier Provider's use of the
Netscape Now button is inconsistent
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* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
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<PAGE> 6
with Netscape's quality standards, then Netscape shall have the right to suspend
immediately such use of the Netscape Now button. Premier Provider understands
and agrees that the use of the Netscape Now button in connection with this
Agreement shall not create any right, title or interest in or to the use of the
Netscape Now button or associated trademarks and that all such use and goodwill
associated with the Netscape Now button and associated trademarks will inure to
the benefit of Netscape. Premier Provider agrees not to register or use any
trademark that is similar to the Netscape Now button. Premier Provider further
agrees that it will not use the Netscape Now button in a misleading manner or
otherwise in a manner that could tend to reflect adversely on Netscape or its
products. If Premier Provider fails to honor the commitment set forth in this
Section 6.1 and does not cure such failure within thirty (30) days after receipt
of written notice thereof from Netscape, Netscape shall be relieved of its
obligations described in Section 5.3;
6.2. Server Software. [*] current version of Netscape core Web server
software product (currently comprised of Netscape Enterprise Server and Netscape
FastTrack Server) to maintain Premier Provider's Web Site and, if requested,
provide Netscape of evidence of such use. Netscape will provide Premier Provider
with "Expert-Expert" product support, as described in Exhibit F, free of charge
for any Netscape software deployed by Premier Provider in accordance with this
obligation;
6.3. Site Features. [*] HTML Frames, layers, dynamic HTML pages, Java,
JavaScript or the then current client software technology (or subsequent
features displayable by the Browser, within the beta testing period of the
availability of such features) ("Site Features") for display with those Internet
software clients capable of displaying the Site Features on (i) the Premier
Provider's Web Site, provided that Premier Provider shall use commercially
reasonable efforts to implement the Site Features on Premier Provider's Web Site
in a location and in a fashion as Netscape may agree, and (ii) at least one (1)
HTML page located at each Premier URL (or on an HTML page located further down
the directory tree from the page located at the Premier URL; provided Premier
Provider will use commercially reasonable efforts to implement the Site Features
as high in such directory tree structure as possible), and, where appropriate,
on all other HTML pages of Premier Provider's primary Web site; provided Premier
Provider shall not be required to implement the Site Features on pages of any
secondary Web site of Premier Provider that Premier Provider is required to
construct to satisfy Premier Provider's obligations under any third party
contract. Netscape shall use commercially reasonable efforts to help Premier
Provider implement changes in order to comply with new Site Features;
6.4. Mailto Link. Include on the page served to an end user in
conjunction with the results of the end user's search query a "mailto" link
which users of Premier Provider's service can use to direct questions or help
requests to Premier Provider. Netscape shall also include such a "mailto" link
on the Page. Premier Provider will use reasonable efforts to reply promptly, but
in any event within one (1) week, to any such question or help request; and
6.5. Disabling Devices. [*] For purposes of this Agreement, the term
"Disabling Device" shall mean any means or functionality provided, directly or
indirectly pursuant to an agreement between Premier Provider and a third party
(other than an on-line end user agreement that accompanies such means or
functionality), by Premier Provider which (i) alters or modifies, or enables end
users to alter or modify, the Browser standard user interface or configuration
(other than Browsers that are altered or modified by third parties to
accommodate search functionality and that have been granted the right by
Netscape to make such alterations or modifications), (ii) disables any
functionality of the Browser (other than search functionality of Browsers that
is
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* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
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<PAGE> 7
disabled by third parties that have been granted the right by Netscape to
disable such search functionality), or (iii) modifies the functioning of pages
served from Netscape's U.S. English-language Web Site; provided that a Disabling
Device shall not include any such means or functionality implemented by an end
user prior to the Premier Period.
7. PAYMENT TO NETSCAPE.
7.1. Payment. For the benefits and services provided by Netscape to
Premier Provider for the one (1) year Premier Period, Premier Provider shall pay
Netscape a total of [*] (the "PAYMENT") comprised of the following:
[*]
[*]
[*] 7.2 Timing of Payment. Premier Provider shall pay the Payment as
[*] follows:
[*]
[*] [*] upon the execution of this Agreement;
[*] on or prior to June 30, 1997 [*] to be provided by
Premier Provider to Netscape pursuant to Section 7.7);
[*] on or prior to September 30, 1997 [*] to be provided by
Premier Provider to Netscape pursuant to Section 7.7);
[*] on or prior to December 31, 1997 [*] to be provided by
Premier Provider to Netscape pursuant to Section 7.7); and
[*] on or prior to March 31, 1998 [*] to be provided by
Premier Provider to Netscape pursuant to Section 7.7).
7.3. Overage Payments. If, during the Premier Period, the number of
Premier Provider's Exposures exceeds the number of Minimum Guaranteed Exposures,
Premier Provider shall remit to Netscape additional payments ("OVERAGE
PAYMENTS") equal to [*] received in excess of the Minimum Guaranteed Exposures,
subject to the terms of Section 7.4. Netscape shall invoice Premier Provider on
a quarterly basis for such Overage Payments, Premier Provider shall remit to
Netscape [*] of such Overage Payment (the "Payable Portion") within thirty (30)
days of receipt of such invoice and Premier Provider shall immediately grant to
Netscape a credit, for application against the cost of Netscape's participation
in advertising programs on Premier Provider's Web Site in accordance with
Section 7.7, equal to [*] of such Overage Payment (the "Credit Portion").
7.4. Payment Cap. Notwithstanding the foregoing, the total amount
payable by Premier Provider to Netscape as described in this Section 7 shall not
exceed twelve million five hundred thousand dollars ($12,500,000) (the "PAYMENT
CAP") including all amounts due under Section 7.1 and Section 7.3. The portion
of the Payment Cap payable by Premier Provider to Netscape (other than as a
credit against the cost of Netscape's participation in advertising programs on
Premier Provider's Web Site in accordance with Section 7.7) shall not exceed [*]
and the portion of the Payment Cap payable by Premier Provider in
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
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<PAGE> 8
the form of a credit against the cost of Netscape's participation in advertising
programs on Premier Provider's Web Site in accordance with Section 7.7 shall not
exceed [*].
7.5. Interest. Any portion of the Payment or the Overage Payments which
has not been paid to Netscape within the applicable time set forth above shall
bear interest at the lesser of (i) one percent (1%) per month, or (ii) the
maximum amount allowed by law.
7.6. No Taxes. AR payments due hereunder are exclusive of any
applicable taxes. Premier Provider shall be responsible for all applicable
national, state and local taxes, value added or sales taxes, exchange, interest,
banking, collection and other charges and levies and assessments pertaining to
payments other than U.S. taxes based on Netscape's net income. If Premier
Provider is required by law to make any deduction or to withhold from any sum
payable to Netscape by Premier Provider hereunder, (i) Premier Provider shall
effect such deduction or withholding, remit such amounts to the appropriate
taxing authorities and promptly furnish Netscape with tax receipts evidencing
the payments of such amounts, and (ii) the sum payable by Premier Provider upon
which the deduction or withholding is based shall be increased to the extent
necessary to ensure that, after such deduction or withholding, Netscape receives
and retains, free from liability for such deduction or withholding, a net amount
equal to the amount Netscape would have received and retained in the absence of
such required deduction or withholding.
7.7. Credit against Payment and Credit Portion of Overage Payments.
Netscape and Premier Provider shall discuss in good faith, and mutually agree as
to, Netscape's participation in advertising programs on Premier Provider's Web
Site, including, without limitation, the schedule and placement of Netscape's
advertisements on Premier Provider's Web Site. Premier Provider shall provide
Netscape with a credit equal to the sum of [*]. The amount of each portion, if
any, of the Payment that shall be provided by Premier Provider to Netscape in
the form of a credit pursuant to this Section 7.7 is set forth opposite such
portion of the Payment in Section 7.2. The total credit provided by Premier
Provider to Netscape pursuant to this Section 7.7 shall be applied against the
cost of Netscape's participation in advertising programs on Premier Provider's
Web Site at the rates for such advertising services as set forth on Premier
Provider's advertising rate card.
8. USAGE REPORTS.
8.1. Provide Usage Reports. Netscape and Premier Provider will each
provide the other, via email to the email address set forth below, with usage
reports ("USAGE REPORTS"), in a form capable of audit, containing the
information and in the format set forth in Exhibit B hereto. The Usage Reports
shall cover each one-month time period of the Premier Period, and the parties
shall use reasonable commercial efforts to deliver the Usage Reports within
thirty (30) days following the end of each month. If, due to technical problems,
a party is unable to provide any portion of a Usage Report in any given month,
the previous month's Usage Report data will be substituted as a proxy for the
unavailable data. The parties may, by mutual written agreement, alter the
content and format of the Usage Reports. Each party shall have the right to
retain a U.S. Nationally prominent independent auditor (other than such party's
independent auditor(s)) or other mutually agreeable independent auditor to whom
the other party shall allow reasonable access to its applicable books of account
and other records relating to the Usage Reports solely to determine the accuracy
of such Usage Reports. The information disclosed by either party to such auditor
in the course of performing such audit will be kept confidential by the auditor
and such auditor shall not be entitled to disclose any such information to any
other party, including, without limitation, the other party; provided, that such
auditor shall, without disclosing any such information, be entitled to inform
such other party as to whether the Usage Reports are accurate. Neither party may
request such audits more than once in any consecutive calendar quarter nor
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
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<PAGE> 9
review records more than twelve (12) months old. Access to the other party's
documentation shall be during such other party's regular business hours upon at
least ten (10) days prior written notice and may be conditioned upon the auditor
executing a confidentiality agreement in a form reasonably acceptable to such
other party relating to the auditor's performance of an audit hereunder.
8.2. No Liability. NETSCAPE AND PREMIER PROVIDER WILL USE REASONABLE
COMMERCIAL EFFORTS TO ENSURE THE TIMELY DELIVERY, ACCURACY AND COMPLETENESS OF
THE USAGE REPORTS, BUT NEITHER PARTY WARRANTS THAT THE USAGE REPORTS WILL
CONFORM TO ANY PUBLISHED NUMBERS AT ANY GIVEN TIME. NEITHER PARTY SHALL BE HELD
LIABLE FOR ANY CLAIMS AS THEY RELATE TO SAID USAGE REPORTS.
9. TERMINATION.
9.1. Term and Termination. This Agreement shall commence as of the date
hereof and, unless sooner terminated pursuant to this Section 9.1, shall
terminate at the end of the Premier Period. Either party may terminate this
Agreement if the other party materially breaches its obligations hereunder and
such breach remains uncured for thirty (30) days following notice to the
breaching party of the breach or as otherwise provided in Section 10.
9.2. Effect of Termination. Except as specifically provided otherwise
in this Agreement, upon termination or expiration of this Agreement, all rights
and obligations hereunder shall cease and each party will promptly and at the
direction of the other party, either return or destroy, and will not take or
use, any items of any nature that belong to the other party and all items
containing or related to Confidential Information of the other party.
Notwithstanding the foregoing, if this Agreement expires or is terminated for
any reason, other than by Premier Provider as a result of Netscape's material
breach, Premier Provider shall remain liable for the value of the payments which
are due or, but for such expiration or termination, would otherwise become due
and payable under the terms of this Agreement. The following provisions shall
survive the expiration or termination of this Agreement for any reason: Section
7.6 (No Taxes), Section 8.2 (No Liability), Section 9.2 (Effect of Termination),
Section 11 (Responsibility), Section 12 (Limitation of Liability), and Section
13 (General). In addition, to the extent that any credit provided by Premier
Provider to Netscape pursuant to Section 7.7 shall not be applied against
advertising services provided by Premier Provider to Netscape during the Premier
Period, Section 7.7 shall survive the expiration or termination of this
Agreement until all such credits shall be applied against such services.
10. RIGHT TO REFUSE. Netscape will have the right to review the contents and
format of the Premier Graphic, the Alphabetical Listing, the Bookmarked Page
and Premier Provider's Advertisement. If Netscape, in its sole discretion, at
any time determines that the Premier Graphic, the Alphabetical Listing, the
Bookmarked Page or Premier Provider's Advertisement contains any material, or
presents any material in a manner that Netscape deems inappropriate for any
reason, Netscape will inform Premier Provider of the reason Netscape has made
such determination and may (i) refuse to include the Premier Graphic or the
Alphabetical Listing in the Page, Default Page or Premier Provider's
Advertisement on Netscape's U.S. English-language Web Site, and/or (ii)
immediately terminate this Agreement if Premier Provider has not revised to
Netscape's reasonable satisfaction the Premier Graphic, the Alphabetical
Listing, the Bookmarked Page or Premier Provider's Advertisement within one (1)
business day after receipt of written notice from Netscape. If Netscape, in its
sole discretion, at any time determines that the Premier Provider's Web Site
contains any material, or presents any material in a manner, that Netscape deems
inappropriate for any reason, Netscape may immediately terminate this Agreement
upon notice to Premier Provider. Netscape reserves the right to refuse to
include in the Page or Default Page any Premier Graphic, or any Alphabetical
Listing in the Alpha Page,
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<PAGE> 10
that does not completely conform to the specifications set forth in Exhibit A,
and any Premier Provider's Advertisement that does not completely conform to the
specifications of the applicable advertising program.
11. RESPONSIBILITY. Premier Provider is solely responsible for any legal
liability arising out of or relating to (i) the Premier Graphic, the
Alphabetical Listing, Premier Provider's Bookmark, the Bookmarked Page and
Premier Provider's Advertisement, and/or (ii) any material to which users can
link through the Premier Graphic, the Alphabetical Listing, Premier Provider's
Bookmark, the Bookmarked Page and Premier Provider's Advertisement. Premier
Provider represents and warrants that it holds the necessary rights to permit
the use of the Premier Graphic, the Alphabetical Listing, the Premier URL, the
Alphabetical URL, the Premier Links, the Alphabetical Link, Premier Provider's
Bookmark, the Bookmarked Page and Premier Provider's Advertisements by Netscape
for the purpose of this Agreement; and that the permitted use, reproduction,
distribution, or transmission of the Premier Graphic, the Alphabetical Listing,
Premier Provider's Bookmark, the Bookmarked Page, Premier Provider's
Advertisements and any material to which users can link through the Premier
Graphic, Alphabetical Listing, Premier Provider's Bookmark, the Bookmarked Page
and Premier Provider's Advertisements will not violate any criminal laws or any
rights of any third parties, including, but not limited to, infringement or
misappropriation of any copyright, patent, trademark, trade secret, music,
image, or other proprietary or property right, false advertising, unfair
competition, defamation, invasion of privacy or rights of celebrity, violation
of any antidiscrimination law or regulation, or any other right of any person or
entity, or otherwise violate any applicable local, state, national or
international law. Premier Provider agrees to indemnify Netscape and to hold
Netscape harmless from any and all liability, loss, damages, claims, or causes
of action, including reasonable legal fees and expenses that may be incurred by
Netscape, arising out of or related to Premier Provider's breach of any of the
foregoing representations and warranties.
12. LIMITATION OF LIABILITY. IN NO EVENT WILL EITHER PARTY BE LIABLE TO THE
OTHER FOR ANY SPECIAL, INCIDENTAL, OR CONSEQUENTIAL DAMAGES, WHETHER BASED ON
BREACH OF CONTRACT, TORT (INCLUDING NEGLIGENCE), OR OTHERWISE, AND WHETHER OR
NOT THAT PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGE. THE LIABILITY
OF EITHER PARTY FOR DAMAGES OR ALLEGED DAMAGES HEREUNDER (EXCEPT FOR DAMAGES OR
ALLEGED DAMAGES ARISING UNDER SECTION 11) WHETHER IN CONTRACT OR TORT OR ANY
OTHER LEGAL THEORY IS LIMITED TO AND SHALL NOT EXCEED THE PAYMENT DUE FROM
PREMIER PROVIDER HEREUNDER.
13. GENERAL.
13.1. Governing Law. This Agreement shall be subject to and governed in
all respects by the statutes and laws of the State of California without regard
to the conflicts of laws principles thereof. The Superior Court of Santa Clara
County and/or the United States District Court for the Northern District of
California shall have exclusive jurisdiction and venue over all controversies in
connection herewith, and each party hereby consents to such exclusive and
personal jurisdiction and venue.
13.2. Entire Agreement. The parties agree that by signing this
Agreement, the Net Search Program - Premier Provider agreement between the
parties dated March 22, 1996, as amended, (the "1996 Net Search Agreement")
shall terminate on April 30, 1997, and any outstanding rights, duties or
obligations between the parties as described in the 1996 Net Search Agreement
shall be extinguished. Upon termination of the 1996 Net Search Agreement as
provided above, this Agreement shall be the sole recital of the rights, duties
and obligations of the parties with respect to Netscape's U.S. English-language
Web Site and Premier Provider
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participation in the Net Search Program. This Agreement, including the exhibits
and attachments referenced on the signature page hereto, constitutes the entire
Agreement and understanding between the parties and integrates all prior
discussions between them related to its subject matter. No modification of any
of the terms of this Agreement shall be valid unless in writing and signed by an
authorized representative of each party.
13.3. Assignment. Premier Provider may not assign any of its rights or
delegate any of its duties under this Agreement, or otherwise transfer this
Agreement (by merger, operation of law or otherwise) without the prior written
consent of Netscape. Any attempted assignment, delegation or transfer in
derogation hereof shall be null and void.
13.4. Notices. A11 notices required or permitted hereunder shall be
given in writing addressed to the respective parties as set forth below and
shall either be (i) personally delivered, (ii) transmitted by postage prepaid
certified mail, return receipt requested, or (iii) transmitted by
nationally-recognized private express courier, and shall be deemed to have been
given on the date of receipt. Either party may change its address for purposes
hereof by written notice to the other in accordance with the provisions of this
Subsection. The addresses for the parties are as follows:
Premier Provider:
Infoseek Corporation
2620 Augustine Drive, Suite 250
Santa Clara, CA 95054
Fax: (408) 986-1889
Attn: General Counsel
Netscape:
Netscape Communications Corporation
501 East Middlefield Road
Mountain View, CA 94043
Fax: (415) 528-4123
Attn: General Counsel
13.5. Confidentiality. All disclosures of proprietary and/or
confidential information in connection with this Agreement as well as the
contents of this Agreement shall be governed by the terms of the Mutual
Confidential Disclosure Agreement either entered into previously by the parties
or entered into concurrently with this Agreement, a copy of which is attached
hereto as Exhibit D. The information contained in the Usage Reports provided by
each party hereunder shall be deemed the Proprietary Information of the
disclosing party. Notwithstanding the foregoing, Netscape may, in its sole
discretion, make publicly available client software market share information
contained in the Usage Reports submitted by Premier Provider, provided that
Netscape shall not indicate that Premier Provider is the source of the
information.
13.6. Force Majeure. Neither party will be responsible for any failure
to perform its obligations under this Agreement due to causes beyond its
reasonable control, including but not limited to, acts of God, war, riot,
embargoes, acts of civil or military authorities, fire, floods or accidents.
13.7. Waiver. The waiver, express or implied, by either party of any
breach of this Agreement by the other party will not waive any subsequent breach
by such party of the same or a different kind.
13.8. Headings. The headings to the Sections and Subsections of this
Agreement are included merely for convenience of reference and shall not affect
the meaning of the language included therein.
13.9. Independent Contractors. The parties acknowledge and agree that
they are dealing with each other hereunder as independent contractors. Nothing
contained in this Agreement shall be interpreted as constituting either party
the joint venturer, employee or partner of the other party or as conferring upon
either party the power of authority to bind the other party in any transaction
with third parties.
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13.10. Severability. In the event any provision of this Agreement is
held by a court or other tribunal of competent jurisdiction to be unenforceable,
such provision shall be reformed only to the extent necessary to make it
enforceable, and the other provisions of this Agreement will remain in full
force and effect.
13.11. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. For purposes hereof, a
facsimile copy of this Agreement, including the signature pages hereto, shall be
deemed to be an original. Notwithstanding the foregoing, the parties shall
deliver original execution copies of this Agreement to one another as soon as
practicable following execution thereof.
The parties have duly executed this Agreement as of the later of the two (2)
dates set forth below.
PREMIER PROVIDER:
INFOSEEK CORPORATION
By: /s/ Andrew E. Newton
---------------------------------
Print Name: Andrew E. Newton
-------------------------
Title: VP, General Counsel
------------------------------
Date: March 17, 1997
------------------------------
Premier Provider Address:
2620 Augustine Drive #250
- -------------------------------------
Santa Clara, CA 95254
- -------------------------------------
USA
- -------------------------------------
Attention: General Counsel
--------------------------
Facsimile: 409-986-1889
--------------------------
Email: [email protected]
------------------------------
NETSCAPE:
NETSCAPE COMMUNICATIONS CORPORATION
By: /s/ Jennifer Bailey
---------------------------------
Print Name: Jennifer Bailey
-------------------------
Title: V.P. Electronic Marketing
------------------------------
Date: March 21, 1997
-------------------------------
Netscape Address:
501 East Middlefield Road
Mountain View, California 94043
USA
Attention: General Counsel
Facsimile:___________________________
Email:_______________________________
Attached Exhibits:
Exhibit A: Specifications of the Page
Exhibit B: Usage Reports
Exhibit C: Form of Sponsorship Agreement
Exhibit D: Mutual Confidential Disclosure Agreement
Exhibit E: Schedule of Planned Updates
Exhibit F: Description of Expert-Expert Product Support
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EXHIBIT A
SPECIFICATIONS OF THE PAGE
Site Samplers are available exclusively to Premier and "Marquee" Providers. As
of May 1, 1997, Net Search will support Netscape Navigator versions 2 and 3
(both Macintosh and PC platforms), and Microsoft Internet Explorer 3.0 (PC
only). (See Net Search Sampler Test Specification, External for complete list).
All other browsers will be routed to a simple version of the page which
encourages users to download a more current version of Netscape's browser.
Netscape will spend up to one hour of engineering time per sampler per month to
integrate the Site Samplers into the Net Search page if available. If more
engineering or QA time than is available becomes necessary to fix bugs
discovered, or if the necessary changes to fix any bugs include changes to the
appearance of the sampler, the Site Sampler will be returned for revision. The
specifications are as follows:
- SIZE. All Premier Provider materials should be exactly 468 by 165 pixels.
Design Site Samplers that include text and interactive forms for a default
font size of 12 points. (Be aware, however, that text and forms may resize
on your audience's browsers as they change their default font sizes.) Keep
in mind that the (FONT SIZE=) tag is not implemented in early versions of
web browsers.
Site Samplers will be measured by taking a screen shot on a system
configured as follows: A PC running Windows 95, with the settings
configured for small fonts, and an NEC MultiSync XV17+ (17 inch) monitor.
The screen shot will be taken of Netscape Navigator Gold version 3.1, with
the Proportional Font set at 12pt Times New Roman, and the Fixed Font set
at 10pt Courier New. The measurement will be taken in Paintbrush. Netscape
will provide measurement services", if needed, for companies that don't
have the specified platform configuration.
- HTML QUIRKS. We have found a few less-than-obvious quirks which cause some
browsers to crash, which we thought would be helpful to pass on:
1. (FORM) tags must follow IMMEDIATELY AFTER your sampler's first
(TABLE) tag. Any variation of this whatsoever will cause a
significant number of users to crash.
2. Any empty (TD) tags should be separated by a carriage return.
HTML should read as follows:
(TD)
(/TD)
as opposed to
(TD)(/TD)
3. If text appears without any spacing between words (for
instance, in a sentence as opposed to in a table), any text
that falls closer than 50 pixels to the edge of the Site
Sampler should be tested on a Unix machine. Often, this text
will be cut off on that platform.
4. Interleaving HTML tags will cause several browsers to crash.
Tags should be ordered as follows:
5. (H3)(FONT COLOR="#000055")Text here(/FONT)(/H3) as opposed to
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6. (H3)(FONT COLOR="#000055")Text here(/H3)(/FONT)
- - TABLES. In order to maintain the robustness of the page, please do not
include any more than one nested table, for a total of two tables per
sampler. Any more than one nested table will cause crashes for a
significant number of users. One simple table is ideal, as even one
nested table may cause some implementation problems when integrated
with the Net Search page. If you are nesting a table, please test
carefully.
- - IMAGE MAPS. Only a client-side image map is necessary, since browsers
which don't support client-side maps will not be directed to the main
Net Search page.
- - FILE SIZES. To keep the user's load time low, we request that Premier
Provider files not exceed 20K unless cleared by the Destinations
production manager at [email protected].
- - ANIMATED GIFs. Due to the large number of users whose browsers do not
support animated GIFs, and their typically large file size, we are not
implementing animated GIFs at this time.
- - JAVASCRIPT. JavaScript tends to cause older browsers to behave
unpredictably and in many cases crash, and there is delicate technology
in place to implement the Site Sampler functionality. As a result, the
implementation of Java Script in Site Samplers is not an option at this
time.
- - DELIVERY. Content providers should email files to Netscape at
[email protected]. If you are providing multiple files, you
should place them in a folder labeled with the content provider's name.
For the best possible results, deliver Site Samplers that are already
integrated into a copy of the Net Search page.
- - FILENAMES. It is important that filenames be in the following format:
search_providername.fmt (for example, search_yoohoo.gif,
search_yoohoo.htm). If there are two or more files of a certain format,
filenames should be in the following format: search_providername#.fmt
(for example, search_yoohoo1.gif, search_yoohoo2.gif). When you update
your Site Sampler, continue to increment the number to help avoid
caching issues.
- - FORMAT. All content providers need to provide HTML files that include
the layout for their materials. All HTML should be uppercase. Please
include the TARGET="_top" attribute in all HREF tags. Height and width
tags need to be specified for all images. Graphics files should be in
GIF format; all other formats should be cleared with the Destinations
production manager at [email protected].
- - GRAPHICS. By limiting the number of individual graphics (server calls)
in your Site Sampler, you will improve overall page performance and
allow the page to load more quickly. Cropping as close as possible to
the image, leaving no white space around them, will also allow the page
to load more quickly. To minimize dithering and insure that the users
across all platforms see what you expect them to see, we recommend use
of the Netscape Color Palette.
2
<PAGE> 15
EXHIBIT B
USAGE REPORTS
Sample report provided by Premier Provider to Netscape each month.
For the week of: 5/1/97 - 5/8/97
[*]
- ---------------
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE> 16
Sample report provided by Netscape to Premier Provider each month.
For the month of May, 1997
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5)
Rotated Default Total First User Total
Exposures Exposures Exposures Selected Exposures
(1+2) Exposures (3+4)
<S> <C> <C> <C> <C> <C>
May 1 1M 200K 1.2M 400K 1.6M
May 2 1.1M 210K 1.31M 500K 1.81M
...
...
May 3 1.2M 220K 1.42M 600K 2.02M
May 31 1.8M 280K 2.08M 800K 3.08M
Total
</TABLE>
A running total of the Exposures will also be included.
2
<PAGE> 17
EXHIBIT C
Form of Sponsorship Agreement
[Left Blank]
<PAGE> 18
EXHIBIT D
Mutual Confidential Disclosure Agreement
[Left blank.]
2
<PAGE> 19
EXHIBIT E
SCHEDULE OF PLANNED UPDATES
- - Calendar: The following is the schedule for submitting materials for
the Net Search program during the first two months of the Premier
Period.
<TABLE>
<CAPTION>
FINAL MATERIALS DUE: NET SEARCH PAGE GOES LIVE:
-------------------- --------------------------
<S> <C>
May 6,1997 May 12, 1997
May 13,1997 May 19, 1997
May 19,1997 (please note this is a Monday) May 22, 1997
May 27,1997 (please note the 26th is a holiday) June 2, 1997
June 3, 1997 June 9, 1997
June 10, 1997 June 16, 1997
June 17,1997 June 23, 1997
June 24, 1997 June 30, 1997
</TABLE>
3
<PAGE> 20
EXHIBIT F
DESCRIPTION OF EXPERT-EXPERT PRODUCT SUPPORT
Designed for medium to large organizations
Web businesses
Internet service providers
Large system integrators
Large resellers
Mission-critical level of support for Netscape customers.
