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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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, 1997
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
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INFOSEEK CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
CALIFORNIA 77-0353450
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
1399 MOFFETT PARK DRIVE
SUNNYVALE, CALIFORNIA 94089 94089
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (408) 543-6000
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: COMMON STOCK, NO
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. [X]
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 4, 1998, was $410,053,424.80 based upon the last sales
price reported for such date on The Nasdaq National Market. 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 4, 1998 registrant had outstanding 30,907,875 shares of Common
Stock.
----------------
DOCUMENTS INCORPORATED BY REFERENCE
(1) Part III incorporates certain information by reference from the
definitive proxy statement for the Annual Meeting of Shareholders to be
held on or about June 1, 1998 (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 beginning on page 15 of this Report and other factors
discussed elsewhere in this Report.
Infoseek provides leading Internet search and navigation technology,
products and services that use the Web to connect its viewers' personal, work
and community lives. As a "connected" media company, Infoseek is able to
segment viewers by interest area, providing advertisers with focused and
targeted audiences. The Infoseek Service is a comprehensive Internet gateway
that combines search and navigation with directories of relevant information
sources and content sites, offers chat and instant messaging for communicating
shared interests and facilitates the purchase of related goods and services.
The Company's goal is to have the Infoseek Service become a viewer's first
choice Web destination site.
The Company is based in Sunnyvale, California, and was incorporated under
the laws of the State of California on August 30, 1993.
INDUSTRY BACKGROUND
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. The Web is an
attractive medium for advertisers for several reasons. Unlike more traditional
media, the Web allows advertisers to target advertisements to broad audiences,
specific regional populations, specific communities or select customers, while
simultaneously tracking the impression levels, demographic viewership and
effectiveness of their advertisements. The interactive nature of Web
advertising enables advertisers to establish dialogues and meaningful
relationships with potential customers, and to change their messages rapidly
in response to real world events and consumer feedback. Jupiter Communications
estimates that the Web viewer population will grow from approximately 49
million viewers in 1997 to approximately 116 million viewers by 2002 and that
online advertising revenues will grow from approximately $940 million in 1997
to approximately $7.7 billion in 2002.
Optimizing the Web Experience
The rapid growth in content on the Web and the proliferation of Web sites,
combined with the Web's unindexed nature, present significant challenges for
businesses and consumers seeking access to Internet-based information and
resources. Until the emergence of search and navigational tools, users had to
know a lengthy Web address (URL) 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 face similar difficulties in
making the existence and location of their Web sites known and available to
their target audiences. A number of tools have emerged to enable consumers,
content providers and advertisers to locate one another on the Web, including
Web directories and search engines. Web directories generally list Web sites
by specific topics of interest and by their hypertext address, thus enabling
an interested user to go directly to the listed site by clicking on the
address. Search engines offer users the ability to search for Web sites based
upon specific word or phrase queries. Search engines typically use automated
software that continuously crawls the Web to capture, store and index updated
Web site information 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.
The Company believes that in order to provide users with a richer and more
relevant Internet experience, search and navigation services must do more than
simply provide a response to searches. They must also offer
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value-added services such as targeted one-to-one marketing, personalized news,
discussion groups, instant messaging and online shopping. The Company believes
that services which aggregate and organize the vast resources of the Web will
attract a high volume of traffic and command customer loyalty.
Challenges of Advertising on the Web
As the number of Internet users and content providers increases, the
Internet has begun to develop the attributes of a conventional mass medium
such as television or radio, where advertising subsidizes content delivered to
users. The Web is proving to be a more effective relationship-building media
than traditional means because it enables advertisers to target specific
audiences, measure the popularity of advertising content (and make frequent
and timely changes), reach worldwide audiences cost-effectively, and create
innovative and interactive advertisements. This process also has the potential
to enhance the consumer's Internet experience, by marketing only those goods
and services that are of interest. The Company believes that increases in
transmission bandwidth through higher speed Internet connections and wider
multimedia-enabling technologies for the Web will also increase the appeal and
effectiveness of advertisements, making the Web an even more attractive
platform for mass consumer advertising.
Advertisers currently face difficulties in understanding the behavior and
demographics of Web users, making it difficult to ensure that the existence
and location of their advertisements are widely known and their audiences are
targeted effectively. Advertisers increasingly have migrated to sites and
services that experience a high volume of repeat, track users carefully,
attract users that "click through" to the advertiser's site and deliver to
advertisers loyal audiences that fit specific buying profiles. Services and
sites must be able to match advertisements with buyers in order to deliver
targeted, high impact advertising.
Corporate Web Sites and Intranets
As the Web has evolved into an efficient and widely-used communications
medium, corporations are increasingly utilizing Web-based technologies to
share information via their intranets and public Web sites with employees,
corporate partners, customers and public site visitors. The Company believes
that as the amount of content hosted in these environments continues to grow,
the same factors that have contributed to the popularity of the Internet
navigation services will drive the demand for similar technologies within
corporate intranets and public Web sites. The same search and navigation
capabilities the Company offers for Internet users are valuable on these
networks.
THE INFOSEEK SOLUTION AND STRATEGY
The Infoseek branded search and navigation services integrate accurate
search results with relevant Internet and other resources to enhance the
viewer's interaction with information and content and create a more effective
medium for advertisers, sponsors and commerce partners. The Infoseek Service
is a comprehensive Internet gateway that combines search and navigation with
directories of relevant information sources and content sites, offers chat and
instant messaging for communicating shared interests and facilitates the
purchase of related goods and services. Infoseek's goal is to become a
viewer's first choice Web destination site. In order to further leverage its
core strength in technology and to diversify its revenue base, the Company
licenses its Ultraseek Server product to corporate customers for use on their
intranets and public Web sites.
The Company's business strategy is to leverage its leading search and
directory technologies, products and services to achieve the following:
. Build Infoseek Brand Awareness and Increase Market Share. The Company
believes that, as a "connected" media company that brings together
elements of its viewers' personal, work and community lives, building
Infoseek brand awareness is a key to building market share. The Company
intends to continue to utilize conventional mass media advertising
campaigns, distribution relationships and OEM relationships to enhance
its brand awareness. The Company intends to continue an integrated brand-
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awareness campaign through press, print, broadcast, outdoor, radio and
online promotions in 1998. The Company has entered into agreements with a
number of companies such as AT&T Corp., Bell Atlantic Electronic Commerce
Services, Inc. ("Bell Atlantic"), Southwestern Bell Capital Corporation
("Southwestern Bell"), Sprint Corporation ("Sprint") and CNET (Snap!
Online) ("CNET") in order to increase its brand awareness and acquire new
viewers.
. Create a Richer Viewer Experience. The Company believes that consumer
loyalty on the Internet is highly dependent on the creation of a robust
online environment from which viewers may access the information and
resources in which they are interested. The Infoseek Service provides a
rich experience for viewers through the integration of search, large
directories, shared interest communities and content features with the
Company's highly advanced core search technology. In addition, in October
1997 the Company launched 15 "channels," which are organized topically.
. Maximize Value for Advertisers. The Company believes that it can best
serve advertisers on the Internet by effectively targeting interested
audiences and consumers. With the launch of its intelligent Web channel
service in October 1997, the Company believes that it greatly enhanced
the segmentation of its viewing audience. The Company intends to continue
to develop innovative approaches and solutions for its advertisers to
effectively reach their target audiences. For a segment of advertisers,
improved viewer targeting is achieved through the Company's Ultramatch
product, an advertising management product designed to create viewer
behavior profiles for the matching of goods and services. These Infoseek
products and services can result in better click-through for advertisers
and higher advertising rates for the Company.
. Provide Intranet Search Products. The Company believes that as enterprise
and corporate intranets continue to grow and are increasingly relied upon
for the efficient sharing of corporate documents, data and other
information, the need for advanced search and indexing technology becomes
critical. The Company has leveraged its research and development
investments in the core Infoseek search and navigation services to
provide a customizable intranet solution to corporate and enterprise
customers.
. Enhance Core Search and Navigation Service. The Company believes that
search technology that delivers highly relevant results is an important
component in differentiating its services and in building a rich viewer
experience. The Company continuously seeks to innovate in the development
and integration of its services to provide viewers with a robust and
appealing environment and a convenient and powerful gateway to the
Internet.
THE INFOSEEK SERVICE AND PRODUCT OFFERINGS
Internet End-User Services and Products
Infoseek Service is a free search and navigation service targeted to viewers
at home, in business and in schools. Infoseek Service integrates multiple
methods of obtaining, organizing and sharing information on the Internet.
Viewers are presented with four principal means of obtaining information--
Search, Channels, Directory and Service Links--from which they can launch
specific queries, browse or access relevant content.
. Search: The Search function allows the viewer to launch query-based
searches of the Web, USENET News and other premium content databases,
including news and company collections. To perform a search, a viewer
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 or full text. The Search function
utilizes sophisticated techniques to allow viewers to obtain specific
results for case sensitive, numerical or singular letter aspects of
certain queries, such as "49ers" or "Vitamin C."
. Channels: The Company offers viewers 15 "channels" which are organized
topically much like sections of a newspaper. Current channels include
Automotive, Business, Careers, Computer, Entertainment, The Good Life,
Health, Internet, Kids & Family, News, Personal Finance, Real Estate,
Shopping, Sports and Travel. Each channel includes content teasers to
full stories, reviews, databases and
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other information on content providers' sites and other sites, best of the
Web links to interesting and relevant information, relevant Directory
subtopics, news headlines, chat, transaction opportunities and classified
advertisements. Infoseek intends to launch new channels aimed at specific
demographic audiences and launch subchannels within existing channels to
help viewers easily find the environment and information they are looking
for.
. Directory: The Infoseek Directory is a hierarchical listing of Web pages
that have been selected and abstracted by the Company and organized by
category, which can be accessed by the Company's home page or the
relevant channel. The Directory enables a viewer 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 viewer can proceed from "Baseball" to "Players," and
finally, to "Ken Griffey Jr." The Directory assists the viewer by
providing abstracts of each directory entry. As of January 1, 1998, the
Company had increased its directory of Web sites to over 500,000 sites.
. Service Links: Viewers 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 Bell Atlantic and United Parcel Services of America, Inc. ("UPS"),
viewers 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 viewer must
either conduct a new search or know and enter a precise URL to move to
another site.
The Infoseek Service offers viewers access to content feeds from a variety
of well-known Internet sources, third party content sources and co-branded
sites between the Company and other providers of services and products such as
Bell Atlantic and UPS, to provide viewers with high quality, up-to-date
information whether a viewer is navigating via search, channels or directory.
For example, news that is relevant to the viewer's query is made available as
part of a search result. In addition, the News Channel offers viewers the
latest business, world, political, technology and sports news from a variety
of data sources such as Reuters Holdings PLC ("Reuters"), Business Wire,
Hoover's, Inc. ("Hoover's"), PR Newswire, and USENET news groups.
To enrich the viewer experience, the Infoseek Service allows the use of the
information gathered from a search to interact with viewers of similar
interests and purchase goods within the site through features such as chat,
instant messaging and transaction-based Web sites. For example, a consumer who
is interested in purchasing a Saturn automobile can conduct an online search,
compare notes with Saturn drivers in Infoseek's automobile chat room and even
purchase a Saturn through Auto-By-Tel Corporation ("Auto-By-Tel"), a Web site
for evaluating and making car-buying decisions.
Corporate Intranet and Public Site Navigation Services and Products
In March 1997, the Company introduced Ultraseek Server, its first software
product targeted at the corporate market. Designed as an easy-to-install,
simple-to-manage spider and search engine, the product leverages the core
technology developed for the Infoseek Service. Key advantages of the Infoseek
Service in areas such as natural language support, relevance ranking
algorithms, and automated spider revisiting are augmented with an intuitive
interface, support for alternate document formats (for example, Microsoft
Office or Adobe PDF) and robust error recovery. The result is a solution for
corporate webmasters that enables the creation of a search capability on one
site or across an intranet with thousands of hosts, that is quick to
implement, and manageable with limited resources.
The Company views the Ultraseek Server product as a horizontal application,
with a strong fit across many industries. In 1997, the Company licensed
software to customers in the publishing industry (Industrial Distribution
Group, Inc. ("IDG"), National Geographic Society), high technology (Sun
Microsystems, Inc., 3Com Corporation, Hewlett-Packard Company, Lexmark
International Group, Inc.), manufacturing (Ford Motor Company, The Boeing
Company, Merck & Co., Inc., Rohm & Haas Company), communications (BellSouth
Corporation, Ericsson LM Tel. Co. Ad., Worldcom Inc.), government (NASA, U.S.
Department of Education,
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Lawrence Livermore National Laboratory), finance (Morgan Stanley Dean Witter,
John Hancock Mutual Life Insurance Company, Swiss Bank Corporation, New York
Stock Exchange), consumer goods (Sony Corporation, NIKE, Inc., Sears, Roebuck
and Co.) and education (Stanford University, Harvard University, Pennsylvania
State University, Georgia Institute of Technology, University of Sydney,
McGill University) among others. The Company also announced that it had been
selected as the intranet and public site search application by CERN, the
European Particle Physics Lab and creator of the World Wide Web.
Ultraseek Server's key benefits for viewers and administrators are:
Best Viewer Experience
Fast searches and relevant results Easy to use natural language
queries
Simple Administration
Easy install and startup
Remote management via browser
Real-Time Index
Deleted documents are immediately removed; new documents instantly
added
Finds new/changed content automatically
Scalable, Flexible Spider
Scalable to handle even very large intranets
Can be tuned to limit load on servers and networks
Full-Text Search
Search for any word or phrase
Query refinement (search only these results)
Customization
Customizable viewer interface and results ranking Include/exclude at
the site, directory or document level
Advertising Services and Products
Infoseek derives a substantial majority of its revenues from the sale of
advertisements. The Company is focused on providing its advertisers with high
volume and targeted access to interested audiences and potential buyers. These
advertisements appear on the Infoseek Service Web page when a viewer enters
the service, receives search results, browses through the Directory or
accesses a channel. Advertising revenues represented 94% and 99% of the
Company's total revenues for fiscal 1997 and fiscal 1996, respectively. The
Company believes it has been able to achieve its advertising revenues to date
primarily through its direct sales force and through the products it offers
advertisers.
Advertising Products and Pricing
The Company derives its revenue from several advertising options that may be
purchased individually or in packages--run of site rotations, directory and
channel rotations, key word rotations, cross service sponsorship, channel
sponsorship and Ultramatch targeting. These options may contain hypertext
links to the advertiser's home page.
Rotations
. Run of Site: Run of site rotations are advertisements that rotate on a
random basis throughout the Infoseek Service, appealing to advertisers
seeking to establish brand recognition across the broadest reach of
Infoseek viewers. Search results advertisements are typically sold in
blocks of one thousand impressions to be generated over a four week
period. Infoseek's current cost per one thousand impressions ("CPM")
ranges from $18 to $26 depending upon the number of impressions
purchased.
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. Directory and Channel: Directory and channel rotations are advertisements
that appear when an Infoseek viewer browses through directory and channel
topic pages. Directory and channel rotations allow advertisers to target
an audience with a specific area of interest. Like run of site rotations,
directory and channel rotations are sold in blocks of impressions over a
four week period. Because of the greater selectivity of the audience,
Infoseek's current CPM ranges from $35 to $45.
. Keyword: Keyword rotations are advertisements that are displayed when an
Infoseek viewer'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 viewers, from
which the Company has identified keywords that are most frequently
queried by Infoseek viewers and requested by advertisers. Infoseek's
current four week rate card CPM for a keyword is $55 on a non-exclusive
basis and $66 on an exclusive basis.
Channel and Cross-Service Sponsors and Partners
The channel version of the Infoseek Service, which was introduced in October
1997, features 15 "channels" that allow a viewer to browse in an environment
that brings together the best topical information, service, products and
communities on the Web. In addition, this version of the Infoseek Service
dynamically wraps relevant content around answers to a viewer's queries.
Sponsors and partners with whom the Company has executed agreements include
the following:
CHANNEL SPONSORS AND PARTNERS
Automotive Auto-By-Tel
Microsoft CarPoint
Computer CMP Media, Inc.
Entertainment--Books sub-channel Borders OnLine
Internet CMP Media, Inc.
Personal Finance Microsoft Investor
Personal Finance--Trading Donaldson, Lufkin & Jenrette, Inc.
Partners (DLJ Direct)
Datek Online
Ameritrade
CROSS-SERVICE
Bell Atlantic
UPS
The Company believes there is significant potential to increase sponsorship
revenues through the ten unsponsored channels, further segmentation of
existing channels into sub-channels as well as channels to be introduced in
the future.
The Company's enhanced channel version of the Infoseek Service provides a
better viewer experience and better segmentation of the target audience for
advertisers and sponsors. In addition, the Company was able to supplement its
banner advertising business with media-based revenues for sponsorships in its
channels and sub-channels. These opportunities for channel sponsors are in
addition to already existing arrangements with cross-service sponsors such as
UPS and Bell Atlantic. A cross-service sponsor's content or service appears on
the Infoseek Service home page or on multiple channels across the Infoseek
Service. The Company seeks to bundle these advertising options to create
packages that offer the greatest value to advertisers.
Ultramatch Targeting
The Company currently sells Ultramatch, an advertising management product
based upon technology which is designed to create a viewer profile based on
real, observed viewer behavior to allow precise, targeted
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advertising. The Company and its advertisers have found that this technology
significantly increases viewer click-throughs. This innovative advertising
approach, which allows advertisers to target advertisements to specific viewer
types based on analysis of searching behavior, serves to significantly
differentiate the Company's services. Infoseek's current CPM for this
targeting is $55, and the net cost for an Ultramatch behavioral report is
$1,100.
Advertisers
During 1997, over 500 advertisers placed advertisements on the Company's
service. For the year ended December 31, 1997 one customer, Bell Atlantic
Electronic Commerce Services, Inc., which has a representative on the
Company's Board of Directors and owns a substantial amount of the Company's
common stock, accounted for 8.2% of revenues. No one advertiser accounted for
10% or more of the Company's revenues for the year ended December 31, 1997. To
date, most of Infoseek's contracts with advertisers have terms of three months
or less. The following is a representative list of brands or companies for
which advertisers and sponsors purchased more than $100,000 in advertising on
the Company's service during 1997:
TECHNOLOGY TELECOMMUNICATIONS
Compaq Computer Corporation AT&T Corp.
Hewlett-Packard Company BellSouth Corporation
Intel Corporation Mobile Telecommunications Technologies
Intuit Inc. Corp. (SkyTel)
Northern Telecom Inc. Sprint Corporation
SAP America, Inc.
FINANCIAL
AUTOMOTIVE American Express Company
America Honda Motor Company Inc. John Hancock Mutual Life Insurance
Ford Motor Company Company
General Motors Corporation (Saturn) Metropolitan Life Insurance Company
Toyota Motor Corporation The Charles Schwab Corporation
(Toyota and Lexus) The Quick & Reilly Group, Inc.
Volvo North America Corporation
CONSUMER PRODUCTS
PUBLISHING Delta Airlines, Inc.
Advance Publications, Inc. J.C. Penney Company, Inc.
(Conde Nast) LAT Sportswear Inc. (Hanes)
The Dun & Bradstreet Corporation Sony Corporation
The Hearst Corporation The Proctor & Gamble Company
(Hearst New Media) The Walt Disney Company
Newsday, Inc.
Sales Force
As of December 31, 1997, Infoseek's advertising sales staff consisted of 31
representatives located in Sunnyvale, New York, San Francisco, Los Angeles,
Atlanta and Chicago. The Company believes that having an internal direct sales
force allows 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.
MARKETING AND DISTRIBUTION
Marketing
Infoseek's strategy is to build brand awareness through an integrated plan
utilizing online and traditional media, public relations and promotions. The
Company's current consumer campaign includes the marketing of the Infoseek
brand on selected Web sites including MSNBC, ESPN SportsZone, AT&T Worldnet,
BigYellow and WhoWhere. The Company's 1997 television campaign included a
rotation of prime time spots in New York and San Francisco, both of which are
cities with higher than average Internet usage, and the Company currently
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plans additional television advertising in at least the first quarter of 1998.
In addition, the Company's traditional media campaign includes local radio,
outdoor billboards, print advertising in consumer and vertical magazines such
as Home PC, Windows Magazine, Information Week and Internet Week, and trade
advertising in Advertising Age. The Company also cross-promotes with content
providers through advertising swaps both in online media and traditional print
and broadcast media.
Distribution
The Company seeks to form relationships that maximize audience reach and
create alternate distribution channels to the Company's services. The Company
has relationships with Netscape and Microsoft each of which distributes
browser software to their customers which is used to navigate the Web. The
Company also has distribution relationships with various Internet service
providers and content providers such as AT&T, Bell Atlantic, Southwestern
Bell, Sprint and CNET. Infoseek Service is listed by each of these companies
as a navigational service available to their viewers. 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.
Since March 1995, the Company's service has been listed as a navigational
service on the Web page of Netscape Communications Corporation ("Netscape")
accessible via the "NetSearch" button. Currently, Netscape's Web page displays
three additional premier providers. In March 1997, the Company renewed its
agreement with Netscape under terms which provide for Infoseek Service to be
one of four non-exclusive premier providers displayed on Netscape's Web page
for the period through April 30, 1998. Infoseek's current agreement with
Netscape provides for the Company to pay an aggregate of $12,500,000 in cash
and reciprocal advertising ($10,000,000 in cash and $2,500,000 in reciprocal
advertising) 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. Over the past year, page views sourced from Netscape traffic
declined from 44% in December 1996 to 27% in December 1997. The Company
defines a page view from Netscape as all pages requested and delivered to a
viewer whose Infoseek session was initiated from a Netscape Web page. 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 relationship 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
obligations would not be reduced, the result being that the Company's
business, results of operations, financial condition and prospects would be
materially and adversely affected. See "Risk Factors--Relationship With
Netscape" and "--Capacity Constraints and System Failure; Advertising
Management System."
Since August 1995, the Infoseek Service has been listed as a navigational
search service available to users from various "Search Referral Sources" by
Microsoft Corporation ("Microsoft"). The Company currently receives less than
10% of its traffic sourced from 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. Effective as of
June 1997, the Company renewed this agreement with Microsoft under terms which
extended certain search referral sources through November 1997 and continues
on an automatic six-month renewal term and extends certain other search
referral sources through May 1998. 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. See "Risk Factors--Intense Competition."
INTERNATIONAL OPERATIONS
As the Internet becomes an increasingly global information resource, the
Company believes it can leverage its core search and navigation technology and
brand recognition to provide benefits to viewers and advertisers
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worldwide. Accordingly, the Company offers its service internationally through
partnerships with local providers of directory and editorial content in
Brazil, Denmark, Holland, France, Germany, Italy, Sweden and the United
Kingdom, and has been translated into Spanish. Typically, the Company
contributes the search technology and the site's look and feel, while the
partners contribute local content, translation services, and marketing
support. All of these sites are operated and hosted by the Company. In July
1997, the Company entered into an agreement with Netscape whereby it was
designated as a premier provider of international search and navigation guide
services for the Netscape Net Search program for 10 Netscape local Web sites.
In 1997, the Company established strategic relationships with Microsoft in
France and the United Kingdom and Attract Media in Sweden, Denmark, Finland
and Norway. In addition, the Company's U.S. sales force sells advertisements
on Infoseek's foreign sites to U.S. advertisers who want to reach a global
audience. During 1997, less than 10% of the Company's traffic was derived from
international sources and less than 10% of the Company's revenues were derived
from advertising to international viewers. See "Risk Factors--Risks Associated
With International Expansion."
TECHNOLOGY
The Company believes that by developing innovative proprietary technology
and integrating technology licensed from third parties where appropriate, it
can differentiate itself from its competitors. 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 on Ultraseek, an
enhanced search technology 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 highly-rated search engine seeks to deliver accurate results,
which are characterized by the level of precision and the level of 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 viewer, the Company has
developed technology to regularly update its entire database of Web pages.
This enables Infoseek Service to deliver accurate, relevant and up-to-date
search results.
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 viewer submits a query, such as "find an
apartment in New York City," 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 to the viewer's query. In addition,
Infoseek has also developed a technology to allow viewers to add their Web
pages to Infoseek virtually instantly. This "Add URL" feature allows Infoseek
to accept the most up-to-date pages.
The Company has also licensed certain software technologies from InXight
Software, Inc. ("InXight"), a unit of Xerox Corporation ("Xerox"), which the
Company uses for the linguistic analysis of Web pages and search terms. In
addition, in May 1996 the Company licensed certain technology from Aptex
Software Inc.
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("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 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."
Advertising Management
Infoseek has developed certain proprietary systems for the 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 viewer'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
viewers, 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. As the
Company's advertising volume increases, the Company believes that it may be
required to significantly improve its internally developed advertising
management system or to implement an advertising management system from a
third party vendor. The Company is in the process of evaluating such a system
from NetGravity, but has not yet determined whether this outsourced solution
will be implemented. To the extent that the Company encounters material
difficulties in bringing, or is unable to bring, this new system online, the
Company will need to acquire an alternative solution from a third party vendor
or devote sufficient resources to enhance its internally developed current
system. Any extended failure of, or material difficulties encountered in
connection with, the Company's advertising management system may expose the
Company to "make good" obligations with its advertising customers, which, by
displacing advertising revenue among other consequences, would reduce revenue
and would have a material adverse effect on the Company's business, results of
operations, financial condition and prospects.
In April 1996, the Company licensed certain software technology from Aptex
which the Company used to develop its Ultramatch technology, which was
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 Company believes
that Ultramatch provides technological improvements to the Company's
advertising and audience management systems. The Aptex technology underlying
Ultramatch has been licensed to the Company for an initial five-year term
beginning in October 1996. In consideration for giving up any exclusive rights
to the Aptex technology during the five-year term of the license, the Company
will receive a portion of any Aptex revenue generated from other advertising
licenses.
COMPETITION
The market for Internet and intranet products and services is highly
competitive, and the Company expects that competition will continue to
intensify. The market for Internet and intranet search and navigational
services has only recently begun to develop, and the Company cannot predict
with any certainty how competition will affect the Company, its competitors or
its customers. There can be no assurance that the Company will be able to
compete successfully or that the competitive pressures faced by the Company,
including those listed below, will not have a material adverse effect on the
Company's business, results of operations, financial condition and prospects.
The Company believes it faces numerous competitive risks, including the
following:
Consolidation of products offered by Web browsers and other Internet points
of entry. A number of companies offering Internet products and services,
including direct competitors of the Company, recently have begun to integrate
multiple features within the products and services they offer to consumers.
