Advertising Agreement With Egghead, Inc.

EXHIBIT 10.7


CONFIDENTIAL TREATMENT REQUESTED
CONFIDENTIAL PORTION HAS BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION


ADVERTISING AGREEMENT


This Advertising Agreement (this "Agreement"), dated as of December 15, 1997, is made by and between Egghead, Inc., a Washington corporation ("SDE"); and GeoCities, a California corporation ("GeoCities"). SDE and GeoCities sometimes are referred to collectively as the "Parties" and individually as a "Party". In consideration of the mutual promises contained in this Agreement, SDE and GeoCities hereby agree as follows:


SECTION 1. DEFINITIONS


The following terms (and all declensions thereof) are used in this Agreement with the respective meanings set forth below:


1.1 "ABOVE-THE-FOLD" means situated within the portion of a page that is designed to be visible on a standard computer screen with a resolution of 640 pixels by 480 pixels without requiring the user to scroll horizontally or vertically through the page.


1.2 "AFFILIATE" means, with respect to either Party, any individual or entity that, by virtue of a majority ownership interest, directly controls, is controlled by or is under common control with that Party.


1.3 "SDE SITE" means, collectively, all points of presence and/or services maintained by SDE or its Affiliates on the Internet or on any other public data network.


1.4 "GEOCITIES SITE" means, collectively, and subject to the limitations set forth in the following sentences of this Section 1.4, all points of presence and/or services maintained by GeoCities on the Internet as www. geocities.com or on any other public data network; provided, however, that "GeoCities Site" does not include any Homesteader Page or GeoShop Page with revenues annually of Two Hundred Fifty Thousand Dollars ($250,000) or less. To the extent that GeoCities enters into agreements with third parties relating to the joint development and/or hosting of co-branded or outsourced personal home page communities, such co-branded and outsourced communities shall not constitute part of the "GeoCities Site," unless GeoCities determines, in its sole discretion, that the inclusion of any such co-branded or outsourced communities does not in any way conflict with or violate any such agreement with a third party, or any agreements or other arrangements that such third party may have with any other party. If GeoCities makes such a determination, it shall notify SDE of such determination, and the co-branded or outsourced community in question shall thereupon become part of the "GeoCities Site."


1.5 "GEOCITIES BASIC COMMERCE PLATFORM" means the collection of links, advertisements and promotional placements associated with the GeoCities' Site.


1.6 "VIEWER" means any user of the GeoCities Site who executes a link and is connected to the SDE Site.


1.7 "COMMENCEMENT DATE" means the date GeoCities first provides SDE with all links, advertisements and other promotional placements required under Stage IA described in the attached Exhibit B to this Agreement.


1.8 "COMPETITOR" means (a) any of the entities listed on Exhibit C, or (b) any individual, corporation, corporate division, retail site, World Wide Web site or other entity that either derives more than [***] of its annual gross revenues from the retail sale of computer hardware or software, or is primarily known as a retailer of computer hardware or software. For purposes of this Section 1.8, any commercial homepage participating in GeoCities' GeoShops program and any company who manufactures and also engages in direct selling of computer hardware or software programs shall not be construed to be a Competitor. For purposes of this Agreement, the term computer hardware and software shall be construed to include computer peripherals and accessories.


1.9 "HOMESTEADER PAGE" means any personal homepage, or commercial homepage participating in GeoCities' GeoShop program (other than a GeoCities Affiliate) which resides in a "member neighborhood" on the GeoCities Site.


1.10 "SESSION" means each instance in which a user accesses the SDE Site via a hypertext link embedded in any link, advertisement or other promotional placement provided by GeoCities under this Agreement, and then views one or more consecutive SDE Site pages. A Session terminates when the user exits the SDE Site by any means.


1.11 "QUALIFYING GROSS MARGIN REVENUES" means, with respect to any monthly period, the aggregate gross revenues resulting from Sessions less (a) any direct costs of goods sold, and less (b) any shipping costs associated with the sale, and less (c) any credit card service charges associated with the sale and less (d) any sales taxes associated with the sale, and less (e) any Gross Margin Revenues which are attributable to returned products which have previously been included in Gross Margin Revenues.


1.12 "EXCLUSIVE AREAS" means the GeoCities neighborhood homepages and the GeoCities neighborhood topic pages.


SECTION 2. LINKAGE


2.1 The graphic or other visual cue depicted on the attached Exhibit A, which may include names, trademarks, servicemarks, designmarks, symbols and/or other indicia of origin (the "SDE Icon") shall be included among the GeoCities Basic Commerce Platform hyperlink icons during the Term. When clicked upon by a Viewer, the SDE Icon will link the Viewer with the SDE Site. GeoCities shall create and maintain the link between the SDE Icon and the SDE Site. SDE shall furnish GeoCities with full color representations of the SDE Icon at least ten (10) business days prior to the Deployment Date for GeoCities' use under this Agreement. GeoCities agrees that it will display the SDE Icon in a manner agreed to by the Parties and commensurate with its display of other vendor hyperlink icons within the GeoCities Basic Commerce Platform. If SDE subsequently modifies the SDE Icon, it shall furnish a


[***] Confidential treatment requested for redacted portion.


representation of same to GeoCities which GeoCities shall substitute for the prior version within twenty (20) business days after receipt.