- - Priority escalation to expert-level technical support engineer
- - Includes support for complex fault isolation
- - Customers provide front-line (help-desk) support for their installed
base
- - 2 authorized customer contacts included
- - Unlimited incidents
- - 24 x 7 (pager only after hours for P1 issues only)
- - Informational support on selected beta products
- - Technical support bulletins
- - Incident closure reports
4
<PAGE> 1
Exhibit 10.41
AMENDMENT NO. 3
TO
ON-LINE SERVICE AGREEMENT
The On-Line Service Agreement ("Agreement") by and between InfoSeek
Corporation, a corporation duly organized under the laws of California, with
its principal place of business at 2620 Augustine Drive, #250, Santa Clara,
California 95054, hereinafter referred to as "InfoSeek", and Reuters Newmedia
Inc., with its principal place of business at 1700 Broadway, New York, New York
10019, hereinafter referred to as "Reuters", dated February 28, 1995 as amended
by Amendments No. 1 and No. 2, dated January 4, 1966 and April 19, 1996,
respectively, is hereby further amended by this Amendment No. 3.
1. Schedule 1 of the Agreement is hereby amended to include the Reuters
Olympic Service for the period [ * ] ("Reuters Olympic Service
Period"). The Reuters Olympics Service when fully operational shall
consist of Olympics stories extracted by Reuters from Reuters World
Service, the Reuters North American News Report, and/or the Reuters
Special Olympics Report. Infoseek acknowledges that in the event that the
Reuters Olympic Service is not fully operational by June 22, 1996,
Reuters may provide Infoseek with the three news wires set forth in the
preceding sentence, and Infoseek will have the obligation to extract
those stories that relate directly to the Olympics based on a unique
field descriptor to identify such stories.
2. In consideration for the rights granted in Section 1. above, Infoseek
shall pay to Reuters [ * ], which payment shall be due and payable
to Reuters on or before August 30 1996; provided, however, such amount
shall reduced on a pro rata basis for each day during the Reuters Olympic
Service Period that the Reuters Olympic Service is not fully operational.
3. Infoseek will display a Reuters logo (prepared by Reuters in
accordance with Infoseek's specifications of 45 pixels high with a
maximum file size of 3K). Such Reuters logo will be linked to a Reuters
Internet site mutually agreed to by Infoseek and Reuters. Such logo will
be incorporated into Infoseek's Summer Games home page during the Reuters
Olympic Service Period. Further, by July 15, 1996, such logo will be
incorporated into pages containing full text articles from the Reuters
Olympic Service. Upon request by Reuters, and no more frequently than
once per thirty day period, Infoseek shall replace the then-current
Reuters logo with a revised Reuters logo conforming to the above
described specifications, and linked to a Reuters Internet site mutually
agreed to by Infoseek and Reuters. Any such replacements of the Reuters
logo and/or revisions to the link shall be incorporated by Infoseek into
the Infoseek's service within five (5) business days after receipt.
4. Schedule 1 of the Agreement is hereby amended to include the Reuters
Online Technology Report.
5. Subject to [ * ] solely with respect to the Reuters Online
Technology Report specified in Section 4 above, the [ * ] of
Schedule 4 shall be at the following rates, effective upon the
commencement of the Reuters On-Line Technology Report feed to InfoSeek
[ * ].
[ * ]
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
1 of 2
<PAGE> 2
6. InfoSeek [ * ] described in Sections 4 and 5 above, upon at
least thirty (30) days prior written notice to Reuters.
The parties hereto agree that the terms and provisions of the Agreement as
amended hereby shall remain in full force and effect. The effective date of
this Amendment No. 3 shall be the date this Amendment No. 1 becomes fully
executed by both parties.
ACCEPTED FOR INFOSEEK CORPORATION ACCEPTED FOR REUTERS NEWMEDIA INC.
By: /s/ Andrew E. Newton By: /s/ Andrew M. Niblz
----------------------------------- ------------------------------
Authorized Signature Authorized Signature
Name: Andrew E. Newton Name: Andrew M. Niblz
---------------------------------- -----------------------------
(Type or Print) (Type or Print)
Title: Vice President & General Counsel Title: Exec V.P.
--------------------------------- -----------------------------
Date: October 30, 1996 Date: 10/28/96
---------------------------------- -----------------------------
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
2 of 2
<PAGE> 1
Exhibit 10.42
FOURTH AMENDMENT TO THE
REUTERS NEWMEDIA INC. ON-LINE DIRECTORY AGREEMENT
BETWEEN REUTERS NEWMEDIA INC. AND
INFOSEEK CORP.
This agreement, dated August 30, 1996, amends the February 28, 1995 Reuters
NewMedia Inc. On-line Service Agreement ("February 1995 Agreement") as amended
by Amendments No. 1 and No. 2 dated January 4, 1996 and April 19, 1996,
respectively, between REUTERS NEWMEDIA INC., a Delaware corporation having its
principal office at 1700 Broadway, New York, New York 10019 and INFOSEEK CORP.,
with its principal office at 2620 Augustine Dr. #250; Santa Clara, CA 95054 is
hereby further amended by this Amendment No. 4. Capitalized terms not herein
defined shall have the same meaning as set forth in the November 1995
Agreement.
1. Schedule 1 of the February 1995 Agreement is amended to include the [ * ]
for use in Infoseek Personal* as [ * ] provided under the Agreement.
*Also known as Infoseek Your News
2. Schedule 4 of the February 1995 Agreement is amended to include the
following:
During the period through February 28, 1997, Distributor shall pay for the
Reuters World Service a monthly fee equal to the greater of (a) [ * ] or
(b) [ * ] arising out of to the sale or rental of Advertising Space on
pages containing the Reuters World Service. Effective [ * ] Distributor
shall pay for the Reuters World Service [ * ] of Distributor's Net
Advertising Receipts arising out of the sale or rental of Advertising
Space on pages containing the Reuters World Service. Distributor shall have
the [ * ] upon 30 days prior written notice to Reuters.
3. Except as set forth herein, all terms and conditions of the November 1995
Agreement shall remain in full force and effect as set forth therein.
Accepted and Agreed on Accepted and Agreed on
Behalf of Reuters NewMedia Inc. Behalf of Infoseek Corp.
By: /s/ Andrew M. Niblz By: /s/ Andrew E. Newton
------------------------------ ---------------------------
Name: Andrew M. Niblz Name: Andrew E. Newton
-------------------------- -----------------------
Title: Exec. V.P. Title: V.P. & General Counsel
-------------------------- -----------------------
Date: 9/25/96 Date: August 30, 1996
-------------------------- -----------------------
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE> 1
Exhibit 10.43
1399 MOFFETT PARK DRIVE, SUNNYVALE, CA
STANDARD NNN LEASE -- MULTI-TENANT
W I T N E S S E T H
This lease ("LEASE") is entered into by and between Limar Realty Corp. #8, a
California corporation ("LANDLORD") and Infoseek Corporation, a California
corporation ("TENANT"). For and in consideration of the payment of rents and the
performance of the covenants herein set forth by Tenant, Landlord does lease to
Tenant and Tenant accepts the Premises described below subject to the agreements
herein contained.
1. BASIC LEASE TERMS
a. DATE OF LEASE: March 4, 1997
TENANT: Infoseek Corporation, a California corporation
Address (of the Premises): 1399 Moffett Park Drive, Sunnyvale, CA 94086
Address (for Notices): (Please provide if other than the Premises)
b. LANDLORD: Limar Realty Corp. #8
Address (for Notices): 1730 El Camino Real, Suite 400
San Mateo, CA 94402
c. TENANT'S USE OF PREMISES: Office and related research/development
activities.
d. PREMISES AREA: 1) Initial Premises: 47,888 Rentable Square
Feet consisting of Building A and the First
Floor of Building B.
2) Must Take Premises: 13,500 Rentable Square
Feet consisting of the Second Floor of
Building B.
e. BUILDING: 1399 Moffett Park Drive, Sunnyvale, CA 94086
f. INSURING PARTY: Landlord is the "INSURING PARTY" unless
otherwise stated herein.
g. TERM or INITIAL TERM (inclusive):Commencement Date: Approximately April
16, 1997 (See
Paragraph 29.)
Expiration Date: October 15, 2002
("EXPIRATION DATE")
Number of Months: Approximately Sixty-
six (66) Months
h. TENANT'S SHARE OF BUILDING: 61.77% (61,388 sq. ft./99,384 sq. ft.)
i. TENANT'S NUMBER OF PARKING SPACES: 4.2 Spaces per 1,000 Rentable Square
Feet of Leased area.
j. INITIAL BASE RENT: Initial Premises: $69,437.60 per month.
Must Take Premises: $19,575.00 per month.
k. BASE RENT ADJUSTMENT:
(a) COST OF LIVING. Intentionally deleted.
(b) STEP INCREASE. The step adjustment provisions of Paragraph 4.b.
apply for the periods shown below:
<TABLE>
<CAPTION>
MONTHLY BASE RENT AMOUNT
PERIODS (INCLUSIVE) (61,388 RENTABLE SQUARE FEET)
------------------- -----------------------------
<S> <C>
Month 13 - Month 24 $ 92,082.00
Month 25 - Month 36 $ 95,151.40
Month 37 - Month 48 $ 98,220.80
Month 49 - Month 60 $101,290.20
Month 61 - Expiration Date $104,359.60
</TABLE>
l. TOTAL TERM BASE RENT: $6,217,791.60. (Assumes Total term is exactly 66
Months and the Must Take Premises commences with seventh Lease month.)
m. PREPAID BASE RENT: $69,437.60 in payment of the first months
rent.
n. SECURITY DEPOSIT: $445,063.00
o. BROKER(S): BT Commercial Real Estate (Landlord) & Bishop
Hawk, Inc. (Tenant)
p. EXHIBITS: Exhibits lettered "A" through "E" are attached hereto and made
a part hereof.
-1-
<PAGE> 2
2. PREMISES, PARKING AND COMMON AREAS
a. PREMISES. The Premises as described in Paragraph 1. and
Exhibit A, are a portion of a building, herein sometimes
referred to as the "BUILDING" identified in Paragraph 1. The
Premises, the Building, the Common Areas, the land upon which
the same are located, along with all other buildings and
improvements thereon or thereunder, are herein collectively
referred to as the "PROPERTY" as described in Paragraph 1. and
Exhibit B. Landlord hereby leases to Tenant and Tenant leases
from Landlord for the Term (as defined below), at the rental,
and upon all of the conditions set forth herein, the real
property referred to in the Basic Lease Terms, Paragraph 1. as
the "PREMISES", including rights to the Common Areas as
hereinafter specified. Subject to any additional work Landlord
has agreed herein to do, Tenant hereby accepts the Premises in
their condition existing as of the date of the execution
hereof, subject to all applicable zoning, municipal, county
and state laws, ordinances and regulations governing and
regulating the use of the Premises, and accepts this Lease
subject thereto and to all matters disclosed thereby and by
any exhibits attached hereto. Tenant acknowledges that neither
Landlord nor Landlord's Broker has made any representation or
warranty as to the suitability of the Premises for the conduct
of Tenant's business. Tenant acknowledges that prior to the
Commencement Date the square footage specified for the
Premises in Paragraph 1. may be revised as reasonably
determined by Landlord pursuant to the final approval of the
Preliminary Plan, in which case all amounts of Base Rent and
Security Deposit shall be adjusted accordingly. Tenant will
not thereafter challenge such determination and agreement. The
rental payable by Tenant pursuant to this Lease is not subject
to revision in the event of any discrepancy in the rentable
square footage for the Premises. (See Paragraph 29.)
b. VEHICLE PARKING. So long as Tenant is not in default, and
subject to the Rules and Regulations attached hereto as
Exhibit C, and as established by Landlord from time to time,
Tenant shall be entitled to use the number or parking spaces
set forth in Paragraph 1 on a non-reserved basis. If Tenant
commits, permits or allows any of the prohibited activities
described in the Lease or the Rules and Regulations then in
effect, then Landlord shall have the right, without notice, in
addition to such other rights and remedies that it may have,
to remove or tow away the vehicle involved and charge the cost
to Tenant, which cost shall be immediately payable upon demand
by Landlord.
c. COMMON AREAS -- DEFINITION. The term "COMMON AREAS" is defined
as all areas and facilities outside the Premises and within
the exterior boundary line of the Property that are provided
and designated by the Landlord from time to time for the
general non-exclusive use of Landlord, Tenant and of other
tenants of the Property and their respective employees,
suppliers, shippers, customers, and invitees, including but
not limited to common entrances, lobbies, corridors, stairways
and stairwells, public restrooms, elevators, parking areas to
the extent not otherwise prohibited by this Lease, loading and
unloading areas, trash areas, roadways, sidewalks, walkways,
parkways, ramps, driveways, landscaped areas and decorative
walls.
d. COMMON AREAS -- RULES AND REGULATIONS. Tenant agrees to abide
by and conform to the Rules and Regulations attached hereto as
Exhibit C with respect to the Property and Common Areas, and
to cause its employees, suppliers, shippers, customers, and
invitees to so abide and conform. Landlord or such other
person(s) as Landlord may appoint shall have the exclusive
control and management of the Common Areas and shall have the
right, from time to time, to modify, amend and enforce said
rules and regulations. Landlord shall not be responsible to
Tenant for the non-compliance with said rules and regulations
by other tenants, their agents, employees and invitees.
e. BUILDING AND COMMON AREAS -- CHANGES. Landlord shall have the
right, in Landlord's sole discretion, from time to time:
(1) To make changes to the Building interior and exterior
and Common Areas, including, without limitation,
changes in the location, size, shape, number, and
appearance thereof, including but not limited to the
lobbies, windows, stairways, air shafts, elevators,
restrooms, driveways, entrances, parking spaces,
parking areas, loading and unloading areas, ingress,
egress, direction of traffic, decorative walls,
landscaped areas and walkways;
(2) To close temporarily any of the Common Areas for
maintenance purposes so long as reasonable access to
the Premises remains available;
(3) To designate other land and improvements outside the
boundaries of the Property to be a part of the Common
Areas, provided that such other land and improvements
have a reasonable and functional relationship to the
Property;
(4) To add improvements to the Common Areas;
(5) To use the Common Areas while engaged in making
additional improvements, repairs or alterations to
the Property or any portion thereof; and
(6) To do and perform such other acts and make such other
changes in, to or with respect to the Common Areas
and Property as Landlord may, in the exercise of
sound business judgment deem to be appropriate.
-2-
<PAGE> 3
f. ACCEPTANCE. Landlord represents that it is the fee simple
owner of the Premises and has full right and authority to make
this Lease. Landlord hereby leases the Premises to Tenant and
Tenant hereby accepts the same from Landlord, in accordance
with the provisions of this Lease. Landlord covenants that
Tenant shall have peaceful and quiet enjoyment of the Premises
during the Term (as defined below) of this Lease.
3. TERM. The term ("TERM") of this Lease is for the period that commences
at 12:01 a.m. on the Commencement Date and expires at 11:59 p.m. on the
Expiration Date. If Landlord, for any reason, cannot deliver possession
of the Premises to Tenant on or before the Commencement Date, this Lease
shall not be void or voidable, nor shall Landlord be liable to Tenant for
any loss or damage resulting from such delay. In that event, however,
there shall be an abatement of Base Rent (as defined below) covering the
period between the Commencement Date and the date when Landlord delivers
possession to Tenant, all other terms and conditions of this Lease shall
remain in full force and effect, provided, however, that if Landlord
cannot deliver possession of the Premises to Tenant, this Lease shall be
void. If a delay in possession is caused by Tenant's failure to perform
any obligation in accordance with this Lease, the Term shall commence as
of the Commencement Date, and there shall be no reduction of Base Rent
between the Commencement Date and the time Tenant takes possession. (See
Paragraph 29.)
4. RENT
a. BASE RENT. Tenant shall pay Landlord in lawful money of the
United States, without notice, demand, offset or deduction,
rent in the amount(s) set forth in Paragraph 1. commencing
upon the Commencement Date set forth in Paragraph 3. payable
in advance on the first day of each and every calendar month
("BASE RENT") provided, however, the first month's Base Rent
is due and payable upon execution of this Lease. Unless
otherwise specified in writing by Landlord, all installments
of Base Rent shall be payable at Limar Realty Corp. #8,
Department #44292, P.O. Box 44000, San Francisco, California
94144-4294. Base Rent for any partial month at the beginning
or end of this Lease will be prorated in accordance with the
number of days in the subject month.
For purposes of Section 467 of the Internal Revenue Code, the
parties to this Lease hereby agree to allocate the stated Base
Rent provided herein to the periods which correspond to the
actual Base Rent payments as provided under the terms and
conditions of this Agreement.
b. STEP INCREASE. The Base Rent shall be increased periodically
to the amounts and at the times set forth in Paragraph 1.
based upon the actual Commencement Date of the Lease. For
example, if the actual Commencement Date is April 12, 1997,
then the $92,082.00 rental amount will be effective April 12,
1998.
c. RENT WITHOUT OFFSET AND LATE CHARGE. All Rent shall be paid
without prior demand or notice and without any deduction of
offset whatsoever. All Rent shall be paid in lawful currency
of the United States of America. Tenant acknowledges that late
payment by Tenant to Landlord of any Rent will cause Landlord
to incur costs not contemplated by this Lease, the exact
amount of such cost being extremely difficult and
impracticable to ascertain. Such costs include, without
limitation, processing and accounting charges and late charges
that may be imposed on Landlord by the terms of any
encumbrance or note secured by the Premises. Therefor, if any
Rent is not received by Landlord within five (5) days of its
due date, Tenant shall pay to Landlord a late charge equal to
ten percent (10%)of such overdue payment. Landlord and Tenant
hereby agree that such late charge represents a fair and
reasonable estimate of the costs that Landlord will incur by
reason of any such late payment and that the late charge is in
addition to any and all remedies available to the Landlord and
that the assessment and/or collection of the late charge shall
not be deemed a waiver of any other default. Additionally, all
such delinquent Rent or other sums, plus this late charge,
shall bear interest from the due date thereof at the lesser of
ten percent (10%) per annum or the maximum legal interest rate
permitted by law. Any payments of any kind returned for
insufficient funds will be subject to an additional handling
charge of $25.00, and thereafter, Landlord may require Tenant
to pay all future payments of Rent or other sums due by
cashier's check.
d. RENT. The term "RENT" as used in this Lease shall refer to
Base Rent, prepaid rent, Real Property Taxes, Operating
Expenses, repairs and maintenance costs, insurance, utilities,
late charges and other similar charges payable by Tenant
pursuant to this Lease either directly to Landlord or
otherwise.
5. SECURITY DEPOSIT. Upon execution of this Lease, Tenant shall deposit a
security deposit ("SECURITY DEPOSIT") in the amount set forth in
Paragraph 1. with Landlord. If Tenant is in default, Landlord can use the
Security Deposit or any portion of it to cure the default or to
compensate Landlord for any damages sustained by Landlord resulting from
Tenant's default. Upon demand, Tenant shall immediately pay to Landlord a
sum equal to the portion of the Security Deposit expended or applied by
Landlord to restore the Security Deposit to its full amount including any
interest which would have been earned on the portion of the Security
Deposit expended or applied by the Landlord, from the date of such
expense or application. In no event will Tenant have the right to apply
any part of the Security Deposit to any Rent due under this Lease. If
Tenant is not in default at the expiration or termination of this Lease,
Landlord shall return the Security Deposit to Tenant. Landlord's
obligations with respect to the Security Deposit are those of a debtor
and not a trustee, and Landlord can commingle the Security Deposit with
Landlord's general funds. Landlord shall not be required to pay Tenant
interest on the Security Deposit. Landlord shall be entitled to
immediately endorse and cash Tenant's Security Deposit; however, such
endorsement and cashing shall not constitute Landlord's acceptance of
this Lease. In the event Landlord does not accept this Lease, Landlord
shall return said Security Deposit. Subject to the provisions of
Paragraph 30. below, each time the Base Rent is increased, Tenant shall
deposit additional funds with Landlord sufficient to increase the
Security Deposit to an amount which bears the same relationship to the
Base Rent as the initial Security Deposit bore to the initial Base Rent.
-3-
<PAGE> 4
6. USE OF PREMISES
a. TENANT'S USE. Tenant shall use the Premises solely for the
purposes stated in Paragraph 1. and for no other purposes
without obtaining the prior written consent of Landlord.
Tenant acknowledges that neither Landlord nor any agent of
Landlord has made any representation or warranty with respect
to the Premises or with respect to the suitability of the
Premises to the conduct of Tenant's business, nor has Landlord
agreed to undertake any modification, alteration or
improvement to the Premises, except as provided in writing in
this Lease. Tenant acknowledges that Landlord may from time to
time, at its sole discretion, but with reasonable prior notice
to Tenant, make such modifications, alterations, deletions or
improvements to the Premises as Landlord may reasonably deem
necessary or desirable, without compensation or notice to
Tenant. Tenant shall promptly comply with all laws, statutes,
ordinances, orders and governmental regulations affecting the
Premises. Tenant shall not do or permit anything to be done in
or about the Premises or bring or keep anything in the
Premises that will in any way increase the premiums paid by
Landlord on its insurance related to the Premises. Tenant will
not perform any act or carry on any practices that may injure
the Premises. Tenant shall not use the Premises for sleeping,
washing clothes, cooking or the preparation, manufacture or
mixing of anything that emits any objectionable odor, noises,
vibrations or lights onto such other tenants. If sound
insulation is required to muffle noise produced by Tenant on
the Premises, Tenant at its own cost shall provide all
necessary insulation. Tenant shall not do anything on the
Premises which will overload any existing parking or service
to the Premises. Pets and/or animals of any type shall not be
kept on or about the Premises.
b. CC&R's. Tenant agrees that this Lease is subject and
subordinate to the Covenants, Conditions and Restrictions for
the Moffett Industrial Park No. 11, recorded May 5, 1980, as
Recorders' Serial No. 6721997 in the Official Records of Santa
Clara County, California, a copy of which is attached hereto
as Exhibit D, as they may be amended from time to time
("CC&R's"), and further agrees that the CC&R's are an integral
part of this Lease. Throughout the Term or any extension
thereof, notwithstanding any other provision hereof, Tenant
shall faithfully and timely assume and perform all obligations
of Landlord and/or Tenant under the CC&R's and any
modifications or amendments thereto, including the payment of
any periodic or special dues or assessments against the
Premises. Such dues and assessments shall be included within
the definition of Operating Expenses pursuant to Paragraph
13.b.11), and Tenant shall pay such amounts as further set
forth in Paragraph 13. Tenant shall hold Landlord, its
subsidiaries, directors, officers, agents and employees
harmless and indemnify Landlord, its subsidiaries, directors,
officers, agents and employees against any loss, expense and
damage, including attorneys' fees and costs, arising out of
the failure of Tenant to perform or comply with the CC&R's.
c. RULES AND REGULATIONS. Tenant shall comply with and use the
Premises in accordance with the Rules and Regulations attached
hereto as Exhibit C and to any reasonable modifications to
such Rules and Regulations as Landlord may adopt from time to
time.
7. EMISSIONS; STORAGE, USE AND DISPOSAL OF WASTE
a. EMISSIONS. Tenant shall not:
1) Permit any vehicle on the Premises or in the Commons
Areas to emit exhaust which is in violation of any
governmental law, rule, regulation or requirement;
2) Discharge, emit or permit to be discharged or
emitted, any liquid, solid or gaseous matter, or any
combination thereof, into the atmosphere or on, into
or under the Premises, any building or other
improvements of which the Premises are a part, or the
ground or any body of water which matter, as
reasonably determined by Landlord or any governmental
entity, does or may pollute or contaminate the same,
or is, or may become, radioactive or does, or may,
adversely affect the (a) health or safety of persons,
wherever located, whether on the Premises or anywhere
else, (b) condition, use or enjoyment of the Premises
or any other real or personal property, whether on
the Premises or anywhere else, or (c) Premises or any
of the improvements thereto including buildings,
foundations, pipes, utility lines, landscaping or
parking areas;
3) Produce, or permit to be produced, any intense glare,
light or heat;
4) Create, or permit to be created, any sound pressure
level which will interfere with the quiet enjoyment
of any real property outside the Premises, or which
will create a nuisance or violate any governmental
law, rule, regulation or requirement;
5) Create, or permit to be created, any vibration that
is discernible outside the Premises; or
6) Transmit, receive or permit to be transmitted or
received, any electromagnetic, microwave or other
radiation which is or may be harmful or hazardous to
any person or property in, or about the Premises, or
anywhere else.
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b. STORAGE AND USE.
1) STORAGE. Subject to the uses permitted and prohibited
to Tenant under this Lease, Tenant shall store in
appropriate leak proof containers all solid, liquid
or gaseous matter, or any combination thereof, which
matter, if discharged or emitted into the atmosphere,
the ground or any body of water, does or may (a)
pollute or contaminate the same, or (b) adversely
affect the (i) health or safety of persons, whether
on the Premises or anywhere else, (ii) condition, use
or enjoyment of the Premises or any real or personal
property, whether on the Premises or anywhere else,
or (iii) Premises.
2) USE. In addition, without Landlord's prior written
consent, Tenant shall not use, store or permit to
remain on or about the Premises any solid, liquid or
gaseous matter which is, or may become radioactive.
If Landlord does give its consent, Tenant shall store
the materials in such a manner that no radioactivity
will be detectable outside a designated storage area
and Tenant shall use the materials in such a manner
that (a) no real or personal property outside the
designated storage area shall become contaminated
thereby and (b) there are and shall be no adverse
effects on the (i) health or safety of persons,
whether on the Premises or anywhere else, (ii)
condition, use or enjoyment of the Premises or any
real or personal property thereon or therein, or
(iii) Premises or any of the improvements thereto or
thereon.
3) HAZARDOUS MATERIALS. Subject to the uses permitted
and prohibited to Tenant under this Lease, Tenant
shall store, use, employ, transport and otherwise
deal with all Hazardous Materials (as defined below)
employed on or about the Premises in accordance with
all federal, state, or local law, ordinances, rules
or regulations applicable to Hazardous Materials in
connection with or respect to the Premises.
c. DISPOSAL OF WASTE.
1) REFUSE DISPOSAL. Tenant shall not keep any trash,
garbage, waste or other refuse on the Premises except
in sanitary containers and shall regularly and
frequently remove same from the Premises. Tenant
shall keep all incinerators, containers or other
equipment used for storage or disposal of such
materials in a clean and sanitary condition.
2) SEWAGE DISPOSAL. Tenant shall properly dispose of all
sanitary sewage and shall not use the sewage disposal
system (a) for the disposal of anything except
sanitary sewage or (b) amounts in excess of the
lesser of: (i) that reasonably contemplated by the
uses permitted under this Lease or (ii) that
permitted by any governmental entity. Landlord shall
cause the sewage disposal system to be free of all
obstructions as of the Commencement Date. During the
Term hereof, Tenant shall keep the sewage disposal
system free of all obstructions and in good operating
condition.