Integration of
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Internet products and services is occurring through development of competing
products and through acquisitions of, or entering into joint ventures and/or
licensing arrangements involving, competitors of the Company. For example, the
Web browsers offered by Netscape and Microsoft, which are the two most widely-
used browsers and substantial sources of traffic for the Company, may
incorporate and promote information search and retrieval capabilities in
future releases or upgrades that could make it more difficult for Internet
viewers to find and use the Company's products and services. Microsoft
recently licensed products and services from Inktomi, a direct competitor of
the Company, and has announced that it will feature and promote Inktomi
services in the Microsoft Network and other Microsoft online properties. The
Company expects that such search services may be tightly integrated into the
Microsoft operating system, the Internet Explorer browser and other software
applications, and that Microsoft will promote such services within the
Microsoft Network or through other Microsoft-affiliated end-user services such
as MSNBC or WebTV Networks, Inc. ("WebTV"). The Company's agreement with
Netscape to be one of four non-exclusive premier providers of navigational
services expires on April 30, 1998, and there can be no assurance that the
Company will be successful in renewing this agreement on terms advantageous to
the Company, if at all. See "Risk Factors--Relationship With Netscape." In
addition, entities that sponsor or maintain high-traffic Web sites or that
provide an initial point of entry for Internet viewers, such as the Regional
Bell Operating Companies ("RBOCs") or Internet Service Providers ("ISPs") such
as Microsoft and America Online, Inc. ("AOL"), currently offer and can be
expected to consider further development, acquisition or licensing of Internet
search and navigation functions competitive with those offered by the Company,
or could take actions that make it more difficult for viewers to find and use
the Company's products and services. For example, AOL is currently a
significant shareholder of Excite and offers Excite's WebCrawler and NetFind
as the exclusive Internet search and retrieval services for use by AOL's
subscribers. Continued or increased competition from such consolidations,
integration and strategic relationships involving competitors of the Company
could have a material adverse effect on the Company's business, results of
operations, financial condition and prospects.
Competition from existing search and navigational competitors. Many
companies currently offer directly competitive products or services addressing
Web search and navigation, including Digital Equipment Corporation (Alta
Vista) ("DEC/AltaVista"), Excite Inc. ("Excite"), Hot Wired Ventures LLC
("HotBot"), Inktomi Corporation ("Inktomi"), Lycos Inc. ("Lycos"), CNET and
Yahoo! Inc. ("Yahoo!"). In addition, the Company's Ultraseek Server product
competes directly with intranet products and services offered by companies
such as DEC/AltaVista, Lycos, Open Text Corporation (Open Text Index) ("Open
Text") and Verity, Inc. ("Verity"). The Web browsers currently offered by
Netscape and Microsoft, which are the two most widely-used browsers,
incorporate prominent search buttons and similar features, such as features
based on "push" technologies, that direct search traffic to competing
services, including those that may be developed or licensed by Microsoft or
Netscape in enhancements or later versions of these or other products. Many of
the Company's existing competitors, as well as a number of potential new
competitors, have significantly greater financial, technical, marketing and
distribution resources than the Company.
Competition from Internet and other advertising media. The Company also
competes with online services, other Web site operators and advertising
networks, as well as traditional media such as television, radio and print for
a share of advertisers' total advertising budgets. Additionally, a large
number of Web sites and online services (including, among others, the
Microsoft Network, MSNBC, AOL and other Web navigation companies such as
Excite, Lycos and Yahoo!) offer informational and community features, such as
news, stock quotes, sports coverage, yellow pages and e-mail listings, weather
news, chat services and bulletin board listings that are competitive with the
services currently offered or proposed to be offered by the Company. Moreover,
the Company believes that the number of companies selling Web-based
advertising and the available inventory of advertising space have recently
increased substantially. Accordingly, the Company may face increased pricing
pressure for the sale of advertisements and reductions in the Company's
advertising revenues.
Low barriers to entry for new search and navigational companies. The Company
believes that the costs associated with developing technologies, products and
services that compete with those offered by the Company are relatively low. As
a result, as the market for Internet and intranet search and navigational
products develops,
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other companies may be expected to offer similar products and services and
directly and indirectly compete with the Company for advertising revenues.
See "Risk Factors--Intense Competition."
RESEARCH AND DEVELOPMENT
During 1997 and 1996, the Company spent approximately $7,327,000 and
$4,550,000, respectively, on research and development activities. As of
December 31, 1997, the Company had a research and development staff of 45
full-time employees, all located at the Company's headquarters in Sunnyvale,
California.
The Company continues to evolve its Ultraseek search engine technology,
which has been designed to significantly improve retrieval and Web page
indexing capabilities with features such as distributed search and natural
language handling. The distributed searching capability is based on a patent
held by the Company and allows integration of results among both logically and
geographically distributed Web indexes. The Company has also licensed certain
software technologies from InXight, which the Company uses for the linguistic
analysis of Web pages and search terms. This technology has been licensed to
the Company for a five-year contract, which began on March 31, 1996. Infoseek
has licensed certain technology from Aptex which augments the development of
the Company's Web directory by providing an automation capability. The Company
continues to differentiate its service by providing additional contextual
information to the user in addition to just the Web results for a query. 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."
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 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 12 United States patent applications pending and five
foreign 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, that
the Company will counterclaim against any such parties in such actions or that
if the Company makes claims against third parties
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with respect thereto, that any such party will not counterclaim against the
Company 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, results of operations, financial condition
and prospects. 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."
EMPLOYEES
As of December 31, 1997, the Company had 171 full-time employees, including
45 in research and development, 76 in sales and marketing and 50 in finance and
administration. The Company's future performance depends in significant part
upon the continued service of Harry M. Motro, 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.
LEGAL PROCEEDINGS
As of the date hereof, there is no material litigation pending against the
Company. From time to time, the Company may be a party to litigation and claims
incident to the ordinary course of its business. Although the results of
litigation and claims cannot be predicted with certainty, the Company believes
that the final outcome of such matters will not have a material adverse effect
on the Company's business, results of operations, financial condition or
prospects.
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RISK FACTORS
In evaluating the Company's business, investors should carefully consider the
following risk factors in addition to the other information set forth herein or
incorporated herein by reference.
LIMITED OPERATING HISTORY; HISTORICAL LOSSES; ANTICIPATION OF CONTINUED
LOSSES. The Company's limited operating history makes it difficult to manage
operations and predict future operating results. The Company has incurred
significant net losses since inception and expects to continue to incur
significant losses on a quarterly and annual basis in 1998 and may do so in
subsequent fiscal periods. As of December 31, 1997, the Company had an
accumulated deficit of $45,394,000. 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. There can be no assurance that the
Company will be able to address any of these challenges. Although the Company
has experienced significant revenue growth in 1997, there can be no assurance
that this growth rate will be sustained or that revenues will continue to grow
or that the Company will achieve profitability. In 1997, the Company
significantly increased its operating expenses as a result of a substantial
increase in its sales and marketing efforts, development of new distribution
channels, expansion of its customer support capabilities and to fund greater
levels of research and development. Further increases in operating expenses are
planned during fiscal 1998. To the extent that any such expenses are not timely
followed by increased revenues, the Company's business, results of operations,
financial condition and prospects would be materially adversely affected.
RELATIONSHIP WITH NETSCAPE. Since March 1995, the Company has been a featured
provider of navigational services on the Web page of Netscape. In 1996 and
1997, approximately 65% and 36%, respectively, of all page views served on the
Infoseek Service came from traffic attributable to the Netscape Web page. The
current agreement with Netscape provides for the Company to pay an aggregate of
$12,500,000 in cash and reciprocal advertising ($10,000,000 in cash and
$2,500,000 in reciprocal advertising) to be one of four non-exclusive premier
providers of navigational services (along with Excite, Lycos and Yahoo! and
expires on April 30, 1998. Although the Company is currently in discussions
with Netscape about renewing the agreement, there can be no assurance that
Netscape will be willing to renew the agreement with the Company on
commercially equivalent terms or on other terms that may be satisfactory to the
Company, if at all. Were Netscape not to renew the agreement on commercially
equivalent terms, such decision could be based on changes in Netscape's
strategies, business or other factors that are beyond the control of the
Company. Moreover, the Company is aware that Netscape has from time to time
considered decreasing the number of non- exclusive premier providers of
navigational services. The failure to renew the Netscape agreement would
result, at least in the short term, in a material reduction in traffic to the
Infoseek Web site. This could, in turn, result in advertisers on the Company's
Web sites, including channel sponsors and partners, terminating their contracts
with the Company as such contracts are typically of short duration and
terminable on relatively short notice, or reducing the number of impressions
purchased. Furthermore, the Company's contracts with advertisers and sponsors
generally guarantee a minimum number of page views, and a failure to achieve
the minimum page views could result in a reduction in payments to the Company
or compel the Company to provide "make good" impressions if such minimums are
not met. If the Company is unable to develop viable alternative distribution
channels to Netscape or is otherwise unable to offset a reduction in traffic,
advertising revenues would be substantially adversely affected, resulting in
the Company's business, results of operations, financial condition and
prospects being materially and adversely affected.
POTENTIAL FLUCTUATIONS IN FUTURE RESULTS. As a result of the Company's
limited operating history as well as the recent emergence of both the Internet
and intranet markets addressed by the Company, the Company has neither internal
nor industry-based historical financial data for any significant period of time
upon which to project revenues or 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 and intranets as information
media; the rate of acceptance of the Internet as an advertising medium and a
channel of commerce; demand for the Company's products and services; the
advertising budgeting cycles of individual advertisers; the introduction and
acceptance of new, enhanced or
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alternative 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, implementation, renewal or
expiration of significant contracts with Bell Atlantic, Borders Group, Inc.
("Borders OnLine"), Microsoft, Netscape and others; pricing changes by the
Company or its competitors; specific economic conditions in the Internet and
intranet markets; general economic conditions; and other factors. Substantially
all of the Company's revenues have been generated from the sale of advertising,
and the Company expects to continue to derive substantially all of its revenues
from selling advertising and related products for the foreseeable future.
Moreover, most of the Company's contracts with advertising customers have terms
of three months or less. Advertising revenues are tightly related to the amount
of traffic on the Company's Web site, which is inherently unpredictable.
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 not expected to decrease, at least
in the short term. The Company may not be able to adjust spending in a timely
manner to compensate for any future revenue shortfall. Accordingly, any
significant shortfall in relation to the Company's expectations would have an
immediate material adverse impact on the Company's business, results of
operations, financial condition and prospects.
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,
financial condition and prospects and which may not generate the long-term
benefits intended. From time to time, the Company has entered into and may
continue to enter into strategic relationships with companies for cross service
advertising, such as the Company's relationships with Bell Atlantic and United
Parcel Service of America, Inc. ("UPS"). The Company's revenues have in the
past been, and may in the future continue to be, partially dependent on its
relationship with its strategic partners. Such strategic relationships have and
may continue to include substantial one-time or up front payments from the
Company's partners. Accordingly, the Company believes that its quarterly
revenues are likely to vary significantly in the future, that period-to-period
comparisons are not necessarily meaningful and that such comparisons should not
necessarily be relied upon as an indication of the Company's future
performance. Due to the foregoing factors, it is likely that in future periods,
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.
DEVELOPING MARKET; UNPROVEN ACCEPTANCE OF INTERNET ADVERTISING AND OF THE
COMPANY'S PRODUCTS AND SERVICES. The Company's future success is highly
dependent upon the increased use of the Internet and intranets for information
publication, distribution and commerce. 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 and intranets. 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 continue 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 Internet users or advertisers,
the Company's business, results of operations, financial condition and
prospects would be materially adversely affected.
RISKS ASSOCIATED WITH BRAND DEVELOPMENT. The Company believes that
establishing and maintaining the Infoseek brand is a critical aspect of its
efforts to attract and expand its audience and that the importance of brand
recognition will increase due to the growing number of Internet sites and the
relatively low barriers to entry. Promotion and enhancement of the Infoseek
brand will depend largely on the Company's success in providing high-quality
products and services and in designing and implementing effective media
promotions, which success cannot be assured. In order to attract and retain
Internet users and to promote and maintain the Infoseek brand in response to
competitive pressures, the Company believes it is necessary to increase
substantially its financial commitment to creating and maintaining a distinct
brand loyalty among consumers. If the Company is unable to provide high-
quality products and services, design and implement effective media
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promotions or otherwise fails to promote and maintain its brand, or if the
Company incurs excessive expenses in an attempt to improve its products and
services or promote and maintain its brand, the Company's business, results of
operations, financial condition and prospects would be materially and adversely
affected.
INTENSE COMPETITION. The market for Internet and intranet products and
services is highly competitive, and the Company expects that competition will
continue to intensify. The market for Internet and intranet search and
navigational services has only recently begun to develop, and the Company
cannot predict with any certainty how competition will affect the Company, its
competitors or its customers. There can be no assurance that the Company will
be able to compete successfully or that the competitive pressures faced by the
Company, including those listed below, will not have a material adverse effect
on the Company's business, results of operations, financial condition and
prospects. The Company believes it faces numerous competitive risks, including
the following:
Consolidation of products offered by Web browsers and other Internet points
of entry. A number of companies offering Internet products and services,
including direct competitors of the Company, recently have begun to integrate
multiple features within the products and services they offer to consumers.
Integration of Internet products and services is occurring through development
of competing products and through acquisitions of, or entering into joint
ventures and/or licensing arrangements involving, competitors of the Company.
For example, the Web browsers offered by Netscape and Microsoft, which are the
two most widely-used browsers and substantial sources of traffic for the
Company, may incorporate and promote information search and retrieval
capabilities in future releases or upgrades that could make it more difficult
for Internet viewers to find and use the Company's products and services.
Microsoft recently licensed products and services from Inktomi Corporation
("Inktomi"), a direct competitor of the Company, and has announced that it will
feature and promote Inktomi services in the Microsoft Network and other
Microsoft online properties. The Company expects that such search services may
be tightly integrated into the Microsoft operating system, the Internet
Explorer browser and other software applications, and that Microsoft will
promote such services within the Microsoft Network or through other Microsoft-
affiliated end-user services such as MSNBC or WebTV. The Company's agreement
with Netscape to be one of four non-exclusive premier providers of navigational
services expires on April 30, 1998, and there can be no assurance that the
Company will be successful in renewing this agreement on terms advantageous to
the Company, if at all. See "--Relationship With Netscape." In addition,
entities that sponsor or maintain high-traffic Web sites or that provide an
initial point of entry for Internet viewers, such as the RBOCs or ISPs such as
Microsoft and AOL, currently offer and can be expected to consider further
development, acquisition or licensing of Internet search and navigation
functions competitive with those offered by the Company, or could take actions
that make it more difficult for viewers to find and use the Company's products
and services. For example, AOL is currently a significant shareholder of Excite
and offers Excite's WebCrawler and NetFind as the exclusive Internet search and
retrieval services for use by AOL's subscribers. Continued or increased
competition from such consolidations, integration and strategic relationships
involving competitors of the Company could have a material adverse effect on
the Company's business, results of operations, financial condition and
prospects.
Competition from existing search and navigational competitors. Many companies
currently offer directly competitive products or services addressing Web search
and navigation, including DEC/AltaVista, Excite, HotBot, Inktomi, Lycos, CNET
and Yahoo! In addition, the Company's Ultraseek Server product competes
directly with intranet products and services offered by companies such as
DEC/AltaVista, Lycos, Open Text and Verity. The Web browsers currently offered
by Netscape and Microsoft, which are the two most widely-used browsers,
incorporate prominent search buttons and similar features, such as features
based on "push" technologies, that direct search traffic to competing services,
including those that may be developed or licensed by Microsoft or Netscape in
enhancements or later versions of these or other products. Many of the
Company's existing competitors, as well as a number of potential new
competitors, have significantly greater financial, technical, marketing and
distribution resources than the Company.
Competition from Internet and other advertising media. The Company also
competes with online services, other Web site operators and advertising
networks, as well as traditional media such as television, radio and print
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for a share of advertisers' total advertising budgets. Additionally, a large
number of Web sites and online services (including, among others, the Microsoft
Network, MSNBC, AOL and other Web navigation companies such as Excite, Lycos
and Yahoo!) offer informational and community features, such as news, stock
quotes, sports coverage, yellow pages and e-mail listings, weather news, chat
services and bulletin board listings that are competitive with the services
currently offered or proposed to be offered by the Company. Moreover, the
Company believes that the number of companies selling Web-based advertising and
the available inventory of advertising space have recently increased
substantially. Accordingly, the Company may face increased pricing pressure for
the sale of advertisements and reductions in the Company's advertising
revenues.
Low barriers to entry for new search and navigational companies. The Company
believes that the costs associated with developing technologies, products and
services that compete with those offered by the Company are relatively low. As
a result, as the market for Internet and intranet search and navigational
products develops, other companies may be expected to offer similar products
and services and directly and indirectly compete with the Company for
advertising revenues.
RELIANCE ON ADVERTISING REVENUES. The Company has derived a substantial
majority of its revenues to date from the sale of advertisements and expects to
continue its dependence on advertising and related products, including channel
sponsorships and, to a lesser extent, the sale of the Ultramatch advertising
management system and the Ultraseek Server intranet product. The Company's
current business model of generating revenues through the sale of advertising
on the Internet, which is highly dependent on the amount of traffic on the
Company's Web site, is relatively 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. 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. In addition, the
ability to quickly develop new business models which will generate additional
revenue sources may be vital for the Company to remain competitive in its
marketplace. Accordingly, there can be no assurance that the Company will be
successful in generating significant future advertising revenues or other
source of revenues; failure to do so could have a material adverse effect on
the Company's business, results of operations, financial condition and
prospects.
TECHNOLOGICAL CHANGE 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.
In the fourth quarter of 1997, the Company released a new version of its
service which currently features 15 "channels," designed to bring together
topical information, services, products and communities on the Web. The new
service provides additional opportunities for revenue from the sale of channel
sponsorships as well as provides an opportunity for the Company to share in a
portion of the revenue facilitated by its viewers with these channel sponsors.
Continued market acceptance of this new version and successful conclusion of
sponsorship arrangements are integral to the Company's competitiveness and
viability. Most of the Company's additional channel sponsorship and partnership
arrangements are dependent on an increasing level of viewer traffic. If the
Company is unable to renew its relationship with Netscape, or if viewer traffic
is otherwise materially adversely
18
<PAGE>
affected, the Company may be unable to retain its channel sponsorship and
partnership arrangements. In addition, there can be no assurance that this new
sponsorship service or any other new or proposed product or service will attain
market acceptance, experience technological sustainability or be free of errors
that require significant design modifications or that the business model to
generate revenues will be successful. Failure of the Company to successfully
design, develop, test, market and introduce other new and enhanced technologies
and services, 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, results of operations, financial condition and prospects.
Due to rapid 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. 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, results of operations, financial condition and prospects could be
materially adversely affected.
MANAGEMENT OF GROWTH. The Company has recently experienced and may continue
to experience rapid growth, which has placed, and could continue to place, a
significant strain on the Company's limited personnel and other resources.
Competition for engineering, sales and marketing personnel is intense, and
there can be no assurance that the Company will be successful in attracting and
retaining such personnel or that the Company will be able to manage such growth
effectively. To succeed, the Company will need to continue to implement and
improve its operational, financial and management information systems and to
hire, train, motivate and manage its employees. In particular, the Company has
experienced difficulty in hiring and retaining the personnel necessary to
support the growth of the Company's business. The failure of the Company to
successfully manage any of these issues would have a material adverse effect on
the Company's business, results of operations, financial condition and
prospects. The Company's ability to manage its growth will require a
significant investment in and upgrade to its existing internal management
information systems to support increased accounting and other management
related functions, and a new advertising inventory management analysis system
to provide enhanced internal reporting and customer feedback on advertising.
These system upgrades and replacements will impact almost all phases of the
Company's operations (i.e. planning, advertising implementation and management,
finance and accounting). These systems are currently scheduled to become
operational by the second half of 1998. There can be no assurance that the
Company will not experience problems, delays or unanticipated additional costs
in implementing these systems or in the use of its existing system that could
have a material adverse effect on the Company's business, results of
operations, financial condition and prospects, particularly in the period or
periods in which these systems are brought online.
ACQUISITION STRATEGY. The Company believes that, although it currently has no
specific plans to do so, it may be necessary to enter into joint ventures or
other strategic relationships or make acquisitions of complementary products,
technologies or businesses in order to remain competitive. The failure of the
Company to execute such a strategy may lead to decreased market share, viewer
traffic or brand loyalty, which may have a material adverse effect on the
Company's business, results of operations, financial condition and prospects.
In addition, acquisition transactions are accompanied by a number of risks,
including, among other things, the difficulty of integrating the operations and
personnel of the acquired companies, the potential disruption of the Company's
ongoing business, the inability of management to maximize the financial and
strategic position of the Company through the successful incorporation of
acquired technology or content and rights into the Company's products and media
properties, expenses associated with the transactions, additional expenses
associated with amortization of acquired intangible assets, the maintenance of
uniform standards, controls, procedures and policies, the impairment of
relationships with employees and customers as a result of any
19
<PAGE>
integration of new management personnel, and the potential unknown liabilities
associated with acquired businesses. There can be no assurance that the Company
would be successful in overcoming these risks or any other problems encountered
in connection with such acquisitions.
CAPACITY CONSTRAINTS AND SYSTEM FAILURE; ADVERTISING MANAGEMENT SYSTEM. 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. If traffic to the
Company's Web site continues to 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 viewers
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. 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, financial
condition and prospects.
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 is
in the process of evaluating the conversion from an internally developed
advertising inventory management analysis system to provide enhanced internal
reporting and customer feedback on advertising to a system being developed by
NetGravity. The Company currently anticipates that this new advertising
management system will be installed and become operational in the second half
of 1998. To the extent that the Company encounters material difficulties in
bringing, or is unable to bring, this new system online, the Company will need
to acquire an alternative solution from a third party vendor or devote
sufficient resources to enhance its current internally developed system. Any
extended failure of, or material difficulties encountered in connection with,
the Company's advertising management system may expose the Company to "make
good" obligations with its advertising customers, which, by displacing
advertising inventory among other consequences, would reduce revenue and would
have a material adverse effect on the Company's business, results of
operations, financial condition and prospects.
In addition, the Company's operation depends upon its ability to maintain and
protect its computer systems, all of which are located at the Company's
principal offices in Sunnyvale, 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 and does not have redundant systems for its service at an
alternate site. 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 temporary
cessation of service to users of the Company's products and services. The
occurrence of any of these events would have a material adverse effect on the
Company's business, results of operations, financial condition and prospects.
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FINANCING. The Company
currently anticipates that its cash, cash equivalents, short-term investments,
available funds under its equipment term loan facility and cash flows generated
from advertising revenues, will be sufficient to meet its anticipated needs for
working capital and other cash requirements through at least December 31, 1998.
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
20
<PAGE>
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 its expansion,
take advantage of unanticipated 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, financial condition and prospects. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
RISKS ASSOCIATED WITH INTERNATIONAL EXPANSION. As part of its business
strategy, the Company has begun to seek additional 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 faces new competitors. In addition, the
Company's success in entering international markets is 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 and services 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 would not have a material adverse effect on any
international operations established by the Company and, consequently, on the
Company's business, results of operations, financial condition and prospects.
DEPENDENCE ON KEY PERSONNEL; NEW MEMBERS OF THE EXECUTIVE MANAGEMENT
TEAM. The Company has recently experienced significant changes to its executive
management team. Those who have recently joined the executive management team
include Harry Motro, President and Chief Executive Officer; Beth Haggerty, Vice
President of Worldwide Sales; Barak Berkowitz, Vice President of Marketing; and
Leslie Wright, Vice President Finance and Chief Financial Officer. There can be
no assurance that the new members of the Company's management team will work
effectively together with the rest of the Company's executive management. In
addition, the Company has recently hired, and plans to continue to hire, a
number of engineers to design and implement improvements to the integration of
content with its search engine technology, which the Company believes will be a
significant factor in its future ability to compete favorably with other
navigational guides. The Company's future performance depends in significant
part upon the contributions of its senior management personnel, including its
Chairman Steven Kirsch, who is integrally involved in the Company's research
and development efforts. Although 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 services of
any of the Company's officers or other key employees would have a material
adverse effect on the Company's business, results of operations, financial
condition and prospects.
VOLATILITY OF STOCK PRICE. The price of the Company's Common Stock has been
and may continue to be subject to wide fluctuations in response to a number of
events and factors such as quarterly variations in results of operations,
announcements of new technological innovations or new products and media
properties by the Company or its competitors, changes in financial estimates
and recommendations by securities analysts, the operating and stock price
performance of other companies that investors may deem comparable to the
Company, and news relating to trends in the Company's markets. In addition, the
stock market in general, and the market prices for Internet-related companies
in particular, have experienced extreme volatility that often has been
21
<PAGE>
unrelated to the operating performance of such companies. These broad market
and industry fluctuations may adversely affect the price of the Company's
Common Stock, regardless of the Company's operating performance.
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 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 12 United
States patent applications pending and five foreign 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, that the
Company will counterclaim against any such parties in such actions or that if
the Company makes claims against third parties with respect thereto, that any
such party will not counterclaim against the Company 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, results of
operations, financial condition and prospects. Such royalty or licensing
agreements, if required, may not be available on terms acceptable to the
Company or at all.
GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES. The Company is not currently
subject to direct regulation by any government agency, other than regulations
applicable to businesses, and there are currently few laws or regulations
directly applicable to access to or commerce on the Internet. A number of
legislative and regulatory proposals are under consideration by federal, state
and foreign governmental organizations, and it is possible that a number of
laws or regulations may be adopted with respect to the Internet covering issues
such as user privacy, pricing and characteristics and quality of products and
services. 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, financial
condition and prospects. 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, financial condition and prospects.
Because materials may be downloaded by the online or Internet services
operated or facilitated by the Company and may be subsequently distributed to
others, there is a potential that claims will be made against the Company for
defamation, negligence, copyright or trademark infringement, personal injury or
other theories
22
<PAGE>
based on the nature, content, publication and distribution of such materials.
Such claims have been brought, and sometimes successfully pressed, against
online service providers in the past. In addition, the Company could be exposed
to liability with respect to the selection of listings that may be accessible
through content and materials that may appear in chat room, instant messaging
or other services offered by the Company. Such claims might include, among
others, that by providing hypertext links to Web sites operated by third
parties, the Company is liable for copyright or trademark infringement or other
wrongful actions by such third parties through such Web sites. It is also
possible that if any information provided through the Company's services, such
as stock quotes, analyst estimates or other trading information, contains
errors, third parties could make claims against the Company for losses incurred
in reliance on such information. The Company expects to offer Web-based e-mail
services in the near future, which may expose the Company to potential risks,
such as liabilities or claims resulting from unsolicited e-mail (spamming),
lost or misdirected messages, illegal or fraudulent use of e-mail, harassment
or interruptions or delays in e-mail service.
From time to time, the Company enters into agreements with sponsors, content
providers, service providers and merchants under which the Company is entitled
to receive a share of revenue from the purchase of goods and services by users
of the Company's online properties. Such arrangements may expose the Company to
additional legal risks and uncertainties, including (without limitation)
potential liabilities to consumers of such products and services. 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.
YEAR 2000 COMPLIANCE. The Company is aware of the issues associated with the
programming code in existing computer systems as the year 2000 approaches. The
"year 2000 problem" is pervasive and complex as virtually every computer
operation will be affected in some way by the rollover of the two digit year
value to 00. The issue is whether computer systems will properly recognize date
sensitive information when the year changes to 2000. Systems that do not
properly recognize such information could generate erroneous data or cause a
system to fail. Management is in the process of working with its software
vendors to assure that the Company is prepared for the year 2000. Management
does not anticipate that the Company will incur significant operating expenses
or be required to invest heavily in computer systems improvements to be year
2000 compliant. However, significant uncertainty exists concerning the
potential costs and effects associated with any year 2000 compliance. The
Company is currently implementing an upgrade to its management information
system that the Company believes is year 2000 compliant. Any year 2000
compliance problem of either the Company or its viewers, Ultraseek Server
customers or advertisers could materially adversely affect the Company's
business, results of operations, financial condition and prospects.
