<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 27, 1996
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------------------
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------------------------
ALTAVISTA INTERNET SOFTWARE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------------
<TABLE>
<S> <C> <C>
DELAWARE 7379 04-3321986
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
------------------------------
30 PORTER ROAD
LITTLETON, MASSACHUSETTS 01460
(508) 486-2700
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------------
ILENE H. LANG, PRESIDENT
ALTAVISTA INTERNET SOFTWARE, INC.
30 PORTER ROAD
LITTLETON, MASSACHUSETTS 01460
(508) 486-2700
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
Copies to:
<TABLE>
<S> <C> <C>
GAIL S. MANN, ESQ. EDWIN L. MILLER, JR., ESQ. RAYMOND W. WAGNER, ESQ.
DIGITAL EQUIPMENT CORPORATION TESTA, HURWITZ & THIBEAULT, LLP SIMPSON THACHER & BARTLETT
111 POWDERMILL ROAD 125 HIGH STREET 425 LEXINGTON AVENUE
MAYNARD, MASSACHUSETTS 01754 BOSTON, MASSACHUSETTS 02110 NEW YORK, NEW YORK 10017
(508) 493-5111 (617) 248-7000 (212) 455-2000
</TABLE>
------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this registration statement has become effective.
------------------------------
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(b)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. / /
------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
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- ---------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C>
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED PRICE(1) REGISTRATION FEE(1)
- ---------------------------------------------------------------------------------------------------
Common Stock, $.01 par value......................... $50,000,000 $17,242
- ---------------------------------------------------------------------------------------------------
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</TABLE>
(1) Calculated pursuant to Rule 457(o).
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY
NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH
OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR
QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
Subject to Completion, dated August 27, 1996
PROSPECTUS
SHARES
[INTERNET SOFTWARE LOGO]
CLASS A COMMON STOCK
---------------------------
All of the shares of Class A Common Stock offered hereby are being sold by
AltaVista Internet Software, Inc. ("AltaVista" or the "Company"), a wholly-owned
subsidiary of Digital Equipment Corporation ("Digital"). Following the Offering
(as defined below), Digital will own all of the outstanding shares of
Class B Common Stock of the Company, which will represent approximately
% of the economic interest (or rights of holders of common equity to
participate in distributions in respect of the common equity) in the Company
(assuming no exercise of the Underwriters' over-allotment options).
Of the shares of Class A Common Stock offered hereby,
shares are being offered in the United States and Canada (the "U.S. Offering")
by the U.S. Underwriters (as defined in "Underwriting"), and shares
are being offered outside the United States and Canada in a concurrent
international offering (the "International Offering") by the International
Managers (as defined in "Underwriting", and, together with the U.S.
Underwriters, the "Underwriters"). These offerings are collectively referred to
herein as the "Offering." See "Underwriting."
Holders of Class A Common Stock generally have identical rights to holders
of Class B Common Stock and vote together as a single class, except that holders
of Class A Common Stock are entitled to one vote per share while holders of
Class B Common Stock are entitled, with certain exceptions, to three votes per
share on all matters submitted to a vote of stockholders. Following the
Offering, the shares of Class B Common Stock owned by Digital will represent
approximately % of the combined voting power of all classes of voting stock of
the Company (assuming no exercise of the Underwriters' over-allotment options).
Each share of Class B Common Stock is convertible into one share of Class A
Common Stock at the option of Digital, and is automatically converted under
certain circumstances. See "Relationship with Digital" and "Description of
Capital Stock."
Prior to the Offering, there has been no public market for the Common Stock
of the Company. It is currently estimated that the initial public offering price
will be between $ and $ per share. See "Underwriting" for the
factors to be considered in determining the initial public offering price.
Application will be made to list the Class A Common Stock on the Nasdaq National
Market under the symbol "ALTV."
---------------------------
THE CLASS A COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 8.
---------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
===========================================================================================================
UNDERWRITING
PRICE TO DISCOUNTS PROCEEDS TO
PUBLIC AND COMMISSIONS(1) COMPANY(2)
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<S> <C> <C> <C>
Per Share................................
- -----------------------------------------------------------------------------------------------------------
Total(3).................................
===========================================================================================================
</TABLE>
(1) The Company and Digital have agreed to indemnify the Underwriters against
certain liabilities, including liabilities under the Securities Act of 1933,
as amended. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at $ .
(3) The Company has granted the U.S. Underwriters a 30-day option to purchase up
to an additional shares of Class A Common Stock solely to cover
over-allotments, if any. The International Managers have been granted a
similar option to purchase up to additional shares solely to cover
over-allotments, if any. If such options are exercised in full, the total
Price to Public would be $ , the total Underwriting Discounts and
Commissions would be $ and the total Proceeds to Company before
estimated expenses would be $ . See "Underwriting."
---------------------------
The shares of Class A Common Stock offered by this Prospectus are offered by
the U.S. Underwriters subject to prior sale, to withdrawal, cancellation or
modification of the offer without notice, to delivery to and acceptance by the
U.S. Underwriters and to certain further conditions. It is expected that
delivery of the shares will be made at the offices of Lehman Brothers Inc., New
York, New York, on or about , 1996.
---------------------------
LEHMAN BROTHERS
COWEN & COMPANY
J.P. MORGAN & CO.
, 1996
<PAGE> 3
ALTAVISTA: MAKING THE INTERNET
THE WORK ENVIRONMENT OF CHOICE
[ILLUSTRATION OF THE ALTAVISTA PRODUCT PORTFOLIO.]
The Company's portfolio of innovative software products enables business
users of the Internet and intranets to find useful information; control access
to information and transmit it securely; and collaborate and communicate from
multiple locations.
---------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CLASS A COMMON
STOCK OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE
OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN
THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
---------------
AltaVista and the AltaVista logo are trademarks of the Company. All other
trademarks or tradenames referred to in this Prospectus are the property of
their respective owners.
2
<PAGE> 4
PROSPECTUS SUMMARY
The following is a summary of certain information contained elsewhere in
this Prospectus. Reference is made to, and this summary is qualified in its
entirety by, the more detailed information contained in this Prospectus. Unless
otherwise indicated, the information contained in this Prospectus assumes no
exercise of the over-allotment options granted to the Underwriters and reflects
the filing of an Amended and Restated Certificate of Incorporation of the
Company increasing the number of authorized shares of capital stock and
effecting a recapitalization of the outstanding shares of common stock.
THE COMPANY
The Company develops and markets software products for use in the emerging
integrated
Internet/intranet business environment. The Company's portfolio of innovative
software products enables users of the Internet and intranets to (i) find useful
information, (ii) control access to information and transmit it securely and
(iii) collaborate and communicate from multiple locations. The Company's
products and services are designed to integrate all levels of the work
environment -- Internet, enterprise, workgroup and individual user -- and to
allow location- and platform-independent computing. To increase global awareness
of the AltaVista brand and showcase AltaVista software technologies and
products, the Company provides the popular AltaVista Internet Search Service and
other Internet services free on the World Wide Web. The Company also licenses
its Internet services to major telecommunications and media companies outside
the United States and to major Internet content providers.
The Internet and the Web have grown dramatically primarily due to the
platform-independence of Internet technologies and the ease of use of standard
Web browsers. Recognizing these benefits, many organizations have begun to
create "intranets" by adopting Internet technologies on their private networks.
Intranets provide users substantially increased access to information and other
users both inside an organization and, via the Internet, throughout the world.
To take advantage of these expanded capabilities and resources and allow the
Internet/intranet environment to become the work environment of choice, users
need products and services that integrate all levels of their work environment.
The Company has developed the following portfolio of products to address these
needs:
- SEARCH/DIRECTORY PRODUCTS. AltaVista Search assists users in finding
relevant information in all levels of their work environment. AltaVista
Directory provides a single, integrated on-line directory of employees,
customers or other affiliated individuals.
- SECURITY PRODUCTS. AltaVista Firewall provides an easy-to-manage, secure
gateway between an organization's private intranet and the Internet, or
between sub-networks of an intranet. AltaVista Tunnel employs advanced
authentication and encryption technologies to create a secure Internet
pathway over which external users can connect inexpensively and securely
to an organization's intranet, thereby allowing external users to work as
if directly connected to the organization's private network.
- COLLABORATION AND COMMUNICATION PRODUCTS. AltaVista Forum provides an
environment for members of workgroups to share documents, conduct
asynchronous discussions or real-time conferences from multiple locations
and search the entire text of a Forum, all using a standard Web browser.
AltaVista Mail is Internet/intranet email server software that provides
email services and supports a wide range of email clients and
attachments.
The Company's target customers are business users. To date, customers for
one or more of the Company's products include AT&T, Inc., British Columbia Hydro
and Power Authority, Computer Sciences Corporation, Woods Hole Research Center
and Xerox Corporation.
As an integral part of its marketing strategy, the Company provides free of
charge its AltaVista Internet Search Service, which assists Web users in finding
information anywhere on the Web. The AltaVista Internet Search Service uses
advanced search engine and indexing technology developed in Digital's Palo Alto
research laboratories in response to the industry-wide challenge of indexing the
entire Web. This service recorded over 300,000 requests for information or
"hits" on its December 15, 1995 Web-wide launch date, and recorded over
3
<PAGE> 5
17.5 million hits per day during the week of August 5, 1996. The Company's goal
is to establish the AltaVista Internet Search Service as the global standard for
Internet search results by licensing it to major telecommunications and media
companies outside the United States to provide "mirror sites" for local markets
and by licensing major Internet content providers to deliver branded AltaVista
Internet Search Service results to their users through "value added links" on
their Web sites. The Company has entered into letters of intent for mirror sites
to be established by Telia TeleCom AB (Sweden) and Telstra Corporation Ltd.
(Australia) and into value added link agreements with Yahoo! Inc. and CNET,
Inc., thereby generating a revenue stream from the AltaVista Internet Search
Service. Because the Company does not accept advertising on its own Web sites
and, therefore, does not compete for Internet advertising revenue, the Company
is able to partner with Internet companies that derive revenue from advertising.
The Company's goal is to be the leading supplier of software products and
services for use in the emerging integrated Internet/intranet business
environment. The Company's strategy includes the following elements:
- INCREASE ALTAVISTA BRAND RECOGNITION WORLDWIDE. The Company provides
free Internet services from its Web sites and licenses AltaVista branded
services to leading Internet partners to showcase AltaVista technologies
and increase global awareness of the AltaVista brand.
- DELIVER INNOVATIVE SOFTWARE PRODUCTS FOR INTERNET/INTRANET USERS. In
addition to its current portfolio of software products, the Company
intends to build upon its technical expertise and that of its partners
and Digital to develop additional innovative products, product suites and
services for general and specific industry and business application needs
in the emerging Internet/intranet environment.
- CONDUCT BUSINESS ON THE WEB. The Company conducts a significant portion
of its business over the Web, including marketing, communications,
partner registration, sales, software distribution and partner and
customer support. The Company believes that this "Web-centric" strategy
will establish it as a highly visible Internet/intranet software leader,
as well as facilitate responsive, low-cost, global business operations.
The Company intends to achieve broad market penetration with its products
by employing multiple Internet-focused distribution channels.
- LEVERAGE RELATIONSHIP WITH DIGITAL. The Company intends to leverage its
relationship with Digital, one of the world's leading suppliers of
computer hardware, software and services. The Company's products are sold
by Digital's worldwide direct and channel sales organizations, which also
provide the Company access to Digital's major customers, channel partners
and strategic alliance partners. In addition, the Company has a preferred
relationship with Digital's research laboratories.
The Company is currently wholly owned by Digital. As used herein, unless
the context requires otherwise, the "Company" means AltaVista Internet Software,
Inc. and its subsidiaries, and "Digital" means Digital Equipment Corporation and
its subsidiaries (other than the Company and its subsidiaries). References
herein to the Company also include, as required by the context, the business of
the Company as conducted by Digital prior to the transfer of that business to
the Company, which transfer will occur prior to the consummation of the
Offering; this Prospectus assumes that such transfer has occurred. The Company
was incorporated in Delaware on June 28, 1996. Its principal executive offices
are located at 30 Porter Road, Littleton, Massachusetts 01460, and its telephone
number is (508) 486-2700. The Company's primary Web site is located at
http://www.altavista.software.digital.com. Information contained in such Web
site or any other Web site referred to in this Prospectus shall not be deemed a
part of this Prospectus.
4
<PAGE> 6
THE OFFERING(1)
<TABLE>
<S> <C> <C>
Class A Common Stock offered hereby:
U.S. Offering................................ shares
International Offering....................... shares
---------
Total................................ shares
Common Stock to be outstanding after the
Offering(2):
Class A Common Stock......................... shares
Class B Common Stock......................... shares
---------
Total................................ shares
Working capital and other general corporate
purposes, including product development,
expansion of sales and marketing efforts and
capital expenditures. In addition, the Company
may make one or more acquisitions of
complementary technologies, products or
Use of proceeds................................ businesses. See "Use of Proceeds."
Proposed Nasdaq National Market symbol......... ALTV
The holders of Class A Common Stock generally
have rights identical to, and generally vote
together as a single class with, the holders
of the Class B Common Stock, except that the
holders of Class A Common Stock are entitled
to one vote per share and the holders of the
Class B Common Stock, are entitled, with
certain exceptions, to three votes per share.
See "Relationship with Digital" and
"Description of Capital Stock -- Common
Voting rights.................................. Stock -- Voting Rights."
</TABLE>
- ---------------
(1) Does not include up to shares of Class A Common Stock that are
subject to the over-allotment options granted to the Underwriters by the
Company. See "Underwriting."
(2) Does not include an aggregate of shares of Class A Common Stock
reserved for issuance in respect of employee stock options granted as of the
date of this Prospectus with an exercise price equal to the initial public
offering price set forth on the cover page of this Prospectus. See
"Capitalization" and "Management -- Compensation of Executive Officers."
5
<PAGE> 7
SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
--------------------------------
JULY 2, JULY 1, JUNE 29,
1994 1995 1996
------- ------- --------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA(1):
Total operating revenues..................................... $ 298 $ 964 $ 3,632
------- ------- --------
Costs and expenses:
Cost of operating revenues.............................. 47 374 1,110
Research and engineering expenses....................... 2,235 4,516 15,352
Selling and marketing expenses.......................... 50 248 10,522
General and administrative expenses..................... 684 1,062 6,516
------- ------- --------
Total costs and expenses........................... 3,016 6,200 33,500
------- ------- --------
Operating loss............................................. (2,718) (5,236) (29,868)
------- ------- --------
Net loss................................................... $(2,718) $(5,236) $(29,868)
======= ======= ========
Unaudited pro forma net loss per common share(2)........... $
========
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 29, 1996
---------------------------------
PRO FORMA,
HISTORICAL(1) AS ADJUSTED(3)
------------- ---------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital.................................................. $ (925) $
Total assets..................................................... 7,508
Net parent's investment.......................................... 5,528 --
Total stockholders' equity....................................... --
</TABLE>
- ---------------
(1) Historical amounts are included in or derived from the AltaVista Internet
Software Products Financial Statements included elsewhere in this
Prospectus.
(2) Historical earnings per share data is omitted from the statement of
operations data because it is not meaningful. Unaudited pro forma net loss
per common share is calculated based on the net loss divided by the number
of shares of Class B Common Stock to be issued to Digital prior to the
consummation of the Offering.
(3) Balance sheet data for the Company on a pro forma, as adjusted basis gives
effect to the contribution, as of June 29, 1996, of assets from Digital to
the Company and the Company's assumption of certain liabilities from
Digital, includes the assets and stockholder's equity of AltaVista Internet
Software, Inc. and gives effect to the net proceeds from the sale of
shares of Class A Common Stock offered by the Company hereby at an
assumed initial public offering price of $ per share. Net parent's
investment has been restated as total stockholders' equity as if Digital's
investment was in the Class B Common Stock of the Company to be issued to
Digital prior to the consummation of the Offering. See "Use of Proceeds" and
"Capitalization."
6
<PAGE> 8
RELATIONSHIP WITH DIGITAL
The Company is currently wholly owned by Digital. Upon consummation of the
Offering, Digital will beneficially own all of the Class B Common Stock, which
will represent approximately % of the combined voting power of all classes
of voting stock ( % if the Underwriters' over-allotment options are
exercised in full) and thus will continue to have the ability to direct the
election of all of the directors of the Company and otherwise exercise a
controlling influence over the business and affairs of the Company.
Digital has advised the Company that its current intent is to continue to
hold all of the Class B Common Stock. However, Digital has no agreement with the
Company not to sell or distribute such shares, and there can be no assurance
concerning the period of time during which Digital will maintain its beneficial
ownership of Common Stock after the expiration of the 180-day lock-up agreement
contained in the Underwriting Agreements. See "Relationship with
Digital -- Corporate Agreement" and "Underwriting."
Each share of Class B Common Stock is convertible while held by Digital or
any of its subsidiaries at such holder's option into one share of Class A Common
Stock. Any shares of Class B Common Stock transferred to a person other than
Digital or any of its subsidiaries shall automatically convert to shares of
Class A Common Stock upon such disposition, except for a disposition effected in
connection with a transfer of Class B Common Stock to stockholders of Digital as
a dividend intended to be on a tax-free basis (a "Tax-Free Spin-Off") under the
Internal Revenue Code of 1986, as amended (the "Code"). See "Description of
Capital Stock -- Common Stock -- Conversion."
Upon consummation of the Offering, Digital will continue to provide certain
services to the Company and make available certain employee benefit plans to the
Company's employees in a manner generally consistent with past practices. The
Company and Digital will enter into a number of intercompany agreements with
respect to such services and other matters. See "Relationship with Digital."
------------------------
Certain statements under the captions "Prospectus Summary," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business" and elsewhere in this Prospectus, including statements regarding the
intent, belief or current expectations of the Company with respect to, among
other things, (i) the Company's operating strategies, (ii) the markets for the
Company's products and (iii) the development and release of the Company's
products and services, and other statements contained herein regarding matters
that are not historical facts, constitute "forward-looking statements." Such
forward-looking statements are not guarantees of future performance and involve
known and unknown risks, uncertainties and other factors which may cause the
actual results, performance and achievements of the Company, or industry
results, to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements. Such
factors include, but are not limited to, those discussed herein under "Risk
Factors."
7
<PAGE> 9
RISK FACTORS
In addition to the other information contained in this Prospectus,
investors should carefully consider the following risk factors:
LIMITED OPERATING HISTORY; ANTICIPATED CONTINUING LOSSES
The Company has commercially introduced most of its products and services
since November 1995. Further, the Company's prospects are dependent upon the
commercial release of additional products and services which are in the process
of being developed or tested. Accordingly, the Company has only a limited
operating history upon which an evaluation of its business and prospects can be
based. The Company has incurred net operating losses in each of the last three
fiscal years and expects that it will continue to incur net operating losses at
least through fiscal year 1997. As of June 29, 1996, the Company had an
accumulated deficit of $39.8 million. The limited operating history of the
Company makes the prediction of future results of operations difficult or
impossible, and the Company and its prospects must be considered in light of the
risks, costs and difficulties frequently encountered by companies in their early
stages of development, particularly companies in the new and rapidly evolving
Internet/intranet market. There can be no assurance that the Company can
generate substantial revenue growth, or that any revenue growth that is achieved
can be sustained. Revenue growth that the Company has achieved or may achieve
may not be indicative of future operating results. In addition, the Company has
increased, and plans to increase further, its operating expenses in order to
fund higher levels of research and development, increase its sales and marketing
efforts, develop new distribution channels, broaden its customer support
capabilities and increase its administrative resources in anticipation of future
growth. To the extent that increases in such expenses precede or are not
subsequently followed by increased revenues, the Company's business, results of
operations and financial condition would be materially adversely affected.
Moreover, due to the intense competition in the Company's markets, the Company
must seek to expand all aspects of its business rapidly, which increases the
challenges facing the Company. There can be no assurance that the Company will
achieve or sustain profitability. In addition, in view of recent revenue growth,
the rapidly evolving nature of its business and markets and its short operating
history, the Company believes that period-to-period comparisons of financial
results are not necessarily meaningful and should not be relied upon as an
indication of future performance. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
POTENTIAL FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
The Company is likely to experience significant fluctuations in quarterly
operating results caused by many factors, including the rate of growth, usage
and acceptance of intranets and the Internet, changes in the demand for the
Company's products and services, introductions or enhancements of products and
services by the Company and its competitors, delays in the introduction or
enhancement of products and services by the Company or its competitors, customer
order deferrals in anticipation of upgrades and new products, changes in the
Company's pricing policies or those of its competitors, changes in the
distribution channels through which products are sold, the Company's ability to
anticipate and effectively adapt to developing markets and rapidly changing
technologies, the Company's ability to attract, retain and motivate qualified
personnel, changes in the mix of products and services sold, changes in the mix
of international and North American revenues, changes in foreign currency
exchange rates and changes in general economic conditions. The Company is
attempting to expand its channels of distribution, and increases in the
Company's revenues will be dependent on its ability to implement its
distribution strategy. There also may be other factors that significantly affect
the Company's quarterly results which are difficult to predict given the
Company's limited operating history, such as seasonality and the timing of
receipt and delivery of orders within a fiscal quarter.
As a software business, the Company expects to operate with little or no
backlog. As a result, quarterly sales and operating results depend generally on
the volume and timing of orders and the ability of the Company to fulfill orders
received within the quarter, all of which are difficult to forecast. The
Company's expense levels are based in part on its expectations as to future
orders and sales, which, given the Company's limited operating history, are also
extremely difficult to predict. The Company's expense levels are to a large
extent fixed, and it will be difficult for the Company to adjust spending in a
timely manner to compensate for
8
<PAGE> 10
any unexpected revenue shortfall. Accordingly, any significant shortfall in
demand for the Company's products and services in relation to the Company's
expectations would have an immediate adverse impact on the Company's business,
results of operations and financial condition, which could be material.
Due to all of the foregoing factors, the Company believes that its
quarterly operating results are likely to vary significantly in the future.
Therefore, in some future quarter the Company's operating results may fall below
the expectations of securities analysts and investors. In such event, the
trading price of the Company's Class A Common Stock would likely be materially
adversely affected.
UNPROVEN ACCEPTANCE OF THE COMPANY'S PRODUCTS AND SERVICES; DEVELOPING MARKET
Many of the Company's products and services have been introduced only
recently, have yet to be introduced or will be introduced in a substantially
enhanced form. See "Business -- AltaVista Internet Services" and "-- AltaVista
Software Products." The Company's success will depend largely upon the success
of these and future products and services and enhancements. Failure of these
products and services or enhancements to achieve significant market acceptance
and usage would materially adversely affect the Company's business, results of
operations and financial condition. If the Company were unable to successfully
market its current products and services, develop new products and services and
enhancements to current products and services or complete products and services
currently under development, or if such new products and services or
enhancements do not achieve market acceptance, the Company's business, results
of operations and financial condition would be materially adversely affected.
The primary markets for the Company's products and services have only
recently begun to develop and are rapidly evolving. As is typical in the case of
a new and rapidly evolving industry, demand for and market acceptance of
products and services that have been released recently or that are planned for
future release are subject to a high level of uncertainty. If the markets for
the Company's products and services fail to develop, develop more slowly than
expected or become saturated with competitors, or if the Company's products and
services do not achieve market acceptance, the Company's business, results of
operations and financial condition would be materially adversely affected.
DEPENDENCE ON THE INTERNET; UNCERTAIN ADOPTION OF THE INTERNET AS A
MEDIUM OF COMMUNICATIONS AND COMMERCE
Rapid growth of interest in and use of the Internet is a recent phenomenon.
The markets for certain of the Company's products and services are highly
dependent upon the increased acceptance and use of the Internet, particularly
for commercial applications. In addition, the Company plans to distribute
certain products and services electronically over the Internet. Critical issues
concerning the commercial use of the Internet, including security, reliability,
capacity, cost, ease of use, access, quality of service and acceptance of
advertising, remain unresolved and may retard the growth of Internet use for
commercial applications. If widespread commercial use of the Internet does not
develop or if widespread adoption of the Internet causes the performance and
reliability of the Internet to suffer, the Company's business, results of
operations and financial condition would be materially adversely affected.
DEPENDENCE ON THE ADOPTION OF INTRANETS; UNCERTAIN ADOPTION OF INTRANETS
The Company will be substantially dependent on the development of markets
for products that support or increase the functionality of intranets. There can
be no assurance that intranets will be adopted by large numbers of
organizations, that organizations will seek to enable users to collaborate over
intranets or that the Company's products will appeal to organizations that do
so. If intranets are not adopted by large numbers of organizations, or if
organizations adopting intranets do not select the Company's products, the
Company's business, results of operations and financial condition would be
materially adversely affected.
COMPETITION; NEW ENTRANTS
The markets for the Company's products and services are new, intensely
competitive, evolving quickly and subject to rapid technological change. The
Company expects competition to persist, increase and intensify
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in the future as the markets for the Company's products and services continue to
develop and as additional companies enter each of its markets. The Company is
aware of numerous major software developers as well as smaller entrepreneurial
companies that are focusing significant resources on developing and marketing
products and services that will compete with the Company's products and
services. Numerous releases of products and services that compete with those of
the Company can be expected in the near future. Intense price competition may
develop in the Company's markets.
The Company faces competition in the overall Internet/intranet software
market, as well as in each of the market segments where its products and
services compete. The Company has multiple competitors for each of its products
and services. See "Business -- Competition." Many of the Company's current and
potential competitors in each of its markets have longer operating histories and
significantly greater financial, technical and marketing resources, name
recognition and installed product base than the Company. The Company's
competitors include Microsoft Corporation and Netscape Communications
Corporation, each of which provides or has announced an intention to provide a
range of software products based on Internet protocols and to compete in the
broad Internet/intranet software market, as well as in specific market segments
where the Company competes.
The Company does not believe its markets will support the increasing number
of competitors and their products and services. In the past, a number of
software markets have become dominated by one or a small number of suppliers,
and a small number of suppliers or even a single supplier may dominate one or
more of the Company's market segments. The Company's competitors may bundle
their products with other software, including operating system and browser
software, in a manner that may discourage users from purchasing products offered
by the Company. This strategy may be particularly effective for companies with
leading market shares in their respect markets, such as Microsoft and Netscape.
If the Company does not provide products and services that achieve success in
their respective segments in the short term, the Company could suffer an
insurmountable loss in market share and brand name acceptance, which would
result in a material adverse effect on the Company's business, results of
operations and financial condition.
There can be no assurance that the Company will be able to compete
effectively with current and future competitors. See "Business -- Competition."
NEW PRODUCT DEVELOPMENT AND TECHNOLOGICAL CHANGE
The emerging market for Internet/intranet products and services is
characterized by rapid technological developments, evolving industry standards
and customer demands, and frequent new product introductions and enhancements.
In addition, many companies are expected to introduce new Internet/intranet
products and services in the near future. The Company's success will depend on
its ability to design, develop, test, market, sell and support new products and
services and enhancements of current products and services on a timely basis in
response to both competitive products and services and evolving demands of the
marketplace. In addition, new products and services and enhancements must remain
compatible with standard platforms and file formats. The Company's ability to
successfully develop and release new products and services and enhancements in a
timely manner is subject to a variety of factors, including its ability to solve
technical problems and test products, competing priorities of the Company, the
availability of development and other resources and other factors outside the
control of the Company. There can be no assurance that the Company will not
experience difficulties that could delay or prevent the successful development,
introduction or marketing of new products and services and enhancements. If the
Company is unable to develop new products and services and enhancements to
existing products and services or to complete products and services currently
under development, or if such new products and services or enhancements do not
achieve market acceptance, the Company's business, results of operations and
financial condition would be materially adversely affected. See
"Business -- AltaVista Software Products" and "-- Product Development."
FUTURE LIQUIDITY NEEDS; UNCERTAINTY OF ADDITIONAL FINANCING
The Company currently anticipates that the net proceeds of the Offering
will be sufficient to meet its anticipated liquidity needs for at least the next
twelve months. Thereafter, the Company may need to raise
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additional funds. The Company may need to raise additional funds sooner in order
to fund more rapid expansion, to develop new or enhanced products or services,
to respond to competitive pressures or to acquire complementary products,
businesses or technologies. If additional funds are raised through the issuance
of equity or securities convertible into equity, the percentage ownership of the
stockholders of the Company will be reduced, stockholders may experience
dilution and such securities may have rights, preferences or privileges senior
to those of the holders of the Common Stock. There can be no assurance that
additional financing will be available on terms favorable to the Company, if at
all. Digital has not made any commitment to supply such funds to the Company. If
adequate funds are not available or are not available on acceptable terms, the
Company may not be able to fund its expansion, take advantage of acquisition
opportunities, develop or enhance products or services or respond to competitive
pressures. Such inability could have a material adverse effect on the Company's
business, results of operations and financial condition. See "Use of Proceeds"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
MANAGEMENT OF POTENTIAL GROWTH; NEW MANAGEMENT TEAM
The Company recently has experienced rapid growth in its sales and
operations and in the number and complexity of its products and product
distribution channels. Several key members of the Company's management team,
including its chief executive officer, have recently joined the Company. See
"Management -- Executive Officers and Directors." The Company recently increased
the size of its sales force and has recently established and is continuing to
establish additional distribution channels through third party relationships.
The Company's growth, coupled with the rapid evolution of the Company's markets,
has placed, and is likely to continue to place, significant strains on its
administrative, operational and financial resources and increased demands on its
internal systems, procedures and controls. If the Company is unable to manage
any future growth effectively, the Company's business, results of operations and
financial condition could be materially adversely affected.
DEPENDENCE ON KEY PERSONNEL; RECENT HIRES
The Company's performance is substantially dependent on the performance of
its key technical and senior management personnel, most of whom have worked
together for a relatively short period of time and none of whom is bound by an
employment agreement. The Company also intends to utilize the services of
certain of Digital's technical personnel for certain technical assistance
services. See "Management" and "Relationship with Digital -- Technical
Assistance Agreement." The loss of the services of any of such personnel could
have a material adverse effect on the business, results of operations and
financial condition of the Company. The Company does not maintain "key person"
life insurance policies on any of its employees. The Company's success is highly
dependent on its continuing ability to identify, hire, train, retain and
motivate highly qualified management, technical and sales and marketing
personnel, including recently hired officers and other employees. Competition
for such personnel is intense, and there can be no assurance that the Company
will be able to attract, assimilate or retain highly qualified technical and
managerial personnel in the future. The inability to attract and retain the
necessary management, technical and sales and marketing personnel could have a
material adverse effect on the Company's business, results of operations and
financial condition. See "Business -- Employees" and "Management."
RELIANCE ON EVOLVING DISTRIBUTION CHANNELS
The Company's distribution strategy is to develop multiple distribution
channels, including sales over the Web and sales through Digital's sales
organization, major system integrators, value added resellers, Internet service
providers, telecommunications companies, original equipment manufacturers and
independent software vendors (collectively "channel partners"). To date, the
Company has sold its products principally through Digital's sales force and
Digital's channel partners. The Company intends to develop a large number of new
channel partner relationships. Accordingly, the success of the Company will be
dependent in large part on its ability to develop these additional distribution
relationships and on the performance and success of these third parties, which
are outside the Company's control. The Company's existing channel partner
relationships
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have been established recently, and the Company cannot predict the extent to
which its channel partners will be successful in marketing the Company's
products. The Company generally expects that its agreements with its channel
partners will be terminable by either party without cause. The Company's
inability to attract channel partners, their inability to penetrate their
respective market segments, or the loss of any of the Company's channel
partners, as a result of competitive products offered by other companies or
products developed internally by these channel partners or otherwise, could
materially adversely affect the Company's business, results of operations and
financial condition. See "Business -- Sales and Marketing."
The Company has expanded, and plans to continue expanding, its sales force.
The Company's strategy is to use its sales force principally to develop and
support its relationships with its channel partners. The Company also intends to
use its Web site to demonstrate, market and sell its products. This Web-centric
aspect of the Company's sales and marketing strategy is largely untested. The
inability of the Company to successfully expand its sales force, the inability
of its sales force to successfully establish new channel partner relationships
or the failure to successfully implement a Web-centric sales and marketing
program could materially adversely affect the Company's business, results of
operations and financial condition.
DEPENDENCE ON MIRROR SITES AND INTERNET CONTENT PROVIDERS
The Company intends to license major telecommunications and media companies
to establish a number of AltaVista Internet Search Service mirror sites outside
the United States to improve service response times for users outside the United
States, to facilitate worldwide distribution of the AltaVista Internet Search
Service and increase global awareness of the AltaVista brand. In addition, the
Company is seeking to establish value added links with leading Internet content
providers to allow a content provider's users to use the AltaVista Internet
Search Service without leaving the content provider's Web site. The Company
expects to derive revenue from mirror sites and value added links and to
increase AltaVista brand recognition among their users. To date, the Company has
entered into letters of intent with respect to two mirror sites and has
established value added links with two Internet content providers. See
"Business -- AltaVista Partner-Provided Services." The success of the Company in
establishing the AltaVista brand name and achieving market acceptance of certain
of its products and services is dependent, in part, on its and its partners'
success in establishing and maintaining additional mirror sites and value added
links and on the success of the mirror sites and value added links. The
Company's or its partners' inability to achieve such success would materially
adversely affect the Company's business, results of operations and financial
condition.
RISK OF CAPACITY CONSTRAINTS AND SYSTEM FAILURE RELATING TO THE ALTAVISTA SEARCH
SITES
A key element of the Company's marketing strategy and promotional efforts
is the AltaVista Internet Search Service, which the Company makes available at
no charge to users of the Internet through its Web site and mirror sites.
Accordingly, the performance of the AltaVista Internet Search Service is
critical to the Company's ability to establish the AltaVista brand name and the
value of its products and services. An increase in the volume of searches
conducted using the AltaVista Internet Search Service could strain its capacity,
which could lead to slower response times or complete system failures. In
addition, as the number of Internet users and of Web pages and other Internet
content increases, there can be no assurance that the AltaVista Internet Search
Service will be able to be scaled appropriately. The Company has made certain
performance and support commitments under its mirror site and value added link
agreements, and, accordingly, any failure by the Company to meet these
commitments could result in the termination of, or exposure to damages under,
one or more of these agreements. The Company is also dependent on hardware
suppliers, particularly Digital, for prompt delivery, installation and service
of servers and other equipment used to operate the AltaVista Internet Search
Service and for Internet access. The servers for the Company's Web site, located
in Palo Alto, California, and for the mirror sites are vulnerable to damage from
fire, earthquakes, power loss, telecommunications failures and similar events.
Despite the implementation of network security measures by the Company and
mirror site providers, their 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 or
cessation in service in the AltaVista Internet Search Service. Any loss of
availability, decrease in response time or other deterioration in performance of
the AltaVista Internet
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Search Service at the Company's Web site or any mirror site could affect the
success of the AltaVista Internet Search Service, which could materially
adversely affect the Company's business, results of operations and financial
condition.
RISK OF PRODUCT DEFECTS; PRODUCT LIABILITY
As a result of their complexity, software products may contain undetected
errors or failures when first introduced or as new versions are released. There
can be no assurance that, despite testing by the Company and testing and use by
current and potential customers, errors will not be found in new products after
commencement of commercial shipments or, if discovered, that the Company will be
able to successfully correct such errors in a timely manner or at all. Computer
break-ins and other disruptions, if caused or permitted by errors or failures in
the Company's security products, would jeopardize the security of information
stored in and transmitted through or by the computer systems of the Company's
customers, which may result in significant liability to the Company and deter
potential customers. The occurrence of errors and failures in the Company's
products could result in loss of or delay in market acceptance of the Company's
products, and alleviating such errors and failures could require significant
expenditure of capital and resources by the Company. The consequences of such
errors and failures could have a material adverse effect on the Company's
business, results of operations and financial condition. The Company's license
agreements with its customers are expected to typically contain provisions
designed to limit the Company's exposure to potential product liability claims.
It is possible, however, that the limitation of liability provisions contained
in the Company's license agreements may not be effective under the laws of
certain jurisdictions. A product liability claim brought against the Company
could have a material adverse effect on the Company's business, results of
operations and financial condition.
UNCERTAIN PROTECTION OF INTELLECTUAL PROPERTY RIGHTS
The Company's success depends significantly upon proprietary technology.
The Company relies on a combination of patent, copyright, trademark and trade
secret laws, non-disclosure agreements and other contractual provisions to
establish, maintain and protect its proprietary rights, all of which afford only
limited protection. Digital has several pending U.S. patent applications
relating to the Company's products. The Company has acquired certain
non-exclusive license rights related to these patents from Digital. See
"Relationship with Digital -- Asset Transfer and License Agreement." There can
be no assurance that patents will issue from these pending applications or from
any future applications or that, if issued, any claims will be sufficiently
broad to protect the Company's rights in such technology. In addition, there can
be no assurance that any patents that may be issued will not be challenged,
invalidated or circumvented, or that any rights granted thereunder would provide
protection of the Company's proprietary rights. The Company may not prevent
Digital from granting other licenses under such patents, will not be able to
realize licensing revenues from any such licenses, cannot require Digital to
enforce any such patents against competitors of the Company and cannot control
any enforcement proceedings Digital undertakes. Digital may choose not to
enforce these patents because of its own policies and business relationships
even though enforcement would be in the best interests of the Company. Also,
Digital has cross licensing arrangements with certain computer hardware and
software companies, including Microsoft. The patent license rights granted to
the Company by Digital are subject to such cross licenses, and therefore both
the Company and Digital will be unable to enforce these patents against any of
such cross licensees. In addition, patented technology developed by the Company
in the future may become subject to such cross licenses. Failure of any patents
to protect the Company's rights in technology and such cross licensing
arrangements may make it easier for the Company's competitors to offer
equivalent or superior technology.
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. Third parties may also independently develop similar technology
without breach of the Company's proprietary rights. 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. In addition, some of the Company's products
are licensed under "shrink wrap" license agreements or license agreements
distributed over the Web that are not signed by
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licensees and therefore may not be binding under the laws of certain
jurisdictions. The Company's plan to distribute certain software over the Web
and allow potential customers to electronically download its software for a free
evaluation period would make the Company's software more susceptible to
unauthorized copying and use.
The Company has applied for U.S. and foreign registrations of AltaVista as
a trademark and a service mark and will continue to evaluate registration of
additional trademarks and service marks as appropriate. The Company is aware
that certain third parties are using the name "AltaVista" as a trademark or as
part of their Internet address. No assurance can be given that such parties will
not challenge the right of the Company to use AltaVista as a trademark, service
mark or as part of its Internet address. See "Business -- Intellectual Property
Rights."
Although the Company does not believe it is infringing the intellectual
property rights of others, claims of infringement are becoming increasingly
common as the software industry develops and legal protections, including
patents, are applied to software products.
Litigation may be necessary to protect the Company's proprietary technology
and rights, and third parties may assert infringement claims against the Company
with respect to their proprietary rights. Any claims or litigation can be
time-consuming and expensive regardless of their merit. Infringement claims
against the Company can cause product release delays, require the Company to
redesign its products or require the Company to enter into royalty or license
agreements, which agreements may not be available on terms acceptable to the
Company or at all.
See "Business -- Intellectual Property Rights."
POSSIBLE REGULATION OF THE INTERNET; LIABILITY FOR INFORMATION RETRIEVED FROM
THE INTERNET
Other than laws and regulations applicable to businesses generally, there
are currently few laws or regulations expressly applicable to access and
commerce on the Internet. Due to the increased popularity and use of the
Internet, it is possible that new laws or regulations may be adopted with
respect to the Internet relating to issues such as user privacy, pricing and
characteristics and quality of products and services. The adoption of any such
laws or regulations may retard the growth of use of the Internet, which could
adversely affect demand for the Company's products and services. Such laws or
regulations also could result in significant additional costs and technological
challenges in complying with any mandatory requirements. In addition, claims
have been brought, and sometimes successfully pressed, against on-line services,
for defamation, negligence, copyright or trademark infringement or under other
theories with respect to materials disseminated through such services. The
Company maintains a Web site to which users can upload materials, and there can
be no assurance that the Company will not be subject to similar claims.
EFFECT OF GOVERNMENT REGULATION OF TECHNOLOGY EXPORTS
The Company's international sales and operations, especially with respect
to AltaVista Tunnel and AltaVista Firewall, may be subject to risks such as the
imposition of governmental controls, export license requirements, restrictions
on the export of critical technology, trade restrictions and changes in tariffs.
In particular, because of current government controls on the exportation of
encryption technology, the Company is unable to export its most robust security
products. As a result, competitors outside the United States that face less
stringent controls on their products may be able to compete more effectively
than the Company in the global network security market. There can be no
assurance that these factors will not have a material adverse effect on the
Company's business, results of operations and financial condition.
RISKS ASSOCIATED WITH GLOBAL OPERATIONS
The Company expects to derive a substantial portion of its revenues from
customers outside the United States. The Company intends to expand its
operations outside of the United States and enter additional international
markets, which will require significant management attention and financial
resources. The Company's ability to expand its products and services
internationally is limited by the general acceptance of
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the Internet and intranets in other countries. The Company expects to commit
additional time and development resources to customizing its products and
services for selected international markets and to developing international
sales and support channels. There can be no assurance that such efforts will be
successful.
International operations are subject to a number of risks, including costs
of customizing products and services for international markets, dependence on
independent resellers, multiple and conflicting regulations regarding
communications, use of data and control of Internet access, longer payment
cycles, unexpected changes in regulatory requirements, import and export
restrictions and tariffs, difficulties in staffing and managing international
operations, greater difficulty or delay in accounts receivable collection,
potentially adverse tax consequences, the burden of complying with a variety of
laws outside the United States, the impact of possible recessionary environments
in economies outside the United States, and political and economic instability.
In addition, the Company's ability to expand its business in certain countries
will require the modification of its products to operate compatibly with
different hardware and software standards. Furthermore, the Company expects that
its export sales will be denominated predominantly in United States dollars. An
increase in the value of the United States dollar relative to other currencies
could make the Company's products and services more expensive and, therefore,
potentially less competitive in international markets. As the Company increases
its international sales, its total revenue may also be affected to a greater
extent by seasonal fluctuations resulting from lower sales that typically occur
during the summer months in Europe and other parts of the world.
CONTROL BY DIGITAL
Ownership of Stock
Digital is currently the only stockholder of the Company. Upon consummation
of the Offering, Digital will own, directly or indirectly, all of the
outstanding Class B Common Stock of the Company (which Class B Common Stock is
entitled, with certain exceptions, to three votes per share on any matter
submitted to a vote of the Company's stockholders). The Class B Common Stock
will represent approximately % of the combined voting power of all classes of
voting stock ( % if the Underwriters' over-allotment options are exercised in
full) and thus will be able to direct the election of all of the members of the
Company's Board of Directors, change the size and composition of the Board of
Directors and exercise a controlling influence over the business and affairs of
the Company, including determinations with respect to mergers or other business
combinations, acquisitions or dispositions of assets, incurrence of
indebtedness, issuance of additional Common Stock or other equity securities and
payment of dividends. Similarly, Digital will have the power to determine
matters submitted to a vote of the Company's stockholders without the consent of
the Company's other stockholders, will have the power to prevent a change of
control of the Company and could take other actions that might be favorable to
Digital. In addition, the grant pursuant to employee benefit plans of Common
Stock to, or the acquisition of Common Stock upon the exercise of stock options
held by, employees of the Company would reduce further the percentage ownership
and voting interest in the Company of the public stockholders of the Company.