3) DISPOSAL OF OTHER WASTE. Tenant shall properly
dispose of all other waste or other matter delivered
to, stored upon, located upon or within, used on, or
removed from, the Premises in such a manner that it
does not, and will not, adversely affect the (a)
health or safety of persons, wherever located,
whether on the Premises or elsewhere, (b) condition,
use or enjoyment of the Premises or any other real or
personal property, wherever located, whether on the
Premises or anywhere else, or (c) Premises or any of
the improvements thereto or thereon including
buildings, foundations, pipes, utility lines,
landscaping or parking areas.
d. INFORMATION. Tenant shall provide Landlord with any and all
information regarding Hazardous Materials in the Premises,
including copies of all filings and reports to governmental
entities at the time they are originated, and any other
information requested by Landlord. In the event of any
accident, spill or other incident involving Hazardous
Materials, Tenant shall immediately report the same to
Landlord and supply Landlord with all information and reports
with respect to the same. All information described herein
shall be provided to Landlord regardless of any claim by
Tenant that it is confidential or privileged.
e. COMPLIANCE WITH LAW. Notwithstanding any other provision in
this Lease to the contrary, Tenant shall comply with all laws,
statutes, ordinances, regulations, rules and other
governmental requirements in complying with its obligations
under this Lease, and in particular, relating to the storage,
use and disposal of Hazardous Materials.
f. INDEMNITY. Tenant hereby agrees to indemnify, defend and hold
Landlord, its agents, employees, lenders, directors,
representatives, successors and assigns harmless from and
against any and all actions, causes of action, losses,
damages, costs, claims, expenses, penalties, obligations or
liabilities of any kind whatsoever (including but not limited
to reasonable attorneys' fees) arising out of or relating to
any Hazardous Materials employed, used, transported across, or
otherwise dealt with by Tenant (or invitees, or persons or
entities under the control of Tenant) in connection with or
with respect to the Premises and the Property. Notwithstanding
any other provision of this Lease, the indemnity obligation of
Tenant pursuant to this Paragraph 7.f. shall survive the
termination of this Lease and shall relate to any occurrence
as described in this Paragraph 7.f. occurring in connection
with this Lease. For purposes of this Lease the term
"HAZARDOUS MATERIALS" shall mean any hazardous, toxic or
dangerous waste, substance or material, pollutant or
contaminant, as defined for purposes of the Comprehensive
Environmental Response, Compensation and Liability Act of 1980
(42 U.S.C. Sections 9601 et seq.), as amended, or the Resource
Conservation and Recovery Act (42 U.S.C. Sections 6901 et
seq.), as amended, or any other federal, state, or local law,
ordinance, rule or regulation applicable to the Premises, or
any substance which is toxic, explosive, corrosive, flammable,
infectious, radioactive, carcinogenic, mutagenic, or otherwise
hazardous, or any substance which contains gasoline,
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<PAGE> 6
diesel fuel or other petroleum hydrocarbons, polychlorinated
biphenyis (PCB's), or radon gas, urea formaldehyde, asbestos
or lead.
8. SIGNS.
a. Tenant shall not place any sign upon the Premises or the
Property, except that Tenant may, with Landlord's prior
written consent, install (but not on the roof) such signs as
are reasonably required to advertise Tenant's own business
provided such signs are in compliance with all applicable
governmental requirements and the CC&R's. The installation of
any sign on the Premises or Property by or for Tenant shall be
subject to the provisions of Paragraph 12. (Repairs and
Maintenance). Landlord reserves all rights to install signs
advertising "for sale" or "for lease" on the Property, to the
extent such signs do not unreasonably interfere with the
conduct of Tenant's business.
b. Notwithstanding anything set forth in Paragraph 8.a. above,
Tenant shall be entitled to construct a "front-lit" monument
sign on the common area of the Premises indicating the
Tenant's company name or logo. Furthermore, Tenant shall be
entitled to install two signs which may be either "front-lit"
or "back-lit" on the exterior walls of the Premises indicating
its company name or logo. The location, size, materials,
design, etc. of any such sign shall be subject to Landlord's
written approval.
Notwithstanding anything set forth in this Paragraph 8, all
signage installed by Tenant on the Premises shall be in
compliance with the Covenants, Conditions & Restrictions
governing the Building.
9. PERSONAL PROPERTY TAXES. Tenant shall pay prior to delinquency all
taxes assessed against and levied upon Tenant owned leasehold
improvements, trade fixtures, furnishings, equipment and all personal
property of Tenant contained in the Premises or elsewhere. When possible,
Tenant shall cause its leasehold improvements, trade fixtures,
furnishings, equipment and all other personal property to be assessed and
billed separately from the real property of Landlord. If any of Tenant's
said personal property shall be assessed with Landlord's real property,
Tenant shall pay Landlord the taxes attributable to Tenant within ten
(10) days after receipt of a written statement setting forth the taxes
applicable to Tenant's property.
10. REAL PROPERTY TAXES
a. PAYMENT OF TAXES. Landlord shall pay the Building's Real
Property Taxes, as defined in Paragraph 10.c., during the Term
of this Lease. Subject to 10.b., Tenant shall promptly
reimburse Landlord according to Paragraph 13. for Tenant's
Share of Building of such Real Property Taxes paid by
Landlord.
b. ADVANCE PAYMENT. In order to ensure payment when due and
before delinquency of any or all Real Property Taxes, Landlord
reserves the right, at Landlord's option, to estimate the
current Real Property Taxes applicable to the Premises, and to
require each installment of the Real Property Taxes to be paid
in advance to Landlord by Tenant, either: (i) in a lump sum
amount, at least twenty (20) days prior to the applicable
delinquency date, or (ii) monthly in advance with the payment
of the Base Rent. If Landlord elects to require payment
monthly in advance, the monthly payment shall be that equal
monthly amount which, over the number of months remaining
before the month in which the applicable tax installment would
become delinquent, would provide a fund large enough to fully
discharge before delinquency the estimated installment of Real
Property Taxes to be paid. When the actual amount of the
applicable tax bill is known, Landlord may, but is not
required to, adjust the amount of such equal monthly advance
payment so as to provide the funds needed to pay the
applicable Real Property Taxes before delinquency. If the
amounts paid to Landlord by Tenant under the provisions of
this Paragraph 10. are insufficient to discharge the
obligations of Tenant to pay such Real Property Taxes as the
same become due, Tenant shall pay to Landlord, upon Landlord's
demand, such additional sums as are necessary to pay such
obligations. All moneys paid to Landlord under this Paragraph
10. may be intermingled with other moneys of Landlord and
shall not bear interest. In the event of a breach by Tenant in
the performance of the obligations of Tenant under this Lease,
then any balance of funds paid to Landlord under the
provisions of this Paragraph 10. may, at the option of
Landlord, be treated as an additional Security Deposit under
Paragraph 5.
c. DEFINITION OF "REAL PROPERTY TAXES". As used herein, the term
"REAL PROPERTY TAXES" shall include any form of real estate
tax or assessment, general, special, ordinary or
extraordinary, and any license fee, commercial rental tax,
improvement bond or bonds, levy or tax or other fee, charge,
or excise which may be imposed as a substitute for any of the
foregoing (other than inheritance, personal income or estate
taxes) imposed upon the Premises by any authority having the
direct or indirect power to tax, including any city, county,
state or federal government, or any school, agricultural,
sanitary, fire, street, drainage or other improvement district
thereof, levied against any legal or equitable interest of
Landlord in the Premises, Landlord's right to rent or other
income therefrom, and/or Landlord's business of leasing the
Premises. The term "Real Property Taxes" shall also include
any tax, fee, levy, assessment or charge, or any increase
therein, imposed by reason of events occurring, or changes in
applicable law taking effect, during the Term of this Lease,
including but not limited to a change in the ownership of the
Premises or in the improvements thereon, the execution of this
Lease, or any modification, amendment or transfer thereof, and
whether or not contemplated by the parties hereto.
11. UTILITIES. Tenant shall pay for all water, gas, heat, light, power,
telephone, trash disposal and other utilities and services supplied to
the Premises, together with any taxes thereon. If any such services are
not separately metered to Tenant, Tenant shall pay a reasonable
proportion, to be determined by Landlord, of all charges jointly metered
with other premises.
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<PAGE> 7
12. REPAIRS AND MAINTENANCE
a. LANDLORD'S OBLIGATIONS. Landlord shall keep the Property,
including the foundation, exterior walls, roof, all plumbing
facilities leading up to (but not situated within) the
Building and the common area of the Building, and the
equipment whether used exclusively for the Premises or in
common with other premises, in good condition and repair
subject to reimbursement by Tenant in accordance with
Paragraph 13. There shall be no abatement of Rent or liability
to Tenant on account of any injury or interference with
Tenant's business with respect to any improvements,
alterations or repairs made by Landlord to the Property or any
part thereof.
b. TENANT'S OBLIGATIONS.
1) GENERAL. Tenant shall, at Tenant's sole cost and
expense and at all times, contract for janitorial
services and supplies, keep the Premises in good
order, condition and repair, including, without
limiting the generality of the foregoing, all
equipment or facilities serving the Premises, such as
heating, air conditioning and ventilation ("HVAC"),
subject to Paragraph 34. below, plumbing facilities
situated within the Premises, electrical, lighting
facilities, boilers, fired or unfired pressure
vessels, fixtures, interior walls, ceilings, floors,
windows, doors, plate glass, and skylights. Tenant
shall not cause or permit any Hazardous Material to
be spilled or released in, on, under or about the
Premises (including through the plumbing or sanitary
sewer system) and shall promptly, at Tenant's
expense: take all investigatory and/or remedial
action reasonably recommended, whether or not
formally ordered or required, for the cleanup of any
contamination of, and for the maintenance, security
and/or monitoring of the Premises, the elements
surrounding same, or neighboring properties, that was
caused or materially contributed to by Tenant, or
pertaining to or involving any Hazardous Materials
and/or storage tank brought onto the Premises by or
for Tenant or under its control. Tenant, in keeping
the Premises in good order, condition and repair,
shall exercise and perform good maintenance
practices. Tenant's obligations shall include
restorations, replacements or renewals when necessary
to keep the Premises and all improvements thereon or
a part thereof in good order, condition and state of
repair.
2) CONTRACTS. Tenant shall, at Tenant's sole cost and
expense, procure and maintain contracts, with copies
to Landlord, in customary form and substance for, and
with contractors specializing and experienced in, the
inspection, maintenance and service of heating, air
conditioning and ventilation equipment, if any,
located on the Premises. Tenant shall keep a detailed
preventative maintenance schedule and log showing the
frequency of maintenance on all HVAC, mechanical,
electrical and other systems of the Premises and
provide Landlord with a copy of same quarterly. (See
Paragraph 34.)
3) AS-IS CONDITION. The parties affirm that Landlord,
its subsidiaries, officers, directors, agents and/or
employees have made no representations to Tenant
respecting the condition of the Premises except as
specifically stated herein.
4) AMERICANS WITH DISABILITIES ACT. Tenant acknowledges
that as of the Commencement Date, the Premises may
not comply with the Americans with Disabilities Act
of 1990 ("ADA"). Landlord shall be obligated to cause
the Premises to so comply, except to the extent that
any ADA issues are triggered by tenant improvements
which are installed other than Landlord's Tenant
Improvements as outlined in Paragraph 28 hereof.
Tenant acknowledges that Landlord will provide the
existing elevator in the Premises in its "as is"
condition and Tenant shall be responsible for any ADA
compliance required by Tenant's use of the elevator
for any purpose whatsoever. Tenant shall, at its
cost, at any time during the Term as required by any
applicable governmental agency having jurisdiction
over the Premises, make such modifications and
alterations to the Premises as may be required in
order to fully comply with the provisions of the ADA,
as from time to time amended, and any and all
regulations issued pursuant to or in connection with
the ADA in such a manner as to satisfy the applicable
governmental agency or agencies requiring
remediation. Tenant shall at least thirty (30) days
prior to the commencement of any construction in
connection with satisfaction of the ADA, give written
notice to Landlord of its intended commencement of
construction together with sufficient details so as
to reasonably disclose to Landlord the nature of the
proposed construction, copies of any notices received
by Tenant from applicable governmental agencies in
connection with the ADA and such other documents or
information as Landlord may reasonably request. In
any event, notwithstanding anything to the contrary
contained in this Lease, prior to the termination of
the Term, Tenant shall, at its cost, make such
modifications and alterations to the Premises as may
be required to comply fully with the ADA as from time
to time amended and any and all regulations issued
thereunder. Tenant shall give the Landlord thirty
(30) days prior written notice as described above in
connection with any such construction. Any and all
construction required to so comply with the ADA shall
be completed by Tenant prior to the expiration of the
Term.
5) ELEVATOR. Notwithstanding anything to the contrary
set forth in Paragraph 12.b.4) above, the parties
hereby acknowledge that the existing elevator in its
present size and configuration ("ELEVATOR") is not in
compliance with the guidelines as set forth in the
ADA. Landlord and Tenant agree to use their mutual
best efforts to obtain the necessary City of
Sunnyvale Building Official approval ("CITY
APPROVAL") for the continued use of the Elevator for
the Premises. Should there be changes required to be
made to the condition/configuration of the Elevator
in order to obtain said City Approval, Landlord
agrees to perform said required changes at its sole
cost, providing such cost does not exceed $10,000.00.
However, if the cost referred to in the preceding
sentence exceeds said $10,000.00 sum, the Tenant
shall bear the entire amount of said cost which
exceeds said $10,000.00 amount.
Should the City Approval not be obtained, Landlord
shall have a new elevator installed to replace the
Elevator in order to obtain City Approval, and
Landlord and Tenant shall share the cost, including
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<PAGE> 8
related permit, architectural and engineering fees,
on a 50%/50% basis, provided, however, Landlord's
obligation shall not exceed Seventeen Thousand Five
Hundred Dollars ($17,500). Landlord further agrees to
loan to Tenant Tenant's share of such cost, in which
case Tenant shall repay Landlord via amortization
payments over the Initial Term of the Lease with 10%
interest, payable monthly as additional Rent.
c. COMPLIANCE WITH GOVERNMENTAL REGULATIONS. Tenant shall, at its
own cost and expense, promptly and properly observe and comply
with all present and future orders, regulations, directions,
rules, laws, ordinances, and requirements of all governmental
authorities (including but not limited to state, municipal,
county and federal governments and their departments, bureaus,
boards and officials) arising from the use or occupancy of, or
applicable to, the Premises or privileges appurtenant to or in
connection with the enjoyment of the Premises. Tenant shall
also comply with all such rules, laws, ordinances and
requirements at the time Tenant makes any alteration, addition
or change to the Premises.
d. MISCELLANEOUS.
1) Landlord and Tenant shall each do all acts required
to comply with all applicable laws, ordinances and
rules of any public authority relating to their
respective maintenance obligations as set forth
herein.
2) Tenant expressly waives the benefits of any statute
now or hereafter in effect which would otherwise
afford the Tenant the right to make repairs at
Landlord's expense or to terminate this Lease because
of Landlord's failure to keep the Premises and the
Property in good order, condition and repair.
Specifically, Tenant waives the provisions of
California Civil Code Sections 1941 and 1942 with
respect to Landlord's obligations for Tenant
tenantability of the Premises and Tenant's right to
make repairs and deduct the expenses of such repairs
from Rent.
3) Tenant shall not place a load upon any floor of the
Premises which exceeds the load per square foot which
such floor was designed to carry, as determined by
Landlord or Landlord's structural engineer. The cost
of any such determination made by Landlord's
structural engineer shall be paid for by Tenant upon
demand.
4) Except as otherwise expressly provided in this Lease,
Landlord shall have no liability to Tenant nor shall
Tenant's obligations under this Lease be reduced or
abated in any manner whatsoever by reason of any
inconvenience, annoyance, interruption or injury to
business arising from Landlord making any repairs or
changes which Landlord is required to make or is
permitted to make by this Lease or by any tenant's
lease or is required by law to make in or to any
portion of the Premises. Landlord shall nevertheless
use reasonable efforts to minimize any interference
with Tenant's business in the Premises.
5) Tenant shall give Landlord prompt notice of any
damage to or defective condition in any part or
appurtenance of the Premises' mechanical, electrical,
plumbing, HVAC or other systems serving, located in
or passing through the Premises. Upon request by
Landlord, Tenant shall provide Landlord with evidence
reasonably acceptable to Landlord of service
contracts on such systems.
6) Upon the expiration or early termination of this
Lease, Tenant shall return the Premises to Landlord
clean and in the same condition as on the date Tenant
took possession, except for normal wear and tear. Any
damage to the Premises, including any structural
damage, resulting from Tenant's use or from the
removal of Tenant's fixtures, furnishings and
equipment shall be repaired by Tenant at Tenant's
expense.
7) Landlord may, at Landlord's option, choose to perform
any of the Tenant's obligations in this Paragraph 12.
The cost of any such Tenant's obligations so
performed by Landlord shall be at Tenant's sole cost
and expense. Landlord agrees to make every reasonable
effort to obtain commercially competitive prices for
such work, excluding emergency work. Tenant shall
reimburse Landlord for any such costs incurred by
Landlord in the performance of such Tenant's
obligations within ten (10) days of receipt of a
billing from Landlord.
13. OPERATING EXPENSES
a. PAYMENT BY TENANT. During the Term of this Lease, Tenant shall
pay to Landlord, as additional Rent, on a monthly basis
Tenant's Share of the Operating Expenses of the Property,
except that until Rent has commenced on the Must Take Space in
accordance with Paragraph 29.b., Tenant's Share shall be
limited to 48.18% (47,888 sq.ft./99,384 sq.ft.).
b. OPERATING EXPENSES. The term "OPERATING EXPENSES" shall mean
all expenses, costs and disbursements (not specifically
excluded from the definition of Operating Expenses below) of
every kind and nature which Landlord shall pay or become
obligated to pay because of or in connection with the
ownership, maintenance, repair and operation of the Property
or any portion thereof (including all Common Areas of the
Property). Operating Expenses shall include, but not be
limited to, the following:
1) Wages and salaries of all employees engaged in the
operation, maintenance and security of the Property,
including taxes, insurance and benefits relating
thereto; and the rental cost and overhead of any
office and storage space used to provide such
services.
2) All supplies and materials used in the operation,
repair or maintenance of the Property.
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<PAGE> 9
3) Cost of all utilities, including surcharges, for the
Property, including the cost of water, power and
lighting which are not separately billed to and paid
for by Tenant.
4) Cost of all maintenance and service agreements for
the Property and the equipment thereon, including but
not limited to, security services, exterior window
cleaning, janitorial service, engineers, gardeners
and trash removal services.
5) All Insurance Costs, as such term is defined in
Paragraph 16.
6) Cost of repairs and general maintenance (excluding
repairs and general maintenance paid by proceeds of
insurance or by Tenant or other third parties, and
alterations attributable solely to the other tenants
of the Property).
7) A management fee for the property management of the
Property, which fee the parties hereto stipulate
shall be three percent (3%) of Rent. Management of
the Property can be contracted to Landlord or its
affiliate.
8) The costs of any additional services not provided to
the Property at the Commencement Date but thereafter
provided by Landlord in its management of the
Property.
9) The cost of any capital improvements made to the
Property after the Commencement Date that reduce
other operating expenses or are required under any
governmental law or regulation, such cost thereof to
be amortized over such reasonable period as Landlord
shall determine consistent with applicable
governmental requirements.
10) Real Property Taxes, as that term is defined in
Paragraph 10.
11) Assessments, dues and other amounts payable pursuant
to the CC&R's described in Paragraph 6.b.
c. OPERATING EXPENSES SHALL NOT INCLUDE:
1) Costs paid for directly by Tenant;
2) Principal and interest payments on loans secured by
deeds of trust recorded against the Property or the
Building of which the Property is a part;
3) Real estate sales or leasing brokerage commissions;
or
4) Executive salaries of off-site personnel employed by
Landlord except for the charge (or pro rata share) of
the property manager of the Property.
d. EXTRAORDINARY SERVICES. Tenant shall pay within ten (10) days
of receipt of an invoice from Landlord the cost of additional
or extraordinary services provided to Tenant and not paid or
payable by Tenant pursuant to other provisions of this Lease.
e. IMPOUND. Landlord reserves the right, at Landlord's option, to
estimate the annual cost of Operating Expenses performed by
Landlord ("PROJECTED OPERATING EXPENSES") and to require same
to be paid in advance. Tenant shall pay to Landlord, monthly
in advance as additional Rent, one-twelfth (1/12) of the
Projected Operating Expenses.
f. ADJUSTMENT.
1) ACCOUNTING. Within ninety (90) days (or as soon
thereafter as possible) after the close of each
calendar year or portion thereof of occupancy,
Landlord shall provide Tenant a statement of such
year's actual Operating Expenses showing the actual
Operating Expenses compared to the Projected
Operating Expenses. If the actual Operating Expenses
are more than the Projected Operating Expenses then
Tenant shall pay Landlord, within ten (10) days of
receipt of a bill therefor, the difference. If the
actual Operating Expenses are less than the Projected
Operating Expenses, then Tenant shall receive a
credit against future Operating Expenses payments
equal to the difference; provided, that in the case
of an overpayment for the final lease year of the
Term, Landlord shall credit the difference against
any sums due from Tenant to Landlord in accordance
with the terms of this Lease; and if no sums are due
and unpaid, shall promptly refund the amount to
Tenant.
2) PRORATION. Tenant's liability to pay Operating
Expenses shall be prorated on the basis of a 365 (or
366, as the case may be) day year to account for any
fractional portion of a year included at the
commencement or expiration of the Term of this Lease.
3) SURVIVAL. Landlord and Tenant's obligations to pay
for or credit any increase or decrease in payments
pursuant to this Paragraph 13. shall survive this
Lease.
g. FAILURE TO PAY. Failure of Tenant to pay any of the charges
required to be paid under this Paragraph 13. shall constitute
a material default and breach of this Lease and Landlord's
remedies shall be as specified in Paragraph 21.
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<PAGE> 10
h. OPERATING EXPENSE AUDIT. Within twelve (12) months of receipt
of any billing statement ("STATEMENT"), and upon thirty (30)
days prior written notice Tenant shall have the right to
examine, to copy and to have an audit conducted of all books
and records of Landlord at Landlord's office pertaining to the
Operating Expenses for the period covered by the Statement. If
Tenant disputes the inclusion or amount of any item or items
in any such Statement, the Parties will use good faith efforts
to settle such dispute within thirty (30) days after notice of
the dispute. In the event that such dispute is not settled
within this time period, the dispute shall be resolved by a
firm of real estate audit professionals ("AUDIT
PROFESSIONALS") mutually acceptable to Landlord and Tenant.
Audit Professionals shall mean for the purposes of this
Paragraph 13.h. an independent firm of Certified Public
Accountants with experience in real estate expense reviews. If
Landlord and Tenant cannot agree on Audit Professionals within
fifteen (15) days, then Landlord and Tenant shall each, within
fifteen (15) days, select one (1) independent firm of Audit
Professionals, and such two (2) Audit Professionals shall
together select a third firm of Audit Professionals, which
third firm shall be the Audit Professionals who shall resolve
the dispute. The Audit Professionals shall be entitled to
review all records relating to the disputed items. The
determination of the Audit Professionals shall be final and
binding upon both Landlord and Tenant. The expenses of the
Audit Professionals shall be borne by Tenant unless said audit
discloses an overall overstatement of Operating Expenses of
five percent (5%) or more for the period being audited, in
which case Landlord shall pay the audit expenses. If the Audit
Professionals determine that Tenant has made an over-payment
or under-payment, then the procedures in Paragraph 13.f.1)
shall be followed.
14. ALTERATIONS. Tenant shall not make any alterations to the Premises,
or the Property without Landlord's prior written consent unless such
alterations are non-structural and have a total aggregate cost of less
than $3,000.00 per occurrence. If Landlord gives its consent to such
alterations, Landlord may post notices in accordance with the laws of the
state in which the Premises are located. All alterations made by Tenant,
whether or not subject to the approval of Landlord, shall be performed by
Tenant and its contractors in a first class workmanlike manner and
permits and inspections shall be obtained from all required governmental
entities. Any alterations made shall remain on and be surrendered with
the Premises upon expiration or termination of this Lease, except that
Landlord may, within thirty (30) days before or thirty (30) days after
expiration of the Term, elect to require Tenant to remove some or all of
the alterations which Tenant may have made to the Premises, unless
Landlord has previously agreed in writing that any one or more particular
such improvements need not be removed at the end of the Term. If Landlord
so elects, Tenant shall at its own cost restore the Premises to the
condition designated by Landlord in its election, before the last day of
the Term or within thirty (30) days after notice of its election is
given, whichever is later. Should Landlord consent in writing to Tenant's
alteration of the Premises, Tenant shall contract with a contractor
approved by Landlord for the construction of such alterations, shall
secure all appropriate governmental approvals and permits, and shall
complete such alterations with due diligence in compliance with plans and
specifications approved by Landlord. Tenant shall pay all costs for such
construction and shall keep the Premises free and clear of all mechanics'
liens which may result from construction by Tenant.
15. RELEASE AND INDEMNITY. As material consideration to Landlord, Tenant
agrees that Landlord shall not be liable to Tenant for any damage to
Tenant or Tenant's property from any cause, except for damages resulting
from Landlord's gross negligence or willful misconduct, and Tenant waives
all claims against Landlord for damage to persons or property arising for
any reason, except for damage resulting directly from Landlord's breach
of its express obligations under this Lease which Landlord has not cured
within a reasonable time after written notice of such breach from Tenant.
Tenant shall indemnify and hold Landlord harmless from all damages
including attorneys' fees and costs arising out of any damage to any
person or property occurring in, on or about the Premises or Tenant's use
of the Premises or Tenant's breach of any term of this Lease.
16. INSURANCE
a. PAYMENT FOR INSURANCE. Regardless of whether the Landlord or
Tenant is the Insuring Party, Tenant shall pay for all
insurance for the Premises required under this Paragraph 16.
("INSURANCE COSTS"). Premiums for policy periods commencing
prior to or extending beyond the Lease Term shall be prorated
to correspond to the Lease Term. Payment shall be made by
Tenant to Landlord within ten (10) days following receipt of
an invoice for any amount due.
b. LIABILITY INSURANCE.
1) CARRIED BY TENANT. Whether or not Tenant is the
Insuring Party, Tenant shall obtain and keep in force
during the Term of this Lease a commercial general
liability policy of insurance protecting Tenant and
Landlord (as an additional insured) against claims
for bodily injury, personal injury and property
damage based upon, involving or arising out of the
ownership, use, occupancy or maintenance of the
Premises and all areas appurtenant thereto. Such
insurance shall be on an occurrence basis providing
single limit coverage in an amount not less than
$3,000,000 per occurrence with an "Additional
Insured-Managers or Landlords of Premises"
endorsement and contain an "Amendment of the
Pollution Exclusion" for damage caused by heat, smoke
or fumes from a hostile fire or other such forms as
may be acceptable to Landlord. The policy shall not
contain any intra-insured exclusions as between
insured persons or organizations, but shall include
coverage for liability assumed under this Lease as an
"insured contract" for the performance of Tenant's
indemnity obligations under this Lease. The limits of
said insurance required by this Lease or as carried
by Tenant shall not, however, limit the liability of
Tenant nor relieve Tenant of any obligation
hereunder. All insurance to be carried by Tenant
shall be primary to and not contributory with any
similar insurance carried by Landlord, whose
insurance shall be considered excess insurance only.
All insurance coverage required pursuant to this
Paragraph 16. which is to name Landlord as a named
insured shall also name Landlord's subsidiaries,
directors, agents, officers and employees as named
insureds.
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2) CARRIED BY LANDLORD. In the event Landlord is the
Insuring Party, Landlord shall also maintain
liability insurance as described in Paragraph
16.b.1), in addition to, and not in lieu of the
insurance required to be maintained by Tenant. In the
event Tenant is the Insuring Party, Landlord shall in
addition carry Landlord's Risk Coverage and insure
the Premises on Landlord's umbrella policy. Tenant
shall not be named as an additional insured therein
under any insurance obtained by Landlord in
accordance with this Paragraph 16.b.2).
c. PROPERTY INSURANCE - BUILDING, IMPROVEMENTS AND RENTAL VALUE.
1) BUILDING AND IMPROVEMENTS. The Insuring Party shall
obtain and keep in force during the Term of this
Lease a policy or policies in the name of Landlord,
with loss payable to Landlord and to the holders of
any mortgages, deeds of trust or ground leases on the
Premises ("LENDER(s)"), insuring loss or damage to
the Premises. The amount of such insurance shall be
equal to the full replacement cost of the Premises,
as the same shall exist from time to time, or the
amount required by Lender(s), but in no event more
than the commercially reasonable and available
insurable value thereof if, by reason of the unique
nature or age of the improvements involved, such
latter amount is less than full replacement cost.