ITEM 2. PROPERTIES
The Company's principal administrative, sales, marketing, and research and
development facility is located in approximately 59,000 square feet of space in
Sunnyvale, California. This facility is leased pursuant to a lease which
expires on November 13, 2002. In addition, the Company has an option for
additional space up to a total of 92,000 square feet. This facility houses the
Infoseek corporate headquarters and all current corporate operations. 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. 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
None.
23
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company has never paid cash dividends on its Common Stock and does not
anticipate paying any cash dividends in the foreseeable future. The Company's
equipment term loan facility restricts the payment of dividends when
borrowings are outstanding.
The Company's Common Stock has been traded on the Nasdaq National Market
under the symbol "SEEK" since June 11, 1996, the date of the Company's initial
public offering. The following table sets forth, for the periods indicated,
the high and low closing sale prices for the Common Stock as reported by the
Nasdaq National Market:
<TABLE>
<CAPTION>
HIGH LOW
-------- ---------
<S> <C> <C>
FISCAL YEAR ENDED DECEMBER 31, 1996:
Second Quarter (from June 11, 1996)........................ $14 1/4 $ 9 1/2
Third Quarter.............................................. 9 5/8 5 3/4
Fourth Quarter............................................. 10 3/4 7 3/4
FISCAL YEAR ENDED DECEMBER 31, 1997:
First Quarter.............................................. $10 3/4 $ 6 1/4
Second Quarter............................................. 8 4 1/2
Third Quarter.............................................. 9 9/32 4 11/16
Fourth Quarter............................................. 13 3/4 8
FISCAL YEAR ENDING DECEMBER 31, 1998:
First Quarter (through March 4, 1998)...................... $17 3/4 $ 8 7/16
</TABLE>
On March 4, 1998, the last reported sale price for the common stock on the
Nasdaq National Market was $17 21/32 per share. As of March 4, 1998, the
Company estimates that there were approximately 218 holders of record and over
4,800 beneficial owners of the Common Stock.
24
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data are derived from the financial
statements of Infoseek Corporation which have been audited by Ernst & Young
LLP, independent auditors. The data should be read in conjunction with the
financial statements, related notes thereto and other financial information
included or incorporated by reference herein.
<TABLE>
<CAPTION>
PERIOD FROM
AUGUST 30, 1993 YEARS ENDED DECEMBER 31,
(INCEPTION) TO ------------------------------------
DECEMBER 31, 1993 1994 1995 1996 1997
----------------- ------- ------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA:
Total revenues.......... $-- $ -- $ 1,032 $ 15,095 $ 34,603
Cost of revenues........ -- -- 614 3,194 6,100
---- ------- ------- -------- --------
Gross profit............ -- -- 418 11,901 28,503
Operating expenses:
Research and
development.......... 8 1,063 1,175 4,550 7,327
Sales and marketing... -- 97 1,488 20,455 33,364
General and
administrative....... 19 360 1,148 4,177 6,406
Restructuring and
other charges (1).... -- -- -- -- 7,349
---- ------- ------- -------- --------
Total operating
expenses........... 27 1,520 3,811 29,182 54,446
---- ------- ------- -------- --------
Operating loss.......... (27) (1,520) (3,393) (17,281) (25,943)
Interest income
(expense), net......... -- 10 97 1,343 1,320
---- ------- ------- -------- --------
Net loss................ $(27) $(1,510) $(3,296) $(15,938) $(24,623)
==== ======= ======= ======== ========
Basic and diluted net
loss per share (pro
forma in 1995) (2)..... $ (0.21) $ (0.72) $ (0.93)
======= ======== ========
Shares used in computing
basic and diluted net
loss per share......... 15,535 22,120 26,337
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------
1993 1994 1995 1996 1997
---- ---- ------ ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEETS DATA:
Cash, cash equivalents and short-term
investments................................. $177 $568 $1,626 $46,653 $31,334
Working capital (deficit).................... (99) 458 93 41,997 19,321
Total assets................................. 318 859 5,123 58,332 51,154
Long-term obligations........................ -- 210 838 1,892 4,329
Total shareholders' equity................... $ 27 $520 $2,142 $48,985 $27,268
</TABLE>
- --------
(1) During the second quarter of 1997, the Company recorded restructuring and
other charges of approximately $7,400,000 related to the discontinuance of
certain business arrangements that were determined to be non-strategic and
to management changes. See Note 5 of Notes to Financial Statements.
(2) The earnings per share amounts prior to 1997 have been restated as
required to comply with Statement of Financial Accounting Standards No.
128, Earnings Per Share and Staff Accounting Bulletin No. 98, Earnings Per
Share. See Notes 1 and 12 of Notes to Financial Statements for an
explanation of the method used to determine the number of shares used in
computing basic and diluted net loss per share.
25
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This Management's Discussion and Analysis of Financial Condition and Results
of Operations contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. Actual results could differ materially from those
projected in the forward-looking statements as a result of the factors set
forth in "Risk Factors" beginning on page 15 of this Annual Report on Form 10-
K. In particular, note the factors entitled "Limited Operating History;
Historical Losses; Anticipation of Continued Losses," "Potential Fluctuations
in Future Results," "Reliance on Advertising Revenues," "Intense Competition,"
"Relationship With Netscape," "Capacity Constraints and System Failure;
Advertising Management System" and "Technological Change and New Products and
Services." The discussion of those factors is incorporated herein by this
reference as if said discussion was fully set forth at this point.
OVERVIEW
Infoseek was formed in August 1993 to develop and provide Internet and World
Wide Web search and navigational services. From inception to March 31, 1995,
the Company's operations were limited and consisted primarily of start-up
activities, including recruiting personnel, raising capital, research and
development, and the negotiation and execution of an agreement to license an
information retrieval search engine.
The Company introduced its first products and services in 1995. Through the
second quarter of 1997, the Company's strategic focus was on developing its
capabilities as an Internet search and navigation service. In response to
rapid growth and a change in the Internet search and navigation market, the
Company's Board of Directors, in the second quarter of 1997, hired a new Chief
Executive Officer, Harry Motro, to evolve the strategic vision of the Company
while continuing to leverage the Company's core strength in search and
navigation. Mr. Motro and Founder Steven Kirsch recruited a number of new
members to the executive management team to execute the Company's strategy of
building Infoseek brand awareness; creating a richer viewer experience;
maximizing value for the Company's advertisers; providing intranet search
products; and enhancing Infoseek's search and navigation service. In June
1997, the Company took a restructuring charge of approximately $7,400,000
related to the discontinuance of certain non-strategic business arrangements
and management changes.
In October 1997, the Company launched an enhanced version of the Infoseek
Service, with 15 easy to navigate "channels" that integrate search results
with relevant information, services, products and communities on the Web. The
new Infoseek Service provides the Company with a platform for creating content
and marketing partnerships that enrich the viewer's experience while enabling
advertisers, sponsors and partners to more effectively target viewers.
Since inception, the Company has achieved significant growth in traffic and
revenues. The Company's 1997 revenues of approximately $34,600,000 represents
a 129% increase as compared to 1996 revenues of approximately $15,100,000. The
Company's average daily page views increased 190% in the fourth quarter of
1997 as compared to the fourth quarter of 1996 and averaged 12.5 million for
the fourth quarter of 1997. During 1997, 1996 and 1995, the Company derived a
substantial majority of its revenues from the sale of advertisements on its
Web pages. During these periods, advertising revenues accounted for
approximately 94%, 99% and 82%, respectively, of total revenues. Most of the
Company's contracts with advertising customers have terms of three months or
less, with options to cancel at any time.
Beginning with the October 1997 launch of the enhanced version of the
Infoseek Service, the Company began to sell channel sponsorships to
advertisers, sponsors and partners. In the fourth quarter of 1997, the Company
entered into eight different sponsor and partnership agreements covering
certain topics within five of the Company's 15 channels, including an
exclusive relationship with Borders OnLine for the sale of books. The duration
of the Company's sponsorship and partnership agreements range from two months
to two years and revenues are generally recognized ratably over the term of
the agreements, provided that minimum impressions are met, and are included in
advertising revenues.
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Beginning in early 1997, the Company began to license its Ultraseek Server
product to corporate customers for use on their intranets and public Web
sites. Such licensing revenues represented approximately 6% of total revenues
for the year.
The Company's significant growth and limited operating history in a rapidly
evolving industry makes it difficult to manage operations and predict future
operating results. The Company has incurred significant net losses since
inception and expects to continue to incur significant losses on a quarterly
and annual basis in 1998 and may do so in subsequent fiscal periods. As of
December 31, 1997, the Company had an accumulated deficit of $45,394,000. 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. There can be no assurance that the Company will be able to address any
of these challenges. Although the Company has experienced significant revenue
growth in 1997, there can be no assurance that this growth rate will be
sustained or that revenues will continue to grow or that the Company will
achieve profitability. In 1997, the Company significantly increased its
operating expenses as a result of a substantial increase in its sales and
marketing operation, development of new distribution channels, broadening of
its customer support capabilities and funding of greater levels of research
and development. Further increases in operating expenses are planned during
fiscal 1998. To the extent that any such expenses are not timely followed by
increased revenues, the Company's business, results of operations, financial
condition and prospects would be materially adversely affected.
As a result of the Company's limited operating history as well as the recent
emergence of both the Internet and intranet markets addressed by the Company,
the Company has neither internal nor industry-based historical financial data
for any significant period of time upon which to project revenues or 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 and intranets as information media; the rate of acceptance of the
Internet as an advertising medium and a channel of commerce; demand for the
Company's products and services; the advertising budgeting cycles of
individual advertisers; the introduction and acceptance of new, enhanced or
alternative 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, implementation, renewal or
expiration of significant contracts with Bell Atlantic, Borders OnLine,
Microsoft, Netscape and others; pricing changes by the Company or its
competitors; specific economic conditions in the Internet and intranet
markets; general economic conditions; and other factors. Substantially all of
the Company's revenues have been generated from the sale of advertising, and
the Company expects to continue to derive substantially all of its revenues
from selling advertising and related products for the foreseeable future.
Moreover, most of the Company's contracts with advertising customers have
terms of three months or less. Advertising revenues are tightly related to the
amount of traffic on the Company's Web site, which is inherently
unpredictable. 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 not
expected to decrease, at least in the short term. The Company may not be able
to adjust spending in a timely manner to compensate for any future revenue
shortfall. Accordingly, any significant shortfall in relation to the Company's
expectations would have an immediate material adverse impact on the Company's
business, results of operations, financial condition and prospects.
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, financial condition and prospects and which may not generate the
long-term benefits intended. From time to time, the Company has entered into
and may continue to enter into strategic relationships with companies for
cross service advertising, such as the Company's relationships with Bell
Atlantic and UPS. The Company's revenues have in the past been, and may in the
future continue to be partially dependent on its relationship with its
strategic partners. Such strategic relationships have and may continue to
include substantial one-time or up front payments from the Company's partners.
Accordingly, the Company believes that its
27
<PAGE>
quarterly revenues are likely to vary significantly in the future, that
period-to-period comparisons are not necessarily meaningful and that such
comparisons should not necessarily be relied upon as an indication of the
Company's future performance. Due to the foregoing factors, it is likely that
in future periods, 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.
See "Risk Factors--Limited Operating History; Historical Losses; Anticipation
of Continued Losses," "--Potential Fluctuations in Future Results," "--
Relationship With Netscape" and "--Developing Market; Unproven Acceptance of
Internet Advertising and of the Company's Products and Services."
RESULTS OF OPERATIONS
Total Revenue
For the years ended December 31, 1997, 1996 and 1995 total revenues were
$34,603,000, $15,095,000 and $1,032,000, respectively.
During 1997, 1996 and 1995 the Company derived a substantial majority of its
revenues from the sale of advertisements on its Web pages. Advertising
revenues in 1997, 1996 and 1995 were $32,462,000, $14,951,000 and $849,000,
respectively, representing 94%, 99% and 82% of total revenues in such periods.
The growth in advertising revenues since 1995 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 and increased viewer traffic on the Infoseek Service. The Company
expects to continue to derive a substantial majority 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 viewer) 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. To the extent
minimum guaranteed impressions are not met, the Company defers recognition of
the corresponding revenue until the remaining guaranteed impression levels are
achieved. Deferred revenue is comprised of billings in excess of recognized
revenue related to advertising contracts.
Also included in advertising revenues is the exchange by the Company of
advertising space on the Company's Web sites for reciprocal advertising space
or traffic 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 not exceeded 10% of total revenues in
any period 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.
In late 1997, the Company released a new version of its service which
features 15 "channels," designed to bring together topical information,
services, products and communities on the Web. The new service provides
additional opportunities for revenue from the sale of channel sponsorships and
in some circumstances enables the Company to share in a portion of the revenue
generated by its viewers with these channel sponsors. Revenue generated by
channel sponsors is included in advertising revenues and is recognized on a
straight line basis over the terms of the agreements provided that minimum
impressions are met.
In 1997, the balance of total revenues was derived from the licensing of the
Ultraseek Server product to businesses for internal use in their intranets,
extranets or public sites. Licensing of the Ultraseek Server commenced in
early 1997 and represented approximately 6% of total revenues for the year. In
1996 and 1995, the balance of the total revenues were derived from
subscription fees for a premium service offered to business and professional
viewers, which was discontinued during the third quarter of 1996.
28
<PAGE>
The Company's current business model is to generate revenues through the
sale of advertising on the Internet. 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, 1997, 1996 and 1995, cost of revenues were
$6,100,000, $3,194,000 and $614,000, respectively. Cost of revenues consists
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 expenses associated with the
licensing of certain third-party technologies. Cost of revenues increased in
1997 and 1996 as the Company added additional equipment and personnel to
support its Web sites and as royalties due to certain third parties 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 and adds content partners to meet the
growing demands for Web services.
Operating Expenses
The Company's operating expenses have increased in absolute dollars during
1997, 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.
The Company recorded aggregate deferred compensation of $5,666,000 in
connection with certain stock options granted through 1997. The amortization
of such deferred compensation is being charged to operations over the vesting
periods of the options, which are typically four years. For the years ended
December 31, 1997, 1996 and 1995, the Company amortized $832,000 and
$1,346,000 and $44,000, respectively, related to stock options. At December
31, 1997, unamortized deferred compensation totaled $753,000. The amortization
of this deferred compensation will continue to have an adverse effect on the
Company's results of operations through 1999. See Note 7 of Notes to Financial
Statements set forth at Item 8 of this Annual Report on Form 10-K.
Research and Development
For the years ended December 31, 1997, 1996 and 1995 research and
development expenses were $7,327,000, $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 1997 and 1996 over
1995 was primarily the result of on-going enhancements to the Infoseek Service
and the development and implementation of new technology and products.
Ultraseek, the Company's core search engine, was released in November 1996 and
the Ultramatch technology and channel products, were commercially released
during the second and fourth quarter of 1997, respectively. The Company
believes that a significant level of product development expenses is required
to continue to remain competitive in its industry. 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, 1997, 1996 and 1995 sales and marketing
expenses were $33,364,000, $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.
29
<PAGE>
Sales and marketing expenses for the years ended December 31, 1997 and 1996
included payments made to Netscape pursuant to an arrangement for the listing
of the Company's service on the Netscape Web page. The original agreement with
Netscape provided for payments of up to an aggregate of $5,000,000 in cash and
reciprocal advertising ($3,500,000 in cash and $1,500,000 in reciprocal
advertising) over the course of the one-year term of the agreement. The
current agreement with Netscape provides for the Company to pay an aggregate
of $12,500,000 in cash and reciprocal advertising ($10,000,000 in cash and
$2,500,000 in reciprocal advertising) to be one of four non-exclusive premier
providers of navigational services (along with Excite, Lycos and Yahoo!) and
expires on April 30, 1998. During the years ended December 31, 1997 and 1996,
the Company recognized $9,583,000 and $3,750,000, respectively, of expense
related to this agreement. The payments to Netscape are being recognized
ratably over the term of the agreement. At December 31, 1997, the Company has
approximately $7,555,000 of cash commitment remaining in connection with this
agreement, which includes $4,221,000 of accrued liabilities to service
providers.
Although the Company is currently in discussions with Netscape about
renewing the agreement, there can be no assurance that Netscape will be
willing to renew the agreement on commercially equivalent terms or on other
terms that may be satisfactory to the Company. The failure to renew the
Netscape agreement would result, at least in the short term, in a material
reduction in traffic to the Infoseek Web site. This could, in turn, result in
advertisers on the Company's Web sites, including channel sponsors,
terminating their contracts with the Company as such contracts are typically
of short duration and terminable on relatively short notice, reducing the
number of impressions purchased. Furthermore, the Company's contracts with
advertisers generally guarantee a minimum number of page views, and a failure
to achieve the minimum page views could result in a reduction in payments to
the Company or compel the Company to provide "make good" impressions if such
minimums are not met. If the Company is unable to develop viable alternative
distribution channels to Netscape or is otherwise unable to offset a reduction
in traffic, advertising revenues would be substantially adversely affected,
resulting in the Company's business, results of operations, financial
condition and prospects being materially and adversely affected. See "Risk
Factors--Relationship With Netscape."
In addition, in July 1997, the Company entered into an agreement with
Netscape whereby it was designated as a premier provider of international
search and navigational guide services for the Netscape Net Search Program,
for 10 Netscape local Web sites. The Company's agreement with Netscape
provides for payments of up to a maximum aggregate of $1,219,000 in cash and
reciprocal advertising over the one-year term of the agreement. During the
year ended December 31, 1997, Netscape delivered at the minimum exposure level
and the Company as a result recognized sales and marketing expenses of
approximately $333,000 under this agreement as a component of sales and
marketing expense. See Note 4 of Notes to Financial Statements.
In addition, the increase in sales and marketing expenses for the year ended
1997 and 1996 was also the result of hiring additional sales and marketing
personnel and an increase in promotional and advertising activity including
advertising campaigns in both 1997 and 1996, including television. The Company
expects to increase the amount of promotional and advertising expenses and
anticipates hiring additional sales representatives in 1998 and future
periods.
General and Administrative
For the years ended December 31, 1997, 1996 and 1995 general and
administrative expenses were $6,406,000, $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 years ended 1997
and 1996 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.
30
<PAGE>
Restructuring and Other Charges
During the second quarter of 1997, the Company recorded restructuring and
other charges of approximately $7,400,000, of which approximately $6,200,000
related to the discontinuance of certain business arrangements which were
determined to be non-strategic, and approximately $1,200,000 related to
management changes. Of these restructuring charges, approximately $5,000,000
involved cash outflows, of which $3,100,000 had been paid as of December 31,
1997. Non-cash restructuring charges of approximately $2,400,000 related
primarily to the write-down of certain non-strategic business assets. There
have been no material changes to the restructuring plan or in the estimates of
the restructuring costs. As of December 31, 1997, the Company had
approximately $1,900,000 remaining in its restructuring reserve, which is
currently expected to be fully utilized by June 30, 1998.
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, 1997, the Company had
federal and state net operating loss carry forwards of approximately
$42,600,000 and $28,300,000, respectively. The federal net operating loss
carry forwards will expire beginning in 2009 through 2012, if not utilized,
and the state net operating loss carry forwards will expire in the years 1999
through 2002. 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.
Year 2000 Compliance
The Company is aware of the issues associated with the programming code in
existing computer systems as the year 2000 approaches. The "year 2000 problem"
is pervasive and complex as virtually every computer operation will be
affected in some way by the rollover of the two digit year value to 00. The
issue is whether computer systems will properly recognize date sensitive
information when the year changes to 2000. Systems that do not properly
recognize such information could generate erroneous data or cause a system to
fail. Management is in the process of working with its software vendors to
assure that the Company is prepared for the year 2000. Management does not
anticipate that the Company will incur significant operating expenses or be
required to invest heavily in computer systems improvements to be year 2000
compliant. However, significant uncertainty exists concerning the potential
costs and effects associated with any year 2000 compliance. The Company is
currently implementing an upgrade to its management information system that
the Company believes is year 2000 compliant. Any year 2000 compliance problem
of either the Company or its viewers, Ultraseek Server customers or
advertisers could materially adversely affect the Company's business, results
of operations, financial condition and prospects.
New Accounting Pronouncements
The Financial Accounting Standards Board approved the new American Institute
of Certified Public Accountants Statement of Position, Software Revenue
Recognition (SOP 97-2). SOP 97-2 will be effective for the Company beginning
in the first quarter of 1998. The Company does not believe the adoption of SOP
97-2 will have a significant impact on its revenue recognition policy.
In June 1997, the Financial Accounting Standards Board issued Statement No.
130, Reporting Comprehensive Income (SFAS No. 130) and Statement No. 131,
Disclosures About Segments of An Enterprise and Related Information (SFAS No.
131). SFAS No. 130 establishes rules for reporting and displaying
comprehensive income. SFAS No. 131 will require the Company to use the
"management approach" in disclosing segment information. Both statements are
effective for the Company during 1998. The Company does not believe that the
adoption of either SFAS No. 130 or SFAS No. 131 will have a material impact on
the Company's results of operations, cash flows, financial position or
prospects.
31
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
From inception through May 1996, the Company financed its operations and met
its capital expenditure requirements primarily from proceeds derived from 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 1997, 1996 and 1995, operating activities used cash of $12,547,000,
$10,068,000 and $1,408,000, respectively. The net cash used during these
periods was primarily due to net losses and increases in accounts receivable,
partially offset by increases in accounts payable and accrued liabilities. For
1997, investing activities generated cash of $6,317,000 primarily related to
the sale of investments offset by purchases of property, plant and equipment.
For 1996 and 1995, investing activities used net cash of $49,827,000 and
$3,326,000, respectively, primarily associated with the net purchase of short-
term investments and purchase of property and equipment. Financing activities
generated cash of $5,662,000, $62,552,000 and $5,295,000, in 1997, 1996 and
1995, respectively, primarily from the initial public offering in June 1996,
equipment loans and preferred stock sales.
The Company has commitments for its facilities under operating lease
agreements 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. See Note 4 of Notes to Financial Statements.
The Company had $31,334,000 in cash, cash equivalents and short-term
investments at December 31, 1997. Also, in March 1997, the Company entered
into a four-year, $5,000,000 equipment term loan facility. In February 1998,
the Company completed a follow-on public offering of 3,450,000 shares of
Common Stock and received proceeds of approximately $43,015,000 net of
underwriting discounts, commissions, and other offering costs. The Company
currently anticipates that its cash, cash equivalents, short-term investments,
available funds under its equipment term loan facility and cash flows
generated from advertising revenues, will be sufficient to meet its
anticipated needs for working capital and other cash requirements through at
least December 31, 1998. 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, financial condition and prospects. 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 under "Risk
Factors--Future Capital Needs; Uncertainty of Additional Financing."
32
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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, 1997 and 1996, and the related statements of operations,
shareholders' equity, and cash flows for each of the three years in the period
ended December 31, 1997. 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, 1997 and 1996, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1997, in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
San Jose, California
January 16, 1998, except for
Note 13 as to which
the date is February 12, 1998
33
<PAGE>
INFOSEEK CORPORATION
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................ $ 3,218 $ 3,786
Short-term investments........................... 28,116 42,867
Accounts receivable, less allowance for doubtful
accounts of $850 in 1997 and $350 in 1996....... 6,918 2,428
Other current assets............................. 626 371
------------ ------------
Total current assets........................... 38,878 49,452
Property and equipment:
Computer and office equipment.................... 16,169 9,651
Furniture and fixtures........................... 935 307
Leasehold improvements........................... 1,323 108
------------ ------------
18,427 10,066
Less accumulated depreciation and amortization... 8,144 2,479
------------ ------------
Net property and equipment......................... 10,283 7,587
Deposits and other assets.......................... 1,993 1,293
------------ ------------
Total assets................................... $ 51,154 $ 58,332
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable................................. $ 4,779 $ 3,269
Accrued payroll and related expenses............. 1,618 1,362
Accrued liabilities to service providers......... 4,221 --
Other accrued liabilities........................ 2,045 1,070
Deferred revenue................................. 2,542 760
Accrued restructuring and other charges.......... 1,877 --
Short-term obligations........................... 2,475 994
------------ ------------
Total current liabilities...................... 19,557 7,455
Long-term obligations.............................. 4,329 1,892
Commitments and contingencies
Shareholders' equity:
Preferred stock, no par value:
Authorized shares--5,000,000
No shares issued and outstanding................. -- --
Common stock, no par value:
Authorized shares--60,000,000
Issued and outstanding shares--27,244,000 in 1997
and 25,691,000 in 1996.......................... 73,565 73,754
Accumulated deficit................................ (45,394) (20,771)
Deferred compensation.............................. (753) (3,546)
Notes receivable from shareholders................. (150) (452)
------------ ------------
Total shareholders' equity..................... 27,268 48,985
------------ ------------
Total liabilities and shareholders' equity..... $ 51,154 $ 58,332
============ ============
</TABLE>
See accompanying notes.
34
<PAGE>
INFOSEEK CORPORATION
STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1997 1996 1995
-------- -------- -------
<S> <C> <C> <C>
TOTAL REVENUES.................................... $ 34,603 $ 15,095 $ 1,032
Cost of revenues.................................. 6,100 3,194 614
-------- -------- -------
Gross profit...................................... 28,503 11,901 418
OPERATING EXPENSES
Research and development........................ 7,327 4,550 1,175
Sales and marketing............................. 33,364 20,455 1,488
General and administrative...................... 6,406 4,177 1,148
Restructuring and other charges................. 7,349 -- --
-------- -------- -------
Total operating expenses.......................... 54,446 29,182 3,811
-------- -------- -------
Operating loss.................................... (25,943) (17,281) (3,393)
INTEREST INCOME (EXPENSE)
Interest income................................. 1,943 1,771 115
Interest expense................................ (623) (428) (18)
-------- -------- -------
1,320 1,343 97
-------- -------- -------
NET LOSS.......................................... $(24,623) $(15,938) $(3,296)
======== ======== =======
Basic and diluted net loss per share.............. $ (0.93) $ (0.72) $ (0.21)
Shares used in computing basic and diluted net
loss per share
(pro forma in 1995).............................. 26,337 22,120 15,535
</TABLE>
See accompanying notes.
35
<PAGE>
INFOSEEK CORPORATION
STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1997 1996 1995
-------- -------- -------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss......................................... $(24,623) $(15,938) $(3,296)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization.................. 4,788 2,157 438
Writedown of restructuring related assets...... 2,080 -- --
Amortization of unearned compensation related
to stock options.............................. 832 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............................ (4,490) (1,929) (499)
Other current assets........................... (255) (260) (92)
Deposits and other assets...................... (1,500) -- --
Accounts payable............................... 1,510 2,047 1,211
Accrued payroll and related expenses........... 256 1,291 67
Accrued liabilities to service providers....... 4,221 -- --
Other accrued liabilities...................... 975 457 498
Deferred revenue............................... 1,782 760 --
Accrued restructuring and other charges........ 1,877 -- --
-------- -------- -------
Net cash used in operating activities............ (12,547) (10,068) (1,408)
INVESTING ACTIVITIES
Purchases of available-for-sale investments...... (44,769) (92,966) (2,483)
Proceeds from sales of available-for-sale
investments..................................... 59,520 50,596 1,986
Issuance of notes receivable..................... (950) (600) --
Purchase of property and equipment............... (7,484) (6,857) (2,829)
-------- -------- -------
Net cash provided by (used) in investing
activities...................................... 6,317 (49,827) (3,326)
FINANCING ACTIVITIES
Term loan........................................ 5,000 2,573 967
Repayments of term loan.......................... (1,082) (763) (100)
Payment of deposit............................... -- (693) --
Proceeds from sale of convertible preferred
stock, net of issuance costs.................... -- 17,619 4,430
Proceeds from sale of common stock, net of
issuance costs.................................. -- 43,785 --
Proceeds from the exercise of stock options...... 1,147 6 --
Proceeds from employee stock purchase plan....... 295 -- --
Proceeds from repayment of notes receivable from
shareholders.................................... 302 28 --
Repurchase of common stock....................... -- (3) (2)
-------- -------- -------
Net cash provided by financing activities........ 5,662 62,552 5,295
-------- -------- -------
Net increase in cash and cash equivalents........ (568) 2,657 561
Cash and cash equivalents at beginning of
period.......................................... 3,786 1,129 568
-------- -------- -------
Cash and cash equivalents at end of period....... $ 3,218 $ 3,786 $ 1,129
======== ======== =======
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Unearned compensation related to stock options amounted to $440,000,
$3,102,000 and $2,124,000 for the years ended December 31, 1997, 1996 and
1995, respectively. Cash paid for interest expense amounted to $606,000,
$428,000 and $18,000 in 1997, 1996 and 1995, respectively.