Digital has advised the Company that its current intent is to continue to
hold all of the Class B Common Stock. However, Digital has no agreement with the
Company not to sell or distribute such shares, and, except for the restrictions
in the Underwriting Agreements set forth below, there can be no assurance
concerning the period of time during which Digital will maintain its beneficial
ownership of Common Stock. Pursuant to the Underwriting Agreements, Digital has
agreed, subject to certain exceptions, not to sell or otherwise dispose of,
directly or indirectly, any shares of Common Stock (or any security convertible
into or exchangeable or exercisable for Common Stock) owned by it for a period
of 180 days after the date of this Prospectus without the prior written consent
of Lehman Brothers Inc. The Company has agreed, at the request of Digital, to
use its best efforts to effect the future registration under applicable federal
and state securities laws of any of the Class B Common Stock held by Digital.
The Code requires beneficial ownership by Digital of at least 80% of the
total voting power and value of the outstanding Common Stock of the Company in
order to continue to include the Company in its
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consolidated group for federal income tax purposes. In addition, Digital must
beneficially own at least 80% of the total voting power and 80% of each class of
nonvoting capital stock of the Company in order to be able to effect a tax-free
spin-off of the Company under the Code. Because Digital may seek to maintain its
beneficial ownership percentage of the Company for tax planning purposes or
otherwise and may not desire to acquire additional shares of Common Stock in
connection with a future issuance of shares by the Company, the Company may be
constrained in its ability to raise equity capital in the future or to issue
Common Stock or other equity securities in connection with acquisitions.
Corporate Agreement
The terms of a corporate agreement between Digital and the Company
restrict, for so long as Digital maintains beneficial ownership of a majority of
the number of outstanding shares of Common Stock, the Company's ability to act
in any way which may reasonably be anticipated to result in a contravention by
Digital of (i) Digital's corporate charter or by-laws, (ii) any credit agreement
or other material instrument binding upon Digital, (iii) any judgment, order or
decree of any governmental body having jurisdiction over Digital or (iv) any
provision of applicable law or regulation. See "Relationship with
Digital -- Corporate Agreement."
Control of Tax Matters; Tax and ERISA Liability
By virtue of its controlling beneficial ownership and the terms of the
tax-sharing agreement entered into between the Company and Digital, Digital will
effectively control all of the Company's tax decisions. Under the tax-sharing
agreement, Digital will have sole authority to respond to and conduct all tax
proceedings (including tax audits) relating to the Company, to file all returns
on behalf of the Company and to determine the amount of the Company's liability
to (or entitlement to payment from) Digital under the tax-sharing agreement. See
"Relationship with Digital -- Tax-Sharing Agreement." Digital may choose to
contest, compromise or settle any adjustment or deficiency proposed by the
relevant taxing authority in a manner that may be beneficial to Digital and
detrimental to the Company.
Each member of a consolidated group for federal income tax purposes is
jointly and severally liable for the federal income tax liability of each other
member of the consolidated group. In addition, under the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), and federal income tax law,
each member of the controlled group is jointly and severally liable for funding
and termination liabilities of tax qualified defined benefit retirement plans as
well as certain plan taxes. Accordingly, during the period in which the Company
is included in Digital's consolidated or controlled group, the Company could be
liable if such liability or tax is incurred, and not discharged, by any other
member of Digital's consolidated or controlled group.
Intercompany Agreements Not Subject to Arm's-Length Negotiations
Digital or one or more of its subsidiaries and the Company have entered
into certain intercompany agreements, including agreements pursuant to which
Digital or one or more of its subsidiaries will provide various services to the
Company that may be material to the conduct of the Company's business. With
respect to matters covered by the services agreement, the relationship between
Digital and the Company is intended to continue in a manner generally consistent
with past practices. See "Relationship with Digital -- Services Agreement."
Because the Company is a wholly owned subsidiary of Digital, none of such
intercompany agreements resulted from arm's-length negotiations. These
agreements may include terms and conditions that may be more or less favorable
to the Company than terms contained in similar agreements negotiated with third
parties. For instance, the prices charged to the Company for services provided
under the services agreement may be higher or lower than prices that may be
charged by third parties.
POTENTIAL CONFLICTS OF INTEREST; LIMITATIONS ON LIABILITY
Various conflicts of interest between the Company and Digital could arise
following consummation of the Offering, and persons serving as directors,
officers and employees of both the Company and Digital may have
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conflicting duties to each. The Company's Board of Directors currently consists
of one member. Prior to the consummation of the Offering, the Company
anticipates that four additional directors will be added to the Board of
Directors who will be officers or employees of Digital. Ownership interests of
directors or officers of the Company in common stock of Digital could also
create or appear to create potential conflicts of interest when directors and
officers are faced with decisions that could have different implications for the
Company and Digital. In addition, for financial reporting purposes, the
Company's financial results will be included in Digital's consolidated financial
statements. The members of the Board of Directors of the Company who are
affiliated with Digital will consider not only the short-term and long-term
impact of financial and operating decisions on the Company, but also the impact
of such decisions on Digital's consolidated financial results. In some
instances, the impact of such decisions could be disadvantageous to the Company
while advantageous to Digital, or vice versa.
The Company's Amended and Restated Certificate of Incorporation includes
provisions relating to competition by Digital with the Company, allocations of
corporate opportunities, transactions with interested parties and intercompany
agreements and provisions limiting the liability of certain persons. See
"Description of Capital Stock -- Certain Certificate of Incorporation and By-law
Provisions." Certain of such provisions in the Company's Amended and Restated
Certificate of Incorporation were adopted in light of the fact that the Company
and Digital are both engaged in the software business and intend to enter into
contracts and other arrangements with each other after the Offering. The
enforceability under Delaware corporate law of such provisions which eliminate
certain rights that might have been available to stockholders under Delaware law
had such provisions not been included has not been established and, due to the
absence of relevant judicial authority, counsel to the Company is not able to
deliver an opinion as to the enforceability of such provisions. The Company's
Amended and Restated Certificate of Incorporation provides that any person
purchasing or acquiring an interest in shares of capital stock of the Company,
including the Underwriters, shall be deemed to have consented to the provisions
in the Amended and Restated Certificate of Incorporation relating to competition
by Digital with the Company, conflicts of interest, corporate opportunities and
intercompany agreements, and such consent may restrict such person's ability to
challenge transactions carried out in compliance with such provisions. The
Company intends to disclose the existence of such provisions in its Annual
Reports on Form 10-K as well as in certain other filings with the Securities and
Exchange Commission (the "Commission"). The corporate charter of Digital does
not include comparable provisions and, as a result, persons who are directors
and/or officers of the Company and who are also directors and/or officers of
Digital may choose to take action in reliance on such provisions rather than act
in a manner that might be favorable to the Company but adverse to Digital.
Competition with Digital; Corporate Opportunities
Digital is one of the largest providers of computer hardware, software and
services in the world. Digital is not restricted in any manner from competing
with the Company, and there can be no assurance that Digital will not expand,
through development of new lines of products or businesses, acquisition or
otherwise, its operations in a way that might compete with the Company's
business. The Company's Amended and Restated Certificate of Incorporation
provides that Digital shall not have a duty to refrain from engaging directly or
indirectly in the same or similar business activities or lines of business as
the Company and that neither Digital nor any officer or director thereof shall
be liable to the Company or its stockholders for breach of any fiduciary duty by
reason of any such actions of Digital or any such person's participation
therein.
The Company's Amended and Restated Certificate of Incorporation also
provides that, in the event that Digital acquires knowledge of a potential
transaction or matter that may be a corporate opportunity for both Digital and
the Company, Digital, its officers and its directors shall have no duty to
communicate or offer such corporate opportunity to the Company. In addition,
directors, officers or employees of the Company who are also directors, officers
or employees of Digital shall be entitled to offer any corporate opportunity for
the Company or Digital (whether such potential transaction or matter is proposed
by a third-party or is conceived of by such director, officer or employee of the
Company) to the Company or Digital as such director, officer or employee deems
appropriate under the circumstances, in his or her sole discretion.
17
<PAGE> 19
The Company's Amended and Restated Certificate of Incorporation further
provides that Digital, its officers and its directors shall not be liable to the
Company or its stockholders for breach of any fiduciary duty as a stockholder of
the Company or controlling person of a stockholder by reason of the fact that
Digital pursues or acquires such corporate opportunity for itself, directs such
corporate opportunity to another person or entity, or does not communicate
information regarding, or offer, such corporate opportunity to the Company. In
addition, directors, officers or employees of the Company who are also
directors, officers or employees of Digital shall be not be liable to the
Company or its stockholders for breach of any fiduciary duty or duty of loyalty
or failure to act in (or not opposed to) the best interests of the Company if
such director, officer or employee offers any corporate opportunity (whether
such opportunity is proposed by a third-party or is conceived of by such
director, officer or employee of the Company) to Digital and not the Company or
does not communicate information regarding such opportunity to the Company.
Transactions with Interested Parties
Directors and officers of the Company, Digital or any Related Entity (as
such terms are defined below) may be required to enter into, vote to authorize
or take any action under certain agreements between the Company and Digital, any
Related Entity or any individual director or officer. The Company's Amended and
Restated Certificate of Incorporation provides that no contract, agreement,
arrangement or transaction (or any amendment, modification or termination
thereof) between the Company and Digital, any Related Entity or any director or
officer of the Company, Digital or any Related Entity, shall be void or voidable
solely for the reason that Digital, a Related Entity or any one or more of the
officers or directors of the Company, Digital or any Related Entity are parties
thereto, or solely because any such directors or officers are present at,
participate in or vote with respect to the authorization of such contract,
agreement, arrangement or transaction (or any amendment, modification or
termination thereof). No vote cast or other action taken by any person in his or
her capacity as an officer, director or other representative of Digital or any
Related Entity shall constitute an action of or the exercise of a right by or a
consent of Digital or such Related Entity for the purpose of any such agreement
or contract.
The Company's Amended and Restated Certificate of Incorporation provides
that neither Digital nor any officer or director thereof or of any Related
Entity shall be liable to the Company or its stockholders for breach of any
fiduciary duty or duty of loyalty or failure to act in (or not opposed to) the
best interests of the Company or the derivation of any improper personal benefit
by reason of the fact that Digital or an officer or director thereof or of such
Related Entity in good faith takes any action or exercises any rights or gives
or withholds any consent in connection with any agreement or contract between
Digital or such Related Entity and the Company.
For the purpose of the foregoing, the "Company" and "Digital" include all
corporations and other entities in which the Company or Digital, as the case may
be, owns 50% or more of the outstanding voting stock, and "Related Entity"
refers to one or more corporations or other entities in which one or more of the
directors of the Company have a direct or indirect financial interest.
The provisions described above are applicable to the intercompany
agreements between the Company and Digital. See "Relationship with Digital."
Limitations on Personal Liability, Including for Gross Negligence
Under the Company's Amended and Restated Certificate of Incorporation, the
personal monetary liability of the directors of the Company for breach of their
fiduciary duty of care, including actions involving gross negligence, are
eliminated to the fullest extent permitted under Delaware law. See "Description
of Capital Stock -- Certain Certificate of Incorporation and By-law
Provisions -- Limitations on Directors' Liability."
IMMEDIATE AND SUBSTANTIAL DILUTION
Purchasers of Class A Common Stock in the Offering will experience an
immediate dilution of $ per share in the net tangible book value of
their Class A Common Stock from the assumed initial
18
<PAGE> 20
public offering price of $ per share. Prior to consummation of the
Offering, the Company's pro forma net tangible book value per share of Common
Stock will be $ , whereas upon consummation of the Offering, based on
such assumed price, it will be $ . This will result in an increase in
net tangible book value of $ per share of Class B Common Stock that
will be received by Digital attributable to the Offering.
NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offering, there has been no public market for the shares of
Class A Common Stock, and there can be no assurance that an active public market
for the shares of Class A Common Stock will develop or be sustained after the
Offering. The initial public offering price will be determined by negotiation
between the Company and the Underwriters based upon several factors. See
"Underwriting" for a discussion of the factors to be considered in determining
the initial public offering price. The market price of the shares of Class A
Common Stock may be highly volatile and could be subject to wide fluctuations in
response to variations in operating results, announcements of technological
innovations or new products or services by the Company or its competitors,
changes in financial estimates by securities analysts or other events or
factors. In addition, the financial markets have experienced significant price
and volume fluctuations that have particularly affected the market prices of
equity securities of many high technology companies and that often have been
unrelated to the operating performance of such companies or have resulted from
the failure of the operating results of such companies to meet market
expectations in a particular quarter. Broad market fluctuations or any failure
of the Company's operating results in a particular quarter to meet market
expectations may adversely affect the market price of the shares of Class A
Common Stock. In the past, following periods of volatility in the market price
of a company's securities, securities class action litigation has often been
instituted against such a company. Such litigation could result in substantial
costs and a diversion of management's attention and resources, which would have
a material adverse effect on the Company's business, results of operations and
financial condition.
POSSIBLE FUTURE SALES OF COMMON STOCK BY DIGITAL
Subject to applicable federal securities laws and the restrictions set
forth below in the Underwriting Agreements, Digital may sell any and all of the
shares of Common Stock beneficially owned by it or distribute any or all of the
shares of Common Stock to its stockholders. Pursuant to the Underwriting
Agreements, Digital has agreed, subject to certain exceptions, not to sell or
otherwise dispose of, directly or indirectly, any shares of Common Stock (or any
security convertible into or exchangeable or exercisable for Common Stock) for a
period of 180 days after the date of this Prospectus without the prior written
consent of Lehman Brothers Inc. Sales or distributions by Digital of substantial
amounts of Common Stock in the public market or to its stockholders could
adversely affect prevailing market prices for the Class A Common Stock. See
"Relationship with Digital" and "Shares Eligible for Future Sale."
19
<PAGE> 21
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of
Class A Common Stock offered by the Company hereby are estimated to be
$ ($ if the Underwriters' over-allotment options are exercised
in full) assuming an initial public offering price of $ per share. The
Company expects to use the net proceeds for working capital and other general
corporate purposes, including product development, expansion of the Company's
sales and marketing efforts and capital expenditures. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations." In
addition, the Company may make one or more acquisitions of complementary
technologies, products or businesses that broaden or enhance the Company's
current products and services. No such acquisitions are being negotiated as of
the date of this Prospectus, and no portion of the net proceeds has been
allocated for any specific acquisition. Pending such uses, the net proceeds of
the Offering will be invested in interest-bearing securities, either directly by
the Company or through Digital's cash management system.
DIVIDEND POLICY
The Company has never paid any cash dividends on its Common Stock and does
not anticipate paying any cash dividends in the foreseeable future. The Company
currently intends to retain any future earnings to fund the development and
growth of its business.
20
<PAGE> 22
CAPITALIZATION
The following table sets forth (i) the historical capitalization of the
Company as of June 29, 1996 which is included in the AltaVista Internet Software
Products Financial Statements included elsewhere in this Prospectus, (ii) the
capitalization of the Company as of June 29, 1996 on a pro forma basis to
reflect an amendment to the Company's Certificate of Incorporation prior to the
consummation of the Offering to increase the number of authorized shares and to
reflect the reclassification of 1,000 shares of common stock of the Company held
by Digital into shares of Class B Common Stock, and (iii) the pro
forma capitalization of the Company as of June 29, 1996, as adjusted to reflect
the issuance of the shares of Class A Common Stock offered hereby at an assumed
initial offering price of $ per share (after deduction of the estimated
underwriting discounts and commissions and offering expenses payable by the
Company). This table should be read in conjunction with the financial statements
and related notes appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF JUNE 29, 1996
--------------------------------------
AS
HISTORICAL PRO FORMA ADJUSTED
----------- --------- --------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Parent's investment.......................................... $ 45,322 -- --
Stockholders' equity:
Preferred stock, $0.01 par value; 5,000,000 shares
authorized; none issued and outstanding................. -- -- --
Class A common stock, $0.01 par value; 50,000,000 shares
authorized; shares issued and outstanding(1)..... --
Class B common stock, $0.01 par value; 50,000,000 shares
authorized; shares issued and outstanding........ --
Additional paid-in capital................................. --
Retained deficit........................................... (39,794)
------- ------ ------
Total stockholders' equity/net parent's
investment....................................... $ 5,528 $ 5,529 $
======= ====== ======
</TABLE>
- ---------------
(1) Excludes an aggregate of shares of Class A Common Stock reserved
for issuance under the Company's stock-based compensation plans. Options to
purchase an aggregate of shares of Class A Common Stock have been
granted thereunder as of the date of this Prospectus with an exercise price
equal to the initial public offering price set forth on the cover page of
this Prospectus. See "Management -- Compensation of Executive Officers,"
Note H to the AltaVista Internet Software Products Financial Statements and
Note 2 to the AltaVista Internet Software, Inc. Balance Sheet.
21
<PAGE> 23
DILUTION
The pro forma net tangible book value of the Company as of June 29, 1996
would have been $ , or $ per share of Common Stock, based upon
shares of Class B Common Stock outstanding. Pro forma net tangible book
value per share is equal to the Company's total tangible assets less total
liabilities, divided by the total number of shares of Common Stock outstanding
on a pro forma basis. After giving effect to the sale of the shares of
Class A Common Stock offered by the Company hereby at an assumed initial public
offering price per share of $ (after deduction of the estimated
underwriting discounts and commissions and offering expenses payable by the
Company), the pro forma net tangible book value of the Company as of June 29,
1996 would have been $ , or $ per share of Common Stock. This
represents an immediate increase in such pro forma net tangible book value of
$ per share of Class B Common Stock to Digital and an immediate
dilution of $ per share to new investors purchasing shares in the
Offering. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............... $
Pro forma net tangible book value per share before the
Offering................................................. $
Increase per share attributable to new investors............
----------
Pro forma net tangible book value per share after the
Offering....................................................
----------
Dilution per share to new investors........................... $
==========
</TABLE>
The following table summarizes, on a pro forma basis as of June 29, 1996,
the differences between the number of shares held by, the voting rights of, the
total investment in the Company of, and the average cost per share paid by
Digital and the new investors purchasing shares of Class A Common Stock in the
Offering, assuming an initial public offering price of $ per share:
<TABLE>
<CAPTION>
SHARES HELD TOTAL INVESTMENT
----------------------------------------- ------------------------------------------
PERCENTAGE OF PERCENTAGE OF PERCENTAGE OF AVERAGE COST
NUMBER THE COMPANY VOTING RIGHTS AMOUNT INVESTMENT PER SHARE
------- ------------- ---------------- ---------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Digital............... % % $ (1) % $
New investors......... $
Total....... 100.0% 100.0% $ 100.0%
====== ====== ======
</TABLE>
- ---------------
(1) Represents the book value of the net assets transferred by Digital to the
Company in exchange for shares of Class B Common Stock.
The foregoing tables assume no exercise of the Underwriters' over-allotment
options or any outstanding stock options, all of which have an exercise price
equal to the initial public offering price. See "Management -- Compensation of
Executive Officers" for information regarding stock options.
22
<PAGE> 24
SELECTED FINANCIAL DATA
The selected financial data presented below for each of the three fiscal
years in the period ended June 29, 1996 have been derived from the AltaVista
Internet Software Products Financial Statements, which have been audited by
Coopers & Lybrand L.L.P., independent accountants. This data should be read in
conjunction with the financial statements and the notes thereto, "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
other financial information appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
--------------------------------
JULY 2, JULY 1, JUNE 29,
1994 1995 1996
------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total operating revenues..................................... $ 298 $ 964 $ 3,632
------- ------- --------
Costs and expenses:
Cost of operating revenues................................. 47 374 1,110
Research and engineering expenses.......................... 2,235 4,516 15,352
Selling and marketing expenses............................. 50 248 10,522
General and administrative expenses........................ 684 1,062 6,516
------- ------- --------
Total costs and expenses.............................. 3,016 6,200 33,500
Operating loss............................................. (2,718) (5,236) (29,868)
------- ------- --------
Net loss..................................................... $(2,718) $(5,236) $(29,868)
======= ======= ========
Unaudited pro forma net loss per common share(1)............. $
========
</TABLE>
<TABLE>
<CAPTION>
JULY 2, JULY 1, JUNE 29,
1994 1995 1996
------- ------- --------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital.............................................. $ 189 $ (16) $ (925)
Total assets................................................. 1,125 888 7,508
Net parent's investment...................................... 1,104 629 5,528
</TABLE>
- ---------------
(1) Historical earnings per share data is omitted from the statement of
operations data because it is not meaningful. Unaudited pro forma net loss
per common share is calculated based on net loss divided by the number of
shares of Class B Common Stock to be issued to Digital prior to the
consummation of the Offering.
23
<PAGE> 25
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
AltaVista Internet Software, Inc. was formed on June 28, 1996 to develop
and market software products for use in the emerging integrated
Internet/intranet business environment. The Company's products were developed
within various business units of Digital and have been managed since January
1996 within Digital's Internet Software Business Unit. The AltaVista Internet
Software Products Financial Statements included in this Prospectus (the
"Products Financial Statements") have been carved out of Digital's consolidated
financial statements and reflect the actual revenues from and direct costs of
the Company's products, as well as an allocation from Digital of all related
support and overhead costs. The Products Financial Statements may not reflect
the operating results of a stand-alone company and should not be relied upon as
indicative of future results. The Company and its prospects should be considered
in light of the risks, expenses and difficulties frequently encountered by
companies in the new and rapidly evolving markets for Internet/intranet products
and services. See "Risk Factors."
The Company's total operating revenues have increased in each of the last
three fiscal years as a result of the successful introduction of an expanding
portfolio of Internet/intranet products. Due primarily to investments in
research and engineering and sales and marketing, the Company has experienced
operating losses in each of its last three fiscal years. The operations of the
Company have been funded by Digital. Such funding is reflected in the Products
Financial Statements as parent's investment. Future operating results will
depend on many factors, including demand for the Company's products and
services, the introduction of new products and services by the Company and its
competitors, the enhancement of existing products and services, the growth of
the Internet/intranet market and the ability of the Company to develop the
required sales and marketing infrastructure. There can be no assurance that the
Company will achieve or sustain profitability.
The Company first recognized revenues from software products introduced
during the last three fiscal years as follows: AltaVista Directory in the third
quarter of fiscal 1994; AltaVista Firewall in the fourth quarter of fiscal 1995;
and AltaVista Tunnel and AltaVista Forum in the second quarter of fiscal 1996.
These products were primarily packaged with Digital's hardware systems and were
priced to promote sales of Digital's hardware and services. Following the
Offering, the Company will sell its products and services to Digital (both as an
end-user and a reseller) on commercial terms. The Company is expanding its
software product portfolio; the Company introduced AltaVista Mail in the fourth
quarter of fiscal 1996 and expects to introduce AltaVista Search Private
eXtensions beginning in September 1996. In addition, the Company has created
additional sources of revenue by expanding its AltaVista Internet Search Service
offerings to include licensed mirror sites, value added links and web custom
crawls.
Warranty and maintenance support revenues have not been included in the
Products Financial Statements because warranty and maintenance support have
historically been provided by Digital through a separate business unit.
Following the Offering, the Company expects to offer warranty and maintenance
support to its customers either directly or through authorized service
providers, including Digital. Authorized service providers that sell maintenance
service contracts pay a commission to the Company.
Prior to fiscal 1996, no equipment was dedicated to the business conducted
by the Company or is recorded on the balance sheet as of July 1, 1995 contained
in the Products Financial Statements. However, a rental charge for the use of
equipment was included in the statements of operations. During fiscal 1996,
equipment became fully dedicated to the business conducted by the Company, and
assets with a net book value of $3,989,000 were transferred to the business. The
business also acquired new equipment from Digital which was recorded at cost.
Cost of operating revenues includes the cost of software media,
documentation and distribution, and the amortization of certain capitalized
software costs. Following the Offering, warranty and maintenance support costs
will be included in cost of operating revenues when such services are provided
by the Company. Beginning in fiscal 1997, cost of operating revenues also will
include costs incurred in support of mirror sites, value added links and web
custom crawls.
24
<PAGE> 26
Research and engineering expenses consist primarily of compensation and
consulting fees paid to software engineers to support new product and technology
development and new version releases. Research and engineering expenses also
include rental charges and depreciation expense associated with equipment used
in research and engineering and allocations from Digital of overhead costs.
Selling and marketing expenses consist primarily of compensation paid to
sales employees, advertising, new product introduction programs and promotional
costs associated with the launch of the AltaVista brand. Selling and marketing
expenses also include rental charges and, in fiscal 1996, depreciation expense
associated with equipment used in selling and marketing and allocations from
Digital of overhead costs. Beginning in fiscal 1996, selling and marketing
expenses include the cost of the Company's free Web promotional sites that
showcase the AltaVista Internet Search Service and the AltaVista software
technologies and products. The Company expects to significantly expand its sales
force in fiscal 1997 to support the development of additional sales channels.
Marketing efforts also will be increased to include the trial use of software,
commercial transactions on the Web and programs to increase AltaVista brand
awareness.
General and administrative expenses consist primarily of compensation paid
to administrative, executive, finance and human resource employees. General and
administrative expenses also include rental charges and, in fiscal 1996,
depreciation expense associated with equipment used in administrative activities
and allocations from Digital of overhead costs. Following the Offering, Digital
will provide certain administrative support services pursuant to certain
intercompany agreements, the costs of which are expected to be consistent with
Digital's historical cost allocation methodologies. See "Relationship with
Digital."
RESULTS OF OPERATIONS
Total Operating Revenues
Total operating revenues were $3.6 million in fiscal 1996, $1.0 million in
fiscal 1995 and $0.3 million in fiscal 1994. The increase in 1996 was due
principally to increased demand for AltaVista Firewall and, to a lesser extent,
the introduction of AltaVista Forum and AltaVista Tunnel. The increase in 1995
was due principally to increased demand for AltaVista Directory and, to a lesser
extent, the introduction of AltaVista Firewall. Fiscal 1994 revenues consisted
solely of sales of AltaVista Directory. All revenues were generated via Digital
sales channels.
Non-U.S. revenues (sales to customers outside the United States) accounted
for 64% of total operating revenues in fiscal 1996, down from 69% and up from
63% in fiscal 1995 and 1994, respectively. See Note C to Products Financial
Statements.
Cost of Operating Revenues
Cost of operating revenues were $1.1 million in fiscal 1996, $0.4 million
in fiscal 1995 and nominal in fiscal 1994. The increase in fiscal 1996 was
primarily the result of increased sales of AltaVista Firewall, the cost of
certain versions of which included the cost of third party software incorporated
therein, and increased amortization of capitalized software costs. The increase
in fiscal 1995 was primarily the result of the amortization of capitalized
software costs.
Research and Engineering Expenses
Research and engineering expenses were $15.4 million in fiscal 1996, $4.5
million in fiscal 1995 and $2.2 million in fiscal 1994. The increase in research
and engineering expenses reflects principally the development of new products
and technologies.
Selling and Marketing Expenses
Selling and marketing expenses were $10.5 million in fiscal 1996, $0.2
million in fiscal 1995 and nominal in fiscal 1994. In fiscal 1996, selling and
marketing expenses increased significantly primarily due to new software and
version introductions and the approximately $4.0 million of costs associated
with the launch of the AltaVista brand in the fourth quarter of fiscal 1996.
25
<PAGE> 27
General and Administrative Expenses
General and administrative expenses were $6.5 million in fiscal 1996, $1.1
million in fiscal 1995 and $0.7 million in fiscal 1994. The increase in fiscal
1996 was primarily attributable to costs incurred beginning in the second
quarter to organize the business of the Company into a separate operating unit
with separate administrative functions; in addition, a fourth quarter accrual of
$0.4 million was recorded for employee termination benefits. The fiscal 1995 and
1994 costs represent allocations from Digital for general and administrative
support. The increase in fiscal 1995 was primarily due to increased support
costs for products in development.
Operating Loss
Due to the foregoing factors, the Company experienced operating losses of
$29.9 million in fiscal 1996, $5.2 million in fiscal 1995 and $2.7 million in
fiscal 1994.
Income Taxes
The operations of the business are included in Digital's consolidated U.S.
tax returns. No income tax provision has been included in the Products Financial
Statements because net losses were realized throughout the reporting period. The
Company has entered into a tax-sharing agreement with Digital effective upon the
consummation of the Offering. See "Relationship with Digital -- Tax-Sharing
Agreement."
Net Loss
Due to the foregoing factors, the Company experienced net losses of $29.9
million in fiscal 1996, $5.2 million in fiscal 1995 and $2.7 million in fiscal
1994.
Unaudited Pro Forma Net Loss Per Common Share
Unaudited pro forma net loss per common share results from the net loss
divided by the number of shares of Class B Common Stock to be issued to Digital
prior to consummation of the Offering.
QUARTERLY RESULTS OF OPERATIONS
The following table presents certain unaudited quarterly financial
information for the eight fiscal quarters ended June 29, 1996. In the opinion of
the Company's management, this information has been prepared on the same basis
as the audited financial statements appearing elsewhere in this Prospectus and
includes all adjustments (consisting only of normal recurring adjustments)
necessary to present fairly the unaudited quarterly results set forth herein.
The Company's quarterly results may fluctuate significantly in the future. See
"Risk Factors -- Potential Fluctuations in Quarterly Operating Results."
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JULY 1, 1995 FISCAL YEAR ENDED JUNE 29, 1996
----------------------------------------- --------------------------------------------
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
----- ------- ------- ------- ------- ------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total operating revenues...... $ 165 $ 145 $ 354 $ 300 $ 393 $ 803 $ 1,137 $ 1,299
Costs and expenses:
Cost of operating
revenues.................. 83 84 85 122 165 129 250 566
Research and engineering
expenses.................. 742 1,050 1,171 1,553 2,211 4,116 4,077 4,948
Selling and marketing
expenses.................. 37 21 65 125 157 685 1,468 8,212
General and administrative
expenses.................. 129 147 318 468 618 1,016 2,395 2,487
----- ------- ------- ------- ------- ------- ------- --------
Operating loss.............. (826) (1,157) (1,285) (1,968) (2,758) (5,143) (7,053) (14,914)
----- ------- ------- ------- ------- ------- ------- --------
Net loss...................... $(826) $(1,157) $(1,285) $(1,968) $(2,758) $(5,143) $(7,053) $(14,914)
===== ======= ======= ======= ======= ======= ======= ========
</TABLE>
26
<PAGE> 28
LIQUIDITY AND CAPITAL RESOURCES
The Company had negative cash flow of $34.8 million in fiscal 1996, $4.8
million in fiscal 1995 and $3.8 million in fiscal 1994 due to operating losses
and increased requirements for working capital, and, in fiscal 1996, capital
expenditures. The Company's operations historically have been funded by Digital.
Digital intends to continue to fund the Company's operations until the
consummation of the Offering.
In fiscal 1996, cash flows used in investing activities were $7.1 million
in respect of additions to and transfers of equipment by Digital to the Company
and $0.6 million in respect of investment in capitalized software transferred by
Digital to the Company. The transfer of these assets by Digital to the Company
is reflected as cash flows from financing activities. In fiscal 1997, the
Company anticipates capital expenditures of approximately $10 million for
additional equipment.
The Company currently anticipates that the net proceeds of the Offering
will be sufficient to meet its anticipated capital needs for at least the next
twelve months. The Company may need to raise additional funds. There can be no
assurance that additional funds will be available on terms favorable to the
Company, or at all. Digital has not made any commitment to supply such funds to
the Company. See "Risk Factors -- Future Liquidity Needs; Uncertainty of
Additional Financing" and "Use of Proceeds."
ADOPTION OF STATEMENTS OF ACCOUNTING STANDARDS
In the fourth quarter of fiscal 1996, the Company adopted Statement of
Financial Accounting Standard (SFAS) No. 121 -- Accounting for the Impairment of
Long-Lived Assets to Be Disposed Of. The adoption of SFAS No. 121 did not have a
material impact on the results of operations or financial position of the
Company, and there was no cash flow impact associated with the adoption.
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123 -- Accounting for Stock-Based Compensation. SFAS No. 123 encourages
companies to recognize compensation costs for all stock-based compensation
arrangements using a fair value method of accounting. Alternatively, SFAS No.
123 permits a company to continue accounting for these arrangements under
Accounting Principles Board Opinion No. 25 -- Accounting for Stock Issued to
Employees, accompanied by footnote disclosure of the pro forma effects on net
income and earnings per share had the new accounting rules been applied. The
Company will implement the alternative approach in fiscal 1997. The adoption of
SFAS No. 123 will have no cash flow impact on the Company.
27
<PAGE> 29
BUSINESS
The Company develops and markets software products for use in the emerging
integrated Internet/intranet business environment. The Company's portfolio of
innovative software products enables users of the Internet and intranets to (i)
find useful information, (ii) control access to information and transmit it
securely and (iii) collaborate and communicate from multiple locations. The
Company's products and services are designed to integrate all levels of the work
environment -- Internet, enterprise, workgroup and individual user -- and to
allow location- and platform-independent computing. To increase global awareness
of the AltaVista brand and showcase AltaVista software technologies and
products, the Company provides the popular AltaVista Internet Search Service and
other Internet services free on the World Wide Web. The Company also licenses
its Internet services to major telecommunications and media companies outside
the United States and to major Internet content providers.
INDUSTRY BACKGROUND
The Internet is a worldwide network of separate computer networks that
enables commercial organizations, educational institutions, government agencies
and individuals to communicate, access and share information and, increasingly,
to conduct business. The Internet uses a standard communications protocol known
as TCP/IP. In 1993, certain additional protocols were adopted to facilitate the
navigation of portions of the Internet with graphical point-and-click interfaces
and to permit multimedia content such as audio, video and animation. These
protocols consist of a standard document format (HTML), a standard information
transfer protocol (HTTP) and a standard Internet addressing scheme (URL). The
portion of the Internet that has adopted these additional protocols is called
the World Wide Web. The widespread availability of platform-independent,
graphically-based user interfaces known as "browsers" has resulted in tremendous
growth of the Web. International Data Corporation has estimated that
approximately 200 million people worldwide will have access to the Internet by
the end of 1999, up from approximately 38 million at the end of 1995.
Contemporaneously with the development of the Internet, corporations,
universities and other large organizations have been developing private data
networks to serve the needs of their organizations. These networks have been
custom-built using proprietary protocols to connect specific communities or
groups of users through local area networks (LANs) and wide area networks
(WANs). Private networks are expensive to build and maintain, and the
proprietary nature of these networks and their applications has made it
difficult to manage and exchange information between them. In addition, these
networks use expensive leased telephone lines, modem banks and other proprietary
systems to connect geographically distinct parts of the same private network
(for example, the connection of a field office in San Francisco with a home
office in Boston), to link separate private networks (for example, a
manufacturer with a supplier) and to permit access by remote individual users
(for example, salespeople).
The Development of Intranets
Recognizing the benefits of platform-independent communications over the
Internet and the increasing availability of innovative software applications,
such as graphically-based browsers, that use Internet protocols, many
organizations have begun to create "intranets" by adopting Internet protocols on
their private networks. The adoption of Internet protocols to create intranets
generally can be accomplished without abandoning existing hardware, applications
and data in proprietary formats. Because the Internet and intranets use the same
protocols, intranets provide users with substantially increased access to
information and other users both inside an organization and, via the Internet,
throughout the world. Organizations have also begun to replace expensive leased
lines and communications equipment with Internet gateways to connect networks
and remote individual users. A July 1996 Forrester Research Survey of 50 Fortune
1000 companies reported that 64% of the respondents were currently using
intranets and another 32% were building intranets. According to International
Data Corporation, the market for intranet software products and services in the
year 2000 will exceed $3 billion, up from approximately $276 million in 1995 and
the estimated expenditures for Internet software products and services will
exceed $6 billion in the year 2000, up from approximately $259 million in 1995.
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Emerging Internet/Intranet Market Opportunity
The adoption of Internet protocols on private networks to create intranets
and the increasing use of the Internet to link private networks has created a
need for location- and platform-independent software products and services that
integrate all levels of the work environment -- Internet, enterprise, workgroup
and individual user -- and that address the following problems:
- Finding Useful Information. Current solutions for searching and
retrieving information from the Web and private data sources generally
involve the use of catalogs, search services or other specially designed
applications. The Company believes that the tools in use today lack
sufficient speed, accuracy, comprehensiveness or ease of use. In
addition, these products are not well suited to an integrated
Internet/intranet environment due to their inability to access seamlessly
the vast amount of information available at all levels of the work
environment. The Company believes that the rapid growth of intranets and
their linkage to the Internet has created demand for products capable of
working across such networks in order to make the vast amount of
information on such networks more readily accessible to users.
- Security. One of the greatest impediments to making private networks
accessible to users through the Internet is the fear of exposing
confidential data to unauthorized persons and allowing unauthorized
persons to tamper with data. Similarly, organizations that have
implemented intranets are concerned with the risk of unauthorized access
to sub-networks containing sensitive data within their organizations. The
Company believes that there is a need for highly reliable, easy-to-manage
products, known as "firewalls," that control access to and from private
networks and sub-networks. In addition, the Company believes that there
is a need for products, known as "tunnels," that allow authenticated
users to traverse firewalls and that provide encrypted communication over
the Internet and intranets. While there has been significant development
of firewalls and, to a lesser extent, tunnels, many such products prevent
legitimate users from obtaining flexible access to network resources, are
difficult to install and manage and are not compatible with a range of
systems.
- Collaboration and Communication. The increasing use of the Internet and
intranets has highlighted the incompatibility, high resource demands and
inflexibility of many current collaboration and communication products.
Few current workgroup solutions are designed to work in the new open-
standards environment, but rely instead on proprietary software and
hardware with substantial installation, maintenance and support
requirements. Email, one of the most popular applications used on the
Internet and private networks, is difficult and expensive to administer
in a mixed environment of proprietary systems, intranets and the
Internet. The Company believes that there is a need for flexible
collaboration and communication products based on standard Web browsers
and Internet communication protocols that permit the sharing and
communication of information and documents among intended users.
ALTAVISTA STRATEGY
The Company's goal is to be the leading supplier of software products and
services for use in the emerging integrated Internet/intranet business
environment. The Company's strategy includes the following elements:
- Increase AltaVista Brand Recognition Worldwide. The Company believes
that global brand recognition on the Internet is central to the effective
marketing of Internet/intranet products and services. The Company is
offering its AltaVista Internet Search Service without charge to Web
users to showcase AltaVista technology, establish the Company as a
premier provider of services on the Web and generate strong awareness of
the AltaVista brand. The Company has built a high volume of traffic on
its AltaVista Internet Search Service Web site
(http://www.altavista.digital.com) and seeks to make the AltaVista
Internet Search Service the de facto global standard for Internet search
results by (i) licensing major telecommunications and media companies
outside the United States to offer the AltaVista Internet Search Service
at "mirror sites" to achieve worldwide coverage and (ii) licensing major
Internet content providers to deliver branded AltaVista Internet Search
Service results to their users through "value added links" on the
providers' Web sites. The Company plans to make available
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<PAGE> 31
additional free services on the Web to showcase its technology and to
extend awareness of the AltaVista brand.
- Deliver Innovative Software Products for Internet/Intranet Users. The
Company provides business users with software products that integrate the
Internet and intranets to create location- and platform-independent work
environments. The Company currently offers a portfolio of flexible and
scaleable products under the AltaVista brand name that permit users to
(i) find useful information (AltaVista Search Private eXtensions,
AltaVista Directory), (ii) control access to information and transmit it
securely (AltaVista Firewall, AltaVista Tunnel) and (iii) collaborate and
communicate from multiple locations (AltaVista Forum, AltaVista Mail), in
each case seamlessly at all levels of the work environment. The Company
also intends to build upon its technical expertise and that of its
partners and Digital to develop additional innovative products, product
suites and services for general and specific industry and business
application needs in the emerging Internet/intranet environment.
- Realize Revenue from Products and Services, not from Internet
Advertising. The Company earns revenue from (i) the sale of software
products and related support and services and (ii) fees from mirror site
and value added link licenses. Because the Company does not accept
advertising on its own Web sites and, therefore, does not compete for
Internet advertising revenue, the Company is able to partner with
Internet companies that derive revenue from advertising.
- Conduct Business on the Web. The Company conducts a significant portion
of its business over the Web, including marketing, communications,
partner registration, sales, software distribution and partner and
customer support. The Company's AltaVista Marketspace Web site
(http://www.altavista.software.digital.com) is the "front door" of its
business, available 24 hours a day throughout the world. The AltaVista
Marketspace offers the Company's prospects, customers and business
partners an interactive multimedia environment where they can access
information about the Company's products, download software products,
receive support and conduct commercial transactions with the Company. The
Company believes that this "Web-centric" strategy will establish it as a
highly visible Internet/intranet software leader, as well as facilitate
responsive, low-cost, global business operations.
- Accelerate Product Adoption with Targeted Marketing and Aggressive
Pricing. The Company seeks to build significant market share for its
products with free trial programs, aggressive pricing and licensing of
selected products for inclusion in major hardware and software vendors'
product lines. In addition, the Company targets self-selected early
adopters and industry influencers to use preliminary versions of the
Company's products, provide feedback to the Company and generate valuable
word-of-mouth publicity.
- Distribute Products through Multiple Internet-Focused Channels. The
Company intends to achieve broad market penetration by employing multiple
distribution channels, including direct sales over the Web and sales
through Digital's sales organization, major system integrators, value
added resellers, Internet service providers, telecommunications companies
and software and hardware vendors.
- Leverage Relationship with Digital. The Company intends to leverage its
relationship with Digital, one of the world's leading suppliers of
computer hardware, software and services. The Company's products are sold
by Digital's worldwide direct and channel sales organizations, which also
provide the Company access to Digital's major customers, channel partners
and strategic alliance partners. In addition, the Company has a preferred
relationship with Digital's research laboratories.
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<PAGE> 32
ALTAVISTA INTERNET SERVICES
The Company offers a portfolio of Internet services, directly and through
partners, free of charge to Web users to showcase AltaVista technologies, to
increase AltaVista brand recognition worldwide and, through partner-provided
services, to generate revenue.
Below is a summary of the main Internet services currently offered or
planned to be offered by the Company, including a brief description of each
service, its target users or third-party service providers and its status or
availability. Detailed information regarding each service can be found under the
appropriate heading following the table.