Such policy or policies shall insure against all
risks of direct physical loss or damage (including
the perils of flood and earthquake), including
coverage for any additional costs resulting from
debris removal and reasonable amounts of coverage for
the enforcement of any ordinance or law regulating
the reconstruction or replacement of any undamaged
sections of the Premises required to be demolished
shall also contain an agreed valuation provision in
lieu of any coinsurance clause, waiver of subrogation
and inflation guard protection causing an increase in
the annual property insurance coverage amount by a
factor of not less than the adjusted U.S. Department
of Labor Consumer Price Index for All Urban Consumers
for the city nearest to where the Premises are
located. If such insurance coverage has a deductible
clause, then Tenant shall be liable for such
deductible amount. Even if Landlord is the Insuring
Party, Tenant's personal property shall be insured by
Tenant under Paragraph 16.d. rather than by Landlord.
2) RENTAL VALUE. The Insuring Party shall, in addition,
obtain and keep in force during the term of this
Lease a policy or policies in the name of Landlord,
with loss payable to Landlord and Lender(s), insuring
the loss of the full rental and other charges payable
by Tenant to Landlord under this Lease for one (1)
year (including all Real Property Taxes, Insurance
Costs and any scheduled Rent increases). Said
insurance shall provide that in the event the Lease
is terminated by reason of an insured loss, the
period of indemnity for such coverage shall be
extended beyond the date of the completion of repairs
or replacement of the Premises, to provide for one
full year's loss of Rent from the date of any such
loss. Said insurance shall contain an agreed
valuation provision in lieu of any coinsurance
clause, and the amount of coverage shall be adjusted
annually to reflect the projected Rent, Real Property
Taxes, Insurance Costs and other expenses, if any,
otherwise payable by Tenant, for the next twelve (12)
month period. Tenant shall be liable for any
deductible amount in the event of such loss.
3) ADJACENT PREMISES. If the Premises are part of a
larger building, or if the Premises are part of a
group of buildings owned by Landlord which are
adjacent to the Premises, the Tenant shall pay for
any increase in the premiums for the property
insurance of such building or buildings if said
increase is caused by Tenant's acts, omissions, use
or occupancy of the Premises.
4) TENANT'S IMPROVEMENTS. If the Landlord is the
Insuring Party, the Landlord shall not be required to
insure Tenant's personal property and leasehold
improvements unless the item in question has become
the property of Landlord under the terms of this
Lease. If Tenant is the Insuring Party, the policy
carried by tenant under this Paragraph 16.c. shall
insure Tenant's personal property and leasehold
improvements.
d. TENANT'S PROPERTY INSURANCE. Subject to the requirements of
Paragraph 16.e., Tenant at its cost shall either by separate
policy, or at Landlord's option, by endorsement to a policy
already carried, maintain insurance coverage on all of
Tenant's personal property and Tenant owned leasehold
improvements in, on or about the Premises similar in coverage
to that carried by the insuring Party under Paragraph 16.c.
Such insurance shall be full replacement cost coverage with a
deductible of not to exceed $10,000 per occurrence. The
proceeds from any such insurance shall be used by Tenant for
the replacement of personal property or the restoration of
Tenant owned leasehold improvements. Tenant shall be the
Insuring Party with respect to the insurance required by this
Paragraph 16.d. and shall provide Landlord with written
evidence that such insurance is in force.
e. INSURANCE POLICIES. If Tenant is the Insuring Party, Insurance
required per this Paragraph 16. shall be with companies duly
licensed to transact business in the state where the Premises
are located, and maintaining during the policy term a "General
Policyholders Rating" of at least A- X, or such other minimal
rating as may be required by Lender(s) as set forth in the
most current issue of "Best's Insurance Guide." Tenant shall
not do or permit to be done anything which shall invalidate
the insurance policies referred to in this Paragraph 16. If
Tenant is the Insuring Party, Tenant shall cause to be
delivered to Landlord certified copies of policies of such
insurance or certificates evidencing the existence and amounts
of such insurance with the insureds and loss payable clauses
as required by this Lease. No such policy shall be cancelable
or subject to modification except after thirty (30) days prior
written notice to Landlord. Tenant shall at least thirty (30)
days prior to the expiration of such policies, furnish
Landlord with evidence of renewals or "insurance binders"
evidencing renewal thereof, or Landlord may order such
insurance and charge the cost thereof to Tenant, which amount
shall be payable by Tenant to Landlord upon demand. If the
Insuring Party shall fail to procure and maintain the
insurance required to be carried by the Insuring Party under
this Paragraph 16., the other Party may, but shall not be
required to, procure and maintain the same, but at Tenant's
expense.
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<PAGE> 12
f. MUTUAL WAIVER. Notwithstanding anything to the contrary
contained in this Lease, to the extent that this release and
waiver does not invalidate or impair their respective
insurance policies, the parties hereto release each other and
their respective agents, employees, officers, directors,
shareholders, successors, assignees and subtenants from all
liability for injury to any person or damage to any property
that is caused by or results from a risk which is actually
insured against pursuant to the provisions of this Lease
without regard to the negligence or willful misconduct of the
parties so released. Each party shall use its best efforts to
cause each insurance policy it obtains to provide that the
insurer thereunder waives all right of recovery by way of
subrogation as required herein in connection with any injury
or damage covered by the policy. If such insurance policy
cannot be obtained with such waiver of subrogation, or if such
waiver of subrogation is only available at additional cost and
the party for whose benefit the waiver is not obtained does
not pay such additional costs after reasonable notice, then
the party obtaining such insurance shall promptly notify the
other party of the inability to obtain insurance coverage with
the waiver of subrogation.
17. DAMAGE AND DESTRUCTION
a. DAMAGE - INSURED. In the event that the Building containing
the Premises is damaged by fire or other casualty which is
covered under insurance pursuant to the provisions of
Paragraph 16. above, Landlord shall restore such damage
provided that: (i) the destruction of the Building containing
the Premises does not exceed sixty percent (60%) of the then
replacement value of the Building containing the Premises;
(ii) the insurance proceeds are available (inclusive of any
deductible amounts) to pay one hundred percent (100%) of the
cost of restoration; and (iii) in the reasonable judgment of
Landlord, the restoration can be completed within two hundred
and seventy (270) days after the date of the damage or
casualty under the laws and regulations of the state, federal,
county and municipal authorities having jurisdiction. The
deductible amount of any insurance coverage shall be paid by
Tenant. If such conditions apply so as to require Landlord to
restore such damage pursuant to this Paragraph 17.a., this
Lease shall continue in full force and effect, unless
otherwise agreed to in writing by Landlord and Tenant. Tenant
shall be entitled to a proportionate reduction of Rent while
such restoration takes place, such proportionate reduction to
be based on the extent to which the damage and restoration
efforts interfere with Tenant's business in the Premises.
Tenant's right to a reduction of Rent hereunder shall be
Tenant's sole and exclusive remedy in connection with any such
damage.
b. DAMAGE - UNINSURED. In the event that the Building containing
the Premises is damaged by a fire or other casualty and
Landlord is not required to restore such damage in accordance
with the provisions of Paragraph 17.a. immediately above,
Landlord shall have the option to either (i) repair or restore
such damage, with the Lease continuing in full force and
effect, but Rent to be proportionately abated as provided in
Paragraph 17.a. above; or (ii) give notice to Tenant at any
time within thirty (30) days after the occurrence of such
damage terminating this Lease as of a date to be specified in
such notice which date shall not be less than thirty (30) nor
more than sixty (60) days after the date on which such notice
of termination is given. In the event of the giving of such
notice of termination, this Lease shall expire and all
interest of Tenant in the Premises shall terminate on the date
so specified in such notice and the Rent, reduced by any
proportionate reduction in Rent as provided for in Paragraph
17.a. above, shall be paid to the date of such termination.
Notwithstanding the foregoing, if Tenant delivers to Landlord
the funds necessary to make up the shortage (or absence) in
insurance proceeds and the restoration can be completed in a
two hundred seventy (270) day period, as reasonably determined
by Landlord, and the destruction of the Building containing
the Premises does not exceed sixty percent (60%) of the then
replacement value, Landlord shall restore the Premises as
provided in Paragraph 17.a. above.
c. END OF TERM CASUALTY. Notwithstanding the provisions of
Paragraph 17.a. and Paragraph 17.b. above, either Landlord or
Tenant may terminate this Lease if the Building containing the
Premises is damaged by fire or other casualty (and Landlord's
reasonably estimated cost of restoration of the Building
containing the Premises exceeds ten percent (10%) of the then
replacement value of the Building containing the Premises) and
such damage or casualty occurs during the last twelve (12)
months of the Term of this Lease (or the Term of any renewal
option, if applicable) by giving the other notice thereof at
any time within thirty (30) days following the occurrence of
such damage or casualty. Such notice shall specify the date of
such termination which date shall not be less than thirty (30)
nor more than sixty (60) days following the date on which such
notice of termination is given. In the event of the giving of
such notice of termination, this Lease shall expire and all
interest of Tenant in the Premises shall terminate on the date
so specified in such notice and the Rent shall be paid to the
date of such termination.
d. TERMINATION BY TENANT. In the event that the destruction to
the Building containing the Premises cannot be restored as
required herein under applicable laws and regulations within
two hundred seventy (270) days of the damage or casualty,
notwithstanding the availability of insurance proceeds, Tenant
shall have the right to terminate this Lease by giving the
Landlord notice thereof within thirty (30) days of date of the
occurrence of such casualty specifying the date of termination
which shall not be less than thirty (30) days nor more than
sixty (60) days following the date on which such notice of
termination is given. In the event of the giving of such
notice of termination, this Lease shall expire and all
interest of Tenant in the Premises shall terminate on the date
so specified in such notice and the Rent, reduced by any
proportionate reduction in Rent as provided for in Paragraph
17.a. above, shall be paid to the date of such termination.
e. RESTORATION. Landlord agrees that, in any case in which
Landlord is required to, or otherwise agrees to restore the
Building containing the Premises, Landlord shall proceed with
due diligence to make all appropriate claims and applications
for the proceeds of insurance and to apply for and obtain all
permits necessary for the restoration of the Building
containing the Premises. Landlord shall use reasonable efforts
to enforce any and all provisions in any mortgage, deed of
trust or other encumbrance on the Building containing the
Premises requiring Landlord and Lender to permit insurance
proceeds to be used for restoration. Landlord shall restore
the Premises to the condition existing prior to the date of
the damage if permitted by applicable law.
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18. CONDEMNATION
a. DEFINITIONS. The following definitions shall apply: (1)
"CONDEMNATION" means (a) the exercise of any governmental
power of eminent domain, whether by legal proceedings or
otherwise by condemnor, or (b) the voluntary sale or transfer
by Landlord to any condemnor either under threat of
condemnation or while legal proceedings for condemnation are
proceeding; (2) "DATE OF TAKING" means the date the condemnor
has right to possession of the property being condemned; (3)
"AWARD" means all compensation, sums or anything of value
awarded, paid or received on a total or partial Condemnation;
and (4) "CONDEMNOR" means any public or quasi-public
authority, or private corporation or individual, having power
of Condemnation.
b. OBLIGATIONS TO BE GOVERNED BY LEASE. If during the Term of the
Lease there is any taking of all or any part of the Building
containing the Premises, the rights and obligations of the
parties shall be determined strictly pursuant to this Lease.
c. TOTAL OR PARTIAL TAKING. If the Building containing the
Premises are totally taken by Condemnation, this Lease shall
terminate on the Date of Taking. If any portion of the
Building containing the Premises is taken by Condemnation,
this Lease shall remain in effect, except that Tenant can
elect to terminate this Lease if the remaining portion of the
Premises is rendered unsuitable for Tenant's continued use of
the Premises. If Tenant elects to terminate this Lease, Tenant
must exercise its right to terminate by giving notice to
Landlord within thirty (30) days after the nature and extent
of the Condemnation have been finally determined. If Tenant
elects to terminate this Lease, Tenant shall also notify
Landlord of the date of termination, which date shall not be
earlier than thirty (30) days nor later than ninety (90) days
after Tenant has notified Landlord of its election to
terminate; except that this Lease shall terminate on the Date
of Taking if the Date of Taking falls on a date before the
date of termination as designated by Tenant. If any portion of
the Premises is taken by Condemnation and this Lease remains
in full force and effect, on the Date of Taking the Base Rent
shall be reduced by an amount in the same ratio as the total
number of square feet in the building(s) which are a part of
the Premises taken bears to the total number of square feet in
the building(s) which are a part of the Premises immediately
before the Date of Taking. Any Award for the taking of all or
any part of the Premises under the power of eminent domain or
any payment made under threat of the exercise of such power
shall be the property of Landlord, whether such Award shall be
made as compensation for diminution in value of the leasehold
or for the taking of the fee, or as severance damages;
provided, however, that Tenant shall be entitled to any
compensation separately awarded to Tenant for Tenant's
relocation expenses and/or loss of Tenant's trade fixtures.
19. ASSIGNMENT OR SUBLEASE
a. Tenant shall not assign or encumber its interest in this Lease
or the Premises or sublease all or any part of the Premises or
allow any other person or entity (except Tenant's authorized
representatives, employees, invitees or guests) to occupy or
use all or any part of the Premises without first obtaining
Landlord's consent, which consent shall not be unreasonably
withheld. Any assignment, encumbrance or sublease without
Landlord's prior written consent shall be voidable and at
Landlord's election, shall constitute a default. If Tenant is
a partnership, a withdrawal or change, voluntary, involuntary
or by operation of law of any partner, or the dissolution of
the partnership, shall be deemed a voluntary assignment. If
Tenant consists of more than one person, a purported
assignment, voluntary or involuntary or by operation of law
from one person to the other shall be deemed a voluntary
assignment. If Tenant is a corporation, any dissolution,
merger, consolidation or other reorganization of Tenant, or
sale or other transfer of a controlling percentage of the
capital stock of Tenant, or the sale of at least fifty percent
(50%) of the value of the assets of Tenant shall be deemed a
voluntary assignment. All Rent received by Tenant from its
subtenants in excess of the Rent payable by Tenant to Landlord
under this Lease applicable to the portion of the Premises
subleased shall be paid to Landlord, or any sums to be paid by
an assignee to Tenant in consideration of the assignment of
this Lease shall be paid to Landlord. If Tenant requests
Landlord to consent to a proposed assignment or subletting,
Tenant shall pay to Landlord, whether or not consent is
ultimately given, an amount equal to Landlord's reasonable
attorneys' fees and costs incurred in connection with such
request up to $1,000.00 per request. Tenant shall, upon
completion of any assignment or subletting of all or any
portion of the Premises, immediately and irrevocably assign to
Landlord as security for Tenant's obligations under the Lease,
all Rent from any such subletting or assignment. Landlord, as
assignee and attorney in fact for Tenant, shall have the right
to collect all rent and other revenues collectable pursuant to
any such sublet or assignment and apply such rent and other
revenues towards Tenant's obligations under the Lease
provided, however, that Landlord shall have no right to
collect such rent and other revenues until the occurrence of
an act of default under this Lease.
b. No interest of Tenant in this Lease shall be assignable by
involuntary assignment through operation of law (including
without limitation the transfer of this Lease by testacy or
intestacy). Each of the following acts shall be considered an
involuntary assignment: (a) if Tenant is or becomes bankrupt
or insolvent, makes an assignment for the benefit of
creditors, or institutes proceedings under the Bankruptcy Act
in which Tenant is the bankrupt; or if Tenant is a partnership
or consists of more than one person or entity, if any partner
of the partnership or other person or entity is or becomes
bankrupt or insolvent, or makes an assignment for the benefit
of creditors; or (b) if a writ of attachment or execution is
levied on this Lease; or (c) if in any proceeding or action to
which Tenant is a party, a receiver is appointed with
authority to take possession of the Premises. An involuntary
assignment shall constitute a default by Tenant and Landlord
shall have the right to elect to terminate this Lease, in
which case this Lease shall not be treated as an asset of
Tenant.
c. Landlord may at its option, elect to terminate the Lease
instead of approving the requested assignment or sublease.
Should Landlord so elect to terminate this Lease, all of the
obligations of the parties thereunder shall terminate on the
later of sixty (60) days following Landlord's notice to Tenant
of its election hereunder,
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or the effective date of the proposed assignment or subletting
sought by the Tenant, but in no event later than one hundred
twenty (120) days following the date of Landlord's election
under this Paragraph 19.c. At the time of termination, all
obligations of both parties hereunder shall terminate as to
obligations thereafter accruing except as otherwise expressly
provided in this Lease.
20. DEFAULT. The occurrence of any of the following shall constitute a
default by Tenant: (a) a failure of Tenant to pay Rent within five (5)
days of its due date; (b) abandonment and vacation of the Premises
(failure to occupy and operate the Premises for ten(10) consecutive
days shall be deemed an abandonment and vacation); or (c) failure to
timely perform any other provision of this Lease.
21. LANDLORD'S REMEDIES. Landlord shall have the following remedies if
Tenant is in default. (These remedies are not exclusive; they are
cumulative and in addition to any remedies now or later allowed by
law):
a. Landlord may continue this Lease in full force and effect, and
this Lease will continue in effect so long as Landlord does
not terminate Tenant's right to possession, and Landlord shall
have the right to collect Rent when due. During the period
Tenant is in default, Landlord can enter the Premises and
relet the Premises, or any part of the Premises, to third
parties for Tenant's account. Tenant shall be liable
immediately to Landlord for all costs Landlord incurs in
reletting the Premises, including without limitation, brokers'
commissions, expenses of remodeling the Premises required by
the reletting, and like costs. Reletting can be for a period
shorter or longer than the remaining Term of this Lease.
Tenant shall pay to Landlord the Rent due under this Lease on
the dates the Rent is due, less the Rent Landlord receives
from any reletting. No act by Landlord allowed by this
Paragraph 21.a. shall terminate this Lease unless Landlord
notifies Tenant in writing that Landlord elects to terminate
this Lease. After Tenant's default and for so long as Landlord
does not terminate Tenant's right to possession of the
Premises, if Tenant obtains Landlord's consent, Tenant shall
have the right to assign or sublet its interest in this Lease,
but Tenant shall not be released from liability. Landlord's
consent to such a proposed assignment or subletting shall not
be unreasonably withheld. If Landlord elects to relet the
Premises as provided in this Paragraph 21.a., Rent that
Landlord receives from reletting shall be applied to the
payment of: first, any indebtedness from Tenant to Landlord
other than Rent due from Tenant; second, all costs, including
for maintenance incurred by Landlord in reletting; and third,
Rent due and unpaid under this Lease. After deducting the
payments referred to in this Paragraph 21.a., any sum
remaining from the Rent Landlord receives from reletting shall
be held by Landlord and applied in payment of future Rent as
Rent becomes due under this Lease. In no event shall Tenant be
entitled to any excess Rent received by Landlord. If, on the
date Rent is due under this Lease, the Rent received from the
reletting is less than the Rent due on that date, Tenant shall
pay to Landlord, in addition to the remaining Rent due, all
reasonable costs including for maintenance Landlord incurred
in reletting that remain after applying the Rent received from
the reletting as provided in this Paragraph 21.a.; and
b. Landlord may terminate Tenant's right to possession of the
Premises at any time. No act by Landlord other than giving
express written notice thereof to Tenant shall terminate this
Lease. Acts of maintenance, efforts to relet the Premises, or
the appointment of a receiver on Landlord's initiative to
protect Landlord's interest under this Lease shall not
constitute a termination of Tenant's right to possession. Upon
termination of Tenant's right to possession, Landlord has the
right to recover from Tenant: (1) the Worth of the unpaid Rent
that had been earned at the time of termination of Tenant's
right to possession; (2) the Worth of the amount by which the
unpaid Rent that would have been earned after the date of
termination until the time of award exceeds the amount of the
loss of Rent that Tenant proves could have been reasonably
avoided; (3) the Worth of the amount of the unpaid Rent that
would have been earned after the award throughout the
remaining Term of the Lease to the extent such unpaid Rent
exceeds the amount of the loss of Rent that Tenant proves
could have been reasonably avoided; and (4) any other amount,
including but not limited to, all reasonable expenses incurred
to relet the Premises, court costs, attorneys' fees and
collection costs necessary to compensate Landlord for all
detriment caused by Tenant's default. The "Worth", as used
above in (1) and (2) in this Paragraph 21.b. is to be computed
by allowing interest at the lesser of 18 percent per annum or
the maximum legal interest rate permitted by law. The "Worth",
as used above in (3) in this Paragraph 21.b. is to be computed
by discounting the amount at the discount rate of the Federal
Reserve Bank of San Francisco at the time of the award, plus
one percent (1%).
22. ENTRY OF PREMISES. Landlord and/or its authorized representatives shall
have the right to enter the Premises after reasonable notice, except
for any case of emergency, for any of the following purposes: (a) to
determine whether the Premises are in good condition and whether Tenant
is complying with its obligations under this Lease; (b) to do any
necessary maintenance and to make any restoration to the Premises that
Landlord has the right or obligation to perform; (c) to post "for sale"
signs at any time during the Term, or to post "for rent" or "for lease"
signs during the last one hundred eighty (180) days of the Term or
during any period while Tenant is in default; (d) to show the Premises
to prospective brokers, agents, buyers, tenants or persons interested
in leasing or purchasing the Premises, at any time during the Term; or
(e) to repair, maintain or improve the Premises and to erect
scaffolding and protective barricades around and about the Premises but
not so as to prevent entry to the Premises and to do any other act or
thing necessary for the safety or preservation of the Premises.
Landlord shall not be liable in any manner for any inconvenience,
disturbance, loss of business, nuisance or other damage arising out of
Landlord's entry onto the Premises as provided in this Paragraph 22.
Tenant shall not be entitled to an abatement or reduction of Rent if
Landlord exercises any rights reserved in this Paragraph 22. Landlord
shall conduct its activities on the Premises as provided herein in a
commercially reasonable manner that will lessen the inconvenience,
annoyance or disturbance to Tenant.
23. SUBORDINATION
a. AUTOMATIC SUBORDINATION. Without the necessity of any
additional document being executed by Tenant for the purpose
of effecting a subordination, and at the election of Landlord
or any Lender(s) against the Building
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<PAGE> 15
containing the Premises, this Lease shall be subject and
subordinate at all times to (i) all ground leases or
underlying leases which may now exist or hereafter be executed
affecting the Building containing the Premises, (ii) the lien
of any mortgage or deed of trust which may hereafter be
executed affecting the Building containing the Premises, and
(iii) the lien of any mortgage or deed of trust which may
hereafter be executed in any amount for which the Premises,
ground leases or underlying leases, or Landlord's interest or
estate in any of said items is specified as security. In the
event that any ground lease or underlying lease terminates for
any reason or any mortgage or deed of trust is foreclosed or a
conveyance in lieu of foreclosure is made for any reason,
Tenant shall, notwithstanding any subordination, attorn to and
become the Tenant of the successor in interest to Landlord. In
connection with any such termination of a ground lease or
underlying lease or any foreclosure or conveyance in lieu of
foreclosure made in connection with any mortgage or deed of
trust, then so long as Tenant is not in default pursuant to
this Lease, Tenant shall not be disturbed in its possession of
the Premises or in the enjoyment of its rights pursuant to
this Lease during the Term of this Lease or any extension or
renewal thereof.
b. ADDITIONAL SUBORDINATION. From time to time at the request of
Landlord, Tenant covenants and agrees to execute and deliver
within ten (10) days following the date of written request
from Landlord, documents evidencing the priority or
subordination of this Lease with respect to any ground lease
or underlying lease or the lien of any mortgage or deed of
trust in connection with the Building containing the Premises.
Any and all such documents shall be in such form as is
reasonably acceptable to Tenant and Landlord as well as the
Lender(s) and other applicable party. Any subordination
agreement so requested by Landlord shall provide for Tenant to
attorn to the successor in interest to Landlord and shall
further provide that Tenant shall not be disturbed in its
possession of the Premises or in the enjoyment of its rights
pursuant to this Lease so long as Tenant is not in default
with respect to its obligations pursuant to the Lease. Any
such Subordination, Non-disturbance and Attornment Agreement
shall be recorded in the official records of the office of the
County Recorder in the County in which the Premises is
located.
c. NOTICE FROM LENDER. Tenant shall be entitled to rely upon any
notice given by Lender(s) in connection with the Premises
requesting that Tenant make all future Rent payments to such
Lender(s), and Tenant shall not be liable to Landlord for any
payment made to such Lender(s) in accordance with such notice.
24. ESTOPPEL CERTIFICATE -- TENANT FINANCIAL STATEMENTS. Tenant, at any
time and from time to time, upon not less than ten (10) days written
notice from Landlord, will execute, acknowledge and deliver to Landlord
and, at Landlord's request, to any existing or prospective purchaser,
ground lessor or mortgagee of any part of the Premises, a certificate
of Tenant stating: (a) that Tenant has accepted the Premises (or, if
Tenant has not done so, Tenant has not accepted the Premises and
specifying the reasons therefor); (b) the Commencement and Expiration
Dates of this Lease; (c) that this Lease is unmodified and in full
force and effect (or, if there have been modifications, that same is in
full force and effect as modified and stating the modifications); (d)
whether or not to the best of Tenant's knowledge there are then
existing any defenses against the enforcement of any of the obligations
of Tenant under this Lease (and, if so, specifying same); (e) whether
or not to the best of Tenant's knowledge there are then existing any
defaults by Landlord in the performance of its obligations under this
Lease (and, if so, specifying same); (f) the dates, if any, to which
the Rent and other charges under this Lease have been paid; (g) whether
or not there are Rent increases during the Lease Term and if so the
amount of same; (h) whether or not the Lease contains any options or
rights of first offer or first refusal; (i) the amount of any Security
Deposit or other sums due Tenant; (j) the current notice address for
Tenant; and (k) any other information that may reasonably be required
by any of such persons. It is intended that any such certificate of
Tenant delivered pursuant to this Paragraph 24. may be relied upon by
Landlord and any existing or prospective purchaser, ground lessor or
mortgagee of the Building containing the Premises. Tenant agrees, at
any time upon request by Landlord, to deliver to Landlord the current
financial statements of Tenant with an opinion of a certified public
accountant, if available, including a balance sheet and profit and loss
statement for the most recent prior three years all prepared in
accordance with generally accepted accounting principles consistently
applied.
25. WAIVER. No delay or omission in the exercise of any right or remedy by
Landlord shall impair such right or remedy or be construed as a waiver.
No act or conduct of Landlord, including without limitation, acceptance
of the keys to the Premises, shall constitute an acceptance of the
surrender of the Premises by Tenant before the expiration of the Term.
Only written notice from Landlord to Tenant shall constitute acceptance
of the surrender of the Premises and accomplish termination of the
Lease. Landlord's consent to or approval of any act by Tenant requiring
Landlord's consent or approval shall not be deemed to waive or render
unnecessary Landlord's consent to or approval of any subsequent act by
Tenant. Any waiver by Landlord of any Default must be in writing and
shall not be a waiver of any other Default concerning the same or any
other provision of the Lease.
26. SURRENDER OF PREMISES; HOLDING OVER. Upon expiration of the Term,
Tenant shall surrender to Landlord the Premises and all tenant
improvements and alterations in the same condition as existed at the
Commencement Date, except for ordinary wear and tear and alterations
which Tenant has the right or is obligated to remove under the
provisions of Paragraph 14. herein. Tenant shall remove all personal
property including, without limitation, all wallpaper, paneling and
other decorative improvements or fixtures and shall perform all
restoration made necessary by the removal of any alterations or
Tenant's personal property before the expiration of the Term,
including, for example, restoring all wall surfaces to their condition
as of the Commencement Date. Landlord can elect to retain or dispose of
in any manner Tenant's personal property not removed from the Premises
by Tenant prior to the expiration of the Term. Tenant waives all claims
against Landlord for any damage to Tenant resulting from Landlord's
retention or disposition of Tenant's personal property. Tenant shall be
liable to Landlord for Landlord's reasonable cost for storage, removal
and disposal of Tenant's personal property.