See accompanying notes.
36
<PAGE>
INFOSEEK CORPORATION
STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
CONVERTIBLE NOTES
PREFERRED STOCK COMMON STOCK RECEIVABLE TOTAL
----------------- --------------- ACCUMULATED DEFERRED FROM SHAREHOLDERS'
SHARES AMOUNT SHARES AMOUNT DEFICIT COMPENSATION SHAREHOLDERS EQUITY
------- -------- ------ ------- ----------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31,
1994................... 9,421 $ 2,020 3,783 $ 38 $ (1,537) $ -- $ -- $ 521
Issuance of preferred
stock and warrants for
technology and cash.... 6,159 4,675 -- -- -- -- -- 4,675
Repurchase of common
stock from founder..... -- -- (155) (2) -- -- -- (2)
Issuance of common stock
to employee for note
receivable............. -- -- 372 50 -- -- (50) --
Unearned compensation
related to stock
options................ -- -- -- 2,124 -- (2,124) -- --
Amortization of unearned
compensation........... -- -- -- -- -- 44 -- 44
Fair value assigned to
services provided by
Netscape............... -- -- -- 200 -- -- -- 200
Net loss................ -- -- -- -- (3,296) -- -- (3,296)
------- -------- ------ ------- -------- ------ ----- --------
BALANCE AT DECEMBER 31,
1995................... 15,580 6,695 4,000 2,410 (4,833) (2,080) (50) 2,142
Cancellation of
preferred stock issued
for purchased
technology............. (280) -- -- -- -- -- -- --
Unearned compensation
related to stock
options................ -- -- -- 3,102 -- (3,102) -- --
Amortization of unearned
compensation........... -- -- -- -- -- 1,346 -- 1,346
Issuance of preferred
stock for cash, net of
issuance costs......... 2,267 17,619 -- -- -- -- -- 17,619
Repurchases of common
stock.................. -- -- (325) (3) -- -- -- (3)
Issuance of common stock
to officers............ -- -- 787 910 -- -- (610) 300
Cancellation of note
receivable and
repurchase of shares... -- -- (365) (470) -- 290 180 --
Payment on shareholders'
notes receivable....... -- -- -- -- -- -- 28 28
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 -- -- -- 43,485
Exercise of common stock
options................ -- -- 54 6 -- -- -- 6
Net loss................ -- -- -- -- (15,938) -- -- (15,938)
------- -------- ------ ------- -------- ------ ----- --------
BALANCE AT DECEMBER 31,
1996................... -- -- 25,691 73,754 (20,771) (3,546) (452) 48,985
Unearned compensation
related to stock
options................ -- -- -- 440 -- (440) -- --
Amortization of unearned
compensation........... -- -- -- -- -- 832 -- 832
Reversal of unearned
compensation........... -- -- -- (2,071) -- 2,071 -- --
Writeoff deferred
compensation related to
restructure............ -- -- -- -- -- 330 -- 330
Repurchases of common
stock.................. -- -- (27) -- -- -- -- --
Payment on shareholders'
notes receivable....... -- -- -- -- -- -- 302 302
Exercise of common stock
options................ -- -- 1,445 1,147 -- -- -- 1,147
Issuance of common stock
through employee stock
purchase plan.......... -- -- 44 295 -- -- -- 295
Issuance of common stock
from exercise of
warrants............... -- -- 91 -- -- -- -- --
Net loss................ -- -- -- -- (24,623) -- -- (24,623)
------- -------- ------ ------- -------- ------ ----- --------
BALANCE AT DECEMBER 31,
1997................... -- $ -- 27,244 $73,565 $(45,394) $ (753) $(150) $ 27,268
======= ======== ====== ======= ======== ====== ===== ========
</TABLE>
See accompanying notes.
37
<PAGE>
INFOSEEK CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization--Infoseek Corporation (the "Company") provides leading Internet
search and navigation technology, products and services that use the Web to
connect its viewers' personal, work and community lives. As a "connected"
media company, Infoseek is able to segment viewers by interest area, providing
advertisers with focused and targeted audiences. The Infoseek Service is a
comprehensive Internet gateway that combines search and navigation with
directories of relevant information sources and content sites, offers chat and
instant messaging for communicating shared interests and facilitates the
purchase of related goods and services. The Company conducts its business
within one industry segment.
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, 1997 and 1996.
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 detailed program designs as
part of the development process. As of December 31, 1997 and 1996, capitalized
costs were insignificant.
Stock-Based Compensation--The Company has elected to follow Accounting
Principles Board Opinion No. 25 (APB No. 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 No. 123) "Accounting for Stock-Based Compensation," requires use of
option valuation models that were not developed for use in valuing employee
stock options. Under APB 25, with the exception of certain options granted
during 1997, 1996 and 1995 as discussed in Note 7, no compensation expense is
recognized as the exercise price of the Company's employee stock options
equals the market price of the underlying stock on the date of grant.
Long-Lived Assets--In 1995, the Financial Accounting Standards Board
released the Statement No. 121 (SFAS No. 121), "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." SFAS No.
121 requires recognition of impairment of long-lived assets in the event the
net book
38
<PAGE>
INFOSEEK CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
value of such assets exceeds the future undiscounted cash flows attributable
to such assets. SFAS No. 121 has not had a material impact on the financial
statements of the Company.
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.
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 less than
10% of total revenues for all periods presented.
In late 1997, the Company released a new version of its service which
features 15 "channels," and provides opportunities for revenue from the sale
of channel sponsorships, as well as to enable the Company to share in a
portion of the revenue generated by its viewers with these channel sponsors.
Revenue generated by channel sponsors is included in advertising revenues and
is generally recognized on a straight line basis over the term of the
agreements provided that minimum impressions are met.
The Company also derived revenues of $2,141,000 from the licensing of its
Ultraseek technology. License revenues are recognized at the time of delivery,
provided no significant obligations remain and collectibility of the resulting
receivable is probable.
During 1996 and 1995, the Company also derived revenues 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 expensed as incurred. Advertising
costs, which include service provider fees and reciprocal advertising amounted
to $14,840,000 and $8,523,000 for the years ended December 31, 1997 and 1996,
respectively. There were no advertising costs for the year ended December 31,
1995. 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, 1997, the Company invested its excess cash
in commercial paper, government agency notes and money market funds. 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, 1997, no customer accounted for greater than 10% of revenues. For the year
ended December 31, 1996, one customer (a related party, see Note 11) accounted
for 13% of revenues and for the year ended December 31, 1995, another customer
accounted for 13% of revenues.
Net Loss Per Share--In 1997, the Financial Accounting Standards Board issued
Statement No. 128, Earnings Per Share. Statement No. 128 replaced the
calculation of primary and fully diluted earnings per share with basic and
diluted earnings per share. Unlike primary and fully diluted earnings per
share, outstanding
39
<PAGE>
INFOSEEK CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
nonvested shares are not included in the computations of basic and diluted
earnings per share until the time-based vesting restriction has lapsed. Basic
earnings per share also excludes any dilutive effects of options, warrants and
convertible securities. Diluted earnings per share is very similar to the
previously reported fully diluted earnings per share. In addition, in February
1998, the Securities and Exchange Commission issued Staff Accounting Bulletin
No. 98, Earnings Per Share. Staff Accounting Bulletin No. 98 effected the
treatment of certain stock and warrants ("cheap stock") issued within a one-
year period prior to an initial public offering. Earnings per share amounts
presented have been restated to conform to the requirements of Statement No.
128 and Staff Accounting Bulletin No. 98.
Pro Forma 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).
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.
New Accounting Pronouncements--The Financial Accounting Standards Board
approved the new American Institute of Certified Public Accountants Statement
of Position, Software Revenue Recognition (SOP 97-2). SOP 97-2 will be
effective for the Company beginning in the first quarter of 1998. The Company
does not believe the adoption of SOP 97-2 will have a significant impact on
its revenue recognition policy.
In June 1997, the Financial Accounting Standards Board issued Statement No.
130, Reporting Comprehensive Income (SFAS No. 130) and Statement No. 131,
Disclosures About Segments of An Enterprise and Related Information (SFAS No.
131). SFAS No. 130 establishes rules for reporting and displaying
comprehensive income. SFAS No. 131 will require the Company to use the
"management approach" in disclosing segment information. Both statements are
effective for the Company during 1998. The Company does not believe that the
adoption of either SFAS No. 130 or SFAS No. 131 will have a material impact on
the Company's results of operations, cash flows, or financial position.
Reclassifications--Certain reclassifications, none of which affected net
loss, have been made to prior year's amounts in order to conform to the
current year's presentation.
40
<PAGE>
INFOSEEK CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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, 1997
-----------------------------------------------
GROSS GROSS
UNREALIZED UNREALIZED ESTIMATED
SHORT-TERM INVESTMENTS AMORTIZED COST GAINS LOSSES FAIR VALUE
---------------------- -------------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Commercial paper................ $23,007 $-- $-- $23,007
Government agency notes......... 4,003 2 -- 4,005
Money market fund............... 1,106 -- -- 1,106
------- ---- ---- -------
Total......................... $28,116 $ 2 $-- $28,118
======= ==== ==== =======
<CAPTION>
AT DECEMBER 31, 1996
-----------------------------------------------
GROSS GROSS
UNREALIZED UNREALIZED ESTIMATED
SHORT-TERM INVESTMENTS AMORTIZED COST GAINS LOSSES FAIR VALUE
---------------------- -------------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Commercial paper................ $27,588 $-- $-- $27,588
Government agency notes......... 15,279 -- -- 15,279
------- ---- ---- -------
Total......................... $42,867 $-- $-- $42,867
======= ==== ==== =======
</TABLE>
Realized gains and losses were insignificant during all periods presented.
3. OBLIGATIONS
In March 1997, the Company entered into a four year, $5,000,000 equipment
term loan facility. The loan bears interest at the bank's prime rate plus
0.25% (8.75% at December 31, 1997). Under the terms of the agreement, the
Company grants a security interest in certain assets of the Company and must
maintain financial covenants including minimum tangible net worth and others
based on monthly cash balances with which the Company was in compliance as of
December 31, 1997. Under the equipment term loan facility the Company is
restricted in its ability to pay dividends. 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. As
of December 31, 1997, there was approximately $5,000,000 outstanding against
the term loan facility.
In 1996 and 1995, 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 which is included in deposits and other assets on the balance
sheet.
Maturities under these agreements are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1997
--------------
(IN THOUSANDS)
<S> <C>
1998.......................... $2,475
1999.......................... 2,245
2000.......................... 1,667
2001.......................... 417
------
$6,804
======
</TABLE>
41
<PAGE>
INFOSEEK CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
4. COMMITMENTS AND CONTINGENCIES
Operating lease
The Company leases its facilities under operating lease agreements which
expire at various dates through 2002. Total rent expense for the years ended
December 31, 1997, 1996 and 1995 was $1,372,000, $379,000 and $86,000,
respectively. In January 1998, the Company signed an agreement to sublease
approximately 20,500 square feet of its Sunnyvale, California facility. In
connection with the sublease agreement, the Company will receive future rent
payments of approximately $372,000 in 1998 and $300,000 in 1999. Minimum
future rental commitments under these leases, net of sublease rent payments,
are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1997
--------------
(IN THOUSANDS)
<S> <C>
1998.......................... $1,756
1999.......................... 1,799
2000.......................... 2,089
2001.......................... 1,985
2002.......................... 1,712
------
$9,341
======
</TABLE>
Netscape
Historically, a large portion of the Company's traffic was derived through
the Web page of Netscape Communications Corporation ("Netscape"). In March
1996, the Company entered into an agreement with Netscape, which provided that
the Company would 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
provided for an aggregate of $5,000,000 in cash and reciprocal advertising
($3,500,000 in cash and $1,500,000 in reciprocal advertising) over the course
of the one-year term of the agreement. In March 1997, Infoseek renewed its
agreement with Netscape under terms that extended the current contract through
April 30, 1997 and thereafter provided for Infoseek to be one of four premier
providers displayed on Netscape's Web page for the period of May 1, 1997
through April 30, 1998. The renewed agreement with Netscape provides for the
Company to pay an aggregate of $12,500,000 in cash and reciprocal advertising
($10,000,000 in cash and $2,500,000 in reciprocal advertising) over the term
of the agreement. During the year ended December 31, 1997 and 1996, the
Company recognized $9,583,000 and $3,750,000, respectively, of expense related
to this agreement. The payments to Netscape are being recognized ratably over
the term of the agreement. At December 31, 1997, the Company had approximately
$7,555,000 of cash commitment remaining in connection with this agreement, of
which $4,221,000 is included in accrued liabilities to service providers on
the December 31, 1997 balance sheet.
In July 1997, the Company entered into an agreement with Netscape whereby it
was designated as a premier provider of international search and navigational
guide services for the Netscape Net Search Program. Under the terms of the
agreement, the Company will provide services for 10 Netscape local Web sites.
The Company's agreement with Netscape provides for payments ranging from a
minimum of $666,000 ($400,000 in cash and $266,000 in reciprocal advertising)
to a maximum of $1,219,000 ($677,000 in cash and $542,000 in reciprocal
advertising) depending on the level of traffic delivered by Netscape. During
the year ended December 31, 1997, Netscape delivered traffic at the minimum
level and as a result the Company recognized sales and marketing expenses of
approximately $333,000 under this agreement. At December 31, 1997, the Company
had a cash commitment ranging from a minimum of $74,000 to a maximum of
$351,000 depending on the level of traffic delivered by Netscape in connection
with this agreement.
42
<PAGE>
INFOSEEK CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Contingencies
From time to time, the Company may be a party to litigation and claims
incident to the ordinary course of its business. Although the results of
litigation and claims cannot be predicted with certainty, the Company believes
that the final outcome of such matters will not have a material adverse effect
on the Company's financial position, results of operations, or cash flows.
5. RESTRUCTURING AND OTHER CHARGES
During the second quarter of 1997, the Company recorded restructuring and
other charges of approximately $7,400,000, of which approximately $6,200,000
related to the discontinuance of certain business arrangements, which were
determined to be non-strategic, and approximately $1,200,000 related to
management changes. Of these restructuring charges, approximately $5,000,000
involves cash outflows, of which $3,100,000 has been completed as of December
31, 1997. Non-cash restructuring charges of approximately $2,400,000 relate
primarily to the write-down of certain non-strategic business assets. There
have been no material changes to the restructuring plan or in the estimates of
the restructuring costs. As of December 31, 1997, the Company has
approximately $1,900,000 remaining in its restructuring reserve, which is
anticipated to be fully utilized by June 30, 1998.
6. SHAREHOLDERS' EQUITY
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.
Convertible Preferred Stock--Through May of 1996, the Company issued series
A, B, C and 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.
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 approximately 7,000 and 1,101,000 common shares subject to repurchase by
the Company at December 31, 1997 and 1996, 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, 1997 and 1996, there
were approximately 81,000 and 504,000 common shares, respectively, subject to
repurchase by the Company.
43
<PAGE>
INFOSEEK CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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,
1997 all warrants had been exercised. The Company recorded additional interest
expense using the minimum value method to determine the value of the warrants.
Common Stock Reserved For Future Issuance--Shares of common stock reserved
for future issuance are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1997
--------------
(IN THOUSANDS)
<S> <C>
Preferred stock............... 5,000
Stock option plan............. 5,716
Employee stock purchase plan.. 143
------
10,859
======
</TABLE>
7. STOCK OPTION/STOCK ISSUANCE PLAN
The Company's Stock Option Plan (the "Predecessor Plan") provides for the
grant of incentive stock options and nonstatutory 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, 7,225,000 shares of common stock have been authorized for
issuance. 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 583,000
and 845,000 shares were exercisable as of December 31, 1997 and 1996,
respectively.
The Company has elected to follow Accounting Principles Board Opinion No. 25
(APB No. 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 No. 123)
"Accounting for Stock-Based Compensation," requires use of option valuation
models that were not developed for use in valuing employee stock options. The
Company, under APB No. 25, generally does not recognize compensation expense
as the exercise price of the Company's employee stock options equals the
market price of the underlying stock on the date of grant.
44
<PAGE>
INFOSEEK CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Through December 31, 1997, the Company recorded aggregate deferred
compensation of $5,666,000 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 December 31, 1997, 1996 and 1995, the
amortized expenses were $832,000, $1,346,000 and $44,000, respectively.
Pro forma information regarding net loss and loss per share is required by
SFAS No. 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 during 1997 were estimated at the date of grant
using the Black-Scholes multiple option pricing model with the following
weighted average assumptions: risk-free interest rate ranging from 5.53% to
6.77%; a dividend yield of 0.0%; a volatility factor of the expected market
price of the Company's common stock of .87; and a weighted-average expected
life of the option of five years for officers and four years for non officers.
Subsequent to the Company's initial public offering in June 1996, the fair
value of options granted during the balance of 1996 were estimated 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.
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 No. 123, the Company's net loss and
loss per share would have been increased to the pro forma amounts indicated
below:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- ------
(IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Pro forma net loss.................................. $28,980 $17,328 $3,442
Pro forma basic and diluted net loss per share...... $ 1.10 $ 0.78 $ 0.22
</TABLE>
Because SFAS No. 123 is applicable only to options granted subsequent to
December 31, 1994, its pro forma effect will not be fully reflected until
1999.
In July 1997, the Board of Directors authorized the repricing of options to
purchase 821,300 shares of common stock effective on July 23, 1997 to the then
fair market value of $6.13 per share. Under the terms of the repricing, the
repriced options maintain the same vesting and expiration terms, except they
may not be exercised until January 9, 1998. Executive officers, consultants
and members of the Board of Directors were not eligible to participate in the
repricing.
45
<PAGE>
INFOSEEK CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
A summary of the Company's stock option activity and related information for
the years ended December 31, is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------------------- ---------------------- ----------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE
------- -------------- ------- -------------- ------- --------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Outstanding--beginning
of year................ 4,914 $2.10 3,074 $0.13 165 $0.07
Granted............... 4,384 $6.61 2,851 $3.98 3,438 $0.13
Exercised............. (1,455) $0.79 (54) $0.11 -- $ --
Canceled................ (3,722) $4.79 (957) $1.51 (529) $0.11
------ ----- -----
Outstanding--end of
year................... 4,121 $4.92 4,914 $2.10 3,074 $0.13
====== ===== =====
Exercisable at end of
year................... 583 $2.63 845 $0.35 155 $0.13
Weighted-average fair
value of options
granted during the
year................. $4.48 $3.79 $0.40
</TABLE>
Outstanding and exercisable options by price range as of December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------- ---------------------------------------------------
WEIGHTED
NUMBER AVERAGE NUMBER
RANGE OF OUTSTANDING AS OF REMAINING WEIGHTED AVERAGE EXERCISABLE AS OF WEIGHTED AVERAGE
EXERCISE PRICES DECEMBER 31, 1997 CONTRACTUAL LIFE EXERCISE PRICE DECEMBER 31, 1997 EXERCISE PRICE
--------------- ----------------- ---------------- ---------------- ----------------- ----------------
(IN THOUSANDS) (YEARS) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
$ 0.00--$ 5.00 2,687 7.9 $ 3.47 386 $0.51
$ 5.01--$10.00 1,018 7.5 $ 6.64 197 $6.77
$10.01--$15.00 416 9.8 $10.26 -- --
----- ---
4,121 8.0 $ 2.10 583 $2.63
===== ===
</TABLE>
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. An aggregate of 187,500
shares of common stock has been reserved for the Purchase Plan of which 44,443
have been issued through December 31, 1997. The Purchase Plan is 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 No. 123, compensation cost is estimated for the fair value of the
employees' purchase rights using the Black-Scholes model with the following
assumptions for those rights granted in 1997: a risk free interest rate of
6.0%; dividend yield of 0.0%; expected volatility factor of .87; and an
expected life of six months; and for those granted in 1996: a risk free
interest rate of 5.0%; dividend yield of 0.0%; expected volatility factor
of.80; and an expected life of six months. The weighted average estimated fair
value of the Purchase Plan shares granted in 1997 was $4.05.
46
<PAGE>
INFOSEEK CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
9. INCOME TAXES
Due to the Company's loss position, there was no provision for income taxes
for any period presented.
As of December 31, 1997, the Company has federal and state net operating
loss carry forwards of approximately $42,600,000 and $28,300,000,
respectively. The federal net operating loss carry forwards will expire in the
years 2009 through 2012, and the state net operating loss carry forwards will
expire in the years 1999 through 2002. The Company has federal and state
research and experimentation credits of approximately $300,000 each, that will
expire in the years 2009 through 2012. 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,
-----------------
1997 1996
-------- -------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Net operating losses.................................. $ 16,548 $ 7,500
Research credit carry forwards........................ 406 200
Accrued loyalties..................................... 37 60
Other individually immaterial items................... 1,654 340
-------- -------
Total deferred tax assets........................... 18,645 8,100
Valuation allowance................................... (18,645) (8,100)
-------- -------
Total net deferred tax assets....................... $ -- $ --
======== =======
</TABLE>
The change in the valuation allowance was a net increase of approximately
$6,409,000 and $1,030,000 for the years ended December 31, 1996 and 1995,
respectively.
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 ("the 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
Bell Atlantic, 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 Bell
Atlantic entered into a one-year agreement, which provided for the Company's
display of the BigYellow logo within the Infoseek Service. According to the
terms of the agreement, Bell Atlantic agreed to pay to the Company up to an
aggregate of $4,600,000, in monthly payments, which amount would be decreased
proportionately if the number of impressions of the BigYellow logo were below
a specified number. In February
47
<PAGE>
INFOSEEK CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
1997, the Company signed an amendment with Bell Atlantic extending the term of
the original agreement, dated March 1996, through June 1998 in exchange for an
additional $1,400,000, for a total of $6,000,000, in monthly payments. The
terms and conditions of the amended agreement are substantially the same,
except for elimination of certain exclusivity and reimbursement provisions.
The Company recognized revenue of $2,820,000 and $1,882,000 in connection with
this agreement during the year ended December 31, 1997 and 1996, respectively.
Amounts receivable from and payable to such related party were immaterial at
December 31, 1997 and 1996.
12. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings
per share (in thousands, except per share amounts):
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- -------
<S> <C> <C> <C>
Numerator:
Net loss........................................ $(24,623) $(15,938) $(3,296)
Numerator for basic and diluted loss per share.... $(24,623) $(15,938) $(3,296)
======== ======== =======
Weighted average of common shares................. 26,337 14,076 1,635
Conversion of preferred stock not included in
shares related to SEC Staff Accounting Bulletin
No. 98........................................... -- 8,044 13,900
-------- -------- -------
Denominator for basic and diluted loss per share.. 26,337 22,120 15,535
======== ======== =======
Basic and diluted loss per share (pro forma in
1995)............................................ $ (0.93) $ (0.72) $ (0.21)
======== ======== =======
</TABLE>
13. SUBSEQUENT EVENTS
In February 1998, the Company completed a follow-up public offering of
3,450,000 shares of Common Stock and received proceeds of approximately
$43,015,000 net of underwriting discounts, commissions and other offering
costs.
48
<PAGE>
INFOSEEK CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
14. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1997 1997 1997 1997
--------- -------- ------------- ------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Total revenues.................. $ 6,151 $ 7,684 $ 8,255 $12,513
Cost of revenues................ 1,284 1,490 1,468 1,858
------- -------- ------- -------
Gross profit.................... 4,867 6,194 6,787 10,655
Operating expenses:
Research and development...... 1,592 2,203 1,637 1,895
Sales and marketing........... 6,453 7,294 8,129 11,488
General and administrative.... 1,333 1,665 1,809 1,599
Restructuring and other
charges...................... -- 7,349 -- --
------- -------- ------- -------
Total operating expenses........ 9,378 18,511 11,575 14,982
------- -------- ------- -------
Operating loss.................. (4,511) (12,317) (4,788) (4,327)
Net interest income............. 405 383 295 237
------- -------- ------- -------
Net loss........................ $(4,106) $(11,934) $(4,493) $(4,090)
======= ======== ======= =======
Basic and diluted net loss per
share.......................... $ (0.16) $ (0.45) $ (0.17) $ (0.15)
======= ======== ======= =======
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1996 1996 1996 1996
--------- -------- ------------- ------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<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 (expense)... (58) 155 652 594
------- -------- ------- -------
Net loss........................ $(3,568) $ (4,723) $(3,696) $(3,951)
======= ======== ======= =======
Basic and diluted net loss per
share.......................... $ (0.18) $ (0.25) $ (0.15) $ (0.16)
======= ======== ======= =======
</TABLE>
The 1996 and first three quarters of 1997 earnings per share amounts have
been restated to comply with Statement of Financial Accounting Standards No.
128, Earnings Per Share and Staff Accounting Bulletin No. 98, Earnings Per
Share.
49
<PAGE>
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
(A)1.FINANCIAL STATEMENTS
See Item 8 above.
2.FINANCIAL STATEMENT SCHEDULES
See Item 14(d) below.
50
<PAGE>
3.EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
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(1) Third Amended and Restated Investors' Rights Agreement dated
April 19, 1996 among the Registrant and the investors and
founders named therein.
4.4(1) Warrant Agreement between the Registrant and Venture Lending
and Leasing, Inc. dated as of October 7, 1995.
10.1(1) Infoseek Corporation Stock Option Plan, as amended on March 20,
1996, subject to qualification by the State of California.
10.2(1) Infoseek Corporation 1996 Stock Option/Stock Issuance Plan.
10.3(1) Infoseek Corporation Employee Stock Purchase Plan.
10.4(1) Form of Offer Letter among the Registrant and its officers.
10.5(1) Form of Indemnification Agreement entered into between the
Registrant and its directors and officers.
10.6(1) 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(1) 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(1) 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(1) 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(1) Third Amended and Restated Agreement regarding co-sale dated
April 19, 1996 among the Registrant and the investors and
founders named therein.
10.11(1) Third Amended and Restated Co-Sale Agreement dated April 19,
1996 among the founder and the investors named therein.
10.12(1) Amended and Restated Put Option Agreement dated May 4, 1995
among the Registrant and the investors named therein.
10.13(1) Founders Agreement dated February 1, 1994 among the Registrant
and the founders named therein, as amended June 30, 1994.