<TABLE>
ALTAVISTA INTERNET SERVICES
<CAPTION>
TARGET USERS OR
ALTAVISTA SERVICE APPLICATION SERVICE PROVIDERS STATUS
<S> <C> <C> <C>
ALTAVISTA TECHNOLOGY
SHOWCASES
AltaVista Internet
Search Service
Web and Usenet data indexing, Web users Available since December
search and retrieval 1995
AltaVista Internet
Forum Service
Web-based Internet Web users Scheduled for September
collaboration 1996 availability
AltaVista Internet
Directory Service
Comprehensive on-line listing Web users In development
of Internet users' email
addresses
ALTAVISTA PARTNER-
PROVIDED SERVICES
Mirror Sites
AltaVista Internet Search Non-U.S. tele- Letters of intent with
Service licensed to and communications and Telia TeleCom AB (Sweden)
provided by third parties media companies and Telstra Corporation
Ltd. (Australia)
Value Added Links
Third-party delivery of Internet content Agreement with Yahoo! Inc.
AltaVista Internet Search providers and CNET, Inc.
Service results
Web Custom Crawls
Indexing, search and Internet content Scheduled for September
retrieval software for a providers 1996 availability
focused subset of the Web
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
ALTAVISTA TECHNOLOGY SHOWCASES
As an essential element of the Company's strategy to showcase AltaVista
technology and to increase global awareness of the AltaVista brand, the Company
offers, free of charge to Web users, the Internet services described below.
AltaVista Internet Search Service
The AltaVista Internet Search Service assists Web users in finding
information anywhere on the Web or in Internet Usenet News groups. The Company
believes that the AltaVista Internet Search Service is the fastest Internet
search service, that its index is among the most comprehensive and current
indexes available and that it produces highly relevant search results. On March
14, 1996 at CeBIT '96 in Europe, PC-Online magazine gave the AltaVista Internet
Search Service the "Web Site of the Year" award, and on April 30, 1996 at the
Internet World Conference in California, Internet World magazine awarded the
AltaVista Internet Search Service the "Industry Award for Outstanding Service."
The Company offers the AltaVista Internet Search Service to Web users without
charge or advertising.
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The AltaVista Internet Search Service was developed by Digital's research
laboratories in Palo Alto, California as a showcase for a variety of Digital
technologies. The goal of the project was to index every word contained on the
Web, a goal then considered unattainable. The AltaVista Internet Search Service
was made available for internal use at Digital in September 1995 and was
launched on the Web on December 15, 1995. On its first day of Web operation, it
recorded approximately 300,000 requests for information or "hits." The site
recorded over 17.5 million hits per day during the week of August 5, 1996.
The key factors in the popularity of the AltaVista Internet Search Service
are its size, speed, currency and relevance.
- Size. As of August 7, 1996, the AltaVista Internet Search Service had
indexed approximately 16 billion words from over 32 million pages. The
data included in the AltaVista Internet Search Service index are
collected by a "spider," which continuously "crawls" the Web searching
for new and revised Web pages and retrieving their contents for indexing.
The AltaVista Internet Search Service spider, known as "Scooter," which
the Company believes is the fastest spider in use, is capable of
retrieving approximately three million Web pages per day. Every word on
every page that Scooter retrieves is added to the index at a rate of up
to one gigabyte of text per hour. In addition, the AltaVista Internet
Search Service currently has an index of over 4.5 million articles from
over 14,000 Usenet News groups.
- Speed. The AltaVista Internet Search Service is extremely fast,
responding to queries in an average of 0.7 seconds (although transmission
of search queries and results from and to the end-user across the
Internet may take longer) with no significant degradation in performance
as the scope of the query is expanded or the number of search results
increases. This short and predictable response time results primarily
from a proprietary search algorithm.
- Currency. Currency measures the degree to which the data in an index is
"fresh" or up to date. Scooter is programmed to conduct "intelligent"
searches, returning more frequently to pages which it learns change often
and less frequently to pages which change less often. In addition, the
AltaVista Internet Search Service retrieves and indexes specific Web
pages upon request. The Company believes that because of Scooter's speed,
intelligent search method and continuous crawling, the AltaVista Internet
Search Service is among the most current indexes available.
- Relevance. Relevance measures how closely the results of a search
conform to a specific query. The ability of a search service to deliver
relevant responses depends upon the comprehensiveness of the underlying
index, the flexibility of the query interface and the criteria used to
determine relevance. The AltaVista Internet Search Service currently
ranks documents found according to the number of times the search terms
occur in each document and the position of the search terms within the
document. The Company intends to add technology to allow users to specify
other ranking methods. The Company believes that its ranking algorithms,
combined with the size and currency of its index and the flexibility of
its query language, enable the AltaVista Internet Search Service to
deliver highly relevant search results.
Technology. Operating through Digital's Palo Alto Internet gateway at one
of the principal interconnection points of the Internet in North America, the
AltaVista Internet Search Service can maintain multiple connections to the
Internet with over 135 megabits per second of bandwidth. Six index servers, each
of which holds a complete copy of the Web index (currently exceeding 40
gigabytes) to facilitate high-speed retrieval, run on the fastest Digital Alpha
servers, each with either eight or ten 64-bit Alpha processors, six or eight
gigabytes of main memory and 210 gigabytes of disk storage. Scooter obeys "Web
etiquette" by not retrieving pages that the site's owner has requested not be
indexed, and by limiting its requests to ensure that it never uses more than 1%
of the resources of the server from which it is retrieving Web pages. The
Company is committed to continuing to use the best and most efficient technology
available to maintain the performance of the AltaVista Internet Search Service.
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AltaVista Internet Forum Service
On August 12, 1996, the Company announced the AltaVista Internet Forum
Service, a free showcase of the Company's collaboration technology on the
Internet. Implemented using a skyscraper metaphor, the AltaVista Internet Forum
Service Web site (http://www.altavista.forum.digital.com) consists of
ready-to-use time-limited Forums organized one per floor of the office building.
In the lobby, users can either register to create a new time-limited Forum or
join an existing Forum. The Company manages the Forums for the users during the
time-limited trial period. At the end of the trial period, the user may license
the AltaVista Internet Forum product for private use on the user's own Web site
or intranet. The Company expects the AltaVista Internet Forum Service to be
available for public Internet use in September 1996. See " -- Software
Products -- AltaVista Forum."
AltaVista Internet Directory Service
The Company is developing the AltaVista Internet Directory Service, a free
directory of Internet users' email addresses, to showcase the Company's
directory technology on the Internet. The AltaVista Internet Directory Service
will contain Internet email addresses from many sources, including leading
on-line services and the AltaVista Internet Search Service index. Users will be
encouraged to add or edit their own entries using any standard Web browser. The
Company's goal is to create the largest, most comprehensive and most up-to-date
directory of email users on the Internet. Users of the AltaVista Internet
Directory Service will also be offered the opportunity to buy the Company's
AltaVista Directory software product. See " -- Software Products -- AltaVista
Directory."
AltaVista Partner-Provided Services
The Company earns revenue from the AltaVista Internet Search Service by
licensing mirror sites outside the United States, by establishing value added
links with major Internet content providers and by licensing versions of the
Company's search and indexing software as web custom crawls to allow Internet
content providers to offer search services for a focused subset of the Web. The
Company intends to develop additional revenue-generating opportunities based on
its AltaVista Internet Services as part of its strategy of showcasing AltaVista
technologies and increasing global awareness of the AltaVista brand.
Mirror Sites
The Company has established the AltaVista Network Affiliate program to
license major telecommunications and media companies to provide AltaVista
Internet Search Service mirror sites outside the United States. Mirror sites are
intended to improve service response times and language support for users
located outside the United States, to facilitate worldwide distribution of the
AltaVista Internet Search Service and to increase global recognition of the
AltaVista brand. Each mirror site will provide users in its region with local
service that eliminates the delays associated with sending queries across long
distances to the Company's Palo Alto Web site.
Under the AltaVista Network Affiliate program, an AltaVista Network
Affiliate invests in the hardware, communications equipment, high bandwidth
Internet connections and staff to operate the site, and licenses the AltaVista
Internet Search Service from the Company for a monthly fee. In addition, the
Affiliate pays the Company a transaction fee based on the number of pages of
search results viewed by the mirror site's users. The Company provides the
search and query processing software and the index (with regular updates),
training and promotion of the Affiliate's site. The Affiliate also provides
local language translation of the AltaVista Internet Search Service query and
help pages. The Affiliate is required to provide the AltaVista Internet Search
Service without charge to users, but may run advertising with the service and
use the service to attract users to its other revenue-generating services. The
Company's goal is to have the AltaVista Network, when fully operational, able to
process up to 100 million hits per day. The Company plans to license additional
services to the AltaVista Network Affiliates, including the AltaVista Internet
Forum Service and the AltaVista Internet Directory Service in development.
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The Company has entered into letters of intent with Telia TeleCom AB for a
mirror site in Northern Europe and with Telstra Corporation Ltd. for a mirror
site in Australia, New Zealand and several other countries. The letter of intent
with Telia contemplates an initial term of 18 months, renewable for additional
one-year terms, subject to renegotiation of pricing terms prior to each renewal.
The letter of intent with Telstra contemplates an initial term of two years,
renewable for additional one-year terms, subject to renegotiation of pricing
terms after the first year and prior to each renewal term.
The Company's goal is to establish additional mirror sites to service
regions of the world where Internet usage is high or rapidly increasing.
Value Added Links
Certain Internet content providers allow their users to search the Web as a
means to augment the content found at the providers' sites. Often these search
capabilities are provided by linking users to the sites of Web search services
such as the AltaVista Internet Search Service. When a user decides to search the
Web, however, the user leaves the content provider's site, thereby depriving the
provider of the opportunity to display advertising with the search results and
generate more revenue. The Company's goal is to implement value added links with
leading Internet content providers to allow a content provider's users to use
the AltaVista Internet Search Service without leaving the provider's Web site.
The content provider has the opportunity to add value by making
context-sensitive modifications to a user's query and/or the search results. The
content provider can return the AltaVista-branded search results to the user
along with targeted advertisements that generally command a much higher rate
than advertisements run on general purpose Web pages. Content providers are not
permitted to charge users separate fees to use value added links to the
AltaVista Internet Search Service.
The Company receives transaction fees from content providers based on the
number of AltaVista Internet Search Service-generated pages of results viewed by
users. Because the Company does not compete for Internet advertising revenue, it
can partner, rather than compete, with Internet content providers who do,
thereby building AltaVista brand recognition and generating continuing revenue.
The Company has implemented a value added link relationship with Yahoo! Inc.,
the leading guide service on the Web, has signed an agreement with CNET, Inc., a
leading online publisher of technology information, and is in negotiations with
other Internet content providers.
Web Custom Crawls
The Company's web custom crawls allow Internet content providers to offer
search services for a focused subset of the Web as a means to augment the
subject-specific content they offer on their site. Using software licensed from
the Company similar to the AltaVista Internet Search Service, the Internet
content provider is able to create, maintain and allow its users to search a
specialized index of Web sites selected by the provider. Because the content
provider's index consists of a limited subset of the entire Web, it is more
likely to deliver search results of high relevance to the content provider's
users and is able to be updated more frequently than a full-Web index. The
content provider is required to display the AltaVista brand with all search
results. In addition to licensing and maintenance fees for the search and
indexing software, the Company plans to receive transaction fees linked to the
number of pages of results viewed by the user. The Company plans to deliver the
first web custom crawl in September 1996.
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<PAGE> 36
ALTAVISTA SOFTWARE PRODUCTS
The Company offers a portfolio of software products that enable users of
the Internet and intranets to (i) find useful information, (ii) control access
to information and transmit it securely and (iii) collaborate and communicate
from multiple locations. Below is a summary of the main products currently
offered or planned to be offered by the Company, including a brief description
of each product, its target market and its current status. Detailed information
regarding each product can be found under the appropriate heading following the
table.
<TABLE>
ALTAVISTA SOFTWARE PRODUCTS
<CAPTION>
TARGET
ALTAVISTA PRODUCT APPLICATION MARKET COMMERCIAL AVAILABILITY
<S> <C> <C> <C>
ALTAVISTA SEARCH
Intranet Private
eXtension
Indexing, search and retrieval of Fortune 500 businesses and large Scheduled September 1996;
data on an intranet organizations in beta testing
Workgroup Private
eXtension
Indexing, search and retrieval of Business units/departments, Scheduled November 1996
data on specified servers workgroups and small
organizations
My Computer Private
eXtension
Indexing, search and retrieval of Individual users Scheduled October 1996; in
private data on individual beta testing
computers and servers
ALTAVISTA DIRECTORY
Directory of user, customer or Large and medium-size November 1993
other information organizations
ALTAVISTA FIREWALL
Intranet security Large, medium-size and small May 1994
organizations
ALTAVISTA TUNNEL
Workgroup Edition
Secure communications through Organizations needing to connect November 1995
firewalls between sites and to multiple locations and/or
remote users remote users
Personal Edition
Secure communications through Mobile/remote workers November 1995
firewalls between a remote user
and a site
ALTAVISTA FORUM
Internet/intranet collaboration Business units/departments, December 1995
and conferencing workgroups, small organizations
and Internet service providers
ALTAVISTA MAIL
Internet/intranet email server Business units/departments, June 1996
software workgroups, small to medium-size
organizations and Internet
service providers
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
FINDING USEFUL INFORMATION
AltaVista Search Private Extensions
Using the same technology as the AltaVista Internet Search Service,
AltaVista Search Private eXtensions extend the AltaVista Internet Search Service
through a single user interface to provide comprehensive, fast and relevant
search results seamlessly at all levels of the work environment -- Internet,
enterprise, workgroup and individual user. The AltaVista Search Private
eXtensions find information from all sources visible to the search software
through a standard Web browser. The eXtensions support full text indexing of
HTML (Web page) data and, in the case of Workgroup Private eXtension and My
Computer Private eXtension, the file formats used by many Windows-based word
processors, email clients, spreadsheets and other applications.
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<PAGE> 37
- Intranet Private eXtension. By indexing data found on all accessible
pages in an intranet, Intranet Private eXtension allows employees of an
organization to find information anywhere on their intranet. This
eXtension is designed for medium-size to large intranets (up to 50
million Web pages). Intranet Private eXtension is currently available on
Digital's 64-bit UNIX operating system. The Company believes that it can
be easily adapted for other platforms as market conditions warrant.
Intranet Private eXtension currently searches HTML data; however, the
Company intends to offer an application programming interface known as
the AltaVista Search Software Developers Kit to allow customized indexing
of proprietary document formats. Targeted customers are Fortune 500
businesses and large organizations. The Company expects Intranet Private
eXtension to be commercially available in September 1996.
Intranet Private eXtension is distributed through system integrators that
customize it for use in large organizations and to work with proprietary
data types. The initial license fee for Intranet Private eXtension ranges
from $25,000 to $1 million, depending on the number of end user licenses
and other factors, and not including customization and integration
service fees.
- Workgroup Private eXtension. Workgroup Private eXtension searches
specified files, directories and HTML data to create an index of
information available and of interest to members of a business unit or
department, workgroup or small organization. A workgroup administrator
configures the data collector to index specific files and directories at
specified intervals. Workgroup Private eXtension runs on the Windows NT
platform. The Company expects Workgroup Private eXtension to be
commercially available in November 1996.
Workgroup Private eXtension is distributed to end user organizations
through the AltaVista Marketspace Web site and through value added
resellers. The Company expects license fees to range from $500 to
$20,000, depending on the number of end user licenses and other factors,
and not including customization services that may be provided by the
channel partner.
- My Computer Private eXtension. My Computer Private eXtension creates an
index of specified files and directories on a user's local drives and
network drives. The user configures the data collector to index specific
files and directories at specified intervals. My Computer Private
eXtension resides on an individual user's computer running Windows 95 or
Windows NT and is able to index the file formats used by over 140
Windows-based applications. A beta version of My Computer Private
eXtension has been available for free download via the Web since July 22,
1996 and had been downloaded by over 16,000 users as of August 18, 1996.
The Company expects My Computer Private eXtension to be commercially
available in October 1996.
My Computer Private eXtension will be distributed directly to end users
through the AltaVista Marketspace and hardware and software vendors, and
to organizations through value added resellers and system integrators.
The list price of My Computer Private eXtension is $29.95.
AltaVista Directory
Directories are specialized databases that typically contain names,
addresses, telephone numbers, email addresses, and biographical and other
personal data. AltaVista Directory allows information service managers to
provide their users a single, integrated on-line directory of users, customers
or other affiliated individuals that eliminates the need to print and distribute
paper directories and separately update other databases as changes occur. In
addition to traditional directory data, the AltaVista Directory permits the
attachment to an entry of other files or objects, such as photographs and other
multimedia content. AltaVista Directory allows people in different places to
make changes on local copies of the directory and automatically replicates the
changes at all sites.
AltaVista Directory complies with the industry standard X.500 protocol. It
also supports the LDAP protocol, which is becoming the Internet standard for
directory access from standard Web browsers and Internet email clients, and
MAPI, Microsoft's Windows application programming interface for email-enabled
applications. AltaVista Directory is highly scaleable, supporting small numbers
of entries at the low end and up
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<PAGE> 38
to 15 million entries at the high end. The product has been commercially
available on the Digital UNIX platform since November 1993, and the Company
expects a Windows NT version to be commercially available in late 1996.
AltaVista Directory is targeted at medium to large organizations which need
to construct directories that can be accessed by users and applications, both on
intranets and through the Internet. In fiscal 1996, AltaVista Directory was sold
to approximately 100 organizations. AltaVista Directory is distributed through
value added resellers and system integrators. The license fee for AltaVista
Directory ranges from $500 to $20,000 depending on the number of directory
entries and other factors.
SECURITY
AltaVista Firewall
AltaVista Firewall provides an easy-to-manage, secure gateway between an
organization's private intranet and the Internet, or between a sub-network and
the rest of an intranet. AltaVista Firewall provides a flexible interface which
allows a system administrator to control who may send data into or out of the
intranet or sub-network, what kind of data can be transmitted and when such data
can be transmitted (for example, HTML traffic can be disabled during normal
business hours). A system administrator can selectively activate or deactivate
transmission of HTML, email, FTP (file transfer protocol), News group or telnet
(remote log-in) traffic. AltaVista Firewall can also be customized to allow
filtering of other protocols. AltaVista Firewall provides for real-time logging,
auditing, monitoring and reporting to recognize and trace attempts to gain
unauthorized entry to a network. The product has been commercially available on
Digital UNIX since May 1994, and on BSDI (Intel-based) UNIX and Windows NT since
August 1996. The January 29, 1996 edition of Network World ranked AltaVista
Firewall's management interface as being the "best thought-out" and "most
powerful" of the firewall products it reviewed.
AltaVista Firewall offers a scaleable solution, from a low-end firewall
with pre-defined security policies for small and medium-size organizations to a
high-end customized multi-firewall solution for large organizations. AltaVista
Firewall is sold through system integrators and value added resellers to
organizations installing intranets at competitive, tiered prices.
AltaVista Tunnel
AltaVista Tunnel allows authenticated external users connected to the
Internet, such as telecommuters, remote sites, partners, customers and
consultants, to connect inexpensively and securely to an organization's
intranet, including through firewalls. The Company believes that AltaVista
Tunnel is compatible with all existing firewalls. Using advanced authentication
and encryption technologies, AltaVista Tunnel creates a secure Internet pathway
between two intranets or between a remote individual user and an intranet,
thereby allowing an external user to work as if directly connected to that
organization's private network. AltaVista Tunnel allows the secure use of the
Internet as an extension of an intranet to create a "virtual private network,"
thereby eliminating the high cost and administrative burden of leased lines,
modem banks and other proprietary interconnection systems. AltaVista Tunnel can
also be used to provide secure communications between two firewall-protected
segments of an intranet.
Because AltaVista Tunnel works at the network connection level, all network
applications will work through AltaVista Tunnel as if they were running on a
private network. Security features include RSA 512-bit public/private key
authentication to validate user identity, as well as RSA RC4 128-bit secret key
encryption for use within the United States and RSA RC4 40-bit secret key
encryption for export. Keys are exchanged every 30 minutes for maximum
protection against data interception.
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The two editions of AltaVista Tunnel are:
- AltaVista Tunnel Workgroup Edition permits secure communications between
independent intranets or between sub-networks of an intranet. The
Workgroup Edition also operates as a server for multiple AltaVista Tunnel
Personal Edition clients to allow remote individual users to connect to
the intranet or sub-network. The Workgroup Edition has been commercially
available on Digital UNIX since November 1995, and the Company expects
that it will be commercially available on BSDI (Intel-based) UNIX and
Windows NT in September 1996.
- AltaVista Tunnel Personal Edition permits a remote individual user to
connect securely to an intranet or a sub-network via AltaVista Tunnel
Workgroup Edition server software. Personal Edition has been commercially
available on Windows 95 since November 1995, and the Company expects that
it will be commercially available on Windows NT in September 1996.
Targeted customers include organizations that have implemented intranets
and that have remote users, branch offices or customers or suppliers that need
to communicate securely with the organization's intranet. For example, Digital
is installing AltaVista Tunnel to support its remote sales force. AltaVista
Tunnel can also be licensed to Internet service providers for inclusion in
services offered to their customers.
AltaVista Tunnel is distributed through value added resellers and system
integrators. In addition, manufacturers of networking hardware are beginning to
integrate encryption technology into their routers to provide secure
connectivity transparently to the user. Digital intends to embed AltaVista
Tunnel in its routers, and the Company seeks to license AltaVista Tunnel for
incorporation into other manufacturers' routers. The Company also seeks to enter
into licensing agreements with client-server application vendors that would
embed AltaVista Tunnel in their applications to allow their applications to
operate securely over the Internet, independent of the type of networking
hardware or firewalls used by their customers. For example, Digital integrates
AltaVista Tunnel into the Internet version of its transaction processing
software product.
The license fee for AltaVista Tunnel Workgroup Edition ranges from $995 to
$2,495, depending on the number of end users supported and other factors. The
list price of AltaVista Tunnel Personal Edition is $99.95.
COLLABORATION AND COMMUNICATION
AltaVista Forum
AltaVista Forum provides an environment for members of workgroups to share
documents, conduct asynchronous discussions or real-time conferences from
multiple locations and search the entire text of a Forum, all using a standard
Web browser.
AltaVista Forum supports the following workgroup activities:
- Team Working Environments. AltaVista Forum allows groups of users to set
up and administer a team working environment without requiring
participation from an organization's information services personnel.
Users can create a team home page for both pre-defined and ad hoc teams,
manage team membership lists, send email to all team members and schedule
team conferences. AltaVista Forum workgroup administrators can control
access to documents and discussion groups for different users and
different groups of users by setting password control and access
privileges.
- Document Sharing. AltaVista Forum allows users to create a repository
for documents, applications, links to Web sites and other data that can
be accessed from any Web browser, as an alternative to mass emailing or
other cumbersome distribution methods. AltaVista Forum provides a
traceable edit history of all postings and requests, as well as email
notifications of new postings.
- Discussion Groups. AltaVista Forum supports the creation of discussion
areas that can be used to conduct discrete, topical, asynchronous
discussions. Users can post questions or comments, attach or include
links to other documents or Web pages and poll other users to vote on
selected topics, with
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results displayed graphically in real-time. Users can view postings by
date or by author; in addition, the threaded discussion feature enables
users to view postings in the context of related responses.
- Real-Time Conferencing. AltaVista Forum supports the use of real-time
text-based conference sessions. Users can schedule "chat" sessions using
an on-line group calendar. Participants are connected to the on-line
conference automatically and the session can be recorded for later
viewing.
- Built-In Search. The entire text of an AltaVista Forum can be indexed
and subsequently searched using built-in AltaVista Search technology.
- Customized Applications. AltaVista Forum provides an interface that
permits users, systems integrators and value added resellers to customize
it for additional uses, such as a Web-based problem tracking and
reporting system.
AltaVista Forum, Version 1.0, was ranked "Editor's Choice" by PC Magazine
in its April 23, 1996 edition and "Analyst's Choice" in the Web-based
conferencing systems category by PC Week in its February 26, 1996 edition.
AltaVista Forum has been commercially available on the Digital UNIX and Windows
NT platforms since December 1995 and on the Sun Microsystems Solaris platform
since March 1996. Version 2.0, which has been commercially available since
August 1996, introduced real time conferencing and certain features to
facilitate working in groups.
Targeted customers include business units and departments, workgroups and
small organizations, as well as Internet service providers seeking to offer
Web-based collaboration and conferencing services to their users and
subscribers. The Company uses AltaVista Forum on its AltaVista Marketspace Web
site to host discussion groups with customers, answer questions and manage
software downloads. AltaVista Forum can also be licensed to Internet service
providers for inclusion in services offered to their customers.
AltaVista Forum is distributed through value added resellers, system
integrators and direct sales via the Web. The license fee for AltaVista Forum
begins at $495 for an entry-level 25-user license and ranges up to several
thousand dollars, depending on the number of end users supported and other
factors, and not including customization services that may be provided by a
channel partner.
AltaVista Mail
AltaVista Mail is Internet/intranet mail server software that complies with
the SMTP and POP3 standards, the de facto protocols for email servers on the
Internet and intranets. The use of these standards allows the AltaVista Mail
server to support a wide range of client software (including Microsoft Exchange,
Netscape Mail and Eudora) which communicates with the mail server to allow a
user to read and send email. AltaVista Mail supports text messages and the full
range of attachments from word processing documents and spreadsheets to
multimedia presentations. AltaVista Mail has been commercially available on
Windows NT since June 1996. Version 2.0 of AltaVista Mail, which the Company
expects to be commercially available in October 1996, supports gateways to MS
Mail and cc:Mail post offices, as well as the IMAP4 protocol.
AltaVista Mail is targeted at business units and departments, workgroups
and small to medium-size organizations looking for an easy-to-use Internet mail
server, as well as Internet service providers seeking to provide email services
to users and subscribers. The product is sold directly over the Web and is
distributed through value added resellers and OEMs. The entry level license
price is $495 per server.
SALES AND MARKETING
The Company's sales strategy is to achieve broad market penetration by
employing multiple distribution channels, including direct sales over the Web
and sales through Digital's sales organization, major system integrators, value
added resellers (VARs), Internet service providers (ISPs), telecommunications
companies (Telcos), original equipment manufacturers (OEMs) and independent
software vendors (ISVs).
Direct Sales on the Web. The Company uses its AltaVista Marketspace Web
site (http://www.altavista.software.digital.com) to demonstrate, promote and
sell software products that can be downloaded directly to the customer's
computer. Direct sales over the Web generally will be offered only at
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list price in order to avoid competing with channel partners. Products currently
sold on the Web are AltaVista Search My Computer Private eXtension, AltaVista
Mail and AltaVista Forum. In addition, to seed widespread use of its products,
the Company has created the AltaVista Visionary Club, a reserved area of the
AltaVista Marketspace where Web users anywhere in the world can register and
thereafter receive free time-limited beta test versions and trial copies of new
products and participate in other promotions. The Company particularly targets
early adopters and industry influencers (for example, product evaluators and
reviewers, technology consultants and "webmasters") to preview its products,
provide feedback to the Company and generate valuable word-of-mouth publicity.
Digital's Sales Organizations. The Company's products are sold by
Digital's worldwide direct and channel sales organizations. Approximately 100
Digital salespeople and more than 200 Digital channel partners have been trained
in using and selling the Company's products. In addition, the Company's close
relationship with Digital provides it access to and credibility with Digital's
large customer base, channel partners and strategic alliance partners. See
"Relationship with Digital -- Strategic Alliance Agreement."
System Integrators. System integrators, who specialize in planning,
installing, customizing and upgrading large private networks for large
organizations, customize, configure and install the Company's software products
with complementary hardware, software and services. By combining products and
services, system integrators are able to deliver complete information management
solutions to address specific customer needs. System integrators are most
important to the sale of AltaVista Search Intranet Private eXtension and
AltaVista Directory, each of which requires substantial consulting, design,
customization and integration services to ensure full access to legacy data and
existing systems.
Value Added Resellers. VARs, like system integrators, customize, configure
and install the Company's products with complementary hardware, software and
services. VARs generally offer solutions to smaller scale information technology
needs, including pieces of a large private network, networking solutions for
small to medium-size organizations and customizations that address the needs of
specific industry and business applications.
Internet Service Providers and Telecommunications Companies. ISPs and
Telcos offer Internet access and a growing set of value added Internet
applications and services. ISPs and Telcos can offer value added services based
on AltaVista Mail, AltaVista Tunnel and AltaVista Forum, especially in the small
company market. The Company currently has agreements with a number of ISPs and
Telcos, and is targeting approximately 50 of the largest ISPs and Telcos
worldwide.
Original Equipment Manufacturers and Independent Software Vendors. The
Company selectively markets its products to OEMs and ISVs with the goal of
having its products and technologies embedded in OEM and ISV products that enjoy
strong positions in specific target markets or large installed customer bases.
The Company has OEM and ISV arrangements with Digital for AltaVista Tunnel and
an ISV agreement with Worldtalk Corporation for AltaVista Mail. The Company
intends to pursue additional OEM and ISV opportunities to gain broad market
share for AltaVista Tunnel, AltaVista Mail and AltaVista Search Private
eXtensions.
Company Sales Force. The Company's sales force is currently focusing on
expanding its network of channel partners. Sales force compensation is highly
leveraged; sales personnel receive incentive compensation for selling products
and establishing relationships with selected channel partners. The sales force
includes technical pre-sales engineers. The Company's sales force does not sell
to end users, but supports channel partners in pursuing major sales
opportunities with large or influential organizations.
International Sales
The Company sells its products worldwide from its AltaVista Marketspace Web
site and plans to use the same types of channel partners internationally as it
does in the United States. The Company has international sales force coverage
for Canada and Latin America, and is currently hiring marketing and sales
representatives in Western Europe, with initial emphasis on the major and
leading-edge Internet markets in the United Kingdom, Germany, France, The
Netherlands and Scandinavia. The Company intends to expand into
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Southern and Central Europe as opportunities emerge. Similarly, the Company
intends to deploy marketing and sales representatives in Australia and Japan,
the early-adopter Internet markets in Asia, as opportunities develop, followed
by expansion into other Asian, Middle Eastern and African markets. In addition,
Digital's strong international presence and existing customer and channel
relationships offer the Company increased access to international business
opportunities.
The Company plans to localize (translate and adapt for local use) its
products in French, German, Spanish, Japanese and other languages as market
conditions warrant. AltaVista Search and its underlying search and indexing
technology can process most Western European languages; the Company intends to
add technology to support additional language families in conjunction with
partners in relevant locations.
CUSTOMER SUPPORT AND SERVICES
Product Support. The Company believes that a high level of customer
support and service for its products will be critical to its success. The
Company's principal focus has been to provide training, documentation and
technical support to its channel partners to ensure that they have the knowledge
required to sell, implement, maintain and provide technical support for the
Company's products. The Company's AltaVista Marketspace Web site is the focal
point of its support program. The Company uses, and provides incentives for
channel partners to use, email to log calls and communicate product maintenance
updates, interim (bug) fixes, frequently asked questions and beta software
releases. Channel partners will also have direct access to the Company's support
personnel by telephone to address high priority issues. The Company also offers
product support and services directly to customers through its AltaVista
Marketspace Web site.
The Company recognizes that some channel partners may have limited product
support capability. To ensure quality support for its products, the Company has
created an Authorized Service Provider ("ASP") program. ASPs are certified to
provide a broad range of support services for the Company's products, including
installation, remedial support and update services. The Company has entered into
a nonexclusive agreement under which Digital will be an ASP worldwide. See
"Relationship with Digital -- Strategic Alliance Agreement." The Company intends
to add additional ASPs as the demand for its products warrants.
Support for Partner-Provided Internet Services. The Company's Web site
operations team provides support to mirror site, value added link and web custom
crawl partners.
Custom Engineering Services. Many of the Company's major customers require
customization of products purchased from the Company. Although most
customization services will be provided by channel partners, the Company plans
to provide some customization services directly for a fee.
COMPETITION
The markets for the Company's products and services are new, intensely
competitive, evolving quickly and subject to rapid technological change. The
Company faces competition in the overall Internet/intranet software market, as
well as each of the market segments where its products and services compete. The
Company expects competition to persist, increase and intensify in the future as
the markets for its products and services continue to develop and as additional
companies enter its markets.
Microsoft and Netscape provide or have announced intentions to provide a
range of software products based on Internet protocols and to compete in the
broad Internet/intranet software market as well as in specific market segments
where the Company competes. Both Microsoft and Netscape occasionally acquire
technology and products from other companies to augment their product lines, in
addition to developing their own technology and products.
The Company's AltaVista Internet Search Service faces competition from
America Online, Inc. (WebCrawler), Excite, Inc. (Excite), Inktomi Corporation
and Wired Ventures, Inc. (Hotbot), Infoseek Corporation (Infoseek and
Ultraseek), Lycos, Inc. (Lycos and a2z), The McKinley Group, Inc. (which has
announced its intention to merge with Excite, Inc.) (Magellan), and Open Text
Corporation (Open Text Index). America Online, Inc., Excite, Inc., Infoseek
Corporation, Lycos, Inc. and Open Text Corporation have been offering search
services on the Internet longer than the Company. Increased use and visibility
of the
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AltaVista Internet Search Service depends in part on the Company's ability to
build and host a larger Web index as the Web grows in size and to maintain
average sub-second operational performance levels. The Company believes that
significant investments and business alliances will be essential to longer-term
success to keep up with the technological and operational demands imposed by the
explosive worldwide growth of the Web.
In the market for information search and retrieval software, the Company
competes with Excalibur Technologies Corporation, Fulcrum Technologies, Inc.,
Information Dimensions, Inc., Open Text Corporation, Personal Library Software,
Inc. and Verity, Inc., among others. In the future, the Company may also compete
with database vendors should they offer intranet versions of their information
search and retrieval capabilities with their core database products. The Company
may also encounter competition from companies that currently sell document
management systems, groupware applications, Internet and intranet products and
operating systems if they decide to enhance their products by including
information search and retrieval functions.
In the market for directory services, the Company competes with both
standards-based companies such as Control Data Systems, Inc., ISOCOR and Siemens
Nixdorf Informationsysteme AG and proprietary technology companies such as
Banyan Systems, Inc. and Novell, Inc. The proprietary technology companies have
been aggressively pursuing partnerships with key Internet software vendors, such
as Netscape and Software.Com, Inc., to establish their technology as the de
facto standard for Internet directories.
In the market for security software, the Company competes with CheckPoint
Software Technologies, Ltd., Raptor Systems, Inc. and Secure Computing
Corporation, among others. These companies offer integrated packages of both
firewall and tunnel products and have also been in the security software market
longer than the Company.
In the market for Web-based collaboration software, the Company competes
with vendors such as Lundeen & Associates (Web Crossing), O'Reilly & Associates
Inc. (WebBoard), and OS TECHnologies Corporation (WebNotes). AltaVista Forum may
also be perceived as competing with products such as Attachmate Corporation's
OpenMind and Lotus Development Corporation's Lotus Notes, which are workgroup
solutions that offer significantly greater customization and application
development, workflow and complex conferencing functionality and that are priced
significantly higher than AltaVista Forum. Netscape has announced its intention
to introduce an intranet version of its Collabra Share product late in 1996;
Microsoft has announced its intention to create a workgroup collaboration
product based on Microsoft Exchange; and Lotus has announced plans to deliver an
Internet-based version of Lotus Notes.
In the market for Internet email server software, the Company competes with
Internet software vendors such as Software.Com, Inc. and Netscape. AltaVista
Mail may also be perceived as competing with proprietary email server software,
such as Microsoft Exchange, Lotus's cc:Mail and Lotus Notes, all of which
provide Internet mail gateways.
The Company is aware of numerous other major software developers as well as
smaller entrepreneurial companies that are focusing significant resources on
developing and marketing software products and services that will compete with
the Company's products and services. Certain of the Company's current and
potential competitors may bundle their products with other software or hardware,
including operating systems and browsers, in a manner that may discourage users
from purchasing products offered by the Company. Many of the Company's current
and potential competitors in each of its markets have longer operating histories
and significantly greater financial, technical and marketing resources, name
recognition and installed product base than the Company. There can be no
assurance that the Company will be able to compete effectively with current and
future competitors. If significant price competition were to develop, the
Company would likely be forced to lower its prices, which could have a material
adverse effect on the Company's business, results of operations and financial
condition. See "Risk Factors -- Competition; New Entrants."
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PRODUCT DEVELOPMENT
As of July 27, 1996, the Company's research and development organization
consisted of 114 employees and 15 Digital contract employees. The Company's
research and development facilities are located in Littleton, Massachusetts;
Palo Alto, California; and Reading, England.
The Company's current product development efforts are focused on enhancing
and broadening its information, security and collaboration and communication
products. Areas of particular emphasis are the refinement of the AltaVista
Search index and search capabilities and the integration of this technology with
other Internet/intranet-focused products. The Company intends to actively
support industry standards and incorporate new standards-compliant features into
its products. Although the principal technologies used in the Company's products
have been developed internally, the Company also licenses and incorporates
third-party technology to supplement its own efforts. The Company spent $2.2
million, $4.5 million and $15.4 million in fiscal 1994, 1995 and 1996,
respectively, on Company-sponsored research and engineering activities.
The Company's ability to successfully develop and release new products and
services and enhancements in a timely manner is subject to a variety of factors,
including its ability to solve technical problems and test products, competing
priorities of the Company, the availability of development and other resources
and other factors outside the control of the Company. There can be no assurance
that the Company will not experience difficulties that could delay or prevent
the successful development, introduction or marketing of new products and
services and enhancements. See "Risk Factors -- New Product Development and
Technological Change."
INTELLECTUAL PROPERTY RIGHTS
The Company relies on a combination of patent, copyright, trademark and
trade secret laws, non-disclosure agreements and other contractual provisions to
establish, maintain and protect its proprietary rights.
The Company and Digital intend to enter into an asset transfer and license
agreement (the "Asset Transfer Agreement") pursuant to which the Company will
acquire from Digital intellectual property rights relating to the Company's
products and services, including certain patent licenses, copyrights, trademarks
and licenses from third parties. The core technologies of the Company's products
and services were developed by Digital and are either owned by or licensed to
the Company. See "Relationship with Digital -- Asset Transfer and License
Agreement."
Digital has several pending U.S. patent applications relating to the
Company's products. Pursuant to the Asset Transfer Agreement, the Company will
acquire from Digital a license to such patent rights. There can be no assurance
that patents will issue from these pending applications or from any future
applications or that, if issued, any claims will be sufficiently broad to
protect the Company's rights in technology. In addition, there can be no
assurance that any patents that may be issued will not be challenged,
invalidated or circumvented, or that any rights granted thereunder would provide
protection of the Company's proprietary rights. Failure of any patents to
protect the Company's rights in technology may make it easier for the Company's
competitors to offer equivalent or superior technology.
Pursuant to the Asset Transfer Agreement, the Company also will acquire
from Digital all of Digital's rights in the AltaVista trademark, service mark
and logo. Digital has acquired all right, title and interest of AltaVista
Technologies, Inc., an unaffiliated California corporation, in the AltaVista
mark and will transfer such rights to the Company. In addition, the Company is
aware of the existence of AltaVista Computer Company ("ACC"), a California
corporation, and of AltaVista Software ("AS"), a California sole proprietorship.
To the Company's knowledge, neither ACC nor AS has applied for the registration
of any trademarks or service marks incorporating the term "AltaVista." To the
Company's knowledge, no entity has applied to register any trademarks or service
marks incorporating the term "AltaVista" for use in the computer industry. If
necessary, the Company will challenge the efforts by any third party to register
trademarks or service marks incorporating the term "AltaVista" or any other
trade or service marks of the Company, although there can be no assurance that
the Company will be successful.
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Although the Company does not believe it is infringing the intellectual
property rights of others, claims of infringement are becoming increasingly
common as the software industry develops and legal protections, including
patents, are applied to software products.
See "Risk Factors -- Uncertain Protection of Intellectual Property Rights."
EMPLOYEES
As of July 27, 1996, the Company had 186 full-time employees, including 114
in research and development, 36 in marketing and sales, 16 in technical/customer
support and 20 in management, finance and administration. In addition, the
Company contracts with Digital and others for the services of certain of its
employees. The Company's future success will depend, in part, on its ability to
continue to attract retain and motivate highly qualified technical and
management personnel, particularly highly skilled engineers for new product
development, for whom competition is intense. The Company's employees are not
represented by any collective bargaining unit and the Company has never
experienced a work stoppage. The Company believes its relationship with its
employees is good. See "Risk Factors -- Management of Potential Growth; New
Management Team" and "Risk Factors -- Dependence on Key Personnel; Recent
Hires."
FACILITIES
The Company's principal administrative, sales, marketing and research and
development operations are located in a facility owned by Digital in Littleton,
Massachusetts, consisting of approximately 100,000 square feet of office space,
of which approximately half is now occupied by the Company under a facilities
agreement being entered into with Digital. Under the facilities agreement, the
Company also occupies approximately 8,500 square feet in San Mateo, California;
approximately 3,000 square feet in Palo Alto, California; and approximately
7,500 square feet in Reading, England. See "Relationship with
Digital -- Facilities Agreement." The Company believes that suitable alternative
space is available in each of its locations.
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RELATIONSHIP WITH DIGITAL
Upon consummation of the Offering, Digital will own all of the outstanding
Class B Common Stock of the Company, which will represent approximately % of
the combined voting power of all of the outstanding Common Stock (or
approximately % if the Underwriters' over-allotment options are exercised in
full). For so long as Digital continues to own shares of Common Stock
representing more than 50% of the combined voting power of the Common Stock of
the Company, Digital will be able, among other things, to determine any
corporate action requiring approval of holders of Common Stock representing a
majority of the combined voting power of the Common Stock, including the
election of the entire Board of Directors of the Company, without the consent of
the other stockholders of the Company. In addition, through its control of the
Board of Directors and beneficial ownership of Common Stock, Digital will be
able to control certain decisions, including decisions with respect to the
Company's dividend policy, the Company's access to capital (including borrowing
from third-party lenders and the issuance of additional equity securities),
mergers or other business combinations involving the Company, the acquisition or
disposition of assets by the Company and any change in control of the Company.
Digital has advised the Company that its current intent is to continue to
hold all of the Class B Common Stock. However, Digital has no agreement with the
Company not to sell or distribute such shares, and, other than pursuant to the
Underwriting Agreements, in which Digital has agreed, subject to certain
exceptions, not to sell or otherwise dispose of any shares of Common Stock (or
any security convertible into or exchangeable or exercisable for Common Stock)
owned by it for a period of 180 days following the date of this Prospectus
without the prior written consent of Lehman Brothers Inc., there can be no
assurance concerning the period of time during which Digital will maintain its
beneficial ownership of Common Stock. Beneficial ownership of at least 80% of
the total voting power and value of the outstanding Common Stock is required in
order for Digital to continue to include the Company in its consolidated group
for federal income tax purposes and ownership of at least 80% of the total
voting power and 80% of each class of nonvoting capital stock is required in
order for Digital to be able to effect a tax-free spin-off of the Company under
the Code.