If Tenant with Landlord's consent remains in possession of the Premises
after expiration of the Term or after the date in any notice given by
Landlord to Tenant terminating this Lease, such possession by Tenant
shall be deemed to be a month to month tenancy cancelable by either
party on thirty (30) days written notice given at any time by
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<PAGE> 16
either party and all provisions of this Lease, except those pertaining
to Term, renewal options and Base Rent shall apply and Tenant shall pay
monthly Base Rent in an amount equal to one hundred fifty percent
(150%) of the Base Rent for the last full calendar month immediately
preceding expiration of the Term.
27. NOTICES. All notices, demands, or other communications required or
contemplated under this Lease shall be in writing and shall be deemed
to have been duly given 48 hours from the time of mailing if mailed by
registered or certified mail, return receipt requested, postage
prepaid, or 24 hours from the time of shipping by overnight carrier, or
the actual time of delivery if delivered by personal service to the
parties at the addresses specified in Paragraph 1. Either Tenant or
Landlord may change the address to which notices are to be given to
such party hereunder by giving written notice of such change of address
to the other in accordance with the notice provisions hereof.
28. LANDLORD'S TENANT IMPROVEMENTS. Landlord will provide the following
Tenant Improvements hereinafter "LANDLORD'S TENANT IMPROVEMENTS" as
part of the Base Rental rate in accordance with the provisions of the
Work Letter Agreement attached as Exhibit E.
a. New T-bar ceiling.
b. New drop in parabolic light fixtures.
c. New building standard carpet.
d. New paint.
e. Majority open office.
f. Up to twenty new private office/conference rooms with
sidelight glass.
g. Functional HVAC system using existing units, certified by an
HVAC contractor to be in good operating condition with no
known material defects.
h. Window blinds on exterior windows.
i. Lobby upgrades including wallcovering, flooring and lighting.
j. Adequate number (per City code) of clean and sanitary
restroom facilities.
k. All architectural and planning expenses pertaining to the
above.
l. Lunch Room to include fifteen (15) lineal feet of building
standard counter and upper and lower cabinets and plumbing
limited to a working sink with garbage disposal, but
exclusive of any kitchen equipment or other plumbing.
m. Perimeter wall of Computer Room.
To the extent that Tenant is willing to accept the Premises with a
lesser degree of Landlord Tenant Improvements than is represented by
the above list, Landlord will credit Tenant with a $19.60/month rent
reduction for the 5 1/2 year Term for each $1,000 of cost savings to
Landlord.
Any additional Tenant Improvements for upgrades, hard wall
partitioning, cabling, computer room improvements (other than the
perimeter wall), et cetera are to be paid for by Tenant. At Tenant's
request, Landlord will provide additional generic Tenant Improvements
during the initial construction and then amortize the cost thereof into
the Rent over the initial Lease Term.
If not already completed, Tenant will immediately design a preliminary
space plan to be mutually approved by Landlord and Tenant and
incorporated into the Lease. Tenant and Landlord shall mutually agree
on finishes including carpet colors, et cetera.
29. COMMENCEMENT DATE AND EXPIRATION DATE
a. INITIAL PREMISES. The Term of the Lease as to the "Initial
Premises" containing 47,888 rentable square feet as outlined
on the attached Exhibit A shall commence on or about April
16, 1997 and more particularly upon the earlier of (the
"COMMENCEMENT DATE"):
1) Substantial completion of "Landlord's Tenant
Improvements" (which may be subject to completion of
certain "punch list" items) and Landlord or Tenant
having obtained permission to occupy by the City, or
2) Commencement of Tenant's actual move-in of personnel.
Provided, however, Tenant shall be allowed to enter
the Premises no earlier than April 1, 1997, to
install wiring, furniture and equipment, and to work
in the main Computer Room in the Premises no earlier
than March 17, 1997, provided that in either such
case such early occupancy does not delay the
completion of "Landlord's Tenant Improvements".
b. MUST TAKE PREMISES. The Term of the Lease (and the
commencement of Rent) as to the "Must Take Premises"
consisting of 13,500 rentable square feet as outlined on the
attached Exhibit A shall commence
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<PAGE> 17
upon the earlier of: (i) Tenant's actual move in of personnel
to the "Must Take Premises", or (ii) the beginning of the
seventh Lease month (i.e., six (6) months after the actual
Commencement Date of the Lease).
c. EXPIRATION DATE. Regardless of the actual Commencement Date,
the Expiration Date shall be October 15, 2002.
30. SECURITY DEPOSIT: Notwithstanding the provisions of Paragraph 5. of the
Lease, Tenant shall provide a Security Deposit of $445,063.00 which is
equal to five (5) month's Initial Base Rent on the Initial Premises and
Must Take Premises. Commencing with the second Lease year provided
Tenant is not then in default and that Tenant's equity public market
capitalization is then at least $180 million, the amount of the
Security Deposit shall be reduced at the commencement of the following
Lease years so that the Security Deposit is as follows:
<TABLE>
<CAPTION>
SECURITY DEPOSIT =
LEASE YEAR # # MONTHS OF THEN CURRENT RENT
------------ -----------------------------
<S> <C>
2 4 Months @ $92,082.00 per Month
3 3 Months @ $95,151.40 per Month
4 2 Months @ $98,220.80 per Month
</TABLE>
However, if at any time and from time to time during the Lease Term,
Tenant's equity public market capitalization is less than $180 million,
the amount of the Security Deposit shall be increased within thirty
(30) calendar days thereafter to an amount equal to five (5) months of
then current Rent, subject to Tenant still being able to have the
Security Deposit reduced per the table above if Tenant's equity public
market capitalization is later restored to more than $180 million.
31. OPTION TO RENEW
a. GRANT OF OPTION. Tenant shall have the right, at its option,
to extend the Lease for one (1) period of five (5) years
("EXTENDED TERM") commencing at the expiration of the Initial
Term, provided that at the time of exercise and at the time of
commencement of such Extended Term, Tenant is not in default
under this Lease.
b. EXERCISE OF OPTION. If Tenant decides to extend the Lease for
the Extended Term, Tenant shall give written notice to
Landlord of its election to extend not less than nine (9)
months prior to the expiration of the Initial Term. Tenant's
failure to give timely notice to Landlord of Tenant's election
to extend shall be deemed a waiver of Tenant's right to
extend. The terms and conditions applicable to the Extended
Term shall be the same terms and conditions contained in this
Lease except that Tenant shall not be entitled to any further
option to extend. The Base Rent for the Extended Term shall be
as determined in accordance with Paragraph 31.c.
c. DETERMINATION OF BASE RENT DURING THE EXTENDED TERM.
1) AGREEMENT ON INITIAL BASE RENT. Landlord shall not be
obligated to provide Tenant with the proposed fair
market rental value until eight (8) months prior to
the expiration of the Initial Term. Landlord and
Tenant shall have thirty (30) days after Landlord
provides the proposed fair market rental value in
which to agree on the Initial Base Rent (i.e., the
Base Rent for the first twelve (12) months) during
the Extended Term, which shall be ninety-five percent
(95%) of the fair market rental value of the Premises
during said Extended Term. The fair market rental
value of the Premises during said Extended Term shall
be based on the uses of the Premises permitted under
this Lease, the quality, size, design and location of
the Premises, and the rental value for lease renewals
or extensions of comparable size, quality and
location. If Landlord and Tenant agree on the Initial
Base Rent for the Extended Term during the thirty
(30) day period, they shall immediately execute an
amendment to this Lease stating the new Initial Base
Rent.
2) SELECTION OF APPRAISERS. If Landlord and Tenant are
unable to agree on the Initial Base Rent for the
Extended Term within the thirty (30) day period, then
within ten (10) days after the expiration of the
thirty (30) day period and provided that Tenant has
timely exercised the subject renewal option in
accordance with Paragraph 31.b., Landlord and Tenant
each at its own cost and by giving notice to the
other party, shall appoint a competent and
disinterested real estate appraiser with at least
five (5) years full-time commercial appraisal
experience in the market area to appraise the fair
market rental value of the Premises and set the
Initial Base Rent during said Extended Term. If
either Landlord or Tenant does not appoint an
appraiser within said ten (10) days, the single
appraiser appointed shall be the sole appraiser and
shall set the Initial Base Rent during said Extended
Term. If two (2) appraisers are appointed by Landlord
and Tenant as stated herein, they shall meet promptly
and attempt to set the Initial Base Rent for said
Extended Term. If the two (2) appraisers are unable
to agree within thirty (30) days after the second
appraiser has been appointed, they shall attempt to
select a third appraiser meeting the same
qualifications within ten (10) days after the last
day the two (2) appraisers are given to set the
Initial Base Rent. If they are unable to agree on the
third appraiser, either Landlord or Tenant, by giving
ten (10) days' notice to the other party, can apply
to the then President of the Real Estate Board of
Santa Clara County or to the Presiding Judge of the
Superior Court of Santa Clara County, for the
selection of a third appraiser who meets the
qualifications stated herein. Landlord and Tenant
each shall bear one-half (1/2) of the cost of
appointing the third appraiser and of paying the
third appraiser's fee. The
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<PAGE> 18
third appraiser, however selected, shall be a person
who has not previously acted in any capacity for
either Landlord or Tenant, or their affiliates.
3) VALUE DETERMINED BY THREE (3) APPRAISERS. Within
thirty (30) days after the selection of the third
appraiser, a majority of the appraisers shall set the
Initial Base Rent for the Extended Term. If a
majority of the appraisers are unable to set the
Initial Base Rent within the stipulated period of
time, Landlord's appraiser shall arrange for
simultaneous exchange of written appraisals from each
of the appraisers and the three (3) appraisals shall
be added together and their total divided by three
(3); the resulting quotient shall be the Initial Base
Rent for the Premises during the Extended Term. If,
however, the low appraisal and/or the high appraisal
are/is more than fifteen percent (15%) lower and/or
higher than the middle appraisal, such low appraisal
and/or high appraisal shall be disregarded. If only
one (1) appraisal is disregarded, the remaining two
(2) appraisals shall be added together and their
total divided by two (2); the resulting quotient
shall be the Initial Base Rent for the Premises
during the Extended Term. If both the low appraisal
and the high appraisal are disregarded as stated in
this Paragraph 31.c.3), the middle appraisal shall be
the Initial Base Rent for the Premises during the
Extended Term.
4) MINIMUM INITIAL BASE RENT LEVEL. Notwithstanding any
other provision of this Lease, in no event shall the
Initial Base Rent for the Extended Term be less than
the Base Rent prevailing immediately prior to the
expiration of the Initial Term.
5) ANNUAL INCREASE. The monthly Base Rent for the
Extended Term shall be increased by five cents
($.05) per Rentable Square Foot at the beginning of
each of Lease years 2, 3, 4 and 5 of the Extended
Term.
32. ADDITIONAL POWER. Landlord shall allow Tenant to install, at Tenant's
sole cost, a generator outside of the Building close to the computer
room in a location approved by Landlord, to provide backup power in the
event of a power failure. Landlord shall cooperate with Tenant and the
City of Sunnyvale to complete this item.
33. RIGHT OF FIRST REFUSAL (ROFR). Provided Tenant is not in default during
the Term of the Lease, should Landlord receive an offer from a third
party ("THIRD PARTY OFFER") to lease all or part of the Expansion Area
as outlined on the attached Exhibit A, Landlord shall notify Tenant in
writing of the general business terms of the Third Party Offer and
Tenant shall have the right to lease the space outlined in the Third
Party Offer under the same Rent and Tenant Improvement Allowance terms
thereof, provided Tenant exercise this Right within five (5) business
days from the date of Landlord's notice. The terms and conditions of
the Lease for the Expansion Area (except for Rent and Tenant
Improvement Allowance) shall be the same as the original Lease and be
coterminous with the original Lease or any extension thereof. Tenant's
ROFR shall be subject to rights of then existing tenants.
However, if the term of the Lease as to the Expansion Area is less than
sixty-six (66) months, Landlord shall adjust the Tenant Improvement
Allowance to reflect the shorter amortization term for the Tenant
Improvements.
34. HVAC CAPITAL REPLACEMENTS. Notwithstanding the provisions of Paragraph
12.b., Landlord shall be responsible only during the first two years of
the Term of the Lease at its own cost and without reimbursement from
Tenant, for the replacement of HVAC units as they wear out and for any
"MAJOR HVAC REPAIR" (defined as a single occurrence repair or
replacement costing in excess of $1,500 per unit).
35. NON-DISTURBANCE AGREEMENT. Upon request by Tenant, Landlord shall use
its best efforts to provide a Non- Disturbance Agreement to Tenant from
its Lender(s) on behalf of Tenant.
36. MISCELLANEOUS PROVISIONS.
a. TIME OF ESSENCE. Time is of the essence of each provision of
this Lease.
b. SUCCESSOR. This Lease shall be binding on and inure to the
benefit of the parties and their successors, except as
provided in Paragraph 19.
c. LANDLORD'S CONSENT. Any consent required by Landlord under
this Lease must be granted in writing and may be withheld or
conditioned by Landlord in its sole and absolute discretion
unless otherwise provided.
d. COMMISSIONS. Each party represents that it has not had
dealings with any real estate broker, finder or other person
with respect to this Lease in any manner, except for the
Broker(s) identified in Paragraph 1., who shall be compensated
by Landlord in accordance with the separate agreement between
Landlord and the Broker(s).
e. LITIGATION. If either party commences any litigation against
the other party or files an appeal of a decision arising out
of or in connection with the Lease, the prevailing party shall
be entitled to recover from the other party reasonable
attorneys' fees and costs of suit. If Landlord employs a
collection agency to recover delinquent charges, Tenant agrees
to pay all collection agency and attorneys' fees charged to
Landlord in addition to Rent, late charges, interest and other
sums payable under this Lease.
f. LANDLORD'S SUCCESSORS. In the event of a sale or conveyance by
Landlord of the Building containing the Premises, the same
shall operate to release Landlord from any liability under
this Lease, and in such event Landlord's successor in interest
shall be solely responsible for all obligations of Landlord
under this Lease.
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<PAGE> 19
g. INTERPRETATION. This Lease shall be construed and interpreted
in accordance with the laws of the state in which the Premises
are located. This Lease constitutes the entire agreement
between the parties with respect to the Premises, except for
such guarantees or modifications as may be executed in writing
by the parties from time to time. When required by the context
of this Lease, the singular shall include the plural, and the
masculine shall include the feminine and/or neuter. "Party"
shall mean Landlord or Tenant. If more than one person or
entity constitutes Landlord or Tenant, the obligations imposed
upon that party shall be joint and several. The
enforceability, invalidity or illegality of any provision
shall not render the other provisions unenforceable, invalid
or illegal.
h. AUCTIONS. Tenant shall not conduct, nor permit to be
conducted, either voluntarily or involuntarily, any auction
upon the Premises without first having obtained Landlord's
prior written consent. Notwithstanding anything to the
contrary in this Lease, Landlord shall not be obligated to
exercise any standard of reasonableness in determining whether
to grant such consent.
i. QUIET POSSESSION. Upon payment by Tenant of the Rent for the
Premises and the observance and performance of all of the
covenants, conditions and provisions on Tenant's part to be
observed and performed under this Lease, Tenant shall have
quiet possession of the Premises for the entire Term hereof
subject to all of the provisions of this Lease.
j. CONFLICT. Any conflict between the printed provisions of this
Lease and the typewritten or handwritten provisions shall be
controlled by the typewritten or handwritten provisions.
k. OFFER. Preparation of this Lease by Landlord or Landlord's
agent and submission of same to Tenant shall not be deemed an
offer to lease to Tenant. This Lease is not intended to be
binding until executed by all Parties hereto.
l. AMENDMENTS. This Lease may be modified only in writing, signed
by the Parties in interest at the time of the modification.
The parties shall amend this Lease from time to time to
reflect any adjustments that are made to the Base Rent or
other Rent payable under this Lease. As long as they do not
materially change Tenant's obligations hereunder, Tenant
agrees to make reasonable non-monetary modifications to this
Lease as may be reasonably required by Lender(s) in connection
with the obtaining of normal financing or refinancing of the
property of which the Premises are a part.
m. CONSTRUCTION. The Landlord and Tenant acknowledge that each
has had its counsel review this Lease, and hereby agree that
the normal rule of construction to the effect that any
ambiguities are to be resolved against the drafting party
shall not be employed in the interpretation of this Lease or
in any amendments or exhibits hereto.
n. CAPTIONS. Article, section and paragraph captions are not a
part hereof.
o. EXHIBITS. For reference purposes the Exhibits are listed
below:
Exhibit A: The Premises
Exhibit B: The Property
Exhibit C: Rules and Regulations
Exhibit D: Covenants, Conditions and Restrictions
Exhibit E: Work Letter Agreement
LANDLORD: TENANT:
LIMAR REALTY CORP. #8, a California INFOSEEK CORPORATION, a California
corporation corporation
By: /s/ Theodore H. Kruttschnitt By: /s/ Andrew E. Newton
---------------------------- ---------------------------
Theodore H. Kruttschnitt Name: Andrew E. Newton
President Title: V.P. and General Counsel
Date: March 10, 1997 Date: March 10, 1997
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<PAGE> 1
Exhibit 10.46
AMENDMENT NO. 1
TO
INFOSEEK/NYNEX AGREEMENT
The Infoseek/NYNEX Agreement ("Agreement") by and between InfoSeek Corporation,
a corporation duly organized under the laws of California, with its principal
place of business at 2620 Augustine Drive, #250, Santa Clara, California 95054,
hereinafter referred to as "InfoSeek", and NYNEX Information Technologies
Company, a corporation organized under the laws of the State of Delaware, with
its principal place of business at 35 Village Road, Middleton, MA 09149,
hereinafter referred to as "NYNEX", executed by InfoSeek and NYNEX on March 29,
1996 is hereby amended, as of May 10, 1996, by this Amendment No. 1.
1. The portion of Section 5 of the Agreement preceding the last paragraph
thereof is hereby changed to read as follows:
"In consideration of the services provided under this Agreement, NYNEX agrees
to pay to Infoseek the following charges:
[*]
[*]
[*]
[*]
For the purposes of this Section 5, "Q1/96" shall mean May 10, 1996 through
August 9, 1996, "Q2/96" shall mean August 10, 1996 through November 9, 1996,
"Q3/96" shall mean November 10, 1996 through February 9, 1997, and "Q1/97"
shall mean February 10, 1997 through May 9, 1997.
The payment of such charges will be made to Infoseek on a monthly basis in
accordance with the following schedule:
Payment #1 - [*]
Payment #2 - [*]
Payment #3 - [*]
Payment #4 - [*]
Payment #5 - [*]
Payment #6 - [*]
Payment #7 - [*]
Payment #8 - [*]
Payment #9 - [*]
Payment #10 - [*]
Payment #11 - [*]
Payment #12 - [*]
Total of above payments for the period from [*]
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
1 of 2
<PAGE> 2
If during any quarter of this Agreement, the [*] (i.e. search pages, search
results pages and browse pages delivered) resulting in the display of the Icon
("Information Requests"), then Infoseek [*] to Infoseek for such quarter [*].
2. The first sentence of Section 6 of the Agreement is hereby changed to read
as follows:
"This Agreement shall be effective on the date this Agreement becomes fully
executed by the parties ("Effective Date") and shall continue in force for an
initial term ending May 9, 1997."
3. Section A of Attachment I to the Agreement is hereby changed to read as
follows:
"Commencement Date of Icon Placement: May 10, 1996 unless otherwise agreed upon
Commencement Date of Guide Icon Placement: May 10, 1996 unless otherwise
agreed upon"
The parties hereto agree that the terms and provisions of the Agreement as
amended hereby shall remain in full force and effect. The effective date of
this Amendment No. 1 shall be the date this Amendment No. 1 becomes fully
executed by both parties.
The parties have duly executed this Agreement as of the later of the two (2)
dates set forth below.
ACCEPTED FOR INFOSEEK CORPORATION ACCEPTED FOR NYNEX INFORMATION
TECHNOLOGIES COMPANY
By: /s/ Robert E.L. Johnson III By: /s/ Matthew J. Stover
-------------------------------- --------------------------------
Authorized Signature Authorized Signature
Print Name: Robert E.L. Johnson III Print Name: Matthew J. Stover
------------------------ ------------------------
Title: CEO & President Title: Chairman of the Board
----------------------------- -----------------------------
Date: June 12, 1996 Date: 14 May 1996
------------------------------ ------------------------------
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
2 of 2
<PAGE> 1
Exhibit 10.47
AMENDMENT NO. 2
TO
INFOSEEK/NYNEX AGREEMENT
The Infoseek/NYNEX Agreement ("Agreement") by and between Infoseek Corporation,
a corporation duly organized under the laws of California, with its principal
place of business at 2620 Augustine Drive, Suite 250, Santa Clara, California
95054, hereinafter referred to as "Infoseek", and NYNEX Information Technologies
Company, a corporation organized under the laws of the State of Delaware, with
its principal place of business at 35 Village Road, Middleton, MA 01949,
hereinafter referred to as "NYNEX", executed by Infoseek and NYNEX on March
29,1996, as amended by Amendment No. 1 thereto, is hereby further amended, as of
February 19, 1997, by this Amendment No. 2.
1. Infoseek and NYNEX hereby agree to extend the term of the Agreement for a
renewal term commencing on May 10, 1997 and ending on [ * ] ("Renewal Term").
NYNEX agrees that the outstanding credit of [ * ] applicable to [ * ] which
would otherwise be payable to NYNEX by Infoseek pursuant to the reimbursement
provisions of the next to last paragraph of Section 5, shall be null and void
and not be due and payable.
2. Section 5 of the Agreement shall remain in full force and effect through the
initial term of the Agreement. Thereafter, for the Renewal Term, Section 5 of
the Agreement shall be changed to read as follows:
"In consideration of the services provided during the Renewal Term under this
Agreement, NYNEX agrees to pay to Infoseek the amount of [ * ].
The payment of such amount will be made to Infoseek in accordance with the
following schedule:
<TABLE>
<S> <C> <C>
Payment #1 - [ * ] [ * ]
Payment #2 - [ * ] [ * ]
Payment #3 - [ * ] [ * ]
Payment #4 - [ * ] [ * ]
Payment #5 - [ * ] [ * ]
Payment #6 - [ * ] [ * ]
Payment #7 - [ * ] [ * ]
Payment #8 - [ * ] [ * ]
Payment #9 - [ * ] [ * ]
Payment #10 - [ * ] [ * ]
Payment #11 [ * ] [ * ]
Payment #12 [ * ] [ * ]
Payment #13 [ * ] [ * ]
Payment #14 [ * ] [ * ]
----------
TOTAL [ * ]
==========
</TABLE>
Total payments for the Renewal Term = [ * ]
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
Page 1
<PAGE> 2
3. The last four paragraphs of Section 2 of the Agreement are hereby deleted in
their entirety. Infoseek agrees that [ * ] on the Service, [ * ] therein on a
mutually agreeable basis. The Service referred to in this Agreement is the U.S.
version of the Infoseek search and directory service. [ * ] from the Service;
provided, however, Infoseek reserves the right to include [ * ] in the event
Infoseek reasonably determines in its discretion that the [ * ] meet acceptable
standards. Infoseek agrees to notify NYNEX in advance of the [ * ]. Infoseek
agrees to use commercially reasonable efforts to [ * ]. Infoseek agrees to
review with NYNEX, prior to any [ * ] of the Service affecting the [ * ]
(collectively known as "links"). A screen print of the existing Links
positioning is attached hereto as a reference to the [ * ].
4. In the event performance of the Links from the Service to [ * ] as a
percentage of impressions of the Links, NYNEX and Infoseek agree to take
appropriate escalation actions with respect to the Service with their respective
management teams to [ * ].
5. Infoseek agrees to provide a link from the Service to the NYNEX/411E-mail
directory service and to the NYNEX/411 residential white pages directory
service. [ * ]
The parties hereto agree that the terms and provisions of the Agreement, and
Amendment No. 1 thereto, as further amended hereby, shall remain in full force
and effect. The effective date of this Amendment No. 2 shall be the date this
Amendment No. 2 becomes fully executed by both parties.
The parties have duly executed this Amendment No. 2 as of the later of the two
(2) dates set forth below.
ACCEPTED FOR INFOSEEK CORPORATION ACCEPTED FOR NYNEX INFORMATION
TECHNOLOGIES COMPANY
By: /s/ Robert E. L. Johnson III By: /s/ William H. Wise
----------------------------- -------------------------------
Authorized Signature Authorized Signature
Print Name: Robert E. L. Johnson III Print Name: William H. Wise
------------------------ ----------------------
Title: CEO & President Title: President and Chairman
----------------------------- ---------------------------
Date: February 19, 1997 Date: 2/7/97
------------------------------ ----------------------------
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
Page 2
<PAGE> 1
Exhibit 10.51
Amendment No. 1 to Infoseek/XSoft Software Distribution and License Agreement.
This Amendment, effective the 16th day of December, 1996 is by and between
XSoft, A Unit of Xerox Corporation ("Xerox") and Infoseek Corporation
("Infoseek"), and hereby amends the Agreement ("Agreement") between the two
companies.
The parties hereto agree as follows:
1. Scope of Agreement
The purpose of this amendment is to:
Amend the License Grant from Xerox to Infoseek to enable Infoseek to reproduce
and Sub-license to SunSites the LICENSED SOFTWARE as defined in paragraph 1.02
and Attachment 1 of the Agreement, as amended, and the Noun Phrase Detector
included in Release 2.0 for evaluation purposes (both jointly referred to
herein as "LICENSED SOFTWARE/NPD"), as included in Infoseek's Intranet search
product, Infoseek Enterprise, and derivatives thereof.
2. Definition
A. "Sub-license" with respect to Intranet means the licensing of LICENSED
SOFTWARE to SunSites via an online limited use end-user software license. Such
sub-licensing may be accomplished through Infoseek's direct sales organization
or through third parties.
B. "Noun Phrase Detector" refers to a compact data module encoding grammatical
knowledge that enables the identification of noun phrases in tagged text for a
single language. It is used in conjunction with the runtime libraries and API
of the Lexicons.
C. "SunSITE"(TM) (Sun Software, Information and Technology Exchange) is a Sun
Microsystems sponsored program at leading universities around the world.
3. License Grant
Infoseek is hereby granted a non-exclusive, worldwide license to reproduce and
Sub-license to SunSITES, the LICENSED SOFTWARE/NPD as included in Infoseek's
Intranet search product, Infoseek Enterprise, and derivatives thereof.
4. Royalty
[ * ]
IN WITNESS WHEREOF, THE PARTIES have caused this Amendment One to be executed
by their duly authorized representatives, effective as of the date first
written above.
Infoseek Corporation Xerox Corporation
By /s/ Andrew E. Newton By /s/ Nathan Rubin
- ------------------------------------- ------------------------------------
Title Vice Pres. & Gen. Counsel Title Director Business Development
Date December 18, 1996 Date December 17, 1996
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE> 1
Exhibit 10.52
AMENDMENT NO. 2 TO INFOSEEK/XSOFT SOFTWARE DISTRIBUTION AND LICENSE AGREEMENT
This Amendment, effective the 16th day of December, 1996 is by and between
XSoft, A Unit of Xerox Corporation ("Xerox") and Infoseek Corporation
("Infoseek), and hereby amends the Agreement effective March 31, 1996 (the
"Agreement") between the two companies.
The parties hereto agree as follows:
1. Scope of Agreement
The purpose of this Amendment is to:
A. Amend the License Grant from Xerox to Infoseek to enable
Infoseek to use, maintain, reproduce and distribute the English
inflecting stemmer and Lexicon in its Intranet search product,
Infoseek Enterprise ("Intranet").
B. Recognize and license the use of the English Noun Phrase
Detection in Infoseek's Ultra Internet product and derivatives
thereof, and in the new Intranet search product.
C. Provide an option for Infoseek to license the use of the English
Summarizer in Infoseek's Ultra Internet product and derivatives
thereof, and in the new Intranet search product.
D. Adjust the period terms for such additional license grants.
E. Extend the term of the Agreement to [ * ].
F. Allow Infoseek access to Lexicons Source Code solely for porting
the Lexicons to platforms not supported by Xerox.