10.14(1)(5) Series E Preferred Stock Purchase Agreement dated March 29,
1996 among the Registrant and the investors named therein.
10.15(1) Stock Purchase Agreements dated January 24, 1996 between the
Registrant and Robert E.L. Johnson III.
10.16(1) Employee Stock Purchase Agreement dated January 30, 1996
between the Registrant and Robert E.L. Johnson. III.
10.17(1) Employee Stock Purchase Agreement dated March 28, 1996 between
the Registrant and Leonard J. LeBlanc.
10.18(1) Employee Stock Purchase Agreement dated March 9, 1996 between
the Registrant and John Nauman.
10.19(1) Employee Stock Purchase Agreement dated March 9, 1996 between
the Registrant and Craig Forman.
</TABLE>
51
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
10.20(1) 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(2) Lease extension agreement dated September 11, 1996 and
September 17, 1996 between Registrant and Spieker Properties,
L.P.
10.22(2) Lease agreement dated September 11, 1996 and September 17, 1996
between Registrant and Spieker Properties, L.P.
10.23(1) Standard Office Sublease dated May 30, 1995 between the
Registrant and Innovative Information Systems, Inc.
10.24(1) Standard Form of Office Lease dated April 1996 between the
Registrant and Richfield Investment Company.
10.25(1) 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(1) Software License Agreement between the Registrant and ADB Inc.
dated December 22, 1995, as amended April 19, 1996.
10.27(1) Internet Services and Products Master Agreement dated May 22,
1995 between the Registrant and BBN Planet Corporation.
10.28(1)(5) Internet Search Service Access Agreement dated August 23, 1995
between the Registrant and Microsoft Corporation, as amended on
December 18, 1995.
10.29(1)(5) 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(1) Net Search Program--Premier Provider Agreement between the
Registrant and Netscape Communications Corporation dated March
22, 1996, as amended on that date.
10.31(6) Premier Provider Services Agreement between Registrant and
Netscape Communications Corporation dated March 17, 1997.
10.32(1)(5) Software License and Distribution Agreement between the
Registrant and Personal Library Software, Inc. dated June 17,
1994.
10.33(1)(5) XSoft/Infoseek Software Distribution and License Agreement--
Lexicons, dated March 31, 1996 between the Registrant and
XSoft, a division of XEROX Corporation.
10.34(1) Customer Support Program Agreement for Infoseek among the
Registrant and SunService Corporation dated January 1, 1996.
10.35(1) 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(1) Form Consulting Services Agreement among the Registrant and its
consultants.
10.37(1)(5) Letter of Agreement dated April 2, 1996 between the Registrant
and HNC Software Inc.
10.38(1)(5) Agreement in Principle dated March 21, 1996 between the
Registrant and HNC Software Inc.
10.39(1) Joint Marketing Agreement dated effective April 15, 1996
between the Registrant and Sun Microsystems Inc.
10.40(1)(5) 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(6) Amendment No. 3 to Online Service Agreement between the
Registrant and Reuters NewMedia, Inc., dated October 30, 1996.
10.42(6) Fourth Amendment to the On-Line Directory Agreement between the
Registrant and Reuters NewMedia, Inc., dated August 30, 1996.
</TABLE>
52
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
10.43 Office lease dated March 4, 1997 between Registrant and Limar
Realty Corp. #8.
10.44(1)(5) Infoseek/NYNEX Agreement between the Registrant and NYNEX
Information Technologies Company, dated March 29, 1996.
10.45(1)(5) Software License Agreement dated March 29, 1996 between the
Registrant and NYNEX Information Technologies Company.
10.46(6) Amendment No. 1 to Infoseek/NYNEX Agreement between the
Registrant and NYNEX Information Technologies Company, dated May
10, 1996.
10.47(6) Amendment No. 2 to Infoseek/NYNEX Agreement between the
Registrant and NYNEX Information Technologies Company, dated
February 19, 1997.
10.48(1)(5) Agreement between the Registrant and Verity, Inc. dated March
31, 1996.
10.49(1) Cooperation Agreement between the Registrant and Quarterdeck
Corporation dated April 2, 1996.
10.50(1) Infoseek Impressions Agreement--Ad Exchange between the
Registrant and FreeLoader, Inc. dated March 8, 1996.
10.51(6) 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(6) 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(1)(5) Memorandum of Understanding between the Registrant and IDG
Communications Inc. dated April 22, 1996.
10.54(1) 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(3) Loan and Security Agreement between the Registrant and Silicon
Valley Bank dated March 31, 1997.
10.56(1)(5) License and Software Distribution Agreement between the
Registrant and HNC Software Inc. dated April 25, 1996.
10.57(1)(5) 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.
10.58(1) 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.
10.59(5) Software License Agreement dated May 8, 1996 between the
Registrant and HNC Software Inc.
10.60(4) Amendment No. 1 and 2 to Office Lease dated March 4, 1997
between Registrant and Limar Realty Corp.
13.1 Portions of the Annual Report to Stockholders for the fiscal
year ended December 31, 1997 expressly incorporated by reference
herein (to be filed within 120 days of December 31, 1997).
23.1 Consent of Ernst & Young LLP, Independent Auditors.
24.1 Power of Attorney (see page 56).
27.1(7) Financial Data Schedule.
</TABLE>
53
<PAGE>
- --------
(1) Incorporated by reference to the Company's Registration Statement Form S-
1, as amended, (File No. 333-04142) declared effective June 11, 1996.
(2) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1996.
(3) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1997.
(4) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1997.
(5) Confidential treatment granted by order effective June 10, 1996.
(6) Confidential treatment granted by order effective January 24, 1998.
(7) Incorporated by reference to the Company's Registration Statement Form S-
3, as amended, (File No. 333-45087) declared effective February 12, 1998.
(B)REPORTS ON FORM 8-K
None.
(C)EXHIBITS
See Item 14(a)(3) above.
(D)FINANCIAL STATEMENT SCHEDULES:
Valuation and Qualifying Accounts Years Ended December 31, 1995, 1996
and 1997
54
<PAGE>
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------
(IN THOUSANDS)
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
1997...................... $350 $800 $(300) $850
</TABLE>
55
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Harry M. Motro, 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/ Harry M. Motro
---------------------------------
Harry M. Motro
President, Chief Executive Officer
and Director
<TABLE>
<CAPTION>
SIGNATURE CAPACITY IN WHICH SIGNED DATE
--------- ------------------------ ----
<S> <C> <C>
/s/ Harry M. Motro President, Chief Executive March 13, 1998
- --------------------------------
(Harry M. Motro) Officer and Director
(Principal Executive
Officer)
/s/ Leslie E. Wright Vice President of Finance March 13, 1998
- --------------------------------
(Leslie E. Wright) and Chief Financial Officer
(Principal Financial and
Accounting Officer)
/s/ Steven T. Kirsch Director March 13, 1998
- --------------------------------
(Steven T. Kirsch)
/s/ Matthew J. Stover Director March 13, 1998
- --------------------------------
(Matthew J. Stover)
/s/ L. William Krause Director March 13, 1998
- --------------------------------
(L. William Krause)
/s/ John E. Zeisler Director March 10, 1998
- --------------------------------
(John E. Zeisler)
</TABLE>
56
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
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(1) Third Amended and Restated Investors' Rights Agreement dated
April 19, 1996 among the Registrant and the investors and
founders named therein.
4.4(1) Warrant Agreement between the Registrant and Venture Lending
and Leasing, Inc. dated as of October 7, 1995.
10.1(1) Infoseek Corporation Stock Option Plan, as amended on March 20,
1996, subject to qualification by the State of California.
10.2(1) Infoseek Corporation 1996 Stock Option/Stock Issuance Plan.
10.3(1) Infoseek Corporation Employee Stock Purchase Plan.
10.4(1) Form of Offer Letter among the Registrant and its officers.
10.5(1) Form of Indemnification Agreement entered into between the
Registrant and its directors and officers.
10.6(1) 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(1) 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(1) 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(1) 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(1) Third Amended and Restated Agreement regarding co-sale dated
April 19, 1996 among the Registrant and the investors and
founders named therein.
10.11(1) Third Amended and Restated Co-Sale Agreement dated April 19,
1996 among the founder and the investors named therein.
10.12(1) Amended and Restated Put Option Agreement dated May 4, 1995
among the Registrant and the investors named therein.
10.13(1) Founders Agreement dated February 1, 1994 among the Registrant
and the founders named therein, as amended June 30, 1994.
10.14(1)(5) Series E Preferred Stock Purchase Agreement dated March 29,
1996 among the Registrant and the investors named therein.
10.15(1) Stock Purchase Agreements dated January 24, 1996 between the
Registrant and Robert E.L. Johnson III.
10.16(1) Employee Stock Purchase Agreement dated January 30, 1996
between the Registrant and Robert E.L. Johnson. III.
10.17(1) Employee Stock Purchase Agreement dated March 28, 1996 between
the Registrant and Leonard J. LeBlanc.
10.18(1) Employee Stock Purchase Agreement dated March 9, 1996 between
the Registrant and John Nauman.
10.19(1) Employee Stock Purchase Agreement dated March 9, 1996 between
the Registrant and Craig Forman.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
10.20(1) 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(2) Lease extension agreement dated September 11, 1996 and
September 17, 1996 between Registrant and Spieker Properties,
L.P.
10.22(2) Lease agreement dated September 11, 1996 and September 17, 1996
between Registrant and Spieker Properties, L.P.
10.23(1) Standard Office Sublease dated May 30, 1995 between the
Registrant and Innovative Information Systems, Inc.
10.24(1) Standard Form of Office Lease dated April 1996 between the
Registrant and Richfield Investment Company.
10.25(1) 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(1) Software License Agreement between the Registrant and ADB Inc.
dated December 22, 1995, as amended April 19, 1996.
10.27(1) Internet Services and Products Master Agreement dated May 22,
1995 between the Registrant and BBN Planet Corporation.
10.28(1)(5) Internet Search Service Access Agreement dated August 23, 1995
between the Registrant and Microsoft Corporation, as amended on
December 18, 1995.
10.29(1)(5) 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(1) Net Search Program--Premier Provider Agreement between the
Registrant and Netscape Communications Corporation dated March
22, 1996, as amended on that date.
10.31(6) Premier Provider Services Agreement between Registrant and
Netscape Communications Corporation dated March 17, 1997.
10.32(1)(5) Software License and Distribution Agreement between the
Registrant and Personal Library Software, Inc. dated June 17,
1994.
10.33(1)(5) XSoft/Infoseek Software Distribution and License Agreement--
Lexicons, dated March 31, 1996 between the Registrant and
XSoft, a division of XEROX Corporation.
10.34(1) Customer Support Program Agreement for Infoseek among the
Registrant and SunService Corporation dated January 1, 1996.
10.35(1) 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(1) Form Consulting Services Agreement among the Registrant and its
consultants.
10.37(1)(5) Letter of Agreement dated April 2, 1996 between the Registrant
and HNC Software Inc.
10.38(1)(5) Agreement in Principle dated March 21, 1996 between the
Registrant and HNC Software Inc.
10.39(1) Joint Marketing Agreement dated effective April 15, 1996
between the Registrant and Sun Microsystems Inc.
10.40(1)(5) 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(6) Amendment No. 3 to Online Service Agreement between the
Registrant and Reuters NewMedia, Inc., dated October 30, 1996.
10.42(6) Fourth Amendment to the On-Line Directory Agreement between the
Registrant and Reuters NewMedia, Inc., dated August 30, 1996.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
10.43 Office lease dated March 4, 1997 between Registrant and Limar
Realty Corp. #8.
10.44(1)(5) Infoseek/NYNEX Agreement between the Registrant and NYNEX
Information Technologies Company, dated March 29, 1996.
10.45(1)(5) Software License Agreement dated March 29, 1996 between the
Registrant and NYNEX Information Technologies Company.
10.46(6) Amendment No. 1 to Infoseek/NYNEX Agreement between the
Registrant and NYNEX Information Technologies Company, dated May
10, 1996.
10.47(6) Amendment No. 2 to Infoseek/NYNEX Agreement between the
Registrant and NYNEX Information Technologies Company, dated
February 19, 1997.
10.48(1)(5) Agreement between the Registrant and Verity, Inc. dated March
31, 1996.
10.49(1) Cooperation Agreement between the Registrant and Quarterdeck
Corporation dated April 2, 1996.
10.50(1) Infoseek Impressions Agreement--Ad Exchange between the
Registrant and FreeLoader, Inc. dated March 8, 1996.
10.51(6) 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(6) 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(1)(5) Memorandum of Understanding between the Registrant and IDG
Communications Inc. dated April 22, 1996.
10.54(1) 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(3) Loan and Security Agreement between the Registrant and Silicon
Valley Bank dated March 31, 1997.
10.56(1)(5) License and Software Distribution Agreement between the
Registrant and HNC Software Inc. dated April 25, 1996.
10.57(1)(5) 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.
10.58(1) 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.
10.59(5) Software License Agreement dated May 8, 1996 between the
Registrant and HNC Software Inc.
10.60(4) Amendment No. 1 and 2 to Office Lease dated March 4, 1997
between Registrant and Limar Realty Corp.
13.1 Portions of the Annual Report to Stockholders for the fiscal
year ended December 31, 1997 expressly incorporated by reference
herein (to be filed within 120 days of December 31, 1997).
23.1 Consent of Ernst & Young LLP, Independent Auditors.
24.1 Power of Attorney (see page 56).
27.1(7) Financial Data Schedule.
</TABLE>
<PAGE>
- --------
(1) Incorporated by reference to the Company's Registration Statement Form S-
1, as amended, (File No. 333-04142) declared effective June 11, 1996.
(2) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1996.
(3) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1997.
(4) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1997.
(5) Confidential treatment granted by order effective June 10, 1996.
(6) Confidential treatment granted by order effective January 24, 1998.
(7) Incorporated by reference to the Company's Registration Statement Form S-
3, as amended, (File No. 333-45087) declared effective February 12, 1998.
<PAGE>
[STATE OF CALIFORNIA LOGO]
[SEAL OF
SECRETARY
OF STATE]
SECRETARY OF STATE
I, BILL JONES, Secretary of State of the State of California,
hereby certify:
That the attached transcript of 4 page(s) was prepared by and in this
office from the record on file, of which it purports to be a copy, and that it
is full, true and correct.
IN WITNESS WHEREOF, I execute this
certificate and affix the Great
Seal of the State of California this
FEB 18 1998
---------------------------
/S/ Bill Jones
Secretary of State
<PAGE>
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
INFOSEEK CORPORATION
The undersigned Robert E.L. Johnson, III and Andrew E. Newton, hereby
certify that:
ONE: They are the duly elected and acting President and Secretary,
respectively, of this Corporation.
TWO: The Amended and Restated Articles of Incorporation of this
Corporation shall be amended and restated in their entirety to read as follows:
ARTICLE I
The name of this Corporation is Infoseek Corporation.
ARTICLE II
The purpose of this Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of California other than the banking business, the trust company business or
the practice of a profession permitted to be incorporated by the California
Corporations Code.
ARTICLE III
A. Classes of Stock. This corporation is authorized to issue two classes
----------------
of stock to be designated, respectively, "Common Stock" and "Preferred Stock."
The total number of shares that this corporation is authorized to issue is
sixty-five million (65,000,000) shares. Sixty million (60,000,000) shares
shall be Common Stock and five million (5,000,000) shares shall be Preferred
Stock.
B. Rights, Preferences and Restrictions of Preferred Stock. The
-------------------------------------------------------
Preferred Stock authorized by these Amended and Restated Articles of
Incorporation may be issued from time to time in series. The Board of Directors
is hereby authorized to fix or alter the rights, preferences, privileges, and
restrictions granted to and imposed on the Preferred Stock. Subject to
compliance with applicable protective voting rights that have been or may be
granted to the Preferred Stock or series thereof in the Company's Amended and
Restated Articles of Incorporation, as amended and
<PAGE>
restated from time to time, and requirements and restrictions of applicable law
("Protective Provisions"), the rights, privileges, preferences and restrictions
of any such additional series may be subordinated to, pari passu with
----------
(including, without limitation, inclusion in provisions with respect to
liquidation and acquisition preferences, redemption and/or approval of matters
by vote or written consent), or senior to any of those of any present or future
class or series of Preferred or Common Stock. Subject to compliance with
applicable Protective Provisions, the Board of Directors is also authorized to
increase or decrease the number of shares of any series, prior or subsequent to
the issue of that series, but not below the number of shares of such series then
outstanding.
C. Common Stock
------------
1. Dividend Rights. Subject to the prior rights of holders of all
---------------
classes of stock at the time outstanding having prior rights as to dividends,
the holders of the Common Stock shall be entitled to receive, when and as
declared by the Board of Directors, out of any assets of the corporation legally
available therefor, such dividends as may be declared from time to time by the
Board of Directors.
2. Liquidation Rights. Subject to the prior rights of holders of all
------------------
classes of stock at the time outstanding having prior rights as to
liquidation, the assets of the Corporation, upon the liquidation, dissolution
or winding up of the Corporation, shall be distributed to the holders of the
Common Stock.
3. Redemption. The Common Stock is not redeemable.
----------
4. Voting Rights. The holder of each share of Common Stock shall have
-------------
the right to one vote and shall be entitled to notice of any shareholders'
meeting in accordance with the Bylaws of this Corporation, and shall be entitled
to vote upon such matters and in such manner as may be provided by law.
ARTICLE IV
Section 1. The liability of the directors of this Corporation for
monetary damages shall be eliminated to the fullest extent permissible under
California law.
Section 2. The Corporation is authorized to indemnify the directors
and officers of the Corporation to the fullest extent permissible under
California law.
ARTICLE V
The Board of Directors of this Corporation, in appointing the Chief
Executive Officer of this Corporation, shall select one of the then existing
directors of this Corporation, duly elected and qualified in accordance with
applicable law.
-2-
<PAGE>
ARTICLE VI
This Corporation reserves the right to amend, alter, change or repeal any
provision contained in these Amended and Restated Articles of Incorporation, in
the manner now or hereafter prescribed by statute, and all rights conferred upon
shareholders herein are granted subject to this reservation.
* * *
THREE: The foregoing amendment to the Amended and Restated Articles of
Incorporation has been approved by the Board of Directors of this Corporation.
FOUR: The foregoing Amended and Restated Articles of Incorporation has been
duly approved by the required vote of shareholders in accordance with Sections
902 and 903 of the California General Corporation Law. The total number of
outstanding shares of the Corporation entitled to vote at the time the vote was
taken was 5,840,578 shares of Common Stock, 9,847,816 shares of Series A
Preferred Stock, 3,459,220 shares of Series B Preferred Stock, 7,446,676 shares
of Series C Preferred Stock, no shares of Series D Preferred Stock, and
3,022,994 shares of Series E Preferred Stock. The number of shares voting in
favor of the amendment equaled or exceeded the vote required. The vote was (i)
more than fifty percent (50%) of the outstanding capital stock of the
Corporation, (ii) more than fifty percent (50%) of the outstanding Preferred
Stock of the corporation, (iii) more than fifty percent (50%) of the outstanding
Series A Preferred Stock of the Corporation, (iv) more than fifty percent (50%)
of the outstanding Series B Preferred Stock of the Corporation, (v) more than
fifty percent (50%) of the outstanding Series C Preferred Stock of the
Corporation, and (vi) more than fifty percent (50%) of the outstanding Series E
Preferred Stock of the Corporation, as required under Sections 902 and 903 of
the California Corporations Code. Subsequent to the vote by the shareholders and
prior to the filing of these Amended and Restated Articles, all of the shares of
Preferred Stock of the corporation were converted into Common Stock so that
there are presently no outstanding shares of Preferred Stock of the corporation.
-3-
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this certificate on March
17, 1997.
/S/ Robert E. L. Johnson III
---------------------------------------
Robert E.L. Johnson, III, President
/S/ Andrew E. Newton
---------------------------------------
Andrew E. Newton, Secretary
The undersigned certify under penalty of perjury that they have read the
foregoing Amended and Restated Articles of Incorporation and know the contents
thereof, and that the statements therein are true.
Executed at Santa Clara, California, on March 17, 1997.
/s/ Robert E.L. Johnson, III
---------------------------------------
Robert E.L. Johnson, III, President
/s/ Andrew E. Newton
---------------------------------------
Andrew E. Newton, Secretary
-4-
<PAGE>
EXHIBIT 3.2
------------------
BYLAWS
OF
INFOSEEK CORPORATION
------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I OFFICES.................................... 1
Section 1. PRINCIPAL OFFICES.......................... 1
Section 2. OTHER OFFICES.............................. 1
ARTICLE II MEETINGS OF SHAREHOLDERS................... 1
Section 1. PLACE OF MEETINGS.......................... 1
Section 2. ANNUAL MEETING............................. 1
Section 3. SPECIAL MEETING............................ 1
Section 4. NOTICE OF SHAREHOLDERS' MEETINGS........... 2
Section 5. MANNER OF GIVING NOTICE; AFFIDAVIT OF
NOTICE..................................... 2
Section 6. QUORUM..................................... 3
Section 7. ADJOURNED MEETING; NOTICE.................. 3
Section 8. VOTING..................................... 3
Section 9. WAIVER OF NOTICE OR CONSENT BY ABSENT
SHAREHOLDERS............................... 4
Section 10. SHAREHOLDER ACTION......................... 5
Section 11. RECORD DATE FOR SHAREHOLDER NOTICE,
VOTING, AND GIVING CONSENTS................ 5
Section 12. PROXIES.................................... 5
Section 13. INSPECTORS OF ELECTION..................... 6
ARTICLE III DIRECTORS.................................. 6
Section 1. POWERS..................................... 6
Section 2 NUMBER OF DIRECTORS........................ 7
Section 3. ELECTION AND TERM OF OFFICE OF DIRECTORS... 7
Section 4. VACANCIES.................................. 7
Section 5. PLACE OF MEETINGS AND MEETINGS BY
TELEPHONE.................................. 8
Section 6. ANNUAL MEETING............................. 8
Section 7. OTHER REGULAR MEETINGS..................... 8
Section 8. SPECIAL MEETINGS........................... 9
Section 9. QUORUM..................................... 9
Section 10. WAIVER OF NOTICE........................... 9
Section 11. ADJOURNMENT................................ 10
Section 12 NOTICE OF ADJOURNMENT...................... 10
</TABLE>
i.
<PAGE>
<TABLE>
<S> <C> <C>
Section 13. ACTION WITHOUT MEETING...................... 10
Section 14. FEES AND COMPENSATION OF DIRECTORS.......... 10
ARTICLE IV COMMITTEES.................................. 10
Section 1. COMMITTEES OF DIRECTORS..................... 10
Section 2. MEETINGS AND ACTION OF COMMITTEES........... 11
ARTICLE V OFFICERS.................................... 11
Section 1. OFFICERS.................................... 11
Section 2. ELECTION OF OFFICERS........................ 11
Section 3. SUBORDINATE OFFICERS........................ 12
Section 4. REMOVAL AND RESIGNATION OF OFFICERS......... 12
Section 5. VACANCIES IN OFFICES........................ 12
Section 6. CHAIRMAN OF THE BOARD....................... 12
Section 7. PRESIDENT................................... 12
Section 8. VICE PRESIDENTS............................. 13
Section 9. SECRETARY................................... 13
Section 10. CHIEF FINANCIAL OFFICER..................... 13
Section 11. APPROVAL OF LOANS TO OFFICERS............... 14
ARTICLE VI INDEMNIFICATION OF DIRECTORS, OFFICERS,
EMPLOYEES, AND OTHER AGENTS................. 14
Section 1. AGENTS, PROCEEDINGS, AND EXPENSES........... 14
Section 2. INDEMNIFICATION............................. 14
Section 3. ADVANCE OF EXPENSES......................... 15
Section 4. OTHER CONTRACTUAL RIGHTS.................... 15
Section 5. INSURANCE................................... 15
ARTICLE VII GENERAL CORPORATE MATTERS................... 15
Section 1. RECORD DATE FOR PURPOSES OTHER THAN
NOTICE AND VOTING........................... 15
Section 2. CHECKS, DRAFTS, EVIDENCES OF INDEBTEDNESS... 16
Section 3. CORPORATE CONTRACTS AND INSTRUMENTS; HOW
EXECUTED.................................... 16
Section 4. CERTIFICATES FOR SHARES..................... 16
Section 5. LOST CERTIFICATES........................... 16
Section 6. REPRESENTATION OF SHARES OF OTHER
CORPORATIONS................................ 17
Section 7. CONSTRUCTION AND DEFINITIONS................ 17
</TABLE>
ii.
<PAGE>
<TABLE>
<S> <C> <C>
ARTICLE VIII AMENDMENTS.................................. 17
Section 1. AMENDMENT BY SHAREHOLDERS................... 17
Section 2. AMENDMENT BY DIRECTORS...................... 17
</TABLE>
iii.
<PAGE>
BYLAWS
OF
INFOSEEK CORPORATION
ARTICLE I
OFFICES
-------
SECTION 1. PRINCIPAL OFFICES. The Board of Directors shall fix the
-----------------
location of the principal executive office of the corporation at any place
within or outside the State of California. If the principal executive office is
located outside this state, and the corporation has one or more business offices
in this state, the Board of Directors shall fix and designate a principal
business office in the State of California.
SECTION 2. OTHER OFFICES. The Board of Directors may at any time
-------------
establish branch or subordinate offices at any place or places where the
corporation is qualified to do business.
ARTICLE II
MEETINGS OF SHAREHOLDERS
------------------------
SECTION 1. PLACE OF MEETINGS. Meetings of shareholders shall be held
-----------------
at any place within or outside the State of California designated by the Board
of Directors. In the absence of any such designation, shareholders' meetings
shall be held at the principal executive office of the corporation.
SECTION 2. ANNUAL MEETING. The annual meeting of shareholders shall be
--------------
held each year on such date and at a time designated by the Board of Directors.
At each annual meeting Directors shall be elected, and any other proper business
may be transacted.
SECTION 3. SPECIAL MEETING. A special meeting of the shareholders may
---------------
be called at any time by the Board of Directors, or by the chairman of the
Board, or by the president, or by one or more shareholders holding shares in the
aggregate entitled to cast not less than ten percent (10%) of the votes at that
meeting.
If a special meeting is called by any person or persons other than the
Board of Directors, the request shall be in writing, specifying the time of such
meeting and the general nature of the business proposed to be transacted, and
shall be delivered personally or sent by registered mail or by telegraphic or
other facsimile transmission to
<PAGE>
the chairman of the Board, the president, and vice president, or the secretary
of the corporation. The officer receiving the request shall cause notice to be
promptly given to the shareholders entitled to vote, in accordance with the
provisions of Sections 4 and 5 of this Article II, that a meeting will be held
at the time requested by the person or persons calling the meeting, not less
than thirty-five (35) nor more than sixty (60) days after the receipt of the
request. If the notice is not given within twenty (20) days after receipt of the
request, the person or persons requesting the meeting may give the notice.
Nothing contained in this paragraph of this Section 3 shall be construed as
limiting, fixing or affecting the time when a meeting of shareholders called by
action of the Board of Directors may be held.