2.2 The graphic or other visual cue depicted on the attached Exhibit A, which may include names, trademarks, servicemarks, designmarks, symbols and/or other indicia of origin as agreed to by the Parties, (the "Return Icon") shall be displayed by SDE on each page of the SDE Site viewed by a Viewer during the Term in the position within the page layout as shown on Exhibit A. When clicked upon by a Viewer, the Return Icon will link the Viewer with the GeoCities Basic Commerce Platform which was the point of departure prior to linkage with the SDE Site. SDE shall create the link between the Return Icon and the GeoCities Basic Commerce Platform. GeoCities shall furnish SDE with full color representations of the Return Icon at least ten (10) business days prior to the Deployment Date for SDE use under this Agreement. If GeoCities subsequently modifies the Return Icon, it shall furnish a representation of same to SDE which SDE shall substitute for the prior version within twenty (20) business days after receipt. The Return Icon shall be visible at the SDE Site only to Viewers who link to the SDE Site via the GeoCities Basic Commerce Platform and to no other visitors at the SDE Site.


2.3 SDE shall ensure that the version of the SDE Site viewed by Viewers who link to the SDE Site through the GeoCities Basic Commerce Platform shall be substantially similar to the SDE Site viewed by non-Viewers except for SDE co- branded sites with other companies, the Return Icon and as elsewhere provided for in this Agreement.


SECTION 3. PROMOTIONAL PLACEMENTS


See Exhibit B.


SECTION 4. PARTICIPATION IN STRATEGIC PROGRAMS


See Exhibit B.


SECTION 5. COMPENSATION


5.1 As full consideration for GeoCities' performance under this Agreement (including, without limitation, GeoCities' provision of all links, advertisements and promotions specified in Sections 2, 3 and 4), SDE will pay GeoCities the fixed placement fees and variable incentive payments specified in this Section 5, and under certain circumstances, a Site Production Fee, as described in Section 11.5.


5.2 During the initial term of this Agreement, SDE will pay GeoCities a fixed placement fee of [***] Dollars ($[***]) on the Commencement Date and at the beginning of each [***] that occurs subsequent to the Commencement Date until the initial term ends in association with Section 11.1 hereof.


[***] Confidential treatment requested for redacted portion.


5.3 During the term of this Agreement (including any renewal term), for each [***] that occurs subsequent to the Commencement Date, SDE will pay GeoCities the applicable percentage(s) of Qualifying Gross Margin Revenues set forth opposite from the range of Qualifying Gross Margin Revenues occurring in the first column.


QUALIFYING GROSS
QUALIFYING GROSS MARGIN REVENUES MARGIN REVENUE
[***] SHARE PERCENTAGE


[***] [***]


For example, if Qualifying Gross Margin Revenues equals $[***] in a given [***], then GeoCities' share of the Qualifying Gross Margin Revenues earned as a result of this Section 5.3 would be computed as follows:


[***] of Gross Margin [***] [***]


[***] of Gross Margin [***] [***]


[***] of Gross Margin [***] [***]

Total share earned by GeoCities [***] [***]


[***] Confidential treatment requested for redacted portion.


5.4 SDE will make payments under this Section 5 on a [***] basis, in arrears within thirty (30) days following the end of each [***] occurring subsequent to the Commencement Date.


5.5 SDE organizes their accounting periods around 4 week and 5 week periods that approximate monthly reporting periods. SDE will provide GeoCities with a schedule of the [***] periods, which shall be used for purposes of determining [***] reporting periods for this Agreement.


5.6 SDE will deliver, together with each payment made pursuant to Section 5.4, a written report signed by an authorized representative of SDE that describes (in reasonable detail) SDE's calculation of the payment amount.


5.7 GeoCities shall have the right, no more frequently than once during each term, at its expense, upon thirty (30) days advance written notice to SDE and during SDE's normal business hours, to inspect and audit the books and records of SDE, by an independent certified public account, for the limited purpose of verifying any payments due to GeoCities under this Agreement. In the event any shortfall in payment to GeoCities is found which exceeds ten percent (10%) of the total due GeoCities for the reporting period audited, then SDE shall promptly pay GeoCities the shortfall amount and reimburse GeoCities for all reasonable costs of the audit. The audit shall be limited to verification of over-payment or under-payment by SDE. In the event of SDE over-payment, GeoCities shall promptly remit any over-payment of fees to SDE.


SECTION 6. IMPLEMENTATION


6.1 GeoCities and SDE acknowledge that time is of the essence in the design, development and commencement of the links, advertisements and promotional placements specified in this Agreement. Accordingly, the Parties will devote all commercially reasonable efforts to launch each link, advertisement and promotional placement as soon as reasonably possible, in accordance with a written development plan to be negotiated by the Parties in good faith.


6.2 GeoCities, in cooperation with SDE, will test the links, advertisements and promotional placements required under this Agreement prior to the time that they "go live" on the GeoCities Site (e.g., prior to the time that they are implemented and enabled on a production version of the GeoCities Site).


6.3 GeoCities will not cause any link, advertisement or promotional placement under this Agreement to go live on the GeoCities Site prior to the applicable date agreed by the Parties. Further, at SDE's discretion, traffic from promotional links and advertising placements will be enabled in stages; provided, however, that such s ...