2. Definitions
Section I of the Agreement is amended to include the following.
A. "LICENSED SOFTWARE" means the definition enumerated in paragraph
1.02 and Attachment I of the Agreement, as amended, and includes
Infoseek's Intranet search product.
B. "Lexicons" means the definition enumerated in paragraph 1.01 and
Attachment I of the Agreement, as amended herein, and includes
only the Xerox Inflectional Stemmer and Noun Phrase Detection
modules in the English language.
C. "Summarizer" is defined in Section 4, Attachment I -
Specifications in this Amendment.
D. "Sub-license" with respect to Intranet means the licensing of
LICENSED SOFTWARE to end users via a limited use end-user
software license no less restrictive than Infoseek requires for
its own products. Such sub-licensing may be accomplished through
Infoseek's direct sales organization, value added resellers
(VARS) and agents, or through other third parties. Sub-license
conveys no rights to Infoseek to license Lexicons, without the
LICENSED SOFTWARE to third parties for any purpose, including as
standalone component technology, or to provide services to third
parties based on Lexicons without their inclusion in LICENSED
SOFTWARE.
E. "Lexicons Source Code" means the original set of instructions,
owned or licensed by Xerox and including all of the text-based
files used to build the resultant deliverables, expressed in a
computer language that is one or more steps removed from the
machine readable format of a given computer and from which
run-time object code is compiled. Lexicons Source Code shall
include all ports, modifications, improvements, enhancements,
additions, derivative works, updates, releases and versions
thereof, as the same may be renamed or succeeded.
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
1 12/30/96
<PAGE> 2
3. License Grant
Section III of the Agreement is amended to include the following:
A. Infoseek is hereby granted a non-exclusive, worldwide license to
market, use, maintain, reproduce, display and Sub-license the
Lexicons and Summarizer (should Infoseek elect this option) in
object code format, as defined above and as incorporated in the
LICENSED SOFTWARE, and for which a royalty / periodic fee
schedule is defined herein.
B. [*].
C. The Lexicons Source Code, when or if provided by Xerox, [*].
Platform ports, exclusive of Licensee Software, produced by
Licensee under this License, shall be considered derivatives of
the Lexicons, owned by Xerox and licensed to Licensee hereunder
as part of Lexicons. Licensee shall provide Xerox with a
certified copy of the source and object code software, exclusive
of Licensee Software, for each platform port incorporating the
Lexicons which has or will be created by or on behalf of
Licensee.
D. Infoseek agrees that it will not make LICENSED SOFTWARE
available as part of any [*] whose purpose is to
encourage upgrades to software which does not include Lexicons.
E. Infoseek may Sub-license LICENSED SOFTWARE to universities for
academic and research purposes on the same terms and conditions
as are included in Amendment No. 1, dated December 17, 1996.
4. Enhancements to Lexicons
The last sentence of Paragraph 6.03 of the Agreement is herewith amended
by adding to the end of the sentence the following:
......., except that Xerox will protect, [*] Agreement as amended
herein, [*] which have been [*] shall not be applicable to any rules or
other mechanisms which have already been [*], nor shall it prevent
Xerox, in good faith, from making [*] once they have entered the public
domain or when they have been suggested or requested, at later dates, by
other Licensees or potential Licensees independent of any action by
Xerox to encourage such suggestions or feedback.
5. Specifications, Delivery and Acceptance
Section VII of the Agreement is amended to include the following:
Xerox shall provide Licensee [*] to the extent necessary for Licensee to
make modifications to permit use on additional platforms not supported
by Xerox, subject to the terms and conditions for such use of [*] under
paragraph 3.D. of this Amendment.
6. Assignment
The second paragraph of section 16.01 is herewith amended to correspond
to the term of the Agreement by the deletion of the words [*] from the
original sentence.
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
2 12/30/96
<PAGE> 3
7. Attachment I - Specifications
The following is added to the DEFINITIONS section of ATTACHMENT I -
SPECIFICATIONS of the Agreement.
"Summarizer" refers to software which automatically examines the
content of a document in real-time to identify the document's
key phrases and extract sentences to form an indicative summary,
either by highlighting excerpts within a document or creating a
bulleted list of the document's key phrases.
The following is an addition to the Lexicons definition located in the
DEFINITIONS section of Attachment I.
"Noun Phrase Detector" refers to a compact data module encoding
grammatical knowledge that enables the identification of noun
phrases in tagged text for a single language. It is used in
conjunction with the runtime libraries and API of the Lexicons.
For purposes of this Amendment, Noun Phrase Detector becomes a
part of Lexicons.
Deliverables Schedule: Delivery of Lexicons and Summarizer shall be in
accordance with the schedule which follows:
Lexicons Release 2.0: Delivery accomplished in early December
as an update release.
Noun Phrase Detector: Included in Release 2.0 for evaluation
purposes in anticipation of the execution of this Amendment.
Summarizer: Included in Release 2.0 package for evaluation
purposes. Would become the licensed product upon execution of
this Amendment.
All Deliverables shall be provided in Win 32/NT and Solaris 2.5.
Xerox agrees to evaluate the provision of Lexicons on the
Solaris X86 (Intel) and SGI Irix platforms and shall provide
Infoseek with a schedule for such deliverables [*].
8. Term of Agreement
This Agreement shall be extended to [*] from the original
effective date of March 31, 1996. Further, the [*] in
Attachment II of the Agreement shall be [*] of this Amendment.
9. [*] Internet and Intranet Search Products
A. [*]
B. [*]
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
3 12/30/96
<PAGE> 4
D. Maintenance
- The parties agree that Infoseek shall receive Maintenance with
respect to the Lexicons and Summarizer for the duration of this
Agreement [*] As a part of Maintenance, Infoseek, for the life
of this Agreement, shall receive updates to Lexicons and
Summarizer, as they become available to all Licensees, [*].
Updates, for purposes of this Amendment, do not include new
products made available for licensing by Xerox or versions of
current licensed products deemed by Xerox to represent new
products.
E. [*]
- The [*] with respect to the Internet search product, in each
year of this amended Agreement shall [*] Attachment II of the
original Agreement or in this Amendment.
- The [*] due to XEROX from Infoseek's Internet and Intranet
search products, [*] shall be:
[*]
[*]
[*]
[*]
The Maximum Royalty condition in this Agreement with respect to
[*].
- Should Infoseek license the [*] to XEROX from the Internet and
Intranet search product shall be:
[*]
[*]
[*]
[*]
F. Hypertext Link
- Sub-section "Hypertext Link" of Attachment II of the Agreement
is hereby amended as follows:
1) The present Hypertext link appearing on the
Internet Search Results page shall continue in
place [*] except that the wording shall be
changed, at Xerox's request, to reflect the new
Xerox company and Lexicons name.
2) Effective as soon as reasonably feasible, but no
later than [*] the Xerox hypertext link and
technology statement shall be moved into the
Rotating Tips program provided by Infoseek on
the Internet, at no charge. At the conclusion of
[*] of this program (assumed for these purposes
[*]
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
4
<PAGE> 5
terminate Xerox's participation in the Rotating
Tips program or desires to negotiate a change in
the terms and conditions of the program. The
Xerox link and reference shall receive no
preferential treatment in the rotation, except
that additional Xerox rotations may be added, by
agreement of the parties, when the Xerox link
appears too infrequently. Should Infoseek
discontinue the Rotating Tips program, it will
have no obligation to maintain the Xerox
Hypertext link in this program or to move the
Xerox link to another placement location within
the Internet product.
3) Infoseek shall provide appropriate attribution
for Xerox in its Internet and copyright page and
shall provide a Hypertext link to Xerox from
that location for the term of this Agreement, as
amended. With respect to the Intranet product,
Infoseek shall place the Xerox notice and
Hypertext Link in the same place, manner and
form as it places its own copyright attribution
and Hypertext link.
4) [*] on the same terms as it shall make
available to its other partners.
G. Exclusivity
- [*]
10. Other Terms and Conditions
The terms of this Agreement, including this Amendment, shall be
[*] except that:
(a) Infoseek may determine whether it desires to [*].
(b) Xerox may [*].
Notwithstanding the foregoing, all other terms and conditions of the
Software Distribution and License Agreement/Lexicons and of Amendment
No. 1, dated 12/17/96, shall apply to both the Intranet and Internet
products of Infoseek and shall remain in effect and, exclusive of the
Exclusivity paragraph in Attachment II of the original Agreement, shall
be extended to the new term of this Amendment.
IN WITNESS WHEREOF, THE PARTIES have caused this Amendment No. 2 to be executed
by their duly authorized representatives, effective as of the date first
written above.
INFOSEEK CORPORATION XEROX CORPORATION
By /s/ ANDREW E. NEWTON By /s/ NATHAN RUBIN
---------------------------- ------------------------------
Name Andrew E. Newton Name Nathan Rubin
--------------------------- -----------------------------
Title VP - General Counsel Title Director Business Development
-------------------------- ----------------------------
Date 12/30/96 Date 12/30/96
--------------------------- -----------------------------
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
5
<PAGE> 1
SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
Period from
August 30, 1993
(inception)
(In thousands, except per share data) Years Ended December 31, to December 31,
- ----------------------------------------------------------------------------------------------------
1996 1995 1994 1993
<S> <C> <C> <C> <C>
SUMMARY STATEMENTS OF OPERATIONS DATA
Total revenues $ 15,095 $ 1,032 $ -- $ --
Cost of revenues 3,194 614 -- --
-----------------------------------------------------
Gross profit 11,901 418 -- --
Operating expenses:
Research and development 4,550 1,175 1,063 8
Sales and marketing 20,455 1,488 97 --
General and administrative 4,177 1,148 360 19
-----------------------------------------------------
Total operating expenses 29,182 3,811 1,520 27
-----------------------------------------------------
Operating loss (17,281) (3,393) (1,520) (27)
Interest income, net 1,343 97 10 --
-----------------------------------------------------
Net loss $(15,938) $(3,296) $(1,510) $ (27)
=====================================================
Net loss per share (Pro forma in 1995) $ (0.73) $ (0.13)
========================
Shares used in computing net loss per share
(Pro forma in 1995) 21,737 25,863
========================
</TABLE>
<TABLE>
<CAPTION>
December 31,
--------------------------------------------
(In thousands) 1996 1995 1994 1993
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SUMMARY BALANCE SHEETS DATA
Cash, cash equivalents and short-term
investments $ 46,653 $ 1,626 $ 568 $ 177
Working capital (deficit) 41,997 93 458 (99)
Total assets 58,332 5,123 859 318
Long-term obligations 1,892 838 210 --
Total shareholders' equity 48,985 2,142 520 27
============================================
</TABLE>
2 INFOSEEK CORPORATION
<PAGE> 2
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Discussion and Analysis contains certain forward-looking statements within
the meaning of Section 27A of the Securities Act of 1993, as amended and Section
21E of the Securities Exchange Act of 1934, as amended. Actual results and the
timing of certain events could differ materially from those projected in the
forward-looking statements as a result of the risk factors set forth in "Risk
Factors That May Affect Future Results" and other factors discussed elsewhere in
this Report.
The following table sets forth items from Infoseek's Statements of Operations
(in thousands):
<TABLE>
<CAPTION>
Years Ended December 31
-------------------------------------
1996 1995 1994
-------------------------------------
<S> <C> <C> <C>
Revenues
Advertising $ 14,951 $ 849 $ --
Subscription 144 183 --
-------------------------------------
Total revenues 15,095 1,032 --
Cost of revenues 3,194 614 --
-------------------------------------
Gross profit 11,901 418 --
Operating expenses
Research and development 4,550 1,175 1,063
Sales and marketing 20,455 1,488 97
General and administrative 4,177 1,148 360
-------------------------------------
Total operating expenses 29,182 3,811 1,520
-------------------------------------
Operating loss (17,281) (3,393) (1,520)
Interest income, net 1,343 97 10
-------------------------------------
Net loss $(15,938) $(3,296) $(1,510)
=====================================
</TABLE>
RESULTS OF OPERATIONS
From inception through the first quarter of 1995, the Company's operations were
limited and consisted primarily of start-up activities. Accordingly, the Company
believes that year-to-year comparisons of 1994 to 1995 are not meaningful and
therefore has not included such comparisons in the following discussion.
Total Revenues -- For the years ended December 31, 1996 and 1995, total revenues
were $15,095,000 and $1,032,000, respectively.
During 1996 and 1995, the Company derived its revenues substantially from the
sale of advertisements on its Web pages. Advertising revenues in 1996 and 1995
were $14,951,000 and $849,000, respectively, representing 99% and 82% of total
revenues in such periods. The growth in revenues is attributable to the
increased use of the Internet for information publication, distribution and
commerce coupled with the development and acceptance of the Internet as an
advertising medium. The Company expects to continue to derive substantially all
of its revenues for the foreseeable future from selling advertising space on its
Web sites. Advertising revenues are derived principally from short-term
advertising contracts in which the Company guarantees a minimum number of
impressions (displays of an advertisement to the user) for a fixed fee.
Advertising revenues are recognized ratably over the term of the contract during
which services are provided and are stated net of customer discounts.
In March 1996, the Company and NYNEX Information Technologies Company ("NYNEX")
entered into a one-year agreement, which provides for the Company's display of
the BigYellow logo within Ultraseek. According to the terms of the agreement,
NYNEX agreed to pay to the Company up to an aggregate of $4,600,000, in monthly
payments, which amount will be decreased proportionately if the number of
impressions of the BigYellow logo is below a specified number. NYNEX could
extend the term of the agreement for addi-
INFOSEEK CORPORATION 3
<PAGE> 3
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
tional one-year periods, with the fee to be determined based upon Infoseek's
then current advertising rate structure. In addition, NYNEX had the right to
cancel or renegotiate the agreement based upon certain relative traffic volumes
on the BigYellow and Infoseek Guide sites. In February of 1997, the Company has
signed an amendment with NYNEX extending the term of the original agreement
through June 1998 in exchange for an additional $1,400,000 for a total of
$6,000,000, in monthly payments, subject to substantially the same terms and
conditions as the original agreement, except for elimination of certain
exclusivity and reimbursement provisions. The Company recognized revenue of
$1,882,000 in connection with this amended agreement during the year ended
December 31, 1996. There can be no assurance that the NYNEX arrangement will
prove to be mutually beneficial or that it will be continued after the extended
term. See Note 11 and 12 of Notes to Financial Statements.
Also included in advertising revenues is the exchange by the Company of
advertising space on the Company's Web sites for reciprocal advertising space in
other media publications or other Web sites or receipt of applicable goods and
services. Revenues from these exchange transactions are recorded as advertising
revenues at the estimated fair value of the goods and services received and are
recognized when both the Company's advertisements and reciprocal advertisements
are run or applicable goods or services are received. Although such revenues
have been insignificant to date, the Company believes these exchange
transactions are of value, particularly in the marketing of the Infoseek brand,
and expects to continue to engage in these transactions in the future.
The balance of total revenues during these periods was derived from subscription
fees for a premium service offered to business and professional users. Revenues
from this service are recognized over the period the service is provided and
have been insignificant to date. During the third quarter of 1996, the Company
discontinued this service.
The Company's current business model to generate revenues through the sale of
advertising on the Internet may be unsustainable. There can be no assurance that
current advertisers will continue to purchase advertising space and services
from the Company or that the Company will be able to successfully attract
additional advertisers.
Cost of Revenues -- For the years ended December 31, 1996 and 1995, cost of
revenues were $3,194,000 and $614,000, respectively. Cost of revenues consist
primarily of expenses associated with the enhancement, maintenance and support
of the Company's Web sites, including telecommunications costs and equipment
depreciation. Cost of revenues also includes, for all periods presented,
expenses associated with the licensing of certain third-party technologies,
consisting primarily of amortization of the fee for the search engine technology
licensed from Applied Computing Systems Institute of Massachusetts, Inc.
("ACSIOM"), as well as ongoing royalties based on usage of the product. The
initial license fee was amortized at a rate of $37,000 per quarter, commencing
with the first quarter of 1995 and ending in the second quarter of 1996. Royalty
fees to ACSIOM were paid commencing in the first quarter of 1995 and will
continue as long as the Company utilizes the technology. With the introduction
of Ultraseek royalty fees to ACSIOM will be insignificant in future periods.
Cost of revenues increased in 1996 and 1995 as the Company added additional
equipment and personnel to support its Web sites and as royalties due upon usage
of the product increased as revenues increased. The Company expects its cost of
revenues will continue to increase in absolute dollars and possibly as a
percentage of revenues as it upgrades equipment and maintenance and support
personnel, adds content partners to meet the growing demands for Web services
and as sales through the recently introduced Infoseek Network, which is expected
to generate advertising revenues that typically would carry lower margins than
those associated with advertising sold on the Company's own Web site, grow.
Operating Expenses -- The Company's operating expenses have increased in each
quarter during 1996 and 1995 as the Company has transitioned from the product
development stage to the marketing of its services and products and expansion of
its business. The Company expects operating expenses to continue to increase in
dollar amount in the future as the Company continues to expand its business.
INFOSEEK CORPORATION 4
<PAGE> 4
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company recorded aggregate deferred compensation of $5,226,000 in connection
with certain stock options granted during 1996 and 1995. For the years ended
December 31, 1996 and 1995, the Company amortized $1,346,000 and $44,000,
respectively, related to stock options. The amortization of such deferred
compensation is being charged to operations over the vesting periods of the
options, which are typically four years. As a result, the amortization of this
deferred compensation will continue to have an adverse effect on the Company's
results of operations. See Note 7 of Notes to Financial Statements.
Research and Development -- For the years ended December 31, 1996 and 1995,
research and development expenses were $4,550,000 and $1,175,000, respectively.
Research and development expenses consist principally of personnel costs,
consulting and equipment depreciation. Costs related to research, design and
development of products and services have been charged to research and
development expense as incurred. See Note 1 of Notes to Financial Statements.
The increase in research and development expenses for 1996 over 1995 were
primarily the result of continued product enhancements of the Infoseek Guide
product and the development of the Company's next generation search engine,
Ultraseek, which was released in November 1996. The Company believes
that a significant level of product development expenses is required to remain
competitive. Accordingly, the Company anticipates that it will continue to
devote substantial resources to product development and that these costs are
expected to continue to increase in dollar amount in future periods.
Sales and Marketing -- For the years ended December 31, 1996 and 1995, sales and
marketing expenses were $20,455,000 and $1,488,000, respectively. Sales and
marketing expenses consist primarily of compensation of sales and marketing
personnel, advertising and promotional expenses.
Sales and marketing expenses for the year ended December 31, 1996 included
payments made to Netscape Communications Corporation ("Netscape") pursuant to an
arrangement for the listing of the Company's product on the Netscape Web page.
This agreement with Netscape provides for payments of up to an aggregate of
$5,000,000 over the course of the one year term of the agreement. During the
year ended December 31, 1996, the Company recognized $3,750,000 of the
$5,000,000 payment to Netscape as expense. The remaining $1,250,000 will be
expensed in the first quarter of 1997. In March 1997, Infoseek renewed its
agreement with Netscape under terms which extend the current contract through
April 1997 and thereafter provides for Infoseek to be one of five premier
providers displayed on Netscape's Web page for the period of May 1, 1997
through April 30, 1998. Infoseek's agreement with Netscape provides for
payments of up to an aggregate of $12,500,000 to Netscape over the term of the
agreement. See Notes 5 and 12 of Notes to Financial Statements.
In addition, the increase in sales and marketing expenses for the year ended
1996 over 1995 was also the result of hiring additional sales and marketing
personnel and an increase in promotional and advertising activity. The Company
expects to increase promotional and advertising expenses and anticipates hiring
additional sales representatives in 1997 and future periods. As a result, these
costs are expected to continue to increase.
General and Administrative -- For the years ended December 31, 1996 and 1995,
general and administrative expenses were $4,177,000 and $1,148,000,
respectively. General and administrative expenses consist primarily of
compensation of administrative and executive personnel facility costs and fees
for professional services.
The increase in general and administrative expenses for the year ended 1996 over
1995 was the result of hiring additional administrative and executive staff and
adding infrastructure to manage the expansion of the business. The Company
anticipates that its general and administrative expenses will continue to
increase in dollar amount as the Company continues to expand its administrative
and executive staff, relocates its corporate headquarters to larger facilities
in the first half of 1997, adds infrastructure and incurs additional costs
related to being a public company, such as expenses related to directors' and
officers' insurance, investor relations programs and increased professional
fees.
INFOSEEK CORPORATION 5
<PAGE> 5
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Income Taxes -- Due to the Company's loss position, there was no provision for
income taxes for any of the periods presented. At December 31, 1996, the Company
had federal and state net operating loss carry forwards of approximately $20.2
million and $7.1 million, respectively. The federal net operating loss carry
forwards will expire beginning in 2009 through 2011, if not utilized, and the
state net operating loss carry forwards will expire in the years 1999 through
2001. Certain future changes in the share ownership of the Company, as defined
in the Tax Reform Act of 1986 and similar state provisions, may restrict the
utilization of carry forwards. A valuation allowance has been recorded for the
entire deferred tax asset as a result of uncertainties regarding the realization
of the asset due to the lack of earnings history of the Company. See Note 9 of
Notes to Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
From inception through May 1996, the Company financed its operations and met its
capital expenditure requirements primarily through the issuance of equity,
convertible debt securities and equipment term loans. In June 1996, the Company
completed its initial public offering and received proceeds from the offering of
$43,485,000 net of underwriting discounts, commissions and other offering costs.
Concurrent with the closing of the initial public offering, all outstanding
shares of its redeemable convertible preferred and convertible preferred stock
were automatically converted into shares of common stock.
For 1996 and 1995, operating activities used cash of $10,083,000 and $1,468,000,
respectively. The net cash used during these periods was primarily due to net
losses and increases in accounts receivable and other current assets, partially
offset by increases in accounts payable and accrued liabilities. For the 1996
and 1995, investing activities used net cash of $49,827,000 and $3,326,000,
respectively, primarily associated with the purchase of net short-term
investments as well as the purchase of property and equipment. Financing
activities generated cash of $62,567,000 and $5,355,000 in 1996 and 1995,
respectively, primarily from preferred stock sales, the initial public offering
in June 1996 and equipment loans.
The Company has commitments for its facilities under operating lease agreements
(see Notes 5 and 12 of Notes to Financial Statements) and expects to continue to
incur significant capital expenditures to support expansion of the Company's
business. Furthermore, from time to time the Company expects to evaluate the
acquisition of products, businesses and technologies that complement the
Company's business. The Company does not, however, currently have any
understandings, commitments or agreements with respect to any such
acquisitions.
The Company had $46,653,000 in cash, cash equivalents and short-term investments
at December 31, 1996. In March 1997, the Company entered into a four year,
$5,000,000 equipment term loan facility. The Company believes that its existing
funds will satisfy the Company's anticipated working capital and other cash
requirements through at least the next 12 months. The estimate of the period for
which the Company expects its available funds to be sufficient to meet its
capital requirements is a forward-looking statement that involves risks and
uncertainties. There can be no assurance that the Company will be able to meet
its working capital and other cash requirements for this period as a result of a
number of factors including but not limited to those described below under the
caption "Risk Factors That May Affect Future Results -- Future Capital Needs;
Uncertainty of Additional Financing." Thereafter, the Company may need to raise
additional funds. The Company may need to raise additional funds sooner,
however, in order to fund more rapid expansion, to develop new or enhance
existing services or products, to respond to competitive pressures or to acquire
complementary products, businesses or technologies. If additional funds are
raised through the issuance of equity or convertible debt securities, the
percentage ownership of the shareholders of the Company will be reduced,
shareholders may experience additional dilution and such securities may have
rights, preferences or privileges senior to those of the holders of the
Company's Common Stock. There can be no assurance that additional financing will
be available on terms favorable to the Company, or at all. If adequate funds are
not available or are not available on acceptable terms, the Company's ability to
fund expansion, take advantage of acquisition opportunities, develop or enhance
services or products or respond to competitive pressures would be significantly
limited. Such limitation could have a material adverse effect on the Company's
business, results of operations and financial condition.
6 INFOSEEK CORPORATION
<PAGE> 6
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RISK FACTORS THAT MAY AFFECT FUTURE RESULTS
In addition to the other information contained in this Report, the following
risk factors should be considered.
Limited Operating History; Anticipation of Continued Losses -- The Company has
a limited operating history, which makes it difficult to manage future
operations or predict future operating results. The Company was formed in
August 1993 and did not commence generating revenues until January 1995. The
Company has incurred significant net losses since inception and expects to
continue to incur significant losses on a quarterly and annual basis for the
foreseeable future. As of December 31, 1996, the Company had an accumulated
deficit of $20,771,000. The Company and its prospects must be considered in
light of the risks, costs and difficulties frequently encountered by companies
in their early stage of development, particularly companies in the new and
rapidly evolving Internet market. The Company has achieved only limited
revenues to date, and its ability to generate significant revenues is subject
to substantial uncertainty. There can be no assurance that the Company will be
able to address any of these challenges or will be able to sustain revenue
growth or achieve profitability. Moreover, in 1996 the Company significantly
increased its operating expenses to substantially increase its sales and
marketing operation, develop new distribution channels, broaden its customer
support capabilities and fund greater levels of research and development.
Further increases in operating expenses are planned in 1997. To the extent that
any such expenses are not subsequently and timely followed by increased
revenues, the Company's business, results of operations and financial condition
would be materially adversely affected.
Potential Fluctuations in Future Results -- As a result of the Company's limited
operating history as well as the very recent emergence of the Internet market
addressed by the Company, the Company has neither internal nor industry-based
historical financial data for any significant period of time upon which to base
planned operating expenses. The Company expects that its results of operations
may also fluctuate significantly in the future as a result of a variety of
factors, including: the continued rate of growth, usage and acceptance of the
Internet; the rate of acceptance of the Internet as an advertising medium;
demand for the Company's products and services; the advertising budgeting cycles
of individual advertisers; the introduction and acceptance of new or enhanced
products or services by the Company or by its competitors; the Company's ability
to anticipate and effectively adapt to a developing market and to rapidly
changing technologies; the Company's ability to attract, retain and motivate
qualified personnel; initiation, renewal or expiration of significant contracts
with NYNEX, Netscape or others; pricing changes by the Company or its
competitors; specific economic conditions in the Internet market; general
economic conditions and other factors. In addition, the Infoseek Network, which
was recently introduced by the Company, is expected to generate advertising
revenues that would typically carry lower gross profit margins than those
associated with advertising sold on the Company's own Web site. As a result the
Company expects that its gross margins may decline somewhat to the extent that
Network sales become material in amount. Substantially all of the Company's
revenues have been generated from the sale of advertising, and the Company
expects revenue for the foreseeable future to continue to be derived
substantially from advertising sales. Moreover, most of the Company's contracts
with advertising customers have terms of three months or less, with options to
cancel at any time. Accordingly, future sales and operating results are
difficult to forecast. The Company's expense levels are based in part on its
expectations as to future revenues and to a significant extent are relatively
fixed, at least in the short term. The Company may not be able to adjust
spending in a timely manner to compensate for any unexpected revenue shortfall.
Accordingly, any significant shortfall in relation to the Company's expectations
would have an immediate adverse impact on the Company's business, results of
operations and financial condition. In addition, the Company may elect from time
to time to make certain pricing, service or marketing decisions or acquisitions
that could have a short-term material adverse effect on the Company's business,
results of operations and financial condition and may not generate the long-term
benefits intended. Due to all of the foregoing factors, it is likely that in
some future period, the Company's operating results may be below the
expectations of public market analysts and investors. In such event, the price
of the Company's Common Stock would likely be materially adversely affected.
The Company's revenues are also dependent on it's relationship with NYNEX. In
March 1996, the Company and NYNEX entered into a one year agreement, which
provides for the Company's display of the BigYellow logo within Ultraseek.