SECTION 4. NOTICE OF SHAREHOLDERS' MEETINGS. All notices of meetings
--------------------------------
of shareholders shall be sent or otherwise given in accordance with Section 5 of
this Article II not less than ten (10) (or, if sent by third-class mail, thirty
(30) days) nor more than sixty (60) days before the date of the meeting. The
notice shall specify the place, date and hour of the meeting and (i) in the case
of a special meeting, the general nature of the business to be transacted, or
(ii) in the case of the annual meeting, those matters which the Board of
Directors, at the time of giving the notice, intends to present for action by
the shareholders. The notice of any meeting at which Directors are to be elected
shall include the name of any nominee or nominees whom, at the time of notice,
management intends to present for election.
If action is proposed to be taken at any meeting for approval of (i) a
contract or transaction in which a Director has a direct or indirect financial
interest, pursuant to Section 310 of the Corporations Code of California, (ii)
an amendment of the Articles of Incorporation, pursuant to Section 902 of that
Code, (iii) a reorganization of the corporation, pursuant to Section 1201 of
that Code, (iv) a voluntary dissolution of the corporation, pursuant to Section
1900 of that Code, or (v) a distribution in dissolution other than in accordance
with the rights of outstanding preferred shares, pursuant to Section 2007 of
that Code, the notice shall also state the general nature of that proposal.
SECTION 5. MANNER OF GIVING NOTICE: AFFIDAVIT OF NOTICE. Notice of
--------------------------------------------
any meeting of shareholders shall be given either personally or by first-class
mail (unless the corporation has 500 or more shareholders determined as provided
by the California Corporations Code on the record date for the meeting, in which
case notice may be sent by third class mail) or telegraph or other written
communication, charges prepaid, addressed to the shareholder at the address of
that shareholder appearing on the books of the corporation or given by the
shareholder to the corporation for the purpose of notice. If no such address
appears on the corporation's books or is given, notice shall be deemed to have
been given if sent to that shareholder by first-class mail or telegraphic or
other written communication to the corporation's principal executive office, or
if published at least once in a newspaper of general circulation in the county
where that office is located. Notice shall be deemed to
2.
<PAGE>
have been given at the time when delivered personally or deposited in the mail
or sent by telegram or other means of written communication.
If any notice addressed to a shareholder at the address of that
shareholder appearing on the books of the corporation is returned to the
corporation by the United States Postal Service marked to indicate that the
United States Postal Service is unable to deliver the notice to the shareholder
at that address, all future notices or reports shall be deemed to have been duly
given without further mailing if these shall be available to the shareholder on
written demand of the shareholder at the principal executive office of the
corporation for a period of one year from the date of the giving of the notice.
Any affidavit of the mailing or other means of giving any notice of
any shareholders' meeting shall be executed by the secretary, assistant
secretary, or any transfer agent of the corporation giving the notice, and shall
be filed and maintained in the minute book of the corporation.
SECTION 6. QUORUM. The presence in person or by proxy of the holders
------
of a majority of the shares entitled to vote at any meeting of shareholders
shall constitute a quorum for the transaction of business. The shareholders
present at a duly called or held meeting at which a quorum is present may
continue to do business until adjournment, notwithstanding the withdrawal of
enough shareholders to leave less than a quorum, if any action taken (other than
adjournment) is approved by at least a majority of the shares required to
constitute a quorum.
SECTION 7. ADJOURNED MEETING; NOTICE. Any shareholders' meeting,
-------------------------
annual or special, whether or not a quorum is present, may be adjourned from
time to time by the vote of the majority of the shares represented at that
meeting, either in person or by proxy, but in the absence of a quorum, no other
business may be transacted at that meeting, except as provided in Section 6 of
this Article II.
When any meeting of shareholders, either annual or special, is
adjourned to another time or place; notice need not be given of the adjourned
meeting if the time and place are announced at a meeting at which the
adjournment is taken, unless a new record date for the adjourned meeting is
fixed, or unless the adjournment is for more than forty-five (45) days from the
date set for the original meeting, in which case the Board of Directors shall
set a new record date. Notice of any such adjourned meeting shall be given to
each shareholder of record entitled to vote at the adjourned meeting in
accordance with the provisions of Sections 4 and 5 of this Article II. At any
adjourned meeting the corporation may transact any business which might have
been transacted at the original meeting.
SECTION 8. VOTING. The shareholders entitled to vote at any meeting
------
of shareholders shall be determined in accordance with the provisions of Section
11 of this Article II, subject to the provisions of Sections 702 to 704,
inclusive, of the
3.
<PAGE>
Corporations Code of California (relating to voting shares held by a fiduciary,
in the name of a corporation, or in joint ownership).
The voting at all meetings of shareholders need not be by ballot, but
any qualified shareholder before the voting begins may demand a stock vote
whereupon such stock vote shall be taken by ballot, each of which shall state
the name of the shareholder voting and the number of shares voted by such
shareholder, and if such ballot be cast by a proxy, it shall also state the name
of such proxy.
At any meeting of the shareholders, every shareholder having the right
to vote shall be entitled to vote in person, or by proxy appointed in a writing
subscribed by such shareholder and bearing a date not more than eleven (11)
months prior to said meeting, unless the writing states that it is irrevocable
and is held by a person specified in Section 705(e) of the California
Corporations Code, in which event it is irrevocable for the period specified in
said writing.
Except as otherwise provided in the Articles of Incorporation, each
outstanding share, regardless of class, shall be entitled to one vote on each
matter submitted to a vote of shareholders. No shareholder shall be entitled to
cumulate such shareholder's votes for any Director. The preceding sentence of
this provision shall become effective only when the Corporation becomes a listed
corporation within the meaning of Section 301.5 of the California Corporations
Code.
SECTION 9. WAIVER OF NOTICE OR CONSENT BY ABSENT SHAREHOLDERS. The
--------------------------------------------------
transactions of any meeting of shareholders, either annual or special, however
called and noticed, and wherever held, shall be as valid as though a meeting had
been duly held after regular call and notice, if a quorum be present either in
person or by proxy, and if, either before or after the meeting, each person
entitled to vote, who was not present in person or by proxy, signs a written
waiver of notice or a consent to a holding of the meeting, or an approval of the
minutes. The waiver of notice or consent need not specify either the business to
be transacted or the purpose of any annual or special meeting of shareholders,
except that if action is taken or proposed to be taken for approval of any of
those matters specified in the second paragraph of Section 4 of this Article II,
the waiver of notice or consent shall state the general nature of the proposal.
All such waivers, consents or approvals shall be filed with the corporate
records or made a part of the minutes of the meeting.
Attendance by a person at a meeting shall also constitute a waiver of
notice of that meeting, except when the person objects, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened, and except that attendance at a meeting is not a waiver of
any right to object to the consideration of matters not included in the notice
of the meeting if that objection is expressly made at the meeting.
4.
<PAGE>
SECTION 10. SHAREHOLDER ACTION. Any action required or permitted to be
------------------
taken by the holders of the Common Stock or Preferred Stock of the Corporation
must be effected at a duly called annual or special meeting of such holders and
may not be effected by any consent in writing.
SECTION 11. RECORD DATE FOR SHAREHOLDER NOTICE, VOTING, AND GIVING
------------------------------------------------------
CONSENTS. For purposes of determining the shareholders entitled to give consent
- --------
to corporate action without a meeting, the Board of Directors may fix, in
advance, a record date, which shall not be more than sixty (60) days nor less
than ten (10) days before the date of any such meeting, and in this event only
shareholders of record on the date so fixed are entitled to notice and to vote
or to give consents, as the case may be, notwithstanding any transfer of any
shares on the books of the corporation after the record date, except as
otherwise provided in California General Corporations Law.
If the Board of Directors does not so fix a record date:
(a) The record date for determining shareholders entitled to notice
of or to a vote at a meeting of shareholders shall be at the close of business
on the business date next preceding the day on which notice is given or, if
notice is waived, at the close of business on the business day next preceding
the day on which the meeting is held.
(b) The record date for determining shareholders for any other
purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto, or the sixtieth (60th) day
before the date of such other action, whichever is later.
SECTION 12. PROXIES. Every person entitled to vote for Directors or
-------
on any other matter shall have the right to do so either in person or by one or
more agents authorized by a written proxy signed by the person and filed with
the secretary of the corporation. A proxy shall be deemed signed if the
shareholder's name is placed on the proxy (whether by manual signature,
typewriting, telegraphic transmission, or otherwise) by the shareholder or the
shareholder's attorney in fact. A validly executed proxy which does not state
that it is irrevocable shall continue in full force and effect unless (i)
revoked by the person executing it, before the vote pursuant to that proxy, by a
writing delivered to the corporation stating that the proxy is revokted, or by a
subsequent proxy executed by, or attendance at the meeting and voting in person
by, the person executing the proxy; or (ii) written notice of the death or
incapacity of the maker of that proxy is received by the corporation before the
vote pursuant to that proxy is counted; provided, however, that no proxy shall
be valid after the expiration of eleven (11) months from the date of the proxy,
unless otherwise provided in the proxy. The revocability of a proxy that states
on its face that it is irrevocable shall be governed by the provisions of
Sections 705(e) and 705(f) of the Corporations Code of California.
5.
<PAGE>
SECTION 13. INSPECTORS OF ELECTION. Before any meeting of
----------------------
shareholders, the Board of Directors may appoint any persons other than
nominees for office to act as inspectors of election at the meeting or its
adjournment. If no inspectors of election are so appointed, the chairman of
the meeting may, and on the request of any shareholder or a shareholder's
proxy shall appoint inspectors of election at the meeting. The number of
inspectors shall be either one (1) or three (3). If inspectors are appointed
at a meeting on the request of one or more shareholders or proxies, the
holders of a majority of shares or their proxies present at the meeting shall
determine whether one (1) or three (3) inspectors are to be appointed. If any
person appointed as inspector fails to appear or fails or refuses to act, the
chairman of the meeting may, and upon the request of any shareholder or a
shareholder's proxy shall, appoint a person to fill that vacancy.
These inspectors shall:
(a) Determine the number of shares outstanding and the voting power
of each, the shares' represented at the meeting, the existence of a quorum, and
the authenticity, validity, and effect of proxies;
(b) Receive votes, ballots, or consents;
(c) Hear and determine all challenges and questions in any way
arising in connection with the right to vote;
(d) Count and tabulate all votes or consents;
(e) Determine when the polls shall close;
(f) Determine the result; and
(g) Do any other acts that may be proper to conduct the election or
vote with fairness to all shareholders.
ARTICLE III
DIRECTORS
---------
SECTION 1. POWERS. Subject to the provisions of the California General
------
Corporation Law and any limitation in the Articles of Incorporation and these
Bylaws relating to action required to be approved by the shareholders or by the
outstanding shares, the business and affairs of the corporation shall be managed
and all corporate powers shall be exercised by or under the direction of the
Board of Directors.
6.
<PAGE>
Without prejudice to these general powers, and subject to the same
limitations, the Directors shall have the power to:
(a) Select and remove all officers, agents, and employees of the
corporation; prescribe any powers and duties for them that are consistent with
law, with the Articles of Incorporation, and with these Bylaws; fix their
compensation; and require from them security for faithful service.
(b) Change the principal executive office or the principal business
office in the State of California from one location to another; cause the
corporation to be qualified to do business in any other state, territory,
dependency, or country an conduct business within or without the State of
California; and designate any place within or without the State of California
for the holding of any shareholders' meeting, or meetings, including annual
meetings.
(c) Adopt, make, and use a corporate seal; prescribe the forms of
certificates of stock; and alter the form of the seal and certificates.
(d) Authorize the issuance of shares of stock of the corporation on
any lawful terms, in consideration of money paid, labor done, services actually
rendered, debts or securities cancelled, or tangible or intangible property
actually received.
(e) Borrow money and incur indebtedness on behalf of the corporation,
and cause to be executed and delivered for the corporation's purposes, in the
corporate name, promissory notes, bonds, debentures, deeds of trust, mortgages,
pledges, hypothecations, and other evidences of debt and securities.
SECTION 2. NUMBER OF DIRECTORS. The number of Directors of the
-------------------
corporation shall be no less than five (5) nor more than nine (9), the exact
number of Directors to be fixed from time to time within such limit by a duly
adopted resolution of the Board of Directors or shareholders. The exact number
of Directors presently authorized shall be six (6) until changed within the
limits specified above by a duly adopted resolution of the Board of Directors or
shareholders.
SECTION 3. ELECTION AND TERM OF OFFICE OF DIRECTORS. Directors shall
----------------------------------------
be elected at each annual meeting of the shareholders to hold office until the
next annual meeting, Each Director, including a Director elected to fill a
vacancy, shall hold office until the expiration of the term for which elected
and until a successor has been qualified and elected.
SECTION 4. VACANCIES. Vacancies in the Board of Directors may be
---------
filled by a majority of the remaining Directors, though less than a quorum, or
by a sole remaining Director, except that a vacancy created by the removal of a
Director by the vote of the shareholders or by court order may be filled only by
the vote of a majority of
7.
<PAGE>
the shares entitled to vote represented at a duly held meeting at which a quorum
is present. Each Director so elected shall hold office until the next annual
meeting of the shareholders and until a successor has been elected or qualified.
A vacancy or vacancies in the Board of Directors shall be deemed to
exist in the event of death or resignation or removal of any Director, of if the
Board of Directors by resolution declares vacant the office of a Director who
has been declared of unsound mind, by an order of Court or convicted of a
felony, or if the authorized number of Directors is increased, or if the
shareholders fail, at any meeting of shareholders at which any Director or
Directors are elected, to elect the number of Directors to be voted for at that
meeting.
Any Director may resign effective on giving written notice to the
chairman of the board, the president, the secretary, or the Board of Directors,
unless the notice specifies a later time for the resignation to become
effective. If the resignation of a Director is effective at a future time, the
Board of Directors may elect a successor to take office when the resignation
becomes effective.
No reduction of the authorized number of Directors shall have the
effect of removing any Director before that Directors term of office expires.
SECTION 5. PLACE OF MEETINGS AND MEETINGS BY TELEPHONE. Regular
-------------------------------------------
meetings of the Board of Directors may be held at any place within or outside
the State of California that has been designated from time to time by resolution
of the Board. In the absence of such a designation, regular meetings shall be
held at the principal executive office of the corporation. Special meetings of
the Board shall be held at any place within or outside the State of California
that has been designated in the notice of the meeting or, if not stated in the
notice or there is no notice, at the principal executive office of the
corporation. Any meeting, regular or special, may be held by conference
telephone or similar communication equipment, so long as all Directors
participating in the meeting can hear one another, and all such Directors shall
be deemed to be present in person at the meeting.
SECTION 6. ANNUAL MEETING. Immediately following each annual meeting
--------------
of shareholders, the Board of Directors shall hold a regular meeting for the
purpose of organization, any desired election of officers, and the transaction
of other business. Notice of this meeting shall not be required.
SECTION 7. OTHER REGULAR MEETINGS. Other regular meetings of the Board
----------------------
of Directors shall be held without call at such time as shall from time to time
be fixed by the Board of Directors. Such regular meetings may be held without
notice.
8.
<PAGE>
SECTION 8. SPECIAL MEETINGS. Special meetings of the Board of
----------------
Directors for any purpose or purposes may be called at any time by the chairman
of the Board or the president or any vice president or the secretary or any two
Directors.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each Director or sent by first class mail or
telegram, charges prepaid, addressed to each Director at that Director's address
as it is shown on the records of the corporation. In case the notice is mailed,
it shall be deposited in the United States mail at least four (4) days before
the time of the holding of the meeting. In case the notice is mailed, it shall
be deposited in the United States mail at least four (4) days before the time of
the holding of the meeting. In case the notice is delivered personally, or by
telephone or telegram, it shall be delivered personally or by telephone or to
the telegraph company at least forty-eight (48) hours before the time of the
holding of the meeting. Any oral notice given personally or by telephone may be
communicated either to the Director or to a person at the office of the Director
who the person giving the notice has reason to believe will promptly communicate
it to the Director. The notice need not specify the purpose of the meeting nor
the place if the meeting is to be held at the principal executive office of the
corporation.
SECTION 9. QUORUM. A majority of the authorized number of Directors
------
shall constitute a quorum for the transaction of business, except to adjourn as
provided in Section 11 of this Article III. Every act or decision done or made
by a majority of the Directors present at a meeting duly held at which a quorum
is present shall be regarded as the act of the Board of Directors. Subject to
the provisions of Section 310 of the Corporations Code of California (as to
approval of contracts or transactions in which a Director has direct or indirect
material financial interest), Section 311 of that Code (as to appointment of
committee), and Section 317(e) of that Code (as to indemnification of
Directors). A meeting at which a quorum is initially present may continue to
transact business notwithstanding the withdrawal of Directors, if any action
taken is approved by at least a majority of the required quorum for that
meeting.
SECTION 10. WAIVER OF NOTICE. The transactions of any meeting of the
----------------
Board of Directors, however called and noticed or wherever held, shall be as
valid as though had at a meeting duly held after regular call and notice if a
quorum is present and if, either before or after the meeting, each of the
Directors not present signs a written waiver of notice, a consent to holding the
meeting or an approval of the minutes. The waiver of notice or consent need not
specify the purpose of the meeting. All such waivers, consents, and approvals
shall be fired with the corporate records or made a part of the minutes of the
meeting. Notice of a meeting shall also be deemed given to any Director who
attends the meeting without protesting before or at its commencement, the lack
of notice to that Director.
9.
<PAGE>
SECTION 11. ADJOURNMENT. A majority of the Directors present, whether
-----------
or not constituting a quorum, may adjourn any meeting to another time and place.
SECTION 12. NOTICE OF ADJOURNMENT. Notice of the time and place of
---------------------
holding an adjourned meeting need not be given, unless the meeting is adjourned
for more than twenty-four hours, in which case notice of the adjourned meeting,
in the manner specified in Section 8 of this Article II, to the Directors who
were not present at the time of the adjournment.
SECTION 13. ACTION WITHOUT MEETING. Any action required or permitted
----------------------
to be taken by the Board of Directors may be taken without a meeting, if all
members of the board shall individually or collectively consent in writing to
that action. Such action by written consent shall have the same force and effect
as a unanimous vote of the Board of Directors. Such written consents shall be
filed with the minutes of the proceed of the Board.
SECTION 14. FEES AND COMPENSATION OF DIRECTORS. Directors and members
----------------------------------
of committees may receive such compensation, if any, for their services, and
such reimbursement of expenses, as may be fixed or determined by resolution of
the Board of Directors. This Section 14 shall not be construed to preclude any
Director from serving the corporation in any other capacity as an officer,
agent, employee, or otherwise, and receiving compensation for those services.
ARTICLE IV
COMMITTEES
----------
SECTION 1. COMMITTEES OF DIRECTORS. The Board of Directors may, by
-----------------------
resolution adopted by a majority of the authorized number of Directors,
designate one or more committees, each consisting of two or more Directors, to
suit at the pleasure of the Board. The Board may designate one or more Directors
as alternate members of any committee, who may replace any absent member at any
meeting of the committee. Any committee, to the extent provided in the
resolution of the Board, shall have all the authority of the Board, except with
respect to:
(a) the approval of any action which, under the General Corporation
law of California, also requires shareholders' approval or approval of the
outstanding shares;
(b) the filling of vacancies on the Board of Directors or in any
committee;
10.
<PAGE>
(c) the fixing of compensation of the Directors for serving on the
Board or any committee;
(d) the amendment or repeal of Bylaws or the adoption of new Bylaws;
(e) the amendment or repeal of Bylaws or the adoption of new Bylaws:
(f) a distribution to the shareholders of the corporation, except at
a rate or in a periodic amount or within a price range determined by the Board
of Directors; or
(g) the appointment of any other committees of the Board of Directors
or the members of these committees.
SECTION 2. MEETINGS AND ACTION OF COMMITTEES. Meetings and action of
---------------------------------
committees shall be governed by, and held and taken in accordance with, the
provisions of Article in of these Bylaws, Sections 5 (place of meetings, 7
(regular meetings), 8 special meetings and notice), 9 (quorum), 10 (waiver of
notice), 11 (adjournment), 12 (notice of adjournment), and 13 (action without
meeting), with such changes in the context of thou Bylaws as are necessary to
substitute the committee and its members for the Board of Directors and its
members, except that the time of regular meetings of committees may he
determined either by resolution of the Board of Directors or by resolution of
the committee; special meetings of committees may also be called by resolution
of the Board of Directors; and notice of special meetings of committees shall
also be given to all alternate members, who shall have the right to attend all
meetings of the committee. The Board of Directors may adopt rules for the
government of any committee not inconsistent with the provisions of these
Bylaws.
ARTICLE V
OFFICERS
--------
SECTION 1. OFFICERS. The officers of the corporation shall be a
--------
president, a secretary, and a chief financial officer. The corporation may also
have, at the discretion of the Board of Directors, a chairman of the Board, one
or more vice presidents, one or more assistant secretaries, one or more chief
financial officers, and such other officers as may he appointed in accordance
with the provisions of Section 3 of this Article V. Any number of offices may be
held by the same person.
SECTION 2. ELECTION OF OFFICERS. The officers of the corporation,
--------------------
except such officers as may be appointed in accordance with the provisions of
Section 3 or Section 5 of this Article V, shall be chosen by the Board of
Directors, and each shall serve at the pleasure of the Board, subject to the
rights, if any, of an officer under any contract of employment.
11.
<PAGE>
SECTION 3. SUBORDINATE OFFICERS. The Board of Directors may appoint,
--------------------
and may empower the president to appoint, such other officers as the business of
the corporation may require, each of whom shall hold office for such period,
have such authority and perform such duties as are provided in the Bylaws or as
the Board of Directors may from time to time determine.
SECTION 4. REMOVAL AND RESIGNATION OF OFFICERS. Subject to the rights,
-----------------------------------
if any, of an officer under any contract of employment, any officer may be
removed, either with or without cause, by the Board of Directors, at any regular
or special meeting of the Board, or, except in case of an officer chosen by the
Board of Directors, by any officer upon whom such power of removal may be
conferred by the Board of Directors.
Any officer may resign at any time by giving written notice to the
corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless otherwise
specified in that notice, the acceptance of the resignation shall not be
necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the corporation under any contract to which the officer is a
party.
SECTION 5. VACANCIES IN OFFICES. A vacancy in any office because of
--------------------
death, resignation, removal, disqualification or any other cause shall be filled
in the manner prescribed in these Bylaws for regular appointments to that
office.
SECTION 6. CHAIRMAN OF THE BOARD. The chairman of the Board, if such
---------------------
an officer is elected, shall if present, preside at meetings of the Board of
Directors and exercise and perform such other powers and duties as may be from
time to time assigned to him by the Board of Directors or prescribed by the
Bylaws. If there is no president, the chairman of the Board shall in addition be
the chief executive officer of the corporation and shall have the powers and
duties prescribed in Section 7 of this Article V.
SECTION 7. PRESIDENT. Subject to such supervisory powers, if any, as
---------
may be given by the Board of Directors to the chairman of the board, if there be
such an officer, the president shall be the chief executive officer of the
corporation and shall, subject to the control of the Board of Directors, have
general supervision, direction, and control of the business and the officers of
the corporation, he shall preside at all meetings of the shareholders and, in
the absence of the chairman of the Board, or if there be none, at all meetings
of the Board of Directors. He shall have the general powers and duties of
management usually vested in the office of president of a corporation, and shall
have such other powers and duties as may be prescribed by the Board of Directors
or the Bylaws.
12.
<PAGE>
SECTION 8. VICE PRESIDENTS. In the absence or disability of the
---------------
president, the vice presidents, if any, in order of their rank as fixed by the
Board of Directors or, if not ranked, a vice president designated by the Board
of Directors, shall perform all the duties of the president, and when so acting
shall have all the powers of, and be subject to all the restrictions upon, the
president. The vice presidents shall have such other powers and perform such
other duties as from time to time may be prescribed for them respectively by the
Board of Directors or the Bylaws, and the president, or the chairman of the
Board.
SECTION 9. SECRETARY. The secretary shall keep or cause to be kept, at
---------
the principal executive office or such other place as the Board of Directors may
direct, a book of minutes of all meetings and actions of Directors, committees
or Directors, and shareholders, with the time and place of holding, whether
regular or special, and, if special, how authorized, the notice given, the names
of those present at the Directors' meetings or committee meet, the number of
shares present or represented at shareholders' meet, and the proceedings.
The secretary shall keep, or cause to be kept, at the principal
executive office or at the office of the corporation's transfer agent or
registrar, as determined by resolution of the Board of Directors a share
register, or a duplicate share register, showing the names of all shareholders
and their addresses, the number and classes of shares held by each, the number
and date of certificates issued for the same, and the number and date of
cancellation of every certificate surrendered for cancellation.
The secretary shall give, or cause to be given, notice of all meetings
of the shareholders and of the Board of Directors required by the Bylaws or
ByLaw to be given, and he shall keep the seal of the corporation if one be
adopted, in safe custody and shall have such other powers and perform such other
duties as may be prescribed by the Board of Directors or by the Bylaws.
SECTION 10. CHIEF FINANCIAL OFFICER. The chief financial officer shall
-----------------------
keep and maintain, or cause to be and maintained, adequate and correct books and
records of accounts of the properties and business transaction of the
corporation, including accounts of its assets, liabilities, receipts,
disbursements, gains, losses, capital, retained earnings, and shares. The books
of account shall at all reasonable times be open to inspection by any Director.
The chief financial officer shall deposit all moneys and other
valuables in the name and to the credit of the corporation with such
depositories as may be designated by the Board of Directors. He shall disburse
the funds of the corporation as may be ordered by the Board of Directors,
shall render to the president and Directors, whenever they request it, an
amount of all of his transactions as chief financial officer
13.
<PAGE>
and of the financial condition of the corporation, and shall have other power
and perform such other duties as may be prescribed by the Board of Directors of
the Bylaws.
SECTION 11. APPROVALS OF LOANS TO OFFICERS.*The Corporation may, upon
------------------------------
the approval of the Board of Directors alone, make loans of money or property
to, or guarantee the obligations of any officer of the Corporation or its parent
or subsidiary, whether or not a director, or adopt an employee benefit plan or
plans authorizing such loans or guaranties provided that (i) the Board of
Directors determines that such a loan or guaranty or plan may reasonably be
expected to benefit the Corporation, (ii) the Corporation has outstanding shares
held of record by 100 or more persons (determined as provided in Section 605 of
the California Corporations Code) on the date of approval by the Board of
Directors, and (iii) the approval of the Board of Directors is by a vote
sufficient without counting the vote of any interested director or directors.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS,
---------------------------------------
EMPLOYEES AND OTHER AGENTS
--------------------------
SECTION 1. AGENTS, PROCEEDS, AND EXPENSES. For the purposes of this
------------------------------
Article, "agent" means any person who is or was a Director, officer, employee,
or other agent of this corporation, or is or was serving at the request of this
corporation as a Director, officer, employee, or agent of another foreign or
domestic corporation, partnership, joint venture, trust or other enterprise, or
was a Director, officer, employee, or agent of a foreign or domestic corporation
which was a predecessor corporation of this corporation or of another enterprise
at the request of such predecessor corporation; "proceeding" means any
threatened, pending or completed action or proceeding whether civil, criminal,
administrative, or investigative; and "expenses" includes, without limitation,
attorneys' fees and any expenses of establishing a right to indemnification
under subdivision (d) or paragraph (4) of subdivision (e) of Section 317 of the
California Corporations Code.
SECTION 2. INDEMNIFICATION. The corporation is authorized to indemnify
---------------
each of its agents (and shall indemnify each agent who is a Director of the
corporation) against expenses, judgments, fines, settlements and other amounts,
actually and reasonably incurred by such person by reason of such person's
having been made or having threatened to be made a party to any proceeding in
excess of the indemnification otherwise permitted by the provisions of Section
317 of the California General.