The Company's relationship with Digital will also be governed by agreements
to be entered into in connection with the Offering, including a services
agreement, a facilities agreement, a tax-sharing agreement, a corporate
agreement, a strategic alliance agreement, a technical assistance agreement and
an asset transfer and license agreement, the material terms of which are
summarized below. It is anticipated that such agreements will be entered into
prior to the consummation of the Offering. With respect to matters covered by
the services agreement, the relationship between Digital and the Company is
intended to continue in a manner generally consistent with past practices.
Because the Company is a wholly owned subsidiary of Digital, none of these
arrangements will result from arm's-length negotiations and, therefore, the
prices charged to the Company for services provided thereunder may be higher or
lower than prices that may be charged by third parties.
The Company's Amended and Restated Certificate of Incorporation contains
provisions relating to competition by Digital with the Company, potential
conflicts of interest that may arise between the Company and Digital, the
allocation of business opportunities that may be suitable for either of Digital
or the Company and the approval of transactions between the Company and Digital.
For additional information concerning such provisions and circumstances under
which the Class A Common Stock and Class B Common Stock may be converted, see
"Description of Capital Stock."
The descriptions of agreements set forth below are intended to be summaries
and, while material terms of the agreements are set forth herein, the
descriptions are qualified in their entirety by reference to the relevant
agreements filed as exhibits to the Registration Statement of which this
Prospectus forms a part.
SERVICES AGREEMENT
The Company and Digital intend to enter into an intercompany services and
operating agreement (the "Services Agreement") with respect to services to be
provided by Digital (or subsidiaries of Digital) to the Company. The Services
Agreement will provide that such services will be provided in exchange for fees
which (based on current costs for such services) management of the Company
believes would not exceed fees that
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would be paid if such services were provided by independent third parties and
which are substantially consistent with the allocation of the costs of such
services set forth in the historical financial statements of the Company. See
the financial statements included elsewhere herein. Such fees will be paid
monthly in arrears. The Company may request an expansion or termination of
services, in which case the parties will discuss, without obligation, the
provision or termination of such services and an appropriate change or reduction
in charges for such services. Services will be provided to the Company based on
several billing methodologies. Pursuant to one of such billing methodologies,
specified services will be provided to the Company at costs comparable to those
charged to other businesses operated by Digital from time to time, and the
Company will be obligated to purchase those services at the specified costs. In
the event Digital proposes changes in billing methodology which would result in
a significant increase (being the greater of a 10% increase in costs or
$100,000) in costs for the affected services, the Company may terminate such
services.
The purpose of the Services Agreement is to ensure that Digital continues
to provide to the Company the range of services that Digital provided to the
Company prior to the Offering. With respect to matters covered by the Services
Agreement, the relationship between Digital and the Company is intended to
continue in a manner generally consistent with current practices. The services
initially to be provided by Digital to the Company under the Services Agreement
include, among other things, certain accounting, audit, cash management,
corporate development, corporate secretary, employee benefit plan
administration, governmental affairs, human resources and compensation, investor
and public relations, legal, risk management, tax and treasury services.
In addition to the identified services, Digital intends to agree to
continue coverage of the Company under Digital's umbrella liability, property,
casualty and fiduciary insurance policies. The Company intends to agree to
reimburse Digital for the portion of Digital's premium cost with respect to such
insurance that is attributable to coverage of the Company. Either Digital or the
Company may terminate such coverage under Digital's policies at any time on 90
days' written notice, provided that termination of coverage by the Company may
only be for nonpayment and only if a replacement policy, acceptable to Digital,
is entered into by the Company.
Also, in addition to the identified services, Digital intends to agree to
allow eligible employees of the Company to participate in certain of Digital's
employee benefit plans. In addition to a monthly services fee under the Services
Agreement, the Company will reimburse Digital for Digital's costs (including any
contributions and premium costs and including certain third-party expenses and
allocations of certain personnel expenses), generally in accordance with past
practice, relating to participation by the Company's employees in any of
Digital's benefit plans.
The Services Agreement will have an initial term of two years and will be
renewed automatically thereafter for successive one-year terms unless either the
Company or Digital elects not to renew it. After the initial two-year term, the
Services Agreement may be terminated at any time by either party upon 90 days'
written notice. The Services Agreement is subject to early termination by either
the Company or Digital upon 90 days' written notice if Digital ceases to own
shares of Common Stock representing more than 50% of the combined voting power
of the Common Stock of the Company.
Pursuant to the Services Agreement, the Company will indemnify Digital
against any damages that Digital may incur in connection with its performance of
services under the Services Agreement (other than those arising from Digital's
gross negligence or willful misconduct), and Digital will indemnify the Company
against any damages arising out of Digital's gross negligence or willful
misconduct in connection with its rendering of services under the Services
Agreement.
FACILITIES AGREEMENT
The Company and Digital intend to enter into a facilities agreement (the
"Facilities Agreement"). The Facilities Agreement provides that the Company may
occupy space located in facilities owned or leased by Digital in exchange for
rental fees determined at charges comparable to those charged to other
businesses operated by Digital and subject to adjustment from time to time. Rent
is payable monthly in arrears. The purpose of the Facilities Agreement is to
ensure that Digital continues to provide the Company with the same
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<PAGE> 48
or comparable facilities that Digital provided to the Company prior to the
Offering. With respect to matters covered by the Facilities Agreement, the
relationship between Digital and the Company is intended to continue in a manner
generally consistent with past practices.
The Facilities Agreement has an initial term of two years and is renewable
automatically thereafter for successive one-year terms unless either the Company
or Digital elects not to renew it. The Facilities Agreement is subject to early
termination by either the Company or Digital upon six months' written notice if
Digital ceases to own shares of Common Stock representing more than 50% of the
combined voting power of the Common Stock of the Company, and by the Company
with respect to any particular facility upon 30 days' written notice for any
reason. The Company's use of any particular property subject to the Facilities
Agreement is limited by the term of any underlying lease between Digital and a
landlord with respect to those properties leased by Digital and by any
disposition by Digital of any property owned by it.
TAX-SHARING AGREEMENT
The Company is, and immediately after the Offering will continue to be,
included in Digital's federal consolidated income tax group, and the Company's
federal income tax liability will be included in the consolidated federal income
tax liability of Digital and its subsidiaries. In certain circumstances, the
Company and certain of its subsidiaries will also be included with certain other
subsidiaries of Digital in combined, consolidated or unitary income tax groups
for state and local tax purposes. The Company and Digital intend to enter into a
tax-sharing agreement (the "Tax-Sharing Agreement") pursuant to which the
Company and Digital will make payments between them such that, with respect to
any period, the amount of taxes to be paid by the Company, subject to certain
adjustments, will be determined as though the Company were to file separate
federal, state and local income tax returns (including, except as provided
below, any amounts determined to be due as a result of a redetermination of tax
liability of Digital arising from an audit or otherwise) as the common parent of
an affiliated group of corporations filing combined, consolidated or unitary (as
applicable) federal, state and local returns rather than a consolidated
subsidiary of Digital with respect to federal, state and local income taxes.
Pursuant to the Tax-Sharing Agreement, under certain circumstances, the Company
will be reimbursed for tax attributes that it generates after the Offering, such
as net operating losses. Such reimbursement, if any, will be made for
utilization of the Company's losses only after Digital's losses are fully
utilized.
In determining the amount of tax-sharing payments under the Tax-Sharing
Agreement, Digital will prepare for the Company pro forma returns with respect
to federal and applicable state and local income taxes that reflect the same
positions and elections used by Digital in preparing the returns for Digital's
consolidated group and other applicable groups. Digital will continue to have
all the rights of a parent of a consolidated group (and similar rights provided
for by applicable state and local law with respect to a parent of a combined,
consolidated or unitary group), will be the sole and exclusive agent for the
Company in any and all matters relating to the income, franchise and similar tax
liabilities of the Company, will have sole and exclusive responsibility for the
preparation and filing of consolidated federal and consolidated or combined
state income tax returns (or amended returns), and will have the power, in its
sole discretion, to contest or compromise any asserted tax adjustment or
deficiency and to file, litigate or compromise any claim for refund on behalf of
the Company. In addition, Digital has agreed to undertake to provide the
aforementioned services with respect to the Company's separate state and local
returns and the Company's foreign returns. Under the Tax-Sharing Agreement, the
Company will pay Digital a fee intended to reimburse Digital for all direct and
indirect costs and expenses incurred with respect to the Company's share of the
overall costs and expenses incurred by Digital with respect to tax related
services.
In general, the Company will be included in Digital's consolidated group
for federal income tax purposes for so long as Digital beneficially owns at
least 80% of the total voting power and value of the outstanding Common Stock.
Each member of a consolidated group is jointly and severally liable for the
federal income tax liability of each other member of the consolidated group.
Accordingly, although the Tax-Sharing Agreement allocates tax liabilities
between the Company and Digital, during the period in which the Company is
included in Digital's consolidated group, the Company could be liable in the
event that any federal tax liability is
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<PAGE> 49
incurred, but not discharged, by any other member of Digital's consolidated
group. See "Risk Factors -- Relationship with Digital."
CORPORATE AGREEMENT
The Company and Digital intend to enter into a corporate agreement (the
"Corporate Agreement") under which the Company will grant to Digital a
continuing option, transferable to any of its subsidiaries, to purchase, under
certain circumstances, additional shares of Class B Common Stock or shares of
nonvoting capital stock of the Company (the "Stock Option"). The Stock Option
may be exercised by Digital simultaneously with the issuance of any equity
security of the Company (other than in the Offering or upon the exercise of the
Underwriters' over-allotment options), with respect to Class B Common Stock,
only to the extent necessary to maintain its then-existing percentage of the
total voting power and value of the Company and, with respect to shares of
nonvoting capital stock, to the extent necessary to own 80% of each outstanding
class of such stock. The purchase price of the shares of Class B Common Stock
purchased upon any exercise of the Stock Option, subject to certain exceptions,
will be based on the market price at which such stock may be purchased by third
parties. The Stock Option expires in the event that Digital reduces its
beneficial ownership of Common Stock in the Company to Common Stock representing
less than 60% of the number of outstanding shares of Common Stock. The Company
does not intend to issue additional shares of Class B Common Stock except
pursuant to the exercise of the Stock Option.
The Corporate Agreement will further provide that, upon the request of
Digital, the Company will use its best efforts to effect the registration under
applicable federal and state securities laws of any of the shares of Class B
Common Stock and nonvoting capital stock (and any other securities issued in
respect of or in exchange for either) held by Digital for sale in accordance
with Digital's intended method of disposition thereof, and will take such other
actions as may be necessary to permit the sale thereof in other jurisdictions,
subject to certain limitations specified in the Corporate Agreement. Digital
will also have the right, which it may exercise at any time and from time to
time, to include the shares of Class B Common Stock and nonvoting capital stock
(and any other securities issued in respect of or in exchange for either) held
by it in certain other registrations of common equity securities of the Company
initiated by the Company on its own behalf or on behalf of its other
stockholders. The Company will agree to pay all out-of-pocket costs and expenses
(other than underwriters' discounts and commissions and transfer taxes) in
connection with each such registration that Digital requests or in which Digital
participates. Subject to certain limitations specified in the Corporate
Agreement, such registration rights will be assignable by Digital and its
assigns. The Corporate Agreement will contain indemnification and contribution
provisions: (i) by Digital and its permitted assigns for the benefit of the
Company and related persons; and (ii) by the Company for the benefit of Digital
and the other persons entitled to effect registrations of Common Stock (and
other securities) pursuant to its terms and related persons.
The Corporate Agreement will also provide that, for so long as Digital
maintains beneficial ownership of a majority of the number of outstanding shares
of Common Stock, the Company may not take any action or enter into any
commitment or agreement which may reasonably be anticipated to result, with or
without notice and with or without lapse of time, or otherwise, in contravention
(or an event of default) by Digital of: (i) any provision of applicable law or
regulation, including but not limited to provisions pertaining to the Code or
ERISA; (ii) any provision of Digital's corporate charter or by-laws; (iii) any
credit agreement or other material instrument binding upon Digital; or (iv) any
judgment, order or decree of any governmental body, agency or court having
jurisdiction over Digital or any of its assets. See "Description of Capital
Stock -- Certain Certificate of Incorporation and By-law Provisions."
STRATEGIC ALLIANCE AGREEMENT
The Company and Digital intend to enter into a strategic alliance agreement
(the "Strategic Alliance Agreement") that provides that Digital will distribute
the Company's products on a non-exclusive, worldwide basis through Digital's
reseller and distribution networks. The Strategic Alliance Agreement also
designates Digital as an Authorized Service Provider of the Company to provide
training, documentation, technical support and maintenance services to the
Company's customers and end-users. In addition, the Strategic
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<PAGE> 50
Alliance Agreement provides that Digital will loan the Company certain hardware
equipment for product development purposes and provide the Company with certain
hardware and software for internal use at Digital's then prevailing rates and
prices. Digital and the Company have also established a joint marketing
relationship with respect to the Company's products and services.
The Agreement has an initial term of two years and is renewable
automatically thereafter for successive one-year terms, subject to termination
by either the Company or Digital upon six months' written notice if Digital
ceases to own shares of Common Stock representing more than 50% of the combined
voting power of the Common Stock of the Company.
TECHNICAL ASSISTANCE AGREEMENT
The Company and Digital intend to enter into a technical assistance
agreement (the "Technical Assistance Agreement") pursuant to which the Company
may, from time to time, request Digital (including its research laboratories) to
provide consulting and technical assistance to the Company with respect to
technology related to or derived from the Company's products. The Company will
pay Digital fees for any consulting or technical assistance provided by Digital
under the Technical Assistance Agreement at Digital's prevailing rates for
consulting services. Ownership of and rights to any and all ideas, improvements
and inventions conceived or created under the performance of work under the
Technical Assistance Agreement will be determined in writing between the parties
prior to Digital performing the work.
ASSET TRANSFER AND LICENSE AGREEMENT
The Company and Digital intend to enter into an asset transfer and license
agreement (the "Asset Transfer Agreement") which will provide for the transfer
to the Company of all assets and the assumption by the Company of all
liabilities that relate principally to the Company's business, including all
assets and liabilities reflected on the AltaVista Internet Software Products
Balance Sheet included in this Prospectus as adjusted to give effect to the
conduct of the Company's business in the ordinary course from such balance sheet
date to the date of transfer.
Pursuant to the Asset Transfer Agreement, Digital will assign to the
Company all of Digital's rights in the AltaVista trademark, service mark and
logo and will license to the Company all of its Internet addresses. Digital will
retain the right to use such trademarks in advertising, marketing literature and
corporate communications that refer to the Company.
Under the Asset Transfer Agreement, Digital will grant the Company a
non-exclusive, irrevocable, royalty-free license to all Digital patents and
pending and future patent applications covering inventions made as of the
consummation of the Offering that are embodied in the Company's products and
services. Under this license, the Company will have a right to sell to its
customers products embodying technology covered by the patents. The Company will
not otherwise have a right to sublicense its rights under this license or to
assign or transfer the license except in connection with a change of control of
the Company or the sale of all or substantially all of the Company's assets. The
Company may not prevent Digital from granting other licenses under such patents,
will not be able to realize licensing revenues from any such licenses, cannot
require Digital to enforce any such patents against competitors of the Company
and cannot control any enforcement proceedings Digital undertakes.
Under the Asset Transfer Agreement, Digital will assign to the Company all
of Digital's rights in software code developed specifically for and included in
the Company's products and services, subject to the terms of the patent license
described above ("Transferred Code"). Digital will retain an irrevocable,
royalty-free license to use Transferred Code for its internal use, including
research and development. All rights to any performance or functionality
improvements or enhancements ("Modifications") to Transferred Code developed by
or on behalf of Digital will be owned by Digital; provided, however, that
Digital will grant the Company an irrevocable, royalty-free license to use
Modifications developed by Digital during the two years following the
consummation of the Offering. Similarly, all rights to any Modifications
developed by or on behalf of the Company will be owned by the Company; provided,
however, that the Company will grant to
49
<PAGE> 51
Digital an irrevocable, royalty-free license to use for Digital's internal use
Modifications developed by the Company during the two years following the
consummation of the Offering.
For two years following the consummation of the Offering, Digital will not
have the right to commercialize any new software product derived from
Transferred Code ("Derived Software") that is designed for use primarily in the
Internet/intranet market, that runs on Windows, Windows NT or UNIX platforms and
that offers functionality substantially similar to any of the AltaVista Products
as of the consummation of the Offering. Notwithstanding the foregoing, Digital
will be free to commercialize without restriction any Digital product, excluding
the AltaVista products, existing as of the consummation of the Offering that
includes Transferred Code as of the consummation of the Offering without
restriction.
Under the Asset Transfer Agreement, Digital will retain all of its rights
in software code used in, but not developed specifically for, the Company's
products ("Shared Code"). Digital will grant the Company a non-exclusive,
irrevocable, royalty-free license to use Shared Code. Under the license, the
Company will have the right to sell to its customers products containing Shared
Code. The Company will not otherwise have a right to sublicense its rights or to
assign or transfer such license except in connection with a change of control of
the Company or the sale of all or substantially all of the Company's assets.
Pursuant to the Asset Transfer Agreement, Digital will license to the
Company all of its rights in all know-how related to and necessary to use, make
and sell the Company's products. Any third party technology used in the
Company's products will, to the extent permitted, be sublicensed or assigned by
Digital to the Company under the Asset Transfer Agreement.
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<PAGE> 52
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company and their ages as of
June 29, 1996 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Ilene H. Lang........................ 52 President, Chief Executive Officer and Director
Jeanette A. Horan.................... 40 Vice President, Product Development
Robert E. Hult....................... 49 Vice President, Finance and Operations, Chief
Financial Officer and Treasurer
William A. Laing..................... 44 Chief Technical Officer
Freddy J. Mini....................... 35 Vice President, Worldwide Marketing
James E. Toale....................... 43 Vice President, Human Resources
Ray J. Wilkes........................ 46 Vice President, Sales-Americas
Carel F.H. de Bos.................... 49 Vice President, Sales-Europe, Middle East and Africa
</TABLE>
All of the Company's directors are elected annually by the stockholders and
hold office until their respective successors are duly elected and qualified.
Prior to the consummation of the Offering, the Company anticipates that four
additional directors will be added to the Board of Directors who will be
officers or employees of Digital. Upon consummation of the Offering, the Company
anticipates that two additional directors will be added to the Board of
Directors who will be persons not associated with the Company or Digital. In
light of its voting power in the Company, Digital has the ability to change the
size and composition of the Board of Directors.
The Board of Directors is expected to appoint members to a compensation
committee of the Board of Directors (the "Compensation Committee") and an audit
committee of the Board of Directors (the "Audit Committee") after the
independent directors referred to above are elected. The Compensation Committee
will establish remuneration levels for certain officers of the Company and
perform such functions as may be delegated to it under employee benefit programs
and executive compensation programs. The Audit Committee will select and engage,
on behalf of the Company, the independent public accountants to audit the
Company's annual financial statements. The Audit Committee will also review and
approve the planned scope of the annual audit.
Executive officers are elected annually by the Board of Directors and serve
at its discretion. All of the current directors and executive officers of the
Company were elected to their current officer positions with the Company shortly
following the organization of the Company in June 1996.
Ilene H. Lang joined Digital in November 1995 and has been the Vice
President of Digital's Internet Software Business Unit (formerly the
Connectivity Software Business Unit) since its inception in January 1996. From
January 1993 to September 1995, she was employed by Lotus Development
Corporation, most recently as Senior Vice President, Desktop Business Group.
Prior to joining Lotus, from August 1991 to June 1992, she was the Chief
Operating Officer of the Industrial Technology Institute. Prior to that time,
she was President of Adelie Corporation, a wholly owned AT&T, Inc. subsidiary;
Vice President, Products and Services for Ontologic Inc.; and Vice President,
Marketing and Software Products for Symbolics, Inc. Ms. Lang received an A.B.
from Radcliffe College and an M.B.A. from Harvard Business School.
Jeanette A. Horan joined Digital in 1994 and has been Vice President,
Product Development of the Internet Software Business Unit since January 1996.
From 1989 to 1994 she was employed by The Open Software Foundation as Director
of Engineering and later Vice President, Interoperable Technologies. From 1981
to 1989 she was employed by Gould Computer Systems Division, most recently as
Director, Software Engineering. Ms. Horan received a B.Sc. in Mathematics from
the University of London and an M.B.A. from Boston University.
Robert E. Hult has been employed by Digital since 1972 in various finance
and general management positions, including Vice President, Finance and
Operations of the Internet Software Business Unit since
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<PAGE> 53
January 1996; Vice President, Investor Relations; Area Vice President, Asia
Pacific and Americas; and Vice President, Western States Region. Prior to
joining Digital, Mr. Hult was a consultant at Arthur Andersen & Co. Mr. Hult
received a B.S./M.S. from Rensselaer Polytechnic Institute and an M.B.A. from
Babson College. He also completed the Harvard Business School Executive Program
for Management Development.
William A. Laing has been employed by Digital from 1982 to 1986 and since
1987, most recently as a Corporate Consulting Engineer and the Technical
Director of the Internet Software Business Unit since January 1996. Prior to
that, he held a number of senior technical positions, including Technical
Director OpenVMS Engineering, Technical Director Engineering Europe and as a
software strategist in the Computer Systems Division. From 1986 to 1987 he was
the Software Director for European Silicon Structures Ltd., and from 1972 to
1981 he was a researcher and lecturer at the University of Edinburgh. Mr. Laing
received a B.Sc. in Mathematics and Computer Science and a M.Phil., Computer
Science, both from the University of Edinburgh.
Freddy J. Mini joined Digital in May 1996 as Director of Marketing of the
Internet Software Business Unit. From 1991 to 1996 he was employed by Lotus
Development Corporation, most recently as Senior Director, Product and Business
Electronic Marketing. From 1990 to 1991 he was the Director of Marketing for
Evolution France, an IBM subsidiary, and from 1989 to 1990 he was Director of
Business Development for BIG Systeme. Mr. Mini received a Baccalaureate in
Science and a Master of Engineering from the Ecole Nationale Superieure
d'Ingenieur in France.
James E. Toale has been employed by Digital since July 1984 in various
human resource management capacities, most recently as Director, Human
Resources, of the Internet Software Business Unit since January 1996. From 1981
to 1984 he was Manager of Corporate Employment and Affirmative Action for Philip
Morris Companies, Inc., and from 1971 to 1981 was employed by the Atlantic
Mutual Companies insurance group, most recently as Manager Human Resource
Planning. Mr. Toale received a B.B.A. from the College of Insurance and an M.A.
in Human Resource Management from The New School.
Ray J. Wilkes has been employed by Digital since 1977 in various sales and
sales management assignments, most recently as Vice President, Sales-Americas of
the Internet Software Business Unit since January 1996. Prior to that time, he
was Director of Business Operations for the Americas Systems Business Unit and
the Regional Channels Sales Manager for the Eastern Region. From 1974 to 1977 he
was a financial planning consultant with Dayton Hudson Corporation. Mr. Wilkes
received a B.S. from Boston College and an M.B.A. from Boston University.
Carel F.H. de Bos joined Digital in May 1996 as Vice President,
Sales-Europe, Middle East and Africa of the Internet Software Business Unit.
From 1993 to 1996 he was Director of Information Services/Europe for R.R.
Donnelley & Sons Company. From 1987 to 1991 he was Corporate Business Manager
for Philips Information Systems, and from 1991 to 1993, after the acquisition by
Digital of that business unit, he was the Business Manager for 800 Software,
Inc. in Europe, a corporate reseller of desktop software. Mr. de Bos holds a
B.Sc. in electronic engineering from the HTS in Amsterdam.
COMPENSATION OF DIRECTORS
Directors who are not employees of the Company, Digital or any other
subsidiary of Digital (also referred to as "outside directors") will receive an
annual retainer of $ and a fee of $ per day for attending regular
meetings of the Board of Directors and $ per day for participating in
meetings of the Board of Directors held by means of conference telephone and for
participating in certain meetings of committees of the Board of Directors.
Payment of director fees will be made quarterly. Directors will also be
reimbursed for reasonable out-of-pocket expenses incurred in attending such
meetings.
Directors Stock Option Plan. The Company has adopted a directors stock
option plan (the "Directors Plan") providing for the annual grant of stock
options to purchase shares of Class A Common Stock to outside directors as
additional compensation for their service as directors. A total of
shares of Class A Common Stock have been reserved for issuance under the
Directors Plan.
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<PAGE> 54
Under the Directors Plan, each eligible director initially joining the
Board of Directors in fiscal 1997 will be granted an option to purchase
shares of Class A Common Stock upon the later of the adoption of the plan or the
director's appointment or election. With respect to each eligible director who
is a director as of June 29, 1997 or who joins the Board of Directors on or
after June 29, 1997, options to purchase shares of Class A Common Stock
will be granted on the date of the Company's next annual meeting of stockholders
provided that such director's service as a director will continue after such
meeting.
The exercise price of options granted under the Directors Plan will be 100%
of the fair market value per share of the Class A Common Stock on the date the
option is granted. Options granted under the Directors Plan will become
exercisable at the rate of 33% on the first and second anniversaries of the date
of grant and 34% on the third anniversary of the date of grant. The options will
expire on the tenth anniversary of the grant date, unless terminated earlier in
accordance with the Directors Plan. However, any option granted to a director
who ceases to be a director of the Company because of death will expire one year
from the date of death. If an optionee ceases to be a director of the Company
because of permanent disability or death or by reason of retirement from the
Board of Directors and has completed at least five years of service as a
director at the time of such retirement, his or her option will become
immediately exercisable in full. If an optionee ceases to be a director of the
Company after his or her option becomes exercisable, the option will remain
exercisable in accordance with its terms. If an optionee ceases to be a director
of the Company for any reason other than those described above prior to the time
his or her option becomes fully exercisable, the option will terminate with
respect to the shares as to which the option is not then exercisable.
COMPENSATION OF EXECUTIVE OFFICERS
Summary Compensation Table
The following table summarizes compensation for services to the Company,
Digital and its subsidiaries in all capacities awarded to, earned by or paid to
the Company's chief executive officer and the four most highly compensated
executive officers of the Company for the fiscal year ended June 29, 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL --------------
COMPENSATION(1) SECURITIES
FISCAL --------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS(2) COMPENSATION(3)
- -------------------------------- ----- -------- -------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
Ilene H. Lang................... 1996 $300,000 $ 67,500(4) (ALTV) --
President and CEO 30,000 (DEC) --
Jeanette A. Horan............... 1996 209,000 -- (ALTV) --
Vice President, 5,000 (DEC) $3,294
Product Development
Robert E. Hult.................. 1996 173,617 -- (ALTV) --
Vice President, Finance and 5,000 (DEC) 3,979
Operations, Chief Financial
Officer
and Treasurer
William A. Laing................ 1996 139,680(5) 35,000(5)(6) (ALTV) --
Chief Technical Officer 5,000 (DEC) --
Ray J. Wilkes................... 1996 133,536 10,000(7) (ALTV) --
Vice President, 5,000 (DEC) 3,347
Sales-Americas
</TABLE>
- ---------------
(1) The Company was organized on June 28, 1996, and the persons named in the
table above became executive officers of the Company at that time or shortly
thereafter. Reported in the table under "Annual Compensation" and "All Other
Compensation" are the total amounts paid to such persons for their service
in all capacities to Digital and its subsidiaries.
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<PAGE> 55
(2) Includes options to purchase shares of the Company's Class A Common Stock
(designated in the table as ALTV)will be granted prior to the consummation
of the Offering but are included in the table for clarity of presentation.
Includes options to purchase shares of Digital common stock (designated in
the table as DEC) granted under Digital's 1995 Equity Plan on August 21,
1996, but does not include any other stock-based compensation received from
Digital.
(3) Includes matching contributions by Digital under its Savings and Investment
Plan ("SAVE Plan") for each executive officer as follows: Ms. Horan, $3,294;
Mr. Hult, $2,462; and Mr. Wilkes, $2,563; and under the Digital Equipment
Corporation Restoration Pension Plan, adopted effective as of May 1, 1992
(amended and renamed the Digital Equipment Corporation Cash Account Pension
Plan effective as of March 1, 1996), for each executive officer as follows:
Mr. Hult, $1,517 and Mr. Wilkes, $784. Neither Ms. Lang nor Mr. Laing
participate in Digital's SAVE Plan.
(4) Represents an amount Digital agreed to pay to Ms. Lang in fiscal year 1996
as an inducement for her to commence employment with Digital.
(5) Paid in British Pounds Sterling. The amount given in U.S. dollar equivalents
is based on the British Pounds Sterling/U.S. dollar exchange rate of .6433,
as quoted in the Wall Street Journal on June 28, 1996, the last business day
of Digital's 1996 fiscal year.
(6) Represents a cash retention award paid by Digital in December 1995.
(7) Represents sales commissions.
Stock Options
The following table sets forth information concerning individual grants of
stock options made during fiscal 1996 to the Company's chief executive officer
and the other named executive officers. No grants of stock appreciation rights
to such persons have been made at any time.
OPTION GRANTS
<TABLE>
<CAPTION>
POTENTIAL
PERCENT OF REALIZED VALUE
TOTAL AT ASSUMED RATES
NUMBER OF OPTIONS OF STOCK PRICE
SHARES GRANTED TO APPRECIATION FOR
UNDERLYING COMPANY EXERCISE OPTION TERM(3)(4)
OPTIONS EMPLOYEES PRICE EXPIRATION -----------------
NAME GRANTED(1) IN 1996(2) PER SHARE DATE 5% 10%
- --------------------- ------------ ---------- --------- -------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Ilene H. Lang........ (ALTV) % $ $ $
30,000 (DEC) 1.00 37.75 8/21/06 -- --
Jeanette A. Horan.... (ALTV)
5,000 (DEC) 0.17 37.75 8/21/06 -- --
Robert E. Hult....... (ALTV)
5,000 (DEC) 0.17 37.75 8/21/06 -- --
William A. Laing..... (ALTV)
5,000 (DEC) 0.17 37.75 8/21/06 -- --
Ray J. Wilkes........ (ALTV)
5,000 (DEC) 0.17 37.75 8/21/06 -- --
</TABLE>
- ---------------
(1) All options to purchase shares of Class A Common Stock of the Company
(designated in the table as ALTV) will be granted prior to the consummation
of the Offering but are included in the table for clarity of presentation.
Options to purchase shares of common stock of Digital (designated in the
table as DEC) were granted on August 21, 1996 to the named executive
officers. Options with respect to one-half of the shares of Class A Common
Stock of the Company become exercisable on October 1, 1998, one quarter on
October 1, 1999 and one quarter on October 1, 2000. These options expire on
the tenth anniversary of the grant date, unless the optionee dies or ceases
to serve as an employee of the Company prior to that date. Options granted
by the Company prior to the consummation of the Offering are to be effective
and deemed to be granted as of the date of this Prospectus, and the exercise
price of all such options is equal to the public offering price set forth on
the cover page of this Prospectus.
The stock options granted by Digital include incentive and non-qualified
stock options granted under Digital's 1995 Equity Plan at exercise prices
equal to the fair market value of Digital's common stock on
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<PAGE> 56
the date of grant. The stock options granted by Digital have a term of ten
years and become exercisable ratably over three years from the date of
grant.
(2) In the case of Digital, reflects percentage of total options granted to all
employees by Digital on August 21, 1996.
(3) Amounts reported in these columns represent amounts that may be realized
upon exercise of the options immediately prior to the expiration of their
term assuming the specified compounded rates of appreciation on the
Company's Class A Common Stock over the term of the options. These numbers
are calculated based on rules promulgated by the Securities and Exchange
Commission and do not reflect the Company's estimates of future stock price
growth. Actual gains, if any, on stock option exercises and Class A Common
Stock holdings are dependent on the timing of such exercise and sale of the
shares and the future performance of the Company's Class A Common Stock.
There can be no assurances that the rates of appreciation assumed in this
table can be achieved or that the amounts reflected will be received by the
individuals.
(4) The following is applicable to Digital:
<TABLE>
<CAPTION>
GRANT DATE VALUE
-----------------------------------------
MARKET VALUE GRANT DATE
NAME ON GRANT DATE PRESENT VALUE
- --------------------------------------------------- ------------------ ------------------
<S> <C> <C>
Ilene H. Lang................................. $37.75 $392,643
Jeanette A. Horan............................. 37.75 65,440
Robert E. Hult................................ 37.75 65,440
William A. Laing.............................. 37.75 65,440
Ray J. Wilkes................................. 37.75 65,440
</TABLE>
The grant date present values shown were determined using a Black-Scholes
pricing model with the following assumptions and adjustments: stock price
volatility of 35%, and interest rate of 6.3% representing the interest rate
on a U.S. Treasury security on the dates of grant with a maturity date
corresponding to that of the option term; and an assumed 3.6-year option
term. The use of this model should not be construed as an endorsement of
its accuracy. Whether the model's assumptions will prove to be accurate
cannot be known at the date of grant. The ultimate value of the options, if
any, will depend on the future value of the underlying Digital common
stock, which cannot be forecast with reasonable accuracy, and on the
holder's investment decisions.
Stock Options Exercised During Fiscal 1996 and Fiscal Year-end Option
Values
The following table reports certain information regarding Digital stock
option exercises during fiscal 1996 and outstanding Digital stock options held
at the end of fiscal 1996 by the Company's chief executive officer and the other
named executive officers. There were no Company stock options outstanding at any
time during fiscal 1996. The value of unexercised, in-the-money options at
fiscal year-end is the difference between the exercise price and the fair market
value of the underlying stock on June 28, 1996, the last business day of the
fiscal year. The closing price of Digital's common stock on the New York Stock
Exchange on such date was $45.6875. No stock appreciation rights were exercised
or were outstanding with respect to such persons during fiscal 1996.
AGGREGATED OPTION EXERCISES IN FISCAL 1996 AND
FISCAL 1996 YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT FISCAL YEAR-END AT FISCAL YEAR-END
ACQUIRED ------------------------------ ---------------------------------
ON VALUE RESTRICTED/ RESTRICTED/
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------- -------- -------- ----------- ---------------- ----------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Ilene H. Lang............... 0 -- 0 45,000 $ 0 $ 0
Jeanette A. Horan........... 0 -- 2,840 5,960 13,148 31,603
Robert E. Hult.............. 0 -- 6,866 8,922 107,896 89,551
William A. Laing............ 0 -- 6,230 3,356 158,091 84,737
Ray J. Wilkes............... 1,400 $11,453 3,830 920(1) 2,558 1,224
</TABLE>
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<PAGE> 57
- ---------------
(1) All of these options represent immediately exercisable restricted stock
options, with restrictions on disposition of the underlying shares lapsing
ratably over periods of three to ten years from date of grant.
Pension Plans
The Company's employees currently participate in Digital's pension plans
which cover substantially all of the Company's and Digital's employees.
Effective March 1, 1996, Digital's defined benefit pension plan (the "Prior
Pension Plan") for its U.S. employees was amended and renamed the Cash Account
Pension Plan (the "New Pension Plan").
Under the Prior Pension Plan, benefits were based upon the employee's
earnings during service with Digital and were payable after retirement in the
form of annuities or a lump sum benefit and the annual amount payable upon
retirement at age 65 was, in general, 1.5% of the aggregate amount of the
participant's eligible compensation earned on and after July 1, 1989. Those
persons who were active participants under the Prior Pension Plan on July 1,
1989, or who later become active participants and were credited with prior
service, were also eligible to receive 1.5% of the average of the participant's
annual compensation between July 1, 1984 and July 1, 1989, multiplied by the
number of years of accredited service prior to July 1, 1989.
Under the New Pension Plan, benefits for U.S. employees are based upon the
employee's eligible earnings during service with Digital, and are credited
quarterly by Digital at the rate of 4% of the employee's total eligible pay for
that quarter, plus interest. The accumulated, vested account balance is payable
in one lump sum or in monthly payments, as elected by the participant, upon the
employee's retirement or termination of employment with Digital. The opening
account balance under the New Pension Plan for employees who were participants
under the Prior Pension Plan on February 29, 1996 was determined by calculating
the highest of (a) the lump sum value of the benefit that would have been
payable under the Prior Pension Plan as of February 29, 1996, (b) the lump sum
value of the benefit that would have been payable under the Prior Pension Plan
but using average pay for the five-year period ending June 30, 1995, in place of
average pay during all years of employment with Digital, or (c) a percentage
factor (between 4.5% and 7.0%) times years of service times base pay as of
December 18, 1995. The New Pension Plan continues the Prior Pension Plan formula
for five years for all employees who on February 29, 1996 had reached age 50 and
had completed at least five years of vesting service, or who were age 60 or
older. At the earlier of March 31, 2001 or the employee's date of termination,
his or her benefit will be the greater of the value of the benefit accrued under
the Prior Pension Plan's formula or the employee's then current account balance
under the New Pension Plan. A participant is 100% vested in his or her benefit
after completing five years of vesting service with Digital. For purposes of
calculating a participant's pension benefit under either the Prior Pension Plan
or the New Pension Plan, annual compensation is currently limited to $150,000,
subject to adjustment to reflect cost of living increases, pursuant to the Code.
The Digital Equipment Corporation Restoration Pension Plan (the
"Restoration Plan"), adopted effective as of May 1, 1992 (amended and renamed
the Digital Equipment Corporation Cash Account Pension Plan effective as of
March 1, 1996), compensates Digital's employees for reductions in the benefits
calculated under either the Prior or the New Pension Plan, as the case may be,
due to legislative and regulatory limitations. The Restoration Plan, which is a
non-qualified plan under the Code, and which is unfunded, provides additional
retirement compensation equal to the difference between the benefit a
participant would receive under either Pension Plan without the legislative and
regulatory limitations and the benefit actually payable to the participant under
either Pension Plan.
Estimated annual retirement benefits payable as a straight life annuity
under the New Pension Plan and Restoration Plan at age 65 based on projected
compensation and continued employment for the following individuals would be:
Ms. Lang, $23,040; Ms. Horan, $54,617; Mr. Hult, $87,830; and Mr. Wilkes,
$71,299. Mr. Laing is not covered by the New Pension Plan.
In addition, Digital has a Savings and Investment Plan ("SAVE Plan") which
allows eligible U.S. employees to defer up to 12% (14% as of June 30, 1996) of
their eligible compensation on a tax-deferred basis into a tax exempt trust
pursuant to rules set forth in the Code. Beginning in fiscal year 1996, Digital
makes a matching contribution to the trust for the benefit of each participant
in the SAVE Plan at the rate equal to the
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<PAGE> 58
lesser of (a) 33 1/3% of such employee's contributions or (b) 2% of such
employee's annual eligible compensation (subject to Code limitations). The
employee accounts are invested by the plan trustee in up to nine investment
alternatives, as directed by the employee. Annual employee pre-tax deferrals are
currently limited to $9,500 for the 1996 calendar year.
The Digital Equipment Corporation SAVE Restoration Plan was adopted
effective on July 1, 1995. The SAVE Restoration Plan, which is a non-qualified
plan under the Code and is unfunded, allows any SAVE Plan participant whose
annual eligible compensation is at least $150,000 (subject to adjustment to
reflect cost of living increases) and who defers the maximum amount of his or
her eligible compensation under the SAVE Plan for the year to receive a credit
equal to 2% of the amount by which such employee's eligible compensation for
that year exceeds $150,000 (as adjusted) resulting in a total matching
contribution equal to what would have otherwise been provided under the SAVE
Plan but for legislative and regulatory limitations.
PRINCIPAL STOCKHOLDER
All of the shares of Class B Common Stock outstanding immediately
prior to the consummation of the Offering are owned by Digital. Upon
consummation of the Offering, Digital will own all of the outstanding Class B
Common stock and, accordingly, will own Common Stock representing approximately
% of the economic interest in the Company ( % if the Underwriters'
over-allotment options are exercised in full) and representing approximately
% of the combined voting power of the Company's outstanding Common Stock
(or % if the Underwriters' over-allotment options are exercised in full).
The address of Digital is 111 Powdermill Road, Maynard, Massachusetts 01754.
SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of the Offering, the Company will have shares
of Class A Common Stock issued and outstanding ( if the Underwriters'
over-allotment options are exercised in full) and shares of Class B
Common Stock issued and outstanding. All of the shares of Class A Common Stock
to be sold in the Offering will be freely tradeable without restrictions under
the Securities Act of 1933, as amended (the "Securities Act"), except for any
shares acquired by an "affiliate" of the Company (as that term is defined in
Rule 144 adopted under the Securities Act ("Rule 144")), which will be subject
to the resale limitations of Rule 144 unless sold under an effective
registration statement under the Securities Act or pursuant to another exemption
from registration. All of the outstanding shares of Class B Common Stock are
owned by Digital and have not been registered under the Securities Act and may
not be sold in the absence of an effective registration statement under the
Securities Act other than in accordance with Rule 144 or another exemption from
registration. Digital has certain rights to require the Company to effect
registration of shares of Class B Common Stock owned by Digital, which rights
may be assigned. See "Relationship with Digital -- Corporate Agreement."
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are required to be aggregated) who has beneficially owned shares of
Common Stock for at least two years, including a person who may be deemed an
"affiliate" of the Company, is entitled to sell within any three-month period a
number of shares that does not exceed the greater of one percent of the total
number of outstanding shares of the class of stock being sold or the average
weekly reported trading volume of the class of stock being sold during the four
calendar weeks preceding the sale. A person who is not deemed an "affiliate" of
the Company at any time during the three months preceding a sale and who has
beneficially owned shares for at least three years is entitled to sell such
shares without regard to the volume limitations described above. As defined in
Rule 144, an "affiliate" of an issuer is a person that directly or indirectly
through the use of one or more intermediaries controls, is controlled by, or is
under common control with, such issuer. The Securities and Exchange Commission
has proposed to amend the holding period required by Rule 144 to permit sales of
"restricted securities" after one year rather than two years (and to permit
sales without any volume limitation after two years, rather than three years,
for non-affiliates).
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<PAGE> 59
Rule 144A under the Securities Act ("Rule 144A") provides a non-exclusive
safe harbor exemption from the registration requirements of the Securities Act
for specified resales of restricted securities to certain institutional
investors. In general, Rule 144A allows unregistered resales of restricted
securities to a "qualified institutional buyer," which generally includes an
entity, acting for its own account or for the account of other qualified
institutional buyers, that in the aggregate owns or invests at least $100
million in securities of unaffiliated issuers. Rule 144A does not extend an
exemption to the offer or sale of securities that, when issued, were of the same
class as securities listed on a national securities exchange or quoted on an
automated quotation system. The shares of Class B Common Stock outstanding as of
the date of this Prospectus would be eligible for resale under Rule 144A because
such shares, when issued, were not of the same class as any listed or quoted
securities.