According to the terms of the agreement, NYNEX agreed to pay to the Company up
to an aggregate of $4,600,000, in monthly payments, which amount will be
decreased proportionately if the number of impressions of the BigYellow logo is
below a specified number. NYNEX could extend the term of the agreement for
additional one year periods, with the fee to be determined based upon
Infoseek's then current advertising rate structure. In addition, NYNEX had the
right to cancel or renegotiate the agreement based upon certain relative
traffic volumes on the BigYellow and Infoseek Guide sites. In February 1997,
the Company and Nynex amended this agreement to extend its term to June 1998 in
exchange for a total of $6,000,000, in monthly payments ($2,500,000 of which
was previously paid under the terms of the original agreement) subject to
substantially the same terms and conditions as the original agreement, except
for elimination of certain exclusivity and reimbursement provisions. There can
be no assurance that the NYNEX arrangement will prove to be mutually beneficial
or that it will be continued after its amended term.
INFOSEEK CORPORATION 7
<PAGE> 7
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Developing Market; Unproven Acceptance of Internet Advertising and of the
Company's Products and Services -- The market for the Company's products and
services has only recently begun to develop, is rapidly evolving and is
characterized by an increasing number of market entrants with products and
services for use on the Internet. The Company's future success is highly
dependent upon the increased use of the Internet for information publication,
distribution and commerce. In particular, because the Company expects to derive
substantially all of its revenues in the foreseeable future from sales of
Internet advertising, the future success of the Company is highly dependent on
the development of the Internet as an advertising medium. If the market fails
to develop, develops more slowly than expected or becomes saturated with
competitors, or if the Company's products and services do not achieve or
sustain acceptance by the Internet users or advertisers, the Company's
business, results of operations and financial condition will be materially
adversely affected.
Reliance on Advertising Revenues -- The Company has derived substantially all of
its revenues to date from the sale of advertisements and expects such dependence
of advertising revenue to continue. The Company's current business model to
generate revenues through the sale of advertising on the Internet is unproven.
The Internet as an advertising medium has not been available for a sufficient
period of time to gauge its effectiveness as compared with traditional
advertising media. In addition, most of the Company's current advertising
customers have limited or no experience using the Internet as an advertising
medium, have not devoted a significant portion of their advertising expenditures
to such advertising and may not find such advertising to be effective for
promoting their products and services relative to advertising in traditional
media. In addition, the Company's advertising revenues to date have been derived
from a limited number of advertising customers. There can be no assurance that
current advertisers will continue to purchase advertising space and services
from the Company or that sufficient impressions will be achieved or available,
or that the Company will be able to successfully attract additional advertisers.
Furthermore, with the rapid growth of available inventory on the internet and
the intense competition among sellers of advertising space it is difficult to
project future levels of advertising revenues and pricing models that will be
adopted by the industry or individual companies. Accordingly, there can be no
assurance that the Company will be successful in generating significant future
advertising revenues and failure to do so will have a material adverse effect on
the Company's business, results of operations and financial condition.
8 INFOSEEK CORPORATION
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Change in Strategic Relationships -- From March 1995 through March 1996, the
Company's service was listed as the sole premier navigational service on the
Netscape Web page accessible via the "Net Search" button. In March 1996,
Infoseek entered into a new agreement with Netscape, which provides that
Infoseek will be listed as a non-exclusive premier provider of navigational
services on Netscape's Web page for the period April 10, 1996 to March 31,
1997. Currently, Netscape's Web page displays four additional premier
providers. There can be no assurance that the Company will be able to maintain
or increase its current level of traffic and any failure to do so could
materially and adversely impact advertising revenues. In addition, the Company
cannot anticipate the impact on Infoseek traffic of any changes Netscape may
make to this service, to its Web page or its other services, or the effect on
advertising revenues that may be generated from such traffic. Infoseek's
agreement with Netscape provides for payments of up to an aggregate of
$5,000,000 to Netscape over the term of the agreement. Furthermore, if traffic
is decreased significantly as a result of these or other changes in the
Netscape relationship and the Company is unable to develop alternative viable
distribution channels, advertising revenues would be adversely affected, while
the remaining $1,250,000 Netscape obligation would not be reduced, the result
being that the Company's business, results of operations and financial
condition would be materially and adversely affected. In March 1997, Infoseek
renewed its agreement with Netscape under terms which extend the current
contract through April 1997 and thereafter provide for Infoseek to be one of
five premier providers displayed on Netscape's Web page for the period of May 1,
1997 through April 30, 1998. Infoseek's agreement with Netscape provides for
payments of up to an aggregate of $12,500,000 to Netscape over the term of the
agreement.
The Company's revenues are also dependent on it's relationship with NYNEX. In
March 1996, the Company and NYNEX entered into a one year agreement, which
provides for the Company's display of the BigYellow logo within Ultraseek.
According to the terms of the agreement, NYNEX agreed to pay to the Company up
to an aggregate of $4,600,000, in monthly payments, which amount will be
decreased proportionately if the number of impressions of the BigYellow logo is
below a specified number. NYNEX could extend the term of the agreement for
additional one year periods, with the fee to be determined based upon
Infoseek's then current advertising rate structure. In addition, NYNEX had the
right to cancel or renegotiate the agreement based upon certain relative
traffic volumes on the BigYellow and Infoseek Guide sites. In February 1997,
the Company and Nynex amended this agreement to extend its term to June 1998 in
exchange for a total of $6,000,000, in monthly payments ($2,500,000 of which
was previously paid under the terms of the original agreement) subject to
substantially the same terms and conditions as the original agreement, except
for elimination of certain exclusivity and reimbursement provisions. There can
be no assurance that the NYNEX arrangement will prove to be mutually beneficial
or that it will be continued after its amended term.
Technological Changes and New Products and Services -- The market for Internet
products and services is characterized by rapid technological change, changing
customer needs, frequent new product introductions and evolving industry
standards. These market characteristics are exacerbated by the emerging nature
of this market and the fact that many companies are expected to introduce new
Internet products and services in the near future. The Company's future success
will depend on its ability to continually and on a timely basis introduce new
products, services and technologies and to continue to improve the performance,
features and reliability of the Company's products and services in response to
both evolving demands of the marketplace and competitive product offerings.
There can be no assurance that any new or proposed product or service will
attain market acceptance. Failure of the Company to successfully design,
develop, test, market and introduce new and enhanced technologies and services,
in particular, Ultraseek or any enhancements of the Company's current search
technology, or the failure of the Company's recently introduced products and
services to achieve market acceptance could have a material adverse effect upon
the Company's business, operating results and financial condition. While the
Company's Ultramatch technology is currently in beta testing and is expected to
be commercially released in 1997, this technology, which is being developed by
Aptex Software, is complex and subject to risks inherent in the development and
deployment process. There can be no assurance that the Company will not
experience difficulties that could delay or prevent the successful development,
introduction or marketing of new or enhanced technologies, products and
services, or that the Company's new or recently introduced products and services
will adequately meet the requirements of the marketplace and achieve significant
market acceptance. Due to certain market characteristics, including
technological change, changing customer needs, frequent new product and service
introductions and evolving industry standards, timeliness of introduction of
these new products and services is critical. Delays in the introduction of new
products and services may result in customer dissatisfaction and may delay or
cause a loss of advertising revenue. There can be no assurance that the Company
will be successful in developing new products or services or improving existing
products and services that respond to technological changes or evolving industry
standards, that the Company will not experience difficulties that could delay or
prevent the successful development, introduction and marketing of new or
improved products and services, or that its new products and services will
adequately meet the requirements of the marketplace and achieve market
acceptance. In addition, new or enhanced products and services introduced by the
Company may contain undetected errors that require significant design
modifications. This could result in a loss of customer confidence and user
support, thus adversely affecting the use of the Company's products and
services, which in turn would have a material adverse effect upon the Company's
business, results of operations or financial condition. If the Company is unable
to develop and introduce new or
INFOSEEK CORPORATION 9
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
improved products or services in a timely manner in response to changing market
conditions or customer requirements, the Company's business, operating results
and financial condition will be materially adversely affected.
Intense Competition -- The market for Internet products and services is highly
competitive, with no substantial barriers to entry, and the Company expects that
competition will continue to intensify. In addition, the market for the
Company's products and services has only recently begun to develop, is rapidly
evolving and is characterized by an increasing number of market entrants with
competing products and services. The Company does not believe this market will
support the increasing number of competitors and their products and services.
Although the Company believes that the diverse segments of the Internet market
may provide opportunities for more than one supplier of products and services
similar to those of the Company, it is possible that a single supplier may
dominate one or more market segments. Accordingly, any failure of the Company
to provide product and service offerings that achieve success in the short-term
could result in an insurmountable loss in market and brand acceptance, and
could, therefore, have a material adverse and long-term effect upon the
Company's business, results of operations and financial condition.
Capacity Constraints and System Failure -- A key element of the Company's
strategy is to generate a high volume of traffic to its products and services.
Accordingly, the performance of the Company's products and services is critical
to the Company's reputation, its ability to attract advertisers to the Company's
Web sites and market acceptance of these products and services. Any system
failure that causes interruptions or that increases response time of the
Company's products and services would result in less traffic to the Company's
Web sites and, if sustained or repeated, would reduce the attractiveness of the
Company's products and services to advertisers and customers. In addition, an
increase in the volume of searches conducted through the Company's products and
services could strain the capacity of the software, hardware or
telecommunications lines deployed by the Company, which could lead to slower
response time or system failures. The Company renewed its contract with Netscape
pursuant to which the Company hopes to increase its presence as a Netscape
premier provider. If the Company receives a greater share of Netscape traffic it
is possible that the capacity of the Company's hardware or software could be
exceeded and service interruptions or failures could occur. As the number of Web
pages and users increase, there can be no assurance that the Company products,
services and systems will be able to scale appropriately. The Company is also
dependent upon Web browser companies and Internet and online service providers
for access to its products and services, and users have experienced and may in
the future experience difficulties due to system or software failures or
incompatibilities not within the Company's control. The Company is also
dependent on hardware suppliers for prompt delivery, installation and service of
servers and other equipment and services used to provide its products and
services. The Company has been working to establish a duplicate Infoseek Service
site to be complete and functioning in 1997. The Company's current estimate of
the timing of the completion of this duplicate service site is a forward-looking
statement that involves risk and uncertainties. The actual timing of such
completion and the capacity of the service provided could differ materially from
that noted in this forward-looking statement as a result of certain factors,
including hardware or software difficulties and the amount of traffic on
Infoseek Service. As a result, there can be no assurance that a duplicate
service site will be operational within the time frame stated above, or at all.
In addition, any duplicate service site will create additional operational and
management complexities, including the need for continual updating and
maintenance of directory listings, possibly among geographically dispersed
network servers. Any disruption in the Internet access and service provided by
the Company or its service providers could have a material adverse effect upon
the Company's business, results of operations and financial condition.
10 INFOSEEK CORPORATION
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The process of managing advertising within large, high traffic Web sites such as
the Company's is an increasingly important and complex task. The Company relies
on internal advertising inventory management and analysis systems to provide
enhanced internal reporting and customer feedback on advertising. To the extent
that any extended failure of the Company's advertising management system results
in incorrect advertising insertions, the Company may be exposed to "make good"
obligations with its advertising customers, which, by displacing advertising
inventory, could have a material adverse effect on the Company's business,
results of operations and financial condition.
In addition, the Company's operation depends upon its ability to maintain and
protect its computer systems located in Santa Clara, California. This system is
vulnerable to damage from fire, floods, earthquakes, power loss,
telecommunications failures, break-ins and similar events. The Company does not
currently have a disaster recovery plan in effect. Despite the implementation of
network security measures by the Company, its servers are also vulnerable to
computer viruses, break-ins and similar disruptive problems. Computer viruses,
break-ins or other problems caused by third parties could lead to interruptions,
delays in or cessation of service to users of the Company's products and
services. The occurrence of any of these risks could have a material adverse
effect on the Company's business, results of operations and financial condition.
Risks Associated with International Expansion--As part of its business strategy,
the Company is seeking opportunities to expand its products and services into
international markets. The Company believes that such expansion is important to
the Company's ability to continue to grow and to market its products and
services. In marketing its products and services internationally, however, the
Company will face new competitors. In addition, the ability of the Company to
enter the international markets will be dependent upon the Company's ability to
create localized versions of its products and services. There can be no
assurance that the Company will be successful in creating localized versions of
its products and services or marketing of distributing its products abroad or
that, if the Company is successful, its international revenues will be adequate
to offset the expense of establishing and maintaining international
operations. To date, the Company has limited experience in marketing and
distributing its products internationally. In addition to the uncertainty as to
the Company's ability to establish an international presence, there are certain
difficulties and risks inherent in doing business on an international level,
such as compliance with regulatory requirements and changes in these
requirements, export restrictions, export controls relating to technology,
tariffs and other trade barriers, protection of intellectual property rights,
difficulties in staffing and managing international operations, longer payment
cycles, problems in collecting accounts receivable, political instability,
fluctuations in currency exchange rates and potentially adverse tax
consequences. There can be no assurance that one or more of such factors will
not have a material effect on any international operations established by the
Company and, consequently, on the Company's business, operating results and
financial condition.
Future Capital Needs; Uncertainty of Additional Financing--The Company currently
anticipates that its cash, cash equivalents and short term investment balances,
together with cash flows generated from advertising revenues, will be sufficient
to meet its anticipated needs for working capital, capital expenditures and
business expansion for at least the next 12 months. Thereafter, the Company may
need to raise additional funds. The Company may need to raise additional funds
sooner in order to fund more rapid expansion, to develop new or enhanced
services or products, to respond to competitive pressures or to acquire
complementary products, businesses or technologies. If additional funds are
raised through the issuance of equity or convertible debt securities, the
percentage ownership of the shareholders of the Company will be reduced,
shareholders may experience additional dilution and such securities may have
rights, preferences or privileges senior to those of the holders of the
Company's Common Stock. There can be no assurance that additional financing will
be available on terms favorable to the Company, or at all. If adequate funds are
not available or are not available on acceptable terms, the Company may not be
able to fund its expansion, take advantage of unanticipated acquisition
opportunities, develop or enhance services or products or respond to competitive
pressures. Such inability could have a material adverse effect on the Company's
business, results of operations and financial condition.
INFOSEEK CORPORATION 11
<PAGE> 11
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------
(In thousands, except per share amounts) 1996 1995 1994
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Advertising $ 14,951 $ 849 $ --
Subscription 144 183 --
---------------------------------
Total revenues 15,095 1,032 --
Cost of revenues 3,194 614 --
---------------------------------
Gross profit 11,901 418 --
Operating expenses:
Research and development 4,550 1,175 1,063
Sales and marketing 20,455 1,488 97
General and administrative 4,177 1,148 360
---------------------------------
Total operating expenses 29,182 3,811 1,520
---------------------------------
Operating loss (17,281) (3,393) (1,520)
Interest income (expense):
Interest income 1,771 115 15
Interest expense (428) (18) (5)
---------------------------------
1,343 97 10
Net loss $(15,938) $(3,296) $(1,510)
=================================
Net loss per share (Pro forma in 1995) $ (0.73) $ (0.13)
=======================
Shares used in computing net loss per share (Pro forma in 1995) 21,737 25,863
=======================
</TABLE>
See accompanying notes.
12 INFOSEEK CORPORATION
<PAGE> 12
BALANCE SHEETS
<TABLE>
<CAPTION> Years Ended December 31,
-------------------------
(In thousands) 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 3,786 $1,129
Short-term investments 42,867 497
Accounts receivable, less allowance for doubtful
accounts of $350 in 1996 and $42 in 1995 2,428 499
Other current assets 371 111
------------------------
Total current assets 49,452 2,236
Property and equipment:
Computer and office equipment 9,651 3,103
Furniture and fixtures 307 85
Leasehold improvements 108 22
------------------------
10,066 3,210
Less accumulated depreciation and amortization 2,479 398
------------------------
Net property and equipment 7,587 2,812
Purchased technology, net of accumulated amortization -- 75
Deposits and other assets 1,293 --
------------------------
Total assets $58,332 $5,123
========================
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 3,269 $1,223
Accrued payroll and related expenses 1,362 70
Accrued royalties 311 36
Other accrued liabilities 759 576
Deferred revenue 760 --
Short-term obligations 994 238
------------------------
Total current liabilities 7,455 2,143
Long-term obligations 1,757 688
Maintenance fees due third parties 135 150
Commitments
Shareholders' equity:
Preferred stock, no par value:
Authorized shares -- 5,000
No shares issued and outstanding -- --
Convertible preferred stock, no par
value:
Authorized shares -- none in 1996, 27,890 in 1995
Issued and outstanding shares -- none in 1996,
15,580 in 1995 -- 6,695
Common stock, no par value:
Authorized shares -- 60,000
Issued and outstanding shares - 25,691 in 1996,
4,000 in 1995 73,754 2,410
Accumulated deficit (20,771) (4,833)
Deferred compensation (3,546) (2,080)
Notes receivable from shareholders (452) (50)
------------------------
Total shareholders' equity 48,985 2,142
------------------------
Total liabilities and shareholders' equity $58,332 $5,123
========================
</TABLE>
See accompanying notes.
INFOSEEK CORPORATION 13
<PAGE> 13
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Convertible
Preferred Stock Common Stock
(In thousands) ---------------------- ---------------------- Accumulated
Shares Amount Shares Amount Deficit
----------- --------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1993 -- $ -- -- $ -- $ (27)
Issuance of common stock to founders -- -- 3,780 38 --
Issuance of Series A convertible preferred
stock for cash and conversion of note
payable, net of issuance costs 6,826 900 -- -- --
Issuance of Series B convertible preferred
stock for cash, net of issuance cost 2,595 1,120 -- -- --
Exercise of common stock options -- -- 3 -- --
Net loss -- -- -- -- (1,510)
------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1994 9,421 2,020 3,783 38 (1,537)
Issuance of Series A preferred stock for
purchased technology 559 224 -- -- --
Repurchase of common stock from founder -- -- (155) (2) --
Issuance of Series C convertible preferred
stock for cash, net of issuance costs 5,600 4,430 -- -- --
Issuance of warrants for shares of Series C
convertible preferred stock -- 21 -- -- --
Issuance of common stock to employee
for note receivable -- -- 372 50 --
Unearned compensation related to stock options -- -- -- 2,124 --
Amortization of unearned compensation
related to stock options -- -- -- -- --
Fair value assigned to services provided by Netscape -- -- -- 200 --
Net loss -- -- -- -- (3,296)
------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1995 15,580 6,695 4,000 2,410 (4,833)
Cancellation of Series A preferred stock
issued for purchased technology (280) -- -- -- --
Unearned compensation related to stock options -- -- -- 3,102 --
Amortization of unearned compensation
related to stock options -- -- -- -- --
Issuance of Series E convertible preferred
stock for cash, net of issuance costs 2,267 17,619 -- -- --
Repurchases of common stock -- -- (325) (3) --
Issuance of common stock to officer -- -- 375 300 --
Issuance of common stock to officers
for notes receivable -- -- 412 610 --
Cancellation of note receivable and repurchase
of shares -- -- (365) (470) --
Payment on shareholders' notes receivable -- --
Conversion of preferred stock into common
stock upon the initial public offering (17,567) (24,314) 17,567 24,314 --
Issuance of common stock in connection
with initial public offering, net of
issuance costs -- -- 3,973 43,485 --
Exercise of common stock options -- -- 54 6 --
Net loss -- -- -- -- (15,938)
------------------------------------------------------------------
Balance at December 31, 1996 -- $ -- 25,691 $ 73,754 $(20,771)
==================================================================
</TABLE>
<TABLE>
<CAPTION>
Notes Total
Receivable Shareholders'
Deferred From Equity
Compensation Shareholders (Deficit)
------------ ------------ -------------
<S> <C> <C> <C>
BALANCE AT DECEMBER 31, 1993 $ -- $ -- $ (27)
Issuance of common stock to founders -- -- 38
Issuance of Series A convertible preferred
stock for cash and conversion of note
payable, net of issuance costs -- -- 900
Issuance of Series B convertible preferred
stock for cash, net of issuance cost -- -- 1,120
Exercise of common stock options -- -- --
Net loss -- -- (1,510)
---------------------------------------
BALANCE AT DECEMBER 31, 1994 -- -- 521
Issuance of Series A preferred stock for
purchased technology -- -- 224
Repurchase of common stock from founder -- -- (2)
Issuance of Series C convertible preferred
stock for cash, net of issuance costs -- -- 4,430
Issuance of warrants for shares of Series C
convertible preferred stock -- -- 21
Issuance of common stock to employee
for note receivable -- (50) --
Unearned compensation related to stock options (2,124) -- --
Amortization of unearned compensation
related to stock options 44 -- 44
Fair value assigned to services provided by Netscape -- -- 200
Net loss -- -- (3,296)
---------------------------------------
BALANCE AT DECEMBER 31, 1995 (2,080) (50) 2,142
Cancellation of Series A preferred stock
issued for purchased technology -- -- --
Unearned compensation related to stock options (3,102) -- --
Amortization of unearned compensation
related to stock options 1,346 -- 1,346
Issuance of Series E convertible preferred
stock for cash, net of issuance costs -- -- 17,619
Repurchases of common stock -- -- (3)
Issuance of common stock to officer -- -- 300
Issuance of common stock to officers
for notes receivable -- (610) --
Cancellation of note receivable and repurchase
of shares 290 180 --
Payment on shareholders' notes receivable -- 28 28
Conversion of preferred stock into common
stock upon the initial public offering -- -- --
Issuance of common stock in connection
with initial public offering, net of
issuance costs -- -- 43,485
Exercise of common stock options -- -- 6
Net loss -- -- (15,938)
----------------------------------
BALANCE AT DECEMBER 31, 1996 $(3,546) $(452) $ 48,985
==================================
</TABLE>
See accompanying notes
14 INFOSEEK CORPORATION
<PAGE> 14
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------------
(In thousands) 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating activities
Net loss $(15,938) $(3,296) $(1,510)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 2,157 438 109
Amortization of unearned compensation related to stock options 1,347 44 --
Amortization of warrants issued in connection with term loan -- 21 --
Fair value assigned to services provided by Netscape -- 200 --
Changes in operating assets and liabilities
Accounts receivable (1,929) (499) --
Other current assets (260) (92) 51
Accounts payable 2,047 1,211 (57)
Accrued payroll and related expenses 1,291 67 4
Accrued royalties 275 36 --
Other accrued liabilities 182 462 114
Deferred revenue 760 -- --
Maintenance fees due third parties (15) (60) 210
----------------------------------------------
Net cash used in operating activities (10,083) (1,468) (1,079)
Investing activities
Purchase of available-for-sale investments (92,966) (2,483) --
Proceeds from sales of available-for-sale investments 50,596 1,986 --
Issuance of note receivable (600) -- --
Purchase of property and equipment (6,857) (2,829) (310)
----------------------------------------------
Net cash used in investing activities (49,827) (3,326) (310)
Financing activities
Term loan 2,573 967 --
Repayments of term loan (748) (40) --
Issuance of note payable -- -- 380
Payment of deposit on term loan (693) -- --
Repayment of note payable -- -- (57)
Proceeds from sale of convertible preferred stock, net of issuance costs 17,619 4,430 1,420
Proceeds from sale of common stock, net of issuance costs 43,785 -- 37
Proceeds from the exercise of stock options 6
Proceeds from repayment of notes receivable from shareholders 28 -- --
Repurchase of common stock (3) (2) --
----------------------------------------------
Net cash provided by financing activities 62,567 5,355 1,780
----------------------------------------------
Net increase in cash and cash equivalents 2,657 561 391
Cash and cash equivalents at beginning of period 1,129 568 177
----------------------------------------------
Cash and cash equivalents at end of period $ 3,786 $ 1,129 $ 568
==============================================
</TABLE>
Supplemental schedule of noncash investing and financing activities
Unearned compensation related to stock options amounted to $3,102 and $2,124 for
the years ended December 31, 1996 and 1995, respectively. Cash paid for interest
expense amounted to $428 and $18 in 1996 and 1995, respectively.
See accompanying notes.
INFOSEEK CORPORATION 15
<PAGE> 15
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization Infoseek (the "Company") develops and provides branded,
comprehensive Web-based navigational services that help users access and
personalize the vast resources of the Internet. The Infoseek Service is a free
service targeted at individual business and consumer users. The Company believes
that the Infoseek Service goes beyond the functionality offered by other search
engines and directory services, by aggregating and packaging the resources of
the Internet to serve the unique and personal interests of each user and create
a rich Internet experience. Infoseek's search engine is able to deliver high
accuracy due to its sophisticated technology that is able to respond to "natural
language" queries.
Cash, Cash Equivalents and Short-Term Investments Cash and Cash Equivalents --
The Company considers all highly liquid debt instruments which are purchased
with a maturity of three months or less to be cash equivalents.
Short-Term Investments -- The Company accounts for investments in accordance
with Financial Accounting Standards Board, Statement No. 115, "Accounting for
Certain Investments in Debt and Equity Securities." Management determines the
appropriate classification of debt securities at the time of purchase and
reevaluates such designation as of each balance sheet date. The Company's
short-term investments, which consist primarily of commercial paper and
government agency notes with maturities of one year or less, are classified as
available-for-sale, and as such, are carried at fair value with the unrealized
gains and losses, net of tax, reported in a separate component of shareholders'
equity. The amortized cost of debt securities in this category is adjusted for
amortization of premiums and accretion of discounts to maturity. Such
amortization, as well as any interest on the securities, is included in interest
income. Realized gains and losses and declines in value judged to be
other-than-temporary on available-for-sale securities are included in interest
income (expense). The cost of securities sold is based on the specific
identification method. The Company had no investments in equity securities at
December 31, 1996 and 1995.
Property and Equipment Property and equipment are carried at cost less
accumulated depreciation. The Company depreciates property and equipment using
the straight-line method over the estimated useful lives of three to five years.
Leasehold improvements are amortized using the straight-line method over the
shorter of the life of the related asset or the term of the lease.
Research and Development Research and development expenditures are generally
charged to operations as incurred. Financial Accounting Standards Board,
Statement No. 86, "Accounting for the Costs of Computer Software to be Sold,
Leased or Otherwise Marketed," requires the capitalization of certain software
development costs subsequent to the establishment of technological feasibility.
In the Company's case, capitalization would begin upon completion of a working
model as the Company does not prepare detail program designs as part of the
development process. As of December 31, 1996 and 1995, such capitalizable costs
were insignificant.
Stock-Based Compensation The Company has elected to follow Accounting
Principles Board Opinion No. 25 (APB 25), "Accounting of Stock Issued to
Employees" and related interpretations, in accounting for its employee stock
options because, as discussed below, the alternative fair value accounting
provided for under Financial Accounting Standards Board, Statement No. 123 (SFAS
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, with the exception of certain options granted during 1996 and 1995 as
discussed in Note 7, because 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 expense is recognized.
Long-Lived Assets In 1995, the Financial Accounting Standards Board released
the Statement No. 121 (SFAS 121), "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of." SFAS 121 requires
recognition of impairment of long-lived assets in the event the net book value
of such assets exceeds the future undiscounted cash flows attributable to such
assets. SFAS 121 has not had a material impact on the financial statements of
the Company.
16 INFOSEEK CORPORATION
<PAGE> 16
NOTES TO FINANCIAL STATEMENTS
Revenue Recognition The Company's advertising revenues are derived principally
from short-term advertising contracts in which the Company guarantees a minimum
number of impressions for a fixed fee. Advertising revenues are recognized
ratably over the term of the contract provided that the monthly minimum
impressions are met, the Company does not have any remaining significant
obligations, and collection of the resulting receivable is probable. To the
extent the minimum guaranteed impressions are not met, the Company defers
recognition of the revenue until guaranteed impressions levels are met.
In March 1996 the Company entered into an agreement with NYNEX (a related party,
see Note 11), which was subsequently amended, whereby the Company displays
NYNEX's Big Yellow logo within Ultraseek. The agreement is for a total of
$6,000,000 in monthly payments and runs through May 1998. The Company is
recognizing revenue in connection with this agreement on a straight line basis
over the term of the agreement.