- -----------------------
*This section is effective only if it has been approved by the shareholders in
accordance with Sections 315(b) and 152 of the California Corporations Code.
14.
<PAGE>
Corporation Law and to the fullest extent permissible under the laws of the
State of California, as those laws may be amended and supplemented from time to
time.
SECTION 3. ADVANCE OF EXPENSES. Expenses incurred in defending any
-------------------
proceeding may be advanced by this corporation before the final disposition of
the proceeding on receipt of an undertaking by or on behalf of the agent to
repay the amount of the advance unless it shall be determined ultimately that
the agent is entitled to be indemnified as authorized in this Article.
SECTION 4. OTHER CONTRACTUAL RIGHTS. The indemnification provided by
------------------------
this Article shall not be deemed exclusive of any rights to which those seeking
indemnification may be entitled under any agreement, vote of shareholders or
disinterested Directors or otherwise, both as to action in another capacity
while holding such office, to the extent such additional rights to
indemnification are authorized in the articles of the corporation. The rights to
indemnity hereunder shall continue as to a person who has ceased to be an agent
and shall inure to the benefit of the heirs, executors, and administrators of
the person.
SECTION 5. INSURANCE. Upon and in the event of a determination by the
---------
Board of Directors of this corporation to purchase such insurance, this
corporation shall purchase and maintain insurance on behalf of any agent of the
corporation against any liability asserted against or incurred by the agent in
such capacity or arising out of the agent's status as such whether or not this
corporation would have the power to indemnify the agent against that liability
under the provisions of this section.
ARTICLE VII
GENERAL CORPORATE MATTERS
-------------------------
SECTION 1. RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING. For
-----------------------------------------------------
purposes of determining the shareholders entitled to receive payment of any
dividend or other distribution or allotment of any rights or entitled to
exercise any rights in respect of any other lawful action (other than action by
shareholders by written consent without a meeting), the Board of Directors may
fix, in advance, a record date, which shall not be more than sixty (60) days
before any such action, and in that case only shareholders of record on the date
so fixed are entitled to receive the dividends, distribution or allotment of
rights or to exercise the rights, as the case may be, notwithstanding any
transfer of any shares on the books of the corporation after the record date so
fixed, except as otherwise provided in the California General Corporation Law.
If the Board of Directors does not so fix a record date, the record date for
determining shareholders for any such purpose shall be at the close of business
on the
15.
<PAGE>
day on which the Board adopts the applicable resolutions or the sixtieth (60th)
day before the date of that action, whichever is later.
SECTION 2. CHECKS, DRAFTS, EVIDENCES OF INDEBTEDNESS. All checks,
-----------------------------------------
drafts, or other orders for payment of money, notes, or other evidences of
indebtedness, issued in the name of or payable to the corporation, shall be
signed or endorsed by such person or persons and in such manner as, from time to
time, shall be determined by resolution of the Board of Directors.
SECTION 3. CORPORATE CONTRACTS AND INSTRUMENTS; HOW EXECUTED. The
-------------------------------------------------
Board of Directors, except as otherwise provided in the Bylaws, may authorize
any officer or officers, agent or agents, to enter into any contract or execute
any instrument in the name of and on behalf of the corporation, and this
authority may be general or confined to specific instances; and unless so
authorized or ratified by the Board of Directors or within the agency power of
an officer, no officer, agent or employee shall have any power or authority to
bind the corporation by any contract or engagement or to pledge its credit or to
tender it liable for any purpose or for any amount.
SECTION 4. CERTIFICATES FOR SHARES. A certificate or certificates for
-----------------------
shares of the capital stock of the corporation shall be issued to each
shareholder when any of these shares are fully paid, and the Board of Director
may authorize the issuance of certificates or shares as partly paid provided
that these certificates shall state the amount of the consideration to be paid
for them and the amount paid. All certificates shall be signed in the name of
the corporation by the chair of the Board or vice chairman of the Board or the
president or vice president and by the chief financial officer or an assistant
treasurer or the secretary of any assistant secretary, certifying the number
of shares and the class or series of shares owned by the shareholder. Any or
all of the signatures on the certificate may be facsimile. In case any
officer, transfer agent, or registrar who has signed or show facsimile
signature has been placed on a certificate shall it ceased to be that officer,
transfer agent, or registrar before that certificate is issued, it may be
issued by the corporation with the same effect as if that person were an
officer, transfer agent, or registrar at the date of issuance.
SECTION 5. LOST CERTIFICATES. Except as provided in this Section 5, no
-----------------
new certificates for shares shall be issued to replace an old certificate unless
the letter is surrendered to the corporation and cancelled at the same time. The
Board of Directors may, in case any share certificate or certificate for any
other security is lost, stolen, or destroyed, authorize the issuance of a
replacement certificate on such terms and conditions as the Board may require,
including provision for indemnification of the corporation secured by a bond or
other adequate security sufficient to protect the corporation against any claim
that may be made against it, including any expense or liability, on account of
the alleged loss, theft, or destruction of the certificate or the issuance of
the replacement certificate.
16.
<PAGE>
SECTION 6. REPRESENTATION OF SHARES OF OTHER CORPORATIONS. The
----------------------------------------------
chairman of the Board, the president, or any vice president, or any other person
authorized by resolution of the Board of Directors or by any of the foregoing
designated officers, is authorized to vote on behalf of the corporation any and
all shares of any other corporation or corporations, foreign or domestic,
standing in the name of the corporation. The authority granted to these officers
to vote or represent on behalf of the corporation any and all shares held by the
corporation in any other corporation or corporations may be exercised by any of
these officers in person or by any person authorized to do so by a proxy duly
executed by these officers.
SECTION 7. CONSTRUCTION AND DEFINITIONS. Unless the context requires
----------------------------
otherwise, the general provisions, rules of construction, and definitions in the
California General Corporations Law shall govern the construction of these
Bylaws. Without limiting the generality of this provision, the singular number
includes the plural, the plural number includes the term "person" includes both
a corporation and a natural person.
ARTICLE VIII
AMENDMENTS
----------
SECTION 1. AMENDMENT BY SHAREHOLDERS. New Bylaws may be adopted or
-------------------------
these Bylaws maybe amended or repealed by the vote of holders of a majority of
the outstanding shares entitled to vote; provided, however, that if the Articles
of Incorporation of the corporation set forth the number of authorized Directors
of the corporation, the authorized number of Directors may be changed only by an
amendment of the Articles of Incorporation.
SECTION 2. AMENDMENT BY DIRECTORS. Subject to the rights of the
----------------------
shareholders as provided in Section 1 of this Article X, Bylaws, other than a By
Law or an amendment of a Bylaw changing the authorized number of Directors, may
be adopted amended, or repealed by the Board of Directors.
17.
<PAGE>
EXHIBIT 10.43
1399 MOFFETT PARK DRIVE, SUNNYVALE, CA
STANDARD NNN LEASE -- MULTI-TENANT
WITNESSETH
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.
<TABLE>
<CAPTION>
1. BASIC LEASE TERMS
<C> <S>
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 129.)
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 (P)4.b. apply for the periods shown below:
</TABLE>
<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>
<TABLE>
<C> <S>
i. 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.
</TABLE>
-1-
<PAGE>
2. PREMISES, PARKING AND COMMON AREAS
a. PREMISES. The Premises as described In (P)1. and Exhibit A, are a portion
of a building herein sometimes referred to as the"Building" identified
in (P)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 (P)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, (P)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 (P)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 (P)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 (P)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.
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<PAGE>
f. ACCEPTANCE. Landlord represents that it is the fee simple owner of the
Premises and has full fight 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 (P)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 (P)1. commencing upon the Commencement Date set
forth in (P)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 (P)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 (P)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
(P)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>
6. USE OF PREMISES
a. TENANT'S USE. Tenant shall use the Premises solely for the purposes
stated in (P)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 (P)13.b.11), and Tenant shall pay such amounts as
further set forth in (P)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.
-4-
<PAGE>
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 (P)7.f. shall survive the
termination of this Lease and shall relate to any occurrence as described
in this (P)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,
-5-
<PAGE>
diesel fuel or other petroleum hydrocarbons, polychlorinated biphenyls
(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 (P)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 (P)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 (P)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 (P)10.c., during the Term of this Lease. Subject to 10.b.,
Tenant shall promptly reimburse Landlord according to (P)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 (P)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 (P)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 (P)10. may, at the option of Landlord, be
treated as an additional Security Deposit under (P)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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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 (P)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 (P)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 snowing 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 (P)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 (P)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
redemption. 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
(P)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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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 (P)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 (P)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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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 (P)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 (P)10.
11) Assessments, dues and other amounts payable pursuant to the CC&R's
described in (P)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 (P)13.
shall survive this Lease.
g. FAILURE TO PAY. Failure of Tenant to pay any of the charges required to
be paid under this (P)13. shall constitute a material default and breach
of this Lease and Landlord's remedies shall be as specified In (P)21.
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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
(P)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 (P)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 (P)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
(P)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
(P)18.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
(P)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
(P)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 years 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
(P)16.c. shall insure Tenant's personal property and leasehold
improvements.
d. TENANT'S PROPERTY INSURANCE. Subject to the requirements of (P)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 (P)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 (P)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 (P)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 (P)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 (P)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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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 (P)18. 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
(P)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
lakes 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
(P)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
(P)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 (P)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 (P)17.a. above.
c. END OF TERM CASUALTY. Notwithstanding the provisions of (P)17.a. and
(P)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 (P)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 collectible 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 (P)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 (P)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 (P)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 (P)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 (P)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 (P)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 (P)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 (P)22. Tenant shall not be entitled to an
abatement or reduction of Rent if Landlord exercises any rights reserved in
this (P)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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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
(P)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 (P)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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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 (P)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 18,1997 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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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 (P)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:
SECURITY DEPOSIT =
LEASE YEAR # # MONTHS OF THEN CURRENT RENT
------------ -------------------------------
2 4 Months @ $92,082.00 per Month
3 3 Months @ $95,151.40 per Month
4 2 Months @ $98,220.80 per Month
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 (P)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
(P)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
-17-
<PAGE>
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 (P)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 (P)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 (P)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 (P)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.
-18-
<PAGE>
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 an/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
<TABLE>
<CAPTION>
LANDLORD: TENANT:
<S> <C>
LIMAR REALTY CORP. #8, a California corporation INFOSEEK CORPORATION, a California corporation
By: /s/ Theodore H. Krusttschnitt By: /s/ Andrew E. Newton
________________________________ _______________________________
Theodore H. Kruttschnitt Name: Andrew E. Newton
President _______________________________
Title: VP & General Counsel
_______________________________
Date: March 10, 1997 Date: March 10, 1997
_______________________________ _______________________________
</TABLE>
-19-
<PAGE>
EXHIBIT A
The Premises
------------
This Exhibit A is attached to and made a part of that certain Lease (the
"Lease") dated March 4, 1997, by and between Limar Realty Corp. #8 as
Landlord and Infoseek Corporation as Tenant.
[FIGURE DEPICTING PROPERTY LEASED APPEARS HERE]
-20-
<PAGE>
EXHIBIT B
The Property
------------
This Exhibit B is attached to and made a part of that certain Lease (the
"Lease") dated March 4, 1997, by and between Limar Realty Corp. #8 as
Landlord and Infoseek Corporation as Tenant.
[FIGURE DEPICTING PROPERTY LEASED APPEARS HERE]
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<PAGE>
EXHIBIT B
The Property
------------
(Continued)
REAL PROPERTY in the City of Sunnyvale, County of Santa Clara, State of
California, described as follows:
PARCEL ONE:
All of Parcel B, as shown on that certain Map entitled, "Parcel Map being a
resubdivision of Parcel 2 as shown on that certain map recorded March 1, 1978 in
Book 413 of Maps, at page 54, Santa Clara County Records", which map was filed
for record in the Office of the Recorder of the County of Santa Clara, State of
California on October 29, 1979 in Book 452 of Maps, at page 32.
PARCEL TWO:
An easement 15.00 feet in width for the purpose of ingress and egress. The
Easterly line of said easement being more particularly described as follows:
Beginning at the most Southerly corner of Parcels A and B, in the Northerly
line of Moffett Park Drive as said Parcels and Drive are shown on that Map
entitled "Parcel Map", recorded October 29, 1979 in Book 452 of Maps at page 32,
Santa Clara County Records; thence from said point of beginning along the common
line of Parcels A and B, North 14 degrees 43' 20" East 707.06 feet to the
terminus of this easement.
APN: 110-37-002
ARB: 110-04-024.08
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<PAGE>
EXHIBIT C
Rules & Regulations
-------------------
This Exhibit C is attached to and made a part of that certain Lease dated March
4, 1997 by and between Limar Realty Corp. #8 as Landlord and Infoseek
Corporation as Tenant.
For the purpose of these Rules & Regulations the word Premises shall refer to
the Premises Tenant is leasing and the Property containing the Premises as
described In paragraph 2. of the Lease.
1. No sign, placard, picture, advertisement, name or notice (collectively,
"Signs") shall be installed or displayed on any part of the Premises without
the prior written consent of Landlord, except that Tenant may post Signs
inside the Building which are not visible from the exterior of the Building.
Landlord shall have the right to remove, at Tenant's expense and without
notice, any sign installed or displayed in violation of this rule. All
approved signs or lettering on doors and walls shall be printed, painted,
affixed or inscribed at the expense of Tenant.
2. Except as consented to in writing by Landlord, no draperies, curtains,
blinds, shades, screens or other devices shall be hung at or used in
connection with any window or exterior door or doors of the Premises and no
awning shall be permitted on any part of the Premises. Tenant shall not
place anything against or near glass partitions or doors or windows which
may appear unsightly from outside the Premises.
3. Neither Tenant nor any employee or invitee of Tenant, shall make any
structural roof or terrace penetrations.
4. Tenant shall not cause any unnecessary labor by carelessness or indifference
to the good order and cleanliness of the Premises. Landlord shall not in any
way be responsible to any Tenant for any loss of property on the Premises,
or for any damage to any Tenant's property.
5. Landlord will furnish Tenant, free of charge, with six (6) keys to the
Premises. Tenant shall not make or have made additional keys without
Landlord's prior written consent, and Tenant shall not alter any lock or
install a new additional lock or bolt on any door of its Premises without
Landlord's prior written consent. Tenant, upon the termination of its
tenancy, shall deliver to Landlord the keys of all locks for doors on the
Premises, and in the event of loss of any keys furnished by Landlord, shall
pay Landlord therefor.
6. If Tenant requires telegraphic, telephonic, burglar alarm or similar
services, it shall first obtain, and comply with, Landlord's reasonable
instructions in their installation.
7. 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 and which is
allowed by law. Landlord shall have the reasonable right to prescribe the
weight, size and position of all equipment, materials, furniture or other
property brought into the Premises. Heavy objects shall, if considered
necessary by Landlord, stand on such platforms as determined by Landlord to
be necessary to properly distribute the weight. Business machines and
mechanical equipment belonging to Tenant, which cause noise or vibration
that may be transmitted to the structure of the Premises to such a degree as
to be objectionable to Landlord, shall be placed and maintained by Tenant,
at Tenant's expense, on vibration eliminators or other devices sufficient to
eliminate noise or vibrations. Landlord will not be responsible for loss of,
or damage to, any such equipment or other property from any cause, and all
damage done to the Premises by maintaining or moving such equipment or other
property shall be repaired at the expense of Tenant.
8. Tenant shall not use or keep in the Premises any kerosene, gasoline or
inflammable or combustible fluid or material other than those limited
quantities necessary for the operation or maintenance of office equipment.
Tenant shall not use or permit to be used in the Premises any foul or
noxious gas or substance, or permit or allow the Premises to be occupied or
used in a manner offensive or objectionable to Landlord by reason of noise,
odors or vibrations not bring or keep or permit to be brought or kept in the
Premises any animal life form, other than human, except seeing eye dogs when
in the company of their masters.
9. Intentionally deleted.
10. Tenant shall not waste electricity, water or air-conditioning and agrees to
cooperate fully with Landlord to comply with any governmental energy-saving
rules, laws or regulations of which Tenant has actual notice.
11. Landlord reserves the right, exercisable with one hundred twenty (120) days
prior written notice but without liability to Tenant, to change the name and
street address of the Premises.
12. Tenant shall close and lock the doors of its Premises and entirely shut off
all water faucets or other water apparatus, and other equipment which is not
required to be continuously run.
13. The toilet rooms, toilets, urinals, wash bowls and other apparatus shall not
be used for any purpose other than that for which they were constructed and
no foreign substance of any kind whatsoever shall be thrown therein. The
expense of any breakage, stoppage or damage resulting for the violation of
this rule shall be borne by the Tenant who, or whose employees or invitees,
shall have caused it.
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<PAGE>
EXHIBIT C
Rules & Regulations
-------------------
(continued)
14. Tenant shall not sell, or permit the retail sale of newspapers, magazines,
periodicals, theater tickets or any other goods or merchandise to the
general public in or on the Premises. Tenant shall not make any room-to-room
solicitation of business from other tenants in the Business Park. Tenant
shall not use the Premises for any business or activity other than that
specifically provided for in Tenants Lease. Notwithstanding the above,
Tenant shall have the right to install vending machines for use by Tenant,
its employees and invitees.
15. Tenant shall not interfere with radio or television broadcasting or
reception from or in neighboring areas.
16. Intentionally deleted.
17. Canvassing, soliciting and distribution of handbills or any other written
materials, and peddling in the Business Park are prohibited, and Tenant
shall cooperate to prevent same.
18. Landlord reserves the right to exclude or expel from the Premises any person
who, in Landlord's judgment, is intoxicated or under the influence of liquor
or drugs or who is in violation of any of the Rules and Regulations of the
Premises or in violation of the CC&R's.
19. Tenant shall store all its trash and garbage within its Premises or in
reasonable locations specifically identified by Landlord for such purposes.
Tenant shall not place in any trash box or receptacle any material which
cannot be disposed of in the ordinary and customary manner of trash and
garbage disposal. All garbage and refuse disposal shall be made in
accordance with reasonable directions issued from time to time by Landlord.
20. The Premises shall not be used for the storage of merchandise held for sale
to the general public, or for lodging nor shall the Premises by used for
any improper, immoral or objectionable purpose. No cooking shall be done or
permitted by any tenant on the Premises, except that use by Tenant in its
kitchen, if any, located in the Premises and Underwriters Laboratory's
approved equipment for brewing coffee, tea, hot chocolate and similar
beverages and microwaving food shall be permitted, provided that such
kitchen equipment and use is in accordance with all applicable federal,
state, county and city laws, ordinances, rules and regulations.
21. Tenant shall not use in any part of the Premises any hand truck except those
equipped with rubber tires and side guards or such other reasonable
material-handling equipment as Landlord may approve.
22. Without the written consent of Landlord, Tenant shall not use the name of
the Business Park in connection with or in promoting or advertising the
business of Tenant except as Tenant's address.
23. Tenant shall comply with all safety, fire protection and evacuation
procedures and regulations established by Landlord or any governmental
agency.
24. Tenant assumes any and all responsibility for protecting its Premises from
theft, robbery and pilferage, which includes locking doors and securing
other means of entry to the Premises closed.
25. The requirements of Tenant will be attended to only upon appropriate
application to the office of Landlord by an authorized individual. Employees
of Landlord shall not perform any work or do anything outside of their
regular duties unless under special instructions from Landlord.
26. Tenant shall not park its vehicles in any parking areas outside the Business
Park. Tenant shall not store or abandon vehicles in the Business Park
parking areas nor park any vehicles in the Business Park parking areas other
than automobiles, motorcycles, motor driven or non-motor driven bicycles,
four-wheeled trucks, or other equipment used in the operation of Tenant's
business. Tenant, its agents, employees and invitees shall not park any one
(1) vehicle in more than one (1) parking space.
27. Landlord reserves the right to make such other reasonable Rules and
Regulations as, in its judgment, may from time to time be appropriate for
safety and security, for care and cleanliness of the Premises and for the
preservation of good order therein. Tenant agrees to abide for all such
Rules and Regulations hereinabove stated and any additional Rules and
Regulations which are adopted.
28. Tenant shall be responsible for the observance of all of the foregoing Rules
and Regulations by Tenant's employees, agents, clients, customers, invitees
and guests.
-24-
<PAGE>
EXHIBIT D
Covenants, Conditions and Restrictions
--------------------------------------
This Exhibit D is attached to and made a part of that certain Lease dated
February 25, 1997, by and between Limar Realty Corp. #8 as Landlord and Infoseek
Corporation as Tenant.
Recording Requested By:
TITLE INSURANCE & TRUST COMPANY
TS-425904-1
When Recorded, Mail to:
PRUDENTIAL INSURANCE COMPANY
155 Moffett Park Drive
Building A, Suite 101
Sunnyvale, CA 94086
ATTN: Lee Cashion
DECLARATION OF PROTECTIVE COVENANTS
-----------------------------------
MOFFETT INDUSTRIAL PARK NO. 11
------------------------------
THIS DECLARATION, made this 5th day of April, 1980 by The PRUDENTIAL
INSURANCE COMPANY OF AMERICA (hereinafter called Prudential), a New Jersey
corporation,
WITNESSETH:
WHEREAS Prudential is the Owner of that certain real property located in the
City of Sunnyvale, County of Santa Clara, State of California, described in
Exhibit "A" (hereinafter called Moffett Industrial Park No. 11), and
WHEREAS Prudential proposes to subdivide Moffett Industrial Park No. 11 and
to subject it to the following restrictions:
NOW, THEREFORE, Prudential hereby declares that Moffett Industrial Park No.
11 is and shall be held, conveyed, encumbered, leased and used subject to the
following uniform restrictions, covenants and equitable servitudes in
furtherance of a plan for the subdivision, improvement and sale thereof and to
enhance the value, desirability and attractiveness of Moffett Industrial Park
No. 11, the restrictions set forth herein shall run with the real property
included within Moffett Industrial Park No. 11 shall be binding upon all persons
having or acquiring any interest in such real property or any part thereof,
shall inure to the benefit
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<PAGE>
EXHIBIT D
Covenants, Conditions and Restrictions
--------------------------------------
(continued)
of every portion of Moffett Industrial Park No. 11 and any interest therein and
shall inure to the benefit of and be binding upon each successor in interest of
Prudential and may be enforced by Prudential or its successors in interest or by
any Owner (as defined in Article I below) or his successors in interest.
I. GENERAL PROVISIONS
---------------------
A. Definitions.
1. "Architectural Control Committee" means Prudential, or any committee
which Prudential may appoint by an appropriate instrument recorded
with the Santa Clara County Recorder.
2. "Lot" means each lot shown on the parcel or subdivision map or maps
for Moffett Industrial Park No. 11.
3. "Site" mean a parcel consisting either of a Lot, a portion of a Lot,
contiguous Lots, or portions of contiguous Lots.
4. "Improvements" means all improvements to a Site including, but without
limitations, buildings loading areas, trackage, parking areas,
pavement, poles, fences, landscaping, signs and structures of any
type.
5. "Building" means the main portion of any building or similar structure
and all projections or extensions thereof, including garages, outside
platforms and docks.
6. "Owner" means the person or persons, partnership or corporation in
whom title to a Site is vested, as shown by the official records of
the Office of the County Recorder of Santa Clara County, "Owner" does
not mean mortgagees,
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<PAGE>
EXHIBIT D
Covenants, Conditions and Restrictions
--------------------------------------
(continued)
trustees and beneficiaries of deeds of trust or holders of any
indebtedness secured by a mortgage or deed of trust.
B. Purposes of Restrictions.
The purposes of these covenants, conditions and restrictions is to insure
proper development and use of Moffett Industrial Park No. 11, to protect the
Owner of each Site against such improper development and use of other Sites
as will depreciate the value of his Site, to prevent the erection of
structures of unsuitable or inharmonious design or construction, to secure
and maintain sufficient setbacks from streets and between structures, to
maintain Common Landscaping (as defined in Article V) and in general to
provide for a high quality of improvement of Moffett Industrial Park No. 11
in accordance with a general plan.
II. REGULATION OF IMPROVEMENTS
------------------------------
A. Minimum Setback Lines.
No improvement shall be constructed upon any Site within thirty-five (35)
feet of the right-of-way line of any public street. No improvement other
than landscaping, paving and fences shall be constructed upon any Site
within twenty (20) feet of any other Site. The Architectural Control
Committee may approve lesser setback lines if in its opinion a variation
would be compatible with the general development of Moffett Industrial Park
No. 11.
B. Ground Coverage.
No more than fifty percent (50%) of the surface of any Site shall be covered
with a building or buildings for warehouse use or thirty-five percent (35%)
for all other uses.
C. Construction Operations.
-27-
<PAGE>
EXHIBIT D
Covenants, Conditions and Restrictions
--------------------------------------
(continued)
Construction of all improvements shall be expedited so that none shall
remain in a partially finished condition any longer than reasonably
necessary for the completion thereof.
D. Excavation.
No excavation shall be made on, and no sand, gravel or soil shall be removed
from, any Site, except in connection with the construction of improvements,
and upon completion thereof, exposed openings shall be backfilled, and
disturbed ground shall be graded, leveled and paved or landscaped.
E. Landscaping.
Within ninety (90) days of the occupancy or completion of any Building on a
Site, whichever occurs first, such Site shall be landscaped in accordance
with plans approved by the Architectural Control Committee. The Owner of the
Site shall maintain such landscaping in good order and condition.
F. Signs.
No billboard or advertising signs shall be permitted on any Site other than
those approved by the Architectural Control Committee which identify the
name, business and products of the person or firm occupying the Site or
offer the Site for sale or lease.
G. Parking Areas.
Each site shall have facilities for parking sufficient to serve the business
conducted thereon without using adjacent streets thereof, and no use shall
be made of any Site which would require parking in excess of the parking
spaces on the Site. In any event, the number and size of the parking spaces
on each
-28-
<PAGE>
EXHIBIT D
Covenants, Conditions and Restrictions
--------------------------------------
(continued)
Site shall conform with all ordinances of the City of Sunnyvale applicable
with respect thereto. Parking areas shall be laid out and constructed
according to plans approved by the Architectural Control Committee and shall
be maintained thereafter in good condition. Except with the approval of the
Architectural Control Committee, no parking shall be permitted within
thirty-five (35) feet of the right-of-way line of any street.
H. Loading Areas.
All vehicle loading and unloading in connection with an Owner's business
shall be conducted upon his Site, and sufficient space shall be provided
therefore. Loading Areas shall be screened from view from streets and
adjoining properties by a visual barrier not less than six (6) feet in
height. Except with the prior written approval of the Architectural Control
Committee, loading areas shall not be located between any building and any
street or any closer than seventy-five (75) feet to the right-of-way line of
any street.
I. Storage Areas.
No materials, supplies, equipment or trash containers shall be stored on a
Site except inside a building or behind a visual barrier no less than six
(6) feet in height or rising two (2) feet above the stored materials,
supplies or equipment, whichever is higher, screening such storage areas
from view from streets and adjoining Sites. Except with the prior written
approval of the Architectural Control Committee, storage areas shall not be
located between any building and any street.
-29-
<PAGE>
EXHIBIT D
Covenants, Conditions and Restrictions
--------------------------------------
(continued)
J. Building Regulations
All Buildings shall be constructed and maintained in accordance with the
following standards unless an exception is approved in writing by the
Architectural Control Committee:
1. Exterior walls shall be of masonry, concrete or approved equal
material.