Prior to the Offering, there has been no market for the Class A Common
Stock. No predictions can be made of the effect, if any, that market sales of
currently outstanding shares of Class B Common Stock or the availability of such
shares for sale will have on the market price of Class A Common Stock prevailing
from time to time. Nevertheless, sales of substantial amounts of Class B Common
Stock in the public market, or the perception that such sales could occur, could
adversely affect prevailing market prices for Class A Common Stock. Although
Digital in the future may effect or direct sales or other dispositions of Common
Stock that would reduce its ownership interest in the Company, Digital has
advised the Company that its current intention is to continue to hold all of the
Class B Common Stock owned by it immediately after the completion of the
Offering. However, Digital has no agreement with the Company not to sell or
distribute such shares, and, other than pursuant to the Underwriting Agreements
described below, there can be no assurance concerning the period of time during
which Digital will maintain its ownership of Common Stock. Beneficial ownership
of at least 80% of the total voting power and value of the outstanding Common
Stock is required in order for Digital to continue to include the Company in its
consolidated group for federal tax purposes, and ownership of at least 80% of
the total voting power and 80% of each class of non-voting capital stock is
required in order for Digital to be able to effect a tax-free spin-off of the
Company. Digital has indicated to the Company that any decision by Digital to
reduce such ownership interest would be made in the future on the basis of all
of the circumstances existing at such time, including the effect of any such
reduction on Digital (including any benefit to Digital from the removal from
Digital's consolidated balance sheet of the Company's assets and liabilities in
the event Digital's interest in the Common Stock is reduced below 50%), the
needs of Digital, the performance of Digital, stock market conditions and other
factors. In connection with the Offering, subject to certain exceptions, the
Company and Digital will agree with the Underwriters not to sell or otherwise
dispose of, directly or indirectly, any shares of Common Stock (or any security
convertible into or exchangeable or exercisable for Common Stock) for a period
of 180 days after the date of this Prospectus without the prior written consent
of Lehman Brothers Inc.
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<PAGE> 60
DESCRIPTION OF CAPITAL STOCK
GENERAL
The authorized capital stock of the Company will consist of (a) 100,000,000
shares of Common Stock, par value $0.01 per share, of which: (i) 50,000,000
shares initially will be designated as Class A Common Stock; and (ii) 50,000,000
shares initially will be designated as Class B Common Stock; and (b) 5,000,000
shares of Preferred Stock, par value $0.01 per share, of which no shares are
outstanding as of the date hereof. Of the 50,000,000 shares of Common Stock
designated as Class A Common Stock, shares are being offered hereby
and shares are reserved for issuance upon conversion of Class B Common
Stock into Class A Common Stock. Of the 50,000,000 shares of Common Stock
designated as Class B Common Stock, shares will be outstanding and
held by Digital upon consummation of the Offering. Each of the Class A Common
Stock and Class B Common Stock constitutes a series of Common Stock under the
General Corporation Law of the State of Delaware (the "DGCL"). A description of
the material terms and provisions of the Company's Amended and Restated
Certificate of Incorporation affecting the relative rights of the Class A Common
Stock, the Class B Common Stock and the Preferred Stock is set forth below. The
description is intended as a summary and is qualified in its entirety by
reference to the form of the Company's Amended and Restated Certificate of
Incorporation filed as an exhibit to the Registration Statement of which this
Prospectus forms a part.
COMMON STOCK
Voting Rights
The holders of Class A Common Stock and Class B Common Stock generally have
identical rights, except that holders of Class A Common Stock are entitled to
one vote per share while holders of Class B Common Stock, with some exceptions
described below, are entitled to three votes per share on all matters to be
voted on by stockholders. Holders of shares of Class A Common Stock and Class B
Common Stock are not entitled to cumulate their votes in the election of
directors. Generally, all matters to be voted on by stockholders must be
approved by a majority (or, in the case of election of directors, by a
plurality) of the votes entitled to be cast by all shares of Class A Common
Stock and Class B Common Stock present in person or represented by proxy, voting
together as a single class, subject to any voting rights granted to holders of
any Preferred Stock. Except as otherwise provided by law, and subject to any
voting rights granted to holders of any outstanding Preferred Stock, amendments
to the Company's Amended and Restated Certificate of Incorporation must be
approved by a majority of the combined voting power of all Class A Common Stock
and Class B Common Stock, voting together as a single class. However, amendments
to the Company's Amended and Restated Certificate of Incorporation that would
alter or change the powers, preferences or special rights of the Class A Common
Stock or the Class B Common Stock so as to affect them adversely also must be
approved by a majority of the votes entitled to be cast by the holders of the
shares affected by the amendment, voting as a separate class.
Dividends
The Board of Directors of the Company currently does not intend to pay
dividends on the Class A Common Stock and Class B Common Stock. By virtue of its
stock ownership, Digital will have the ability to change the size and
composition of the Company's Board of Directors and thereby control the payment
of dividends by the Company.
Conversion
Each share of Class B Common Stock will be convertible at the holder's
option into one share of Class A Common Stock while such share of Class B Common
Stock is held by Digital or any of its subsidiaries and until the earlier of:
(i) the date on which shares of Class B Common Stock are issued to stockholders
of Digital or its successor in a Tax-Free Spin-Off; and (ii) the date on which
the number of shares of Class B Common Stock outstanding is less than 60% of the
aggregate number of shares of Common Stock
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outstanding. Any shares of Class B Common Stock transferred to a person other
than Digital or any of its subsidiaries shall automatically convert to shares of
Class A Common Stock upon such disposition, except for a disposition effected in
connection with a transfer of Class B Common Stock to stockholders of Digital as
a dividend in a Tax-Free Spin-Off. In the event of a Tax-Free Spin-Off, shares
of Class B Common Stock shall automatically convert into shares of Class A
Common Stock on the fifth anniversary of the Tax-Free Spin-Off, unless prior to
such Tax-Free Spin-Off Digital delivers to the Company an opinion of counsel
(which counsel shall be reasonably satisfactory to the Company) to the effect
that such conversion would preclude Digital from obtaining a favorable ruling
from the Internal Revenue Service that the distribution would be tax-free under
the Code. If such an opinion is received, approval of such conversion shall be
submitted to a vote of the holders of the Company's Common Stock as soon as
practicable after the fifth anniversary of the Tax-Free Spin-Off unless Digital
delivers to the Company an opinion of Digital's counsel (which counsel shall be
reasonably satisfactory to the Company) prior to such anniversary that such vote
would adversely affect the status of the Tax-Free Spin-Off. Approval of such
conversion will require the affirmative vote of the holders of a majority of the
shares of both the Company's Class A Common Stock and Class B Common Stock
present and voting, voting together as a single class, with each share entitled
to one vote for such purpose. No assurance can be given that such conversion
would be consummated. Digital has no current plans with respect to a Tax-Free
Spin-Off of the Company.
Digital expects to convert its Class B Common Stock into Class A Common
Stock immediately prior to a Tax-Free Spin-Off if, after such conversion, it
would have beneficial ownership of at least 80% of the voting power of the
outstanding Common Stock. All shares of Class B Common Stock shall automatically
convert into Class A Common Stock if a Tax-Free Spin-Off has not occurred and
the number of outstanding shares of Class B Common Stock falls below 60% of the
aggregate number of outstanding shares of Common Stock. This will prevent
Digital from decreasing its economic interest in the Company to less than 60%
while still retaining control of approximately 81.8% of the Company's voting
power. All conversions will be effected on a share-for-share basis.
The requirement that Digital retain beneficial ownership of at least 80% of
the voting power of the outstanding Common Stock after any conversion prior to a
Tax-Free Spin-Off is intended to ensure that the tax treatment of the Tax-Free
Spin-Off is preserved. Similarly, the requirement to submit such conversion to a
vote of the holders of Common Stock is intended to preserve such tax treatment
should the Internal Revenue Service challenge automatic conversion on the fifth
anniversary of the Tax-Free Spin-Off as violating the 80% vote requirement.
Automatic conversion of the Class B Common Stock into Class A Common Stock if a
Tax-Free Spin-Off has not occurred and Digital decreases its economic interest
in the Company to less than 60% is intended to ensure that Digital retains
voting control by virtue of its ownership of Class B Common Stock only if it has
a sizable economic interest in the Company.
In addition, in order to give any holder of the Class A Common Stock or
Class B Common Stock the right to participate in any offer for a significant
amount of the shares of the other class that is not similarly offered for the
shares of such holder's class, following a Tax-Free Spin-Off shares of Common
Stock of each class will be convertible, at the option of the registered holder
thereof, on a share-for-share basis, into shares of the other class if any
person (other than Digital or any of its consolidated subsidiaries), or any
group of persons (other than Digital or any one or more of its subsidiaries)
agreeing to act together for the purpose of acquiring, holding, voting or
disposing of shares of Common Stock, makes an offer, which the Company's Board
of Directors deems, in its sole discretion, to be a bona fide offer, to purchase
5% or more of the other class of Common Stock for cash or a combination of cash
and other securities or property without making a similar offer for the shares
of such class. The shares of Common Stock of a class may only be so converted
during the period in which such bona fide offer is in effect. Any share of
Common Stock so converted and not acquired by the offeror prior to the
termination, rescission or completion of the offer will automatically reconvert
to a share of the class from which it was converted upon such termination,
rescission or completion.
Other Rights
In the event of any merger or consolidation of the Company with or into
another company in connection with which shares of Common Stock are converted
into or exchangeable for shares of stock, other securities or
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property (including cash), all holders of Common Stock, regardless of class,
will be entitled to receive the same kind and amount of shares of stock and
other securities and property (including cash).
On liquidation, dissolution or winding up of the Company after payment in
full of the amounts required to be paid to holders of Preferred Stock, all
holders of Common Stock, regardless of class, are entitled to share ratably in
any assets available for distribution to holders of shares of Common Stock.
No shares of either class of Common Stock are subject to redemption or have
preemptive rights to purchase additional shares of Common Stock. However, the
Company and Digital intend to enter into a corporate agreement under which the
Company will grant to Digital a continuing option, transferable to any of its
subsidiaries, to purchase, under certain circumstances, at market price,
additional shares of Class B Common Stock or shares of nonvoting capital stock
of the Company to the extent necessary to maintain its then-existing percentage
of the total voting power and value of the Company and, with respect to shares
of nonvoting capital stock, to the extent necessary to own 80% of each
outstanding class of such stock. See "Relationship with Digital -- Corporate
Agreement."
Upon consummation of the Offering, all the outstanding shares of Class A
Common Stock and Class B Common Stock will be legally issued, fully paid and
nonassessable.
PREFERRED STOCK
The Preferred Stock is issuable from time to time in one or more series and
with such designations and preferences for each series as shall be stated in the
resolutions providing for the designation and issue of each such series adopted
by the Board of Directors of the Company. The Board of Directors is authorized
by the Company's Amended and Restated Certificate of Incorporation to determine,
among other things, the voting, dividend, redemption and liquidation preferences
and limitations pertaining to such series. The Board of Directors, without
stockholder approval, may issue Preferred Stock with voting and other rights
that could adversely affect the voting power of the holders of the Common Stock
and could have certain antitakeover effects. The Company has no present plans to
issue any shares of Preferred Stock. The ability of the Board of Directors to
issue Preferred Stock without stockholder approval could have the effect of
delaying, deferring or preventing a change in control of the Company or the
removal of existing management.
CERTAIN CERTIFICATE OF INCORPORATION AND BY-LAW PROVISIONS
The Company's Amended and Restated Certificate of Incorporation provides
that any person purchasing or acquiring an interest in shares of capital stock
of the Company is deemed to have consented to the following provisions relating
to intercompany agreements and to transactions with interested parties and
corporate opportunities. The corporate charter of Digital does not include
comparable provisions relating to intercompany agreements, transactions with
interested parties or corporate opportunities.
Transactions With Interested Parties
The Company's Amended and Restated Certificate of Incorporation provides
that no contract, agreement, arrangement or transaction (or any amendment,
modification or termination thereof) between the Company and Digital or any
Related Entity (as such terms are defined below) or between the Company and any
director or officer of the Company, Digital or any Related Entity shall be void
or voidable solely for the reason that Digital, a Related Entity or any one or
more of the officers or directors of the Company, Digital or any Related Entity
are parties thereto, or solely because any such directors or officers are
present at, participate in or vote with respect to the authorization of such
contract, agreement, arrangement or transaction (or any amendment, modification
or termination thereof). Further, the Company's Amended and Restated Certificate
of Incorporation provides that neither Digital nor any officer or director
thereof or of any Related Entity shall be liable to the Company or its
stockholders for breach of any fiduciary duty or duty of loyalty or failure to
act in (or not opposed to) the best interests of the Company or the derivation
of any improper personal benefit by reason of the fact that Digital or an
officer or director thereof or of such Related Entity in good faith takes any
action or exercises any rights or gives or withholds any consent in connection
with any agreement or contract between Digital or such Related Entity and the
Company. No vote cast or other action
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taken by any person who is an officer, director or other representative of
Digital or such Related Entity, which vote is cast or action is taken by such
person in his capacity as a director of the Company, shall constitute an action
of or the exercise of a right by or a consent of Digital, such subsidiary or
Related Entity for the purpose of any such agreement or contract. For purposes
of the foregoing, the "Company" and "Digital" include all corporations and other
entities in which the Company or Digital, as the case may be, owns fifty percent
or more of the outstanding voting stock, and "Related Entity" means one or more
corporations or other entities in which one or more of the directors of the
Company have a direct or indirect financial interest.
Competition by Digital with the Company; Corporate Opportunities
The Company's Amended and Restated Certificate of Incorporation provides
that except as Digital may otherwise agree in writing:
(i) neither Digital nor any subsidiary of Digital (other than the
Company) shall have a duty to refrain from engaging directly or indirectly
in the same or similar business activities or lines of business as the
Company; and
(ii) neither Digital nor any subsidiary (other than the Company),
officer or director thereof will be liable to the Company or to its
stockholders for breach of any fiduciary duty by reason of any such
activities or of such person's participation therein.
The Company's Amended and Restated Certificate of Incorporation also
provides that if Digital or any subsidiary of Digital (other than the Company)
acquires knowledge of a potential transaction or matter which may be a corporate
opportunity both for Digital or such subsidiary and for the Company, neither
Digital nor such subsidiary (nor the officers and directors of either thereof)
shall have a duty to communicate or offer such corporate opportunity to the
Company and shall not be liable to the Company or its stockholders for breach of
fiduciary duty as a stockholder of the Company or controlling person of a
stockholder by reason of the fact that Digital or such subsidiary pursues or
acquires such opportunity for itself, directs such corporate opportunity to
another person, or does not communicate information regarding such corporate
opportunity to the Company.
Further, the Company's Amended and Restated Certificate of Incorporation
provides that in the event that a director, officer or employee of the Company
who is also a director, officer or employee of Digital acquires knowledge of a
potential transaction or matter that may be a corporate opportunity both for the
Company and Digital (whether such potential transaction or matter is proposed by
a third party or is conceived of by such director, officer or employee of the
Company), such director, officer or employee shall be entitled to offer such
corporate opportunity to the Company or Digital as such director, officer or
employee deems appropriate under the circumstances in his or her sole
discretion, and no such director, officer or employee shall be liable to the
Company or its stockholders for breach of any fiduciary duty or duty of loyalty
or failure to act in (or not opposed to) the best interests of the Company or
the derivation of any improper personal benefit by reason of the fact that (i)
such director, officer or employee offered such corporate opportunity to Digital
(rather than the Company) or did not communicate information regarding such
corporate opportunity to the Company or (ii) Digital pursues or acquires such
corporate opportunity for itself or directs such corporate opportunity to
another person or does not communicate information regarding such corporate
opportunity to the Company.
The enforceability of the provisions discussed above under Delaware
corporate law has not been established and, due to the absence of relevant
judicial authority, counsel to the Company is not able to deliver an opinion as
to the enforceability of such provisions. These provisions of the Company's
Amended and Restated Certificate of Incorporation eliminate certain rights that
might have been available to stockholders under Delaware law had such provisions
not been included in the Amended and Restated Certificate of Incorporation,
although the enforceability of such provisions has not been established.
At the time of the consummation of the Offering, certain of the directors
of the Company will also be employees of Digital.
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<PAGE> 64
The foregoing provisions of the Company's Amended and Restated Certificate
of Incorporation shall expire on the date that Digital ceases to own
beneficially Common Stock representing at least 20% of the number of outstanding
shares of Common Stock and no person who is a director or officer of the Company
is also a director or officer of Digital or its subsidiaries.
Actions Under Intercompany Agreements
The Company's Amended and Restated Certificate of Incorporation will also
limit the liability of Digital and its subsidiaries for certain breaches of
their fiduciary duties in connection with action that may be taken or not taken
in good faith under the intercompany agreements. See "Relationship with
Digital."
Advance Notice Provision
The Company's Amended and Restated By-Laws provide for an advance notice
procedure for the nomination, other than by or at the direction of the Board of
Directors, of candidates for election as directors as well as for other
stockholder proposals to be considered at annual meetings of stockholders. In
general, notice of intent to nominate a director or raise matters at such
meetings will have to be received by the Company not less than 120 or more than
150 days prior to the first anniversary of the Company's proxy statement in
connection with the previous year's annual meeting, and must contain certain
information concerning the person to be nominated or the matters to be brought
before the meeting and concerning the stockholder submitting the proposal.
Limitations on Directors' Liability
The Company's Amended and Restated Certificate of Incorporation and the
applicable provisions of the DGCL provide that no director of the Company shall
be liable to the Company or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Company or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) in respect of certain unlawful dividend payments or
stock redemptions or repurchases or (iv) for any transaction from which the
director derived an improper personal benefit. The effect of these provisions
will be to eliminate the rights of the Company and its stockholders (through
stockholders' derivative suits on behalf of the Company) to recover monetary
damages against a director for breach of fiduciary duty as a director (including
breaches resulting from grossly negligent behavior), except in the situations
described above.
The Delaware General Corporation Law
The Company is a Delaware corporation subject to Section 203 of the DGCL.
Section 203 provides that, subject to certain exceptions specified therein, a
corporation shall not engage in any business combination with any "interested
stockholder" for a three-year period following the date that such stockholder
becomes an interested stockholder unless: (i) prior to such date, the Board of
Directors of the corporation approved either the business combination or the
transaction which resulted in the stockholder becoming an interested
stockholder; (ii) upon consummation of the transaction which resulted in the
stockholder becoming an interested stockholder, the interested stockholder owned
at least 85% of the voting stock of the corporation outstanding at the time the
transaction commenced (excluding certain shares); or (iii) on or subsequent to
such date, the business combination is approved by the Board of Directors of the
corporation and by the affirmative vote of at least 66% of the outstanding
voting stock which is not owned by the interested stockholder. Except as
specified in Section 203 of the DGCL, an interested stockholder is defined to
include (x) any person that is the owner of 15% or more of the outstanding
voting stock of the corporation, or is an affiliate or associate of the
corporation and was the owner of 15% or more of the outstanding voting stock of
the corporation, at any time within three years immediately prior to the
relevant date and (y) the affiliates and associates of any such person. Under
certain circumstances, Section 203 of the DGCL makes it more difficult for an
"interested stockholder" to effect various business combinations with a
corporation for a three-year period, although the stockholders of a corporation
may elect to exclude a corporation from the restrictions imposed thereunder. By
virtue of its beneficial ownership of Class B Common Stock, Digital is in a
position to
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<PAGE> 65
elect to exclude the Company from the restrictions under Section 203 of the
DGCL, although it currently has no intention to do so.
TRANSFER AGENT
The Company's transfer agent and registrar for its Common Stock is First
Chicago Trust Company of New York.
CERTAIN UNITED STATES FEDERAL TAX CONSEQUENCES TO NON-UNITED
STATES HOLDERS
The following is a general discussion of the material United States federal
income and estate tax consequences of the ownership and disposition of the
Common Stock applicable to Non-United States Holders of such Common Stock. For
the purposes of this discussion, a "Non-United States Holder" is any person
other than (i) a citizen or resident of the United States, (ii) a corporation,
partnership or other entity created or organized in the United States or under
the laws of the United States or any state, or (iii) an estate or trust the
income of which is includible in gross income for United States federal income
tax purposes regardless of its source. The term "Non-United States Holder" does
not include individuals who were United States citizens within the ten-year
period immediately preceding the date of this Prospectus and whose loss of
United States citizenship had as one of its principal purposes the avoidance of
United States taxes. This discussion does not deal with all aspects of United
States federal income and estate taxation and does not deal with foreign, state
and local tax consequences that may be relevant to Non-United States Holders in
light of their personal circumstances. Furthermore, the following discussion is
based on current provisions of the Code and administrative and judicial
interpretations as of the date hereof, all of which are subject to change.
Prospective non-United States investors are urged to consult their tax advisors
regarding the United States federal, state, local and non-United States income
and other tax consequences of owning and disposing of Common Stock.
DIVIDENDS
Generally, any dividend paid to a Non-United States Holder of Common Stock
will be subject to United States withholding tax either at a rate of 30% of the
gross amount of the dividend or such lower rate as may be specified by an
applicable tax treaty. Under current United States Treasury regulations,
dividends paid to an address outside the United States are presumed to be paid
to a resident of such country (absent knowledge that such presumption is not
warranted) for purposes of the withholding discussed above and, under the
current interpretation of United States Treasury regulations, for purposes of
determining applicability of a tax treaty rate. However, under proposed United
States Treasury regulations not currently in effect, a Non-United States Holder
of Common Stock (including a beneficial owner of an interest in certain
Non-United States Holders) who wishes to claim the benefit of an applicable
treaty rate would be required to satisfy certain certification and disclosure
requirements. Dividends received by a Non-United States Holder that are
effectively connected with a United States trade or business conducted by such
Non-United States Holder are exempt from such withholding tax. However, such
effectively connected dividends, net of certain deductions and credits, are
taxed at the same graduated rates applicable to United States persons.
Currently, certain certification and disclosure requirements must be complied
with in order to be exempt from withholding under the effectively connected
income exemption.
In addition to the graduated tax described above, dividends received by a
corporate Non-United States Holder that are effectively connected with a United
States trade or business of the corporate Non-United States Holder may also be
subject to a branch profits tax at a rate of 30% or such lower rate as may be
specified by an applicable tax treaty.
A Non-United States Holder of Common Stock eligible for a reduced rate of
United States withholding tax pursuant to a tax treaty may obtain a refund of
any excess amounts currently withheld by filing an appropriate claim for refund
with the U.S. Internal Revenue Service.
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<PAGE> 66
GAIN ON DISPOSITION OF COMMON STOCK
A Non-United States Holder generally will not be subject to United States
federal income tax on any gain realized upon the sale or other disposition of
his Common Stock unless: (i) such gain is effectively connected with a United
States trade or business of the Non-United States Holder; (ii) the Non-United
States Holder is an individual who holds such Common Stock as a capital asset
and who is present in the United States for 183 days or more during the calendar
year in which such sale or disposition occurs and certain other conditions are
met; or (iii) the Company is or has been a "United States real property holding
corporation" for federal income tax purposes at any time within the shorter of
the five-year period preceding such disposition or such holder's holding period.
The Company has determined that it is not and does not believe that it will
become a "United States real property holding corporation" for federal income
tax purposes. If the Company were to become a "United States real property
holding corporation," gains realized on a disposition of Common Stock by a
Non-United States Holder which did not directly or indirectly own more than 5%
of the Common Stock during the shorter of the periods described above generally
would not be subject to United States federal income tax, provided that the
Common Stock is "regularly traded" on an established securities market.
An individual Non-United States Holder described in clause (i) above will
be taxed on the net gain derived from the sale under regular graduated United
States federal income tax rates. An individual Non-United States Holder
described in clause (ii) above will be subject to a flat 30% tax on the gain
derived from the sale, which may be offset by United States capital losses
(notwithstanding the fact that the individual is not considered a resident of
the United States). If a Non-United States Holder that is a foreign corporation
falls under clause (i) above, it will be taxed on its gain under regular
graduated United States federal income tax rates and, in addition, may be
subject to the branch profits tax equal to 30% of its effectively connected
earnings and profits within the meaning of the Code for the taxable year, as
adjusted for certain items, unless it qualifies for a lower rate under an
applicable income tax treaty.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Generally, the Company must report to the U.S. Internal Revenue Service the
amount of dividends paid, the name and address of the recipient of such
dividends, and the amount, if any, of tax withheld. A similar report is sent to
the recipient of such dividends. Pursuant to tax treaties or other agreements,
the U.S. Internal Revenue Service may make its reports available to tax
authorities in the recipient's country of residence.
Under current Treasury Regulations, dividends paid to a Non-United States
Holder at an address within the United States may be subject to backup
withholding at a rate of 31% if the Non-United States Holder fails to establish
that it is entitled to an exemption or to provide a correct taxpayer
identification number and other information to the payor. Under current Treasury
Regulations, backup withholding will generally not apply to dividends paid to
Non-United States Holders at an address outside the United States (unless the
payor has knowledge that the payee is a U.S. person). Under proposed United
States Treasury regulations not currently in effect, however, a Non-United
States Holder will be subject to back-up withholding unless applicable
certification requirements are met.
Under current Treasury Regulations, the payment of the proceeds of the
disposition of Common Stock to or through the United States office of a broker
is subject to information reporting and backup withholding at a rate of 31%
unless the holder certifies its Non-United States Holder status under penalties
of perjury or otherwise establishes an exemption. Generally, the payment of the
proceeds of the disposition by a Non-United States Holder of Common Stock
outside the United States to or through a foreign office of a broker will not be
subject to backup withholding. However, information reporting requirements (but
not backup withholding) will apply to a payment of disposition proceeds outside
the United States through an office outside the United States of a broker that
is (a) a United States person, (b) a United States "controlled foreign
corporation" for U.S. tax purposes or (c) a foreign person 50% or more of whose
gross income for certain periods is from the conduct of a United States trade or
business unless such broker has documentary evidence in its files of the owner's
foreign status and has no knowledge to the contrary or the holder otherwise
establishes an exemption.
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<PAGE> 67
Backup withholding is not an additional tax. Rather, the tax liability of
persons subject to backup withholding will be reduced by the amount of tax
withheld. If withholding results in an overpayment of taxes, a refund may be
obtained, provided that the required information is furnished to the U.S.
Internal Revenue Service.
ESTATE TAX
A Non-United States Holder who is an individual and who owns Common Stock
at the time of his death or has made certain lifetime transfers of an interest
in Common Stock will be required to include the value of such stock in his gross
estate for United States federal estate tax purposes, unless an applicable
estate tax treaty provides otherwise.
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<PAGE> 68
UNDERWRITING
The underwriters of the U.S. Offering of the Class A Common Stock (the
"U.S. Underwriters"), for whom Lehman Brothers Inc., Cowen & Company and J.P.
Morgan Securities Inc. are serving as representatives (the "Representatives"),
have severally agreed, subject to the terms and conditions of the U.S.
Underwriting Agreement, the form of which is filed as an exhibit to the
Registration Statement, to purchase from the Company, and the Company has agreed
to sell to each U.S. Underwriter, the following number of shares of Class A
Common Stock at the public offering price less the underwriting discounts and
commissions set forth on the cover page of this Prospectus:
<TABLE>
<CAPTION>
U.S. UNDERWRITERS NUMBER OF SHARES
--------------------------------------------------------------------- ----------------
<S> <C>
Lehman Brothers Inc. ................................................
Cowen & Company......................................................
J.P. Morgan Securities Inc. .........................................
----------------
Total......................................................
=============
</TABLE>
The managers of the International Offering named below (the "International
Managers"), for whom Lehman Brothers International (Europe), Cowen & Company and
J.P. Morgan Securities Ltd. are acting as lead managers, have severally agreed,
subject to the terms and conditions of the International Underwriting Agreement,
the form of which is filed as an exhibit to the Registration Statement, to
purchase from the Company, and the Company has agreed to sell to each
International Manager, the following aggregate number of shares of Class A
Common Stock at the public offering price less the underwriting discounts and
commissions set forth on the cover page of this Prospectus:
<TABLE>
<CAPTION>
INTERNATIONAL MANAGERS NUMBER OF SHARES
--------------------------------------------------------------------- ----------------
<S> <C>
Lehman Brothers International (Europe)...............................
Cowen & Company......................................................
J.P. Morgan Securities Ltd. .........................................
----------------
Total......................................................
=============
</TABLE>
The U.S. Underwriting Agreement and the International Underwriting
Agreement (collectively, the "Underwriting Agreements") provide that the
obligations of the U.S. Underwriters and the International Managers,
respectively, to purchase shares of Class A Common Stock are subject to the
approval of certain legal matters by counsel and to certain other conditions and
that if any of the shares of Class A Common Stock are purchased by the U.S.
Underwriters pursuant to the U.S. Underwriting Agreement or by the International
Managers pursuant to the International Underwriting Agreement, all the shares of
Class A Common Stock agreed to be purchased by either the U.S. Underwriters or
the International Managers, as the case may be, pursuant to their respective
Underwriting Agreement, must be so purchased. The offering price and
underwriting discounts and commissions for the U.S. Offering and the
International Offering are identical. The closing of the International Offering
is a condition to the closing of the U.S. Offering and the closing of the U.S.
Offering is a condition to the closing of the International Offering.
The Company has been advised that the U.S. Underwriters and the
International Managers propose to offer shares of Class A Common Stock directly
to the public initially at the public offering price set forth on the cover page
of this Prospectus and to certain selected dealers (who may include the U.S.
Underwriters and International Managers) at such public offering price less a
selling concession not to exceed $ per share. The Underwriters may allow and
the selected dealers may reallow a concession not to exceed $ per share.
After the initial offering of the Class A Common Stock, the public offering
price, the concession to selected
67
<PAGE> 69
dealers and the reallowance to other dealers may be changed by the U.S.
Underwriters and the International Managers. The Representatives have informed
the Company that the Underwriters do not intend to confirm sales of shares of
Class A Common Stock to any accounts over which they exercise discretionary
authority.
The U.S. Underwriters and the International Managers have entered into an
Agreement Between U.S. Underwriters and International Managers (the "Agreement
Between") pursuant to which each U.S. Underwriter has agreed that, as part of
the distribution of the shares of Class A Common Stock offered in the U.S.
Offering, (a) it is not purchasing any of such shares for the account of anyone
other than a U.S. or Canadian Person (as defined below) and (b) it has not
offered or sold, and will not offer, sell, resell or deliver, directly or
indirectly, any of such shares or distribute any prospectus relating to the U.S.
Offering outside the United States or Canada or to anyone other than a U.S. or
Canadian Person. In addition, pursuant to the Agreement Between, each
International Manager has agreed that, as part of the distribution of the shares
of Class A Common Stock offered in the International Offering, (a) it is not
purchasing any of such shares for the account of any U.S. or Canadian Person and
(b) it has not offered or sold, and will not offer, sell, resell or deliver,
directly or indirectly, any of such shares or distribute any prospectus relating
to the International Offering within the United States or Canada or to any U.S.
or Canadian Person. The foregoing limitations do not apply to stabilization
transactions or to certain other transactions specified in the Underwriting
Agreements and the Agreement Between, including (i) certain purchases and sales
between the U.S. Underwriters and the International Managers; (ii) certain
offers, sales, resales, deliveries or distributions to or through investment
advisors or other persons exercising investment discretion; (iii) purchases,
offers or sales by a U.S. Underwriter who is also acting as an International
Manager or by an International Manager who also is acting as a U.S. Underwriter
and (iv) other transactions specifically approved by the U.S. Underwriters and
International Managers. As used herein, "U.S. or Canadian Person" means any
resident or citizen of the United States or Canada, any corporation, pension,
profit sharing or other trust or other entity organized under or governed by the
laws of the United States or Canada or any political subdivision thereof (other
than the foreign branch of any United States or Canadian Person), any estate or
trust the income of which is subject to United States or Canadian federal income
taxation regardless of the source of its income, and any United States or
Canadian branch of a person other than a United States or Canadian Person. The
term "United States" means the United States of America (including the states
thereof and the District of Columbia) and its territories, its possessions and
other areas subject to its jurisdiction. The term "Canada" means the provinces
of Canada, its territories, its possessions and other areas subject to its
jurisdiction.
Pursuant to the Agreement Between, sales may be made among the U.S.
Underwriters and the International Managers of such number of shares of Class A
Common Stock as may be mutually agreed. The price of any shares so sold shall be
the public offering price as then in effect for Class A Common Stock being sold
by the U.S. Underwriters and International Managers, less an amount not greater
than the selling concession unless otherwise determined by mutual agreement. To
the extent that there are sales pursuant to the Agreement Between, the number of
shares initially available for sale by the U.S. Underwriters and the
International Managers may be more or less than the amount specified on the
cover page of this Prospectus.
Each International Manager has represented and agreed that: (i) it has not
offered or sold and, prior to the date six months after the date of issue of the
shares of Class A Common Stock, will not offer or sell any shares of Class A
Common Stock to persons in the United Kingdom except to persons whose ordinary
activities involve them in acquiring, holding, managing or disposing of
investments (as principal or agent) for the purposes of their businesses or
otherwise in circumstances which have not resulted and will not result in an
offer to the public in the United Kingdom within the meaning of the Public
Offers of Securities Regulations 1995; (ii) it has complied and will comply with
all applicable provisions of the Financial Services Act 1986 with respect to
anything done by it in relation to the Class A Common Stock in, from or
otherwise involving the United Kingdom; and (iii) it has only issued or passed
on, and will only issue or pass on, to any person in the United Kingdom, any
document received by it in connection with the issue of the Class A Common Stock
if that person is of a kind described in Article 11(3) of the Financial Services
Act 1986 (Investment Advertisements) (Exemptions) Order 1995.
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<PAGE> 70
Purchasers of the shares offered pursuant to the Offering may be required
to pay stamp taxes and other charges in accordance with the laws and practices
of the country of purchase in addition to the offering price set forth on the
cover page hereof.
The Company has granted to the U.S. Underwriters and the International
Managers options to purchase up to an additional and shares of
Class A Common Stock, respectively, at the initial public offering price less
the aggregate underwriting discounts and commissions shown on the cover page of
this Prospectus, solely to cover over-allotments, if any. The options may be
exercised at any time up to 30 days after the date of this Prospectus. To the
extent that the U.S. Underwriters and the International Managers exercise such
options, each of the U.S. Underwriters and the International Managers, as the
case may be, will be committed (subject to certain conditions) to purchase a
number of option shares proportionate to such U.S. Underwriter's or
International Manager's initial commitment.
The Company and Digital have agreed to indemnify the U.S. Underwriters and
the International Managers against certain liabilities, including liabilities
under the Securities Act, and to contribute to payments which the U.S.
Underwriters and the International Managers may be required to make in respect
thereof.
The Company and Digital have also agreed that they will not, without the
prior written consent of Lehman Brothers Inc., offer, sell, grant any options to
purchase or otherwise dispose of any shares of Common Stock within 180 days
after the date of this Prospectus, other than (i) the shares of Class A Common
Stock to be sold to the Underwriters in the Offering, (ii) the issuance of
options and sales of Common Stock pursuant to currently existing stock-based
compensation plans, (iii) sales of shares to Digital, and (iv) the issuance of
shares of Common Stock as consideration for the acquisition of one or more
businesses (provided that such Common Stock may not be resold prior to the
expiration of the 180-day period referenced above). See "Shares Eligible for
Future Sale."
Certain of the Underwriters from time to time have performed various
investment banking services for Digital and its subsidiaries.
Prior to the Offering there has been no public market for the Common Stock.
The initial public offering price for the Class A Common Stock will be
determined by negotiation among the Company and the Representatives. Among the
factors to be considered in determining the initial public offering price will
be prevailing market and economic conditions, estimates of the business
potential and prospects of the Company, the state of the Company's business
operations, an assessment of the Company's management, the consideration of the
above factors in relation to market valuations of companies in related
businesses and other factors deemed relevant. The estimated initial public
offering price range set forth on the cover page of this preliminary prospectus
is subject to change as a result of market conditions and other factors.
LEGAL MATTERS
The validity of the shares of Class A Common Stock offered hereby will be
passed upon for the Company by Testa, Hurwitz & Thibeault, LLP, Boston,
Massachusetts. Certain legal matters in connection with the Offering will be
passed upon for the Underwriters by Simpson Thacher & Bartlett (a partnership
which includes professional corporations), New York, New York.
EXPERTS
The balance sheet of AltaVista Internet Software, Inc. as of June 29, 1996
and the balance sheets of AltaVista Internet Software Products as of June 29,
1996 and July 1, 1995 and the statements of operations, net parent's investment
and cash flows of AltaVista Internet Software Products for each of the three
fiscal years in the period ended June 29, 1996 included in this Prospectus have
been included herein in reliance on the report of Coopers & Lybrand L.L.P.,
independent accountants, given on the authority of that firm as experts in
accounting and auditing.
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<PAGE> 71
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 (including all amendments thereto, the "Registration Statement") under the
Securities Act with respect to the Common Stock offered hereby. As permitted by
the rules and regulations of the Commission, this Prospectus omits certain
information contained in the Registration Statement. For further information
with respect to the Company and the Common Stock offered hereby, reference is
hereby made to the Registration Statement and to the exhibits and schedules
filed therewith. Statements contained in this Prospectus regarding the contents
of any agreement or other document filed as an exhibit to the Registration
Statement are not necessarily complete, and in each instance reference is made
to the copy of such agreement filed as an exhibit to the Registration Statement,
each such statement being qualified in all respects by such reference. The
Registration Statement, including the exhibits and schedules thereto, may be
inspected at the public reference facilities maintained by the Commission at 450
Fifth Street, N.W., Washington, DC 20549, and copies of all or any part thereof
may be obtained from such office upon payment of the prescribed fees. In
addition, the Commission maintains a Web site that contains reports, proxy and
information statements and other information regarding registrants (including
the Company) that file electronically with the Commission which can be accessed
at http://www.sec.gov.
REPORTS TO SECURITY HOLDERS
The Company intends to furnish holders of its Class A Common Stock offered
hereby with annual reports containing financial statements audited by
independent accountants.
70
<PAGE> 72
ALTAVISTA INTERNET SOFTWARE, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ALTAVISTA INTERNET SOFTWARE, INC.
Report of Independent Accountants................................................... F-2
Balance Sheet as of June 29, 1996................................................... F-3
Notes to Balance Sheet.............................................................. F-4
ALTAVISTA INTERNET SOFTWARE PRODUCTS
Report of Independent Accountants................................................... F-10
Statements of Operations for the fiscal years ended July 2, 1994, July 1, 1995 and
June 29, 1996.................................................................... F-11
Balance Sheets as of July 1, 1995 and June 29, 1996................................. F-12
Statements of Cash Flows for the fiscal years ended July 2, 1994, July 1, 1995 and
June 29, 1996.. F-13
Statements of Net Parent's Investment for the fiscal years ended July 2, 1994, July
1, 1995 and June 29, 1996........................................................ F-14
Notes to Financial Statements....................................................... F-15
</TABLE>
F-1
<PAGE> 73
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholder of
AltaVista Internet Software, Inc.:
We have audited the accompanying balance sheet of AltaVista Internet
Software, Inc. as of June 29, 1996. This balance sheet is the responsibility of
the Company's management. Our responsibility is to express an opinion on this
balance sheet based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. 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 audit provides us a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of AltaVista Internet Software, Inc.
as of June 29, 1996 in conformity with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
August 26, 1996
F-2
<PAGE> 74
ALTAVISTA INTERNET SOFTWARE, INC.
BALANCE SHEET
JUNE 29, 1996
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash.............................................................................. $1,000
======
STOCKHOLDER'S EQUITY
Common stock, $0.01 par value; 1,000,000 shares
authorized; 1,000 shares issued and outstanding................................... $ 10
Paid-in capital..................................................................... 990
Retained earnings................................................................... --
------
Total stockholder's equity................................................ $1,000
======
</TABLE>
The accompanying notes are an integral part of the balance sheet.
F-3
<PAGE> 75
ALTAVISTA INTERNET SOFTWARE, INC.
NOTES TO BALANCE SHEET
1. ORGANIZATION
AltaVista Internet Software, Inc. (the "Company") was incorporated on June
28, 1996 and, except for organizational matters and activities undertaken in
connection with the proposed initial public offering of its common stock (the
"offering"), has been inactive since that date. As a result, the Company has not
had any income or expenses. On June 28, 1996, the Company issued 1,000 shares of
common stock to its sole stockholder, Digital Equipment Corporation ("Digital"),
for cash.
2. SUBSEQUENT EVENTS
AltaVista Internet Software, Inc. intends to enter into an agreement with
Digital pursuant to which AltaVista Internet Software Products (the "Business")
will contribute its assets to the Company and the Company will assume the
liabilities relating to the Business. On July 18, 1996, the Company opened a
subsidiary in the Netherlands under the name AltaVista Internet Software, B.V.
Prior to the consummation of the offering, the Company's certificate of
incorporation will be amended to authorize 50,000,000 shares of Class A common
stock and 50,000,000 shares of Class B common stock, each with a par value of
$0.01 per share. Holders of Class A common stock generally will have identical
rights to holders of Class B common stock except that holders of Class A common
stock will be entitled to one vote per share while holders of Class B common
stock will be entitled, with certain exceptions, to three votes per share on all
matters submitted to a vote of stockholders. Each share of Class B common stock
will be convertible while held by Digital or any of its subsidiaries into one
share of Class A common stock. The amended and restated certificate of
incorporation will also authorize 5,000,000 shares of preferred stock that may
be issued at the discretion of the Board of Directors. The Board is authorized
to determine the voting, dividend, redemption and liquidation preferences and
limitations of any preferred stock that may be issued.
Potential Conflicts of Interest
The Company's amended and restated certificate of incorporation includes
provisions relating to competition by Digital with the Company, allocations of
corporate opportunities, transactions with interested parties and intercompany
agreements and provisions limiting the liability of certain persons. Various
conflicts of interest between the Company and Digital could arise following the
consummation of the offering, and persons serving as directors, officers and
employees of both the Company and Digital may have conflicting duties to each.
The members of the Board of Directors of the Company who are affiliated with
Digital will consider not only the short-term and long-term impact of financial
and operating decisions on the Company, but also the impact of such decisions on
Digital's consolidated financial results. In some instances, the impact of such
decisions could be disadvantageous to the Company while advantageous to Digital,
or vice versa.
Agreements with Digital
The Company's relationship with Digital will be governed by intercompany
agreements. It is anticipated that such agreements will be entered into prior to
the consummation of the offering. With respect to matters covered by the
services agreement, the relationship between Digital and the Company is intended
to continue in a manner generally consistent with past practices. Because the
Company is a wholly-owned subsidiary of Digital, none of these arrangements will
result from arm's-length negotiations and, therefore, the prices charged to the
Company for services provided thereunder may be higher or lower than prices that
may be charged by third parties.
Services Agreement
The Company and Digital intend to enter into an intercompany services and
operating agreement (the "Services Agreement") with respect to services to be
provided by Digital (or subsidiaries of Digital) to the Company. Under the
Services Agreement, certain services will be provided in exchange for fees which
are
F-4
<PAGE> 76
ALTAVISTA INTERNET SOFTWARE, INC.