Also included in advertising revenues is the exchange by the Company of
advertising space on the Company's Web sites for reciprocal advertising space in
other media publications or other Web sites or receipt of applicable goods and
services. Revenues from these exchange transactions are recorded as advertising
revenue at the estimated fair value of the goods and services received and are
recognized when both the Company's advertisements and the reciprocal
advertisements are run, or goods or services are received. Advertising revenues
recognized under these trading activities were insignificant during all periods
presented.
The Company has also derived revenues during 1996 and 1995 from fees related to
a premium subscription service offered to business and professional users.
Revenues from this service are recognized over the period the services are
provided. During the third quarter of 1996, the Company discontinued this
service.
Advertising Costs Advertising costs are recorded as an expense as incurred.
Advertising costs amounted to $4,498,000 for the year ended December 31, 1996.
There were no advertising costs for the years ended December 31, 1995 and 1994.
The Company does not incur any significant direct response advertising costs.
Concentration of Credit Risk Financial instruments that potentially subject
the Company to concentrations of credit risk consist primarily of cash
equivalents, short-term investments, and trade receivables. The Company places
its cash equivalents and short-term investments with high-quality financial
institutions. Through December 31, 1996 the Company invested its excess cash in
commercial paper. The Company operates in one business segment and sells
advertising to various companies across several industries. The Company
generally does not require collateral. The Company maintains allowances for
credit losses, and such losses have been within management's expectations. For
the year ended December 31, 1996, one customer (a related party, see Note 11)
accounted for 13% of revenues. For the year ended December 31, 1995, another
customer accounted for 13% of revenues.
Net Loss Per Share The 1996 net loss per share is computed using the weighted
average number of shares of common stock outstanding. Pursuant to the Securities
and Exchange Commission Staff Accounting Bulletins, convertible preferred stock,
redeemable convertible preferred stock, common stock and common equivalent
shares (options and warrants) issued by the Company at prices below the assumed
public offering price during the twelve-month period prior to the offering have
been included in the calculation through March 31, 1996 as if they were
outstanding for all periods presented regardless of whether they are
antidilutive (using the treasury
INFOSEEK CORPORATION 17
<PAGE> 17
NOTES TO FINANCIAL STATEMENTS
stock method at the public offering price). Net loss per share calculated on
this basis for the years ended December 31, 1995 and 1994 was ($0.20) and
($0.10) based upon 16,163,000 and 15,791,000 shares, respectively. Net loss for
the year ended December 31, 1994 has not been presented in the accompanying
statements of operations pursuant to Securities and Exchange Commission
guidelines.
Pro forma and supplemental net loss per share Pro forma net loss per share for
the year ended December 31, 1995 has been computed as described above and
also gives effect, even if antidilutive, to common equivalent shares from
preferred stock that automatically converted upon the closing of the Company's
initial public offering (using the as-if-converted method). Supplemental net
loss per share would have been $0.63 for the year ended December 31, 1996,
assuming the convertible preferred stock was converted at the beginning of the
second quarter.
Use of Estimates in the Preparation of Financial Statements The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements as well as the reported
amounts of revenue and expenses during the reporting period. Actual results
inevitably will differ from those estimates, and such differences may be
material to the financial statements.
2. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following estimated fair value amounts have been determined by the Company
using available market information and appropriate valuation methodologies.
However, considerable judgment is required in interpreting market data to
develop the estimates of fair value. Accordingly, the estimates presented herein
are not necessarily indicative of the amounts that the Company could realize in
a current market exchange.
<TABLE>
<CAPTION>
At December 31, 1996
Cash equivalents and -------------------------------------------------
short-term investments (In thousands) Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
--------------------------------------------------
<S> <C> <C> <C> <C>
Commercial paper $27,588 $ -- $ -- $ 27,588
Government agency notes 15,279 -- -- 15,279
Money market fund 1,947 -- -- 1,947
--------------------------------------------------
Total $44,814 $ -- $ -- $ 44,814
==================================================
</TABLE>
Cash equivalents and short-term investments at December 31, 1995 consisted
primarily of money market funds and treasury bills. At December 31, 1995, the
fair market value of cash equivalents and short-term investments approximated
cost. Realized gains and losses were insignificant during all periods presented.
3. PURCHASED TECHNOLOGY
The Company exchanged 559,000 shares of its Series A convertible preferred stock
to license certain technology from ACSIOM under an amended July 1994 Software
Development and Licensing Master Agreement ("ACSIOM Agreement"). In March 1996,
280,000 shares of the previously issued Series A convertible preferred stock
were cancelled under terms contained in the ACSIOM Agreement. The value assigned
to the Series A convertible preferred stock of $224,000 was amortized over 18
months ending June 30, 1996. Amortization expense for the year ended December
31, 1996 and 1995 was $75,000 and $149,000, respectively.
18 INFOSEEK CORPORATION
<PAGE> 18
NOTES TO FINANCIAL STATEMENTS
4. OBLIGATIONS
In 1995 and 1996, the Company entered into term loan agreements with a lending
institution under which the Company borrowed approximately $3,540,000 to finance
the purchase of equipment. Borrowings made under the agreement are due over 37
months, bear interest which ranges from 15.80% to 16.39%, and are secured by
certain assets of the Company. In connection with the 1996 loan agreement, the
Company paid a cash deposit of $693,000 to the lending institution.
Maturities under these agreements as of December 31, 1996 are as follows:
<TABLE>
<CAPTION>
December 31,
(In thousands) 1996
- ----------------------------------------------------------------------------
<S> <C>
1997 $ 994
1998 1,270
1999 487
-------
$2,751
=======
</TABLE>
5. COMMITMENTS
The Company leases its facilities under operating lease agreements which expire
at various dates through 2004. Total rent expense for the years ended December
31, 1996, 1995 and 1994 was $379,000, $86,000 and $50,000, respectively. Minimum
future rental commitments under these leases as of December 31, 1996 are as
follows:
<TABLE>
<CAPTION>
December 31,
(In thousands) 1996
- ---------------------------------------------------------------------------
<S> <C>
1997 $ 543
1998 469
1999 260
2000 196
2001 143
Thereafter 74
------
$1,685
======
</TABLE>
Historically, a large portion of the Company's traffic was derived through the
Web page of Netscape Communications Corporation ("Netscape"). In March 1996,
Infoseek entered into an agreement with Netscape, which provides that Infoseek
will be listed as a Premier Provider on Netscape's Web page for the period from
April 10, 1996 to March 31, 1997. This agreement with Netscape provides for
payments of up to an aggregate of $5,000,000 to Netscape over the course of the
term of the agreement. The payments to Netscape are being recognized ratably
over the term of the agreement. At December 31, 1996, the Company has a
$1,250,000 commitment remaining in connection with this agreement. In March
1997, Infoseek renewed its agreement with Netscape under terms which extend the
current contract through April 1997 and thereafter provide for Infoseek to be
one of five premier providers displayed on Netscape's Web page for the period of
May 1, 1997 through April 30, 1998. Infoseek's agreement with Netscape provides
for payments of up to an aggregate of $12,500,000 to Netscape over the term of
the agreement. See Note 12.
INFOSEEK CORPORATION 19
<PAGE> 19
NOTES TO FINANCIAL STATEMENTS
6. SHAREHOLDERS' EQUITY
Convertible Preferred Stock Through May of 1996 the Company issued Series A
through E convertible preferred stock. A portion of the Series E convertible
preferred stock was redeemable at the request of the holder. On June 11, 1996
the Company completed its initial public offering and at that time all
outstanding shares of convertible preferred stock were converted into common
stock on a one-for-one basis.
Preferred Stock On May 15, 1996, the Board of Directors authorized 5,000,000
shares of undesignated preferred stock. In connection with this action, the
Board has the authority to issue in one or more series and to fix the rights,
preferences, privileges, and restrictions thereof, without further vote or
action by the shareholders. No such shares have been issued to date.
Common Stock On May 15, 1996, the Company's Shareholders approved a 3-for-4
reverse stock split of the Company's preferred and common stock. All outstanding
preferred, common and common equivalent shares in the accompanying financial
statements have been retroactively adjusted to give effect to this reverse stock
split. At the same time, the Board of Directors approved the increase of
authorized common stock to 60,000,000 shares.
Founders' Common Stock The Company has the right, at any time within sixty
days after termination of a founder's employment or service, to repurchase
certain common shares at the price per share paid by the founder. The Company's
right to repurchase lapses with respect to 25% of the total number of shares
held by the founder, commencing twelve months after purchase, and in monthly
increments of 2.08% of the total number of shares thereafter. There were
1,101,000 and 1,629,000 common shares subject to repurchase by the Company at
December 31, 1996 and 1995, respectively.
Shareholders' Notes Receivable During 1996 and 1995, the Company entered into
agreements with certain officers and an employee to sell 412,000 and 372,000
shares, respectively, of the Company's common stock in exchange for full
recourse promissory notes. The shares are subject to repurchase by the Company,
and such repurchase options lapse in monthly increments of 2.08% of the total
number of shares purchased. At December 31, 1996 and 1995, there were 504,000
and 372,000 common shares, respectively, subject to repurchase by the Company.
Warrants During 1995, in connection with an equipment financing transaction,
the Company issued warrants to purchase 100,000 shares of Series C convertible
preferred stock at an exercise price of $0.80 per share. These warrants are
exercisable at any time through October 2000. As of December 31, 1996, no
warrants had been exercised. The Company has recorded an insignificant amount of
additional interest expense using the minimum value method to determine the
value of the warrant.
Common Stock Reserved For Future Issuance Shares of common stock reserved for
future issuance are as follows:
<TABLE>
<CAPTION>
December 31,
(In thousands) 1996
- --------------------------------------------------------------------------
<S> <C>
Convertible preferred stock 5,000
Warrants 100
Stock option plan 655
-----
5,755
=====
</TABLE>
20 INFOSEEK CORPORATION
<PAGE> 20
NOTES TO FINANCIAL STATEMENTS
7. STOCK OPTION/STOCK ISSUANCE PLAN
The Company's Stock Option Plan (the "Predecessor Plan") provides for the grant
of incentive stock options and non statutory stock options to employees and
consultants of the Company at prices ranging from 85% to 110% (depending on the
type of grant) of the fair market value of the common stock on the date of grant
as determined by the Board of Directors.
In April 1996, the Board of Directors adopted the 1996 Stock
Option/Stock Issuance Plan (the "1996 Plan") which was approved by the
Company's shareholders on May 15, 1996. The 1996 Plan is intended to serve as
the successor equity incentive stock issuance program to the Predecessor Plan.
Under the 1996 Plan, 5,625,000 shares of common stock have been authorized for
issuance. In February 1997, the Board of Directors, subject to shareholders'
approval, approved an increase of 1,600,000 shares to the 1996 Plan. This share
reserve consists of (i) the shares which remained available for issuance under
the Predecessor Plan, including the shares subject to outstanding options
thereunder and the shares otherwise available for future grant, plus (ii) an
additional increase. The 1996 Plan is divided into three separate components:
the Discretionary Option Grant Program under which eligible individuals may be
granted options to purchase shares of common stock at an exercise price of not
less than 85% of their fair market value on the grant date, the Stock Issuance
Program under which eligible individuals may be issued shares of common stock
directly through the purchase of such shares at a price of not less than 85% of
their fair market value at the time of issuance or as a bonus tied to the
performance of services and the Automatic Option Grant Program under which
option grants will automatically be made at periodic intervals to eligible non
employee Board members to purchase shares of common stock at an exercise price
equal to 100% of their fair market value on the grant date.
The vesting and exercise provisions of the option grants are determined by the
Board of Directors. Options generally vest and become exercisable as to 25% of
the shares one year from the date of grant and the balance in monthly increments
over the subsequent three years of service. Options expire no later than seven
years from the date of grant. Options for the purchase of 845,000 and 155,000
shares were exercisable as of December 31, 1996 and 1995, respectively.
The Company has elected to follow APB 25 and related Interpretation in
accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under SFAS 123, "Accounting for
Stock-Based Compensation," requires use of option valuation models that were not
developed for use in valuing stock options. Under APB 25, because the exercise
price of the Company's stock option equals the market price of the underlying
stock on the date of grant, no compensation expense, other than deferred
compensation, see discussion below, is recognized.
During 1996 and 1995, the Company recorded aggregate deferred compensation of
$5,226,000 representing the difference between the grant price and the deemed
fair value of the Company's common stock granted during those periods. The
amortization of deferred compensation is being charged to operations and is
being amortized over the vesting period of the options, which is typically four
years. For 1996 and 1995, the amortized expenses were $1,346,000 and $44,000,
respectively.
Pro forma information regarding net loss and loss per share is required by SFAS
123, which also requires that the information be determined as if the Company
has accounted for its employee stock options granted subsequent to December 31,
1994 under the fair value method of this statement. The fair value for options
granted subsequent to the Company's initial public offering in June 1996 were
estimated at the date of grant using a Black-Scholes multiple option pricing
model with the following weighted average assumptions: risk-free interest rate
ranging from 5.18% to 6.58% in 1996 and 5.34% to 7.03% in 1995; a dividend yield
of 0.0%; a volatility factor of the expected market price of the Company's
common stock of .80; and a weighted-average expected life of the option of five
years for officers and four years for non officers. The fair value for options
granted prior to the Company's initial public offering in June 1996 were
estimated at the date of grant using the minimum value method and have a
volatility factor of zero.
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 models require the input of highly subjective
assumptions including the
INFOSEEK CORPORATION 21
<PAGE> 21
NOTES TO FINANCIAL STATEMENTS
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 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.
Had compensation cost for the Company's stock-based compensation plans been
determined based on the fair value at the grant dates for awards under those
plans consistent with the method of SFAS 123, the Company's net loss and loss
per share would have been increased to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
(In thousands, except per share data) 1996 1995
- -------------------------------------------------------------------------
<S> <C> <C>
Pro forma net loss $17,328 $3,442
Pro forma loss per share $ 0.80 $ 0.13
</TABLE>
Because SFAS 123 is applicable only to options granted subsequent to December
31, 1994, its pro forma effect will not be fully reflected until 1999.
A summary of the Company's stock option activity and related information for the
years ended December 31 is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------------------------------------- ------------------------ ----------------
Weighted-Average Weighted-Average Weighted-Average
(In thousands, except per share data) Options Exercise Price Options Exercise Price Options Exercise Price
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding - beginning of year 3,074 $0.13 165 $0.07 -- $ --
Granted 2,851 $3.98 3,438 $0.13 186 $ 0.06
Exercised (54) $0.11 -- -- -- --
Canceled (957) $1.51 (529) $0.11 (20) $ 0.03
Outstanding - end of year 4,914 $2.10 3,074 $0.13 165 $ 0.07
Exercisable at end of year 845 $0.35 155 $0.13
Weighted-average fair value of
options granted during the year $3.79 $0.40
-----------------------------------------------------------------------
</TABLE>
Outstanding and Exercisable By Price Range as of December 31, 1996:
(In thousands, except per share data)
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- ----------------------------------------------------------------------- --------------------------------------------------------
Weighted Average
Remaining Number
Number Outstanding Contractual Weighted Average Exercisable as of Weighted Average
Range of Exercise Prices as of December 31, 1996 Life Exercise Price December 31, 1996 Exercise Price
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$0.000 - 1.000 3,051 5.9 $ 0.19 757 $0.14
$1.001 - 3.000 528 6.1 $ 1.33 62 $1.33
$3.001 - 5.000 529 6.2 $ 4.00 26 $4.00
$ 5.00 - 10.000 754 6.6 $ 8.45 -- --
$10.001 - 15.000 52 6.8 $10.13 -- --
---------------------------------------------------------------------------------------------
4,914 6.0 $ 2.10 845 $0.35
---------------------------------------------------------------------------------------------
</TABLE>
22 INFOSEEK CORPORATION
<PAGE> 22
NOTES TO FINANCIAL STATEMENTS
8. EMPLOYEE STOCK PURCHASE PLAN
In April 1996, the Board of Directors adopted the 1996 Employee Stock Purchase
Plan (the "Purchase Plan"), which is designed to allow eligible employees of the
Company to purchase shares of common stock at semiannual intervals through their
periodic payroll deductions. The Company's shareholders approved the Purchase
Plan on May 15, 1996. An aggregate of 187,500 shares of common stock has been
reserved for the Purchase Plan. The Purchase Plan will be implemented in a
series of successive offering periods, each with a maximum duration of 24
months. Eligible employees can have up to 10% (up to a maximum of 1,000 shares
per year) of their base salary deducted that is to be used to purchase shares of
the common stock on specific dates determined by the Board of Directors. The
price of common stock purchased under the Purchase Plan will be equal to 85% of
the lower of the fair market value of the common stock on the commencement date
of each offering period or the specified purchase date. The Company does not
recognize compensation cost related to employee purchase rights under the Plan.
To comply with the pro forma reporting requirements of SFAS 123, compensation
cost is estimated for the fair value of the employees' purchase right using the
Black-Scholes model with the following assumptions (incorporated in the pro
forma information provided in Note 7) for those rights granted in 1996: a risk
free interest rate of 5.0%; dividend yield of 0.0%; expected volatility factor
of .80; an expected life of two years.
INCOME TAXES
Due to the Company's loss position, there was no provision for income taxes for
any period presented.
As of December 31, 1996, the Company has federal and state net operating loss
carry forwards of approximately $20,200,000 and $7,100,000, respectively. The
federal net operating loss carry forwards will expire in the years 2009 through
2011, and the state net operating loss carry forwards will expire in the years
1999 through 2001. The Company has federal and state research and
experimentation credits of approximately $100,000 each, that will expire in the
years 2009 through 2011. Utilization of the net operating losses and credits may
be subject to a substantial annual limitation due to the ownership change
limitations provided by the Internal Revenue Code of 1986 and similar state
provisions. The annual limitation may result in the expiration of net operating
losses and credits before utilization.
Deferred taxes reflect the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes. Significant components of the
Company's deferred taxes consisted of the following at:
<TABLE>
<CAPTION>
December 31,
--------------------------
(In thousands) 1996 1995
- --------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Net operating losses $ 7,500 $ 1,382
Research credit carry forwards 200 42
Accrued royalties 60 83
Other individually immaterial items 340 184
------- -------
Total deferred tax assets 8,100 1,691
Valuation allowance (8,100) (1,691)
------- -------
Total net deferred tax assets $ -- $ --
======= =======
</TABLE>
The change in the valuation allowance was a net increase of approximately
$1,030,000 for the year ended December 31, 1995.
INFOSEEK CORPORATION 23
<PAGE> 23
NOTES TO FINANCIAL STATEMENTS
10. EMPLOYEE BENEFIT PLAN
In January 1996, the Company adopted a plan to provide retirement and incidental
benefits for its eligible employees, known as the Infoseek Corporation 401(k)
Plan. As allowed under Section 401(k) of the Internal Revenue Code, the plan
provides tax-deferred salary deductions for eligible employees. Participants in
the Plan may make salary deferrals of up to 20% of their annual salary, limited
by the maximum dollar amount allowed by the Internal Revenue Code. The Company,
at its discretion, may elect to make contributions to the Plan on behalf of its
eligible participants. The Company has made no such contributions to date.
11. RELATED PARTY TRANSACTIONS
NYNEX, with a representative on the Company's Board of Directors and ownership
of a substantial amount of the outstanding common stock of the Company is
considered a related party. In March 1996, the Company and NYNEX entered into a
one-year agreement, which provides for the Company's display of the BigYellow
logo, within Ultraseek. According to the terms of the agreement, NYNEX agreed to
pay to the Company up to an aggregate of $4,600,000, in monthly payments. The
Company recognized revenue of $1,882,000 in connection with this agreement
during the year ended December 31, 1996. Amounts receivable from and payable to
such related party were immaterial at December 31, 1996 and 1995. See Note 12.
12. SUBSEQUENT EVENTS
In February of 1997, the Company signed a lease agreement for a 48,000 square
feet facility. In connection with this agreement the Company must take an
additional 13,500 square feet after the first six months and has an option to
add additional space up to a total of 93,000 square feet at this facility. This
facility will be the corporate headquarters and will allow the Company to
consolidate all current corporate facilities into one location. Minimum future
rental commitments under this lease are $768,000 in 1997 and $1,152,000 per year
through 2002.
In February of 1997, the Company has signed an amendment with NYNEX extending
the term of the original agreement through June 1998 in exchange for an
additional $1,400,000 for a total of up to $6,000,000, in monthly payments,
subject to substantially the same terms and conditions as the original
agreement, except for elimination of certain exclusivity and reimbursement
provisions.
In March 1997, the Company and Hoover's, Inc. ("Hoover's") entered into a
strategic agreement which integrates Hoover's Company Information Service and
the Infoseek Service. As part of this relationship, the Company made an equity
investment of $750,000 in Hoover's and received warrants for an equal amount of
Hoover's common stock. The Company has also agreed to make available to Hoover's
a revolving credit loan of up to $250,000. Beginning in March 1997 the Company
will be the exclusive advertising provider to Hoover's advertising- and
subscriber-supported Web sites, including Hoover's Online, IPO Central and
Cyberstocks and is required to pay certain monthly minimums to Hoover's during
the term of the contract. In addition, Infoseek will represent advertising sales
on the Hoover's Business Resource site provided through America Online.
In March 1997 Infoseek and Cable News Network ("CNN") formed a partnership to
feature the Infoseek Service exclusively on CNN's three Web sites -- CNN
Interactive, CNNfn Interactive and AllPolitics -- giving users the ability to
search instantly within CNN's sites or the entire Web for additional information
related to a news story. Under the terms of the agreement, which requires
certain minimum payments over the one year term, an Infoseek button will be
prominently featured on all pages of each of CNN's sites. In addition, most CNN
news stories will include an option to instantly search the Internet, using the
Infoseek Service, for information
24 INFOSEEK CORPORATION
<PAGE> 24
NOTES TO FINANCIAL STATEMENTS
related to the article's subject. As part of the agreement, CNN will also use
Infoseek's search technology within the CNN sites to allow users to search CNN
Interactive, CNNfn Interactive and AllPolitics, and future CNN and Turner
Entertainment Web sites will also feature Infoseek's search and navigation
services.
In March 1997, Infoseek renewed its agreement with Netscape under terms which
extend the current contract through April 1997 and thereafter provides for
Infoseek to be one of five premier providers displayed on Netscape's Web page
for the period of May 1, 1997 through April 30, 1998. Infoseek's agreement with
Netscape provides for payments of up to an aggregate of $12,500,000 to Netscape
over the term of the agreement.
In March 1997, the Company entered into a four year, $5,000,000 equipment term
facility. The loan will bear interest at the bank's prime rate plus 0.25%. Under
the terms of the agreement, the Company grants a first priority security
interest in all assets of the company and must maintain certain financial
covenants including maintaining minimum tangible net worth and others based on
monthly cash equivalence balances. Interest only payments will be made during
the first 12 months and borrowings and interest will be repaid on a
straight-line basis over 36 months beginning in month 13 of the facility.
13. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
(In thousands) Three months ended
------------------------------------------------------------------
March 31, 1996 June 30, 1996 Sept. 30, 1996 Dec. 31, 1996
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total revenues $ 1,731 $ 3,286 $ 4,007 $ 6,071
Cost of revenues 690 729 827 948
--------------------------------------------------------------
Gross profit 1,041 2,557 3,180 5,123
Operating expenses:
Research and development 934 950 1,218 1,448
Sales and marketing 2,757 5,566 5,219 6,913
General and administrative 860 919 1,091 1,307
--------------------------------------------------------------
Total operating expenses $ 4,551 $ 7,435 $ 7,528 $ 9,668
Operating loss (3,510) (4,878) (4,348) (4,545)
Net interest income (58) 155 652 594
--------------------------------------------------------------
Net loss $(3,568) $(4,723) $(3,696) $(3,951)
==============================================================
</TABLE>
<TABLE>
<CAPTION>
Three months ended
------------------------------------------------------------------
March 31, 1995 June 30, 1995 Sept. 30, 1995 Dec. 31, 1995
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total revenues $ 5 $ 54 $ 278 $ 695
Cost of revenues 79 112 179 244
--------------------------------------------------------------
Gross profit $ (74) $ (58) $ 99 $ 451
Operating expenses:
Research and development 177 195 238 565
Sales and marketing 77 244 387 780
General and administrative 98 155 186 709
--------------------------------------------------------------
Total operating expenses $ 352 $ 594 $ 811 $ 2,054
--------------------------------------------------------------
Operating loss (426) (652) (712) (1,603)
Net interest income 4 31 45 17
--------------------------------------------------------------
Net loss $ (422) $ (621) $ (667) $(1,586)
==============================================================
</TABLE>
INFOSEEK CORPORATION 25
<PAGE> 25
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Infoseek Corporation
We have audited the accompanying balance sheets of Infoseek Corporation as of
December 31, 1996 and 1995, and the related statements of operations,
shareholders' equity (deficit), and cash flows for each of the three years in
the period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 financial statements referred to above present fairly, in
all material respects, the financial position of Infoseek Corporation at
December 31, 1996 and 1995, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1996 in conformity
with generally accepted accounting principles.
San Jose, California ERNST & YOUNG LLP
January 28, 1997, except for Note 12 as to which
the date is March 31, 1997
26 INFOSEEK CORPORATION
<PAGE> 26
CORPORATE DATA
STOCK SYMBOL
SEEK
STOCK MARKET
The Company's stock trades on the NASDAQ
STOCK TRADING
The following table sets forth the high and low sales prices since the Company's
initial public offering on June 11, 1996 for each quarter shown, as well as the
closing sales prices on the last trading day of each such quarter. In addition,
the table shows the average daily trading volume for each quarter listed.
<TABLE>
<CAPTION>
Shares
1996 High Low Close in thousands
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
2nd Quarter Ended June 30 16.50 8.88 10 84
3rd Quarter Ended Sept. 30 10.00 5.25 9.13 72
4th Quarter Ended Dec. 31 11.50 7.38 7.75 56
===============================================================================
</TABLE>
INFOSEEK CORPORATION 27
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 333-05941) pertaining to the 1996 Stock Option/Stock Issuance
Plan and Employee Stock Purchase Plan of Infoseek Corporation of our report
dated January 28, 1997, except as to Note 12 as to which the date is March 31,
1997, with respect to the financial statements of Infoseek Corporation included
in the 1996 Annual Report (Form 10-K) for the year ended December 31, 1996.
Our audits also included the financial statement schedule of Infoseek
Corporation listed in Item 14(a). This schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits. In our opinion, the financial statement schedule referred to above,
when considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects the information set forth therein.
ERNST & YOUNG LLP
San Jose, California
March 31, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 3,786
<SECURITIES> 42,867
<RECEIVABLES> 2,778
<ALLOWANCES> (350)
<INVENTORY> 0
<CURRENT-ASSETS> 49,452
<PP&E> 10,066
<DEPRECIATION> (2,479)
<TOTAL-ASSETS> 58,332
<CURRENT-LIABILITIES> 7,455
<BONDS> 0
0
0
<COMMON> 73,754
<OTHER-SE> (24,769)<F1>
<TOTAL-LIABILITY-AND-EQUITY> 58,332
<SALES> 15,095
<TOTAL-REVENUES> 15,095
<CGS> 3,194
<TOTAL-COSTS> 3,194
<OTHER-EXPENSES> 29,182<F2>
<LOSS-PROVISION> 342
<INTEREST-EXPENSE> 428
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (15,938)
<EPS-PRIMARY> (0.73)
<EPS-DILUTED> (0.73)
<FN>
<F1>INCLUDES ACCUMULATED DEFICIT OF $20,771, DEFERRED COMPENSATION OF $3,546 AND
NOTES RECEIVABLE FROM SHAREHOLDERS OF $452.
<F2>OTHER EXPENSES INCLUDE RESEARCH & DEVELOPMENT OF $4,550, SALES & MARKETING OF
$20,455 AND GENERAL & ADMINISTRATIVE EXPENSE OF $4,177.
</FN>
</TABLE>