2. Exterior walls shall be painted or otherwise finished in a manner
acceptable to the Architectural Control Committee. Exterior walls shall
not be repainted or refinished unless and until the Architectural
Control Committee shall have approved the color or refinishing materials
to be used.
3. All buildings shall be maintained in good order and repair and
condition. All exterior painted surfaces shall be maintained in first-
class condition and shall be repainted at least once every five (5)
years.
4. All electrical, telephone and other utility lines shall be
underground and shall not be exposed on the exterior of any Building.
5. All electrical and mechanical apparatus, equipment, fixtures (other than
lighting fixtures) conduit, ducts, vents, flues and pipes located on the
exterior of any Building shall be concealed from view and shall be
architecturally treated in a manner acceptable to the Architectural
Control Committee.
III. APPROVAL OF PLANS
----------------------
No improvement shall be erected, placed, altered, maintained or permitted to
remain on any Site until plans and specifications showing plot layout and all
exterior elevations, with materials and
-30-
<PAGE>
EXHIBIT D
Covenants, Conditions and Restrictions
--------------------------------------
(continued)
colors therefore and structural designs, signs and landscaping shall have been
submitted to and approved in writing by the Architectural Control Committee.
Such plans and specifications shall be submitted in writing over the signature
of the Owner of the Site or his authorized agent. Approval shall be based, among
other things, on adequacy of Site dimensions; adequacy of structural design;
effect of location and use of improvements on neighboring Sites; improvement
operations, and uses; relation of topography, grade, and finished ground
elevation of the Site being improved to that of neighboring Sites; proper facing
of main elevation with respect to nearby streets; and conformity of the plans
and specifications to the purpose and general plan and intent of this
Declaration. The Architectural Control Committee shall not arbitrarily or
unreasonably withhold its approval of such plans and specifications. If the
Architectural Control Committee fails either to approve or disapprove such plans
and specifications within thirty (30) days after the same have been submitted to
it, it shall be conclusively presumed that the Architectural Control Committee
has approved said plans and specifications, subject, however, to the
restrictions contained in Articles II and IV hereof.
Neither the Architectural Control Committee nor its successors or assigns
shall be liable in damages to anyone submitting plans to them for approval, or
to any Owner by reason of mistake in judgment, negligence, or nonfeasance
arising out of or in connection with the approval or disapproval or failure to
approve any such plans. Every person who submits plans to the Architectural
-31-
<PAGE>
EXHIBIT D
Covenants, Conditions and Restrictions
--------------------------------------
(continued)
Control Committee for approval agrees, by submission of such plans, and every
Owner agrees, by acquiring title to a Site, that he will not bring any action or
suit against the Architectural Control Committee to recover any such damages.
IV. REGULATION OF OPERATIONS AND USE
------------------------------------
A. Permitted Operations and Uses.
Except as provided in paragraphs B and C below, any industrial use will be
permitted on a Site including, but without limitation, manufacturing,
processing, storage, wholesale, office, laboratory, professional and
research and development. Such retail uses as may be required for the
convenience of Owners and their employees shall be permitted and such retail
uses may include, but without limitation, restaurants, drug stores, barber
and beauty shops, show repair shops, cleaners, motels, post offices, banks
and automobile service stations. Such municipal, governmental and public
utility uses as may be necessary or appropriate shall be permitted.
B. Prohibited Operations and Uses.
No Site shall be used as a junk yard, stock yard, or slaughter yard or for
commercial excavation of building or construction materials, fat rendering
or distillation of bones, dumping, disposal, incineration or reduction of
garbage, sewage, offal, dead animals or refuse, or the smelting of
iron, tin, zinc or other ores or the prospecting or drilling for natural
gas, oil or like substances, except with the prior written permission of the
Architectural Control Committee, and then only in such manner as will not
materially inconvenience other Owners or materially
-32-
<PAGE>
EXHIBIT D
Covenants, Conditions and Restrictions
--------------------------------------
(continued)
depreciate the value of adjacent property.
C. Nuisance.
No noxious or offensive activity shall be carried on nor shall anything be done
on any Site which may be or become an annoyance or nuisance to the Owners or
occupants of other Sites or which will be offensive by reason of odor, fumes,
dust, dirt, fly-ash, smoke, noise, glare or which will be hazardous by reason of
danger of fire or explosion.
V. COMMON LANDSCAPING
---------------------
The Owner of each Site shall maintain landscaping existing thereon at the
time of purchase ("Common Landscaping") in a condition that meets the approval
of the Architectural Control Committee. In the event that the Owner of any Site
does not maintain Common Landscaping in such condition or the landscaping
described in Article II E as therein provided, Prudential or its agents shall
have the right to maintain such landscaping in such condition. Prudential or its
agents shall have the right at any reasonable time to enter into any Site for
the purpose of such maintenance and for such other purposes as are reasonably
related thereto. Prudential shall use due diligence and reasonable care in
repairing, maintaining and installing Common Landscaping to see that such
repair, maintenance and installation does not interfere with the Owner's use of
its Site. In the event that Prudential or its agents should undertake any such
maintenance on any Site, the Owner thereof shall reimburse Prudential for all of
Prudential's costs incurred in such maintenance. In any
-33-
<PAGE>
EXHIBIT D
Covenants, Conditions and Restrictions
--------------------------------------
(continued)
legal proceeding brought by Prudential to recover such costs, the Owner shall be
obligated to pay for the costs and expenses of such proceeding, including
reasonable attorneys' fees.
VI. ENFORCEMENT
---------------
A. Interpretation.
In case of uncertainty as to the meaning of any article, section,
subsection, paragraph, sentence, clause, phrase or word of this Declaration
the interpretation of Prudential shall be final, conclusive and binding upon
all interested parties.
B. Abatement and Suit.
Violation or breach of any restriction herein contained shall give to
Prudential and every Owner the right to enter the property upon or as to
which said violation or breach exists and to summarily abate and remove at
the expense of the Owner thereof, any structure, thing or condition that may
be or exist thereon contrary to the intent and meaning of the provisions
hereof, or to prosecute a proceeding at law or in equity against the person
or persons who have violated or are attempting to violate any of these
restrictions to enjoin or prevent them from doing so, to cause said
violation to be remedied or to recover damages for said violation.
In any legal or equitable proceeding for the enforcement of this Declaration
the losing party or parties shall pay the attorneys' fees of the prevailing
party or parties, in such amount as may be fixed by the court in such
proceedings. All remedies
-34-
<PAGE>
EXHIBIT D
Covenants, Conditions and Restrictions
--------------------------------------
(continued)
provided herein or at law or in equity shall be cumulative and not
exclusive.
C. Inspection.
Prudential may from time at any reasonable hour or hours, enter and
inspect any property subject to these restrictions to ascertain compliance
therewith.
D. Failure to Enforce Not a Waiver of Rights.
Except as provided in the last paragraph of Article III hereof, the failure
of Prudential or any Owner to enforce any restriction contained herein shall
in no event be deemed to be a waiver of the right to do so thereafter nor of
the right to enforce any other restriction contained herein.
VII. EXTINGUISHMENT, CONTINUATION AND MODIFICATION
--------------------------------------------------
This Declaration, every provision hereof and every covenant, condition and
restriction contained herein shall continue in full force and effect for a
period of forty (40) years from the date hereof; provided, however, that this
Declaration, or any provision hereof, or any covenant, condition or restriction
contained herein, may be terminated, extended, modified, or amended with the
written consent of the Owners of sixty-five percent (65%) of the land in Moffett
Industrial Park No. 11 (exclusive of portions thereof now or hereafter dedicated
to public use); provided, further, that so long as Prudential owns at least
twenty percent (20%) of Moffett Industrial Park No. 11, no such termination,
extension, modification or amendment shall be effective without the written
consent of Prudential. No such termination, extension, modification or
amendment shall be effective until a proper instrument in
-35-
<PAGE>
EXHIBIT D
Covenants, Conditions and Restrictions
--------------------------------------
(continued)
writing has been executed and acknowledged and recorded in the Office of the
Recorder of Santa Clara County, California.
VIII. MOFFETT INDUSTRIAL PARK NO. 11 OWNERS ASSOCIATION
-------------------------------------------------------
A. Membership.
Each Owner shall be a member of the Moffett Industrial Park No. 11 Owners
Association, an unincorporated association (hereinafter called the
"Association").
B. Transfer of Rights and Duties.
The rights and duties of Prudential under this Declaration shall be
transferred to and automatically assumed by the Association upon the
earliest of the following to occur:
1. The sale of ninety percent (90%) of Moffett Industrial Park No. 11 by
Prudential to Owners as evidenced by the official records of the Santa
Clara County Recorder; or
2. The recordation by Prudential of an appropriate instrument with the
Santa Clara County Recorder transferring the rights and duties of
Prudential under this Declaration to the Association.
C. Organization.
The members of the Association may at any time meet and adopt by-laws or
rules of procedure to govern the operation of the Association. Until
such by-laws or rules of procedure are adopted, meetings of the
Association may be called by any member thereof upon seven (7) days'
written notice to each member setting for the time and place thereof,
provided that
-36-
<PAGE>
EXHIBIT D
Covenants, Conditions and Restrictions
--------------------------------------
(continued)
notice may be waived in writing at any time by any member or members not so
notified; twenty-five percent (25%) of the members of the Association shall
constitute a quorum; and the Association may act by a vote of a majority of
its members present at a meeting, duly called, at which a quorum is present
or without a meeting by unanimous written consent of its members.
IX. ASSIGNABILITY OF PRUDENTIAL'S RIGHTS AND DUTIES
---------------------------------------------------
Any and all of the rights, powers and reservations of Prudential herein
contained may be assigned to any person, corporation or entity which assumes in
writing the duties of Prudential pertaining to the particular rights, powers and
reservations assigned, and thereafter to the extent of such assignment, such
person, corporation or entity shall have the same rights and powers and be
subject to the same obligations and duties as are herein given to and assumed by
Prudential.
X. CONSTRUCTIVE NOTICE AND ACCEPTANCE
-------------------------------------
Every Owner is and shall be conclusively deemed to have consented and agreed
to every covenant, condition and restriction contained herein, whether or not
any reference to this Declaration is contained in the instrument by which such
Owner acquired an interest in any portion of Moffett Industrial Park No. 11
-37-
<PAGE>
EXHIBIT D
Covenants, Conditions and Restrictions
--------------------------------------
(continued)
IN WITNESS WHEREOF, Prudential, the declarant herein, has caused its name to
be hereunto subscribed as of the day and year first above written.
THE PRUDENTIAL INSURANCE COMPANY
OF AMERICA
By: /s/ Lee Cashion
_________________________________
Lee Cashion, General Manager, REO
STATE OF CALIFORNIA SS.
COUNTY OF SANTA CLARA
-----------
On April 24, 1980 before me, the undersigned, a Notary Public in and
--------------
for said State, personally appeared Lee Cashion known to
-----------
me to be the President, and General Manager, R.E.O. known to me to be _______
-----------------------
Secretary of the Corporation that executed the within instrument, known to me
as to be the persons who executed the within instrument on behalf of the
corporation therein named, and acknowledged to me that such corporation
executed the within instrument pursuant to its by-laws or a resolution of its
board of directors.
WITNESSS my hand and official seal.
Signature /s/ Judith L. Vedda
--------------------
Judith L. Vedda
-38-
<PAGE>
EXHIBIT D
Covenants, Conditions and Restrictions
--------------------------------------
(continued)
EXHIBIT "A"
ALL THAT CERTAIN REAL PROPERTY IN THE CITY OF SUNNYVALE, COUNTY OF SANTA CLARA,
STATE OF CALIFORNIA, DESCRIBED AS FOLLOWS:
PARCEL ONE
All of Parcels B and C, as shown upon that certain map entitled, "Parcel Map
being a resubdivision of Parcel 2 as shown on that certain map recorded March 1,
1978 in Book 413 of Maps at Page 54 - Santa Clara County Records", which map was
filed for record in the office of the recorder of the County of Santa Clara,
State of California, on October 29, 1979, in Book 452 of Maps, at page 32.
PARCEL TWO
All of Parcel A, as shown upon that certain map entitled, "Parcel Map being a
resubdivision of Parcel 3 as shown on Map recorded in Book 413 of Maps at Page
54 - Santa Clara County Records", which map was filed for record in the office
of the recorder of the County of Santa Clara, State of California, on February
23, 1979, in Book 435 of Maps at page 56.
PARCEL THREE
All of Parcel 4 and 5, as shown upon that certain map entitled, "Parcel Map
being a resubdivision of Parcel 7 as shown on map recorded in Book 214 of Maps
at Page 23 - Santa Clara County Records", which map was filed for record in the
office of the recorder of the County of Santa Clara, State of California, on
March 1, 1978, in Book 413 of Maps, at page 54.
PARCEL FOUR
All of Parcel A, as shown upon that certain map entitled, "Parcel Map being a
resubdivision of Parcel 3 as shown on map recorded in Book 413 of Maps at Page
54 - Santa Clara County Records", which map was filed for record in the office
of the recorder of the County of Santa Clara, State of California, on February
23, 1979, in Book 435 of Maps, at page 56; Certificate of Correction dated
October 22, 1979, which was filed for record in the office of the recorder of
the County of Santa Clara, State of California on October 22, 1979, in Book 1291
of maps at page 700.
-39-
<PAGE>
EXHIBIT D
Covenants, Conditions and Restrictions
--------------------------------------
(continued)
THE UNDERSIGNED BEING FEE OWNER TO THAT PROPERTY DESCRIBED IN EXHIBIT
"B" HEREBY ACCEPTS THE ENCUMBERANCE ON SAID PROPERTY CREATED BY THE WITHIN
DECLARATION OF PROTECTIVE COVENANTS - MOFFETT INDUSTRIAL PARK NO. 11 DATED APRIL
5, 1980 AND EXECUTED BY PRUDENTIAL INSURANCE COMPANY OF AMERICA.
DATE: April 22, 1980 /s/ William L. Marocco
------------------- -------------------------
William L. Marocco
STATE OF CALIFORNIA SS.
COUNTY OF SANTA CLARA
-----------
On April 22, 1980 before me, the undersigned, a Notary Public in and for said
--------------
State, personally appeared WILLIAM L. MAROCCO known to me to be the person
------------------
______ whose name __________ subscribed to the within instrument and
acknowledged that HE executed the same, WITNESSS my hand and official seal.
--
Signature /s/ Janice M. Webb
------------------
JANICE M. WEBB
-40-
<PAGE>
EXHIBIT "B"
ALL THAT CERTAIN REAL PROPERTY IN THE CITY OF SUNNYVALE, COUNTY OF SANTA CLARA,
STATE OF CALIFORNIA, DESCRIBED AS FOLLOWS:
All of Parcel A, as shown upon that certain map entitled, "Parcel Map being a
resubdivision of Parcel 2 as shown on that certain map recorded March 1, 1978,
in Book 413 of Maps at Page 54 - Santa Clara County Records", which map was
filed for record in the office of the recorder of the County of Santa Clara,
State of California, on October 29, 1979, in Book 452 of Maps, at page 32.
-41-
<PAGE>
EXHIBIT E
Work Letter Agreement
---------------------
This Exhibit E is attached to and made a part of that certain Lease (the
"Lease") dated March 4, 1997, by and between Limar Realty Corp. #8 as Landlord
and Infoseek Corporation as Tenant
This Work Letter Agreement supplements the Lease covering certain Premises (the
"Premises") described in the Lease. All terms not defined herein shall have the
same meaning as set forth In the Lease.
1. Construction of Premises
1.1 Landlord shall furnish and install within the Premises those items of
general construction (the "AGGREGATE IMPROVEMENTS") shown on the plans
and specifications finally approved by Landlord and Tenant, pursuant to
(P)12. below ("FINAL PLANS") In compliance with all applicable codes and
regulations. All Tenant Building Work (as defined below) shall be
constructed pursuant to this Work Letter and shall be performed only by
Landlord's contractor.
2. Construction Plans for Premises
All plans and drawings required by this (P)2. shall be prepared in
accordance with the schedule provided in (P)5. below.
2.1 Preparation of Space Plan
Landlord's architect will prepare or has prepared, at Landlord's expense,
a preliminary space plan ("Preliminary Plan") for the Premises. If the
Preliminary Plan has been prepared, it is attached hereto as Exhibit E-1
and is deemed approved by Landlord and Tenant. The Tenant's Design
Development Drawings and Final Plans (as described below) shall be
prepared in agreement with the Preliminary Plan. Tenant agrees to
cooperate with the Landlord's architect and engineers who, based upon the
Preliminary Plan or upon other input from Tenant, shall prepare detailed
space plans sufficient to convey the architectural design of the
Premises, including preliminary partition layout and reflective ceiling
plans ("TENANT'S DESIGN DEVELOPMENT DRAWINGS"). Tenant's Design
Development Drawings shall be submitted to Tenant for approval. If Tenant
shall disapprove of any portion of Tenant's Design Development Drawings,
Tenant shall advise Landlord of such revisions, and reasons therefore.
Landlord shall then submit to Tenant for Tenant's approval a redesign of
Tenant's Design Development Drawings, incorporating those revisions
requested by Tenant and approved by Landlord. Landlord shall have the
final right to approve Tenant's Design Development Drawings.
2.2 Preparation of Final Plans
Based on Tenant's Design Development Drawings Landlord shall cause its
architect and engineer to prepare, as appropriate, architectural plans,
drawings and specifications and mechanical and electrical working
drawings for (i) all of the Premises showing the subdivision, layout,
finish and decoration work (including carpeting and other floor
coverings) desired by the Tenant and (ii) any internal or external
communications or special utility facilities which will require
conduiting or other improvements within common areas (collectively,
"FINAL PLANS"; the work shown thereon being called the "TENANT BUILDING
WORK"). Tenant's Final Plans shall be approved in the same manner as
provided in (P)2.1. above for approval of Tenant's Design Development
Drawings.
2.3 Requirements of Tenant's Final Plans
Tenant's Final Plans shall:
(i) Be compatible with the Building shell and with the design,
construction and equipment of the Building;
(ii) Comply with all applicable laws and ordinances, and the rules and
regulations of all governmental authorities having jurisdiction;
(iii) Comply with all applicable insurance regulations for the Building;
and
(iv) Include locations and complete dimensions.
2.4 Changes at Tenant's Expense
The cost of any changes to Tenant's Preliminary Plan, Tenant's Design
Development Drawing and Final Plans required by Tenant after Tenant has
approved them shall be charged against Tenant. The cost thereof shall
include all direct architectural and/or engineering fees and expenses and
construction costs in connection therewith, as well as including
compensation by Tenant for the costs of any delays which arise from such
changes, such as costs including but not limited to lost Rent.
-42-
<PAGE>
EXHIBIT E
Work Letter Agreement
---------------------
(continued)
3. ALLOWANCE FOR WORK
3.1 Landlord shall pay for the Tenant Building Work in accordance with the
Final Plans approved by Landlord. All items of Tenant Building Work (but
not Tenant's trade fixtures) shall become the property of Landlord upon
expiration or earlier termination of the Lease and shall remain on the
Premises at all times during the Term of this Lease.
4. CONSTRUCTION
4.1 Following Landlord's approval of the Final Plans and the cost of Tenant
Building Work, a contractor or contractors selected by Landlord shall
commence and diligently proceed with the construction of all of the
Tenant Building Work, subject to delays beyond the reasonable control of
the Landlord or its contractor or subcontractors. Promptly upon the
commencement of the Tenant Building Work, Landlord shall furnish Tenant
with a schedule setting forth the projected completion dates therefore
and showing deadlines for any actions required to be taken by Tenant
during construction, and Landlord may from time to time during the
prosecution of the Tenant Building Work modify or amend such schedule due
to delays encountered by Landlord. Landlord shall make a reasonable
effort to meet such a schedule (as the same may be modified or amended).
5. SCHEDULE
Preparation and approval of Final Plans by both parties shall proceed in
a timely manner and each action shall be completed as soon as practically
possible.
6. DELAYS
The Term of the Lease shall not commence until Landlord has substantially
completed all work to be performed by Landlord in this Work Letter
Agreement; provided, however, that If Landlord shall be delayed in
substantially completing said Work as a result of any of the following
'Tenant Delays':
(i) Tenant's failure to complete any action item on or before the due
date which is the responsibility of Tenant, or
(ii) Tenant's changes to Final Plans after the final approval date, or
(iii) Tenant's request for materials, finishes, or installations other
than as approved by Landlord,
Then as soon as reasonably possible following the Commencement Date,
Landlord shall provide to Tenant a reasonably detailed statement of the
number of days of net Tenant Delays, determined on a critical path basis,
and Tenant shall pay to Landlord, as Additional Rent under this Lease, the
product of the per diem Rent times the number of days of such net Tenant
Delays, such payment to be made within thirty (30) days of the receipt of
the invoice from Landlord together with said detailed statement.
[Initials] [Initials]
------------------- -----------------
Landlord's Initials Tenant's Initials
-43-
<PAGE>
FIRST AMENDMENT TO LEASE
This First Amendment. To Lease is made and entered into this 9th day of June,
1997, by and between Limar Realty Corp. #8 ("Landlord") and Infoseek Corporation
("Tenant").
RECITALS
This First Amendment To Lease (the "First Amendment") is made with reference to
and in reliance upon the following facts:
A. Landlord and Tenant are parties to that certain Lease dated March 4, 1997,
(the "Lease") pursuant to which Tenant leased from Landlord certain space
(the "Premises") located at 1399 Moffett Park Drive, Sunnyvale, California.
B. Landlord and Tenant wish to modify some of the provisions of the Lease
including without limitation the Premises Area, Base Rent, Security Deposit
and Tenant's Share of Building and wish to establish the exact Commencement
Date and Expiration Date of the Lease.
THEREFORE, for valuable consideration, receipt of which is hereby acknowledged,
the parties hereto agree as follows:
<TABLE>
<CAPTION>
1. BASIC LEASE TERMS: The Basic Lease Terms as set forth in (P)1. of
the Lease are hereby deleted and are replaced in its entirety with the
following:
<C> <S> <C>
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 So. El Camino Real, Suite 400
San Mateo, CA 94402
C. TENANTS USE OF PREMISES: Office and related research/development activities.
D. PREMISES AREA: 1) Initial Premises: 47,096 Rentable Square Feet
consisting of Building A and the First Floor of Building B.
2) Must Take Premises: 11,106 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: May 14, 1997 ("Commencement Date")
Expiration Date: November 13, 2002 ("Expiration Date")
Number of Months: Sixty-six (66) Months
H. TENANT'S SHARE OF BUILDING: 63.33% (58,202 sq. ft./91,900 sq. ft.)
L TENANTS NUMBER OF PARKING SPACES: 4.2 Spaces per 1,000 Rentable Square Feet of Leased area.
J. INITIAL BASE RENT: Initial Premises: $68,289.20 per month.
Must Take Premises: $16,103.70 per month.
K. BASE RENT ADJUSTMENT:
A) COST OF LIVING. Intentionally deleted.
B) STEP INCREASE. The step adjustment provisions of (P)4.b. apply for the periods shown below:
MONTHLY BASE RENT AMOUNT
PERIODS (INCLUSIVE) (58,202 RENTABLE SQUARE FEET)
------------------ -----------------------------
Month 13 - Month 24 $ 87,303.00
Month 25 - Month 36 $ 90,213.10
Month 37 - Month 48 $ 93,123.20
Month 49 - Month 60 $ 96,033.30
Month 61- Month 66 $ 98,943.40
</TABLE>
-44-
<PAGE>
<TABLE>
<C> <S> <C>
L. TOTAL TERM BASE RENT: $5,909,824.20. (Total term of 66 Months and assumes the Must
Take Premises commences with the seventh Lease month.)
M. PREPAID BASE RENT: $68,289.20 in payment of the first months rent.
N. SECURITY DEPOSIT: $421,964.50
O. BROKER(S): BT Commercial Real Estate (Landlord) & Bishop Hawk, Inc.
(Tenant)
EXHIBITS: Exhibits lettered "A" through "E", attached to the Lease dated March 4, 1997
are made a part hereof.
</TABLE>
2. OPERATING EXPENSES: The provisions of (P)13.a. of the Lease are hereby
deleted and replaced in its entirety with the following:
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 (P)29.b., Tenant's
Share shall be limited to 51.25% (47,096 sq.ft/9l,900 sq.ft.).
3. COMMENCEMENT DATE AND EXPIRATION DATE: The provisions of (P)29.
of the Lease are hereby deleted and replaced in its entirety with the
following:
A. INITIAL PREMISES: The Term of the Lease as to the Initial Premises
containing 47,096 rentable square feet as outlined on Exhibit A
attached to the Lease dated March 4, 1997 shall commence on May 14,
1997 (the "COMMENCEMENT DATE").
B. MUST TAKE PREMISES: The Term of the Lease (and the commencement of
Rent) as to the Must Take Premises consisting of 11,106 rentable square
feet as outlined on Exhibit A attached to the Lease dated March 4, 1997
shall commence upon the earlier of: (i) Tenant's actual move in of
personnel to the Must Take Premises, or (ii) November 14, 1997.
C. EXPIRATION DATE: The Expiration Date shall be November 13, 2002.
4. SECURITY DEPOSIT: The provisions of (P)30. of the Lease are hereby deleted
and replaced in its entirety with the following:
Notwithstanding the provisions of (P)5. of the Lease, Tenant shall
provide a Security Deposit of $421,964.50 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 Tenants 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:
SECURITY DEPOSIT =
LEASE YEAR # # MONTHS OF THEN CURRENT RENT
------------ -----------------------------
2 4 Months @ $87,303.00 per Month
3 3 Months @ $90,213.10 per Month
4 2 Months @ $93,123.20 per Month
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 Tenants equity public market
capitalization is later restored to more than $180 million.
All other terms and conditions of said Lease shall remain in full force and
effect.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Amendment as of the
date first written above.
TENANT LANDLORD
INFOSEEK CORPORATION LIMAR REALTY CORP. #8
By: /s/ Andrew E. Newton By: /s/ Thedore H. Kruttschnitt
---------------------- ----------------------------
Print Name: Andrew E. Newton Print Name: Theodre H. Kruttschnitt
---------------------- -----------------------
Its: Vice President & General Counsel Its: President
-------------------------------- ---------------
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<PAGE>
EXHIBIT B
Depiction of Subleased Premises and Sublease Common Areas
[Attached]
-46-
<PAGE>
1399 MOFFETT PARK DRIVE, SUNNYVALE
BUILDING "C"
29408 TOTAL SQ. FT.
[FLOOR PLAN OF FIRST FLOOR]
[FLOOR PLAN OF SECOND FLOOR]
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<PAGE>
EXHIBIT C
Depiction of Demising Wall
[DEPICTION OF DEMISING WALL APPEARS HERE]
-48-
<PAGE>
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 and 333-24471) pertaining to the 1996 Stock Option/Stock
Issuance Plan and Employee Stock Purchase Plan of Infoseek Corporation of our
report dated January 16, 1998, except for Note 12, as to which the date is
February 12, 1998, with respect to the financial statements of Infoseek
Corporation included in this Annual Report (Form 10-K) for the year ended
December 31, 1997.
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,
present fairly, in all material respects the information set forth therein.
ERNST & YOUNG LLP
San Jose, California
March 12, 1998