NOTES TO BALANCE SHEET -- (CONTINUED)
based on Digital's costs for such services and are consistent in all material
respects with the allocation of the costs of such services set forth in the
financial statements of the Business. The services initially to be provided by
Digital to the Company under the Services Agreement include, among other things,
certain accounting, administration, cash management, employee benefit plan
administration, legal, risk management, tax and treasury services. The Company
may request an expansion or termination of services, in which case the parties
will discuss, without obligation, the provision or termination of such services
and an appropriate change or reduction in charges for such services. In the
event Digital proposes changes in billing methodology which would result in a
significant increase (being the greater of a 10% or $100,000) in costs for the
affected services, the Company may terminate such services.
In addition to the identified services, Digital intends to agree to
continue coverage of the Company under Digital's umbrella liability, property,
casualty and fiduciary insurance policies. The Company intends to agree to
reimburse Digital for the portion of Digital's premium cost with respect to such
insurance that is attributable to coverage of the Company. Either Digital or the
Company may terminate such coverage under Digital's policies at any time on 90
days' written notice.
Also, in addition to the identified services, Digital intends to agree to
allow eligible employees of the Company to participate in certain Digital
employee benefit plans. In addition to a monthly service fee under the Services
Agreement, the Company intends to agree to reimburse Digital for Digital's costs
(including any contributions and premium costs and including certain third-party
expenses and allocations of certain personnel expenses), generally in accordance
with past practice, relating to participation by the Company's employees in any
of Digital's benefit plans.
The Services Agreement will have an initial term of two years and will be
renewed automatically thereafter for successive one-year terms unless either the
Company or Digital elects not to renew it. After the initial 2-year term, the
Services Agreement may be terminated at any time by either party upon 90 days'
written notice. The Services Agreement may also be terminated at any time upon
90 days' written notice, if Digital ceases to own shares of common stock
representing more than 50% of the combined voting power of the common stock of
the Company.
Facilities Agreement
The Company and Digital intend to enter into an intercompany facilities
agreement (the "Facilities Agreement"). The Facilities Agreement provides that
the Company may occupy space located in facilities owned or leased by Digital in
exchange for rental fees determined at charges comparable to those charged to
other businesses operated by Digital.
The Facilities Agreement has an initial term of two years and is renewable
automatically thereafter for successive one-year terms unless either the Company
or Digital elects not to renew it. The Facilities Agreement is subject to early
termination by either the Company or Digital upon six months' written notice if
Digital ceases to own shares of common stock representing more than 50% of the
combined voting power of the common stock of the Company, and by the Company
with respect to any particular facility upon 30 days' written notice for any
reason. The Company's use of any particular property subject to the Facilities
Agreement is limited by the term of any underlying lease between Digital and a
landlord with respect to those properties leased by Digital and by any
disposition by Digital of any property owned by it.
Tax-Sharing Agreement
The Business is, and immediately after the offering the Company will
continue to be, included in Digital's federal consolidated income tax group, and
the Company's federal income tax liability will be included in the consolidated
federal income tax liability of Digital and its subsidiaries. In certain
circumstances, the Company and certain of its subsidiaries will also be included
with certain other subsidiaries of Digital in combined, consolidated or unitary
income tax groups for state and local tax purposes. The Company and Digital
intend to
F-5
<PAGE> 77
ALTAVISTA INTERNET SOFTWARE, INC.
NOTES TO BALANCE SHEET -- (CONTINUED)
enter into a tax-sharing agreement (the "Tax-Sharing Agreement") pursuant to
which the Company and Digital will make payments between them such that, with
respect to any period, the amount of taxes to be paid by the Company, subject to
certain adjustments, will be determined as though the Company were to file
separate federal, state and local income tax returns. Pursuant to the
Tax-Sharing Agreement, under certain circumstances, the Company will be
reimbursed for tax attributes, such as net operating losses, that it generates
after the offering. Such reimbursement, if any, will be made for utilization of
the Company's losses only after Digital's losses are fully utilized.
Reimbursement will not be made for losses incurred by the Company while Digital
is subject to the alternative minimum tax. Under the Tax-Sharing Agreement, the
Company will pay Digital a fee intended to reimburse Digital for all direct and
indirect costs and expenses incurred with respect to the Company's share of the
overall costs and expenses incurred by Digital with respect to tax related
services.
In general, the Company will be included in Digital's consolidated group
for federal income tax purposes for so long as Digital beneficially owns at
least 80% of the total voting power and value of the outstanding common stock.
Each member of a consolidated group is jointly and severally liable for the
federal income tax liability of each other member of the consolidated group.
Accordingly, although the Tax-Sharing Agreement allocates tax liabilities
between the Company and Digital, during the period in which the Company is
included in Digital's consolidated group, the Company could be liable in the
event that any federal tax liability is incurred, but not discharged, by any
other member of Digital's consolidated group.
Asset Transfer and License Agreement
The Company and Digital intend to enter into an asset transfer and license
agreement (the "Asset Transfer Agreement") which will provide for the transfer
to the Company of all assets and the assumption by the Company of all
liabilities that relate principally to the Company's business, including all
assets and liabilities reflected on the AltaVista Internet Software Products
Balance Sheet included in this Prospectus as adjusted to give effect to the
conduct of the Company's business in the ordinary course from such balance sheet
date to the date of transfer.
Pursuant to the Asset Transfer Agreement, Digital will assign to the
Company all of Digital's rights in the AltaVista trademark and logo and will
license to the Company all of its Internet addresses. Digital will retain the
right to use such trademarks in advertising, marketing literature and corporate
communications that refer to the Company.
Under the Asset Transfer Agreement, Digital will grant the Company a
non-exclusive, irrevocable, royalty-free license to all Digital patents and
pending and future patent applications covering inventions made as of the
consummation of the offering that are embodied in the Company's products and
services. Under this license, the Company will have a right to sell to its
customers products embodying technology covered by the patents. The Company will
not otherwise have a right to sublicense its rights under this license or to
assign or transfer the license except in connection with a change of control of
the Company or the sale of all or substantially all of the Company's assets. The
Company may not prevent Digital from granting other licenses under such patents,
will not be able to realize licensing revenues from any such licenses, cannot
require Digital to enforce any such patents against competitors of the Company
and cannot control any enforcement proceedings Digital undertakes.
Under the Asset Transfer Agreement, Digital will assign to the Company all
of Digital's rights in software code developed specifically for and included in
the Company's products and services, subject to the terms of the patent license
described above ("Transferred Code"). Digital will retain an irrevocable,
royalty-free license to use Transferred Code for its internal use, including
research and development. All rights to any performance or functionality
improvements or enhancements ("Modifications") to Transferred Code developed by
or on behalf of Digital will be owned by Digital; provided, however, that
Digital will grant the Company an irrevocable, royalty-free license to use
Modifications developed by Digital during the two years
F-6
<PAGE> 78
ALTAVISTA INTERNET SOFTWARE, INC.
NOTES TO BALANCE SHEET -- (CONTINUED)
following the consummation of the offering. Similarly, all rights to any
Modifications developed by or on behalf of the Company will be owned by the
Company; provided, however, that the Company will grant to Digital an
irrevocable, royalty-free license to use for Digital's internal use
Modifications developed by the Company during the two years following the
consummation of the offering.
For two years following the consummation of the offering, Digital will not
have the right to commercialize any new software product derived from
Transferred Code ("Derived Software") that is designed for use primarily in the
Internet/intranet market, that runs on Windows, Windows NT or UNIX platforms and
that offers functionality substantially similar to any of the AltaVista Products
as of the consummation of the offering. Notwithstanding the foregoing, Digital
will be free to commercialize without restriction any Digital product, excluding
the AltaVista products, existing as of the consummation of the Offering that
includes Transferred Code as of the consummation of the Offering without
restriction.
Under the Asset Transfer Agreement, Digital will retain all of its rights
in software code used in, but not developed specifically for, the Company's
products ("Shared Code"). Digital will grant the Company a non-exclusive,
irrevocable, royalty-free license to use Shared Code. Under the license, the
Company will have the right to sell to its customers products containing Shared
Code. The Company will not otherwise have a right to sublicense its rights or to
assign or transfer such license except in connection with a change of control of
the Company or the sale of all or substantially all of the Company's assets.
Pursuant to the Asset Transfer Agreement, Digital will license to the
Company all its rights in all know-how related to and necessary to use, make and
sell the Company's products. Any third party technology used in the Company's
products will, to the extent permitted, be sublicensed or assigned by Digital to
the Company under the Asset Transfer Agreement.
Technical Assistance Agreement
The Company intends to enter into a technical assistance agreement (the
"Technical Assistance Agreement") with Digital pursuant to which the Company
may, from time to time, request Digital (including its research laboratories) to
provide consulting and technical assistance to the Company with respect to
technology related to or derived from the Company's products. The Company will
pay Digital fees for any consulting or technical assistance provided by Digital
under the Technical Assistance Agreement at Digital's then prevailing rate for
consulting services. Ownership of and rights to any and all ideas, improvements
and inventions conceived or created under the performance of work under the
Technical Assistance Agreement shall be determined in writing between the
parties prior to Digital performing the work.
Strategic Alliance Agreement
The Company and Digital intend to enter into a strategic alliance agreement
(the "Strategic Alliance Agreement") that grants Digital a license to distribute
the Company's products on a non-exclusive, worldwide basis through Digital's
reseller and distribution networks. The Strategic Alliance Agreement also
designates Digital as an Authorized Service Provider of the Company to provide
training, documentation, technical support and maintenance services to the
Company's customers and end-users. Digital will pay to the Company a fee for the
license and support services as agreed upon in the Digital-AltaVista Fee
Schedule. In addition, the Strategic Alliance Agreement provides that Digital
will loan the Company certain hardware equipment for product development
purposes, and provide the Company with hardware and software for internal use at
Digital's then prevailing rates and prices. Digital and the Company have also
established a joint marketing relationship with respect to the Company's
products and services.
The Strategic Alliance Agreement has an initial term of two years and is
renewable automatically thereafter for successive one-year terms, subject to
termination by either the Company or Digital upon six
F-7
<PAGE> 79
ALTAVISTA INTERNET SOFTWARE, INC.
NOTES TO BALANCE SHEET -- (CONTINUED)
months' written notice if Digital ceases to own shares of common stock
representing more than 50% of the combined voting power of the common stock of
the Company.
Corporate Agreement
The Company and Digital intend to enter into a corporate agreement (the
"Corporate Agreement") under which the Company will grant to Digital a
continuing option, transferable to any of its subsidiaries, to purchase, under
certain circumstances, additional shares of Class B common stock or shares of
nonvoting capital stock of the Company (the "Stock Option"). The Stock Option
may be exercised by Digital simultaneously with the issuance of any equity
security of the Company (other than in the Offering or upon the exercise of the
Underwriters' over-allotment options), with respect to Class B common stock,
only to the extent necessary to maintain its then-existing percentage of the
total voting power and value of the Company and, with respect to shares of
nonvoting capital stock, to the extent necessary to own at least 80% of the
total number of shares of each outstanding class of such stock.
The purchase price of the shares of Class B common stock purchased upon any
exercise of the Stock Option, subject to certain exceptions, will be based on
the market price of a share of Class A common stock. The purchase price of the
shares of nonvoting capital stock purchased upon any exercise of the stock
option, subject to certain exceptions, will be based on the market price at
which such stock may be purchased by third parties. The Stock Option expires in
the event that Digital reduces its beneficial ownership of common stock in the
Company to less than 60% of the number of outstanding shares of common stock.
The Company does not intend to issue additional shares of Class B common stock
except pursuant to the exercise of the Stock Option.
The Corporate Agreement will further provide that, upon the request of
Digital, the Company will use its best efforts to effect the registration under
the applicable federal and state securities laws of any of the shares of Class B
common stock and nonvoting capital stock (and any other securities issued in
respect of or in exchange for either) held by Digital for sale in accordance
with Digital's intended method of disposition thereof, and will take such other
actions as may be necessary to permit the sale thereof in other jurisdictions,
subject to certain limitations specified in the Corporate Agreement. Digital
will also have the right, which it may exercise at any time and from time to
time, to include the shares of Class B common stock and nonvoting capital stock
(and any other securities issued in respect of or in exchange for either) held
by it in certain other registrations of common equity securities of the Company
initiated by the Company on its own behalf or on behalf of its other
stockholders. The Company will agree to pay all out-of-pocket costs and expenses
(other than the underwriters' discounts and commissions and transfer taxes) in
connection with each such registration that Digital requests or in which Digital
participates. Subject to certain limitations specified in the Corporate
Agreement, such registration rights will be assignable by Digital and its
assignees.
Equity Incentive Plan
The Company intends to adopt, subject to Board of Directors and stockholder
approval, the Equity Incentive Plan (the "Incentive Plan") under which awards of
common stock options and restricted and unrestricted common stock, and deferred
stock may be granted to employees, officers and directors of, or consultants to,
the Company. Options granted under the Incentive Plan may be either incentive
stock options or non-statutory stock options. Incentive stock options granted
have an exercise price not less than fair market value of the stock at the grant
date (110% of fair value in certain instances) and vesting schedules as
determined by the Board. Non-statutory options are granted at prices and vesting
schedules as determined by the Board. Restricted stock is granted by the Board
permitting the recipient to purchase common stock at a price and subject to
restrictions specified by the Board. A participant who acquires shares of
restricted stock will have all the rights of a stockholder, including the right
to receive dividends and to vote. Deferred stock is granted by the Board
entitling the recipient to receive stock at a specified future date.
The Company intends to reserve shares of Class A common stock for issuance
under the Incentive Plan.
F-8
<PAGE> 80
ALTAVISTA INTERNET SOFTWARE, INC.
NOTES TO BALANCE SHEET -- (CONTINUED)
Directors Stock Option Plan
The Company intends to adopt a directors stock option plan (the "Directors
Plan") providing for the annual grant of stock options to purchase shares of
Class A common stock to outside directors as additional compensation for their
service as directors. The Company plans to reserve shares of Class A common
stock for issuance under the Directors Plan.
Under the Directors Plan, each eligible director joining the Board of
Directors in 1996 will be granted an option to purchase shares of Class A common
stock upon the later of the adoption of the plan or the director's appointment
or election. With respect to each eligible director who is a director as of June
29, 1997 or who joins the Board of Directors on or after June 29, 1997, options
to purchase shares of Class A common stock will be granted on the date of the
Company's next annual meeting of stockholders, provided that such director's
service as a director will continue after such meeting.
The exercise price of options granted under the Directors Plan will be 100%
of the fair market value per share of the Class A common stock on the date the
option is granted. Options granted under the Directors Plan will become
exercisable at the rate of 33% on the first and second anniversaries of the date
of grant and 34% on the third anniversary of the date of grant. The options will
expire on the tenth anniversary of the grant date, unless terminated earlier in
accordance with the Directors Plan.
Value Added Link Agreements
On July 3, 1996, Yahoo! Inc. ("Yahoo!") and Digital signed an agreement
whereby Yahoo! established AltaVista as the preferred search engine for all
Yahoo! properties that contain World Wide Web functionality. Yahoo! pays a fee
to Digital based on the number of search result pages viewed according to an
agreed upon rate schedule.
The agreement has an initial term of two years and is renewable
automatically thereafter for successive one-year terms for up to three
successive one year terms, subject to termination by either Digital or Yahoo!
upon 90 days' written notice.
On August 23, 1996, CNET, Inc ("CNET") and Digital signed an agreement
enabling users of CNET Properties to conduct World Wide Web Searches through the
AltaVista Internet Search Service. CNET pays a fee to Digital based on the
number of search result pages viewed according to an agreed upon schedule.
The agreement has an initial term of one year and is renewable
automatically thereafter for successive one-year terms, subject to termination
by either Digital or CNET upon 30 days' written notice.
3. MIRROR SITE AGREEMENTS
Telia TeleCom AB
Digital signed a letter of intent in June 1996 with Telia TeleCom AB of
Sweden ("Telia") to establish a mirror site in Northern Europe. Telia would pay
Digital a monthly license fee as well as a fee based on the total number of hits
(requests for information) per day.
Telstra Corporation Ltd.
Digital signed a letter of intent in July 1996 with Telstra Corporation
Ltd. of Australia ("Telstra") to establish a mirror site in Australia, New
Zealand and several other countries. Telstra would pay Digital a monthly license
fee as well as a fee based on the total number of hits per day.
F-9
<PAGE> 81
REPORT OF INDEPENDENT ACCOUNTANTS
To Digital Equipment Corporation:
We have audited the accompanying balance sheets of AltaVista Internet
Software Products (the "Business") as of June 29, 1996 and July 1, 1995, and the
related statements of operations, cash flows and net parent's investment for
each of the three fiscal years in the period ended June 29, 1996. These
financial statements are the responsibility of the Business' 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 AltaVista Internet Software
Products as of June 29, 1996 and July 1, 1995 and the results of their
operations and their cash flows for each of the three fiscal years in the period
ended June 29, 1996 in conformity with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
August 26, 1996
F-10
<PAGE> 82
ALTAVISTA INTERNET SOFTWARE PRODUCTS
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE FISCAL YEARS ENDED
--------------------------------
JULY 2, JULY 1, JUNE 29,
1994 1995 1996
------- ------- --------
<S> <C> <C> <C>
Total operating revenues..................................... $ 298 $ 964 $ 3,632
------- ------- --------
Costs and expenses:
Cost of operating revenues................................. 47 374 1,110
Research and engineering expenses.......................... 2,235 4,516 15,352
Selling and marketing expenses............................. 50 248 10,522
General and administrative expenses........................ 684 1,062 6,516
------- ------- --------
Total costs and expenses........................... 3,016 6,200 33,500
Operating loss............................................... (2,718) (5,236) (29,868)
------- ------- --------
Net loss..................................................... $(2,718) $(5,236) $(29,868)
======= ======= ========
Unaudited pro forma net loss per common share................ $
========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-11
<PAGE> 83
ALTAVISTA INTERNET SOFTWARE PRODUCTS
BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE FISCAL YEARS
ENDED
--------------------
JULY 1, JUNE 29,
1995 1996
------- --------
<S> <C> <C>
ASSETS
Current assets:
Accounts receivable, net of allowance of $15 and $76.................. $ 243 $ 1,010
Inventories........................................................... -- 45
------- --------
Total current assets.......................................... 243 1,055
Capitalized software, net............................................... 645 577
Equipment, net.......................................................... -- 5,876
------- --------
Total assets.................................................. $ 888 $ 7,508
======= ========
LIABILITIES AND NET PARENT'S INVESTMENT
Current liabilities:
Salaries, wages and related items..................................... $ 259 $ 1,980
------- --------
Total current liabilities..................................... 259 1,980
Parent's investment:
Parent's investment................................................... 10,555 45,322
Retained deficit...................................................... (9,926) (39,794)
------- --------
Net parent's investment....................................... 629 5,528
------- --------
Total liabilities and net parent's investment................. $ 888 $ 7,508
======= ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-12
<PAGE> 84
ALTAVISTA INTERNET SOFTWARE PRODUCTS
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE FISCAL YEARS ENDED
--------------------------------
JULY 2, JULY 1, JUNE 29,
1994 1995 1996
------- ------- --------
<S> <C> <C> <C>
Cash flows from (used in) operating activities:
Net loss................................................... $(2,718) $(5,236) $(29,868)
Adjustments to reconcile net loss to cash
used in operating activities:
Depreciation............................................ -- -- 800
Amortization............................................ 46 320 438
Loss on disposition and write-down of equipment......... -- -- 390
Write-down of capitalized software to
net realizable value.................................. -- -- 238
Allowance for bad debts................................. 6 9 61
Changes in operating assets and liabilities:
Increase in accounts receivable....................... (216) (42) (828)
Increase in inventories............................... -- -- (45)
Increase in salaries, wages and related items......... 21 238 1,721
------- ------- --------
Net cash used in operating activities.............. (2,861) (4,711) (27,093)
Cash flows from (used in) investing activities:
Additions and transfers of equipment....................... -- -- (7,066)
Investment in capitalized software......................... (961) (50) (608)
------- ------- --------
Net cash used in investing activities.............. (961) (50) (7,674)
Cash flows from financing activities:
Proceeds from investment by parent......................... 3,822 4,761 34,767
------- ------- --------
Net cash provided from financing activities........ 3,822 4,761 34,767
------- ------- --------
Net increase (decrease) in cash.................... $ -- $ -- $ --
======= ======= ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-13
<PAGE> 85
ALTAVISTA INTERNET SOFTWARE PRODUCTS
STATEMENTS OF NET PARENT'S INVESTMENT
FOR THE FISCAL YEARS ENDED JULY 2, 1994,
JULY 1, 1995 AND JUNE 29, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
NET
RETAINED PARENT'S PARENT'S
DEFICIT INVESTMENT INVESTMENT
-------- ---------- ----------
<S> <C> <C> <C>
BALANCE AT JULY 3, 1993.................................... $ (1,972) $ 1,972 $ 0
Net loss................................................... (2,718) -- (2,718)
Investment by parent....................................... -- 3,822 3,822
-------- ------- --------
BALANCE AT JULY 2, 1994.................................... (4,690) 5,794 1,104
Net loss................................................... (5,236) -- (5,236)
Investment by parent....................................... -- 4,761 4,761
-------- ------- --------
BALANCE AT JULY 1, 1995.................................... (9,926) 10,555 629
Net loss................................................... (29,868) -- (29,868)
Investment by parent....................................... -- 34,767 34,767
-------- ------- --------
BALANCE AT JUNE 29, 1996................................... $(39,794) $ 45,322 $ 5,528
======== ======= ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-14
<PAGE> 86
ALTAVISTA INTERNET SOFTWARE PRODUCTS
NOTES TO FINANCIAL STATEMENTS
A. THE BUSINESS
Nature of the Business
The accompanying financial statements include the revenues and expenses
(direct and allocated indirect) and assets and liabilities related to the
development and sales of the following products and services:
AltaVista Search
AltaVista Directory
AltaVista Firewall
AltaVista Tunnel
AltaVista Forum
AltaVista Mail
In the financial statements these products are collectively referred to as
"AltaVista Internet Software Products" or the "Business."
AltaVista Internet Software Products are software products and services for
use in the emerging integrated Internet/intranet business environment.
The software products included in the Business were developed within
various Digital Equipment Corporation ("Digital" or "Parent") business units.
These products have been managed within a single business unit for less than one
year. Most of the products were developed primarily in fiscal years 1995 and
1996 and did not generate revenues until fiscal 1996. AltaVista Directory and
AltaVista Firewall began generating revenues in fiscal 1994 and 1995,
respectively. AltaVista Mail was released in June 1996.
Basis of Presentation
The financial statements are derived from the historic books and records of
Digital and present the assets, liabilities, results of operations and cash
flows applicable to AltaVista Internet Software Products. Operations prior to
1994 consisted primarily of research and engineering expenses and are not
considered to be material. The Business' foreign sales are transacted by
Digital's subsidiaries and are denominated in local currencies. Certain costs
and expenses presented in these financial statements have been allocated based
on management's estimates of the cost of services provided to the Business by
Digital. Management believes that these allocations are based on assumptions
that are reasonable under the circumstances. The Business has incurred recurring
losses from operations through June 29, 1996. Digital has committed to provide
the funds required for the conduct of the Business' operations through the
earlier of June 30, 1997 or the closing of an initial public offering (the
"offering") of the Business' common stock. The historical operating results may
not be indicative of future results.
The financial statements have been prepared for inclusion in a registration
statement relating to the public offering of a portion of the common stock of a
wholly-owned subsidiary of Digital, AltaVista Internet Software, Inc. (the
"Company"), which was formed on June 28, 1996. Prior to the consummation of the
offering, Digital will transfer the assets of AltaVista Internet Software
Products to AltaVista Internet Software, Inc. and the Company will assume the
liabilities of AltaVista Internet Software Products. The transfers will be
accounted for at historical cost.
Operating losses through the consummation of the offering will be recorded
as contributions of capital to the Business by Digital. Prior to the
consummation of the offering, the Business intends to enter into various
agreements with Digital wherein Digital agrees to provide certain services,
facilities and technologies to the Business in accordance with the terms
described in Note H.
F-15
<PAGE> 87
ALTAVISTA INTERNET SOFTWARE PRODUCTS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
B. SIGNIFICANT ACCOUNTING POLICIES
Fiscal Year
The fiscal year of the Business is the fifty-two/fifty-three week period
ending the Saturday nearest the last day of June. The fiscal years ended July 2,
1994, July 1, 1995 and June 29, 1996 each included 52 weeks.
Revenue Recognition
The product revenues of the Business are principally derived from product
licensing fees. Product revenues are generally recognized upon shipment, net of
allowances for estimated future returns, provided that no significant vendor
obligations remain and collection of the resulting receivable is deemed
probable.
Warranty
Digital provides maintenance and support services to the Business. In
connection with these services, the Business paid Digital approximately $16,000,
$62,000 and $225,000 for the fiscal years ended July 2, 1994, July 1, 1995 and
June 29, 1996, respectively. Digital also sells extended warranty contracts and
maintenance contracts covering the products for which it pays the Business a fee
amounting to 22% of the extended warranty and maintenance contract revenue.
Unaudited Pro Forma Net Loss Per Common Share
Historical earnings per share data is omitted from the statements of
operations because it is not meaningful. Unaudited pro forma net loss per common
share is calculated based on the net loss divided by the number of shares of
Class B common stock to be issued to Digital prior to consummation of the
offering. Because the offering price and number of shares of Class B common
stock to be reclassified have not yet been determined, unaudited pro forma net
loss per common share has not been presented. These determinations will be made
prior to consummation of the offering and unaudited pro forma net loss per
common share based on the number of shares of Class B common stock issued to
Digital will be furnished by amendment and reflected in the definitive
Prospectus.
Taxes
The Business was not a separate taxable entity for federal, state or local
income tax purposes. The Business' operations are included in the consolidated
Digital tax returns. No income tax provision has been calculated on a separate
return basis because net losses were realized in each of the years presented as
to which there was no related realizable tax benefit due to the Parent's net
operating loss carryforward. Tax assets, including net operating loss
carryforwards incurred by the Business prior to the offering, will remain with
Digital. Prior to the consummation of the offering, the Business intends to
enter into a tax-sharing agreement with Digital as described in Note H.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market.
F-16
<PAGE> 88
ALTAVISTA INTERNET SOFTWARE PRODUCTS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Equipment
Equipment is stated at cost.
<TABLE>
<CAPTION>
JUNE 29,
1996
--------------
(IN THOUSANDS)
<S> <C>
Equipment...................................................... $ 14,372
Less accumulated depreciation.................................. (8,496)
-------
Equipment, net................................................. $ 5,876
=======
</TABLE>
Depreciation expense is computed principally on the following basis:
<TABLE>
<CAPTION>
CLASSIFICATION DEPRECIATION LIVES AND METHODS
--------------------------------- ------------------------------------------------
<S> <C>
Equipment........................ 3 to 10 years (principally accelerated methods)
</TABLE>
When assets are retired, or otherwise disposed of, the assets and related
accumulated depreciation are removed from the accounts. Other resulting gains
and losses are included in income.
Prior to fiscal 1996, no equipment was dedicated to the Business or was
recorded in the Business' financial statements. However, in lieu of
depreciation, a rental charge for the use of equipment was included in the
statement of operations. During fiscal 1996, equipment became dedicated to the
Business. Assets with a net book value of $3,989,000 were transferred to the
Business. The Business also purchased new equipment from Digital at cost.
Capitalized Software
Software development costs are capitalized beginning at the time that
technical feasibility is established. These costs are amortized over no more
than three years from the date the products are available for general use.
Management Estimates and Assumptions
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
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates due to limited
operating history; anticipated continuing losses; potential fluctuations in
quarterly results; unproven acceptance of the Business' products and services;
dependence on the uncertain adoption of the Internet as a mode of communication;
dependence on the uncertain adoption of intranets; reliance on new product
development; and technological change; competition; future liquidity needs and
the uncertainty of additional financing; new management team and reliance on key
personnel; reliance on evolving distribution channels; dependence on mirror
sites and Internet content providers; product liability; risk of capacity
constraints or system failures; uncertain protection of intellectual property
rights; possible regulation of the Internet or government regulation of
technology exports; and risks associated with global operations and could impact
future results of operations and cash flows.
Fair Value
The carrying amounts reflected in the balance sheets for accounts
receivable approximate fair value due to the short maturities of these
instruments.
F-17
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ALTAVISTA INTERNET SOFTWARE PRODUCTS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Concentration of Credit Risk
Financial instruments which potentially subject the Business to
concentrations of credit risk consist principally of trade receivables.
Concentration of credit risk with respect to trade receivables is limited
due to the large number of customers comprising the Business' customer base, and
their dispersion across many different industries and geographies.
Allocated Costs
Expenses have been allocated based on a variety of methods depending on the
nature of the expense including: units produced; proportion of total product
revenue or expense to total business unit revenue or expense, and management
estimate. Allocated expenses are included in:
Cost of Operating Revenues
Cost of operating revenues includes an allocation of corporate
manufacturing costs.
Research and Engineering Expenses
Research and engineering expenses include an allocation of corporate
research and engineering expense.
Selling and Marketing Expenses
Selling and marketing expenses include an allocation of corporate selling
and marketing expenses.
General and Administrative Expenses
The components of general and administrative expenses include a full
allocation of the costs of administrative and corporate functions.
The amounts allocated to the Business in each of the fiscal years presented
are as follows:
<TABLE>
<CAPTION>
1994 1995 1996
---- ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Cost of operating revenues................................. -- $ 10 $ 56
Research and engineering expenses.......................... $ 70 98 121
Selling and marketing expenses............................. 50 160 417
General and administrative expenses........................ 706 1,087 1,604
</TABLE>
Interest Expense
There was no direct interest expense incurred by the Business. However,
interest expense of $27,000 included in general and administrative expenses for
the year ended June 29, 1996 is an allocation of Digital's worldwide interest
expense based upon the ratio of the Business' inventory and property and
equipment to total Digital inventory and property and equipment. Management
believes that this method provides a reasonable basis for allocation within the
Business' historical statements of operations.
F-18
<PAGE> 90
ALTAVISTA INTERNET SOFTWARE PRODUCTS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
C. SEGMENT AND GEOGRAPHIC INFORMATION
The Business operates within one industry segment, the development and sale
of Internet/intranet software products and services. The Business had sales to
customers outside the United States and Canada representing 63%, 69% and 64% in
1994, 1995 and 1996, respectively of operating revenues. Information about the
Business' sales by geographic regions is as follows:
<TABLE>
<CAPTION>
FOR THE FISCAL YEARS ENDED
--------------------------------
JULY 2, JULY 1, JUNE 29,
1994 1995 1996
------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
North America.............................................. $ 112 $ 300 $1,290
Europe..................................................... 162 606 1,726
Asia - Pacific............................................. 24 58 616
---- ---- ------
$ 298 $ 964 $3,632
==== ==== ======
</TABLE>
No customer accounted for more than 10% of total revenues in any year.
D. CAPITALIZED SOFTWARE
Unamortized computer software development costs were $1,011,000 and
$905,000 at July 1, 1995 and June 29, 1996, respectively. Amortization expense
was $46,000, $320,000 and $438,000 for the years ended July 2, 1994, July 1,
1995 and June 29, 1996, respectively. Accumulated amortization was $366,000 and
$328,000 at July 1, 1995 and June 29, 1996, respectively.
E. POSTRETIREMENT AND OTHER POSTEMPLOYMENT BENEFITS
Pension Plans -- The Business participates in Digital's defined benefit and
defined contribution pension plans (the "Retirement Plan") covering
substantially all employees. Those Digital employees who accept employment with
the Company will terminate employment with Digital but will maintain their
vested rights in the Retirement Plan. The benefits are based on years of service
and compensation during the employee's career. Pension cost is based on
estimated benefit payment formulas. It is Digital's policy to make tax-
deductible contributions to the plans in accordance with local laws.
Contributions are intended to provide benefits for service to date and benefits
expected to be earned in the future. The projected benefit obligation was
determined using discount rates of 8.0%, 7.5% and 8.0% for the fiscal years
ending July 2, 1994, July 1, 1995 and June 29, 1996, respectively. For the U.S.
pension plan, there were no contributions in the fiscal years 1994, 1995 or
1996. The assets of the plans include corporate equity and debt securities,
government securities and real estate.
The statements of operations include allocated costs as fringe benefits
based upon an average cost per employee for the Retirement Plan of approximately
$53,900, $59,700 and $450,200 for the fiscal years ending July 2, 1994, July 1,
1995 and June 29, 1996, respectively.
Postretirement Benefits Other than Pensions -- The Business participates in
Digital's defined benefit postretirement plans that provide medical and dental
benefits for U.S. retirees and their eligible dependents. Substantially all of
Digital's U.S. employees may become eligible for postretirement benefits if they
reach retirement age while working for Digital. The majority of Digital's
non-U.S. subsidiaries do not offer postretirement benefits other than pensions
to retirees.
Digital's postretirement benefit plans other than pensions are funded as
costs are incurred. The postretirement benefit obligation was determined using
discount rates of 8.0%, 7.5% and 8.0% for the fiscal years ending July 2, 1994,
July 1, 1995 and June 29, 1996, respectively.
F-19
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ALTAVISTA INTERNET SOFTWARE PRODUCTS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The statements of operations include allocated costs as fringe benefits
based upon an average cost per employee for the postretirement benefit costs of
approximately $2,500, $3,900 and $21,600 for the years ended July 2, 1994, July
1, 1995 and June 29, 1996, respectively.
F. STOCK PLANS
Certain Digital employees who will become employees of the Company have
been granted options and restricted stock awards under various Digital stock
plans. Such options and awards will continue to vest under the terms of the
plans during their employment with the Company.
G. RESTRUCTURING ACTION
Included in general and administrative expenses for the year ended June 29,
1996 is a $353,000 charge for restructuring to cover costs associated with
reducing the size of the Business's workforce by 28 employees in the
administrative, marketing and engineering functions. The restructuring charge
includes the cost of employee termination benefits and related costs associated
with restructuring actions. Employee termination benefits include severance,
wage continuation, notice pay, medical and other benefits. Restructuring costs
were accrued and charged to expense in accordance with approved management
plans.
H. SUBSEQUENT EVENTS
AltaVista Internet Software, Inc.
AltaVista Internet Software Inc. (the "Company") intends to enter into an
agreement with Digital pursuant to which the Business will contribute its assets
to the Company and the Company will assume the liabilities relating to the
Business. On July 18, 1996, the Company opened a subsidiary in the Netherlands
under the name AltaVista Internet Software, B.V. Prior to the consummation of
the offering, the Company's certificate of incorporation will be amended to
authorize 50,000,000 shares of Class A common stock and 50,000,000 shares of
Class B common stock, each with a par value of $0.01 per share. Holders of Class
A common stock generally will have identical rights to holders of Class B common
stock except that holders of Class A common stock will be entitled to one vote
per share while holders of Class B common stock will be entitled, with certain
exceptions, to three votes per share on all matters submitted to a vote of
stockholders. Each share of Class B common stock will be convertible while held
by Digital or any of its subsidiaries into one share of Class A common stock.
The amended and restated certificate of incorporation will also authorize
5,000,000 shares of preferred stock that may be issued at the discretion of the
Board of Directors. The Board is authorized to determine the voting, dividend,
redemption and liquidation preferences and limitations of any preferred stock
that may be issued.
Potential Conflicts of Interest
The Company's amended and restated certificate of incorporation includes
provisions relating to competition by Digital with the Company, allocations of
corporate opportunities, transactions with interested parties and intercompany
agreements and provisions limiting the liability of certain persons. Various
conflicts of interest between the Company and Digital could arise following the
consummation of the offering, and persons serving as directors, officers and
employees of both the Company and Digital may have conflicting duties to each.
The members of the Board of Directors of the Company who are affiliated with
Digital will consider not only the short-term and long-term impact of financial
and operating decisions on the Company, but also the impact of such decisions on
Digital's consolidated financial results. In some instances, the impact of such
decisions could be disadvantageous to the Company while advantageous to Digital,
or vice versa.
F-20
<PAGE> 92
ALTAVISTA INTERNET SOFTWARE PRODUCTS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Agreements with Digital
The Company's relationship with Digital will be governed by intercompany
agreements. It is anticipated that such agreements will be entered into prior to
the consummation of the offering. With respect to matters covered by the
services agreement, the relationship between Digital and the Company is intended
to continue in a manner generally consistent with past practices. Because the
Company is a wholly-owned subsidiary of Digital, none of these arrangements will
result from arm's-length negotiations and, therefore, the prices charged to the
Company for services provided thereunder may be higher or lower than prices that
may be charged by third parties.
Services Agreement
The Company and Digital intend to enter into an intercompany services and
operating agreement (the "Services Agreement") with respect to services to be
provided by Digital (or subsidiaries of Digital) to the Company. Under the
Services Agreement, certain services will be provided in exchange for fees which
are based on Digital's costs for such services and are consistent in all
material respects with the allocation of the costs of such services set forth in
the financial statements of the Business. The services initially to be provided
by Digital to the Company under the Services Agreement include, among other
things, certain accounting, administration, cash management, employee benefit
plan administration, legal, risk management, tax and treasury services. The
Company may request an expansion or termination of services, in which case the
parties will discuss, without obligation, the provision or termination of such
services and an appropriate change or reduction in charges for such services. In
the event Digital proposes changes in billing methodology which would result in
a significant increase (being the greater of a 10% or $100,000) in costs for the
affected services, the Company may terminate such services.
In addition to the identified services, Digital intends to agree to
continue coverage of the Company under Digital's umbrella liability, property,
casualty and fiduciary insurance policies. The Company intends to agree to
reimburse Digital for the portion of Digital's premium cost with respect to such
insurance that is attributable to coverage of the Company. Either Digital or the
Company may terminate such coverage under Digital's policies at any time on 90
days' written notice.
Also, in addition to the identified services, Digital intends to agree to
allow eligible employees of the Company to participate in certain Digital
employee benefit plans. In addition to a monthly service fee under the Services
Agreement, the Company intends to agree to reimburse Digital for Digital's costs
(including any contributions and premium costs and including certain third-party
expenses and allocations of certain personnel expenses), generally in accordance
with past practice, relating to participation by the Company's employees in any
of Digital's benefit plans.
The Services Agreement will have an initial term of two years and will be
renewed automatically thereafter for successive one-year terms unless either the
Company or Digital elects not to renew it. After the initial 2-year term, the
Services Agreement may be terminated at any time by either party upon 90 days'
written notice. The Services Agreement may also be terminated at any time, upon
90 days' written notice, if Digital ceases to own shares of common stock
representing more than 50% of the combined voting power of the common stock of
the Company.
Facilities Agreement
The Company and Digital intend to enter into an intercompany facilities
agreement (the "Facilities Agreement"). The Facilities Agreement provides that
the Company may occupy space located in facilities owned or leased by Digital in
exchange for rental fees determined at charges comparable to those charged to
other businesses operated by Digital.
F-21
<PAGE> 93
ALTAVISTA INTERNET SOFTWARE PRODUCTS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Facilities Agreement has an initial term of two years and is renewable
automatically thereafter for successive one-year terms unless either the Company
or Digital elects not to renew it. The Facilities Agreement is subject to early
termination by either the Company or Digital upon six months' written notice if
Digital ceases to own shares of common stock representing more than 50% of the
combined voting power of the common stock of the Company, and by the Company
with respect to any particular facility upon 30 days' written notice for any
reason. The Company's use of any particular property subject to the Facilities
Agreement is limited by the term of any underlying lease between Digital and a
landlord with respect to those properties leased by Digital and by any
disposition by Digital of any property owned by it.
Tax-Sharing Agreement
The Business is, and immediately after the offering the Company will
continue to be, included in Digital's federal consolidated income tax group, and
the Company's federal income tax liability will be included in the consolidated
federal income tax liability of Digital and its subsidiaries. In certain
circumstances, the Company and certain of its subsidiaries will also be included
with certain other subsidiaries of Digital in combined, consolidated or unitary
income tax groups for state and local tax purposes. The Company and Digital
intend to enter into a tax-sharing agreement (the "Tax-Sharing Agreement")
pursuant to which the Company and Digital will make payments between them such
that, with respect to any period, the amount of taxes to be paid by the Company,
subject to certain adjustments, will be determined as though the Company were to
file separate federal, state and local income tax returns. Pursuant to the
Tax-Sharing Agreement, under certain circumstances, the Company will be
reimbursed for tax attributes, such as net operating losses, that it generates
after the offering. Such reimbursement, if any, will be made for utilization of
the Company's losses only after Digital's losses are fully utilized.
Reimbursement will not be made for losses incurred by the Company while Digital
is subject to the alternative minimum tax. Under the Tax-Sharing Agreement, the
Company will pay Digital a fee intended to reimburse Digital for all direct and
indirect costs and expenses incurred with respect to the Company's share of the
overall costs and expenses incurred by Digital with respect to tax related
services.
In general, the Company will be included in Digital's consolidated group
for federal income tax purposes for so long as Digital beneficially owns at
least 80% of the total voting power and value of the outstanding common stock.
Each member of a consolidated group is jointly and severally liable for the
federal income tax liability of each other member of the consolidated group.
Accordingly, although the Tax-Sharing Agreement allocates tax liabilities
between the Company and Digital, during the period in which the Company is
included in Digital's consolidated group, the Company could be liable in the
event that any federal tax liability is incurred, but not discharged, by any
other member of Digital's consolidated group.
Asset Transfer and License Agreement
The Company and Digital intend to enter into an asset transfer and license
agreement (the "Asset Transfer Agreement") which will provide for the transfer
to the Company of all assets and the assumption by the Company of all
liabilities that relate principally to the Company's business, including all
assets and liabilities reflected on the AltaVista Internet Software Products
Balance Sheet included in this Prospectus as adjusted to give effect to the
conduct of the Company's business in the ordinary course from such balance sheet
date to the date of transfer.
Pursuant to the Asset Transfer Agreement, Digital will assign to the
Company all of Digital's rights in the AltaVista trademark and logo and will
license to the Company all of its Internet addresses. Digital will retain the
right to use such trademarks in advertising, marketing literature and corporate
communications that refer to the Company.
Under the Asset Transfer Agreement, Digital will grant the Company a
non-exclusive, irrevocable, royalty-free license to all Digital patents and
pending and future patent applications covering inventions made
F-22
<PAGE> 94
ALTAVISTA INTERNET SOFTWARE PRODUCTS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
as of the consummation of the offering that are embodied in the Company's
products and services. Under this license, the Company will have a right to sell
to its customers products embodying technology covered by the patents. The
Company will not otherwise have a right to sublicense its rights under this
license or to assign or transfer the license except in connection with a change
of control of the Company or the sale of all or substantially all of the
Company's assets. The Company may not prevent Digital from granting other
licenses under such patents, will not be able to realize licensing revenues from
any such licenses, cannot require Digital to enforce any such patents against
competitors of the Company and cannot control any enforcement proceedings
Digital undertakes.
Under the Asset Transfer Agreement, Digital will assign to the Company all
of Digital's rights in software code developed specifically for and included in
the Company's products and services, subject to the terms of the patent license
described above ("Transferred Code"). Digital will retain an irrevocable,
royalty-free license to use Transferred Code for its internal use, including
research and development. All rights to any performance or functionality
improvements or enhancements ("Modifications") to Transferred Code developed by
or on behalf of Digital will be owned by Digital; provided, however, that
Digital will grant the Company an irrevocable, royalty-free license to use
Modifications developed by Digital during the two years following the
consummation of the offering. Similarly, all rights to any Modifications
developed by or on behalf of the Company will be owned by the Company; provided,
however, that the Company will grant to Digital an irrevocable, royalty-free
license to use for Digital's internal use Modifications developed by the Company
during the two years following the consummation of the offering.
For two years following the consummation of the Offering, Digital will not
have the right to commercialize any new software product derived from
Transferred Code ("Derived Software") that is designed for use primarily in the
Internet/intranet market, that runs on Windows, Windows NT or UNIX platforms and
that offers functionality substantially similar to any of the AltaVista Products
as of the consummation of the offering. Notwithstanding the foregoing, Digital
will be free to commercialize without restriction any Digital product, excluding
the AltaVista products, existing as of the consummation of the offering that
includes Transferred Code as of the consummation of the offering without
restriction.
Under the Asset Transfer Agreement, Digital will retain all of its rights
in software code used in, but not developed specifically for, the Company's
products ("Shared Code"). Digital will grant the Company a non-exclusive,
irrevocable, royalty-free license to use Shared Code. Under the license, the
Company will have the right to sell to its customers products containing Shared
Code. The Company will not otherwise have a right to sublicense its rights or to
assign or transfer such license except in connection with a change of control of
the Company or the sale of all or substantially all of the Company's assets.
Pursuant to the Asset Transfer Agreement, Digital will license to the
Company all its rights in all know-how related to and necessary to use, make and
sell the Company's products. Any third party technology used in the Company's
products will, to the extent permitted, be sublicensed or assigned by Digital to
the Company under the Asset Transfer Agreement.
Technical Assistance Agreement
The Company intends to enter into a technical assistance agreement (the
"Technical Assistance Agreement") with Digital pursuant to which the Company
may, from time to time, request Digital (including its research laboratories) to
provide consulting and technical assistance to the Company with respect to
technology related to or derived from the Company's products. The Company will
pay Digital fees for any consulting or technical assistance provided by Digital
under the Technical Assistance Agreement at Digital's then prevailing rate for
consulting services. Ownership of and rights to any and all ideas, improvements
and inventions conceived or created under the performance of work under the
Technical Assistance Agreement shall be determined in writing between the
parties prior to Digital performing the work.
F-23
<PAGE> 95
ALTAVISTA INTERNET SOFTWARE PRODUCTS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Strategic Alliance Agreement
The Company and Digital intend to enter into a strategic alliance agreement
(the "Strategic Alliance Agreement") that grants Digital a license to distribute
the Company's products on a non-exclusive, worldwide basis through Digital's
reseller and distribution networks. The Strategic Alliance Agreement also
designates Digital as an Authorized Service Provider of the Company to provide
training, documentation, technical support and maintenance services to the
Company's customers and end-users. Digital will pay to the Company a fee for the
license and support services as agreed upon in the Digital-AltaVista Fee
Schedule. In addition, the Strategic Alliance Agreement provides that Digital
will loan the Company certain hardware equipment for product development
purposes, and provide the Company with hardware and software for internal use at
Digital's then prevailing prices. Digital and the Company have also established
a joint marketing relationship with respect to the Company's products and
services.
The Strategic Alliance Agreement has an initial term of two years and is
renewable automatically thereafter for successive one-year terms, subject to
termination by either the Company or Digital upon six months' written notice if
Digital ceases to own shares of Common Stock representing more than 50% of the
combined voting power of the common stock of the Company.
Corporate Agreement
The Company and Digital intend to enter into a corporate agreement (the
"Corporate Agreement") under which the Company will grant to Digital a
continuing option, transferable to any of its subsidiaries, to purchase, under
certain circumstances, additional shares of Class B common stock or shares of
nonvoting capital stock of the Company (the "Stock Option"). The Stock Option
may be exercised by Digital simultaneously with the issuance of any equity
security of the Company (other than in the Offering or upon the exercise of the
Underwriters' over-allotment options), with respect to Class B common stock,
only to the extent necessary to maintain its then-existing percentage of the
total voting power and value of the Company and, with respect to shares of
nonvoting capital stock, to the extent necessary to own at least 80% of the
total number of shares of each outstanding class of such stock.
The purchase price of the shares of Class B common stock purchased upon any
exercise of the Stock Option, subject to certain exceptions, will be based on
the market price of a share of Class A common stock. The purchase price of the
shares of nonvoting capital stock purchased upon any exercise of the stock
option, subject to certain exceptions, will be based on the market price at
which such stock may be purchased by third parties. The Stock Option expires in
the event that Digital reduces its beneficial ownership of common stock in the
Company to less than 60% of the number of outstanding shares of common stock.
The Company does not intend to issue additional shares of Class B common stock
except pursuant to the exercise of the Stock Option.
The Corporate Agreement will further provide that, upon the request of
Digital, the Company will use its best efforts to effect the registration under
the applicable federal and state securities laws of any of the shares of Class B
common stock and nonvoting capital stock (and any other securities issued in
respect of or in exchange for either) held by Digital for sale in accordance
with Digital's intended method of disposition thereof, and will take such other
actions as may be necessary to permit the sale thereof in other jurisdictions,
subject to certain limitations specified in the Corporate Agreement. Digital
will also have the right, which it may exercise at any time and from time to
time, to include the shares of Class B common stock and nonvoting capital stock
(and any other securities issued in respect of or in exchange for either) held
by it in certain other registrations of common equity securities of the Company
initiated by the Company on its own behalf or on behalf of its other
stockholders. The Company will agree to pay all out-of-pocket costs and expenses
(other than the underwriters' discounts and commissions and transfer taxes) in
connection with each such registration that Digital requests or in which Digital
participates. Subject to certain limitations specified in the Corporate
Agreement, such registration rights will be assignable by Digital and its
assignees.
F-24
<PAGE> 96
ALTAVISTA INTERNET SOFTWARE PRODUCTS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Equity Incentive Plan
The Company intends to adopt, subject to Board of Director's and
stockholder approval, the Equity Incentive Plan (the "Incentive Plan") under
which awards of common stock options and restricted and unrestricted common
stock, and deferred stock may be granted to employees, officers and directors
of, or consultants to, the Company. Options granted under the Incentive Plan may
be either incentive stock options or non-statutory stock options. Incentive
stock options granted have an exercise price not less than fair market value of
the stock at the grant date (110% of fair value in certain instances) and
vesting schedules as determined by the Board. Non-statutory options are granted
at prices and vesting schedules as determined by the Board. Restricted stock is
granted by the Board permitting the recipient to purchase common stock at a
price and subject to restrictions specified by the Board. A participant who
acquires shares of restricted stock will have all the rights of a stockholder,
including the right to receive dividends and to vote. Deferred stock is granted
by the Board entitling the recipient to receive stock at a specified future
date.
The Company plans to reserve shares of Class A common stock for issuance
under the Incentive Plan.
Directors Stock Option Plan
The Company intends to adopt a directors stock option plan (the "Directors
Plan") providing for the annual grant of stock options to purchase shares of
Class A common stock to outside directors as additional compensation for their
service as directors. The Company plans to reserve shares of Class A common
stock for issuance under the Directors Plan.
Under the Directors Plan, each eligible director joining the Board of
Directors in 1996 will be granted an option to purchase shares of Class A common
stock upon the later of the adoption of the plan or the director's appointment
or election. With respect to each eligible director who is a director as of June
29, 1997 or who joins the Board of Directors on or after June 29, 1997, options
to purchase shares of Class A common stock will be granted on the date of the
Company's next annual meeting of stockholders, provided that such director's
service as a director will continue after such meeting.
The exercise price of options granted under the Directors Plan will be 100%
of the fair market value per share of the Class A common stock on the date the
option is granted. Options granted under the Directors Plan will become
exercisable at the rate of 33% on the first and second anniversaries of the date
of grant and 34% on the third anniversary of the date of grant. The options will
expire on the tenth anniversary of the grant date, unless terminated earlier in
accordance with the Directors Plan.
Value Added Link Agreements
On July 3, 1996, Yahoo! Inc. ("Yahoo!") and Digital signed an agreement,
whereby Yahoo! established AltaVista as the preferred search engine for all
Yahoo! properties that contain World Wide Web functionality. Yahoo! pays a fee
to Digital based on the number of search result pages viewed according to an
agreed upon rate schedule.
The agreement has an initial term of two years and is renewable
automatically thereafter for successive one-year terms for up to three
successive one year terms subject to termination by either Digital or Yahoo!
upon 90 days' written notice.
On August 23, 1996, CNET, Inc ("CNET") and Digital signed an agreement
enabling users of CNET Properties to conduct World Wide Web searches through the
AltaVista Internet Search Service. CNET pays a fee to Digital based on the
number of search result pages viewed according to an agreed upon rate schedule.
The agreement has an initial term of one year and is renewable
automatically thereafter for successive one-year terms, subject to termination
by either Digital or CNET upon 30 days' written notice.
F-25
<PAGE> 97
ALTAVISTA INTERNET SOFTWARE PRODUCTS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
I. MIRROR SITE AGREEMENTS
Telia TeleCom AB
Digital signed a letter of intent in June 1996 with Telia TeleCom AB of
Sweden ("Telia") to establish a mirror site in Northern Europe. Telia would pay
Digital a monthly license fee as well as a fee based on the total number of hits
(requests for information) per day.
Telstra Corporation Ltd.
Digital signed a letter of intent in July 1996 with Telstra Corporation
Ltd. of Australia ("Telstra") to establish a mirror site in Australia, New
Zealand and several other countries. Telstra would pay Digital a monthly license
fee as well as a fee based on the total number of hits per day.
F-26
<PAGE> 98
AltaVista Search
Comprehensive, fast and relevant search results provided seamlessly at all
levels of the work environment -- Internet, enterprise, workgroup and individual
user -- through a single user interface.
[SCREEN SHOT OF THE ALTAVISTA SEARCH USER INTERFACE.]
<PAGE> 99
==============================================================================
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, DIGITAL OR ANY U.S. UNDERWRITER.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE
TO WHICH IT RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY,
TO ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
---------------------------
<TABLE>
TABLE OF CONTENTS
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary................... 3
Risk Factors......................... 8
Use of Proceeds...................... 20
Dividend Policy...................... 20
Capitalization....................... 21
Dilution............................. 22
Selected Financial Data.............. 23
Management's Discussion and
Analysis of Financial Condition
and Results of Operations.......... 24
Business............................. 28
Relationship with Digital............ 45
Management........................... 51
Principal Stockholder................ 57
Shares Eligible for Future Sale...... 57
Description of Capital Stock......... 59
Certain United States Federal Tax
Consequences to Non-United States
Holders............................ 64
Underwriting......................... 67
Legal Matters........................ 69
Experts.............................. 69
Additional Information............... 70
Reports to Security Holders.......... 70
Index to Financial Statements........ F-1
</TABLE>
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
==============================================================================
==============================================================================
SHARES
[INTERNET SOFTWARE LOGO]
CLASS A COMMON STOCK
---------------------------
PROSPECTUS
, 1996
---------------------------
LEHMAN BROTHERS
COWEN & COMPANY
J.P. MORGAN & CO.
==============================================================================
<PAGE> 100
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
[ALTERNATE FRONT COVER PAGE]
Subject to Completion, dated August 27, 1996
PROSPECTUS
SHARES
[INTERNET SOFTWARE LOGO]
CLASS A COMMON STOCK
---------------------------
All of the shares of Class A Common Stock offered hereby are being sold by
AltaVista Internet Software, Inc. ("AltaVista" or the "Company"), a wholly-owned
subsidiary of Digital Equipment Corporation ("Digital"). Following the Offering
(as defined below), Digital will own all of the outstanding shares of
Class B Common Stock of the Company, which will represent approximately
% of the economic interest (or rights of holders of common equity to
participate in distributions in respect of the common equity) in the Company
(assuming no exercise of the Underwriters' over-allotment options).
Of the shares of Class A Common Stock offered hereby, shares
are being offered outside the United States and Canada (the "International
Offering") by the International Managers (as defined in "Underwriting"), and
shares are being offered in the United States and Canada in a
concurrent U.S. offering (the "U.S. Offering") by the U.S. Underwriters (as
defined in "Underwriting", and, together with the International Managers, the
"Underwriters"). These offerings are collectively referred to herein as the
"Offering." See "Underwriting."
Holders of Class A Common Stock generally have identical rights to holders
of Class B Common Stock and vote together as a single class, except that holders
of Class A Common Stock are entitled to one vote per share while holders of
Class B Common Stock are entitled, with certain exceptions, to three votes per
share on all matters submitted to a vote of stockholders. Following the
Offering, the shares of Class B Common Stock owned by Digital will represent
approximately % of the combined voting power of all classes of voting stock of
the Company (assuming no exercise of the Underwriters' over-allotment options).
Each share of Class B Common Stock is convertible into one share of Class A
Common Stock at the option of Digital, and is automatically converted under
certain circumstances. See "Relationship with Digital" and "Description of
Capital Stock."
Prior to the Offering, there has been no public market for the Common Stock
of the Company. It is currently estimated that the initial public offering price
will be between $ and $ per share. See "Underwriting" for the
factors to be considered in determining the initial public offering price.
Application has been made to list the Class A Common Stock on the Nasdaq
National Market under the symbol "ALTV."
---------------------------
THE CLASS A COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 8.
---------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
===========================================================================================================
UNDERWRITING
PRICE TO DISCOUNTS PROCEEDS TO
PUBLIC AND COMMISSIONS(1) COMPANY(2)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share................................
- -----------------------------------------------------------------------------------------------------------
Total(3).................................
===========================================================================================================
</TABLE>
(1) The Company and Digital have agreed to indemnify the Underwriters against
certain liabilities, including liabilities under the Securities Act of 1933,
as amended. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at $ .
(3) The Company has granted the International Managers a 30-day option to
purchase up to an additional shares of Class A Common Stock solely to
cover over-allotments, if any. The U.S. Underwriters have been granted a
similar option to purchase up to additional shares solely to cover
over-allotments, if any. If such options are exercised in full, the total
Price to Public would be $ , the total Underwriting Discounts and
Commissions would be $ and the total Proceeds to Company before
estimated expenses would be $ . See "Underwriting."
---------------------------
The shares of Class A Common Stock offered by this Prospectus are offered by
the International Managers subject to prior sale, to withdrawal, cancellation or
modification of the offer without notice, to delivery to and acceptance by the
International Managers and to certain further conditions. It is expected that
delivery of the shares will be made at the offices of Lehman Brothers Inc., New
York, New York, on or about , 1996.
---------------------------
LEHMAN BROTHERS
COWEN & COMPANY
J.P. MORGAN SECURITIES LTD.
, 1996
<PAGE> 101
[ALTERNATE BACK COVER PAGE]
==============================================================================
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, DIGITAL OR ANY INTERNATIONAL
MANAGER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER
THAN THOSE TO WHICH IT RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF AN
OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR
SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE
DATE HEREOF.
---------------------------
<TABLE>
TABLE OF CONTENTS
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary................... 3
Risk Factors......................... 8
Use of Proceeds...................... 20
Dividend Policy...................... 20
Capitalization....................... 21
Dilution............................. 22
Selected Financial Data.............. 23
Management's Discussion and
Analysis of Financial Condition
and Results of Operations.......... 24
Business............................. 28
Relationship with Digital............ 45
Management........................... 51
Principal Stockholder................ 57
Shares Eligible for Future Sale...... 57
Description of Capital Stock......... 59
Certain United States Federal Tax
Consequences to Non-United States
Holders............................ 64
Underwriting......................... 67
Legal Matters........................ 69
Experts.............................. 69
Additional Information............... 70
Reports to Security Holders.......... 70
Index to Financial Statements........ F-1
</TABLE>
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
==============================================================================
==============================================================================
SHARES
[INTERNET SOFTWARE LOGO]
CLASS A COMMON STOCK
---------------------------
PROSPECTUS
, 1996
---------------------------
LEHMAN BROTHERS
COWEN & COMPANY
J.P. MORGAN SECURITIES LTD.
==============================================================================
<PAGE> 102
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Estimated expenses (other than underwriting discounts and commissions)
payable in connection with the sale of the Class A Common Stock offered hereby
are as follows:
<TABLE>
<S> <C>
SEC registration fee....................................................... $17,242
NASD filing fee............................................................ 5,500
Nasdaq National Market listing fee......................................... *
Printing and engraving expenses............................................ *
Legal fees and expenses.................................................... *
Accounting fees and expenses............................................... *
Blue Sky fees and expenses (including legal fees).......................... *
Transfer agent and registrar fees and expenses............................. *
Miscellaneous.............................................................. *
-------
---
Total............................................................ $ *
=======
</TABLE>
- ---------------
* To be completed by amendment.
The Company will bear all expenses shown above.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Delaware General Corporation Law and the Company's corporate charter
and by-laws provide for indemnification of the Company's directors and officers
for liabilities and expenses that they may incur in such capacities. In general,
directors and officers are indemnified with respect to actions taken in good
faith in a manner reasonably believed to be in, or not opposed to, the best
interests of the Company, and with respect to any criminal action or proceeding,
actions that the indemnitee had no reasonable cause to believe were unlawful.
Reference is made to the Company's amended and restated corporate charter and
by-laws filed as Exhibits 3.2 and 3.4 hereto.
The Massachusetts Business Corporation Law, Digital's by-laws and
indemnification agreements between Digital and the Company's directors and
officers provide for indemnification of the Company's directors and officers for
liabilities and expenses that they may incur in such capacities, except with
respect to any matter that the indemnified person shall have been adjudicated in
any proceeding not to have acted in good faith in the reasonable belief that his
or her action was in the best interest of Digital. Reference is made to
Digital's corporate charter and by-laws and form of indemnification agreement
filed as Exhibits 3.5 through 3.8 and Exhibit 10.10.
The Company's corporate charter also provides that any person purchasing or
acquiring an interest in a share of capital stock of the Company is deemed to
have consented to certain provisions in the corporate charter that (i) permit
the officers and directors of the Company and Digital to allocate corporate
opportunities to either the Company or Digital as such officers of directors
deem appropriate, and that none of the Company, Digital and their respective
officers or directors shall be liable for any breach of a fiduciary duty in
connection therewith, and (ii) eliminate the liability of Digital and its
officers and directors for engaging in business activities similar to those of
the Company and for any actions taken in connection with any agreements entered
into between the Company and Digital.
The Underwriting Agreements provide that the Underwriters are obligated,
under certain circumstances, to indemnify directors, officers and controlling
persons of the Company against certain liabilities, including liabilities under
the Securities Act of 1933, as amended (the "Act"). Reference is made to the
forms of Underwriting Agreements filed as Exhibits 1.1 and 1.2 hereto.
II-1
<PAGE> 103
Digital maintains directors and officers liability insurance for the
benefit of its and the Company's directors and officers.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The Company has not issued any unregistered securities except to its
parent, Digital, in connection with the organization of the Company.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS:
<TABLE>
<C> <S>
1.1* Form of U.S. Underwriting Agreement.
1.2* Form of International Underwriting Agreement.
1.3* Form of Agreement Between U.S. Underwriters and International Managers.
3.1 Current form of Certificate of Incorporation of the Company.
3.2 Form of Amended and Restated Certificate of Incorporation of the Company, to be
effective prior to consummation of the Offering.
3.3 Current form of By-laws of the Company.
3.4 Form of Amended and Restated By-laws of the Company, to be effective prior to
consummation of the Offering.
3.5 Digital's Restated Articles of Organization (filed under cover of Form SE as
Exhibit 3(a) to Digital's Annual Report on Form 10-K for the fiscal year ended
June 29, 1991 and incorporated herein by reference).
3.6 Articles of Amendment to Digital's Restated Articles of Organization, filed with
the Secretary of State of the Commonwealth of Massachusetts on November 4, 1993
(filed as Exhibit 4.3 to Digital's Registration Statement on Form S-3, No.
33-51987, and incorporated herein by reference).
3.7 Certificate of Designation of Digital, filed with the Secretary of State of the
Commonwealth of Massachusetts on March 21, 1994 (filed as Exhibit 4.1 to Digital's
Report on Form 8-K filed on March 23, 1994 and incorporated herein by reference).
3.8 Digital's By-laws, as amended (filed as Exhibit 3(d) to Digital's Annual Report on
Form 10-K for the fiscal year ended July 1, 1995 and incorporated herein by
reference).
4.1* Specimen certificate representing the Class A Common Stock.
5.1* Opinion of Testa, Hurwitz & Thibeault, LLP.
10.1 Form of Services Agreement between the Company and Digital.
10.2 Form of Facilities Agreement between the Company and Digital.
10.3 Form of Tax-Sharing Agreement between the Company and Digital.
10.4 Form of Corporate Agreement between the Company and Digital.
10.5 Form of Strategic Alliance Agreement between the Company and Digital.
10.6 Form of Technical Assistance Agreement between the Company and Digital.
10.7* Form of Asset Transfer and License Agreement between the Company and Digital.
10.8*# Agreement between the Company and Yahoo! Inc.
10.9* 1996 Stock Plan.
10.10* 1996 Non-Employee Director Stock Option Plan.
10.11* Form of Indemnification Agreement between Digital and the Company's officers and
directors.
21.1 Subsidiaries of the Company.
23.1 Consent of Coopers & Lybrand L.L.P.
23.2 Consent of Testa, Hurwitz & Thibeault, LLP (included in Exhibit 5.1).
24.1 Power of Attorney (see page II-4).
27.1 Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by amendment.
# Confidential treatment requested as to certain portions.
II-2
<PAGE> 104
(B) FINANCIAL STATEMENT SCHEDULES: None
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the registrant
pursuant to provisions described in Item 14 above, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned registrant hereby undertakes (1) to provide to the
underwriters at the closing specified in the underwriting agreements
certificates in such denominations and registered in such names as required by
the underwriters to permit prompt delivery to each purchaser; (2) that for
purposes of determining any liability under the Act, the information omitted
from the form of prospectus filed as part of a registration statement in
reliance upon Rule 430A and contained in the form of prospectus filed by the
registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Act shall be
deemed to be part of this registration statement as of the time it was declared
effective; and (3) that for the purpose of determining any liability under the
Act, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-3
<PAGE> 105
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Littleton, Massachusetts on August
27, 1996.
ALTAVISTA INTERNET SOFTWARE, INC.
By: /s/ Ilene H. Lang
------------------------------------
Ilene H. Lang
President and Chief Executive
Officer
POWER OF ATTORNEY AND SIGNATURES
We, the undersigned officers and directors of AltaVista Internet Software,
Inc., hereby severally constitute and appoint Ilene H. Lang, Robert E. Hult,
Gail S. Mann and Edwin L. Miller, Jr., and each of them singly, our true and
lawful attorneys, with full power to them and each of them singly, to sign for
us in our names in the capacities indicated below, any registration statement
related to the Offering that is to be effective upon filing pursuant to Rule
462(b) under the Securities Act of 1933 (a "462(b) Registration Statement"), any
and all amendments and exhibits to this registration statement or any 462(b)
Registration Statement, and any and all applications and other documents to be
filed with the Securities and Exchange Commission pertaining to the registration
of the securities covered hereby or thereby, and generally to do all things in
our names and on our behalf in such capacities to enable AltaVista Internet
Software, Inc. to comply with the provisions of the Securities Act of 1933 and
all requirements of the Securities and Exchange Commission.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE(S) DATE
- --------------------------------------------- ------------------------------ -----------------
<S> <C> <C>
/s/ Ilene H. Lang President and Sole Director August 27, 1996
- --------------------------------------------- (Principal Executive Officer)
Ilene H. Lang
/s/ Robert E. Hult Vice President, Finance and August 27, 1996
- --------------------------------------------- Operations, and Treasurer
Robert E. Hult (Principal Financial and
Accounting Officer)
</TABLE>
II-4
<PAGE> 106
EXHIBIT INDEX
<TABLE>
<CAPTION>
PAGE
-----
<C> <S> <C>
1.1* Form of U.S. Underwriting Agreement.
1.2* Form of International Underwriting Agreement.
1.3* Form of Agreement Between U.S. Underwriters and International Managers.
3.1 Current form of Certificate of Incorporation of the Company.
3.2 Form of Amended and Restated Certificate of Incorporation of the Company, to
be effective prior to consummation of the Offering.
3.3 Current form of By-laws of the Company.
3.4 Form of Amended and Restated By-laws of the Company, to be effective prior
to consummation of the Offering.
3.5 Digital's Restated Articles of Organization (filed under cover of Form SE as
Exhibit 3(a) to Digital's Annual Report on Form 10-K for the fiscal year
ended June 29, 1991 and incorporated herein by reference).
3.6 Articles of Amendment to Digital's Restated Articles of Organization, filed
with the Secretary of State of the Commonwealth of Massachusetts on November
4, 1993 (filed as Exhibit 4.3 to Digital's Registration Statement on Form
S-3, No. 33-51987, and incorporated herein by reference).
3.7 Certificate of Designation of Digital, filed with the Secretary of State of
the Commonwealth of Massachusetts on March 21, 1994 (filed as Exhibit 4.1 to
Digital's Report on Form 8-K filed on March 23, 1994 and incorporated herein
by reference).
3.8 Digital's By-laws, as amended (filed as Exhibit 3(d) to Digital's Annual
Report on Form 10-K for the fiscal year ended July 1, 1995 and incorporated
herein by reference).
4.1* Specimen certificate representing the Class A Common Stock.
5.1* Opinion of Testa, Hurwitz & Thibeault, LLP.
10.1 Form of Services Agreement between the Company and Digital.
10.2 Form of Facilities Agreement between the Company and Digital.
10.3 Form of Tax-Sharing Agreement between the Company and Digital.
10.4 Form of Corporate Agreement between the Company and Digital.
10.5 Form of Strategic Alliance Agreement between the Company and Digital.
10.6 Form of Technical Assistance Agreement between the Company and Digital.
10.7* Form of Asset Transfer and License Agreement between the Company and
Digital.
10.8*# Agreement between the Company and Yahoo! Inc.
10.9* 1996 Stock Plan.
10.10* 1996 Non-Employee Director Stock Option Plan.
10.11* Form of Indemnification Agreement between Digital and the Company's officers
and directors.
21.1 Subsidiaries of the Company.
23.1 Consent of Coopers & Lybrand L.L.P.
23.2 Consent of Testa, Hurwitz & Thibeault, LLP (included in Exhibit 5.1).
24.1 Power of Attorney (see page II-4).
27.1 Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by amendment.
# Confidential treatment requested as to certain portions.
<PAGE> 1
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
ALTAVISTA INTERNET SOFTWARE, INC.
* * * * * *
FIRST. The name of the corporation AltaVista Internet Software, Inc.
(the "Corporation").
SECOND. The address of the registered office of the Corporation in the
State of Delaware is 1209 Orange Street, in the City of Wilmington, New Castle
County, Delaware 19801. The name of its registered agent at such address is The
Corporation Trust Company.
THIRD. The nature of the business or purposes to be conducted or
promoted by the Corporation is to engage in any lawful act or activity for which
corporations may be organized under the General Corporation Law of the State of
Delaware.
FOURTH. The total number of shares of stock which the Corporation shall
have authority to issue is 1,000,000 shares of Common Stock with a par value of
one cent ($.01) per share.
FIFTH. The Corporation is to have perpetual existence.
SIXTH. In furtherance and not in limitation of the powers conferred by
the laws of the State of Delaware:
A. The Board of Directors of the Corporation is expressly
authorized to adopt, amend or repeal the By-Laws of the Corporation.
<PAGE> 2
-2-
B. Elections of directors need not be by written ballot unless
the By-Laws of the Corporation shall so provide.
C. The books of the Corporation may be kept at such place within
or without the State of Delaware as the By-Laws of the Corporation may
provide or as may be designated from time to time by the Board of
Directors of the Corporation.
SEVENTH. The Corporation eliminates the personal liability of each
member of its Board of Directors to the Corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director, provided, however,
that, to the extent provided by applicable law, the foregoing shall not
eliminate the liability of a director (i) for any breach of such director's duty
of loyalty to the Corporation or its stockholders, (ii) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of law, (iii) under Section 174 of Title 8 of the Delaware Code or (iv) for any
transaction from which such director derived an improper personal benefit. No
amendment to or repeal of this provision shall apply to or have any effect on
the liability or alleged liability of any director for or with respect to any
acts or omissions of such director occurring prior to such amendment or repeal.
EIGHTH. The Corporation reserves the right to amend or repeal any
provision contained in this Certificate of Incorporation, in the manner now or
hereafter prescribed by statute, and all rights conferred upon a stockholder
herein are granted subject to this reservation.
NINTH. The name and mailing address of the sole incorporator is as
follows:
Name Mailing Address
---- ---------------
Edwin L. Miller, Jr. Testa, Hurwitz & Thibeault, LLP
High Street Tower
125 High Street
Boston, MA 02110
<PAGE> 3
-3-
I, THE UNDERSIGNED, being the sole incorporator hereinabove named, for
the purpose of forming a corporation pursuant to the General Corporation Law of
the State of Delaware, do make this certificate, hereby declaring and certifying
that this is my act and deed and the facts herein stated are true, and
accordingly have hereunto set my hand this 28th day of June, 1996.
------------------------------
Edwin L. Miller, Jr.
Sole Incorporator
<PAGE> 1
EXHIBIT 3.2
FORM OF
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
ALTAVISTA INTERNET SOFTWARE, INC.
* * * * * * * * *
AltaVista Internet Software, Inc., a Delaware corporation that filed
its original Certificate of Incorporation with the Secretary of State of
Delaware on June 28, 1996, does hereby amend and restate its Certificate of
Incorporation to read in its entirety as follows:
FIRST. The name of the Corporation is: ALTAVISTA INTERNET SOFTWARE,
INC.
SECOND. The address of the registered office of the Corporation in the
State of Delaware is 1209 Orange Street, in the City of Wilmington, New Castle
County, Delaware 19801. The name of its registered agent at such address is The
Corporation Trust Company.
THIRD. The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware as the name exists or may hereafter be amended
("Delaware Law").
FOURTH.
Section 1. Capital Stock.
(a) The total number of shares of stock which the
Corporation shall have authority to issue is 105,000,000, consisting of
100,000,000 shares of Common Stock, par value $0.01 per share (the "Common
Stock"), and 5,000,000 shares of Preferred Stock, par value $0.01 per share (the
"Preferred Stock"). The Common Stock of the Corporation shall be all of one
class, and shall be divided into two initial series, consisting of Class A
Common Stock and Class B Common Stock. The Preferred Stock may be issued in one
or more series having such designations as may be fixed by the Board of
Directors.
(b) The Board of Directors is expressly authorized to
provide for the issue of all or any shares of the Common Stock and the Preferred
Stock, to determine the number of shares of each series and to fix for each
series of Common Stock and for any series of Preferred Stock such voting powers,
full or limited, or no voting powers, and such designations, preferences and
relative, participating, optional or other special rights and such
qualifications, limitations or restrictions thereof, as shall be stated and
expressed in the resolution or resolutions
<PAGE> 2
adopted by the Board of Directors or a duly authorized committee thereof
providing for the issue of such series and as may be permitted by Delaware Law.
(c) Subject to the rights of holders of the Preferred
Stock, the number of authorized shares of any class or classes of stock may be
increased or decreased (but not below the number of shares thereof then
outstanding) by the affirmative vote of a majority of the Common Stock of the
Corporation irrespective of the provisions of Section 242(b)(2) of Delaware Law.
Section 2. Common Stock.
(a) Issuance and Consideration. Any unissued or treasury
shares of the Common Stock may be issued for such consideration as may be fixed
in accordance with applicable law from time to time by the Board of Directors.
(b) Dividends. Subject to the rights of holders of the
Preferred Stock, the holders of the Common Stock shall be entitled to receive,
when and as declared by the Board of Directors, out of the assets of the
Corporation which are by law available therefor, dividends payable either in
cash, in property, or in shares of stock and the holders of the Preferred Stock
shall not be entitled to participate in any such dividends (unless otherwise
provided by the Board of Directors in any resolution providing for the issue of
a series of Preferred Stock).
(c) Number of Shares. Of the 100,000,000 shares of Common
Stock of the Corporation, 50,000,000 shares are initially designated as shares
of Class A Common Stock and 50,000,000 shares are initially designated as shares
of Class B Common Stock. The number of shares designated as Class A Common Stock
or Class B Common Stock may be increased or decreased from time to time by a
resolution or resolutions adopted by the Board of Directors or any duly
authorized committee thereof (but not decreased below the number of such shares
then outstanding) and will be decreased in accordance with paragraph (d)(5)(E)
below, in each case without the consent of the holders of any outstanding shares
of Common Stock or Preferred Stock.
(d) Powers, Preferences, Etc. The following is a
statement of the powers, preferences, and relative participating, optional or
other special rights and qualifications, limitations and restrictions of the
Class A Common Stock and Class B Common Stock of the Corporation:
(1) Except as otherwise set forth below in this ARTICLE
FOURTH, the powers, preferences and relative participating, optional or
other special rights and qualifications, limitations or restrictions of
the Class A Common Stock and Class B Common Stock shall be identical in
all respects.
(2) Subject to the rights of the holders of Preferred
Stock, and subject to any other provisions of this Amended and Restated
Certificate of Incorporation, holders of Class A Common Stock and Class
B Common Stock shall be entitled to receive such dividends and other
distributions in cash, stock of any corporation (other than Common
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<PAGE> 3
Stock of the Corporation) or property of the Corporation as may be
declared thereon by the Board of Directors from time to time out of
assets or funds of the Corporation legally available therefor and shall
share equally on a per share basis in all such dividends and other
distributions. In the case of dividends or other distributions payable
in Common Stock, including distributions pursuant to stock splits or
divisions of Common Stock of the Corporation, only shares of Class A
Common Stock shall be paid or distributed with respect to Class A
Common Stock and only shares of Class B Common Stock shall be paid or
distributed with respect to Class B Common Stock. The number of shares
of Class A Common Stock and Class B Common Stock so distributed shall
be equal in number on a per share basis. Neither the shares of Class A
Common Stock nor the shares of Class B Common Stock may be
reclassified, subdivided or combined unless such reclassification,
subdivision or combination occurs simultaneously and in the same
proportion for each class.
(3)(A) At every meeting of the stockholders of the
Corporation, every holder of Class A Common Stock shall be entitled to
one vote in person or by proxy for each share of Class A Common Stock
standing in his or her name on the transfer books of the Corporation,
and every holder of Class B Common Stock shall be entitled to three
votes in person or by proxy for each share of Class B Common Stock
standing in his or her name on the transfer books of the Corporation in
connection with the election of directors and all other matters
submitted to a vote of stockholders; provided, however, that with
respect to any proposed conversion of the shares of Class B Common
Stock into shares of Class A Common Stock pursuant to paragraph
(d)(5)(B), every holder of a share of Common Stock, irrespective of
class, shall have one vote in person or by proxy for each share of
Common Stock standing in his or her name on the transfer books of the
Corporation. Except as may be otherwise required by law or by this
ARTICLE FOURTH, the holders of Class A Common Stock and Class B Common
Stock shall vote together as a single class, subject to any voting
rights which may be granted to holders of Preferred Stock, on all
matters submitted to a vote of the holders of Common Stock.
(B) Every reference in this Amended and Restated Certificate
of Incorporation to a majority or other proportion of shares of Common
Stock, Class A Common Stock or Class B Common Stock, shall refer to
such majority or other proportion of the votes to which such shares of
Common Stock, Class A Common Stock or Class B Common Stock are
entitled.
(4)(A) In the event of any dissolution, liquidation or
winding up of the affairs of the Corporation, whether voluntary or
involuntary, after payment in full of the amounts required to be paid
to the holders of Preferred Stock, the remaining assets and funds of
the Corporation shall be distributed pro rata to the holders of Class A
Common Stock and Class B Common Stock. For the purposes of this
paragraph (d)(4), the voluntary sale, conveyance, lease, exchange or
transfer (for cash, shares of stock, securities or other consideration)
of all or substantially all of the assets of the Corporation or a
consolidation or merger of the Corporation with one or more other
corporations (whether or not the
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<PAGE> 4
Corporation is the corporation surviving such consolidation or merger)
shall not be deemed to be a liquidation, dissolution or winding up,
voluntary or involuntary.
(B) In the event of any merger or consolidation of the Company
with or into another company in connection with which shares of Common
Stock are converted into or exchangeable for shares of stock, other
securities or property (including cash), all holders of Common Stock,
regardless of class or series, will be entitled to receive the same
kind and amount of shares of stock and other securities and property
(including cash).
(5)(A) Prior to the earliest to occur of the date on which
shares of Class B Common Stock are issued to stockholders of Digital
Equipment Corporation, a Massachusetts corporation, or its successors
("Digital") in a Tax-Free Spin-Off (as defined in paragraph (d)(5)(B))
and the date on which the number of shares of Class B Common Stock
outstanding is less than 60% of the aggregate number of shares of
Common Stock outstanding and a Tax-Free Spin-Off has not occurred, each
share of Class B Common Stock is convertible at the option of the
holder thereof into one share of Class A Common Stock. At the time of a
voluntary conversion, the holder of shares of Class B Common Stock
shall deliver to the office of the Corporation or any transfer agent
for the Class B Common Stock (i) the certificate or certificates
representing the shares of Class B Common Stock to be converted, duly
endorsed in blank or accompanied by proper instruments of transfer, and
(ii) written notice to the Corporation stating that such holder elects
to convert such share or shares and stating the name and address in
which each certificate for shares of Class A Common Stock issued upon
such conversion is to be issued. To the extent permitted by law and
subject to the taking of any necessary action or making any filing
contemplated by paragraph (d)(5)(E), such voluntary conversion shall be
deemed to have been effected at the close of business on the date when
such delivery is made to the Corporation or such transfer agent of the
shares to be converted, and the person exercising such voluntary
conversion shall be deemed to be the holder of record of the number of
shares of Class A Common Stock issuable upon such conversion at such
time. The Corporation shall promptly delivery certificates evidencing
the appropriate number of shares of Class A Common Stock to such
person.
(B) Each share of Class B Common Stock shall automatically
convert into one share of Class A Common Stock upon the transfer of
such shares if, after such transfer, such share is not beneficially
owned by Digital, unless such transfer is effected in connection with a
transfer of Class B Common Stock to stockholders of Digital as a
dividend intended to be on a tax-free basis under the Internal Revenue
Code of 1986, as amended from time to time (the "Code") (a "Tax-Free
Spin-Off"). For purposes of this paragraph (d)(5), the term
"beneficially owned" with respect to shares of Class B Common Stock
means ownership by a person who, directly or indirectly, through any
contract, arrangement, understanding, relationship or otherwise
controls the voting power (which includes the power to vote or to
direct the voting of) of such Class B Common Stock. In the event of a
Tax-Free Spin-Off, shares of Class B Common Stock shall automatically
convert into shares of Class A Common Stock on the fifth anniversary of
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<PAGE> 5
the date on which shares of Class B Common Stock are first transferred
to stockholders of Digital in a Tax-Free Spin-Off unless, prior to such
Tax-Free Spin-Off, Digital delivers to the Corporation an opinion of
Digital's counsel (which counsel shall be reasonably satisfactory to
the Corporation) to the effect that such conversion would preclude
Digital from obtaining a favorable ruling from the Internal Revenue
Service that the distribution would be a Tax-Free Spin-Off under the
Code. If such an opinion is received, approval of such conversion shall
be submitted to a vote of the holders of the Common Stock as soon as
practicable after the fifth anniversary of the Tax-Free Spin-Off unless
Digital delivers to the Corporation an opinion of Digital's counsel
(which counsel shall be reasonably satisfactory to the Corporation)
prior to such anniversary to the effect that such vote would adversely
affect the status of the Tax-Free Spin-Off. At the meeting of
stockholders called for such purpose, every holder of Common Stock
shall be entitled to one vote in person or by proxy for each share of
Common Stock standing in his or her name on the transfer books of the
Corporation. Approval of such conversion shall require the approval of
a majority of the votes entitled to be cast by the holders of the Class
A Common Stock and Class B Common Stock present and voting, voting
together as a single class, and the holders of the Class B Common Stock
shall not be entitled to a separate class vote. Such conversion shall
be effective on the date on which such approval is given at a meeting
of stockholders called for such purpose.
Each share of Class B Common Stock shall automatically convert
into one share of Class A Common Stock on the date on which the number
of shares of Class B Common Stock outstanding is less than 60% of the
aggregate number of shares of Common Stock outstanding and a Tax-Free
Spin-Off has not occurred.
The Corporation shall at all times reserve and keep available,
free from preemptive rights, out of the aggregate of its authorized but
unissued Common Stock and its issued Common Stock held in its treasury
for the purpose of effecting any conversion of the Class B Common Stock
pursuant to this paragraph (d)(5)(B), the full number of shares of
Class A Common Stock then deliverable upon any such conversion of all
outstanding shares of Class B Common Stock.
The Corporation will provide notice of any automatic
conversion of shares of Class B Common Stock to holders of record of
the Common Stock not less than 30 nor more than 60 days prior to the
date fixed for such conversion; provided, however, that if the timing
or nature of the effectiveness of an automatic conversion makes it
impracticable to provide at least 30 days' notice, the Corporation
shall provide such notice as soon as practicable. Such notice shall be
provided by mailing notice of such conversion first class postage
prepaid, to each holder of record of the Common Stock, at such holder's
address as it appears on the transfer books of the Corporation;
provided, however, that no failure to give such notice nor any defect
therein shall affect the validity of the automatic conversion of any
shares of Class B Common Stock. Each such notice shall state, as
appropriate, the following:
(i) the automatic conversion date;
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<PAGE> 6
(ii) the number of outstanding shares of Class B
Common Stock that are to be converted or have been converted
automatically;
(iii) the place or places where certificates for
such shares are to be surrendered for conversion; and
(iv) that no dividends will be declared on the
shares of Class B Common Stock converted after such conversion date.
Immediately upon such conversion, the rights of the holders of
shares of Class B Common Stock as such shall cease and such holders
shall be treated for all purposes as having become the record owners of
the shares of Class A Common Stock issuable upon such conversion;
provided, however, that such persons shall be entitled to receive when
paid any dividends declared on the Class B Common Stock as of a record
date preceding the time of such conversion and unpaid as of the time of
such conversion.
As promptly as practicable after the time of conversion, upon
the delivery to the Corporation of certificates formerly representing
shares of Class B Common Stock, the Corporation shall deliver or cause
to be delivered, to or upon the written order of the record holder of
the surrendered certificates formerly representing shares of Class B
Common Stock, a certificate or certificates representing the number of
fully paid and nonassessable shares of Class A Common Stock into which
the shares of Class B Common Stock formerly represented by such
certificates have been converted in accordance with the provisions of
this paragraph (d)(5)(B).
(C) Subject to the provisions of this paragraph (d)(5)(C),
from and after the date on which shares of Class B Common Stock are
transferred to the stockholders of Digital in a Tax-Free Spin-Off, (i)
each share of Class A Common Stock shall be convertible at the option
of the holder thereof into one share of Class B Common Stock on the
date on which any person (other than Digital or any of its consolidated
subsidiaries) or any group of persons (other than a group composed of
Digital and/or one or more of its consolidated subsidiaries) agreeing
to act together for the purpose of acquiring, holding, voting or
disposing of shares of Class B Common Stock, shall make an offer, which
the Board of Directors determines in its sole discretion to be "bona
fide", to holders of Class B Common Stock to purchase 5% or more of the
issued and outstanding shares of such Class B Common Stock for cash or
a combination of cash and other securities or property and (ii) each
share of Class B Common Stock shall be convertible at the option of the
holder thereof into one share of Class A Common Stock on the date on
which any person (other than Digital or any of its consolidated
subsidiaries) or any group of persons (other than a group composed of
Digital and/or one or more of its consolidated subsidiaries) agreeing
to act together for the purpose of acquiring, holding, voting or
disposing of shares of Class A Common Stock, shall make an offer, which
the Board of Directors determines in its sole discretion to be "bona
fide", to holders of Class A Common Stock to purchase 5% or more of the
issued and outstanding shares of Class A Common Stock for cash or a
combination of cash and other securities or property. The Corporation
will
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<PAGE> 7
provide notice in writing to all holders of Common Stock of any offer
referred to in the foregoing clauses (i) and (ii). Such notice shall be
provided by mailing notice of such offer, first class postage prepaid,
to each holder of the series of Common Stock then entitled to be
converted, at such holder's address as it appears on the transfer books
of the Corporation. The Common Stock shall be convertible under this
paragraph (d)(5)(C) as long as such offer shall remain in effect and
shall not be terminated, rescinded or completed, as determined by the
Board of Directors in its sole discretion. Notwithstanding the
foregoing, each share of Common Stock converted into a share of the
other series of Common Stock pursuant to this paragraph (d)(5)(C) and
not purchased pursuant to such offer prior to the termination,
rescission or completion thereof, as determined by the Board of
Directors in its sole discretion, shall automatically be reconverted
into a share of Common Stock of the series from which it was converted
pursuant to this paragraph (d)(5)(C) upon the earliest to occur of the
termination, rescission or completion of such offer, as so determined
by the Board of Directors.
Any conversion pursuant to this paragraph (d)(5)(C) may be
effected at the office of the Corporation or any transfer agent for the
Common Stock and at such other place or places, if any, as the Board of
Directors may designate. Upon conversion pursuant to this paragraph
(d)(5)(C), the Corporation shall make no payment or adjustment on
account of dividends accrued or in arrears on Common Stock surrendered
for conversion or on account of any dividends on Common Stock issuable
on such conversion. Before any holder of Common Stock shall be entitled
to convert the same into any other series of stock pursuant to this
paragraph (d)(5)(C), such holder shall surrender the certificate or
certificates for such Common Stock at the office of said transfer agent
(or other place as provided above). Such certificate(s), if the
Corporation shall so request, shall be duly endorsed to the Corporation
or in blank or accompanied by proper instruments of transfer to the
Corporation or in blank (such endorsements or instruments of transfer
to be in form satisfactory to the Corporation). Such certificate(s)
shall be accompanied by a written notice to the Corporation at said
office stating that such holder elects to convert all or a specified
number of Common Stock represented by such certificate(s) in accordance
with this paragraph (d)(5)(C) and stating the name(s) in which such
holder desires the certificate(s) representing the stock to be issued.
Such written notice shall also state the name(s) of the person(s)
making the offer entitling such holder to convert such Common Stock.
The Corporation will, as soon as practicable after deposit of the
certificate(s) for the series of Common Stock to be converted,
accompanied by the written notice and the statements prescribed above,
issue and deliver at the office of said transfer agent (or other place
as provided above) to the person for whose account such Common Stock
was so surrendered, or to such person's nominee or nominees, a
certificate or certificates for the number of shares of such other
series of Common Stock to which such holder shall be entitled as
aforesaid.
Any certificate of Common Stock issued in connection with a
conversion pursuant to this paragraph (d)(5)(C) shall bear a legend
substantially to the effect of the last sentence of the first
subparagraph of this paragraph (d)(5)(C) until such certificate shall
be transferred to the person(s) making the offer entitling a holder of
Common Stock to
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<PAGE> 8
convert such Common Stock pursuant to this paragraph (d)(5)(C), or the
nominee or nominees of such person(s).
Any conversion pursuant to this paragraph (d)(5)(C) shall be
deemed to have been made as of the date of surrender of the Common
Stock to be converted; and the person or persons entitled to receive
the Common Stock issuable upon conversion shall be treated for all
purposes as the record holder or holders of such Common Stock on such
date.
(D) The Corporation will pay any and all documentary, stamp or
similar issue or transfer taxes payable in respect of the issue or
delivery of shares of one series of Common Stock on the conversion of
shares of the other series of Common Stock pursuant to this paragraph
(d)(5); provided, however, that the Corporation shall not be required
to pay any tax which may be payable in respect of any registration of
transfer involved in the issue or delivery of shares of one series of
Common Stock in a name other than that of the registered holder of the
other series of Common Stock converted, and no such issue or delivery
shall be made unless and until the person requesting such issue has
paid to the Corporation the amount of any such tax or has established,
to the satisfaction of the Corporation, that such tax has been paid.
(E) Concurrently with any conversion of one series of Common
Stock into the other series of Common Stock effected pursuant to
paragraphs (d)(5)(A) and (B) above and, in the case of a conversion
pursuant to paragraph (d)(5)(C) above, concurrently with the purchase
of shares so converted, each share of a series of Common Stock that is
converted (i) shall be retired and canceled and shall not be reissued
and (ii) shall proportionally decrease the number of shares of Common
Stock of such series designated hereby. The Secretary of the
Corporation shall be, and hereby is, authorized and directed to file
with the Secretary of State of the State of Delaware one or more
Certificates of Decrease of Designated Shares to record any such
decrease in designated shares of Common Stock. No undesignated shares
of Common Stock shall be designated shares of Class B Common Stock
following an automatic conversion of shares of Class B Common Stock
pursuant to paragraph (d)(5)(B) above.
(F) Immediately upon the effectiveness of this Amended and
Restated Certificate of Incorporation each share of common stock of the
Corporation, par value $0.01 per share, that is issued and outstanding
immediately prior to such effectiveness, shall be changed into and
reclassified as 1,000 shares of Class B Common Stock.
Section 3. Preferred Stock.
(a) Series and Limits of Variations between Series. Any
unissued or treasury shares of the Preferred Stock may be issued from time to
time in one or more series for such consideration as may be fixed from time to
time by the Board of Directors and each share of a series shall be identical in
all respects with the other shares of such series, except that, if the dividends
thereon are cumulative, the date from which they shall be cumulative may differ.
Before any shares of Preferred Stock of any particular series shall be issued, a
certificate shall be filed with the Secretary of State of Delaware setting forth
the designation, rights, privileges,
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<PAGE> 9
restrictions, and conditions to be attached to the Preferred Stock of such
series and such other matters as may be required, and the Board of Directors
shall fix and determine, and is hereby expressly empowered to fix and determine,
in the manner provided by law, the particulars of the shares of such series (so
far as not inconsistent with the provisions of this ARTICLE FOURTH applicable to
all series of Preferred Stock), including, but not limited to, the following:
(1) the distinctive designation of such series and the
number of shares which shall constitute such series, which number may
be increased (except where otherwise provided by the Board of Directors
in creating such series) or decreased (but not below the number of
shares thereof then outstanding) from time to time by like action of
the Board of Directors;
(2) the annual rate of dividends payable on shares of
such series (or the manner of determining the same), the conditions
upon which such dividends shall be payable and the date from which
dividends shall be cumulative in the event the Board of Directors
determines that dividends shall be cumulative;
(3) whether such series shall have voting rights, in
addition to the voting rights provided by law and, if so, the terms of
such voting rights;
(4) whether such series shall have conversion privileges
and, if so, the terms and conditions of such conversion, including, but
not limited to, provision for adjustment of the conversion rate upon
such events and in such manner as the Board of Directors shall
determine;
(5) whether or not the shares of such series shall be
redeemable or exchangeable for other securities and, if so, the terms
and conditions of such redemption or exchange, including the date or
dates upon or after which they shall be redeemable or exchangeable, and
the amount per share payable in case of redemption, which amount may
vary under different conditions and at different redemption rates;
(6) whether such series shall have a sinking fund for the
redemption or purchase of shares of that series and, if so, the terms
and amount of such sinking fund;
(7) the rights of the shares of such series in the event
of voluntary or involuntary liquidation, dissolution or winding up of
the Corporation, and the relative rights of priority, if any, of
payment of shares of that series; and
(8) any other relative rights, preferences and
limitations of such series.
Section 4. No Preemptive Rights. Except as otherwise set forth above in
this ARTICLE FOURTH, no holder of shares of this Corporation of any class shall
be entitled, as such, as a matter of right, to subscribe for or purchase shares
of any class now or hereafter authorized, or to purchase or subscribe for
securities convertible into or exchangeable for shares of the Corporation or to
which there shall be attached or appertain any warrants or rights entitling the
holders thereof to purchase or subscribe for shares.
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<PAGE> 10
FIFTH. In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to make, repeal, alter,
amend and rescind the bylaws of the Corporation.
SIXTH.
Section 1. Election by Holders of Preferred Stock. During any period
when the holders of any Preferred Stock or any one or more series thereof,
voting as a class, shall be entitled to elect a specified number of directors,
by reason of dividend arrearages or other provisions giving them the right to do
so, then and during such time as such right continues (i) the then otherwise
authorized number of directors shall be increased by such specified number of
directors, and the holders of such Preferred Stock or such series thereof,
voting as a class, shall be entitled to elect the additional directors so
provided for, pursuant to the provisions of such Preferred Stock or series; (ii)
each such additional director shall serve for such term, and have such voting
powers, as shall be stated in the provisions pertaining to such Preferred Stock
or series; and (iii) whenever the holders of any such Preferred Stock or series
thereof are divested of such rights to elect a specified number of directors,
voting as a class, pursuant to the provisions of such Preferred Stock or series,
the terms of office of all directors elected by the holders of such Preferred
Stock or series, voting as a class pursuant to such provisions or elected to
fill any vacancies resulting from the death, resignation or removal of directors
so elected by the holders of such Preferred Stock or series, shall forthwith
terminate and the authorized number of directors shall be reduced accordingly.
Section 2. Ballots. Elections of directors at an annual or special
meeting of stockholders need not be by written ballot unless the bylaws of the
Corporation shall provide otherwise.
Section 3. Initial Directors. Immediately upon the effectiveness of
this Amended and Restated Certificate of Incorporation, the directors of the
Corporation shall be_______________________________________________________.
each such person to hold office in accordance with the bylaws of the
Corporation.
Section 4. Elimination of Certain Personal Liability of Directors. A
director of this Corporation shall not be personally liable to the Corporation
or its stockholders for monetary damages for breach of any fiduciary duty as a
director to the fullest extent permitted by Delaware Law.
SEVENTH. The Board of Directors of the Corporation, when evaluating any
offer of another party to (1) make a tender or exchange offer for any equity
security of the Corporation, (2) merge or consolidate the Corporation with
another corporation, or (3) purchase or otherwise acquire all or substantially
all of the properties and assets of the Corporation, shall in connection with
the exercise of its judgment in determining what is in the best interests of the
Corporation and its stockholders, give due consideration to all relevant
factors, including without limitation the social and economic effects on the
employees, customers, suppliers and other constituents of the Corporation and
its subsidiaries and on the communities in which the Corporation and its
subsidiaries operate or are located.
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EIGHTH. The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Amended and Restated Certificate of
Incorporation, in the manner now or hereafter prescribed by statute, and all
rights conferred on stockholders herein are granted subject to this reservation;
provided that with respect to any proposed amendment, alternation or change to
this Amended and Restated Certificate of Incorporation, or repeal of any
provision of this Amended and Restated Certificate of Incorporation, which would
amend, alter or change the powers, preferences or special rights of the shares
of Class A Common Stock or Class B Common Stock so as to affect them adversely,
the affirmative vote of a majority of the outstanding shares affected by the
proposed amendment, voting as a separate class, shall be required.
NINTH.
Section 1. In anticipation that the Corporation will cease to be a
wholly owned subsidiary of Digital, but that Digital will remain a stockholder
of the Corporation, and in anticipation that the Corporation and Digital may
engage in the same or similar activities or lines of business and have an
interest in the same areas of corporate opportunities, and in recognition of (i)
the benefits to be derived by the Corporation throughout its continued
contractual, corporate and business relations with Digital (including service of
officers and directors of Digital as officers and directors of the Corporation)
and (ii) the difficulties attendant to any director, who desires and endeavors
fully to satisfy such director's fiduciary duties, in determining the full scope
of such duties in any particular situation, the provisions of this ARTICLE NINTH
are set forth to regulate, define and guide the conduct of certain affairs of
the Corporation as they may involve Digital and its officers and directors, and
the powers, rights, duties and liabilities of the Corporation of its officers,
directors and stockholders in connection therewith.
Section 2. Except as Digital may otherwise agree in writing,
(a) Digital shall not have a duty to refrain from
engaging directly or indirectly in the same or similar business
activities or lines of business as the Corporation, and
(b) neither Digital nor any officer of director thereof
shall be liable to the Corporation or its stockholders for breach of
any fiduciary duty by reason of any such activities of Digital or of
such person's participation therein.
In the event that Digital acquires knowledge of a potential transaction or
matter that may be a corporate opportunity for both Digital and the Corporation,
Digital (and its officers and directors) shall have no duty to communicate or
offer such corporate opportunity to the Corporation and shall not be liable to
the Corporation or its stockholders for breach of any fiduciary duty as a
stockholder of the Corporation or controlling person of a stockholder by reason
of the fact that Digital pursues or acquires such corporate opportunity for
itself, directs such corporate opportunity to another person or entity, or does
not communicate information regarding, or offer, such corporate opportunity to
the Corporation.
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Section 3. In the event that a director, officer or employee of the
Corporation who is also a director, officer or employee of Digital acquires
knowledge of a potential transaction or matter that may be a corporate
opportunity for the Corporation and Digital (whether such potential transaction
or matter is proposed by a third-party or is conceived of by such director,
officer or employee of the Corporation), such director, officer or employee
shall be entitled to offer such corporate opportunity to the Corporation or
Digital as such director, officer or employee deems appropriate under the
circumstances in his or her sole discretion, and no such director, officer or
employee shall be liable to the Corporation or its stockholders for breach of
any fiduciary duty or duty of loyalty or failure to act in (or not opposed to)
the best interests of the Corporation or the derivation of any improper personal
benefit by reason of the fact that (i) such director, officer or employee
offered such corporate opportunity to Digital (rather than the Corporation) or
did not communicate information regarding such corporate opportunity to the
Corporation or (ii) Digital pursues or acquires such corporate opportunity for
itself or directs such corporate opportunity to another person or does not
communicate information regarding such corporate opportunity to the Corporation.
Section 4. Any person or entity purchasing or otherwise acquiring any
interest in any shares of capital stock of the Corporation shall be deemed to
have notice of and to have consented to the provisions of this ARTICLE NINTH.
Section 5. For purposes of this ARTICLE NINTH and ARTICLE TENTH only,
(i) the term "Corporation" shall mean the Corporation and all corporations,
partnerships, joint ventures, associations and other entities in which the
Corporation beneficially owns (directly or indirectly) fifty percent or more of
the outstanding voting stock, voting power or similar voting interests, and (ii)
the term "Digital" shall mean Digital and all corporations, partnerships, joint
ventures, associations and other entities (other than the Corporation, defined
in accordance with clause (i) of this Section 5) in which Digital beneficially
owns (directly or indirectly) fifty percent or more of the outstanding voting
stock, voting power or similar voting interests.
Section 6. Notwithstanding anything in this Amended and Restated
Certificate of Incorporation to the contrary, the foregoing provisions of this
ARTICLE NINTH shall expire on the date that Digital ceases to own beneficially
Common Stock representing at least 20% of the number of outstanding shares of
Common Stock of the Corporation and no person who is a director or officer of
the Corporation is also a director or officer of Digital. Neither the
alteration, amendment, change or repeal of any provision of this ARTICLE NINTH
nor the adoption of any provision of this Amended and Restated Certificate of
Incorporation inconsistent with any provision of this ARTICLE NINTH shall
eliminate or reduce the effect of this ARTICLE NINTH in respect of any matter
occurring, or any cause of action, suit or claim that, but for this ARTICLE
NINTH, would accrue or arise, prior to such alteration, amendment, repeal or
adoption.
Section 7. The provisions of this ARTICLE NINTH are in addition to the
provisions of ARTICLE TENTH.
12
<PAGE> 13
TENTH.
Section 1. No contract, agreement, arrangement or transaction (or any
amendment, modification or termination thereof) between the Corporation and
Digital or any Related Entity (as defined below) or between the Corporation and
one or more of the directors or officers of the Corporation, Digital or any
Related Entity, shall be void or voidable solely for the reason that Digital, a
Related Entity or any one or more of the officers or directors of the
Corporation, Digital or any Related Entity are parties thereto, or solely
because any such directors or officers are present at or participate in the
meeting of the Board of Directors or committee thereof which authorizes the
contract, agreement, arrangement, transaction, amendment, modification or
termination or solely because his or their votes are counted for such purpose,
but any such contract, agreement, arrangement or transaction (or any amendment,
modification or termination thereof) shall be governed by the provisions of this
Amended and Restated Certificate of Incorporation, the Corporation's Bylaws,
Delaware Law and other applicable law. For purposes of this ARTICLE TENTH, (i)
the term "Related Entities" means one or more corporations, partnerships, joint
ventures, associations or other organizations in which one or more of the
directors of the Corporation have a direct or indirect financial interest and
(ii) the terms the "Corporation" and "Digital" have the meanings set forth in
ARTICLE NINTH, Section 5.
Section 2. Directors of the Corporation who are also directors or
officers of Digital or of any Related Entity may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or of a committee
that authorizes or approves any such contract, agreement, arrangement or
transaction (or amendment, modification or termination thereof). Outstanding
shares of Common Stock owned by Digital and any Related Entities may be counted
in determining the presence of a quorum at a meeting of stockholders that
authorizes or approves any such contract, agreement, arrangement or transaction
(or amendment, modification or termination thereof).
Section 3. Neither Digital nor any officer or director thereof or of
any Related Entity shall be liable to the Corporation or its stockholders for
breach of any fiduciary duty or duty of loyalty or failure to act in (or not
opposed to) the best interests of the Corporation or the derivation of any
improper personal benefit by reason of the fact that Digital or an officer of
director thereof or of such Related Entity in good faith takes any action or
exercises any rights or gives or withholds any consent in connection with any
agreement or contract between Digital or such Related Entity and the
Corporation. No vote cast or other action taken by any person who is an officer,
director or other representative of Digital or such Related Entity, which vote
is cast or action is taken by such person in his or her capacity as a director
of this Corporation, shall constitute an action of or the exercise of a right by
or a consent of Digital or such Related Entity for the purpose of any such
agreement or contract.
Section 4. Any person or entity purchasing or otherwise acquiring any
interest in any shares of capital stock of the Corporation shall be deemed to
have notice of and to have consented to the provisions of this ARTICLE TENTH.
13
<PAGE> 14
Section 5. For purposes of this ARTICLE TENTH, any contract, agreement,
arrangement or transaction with any corporation, partnership, joint venture,
association or other entity in which the Corporation beneficially owns (directly
or indirectly) fifty percent or more of the outstanding voting stock, voting
power or similar voting interests, or with any officer or director thereto,
shall be deemed to be a contract, agreement, arrangement or transaction with the
Corporation.
Section 6. Neither the alteration, amendment, change or repeal of any
provision of this ARTICLE TENTH nor the adoption of any provision inconsistent
with any provision of this ARTICLE TENTH shall eliminate or reduce the effect of
this ARTICLE TENTH in respect of any matter occurring, or any cause of action,
suit or claim that, but for this ARTICLE TENTH, would accrue or arise, prior to
such alteration, amendment, change, repeal or adoption.
Section 7. The provisions of this ARTICLE TENTH are in addition to the
provisions of ARTICLE NINTH.
IN WITNESS WHEREOF, this Amended and Restated Certificate of
Incorporation has been duly adopted by the written consent of the sole
stockholder of the Corporation in accordance with the provisions of Sections
228, 242 and 245 of the General Corporation Law of the State of Delaware, and
has been executed this ___ day of ______________, 1996.
ALTAVISTA INTERNET SOFTWARE, INC.
By:__________________________________
Name:
Title:
14
<PAGE> 1
EXHIBIT 3.3
BY-LAWS OF
ALTAVISTA INTERNET SOFTWARE, INC.
A DELAWARE CORPORATION
Dated: June 28, 1996
<PAGE> 2
<TABLE>
<S> <C>
ARTICLE I......................................................................................................... 1
SECTION 1. PLACE OF MEETINGS...................................................................................... 1
SECTION 2. ANNUAL MEETING......................................................................................... 1
SECTION 3. SPECIAL MEETINGS....................................................................................... 1
SECTION 4. NOTICE OF MEETINGS..................................................................................... 1
SECTION 5. VOTING LIST............................................................................................ 2
SECTION 6. QUORUM................................................................................................. 2
SECTION 7. ADJOURNMENTS........................................................................................... 2
SECTION 8. ACTION AT MEETINGS..................................................................................... 2
SECTION 9. VOTING AND PROXIES..................................................................................... 3
SECTION 10. ACTION WITHOUT MEETING................................................................................ 3
ARTICLE II........................................................................................................ 3
SECTION 1. NUMBER, ELECTION, TENURE AND QUALIFICATION............................................................. 3
SECTION 2. ENLARGEMENT............................................................................................ 4
SECTION 3. VACANCIES.............................................................................................. 4
SECTION 4. RESIGNATION AND REMOVAL................................................................................ 4
SECTION 5. GENERAL POWERS......................................................................................... 4
SECTION 6. CHAIRMAN OF THE BOARD.................................................................................. 4
SECTION 7. PLACE OF MEETINGS...................................................................................... 4
SECTION 8. REGULAR MEETINGS....................................................................................... 4
SECTION 9. SPECIAL MEETINGS....................................................................................... 5
SECTION 10. QUORUM, ACTION AT MEETING, ADJOURNMENTS............................................................... 5
SECTION 11. ACTION BY CONSENT..................................................................................... 5
SECTION 12. TELEPHONIC MEETINGS................................................................................... 5
SECTION 13. COMMITTEES............................................................................................ 6
SECTION 14. COMPENSATION.......................................................................................... 6
ARTICLE III....................................................................................................... 6
SECTION 1. ENUMERATION............................................................................................ 6
SECTION 2. ELECTION............................................................................................... 7
SECTION 3. TENURE................................................................................................. 7
SECTION 4. PRESIDENT.............................................................................................. 7
SECTION 5. VICE-PRESIDENTS........................................................................................ 7
SECTION 6. SECRETARY.............................................................................................. 8
SECTION 7. ASSISTANT SECRETARIES.................................................................................. 8
SECTION 8. TREASURER.............................................................................................. 8
SECTION 9. ASSISTANT TREASURERS................................................................................... 9
SECTION 10. BOND.................................................................................................. 9
ARTICLE IV........................................................................................................ 9
SECTION 1. DELIVERY............................................................................................... 9
SECTION 2. WAIVER OF NOTICE....................................................................................... 9
ARTICLE V........................................................................................................ 10
SECTION 1. ACTIONS OTHER THAN BY OR IN THE RIGHT OF THE CORPORATION.............................................. 10
SECTION 2. ACTIONS BY OR IN THE RIGHT OF THE CORPORATION......................................................... 10
SECTION 3. SUCCESS ON THE MERITS................................................................................. 11
SECTION 4. SPECIFIC AUTHORIZATION................................................................................ 11
SECTION 5. ADVANCE PAYMENT....................................................................................... 11
SECTION 6. NON-EXCLUSIVITY....................................................................................... 11
SECTION 7. INSURANCE............................................................................................. 11
SECTION 8. CONTINUATION OF INDEMNIFICATION AND ADVANCEMENT OF EXPENSES........................................... 12
</TABLE>
(i)
<PAGE> 3
<TABLE>
<S> <C>
SECTION 9. SEVERABILITY.......................................................................................... 12
SECTION 10. INTENT OF ARTICLE.................................................................................... 12
ARTICLE VI....................................................................................................... 12
SECTION 1. CERTIFICATES OF STOCK................................................................................. 12
SECTION 2. LOST CERTIFICATES..................................................................................... 12
SECTION 3. TRANSFER OF STOCK..................................................................................... 13
SECTION 4. RECORD DATE........................................................................................... 13
SECTION 5. REGISTERED STOCKHOLDERS............................................................................... 14
ARTICLE VII...................................................................................................... 14
SECTION 1. TRANSACTIONS WITH INTERESTED PARTIES.................................................................. 14
SECTION 2. QUORUM................................................................................................ 15
ARTICLE VIII..................................................................................................... 15
SECTION 1. DIVIDENDS............................................................................................. 15
SECTION 2. RESERVES.............................................................................................. 15
SECTION 3. CHECKS................................................................................................ 15
SECTION 4. FISCAL YEAR........................................................................................... 15
SECTION 5. SEAL.................................................................................................. 15
ARTICLE IX....................................................................................................... 15
</TABLE>
Addendum
Register of Amendments to the By-Laws
(ii)
<PAGE> 4
* * * * *
BY-LAWS
* * * * *
ARTICLE I
MEETINGS OF STOCKHOLDERS
Section 1. Place of Meetings. All meetings of the stockholders shall be
held at such place within or without the State of Delaware as may be fixed from
time to time by the board of directors or the chief executive officer, or if not
so designated, at the registered office of the corporation.
Section 2. Annual Meeting. Annual meetings of stockholders shall be
held in each year on the day one week following the day on which Digital
Equipment Corporation holds its annual meeting of stockholders if not a legal
holiday, and if a legal holiday, then on the next secular day following, at
10:00 a.m., or at such other date and time as shall be designated from time to
time by the board of directors or the chief executive officer, at which meeting
the stockholders shall elect by a plurality vote a board of directors and shall
transact such other business as may properly be brought before the meeting. If
no annual meeting is held in accordance with the foregoing provisions, the board
of directors shall cause the meeting to be held as soon thereafter as
convenient, which meeting shall be designated a special meeting in lieu of
annual meeting.
Section 3. Special Meetings. Special meetings of the stockholders, for
any purpose or purposes, may, unless otherwise prescribed by statute or by the
certificate of incorporation, be called by the board of directors or the chief
executive officer and shall be called by the chief executive officer or
secretary at the request in writing of a majority of the board of directors, or
at the request in writing of stockholders owning a majority in amount of the
entire capital stock of the corporation issued and outstanding and entitled to
vote. Such request shall state the purpose or purposes of the proposed meeting.
Business transacted at any special meeting shall be limited to matters relating
to the purpose or purposes stated in the notice of meeting.
Section 4. Notice of Meetings. Except as otherwise provided by law,
written notice of each meeting of stockholders, annual or special, stating the
place, date and hour of the meeting and, in the case of a special meeting, the
purpose or purposes for which the meeting is called, shall be given not less
than ten or more than sixty days before the date of the meeting, to each
stockholder entitled to vote at such meeting.
Section 5. Voting List. The officer who has charge of the stock ledger
of the corporation shall prepare and make, at least ten days before every
meeting of
<PAGE> 5
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stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place within the city or town where
the meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present.
Section 6. Quorum. The holders of a majority of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business, except as otherwise provided by statute, the
certificate of incorporation or these by-laws. Where a separate vote by a class
or classes is required, a majority of the outstanding shares of such class or
classes, present in person or represented by proxy, shall constitute a quorum
entitled to take action with respect to that vote on that matter. If no quorum
shall be present or represented at any meeting of stockholders, such meeting may
be adjourned in accordance with Section 7 hereof, until a quorum shall be
present or represented.
Section 7. Adjournments. Any meeting of stockholders may be adjourned
from time to time to any other time and to any other place at which a meeting of
stockholders may be held under these by-laws, which time and place shall be
announced at the meeting, by a majority of the stockholders present in person or
represented by proxy at the meeting and entitled to vote (whether or not a
quorum is present), or, if no stockholder is present or represented by proxy, by
any officer entitled to preside at or to act as secretary of such meeting,
without notice other than announcement at the meeting. At such adjourned
meeting, any business may be transacted which might have been transacted at the
original meeting, provided that a quorum either was present at the original
meeting or is present at the adjourned meeting. If the adjournment is for more
than thirty days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
Section 8. Action at Meetings. When a quorum is present at any meeting,
the affirmative vote of the holders of a majority of the stock present in person
or represented by proxy, entitled to vote and voting on the matter (or where a
separate vote by a class or classes is required, the affirmative vote of the
majority of shares of such class or classes present in person or represented by
proxy at the meeting) shall decide any matter (other than the election of
directors) brought before such meeting, unless the matter is one upon which by
express provision of law, the certificate of incorporation or these by-laws, a
different vote is required, in which case such express provision shall govern
and control the decision of such matter. The stock of holders who abstain from
voting on any matter shall be deemed not to have been voted on such matter.
Directors shall be elected by a
<PAGE> 6
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plurality of the votes of the shares present in person or represented by proxy
at the meeting, entitled to vote and voting on the election of directors.
Section 9. Voting and Proxies. Unless otherwise provided in the
certificate of incorporation, each stockholder shall at every meeting of the
stockholders be entitled to one vote for each share of capital stock having
voting power held of record by such stockholder. Each stockholder entitled to
vote at a meeting of stockholders, or to express consent or dissent to corporate
action in writing without a meeting, may authorize another person or persons to
act for him or her by proxy, but no such proxy shall be voted or acted upon
after three years from its date, unless the proxy provides for a longer period.
Section 10. Action Without Meeting. Any action required to be taken at
any annual or special meeting of stockholders, or any action which may be taken
at any annual or special meeting of such stockholders, may be taken without a
meeting, without prior notice and without a vote, if a consent or consents in
writing, setting forth the action so taken, shall be (1) signed and dated by the
holders of outstanding stock having not less than the minimum number of votes
that would be necessary to authorize or take such action at a meeting at which
all shares entitled to vote thereon were present and voted and (2) delivered to
the corporation within sixty days of the earliest dated consent by delivery to
its registered office in the State of Delaware (in which case delivery shall be
by hand or by certified or registered mail, return receipt requested), its
principal place of business, or an officer or agent of the corporation having
custody of the book in which proceedings of meetings of stockholders are
recorded. Prompt notice of the taking of the corporate action without a meeting
by less than unanimous written consent shall be given to those stockholders who
have not consented in writing.
ARTICLE II
DIRECTORS
Section 1. Number, Election, Tenure and Qualification. The number of
directors which shall constitute the whole board shall be not less than one.
Within such limit, the number of directors shall be determined by resolution of
the board of directors or by the stockholders at the annual meeting or at any
special meeting of stockholders. The directors shall be elected at the annual
meeting or at any special meeting of the stockholders, except as provided in
Section 3 of this Article, and each director elected shall hold office until his
or her successor is elected and qualified, unless sooner displaced. Directors
need not be stockholders.
Section 2. Enlargement. The number of the board of directors may be
increased at any time by vote of a majority of the directors then in office.
Section 3. Vacancies. Vacancies and newly created directorships
resulting from any increase in the authorized number of directors may be filled
by a majority of the
<PAGE> 7
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directors then in office, though less than a quorum, or by a sole remaining
director, and the directors so chosen shall hold office until the next annual
election and until their successors are duly elected and shall qualify, unless
sooner displaced. If there are no directors in office, then an election of
directors may be held in the manner provided by statute. In the event of a
vacancy in the board of directors, the remaining directors, except as otherwise
provided by law or these by-laws, may exercise the powers of the full board
until the vacancy is filled.
Section 4. Resignation and Removal. Any director may resign at any time
upon written notice to the corporation at its principal place of business or to
the chief executive officer or secretary. Such resignation shall be effective
upon receipt unless it is specified to be effective at some other time or upon
the happening of some other event. Any director or the entire board of directors
may be removed, with or without cause, by the holders of a majority of the
shares then entitled to vote at an election of directors, unless otherwise
specified by law or the certificate of incorporation.
Section 5. General Powers. The business and affairs of the corporation
shall be managed by its board of directors, which may exercise all powers of the
corporation and do all such lawful acts and things as are not by statute or by
the certificate of incorporation or by these by-laws directed or required to be
exercised or done by the stockholders.
Section 6. Chairman of the Board. If the board of directors appoints a
chairman of the board, he or she shall, when present, preside at all meetings of
the stockholders and the board of directors. He or she shall perform such duties
and possess such powers as are customarily vested in the office of the chairman
of the board or as may be vested in him or her by the board of directors.
Section 7. Place of Meetings. The board of directors may hold meetings,
both regular and special, either within or without the State of Delaware.
Section 8. Regular Meetings. Regular meetings of the board of directors
may be held without notice at such time and at such place as shall from time to
time be determined by the board; provided that any director who is absent when
such a determination is made shall be given prompt notice of such determination.
A regular meeting of the board of directors may be held without notice
immediately after and at the same place as the annual meeting of stockholders.
Section 9. Special Meetings. Special meetings of the board may be
called by the chief executive officer, secretary, or on the written request of
two or more directors, or by one director in the event that there is only one
director in office. Two days' notice to each director, either personally or by
telegram, cable, telecopy, commercial delivery service, telex or similar means
sent to his or her business or home address, or three days' notice by written
notice deposited in the mail, shall be given to each director by the secretary
or by the officer or one of the directors calling the meeting. A notice or
waiver
<PAGE> 8
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of notice of a meeting of the board of directors need not specify the purposes
of the meeting.
Section 10. Quorum, Action at Meeting, Adjournments. At all meetings of
the board a majority of directors then in office, but in no event less than one
third of the entire board, shall constitute a quorum for the transaction of
business and the act of a majority of the directors present at any meeting at
which there is a quorum shall be the act of the board of directors, except as
may be otherwise specifically provided by law or by the certificate of
incorporation. For purposes of this section, the term "entire board" shall mean
the number of directors last fixed by the stockholders or directors, as the case
may be, in accordance with law and these by-laws; provided, however, that if
less than all the number so fixed of directors were elected, the "entire board"
shall mean the greatest number of directors so elected to hold office at any one
time pursuant to such authorization. If a quorum shall not be present at any
meeting of the board of directors, a majority of the directors present thereat
may adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present.
Section 11. Action by Consent. Unless otherwise restricted by the
certificate of incorporation or these by-laws, any action required or permitted
to be taken at any meeting of the board of directors or of any committee thereof
may be taken without a meeting, if all members of the board or committee, as the
case may be, consent thereto in writing, and the writing or writings are filed
with the minutes of proceedings of the board or committee.
Section 12. Telephonic Meetings. Unless otherwise restricted by the
certificate of incorporation or these by-laws, members of the board of directors
or of any committee thereof may participate in a meeting of the board of
directors or of any committee, as the case may be, by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and such par ticipation in a
meeting shall constitute presence in person at the meeting.
Section 13. Committees. The board of directors may, by resolution
passed by a majority of the whole board, designate one or more committees, each
committee to consist of one or more of the directors of the corporation. The
board may designate one or more directors as alternate members of any committee,
who may replace any absent or disqualified member at any meeting of the
committee. Any such committee, to the extent provided in the resolution of the
board of directors, shall have and may exercise all the powers and authority of
the board of directors in the management of the business and affairs of the
corporation, and may authorize the seal of the corporation to be affixed to all
papers which may require it; but no such committee shall have the power or
authority in reference to amending
<PAGE> 9
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the certificate of incorporation, adopting an agreement of merger or
consolidation, recommending to the stockholders the sale, lease or exchange of
all or substantially all of the corporation's property and assets, recommending
to the stockholders a dissolution of the corporation or a revocation of a
dissolution, or amending the by-laws of the corporation; and, unless the
resolution designating such committee or the certificate of incorporation
expressly so provide, no such committee shall have the power or authority to
declare a dividend or to authorize the issuance of stock. Such committee or
committees shall have such name or names as may be determined from time to time
by resolution adopted by the board of directors. Each committee shall keep
regular minutes of its meetings and make such reports to the board of directors
as the board of directors may request. Except as the board of directors may
otherwise determine, any committee may make rules for the conduct of its
business, but unless otherwise provided by the directors or in such rules, its
business shall be conducted as nearly as possible in the same manner as is
provided in these by-laws for the conduct of its business by the board of
directors.
Section 14. Compensation. Unless otherwise restricted by the
certificate of incorporation or these by-laws, the board of directors shall have
the authority to fix from time to time the compensation of directors. The
directors may be paid their expenses, if any, of attendance at each meeting of
the board of directors and the performance of their responsibilities as
directors and may be paid a fixed sum for attendance at each meeting of the
board of directors and/or a stated salary as director. No such payment shall
preclude any director from serving the corporation or its parent or subsidiary
corporations in any other capacity and receiving compensation therefor. The
board of directors may also allow compensation for members of special or
standing committees for service on such committees.
ARTICLE III
OFFICERS
Section 1. Enumeration. The officers of the corporation shall be chosen
by the board of directors and shall be a president, a secretary and a treasurer
and such other officers with such titles, terms of office and duties as the
board of directors may from time to time determine, including a chairman of the
board, one or more vice-presidents, and one or more assistant secretaries and
assistant treasurers. If authorized by resolution of the board of directors, the
chief executive officer may be empowered to appoint from time to time assistant
secretaries and assistant treasurers. Any number of offices may be held by the
same person, unless the certificate of incorporation or these by-laws otherwise
provide.
Section 2. Election. The board of directors at its first meeting after
each annual meeting of stockholders shall choose a president, a secretary and a
treasurer. Other officers may be appointed by the board of directors at such
meeting, at any other meeting, or by written consent.
Section 3. Tenure. The officers of the corporation shall hold office
until their successors are chosen and qualify, unless a different term is
specified in the vote choosing or appointing him or her, or until his or her
earlier death, resignation or
<PAGE> 10
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removal. Any officer elected or appointed by the board of directors or by the
chief executive officer may be removed at any time, with or without cause, by
the affirmative vote of a majority of the board of directors or a committee duly
authorized to do so, except that any officer appointed by the chief executive
officer may also be removed at any time, with or without cause, by the chief
executive officer. Any vacancy occurring in any office of the corporation may be
filled by the board of directors, at its discretion. Any officer may resign by
delivering his or her written resignation to the corporation at its principal
place of business or to the chief executive officer or the secretary. Such
resignation shall be effective upon receipt unless it is specified to be
effective at some other time or upon the happening of some other event.
Section 4. President. The president shall be the chief operating
officer of the corporation. He or she shall also be the chief executive officer
unless the board of directors otherwise provides. If no chief executive officer
shall have been appointed by the board of directors, all references herein to
the "chief executive officer" shall be to the president. The president shall,
unless the board of directors provides otherwise in a specific instance or
generally, preside at all meetings of the stockholders and the board of
directors, have general and active management of the business of the corporation
and see that all orders and resolutions of the board of directors are carried
into effect. The president shall execute bonds, mortgages, and other contracts
requiring a seal, under the seal of the corporation, except where required or
permitted by law to be otherwise signed and executed and except where the
signing and execution thereof shall be expressly delegated by the board of
directors to some other officer or agent of the corporation.
Section 5. Vice-Presidents. In the absence of the president or in the
event of his or her inability or refusal to act, the vice-president, or if there
be more than one vice-president, the vice-presidents in the order designated by
the board of directors or the chief executive officer (or in the absence of any
designation, then in the order determined by their tenure in office) shall
perform 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 perform such other duties and have such other powers as
the board of directors or the chief executive officer may from time to time
prescribe.
Section 6. Secretary. The secretary shall have such powers and perform
such duties as are incident to the office of secretary. The secretary shall
maintain a stock ledger and prepare lists of stockholders and their addresses as
required and shall be the custodian of corporate records. The secretary shall
attend all meetings of the board of directors and all meetings of the
stockholders and record all the proceedings of the meetings of the corporation
and of the board of directors in a book to be kept for that purpose and shall
perform like duties for the standing committees when required. The secretary
shall give, or cause to be given, notice of all meetings of the stockholders and
special meetings of the board of directors, and shall perform such other duties
as may be from time to time prescribed by the board of directors or chief
executive officer, under whose supervision the secretary shall be. The secretary
shall have custody of the corporate seal of the corporation and the secretary,
or an assistant secretary, shall have
<PAGE> 11
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authority to affix the same to any instrument requiring it and when so affixed,
it may be attested by his or her signature or by the signature of such assistant
secretary. The board of directors may give general authority to any other
officer to affix the seal of the corporation and to attest the affixing by his
or her signature.
Section 7. Assistant Secretaries. The assistant secretary, or if there
be more than one, the assistant secretaries in the order determined by the board
of directors, the chief executive officer or the secretary (or if there be no
such determination, then in the order determined by their tenure in office),
shall, in the absence of the secretary or in the event of his or her inability
or refusal to act, perform the duties and exercise the powers of the secretary
and shall perform such other duties and have such other powers as the board of
directors, the chief executive officer or the secretary may from time to time
prescribe. In the absence of the secretary or any assistant secretary at any
meeting of stockholders or directors, the person presiding at the meeting shall
designate a temporary or acting secretary to keep a record of the meeting.
Section 8. Treasurer. The treasurer shall perform such duties and shall
have such powers as may be assigned to him or her by the board of directors or
the chief executive officer. In addition, the treasurer shall perform such
duties and have such powers as are incident to the office of treasurer. The
treasurer shall have the custody of the corporate funds and securities and shall
keep full and accurate accounts of receipts and disbursements in books belonging
to the corporation and shall deposit all moneys and other valuable effects in
the name and to the credit of the corporation in such depositories as may be
designated by the board of directors. He or she shall disburse the funds of the
corporation as may be ordered by the board of directors, taking proper vouchers
for such disbursements, and shall render to the chief executive officer and the
board of directors, when the chief executive officer or board of directors so
requires, an account of all his or her transactions as treasurer and of the
financial condition of the corporation.
Section 9. Assistant Treasurers. The assistant treasurer, or if there
shall be more than one, the assistant treasurers in the order determined by the
board of directors, the chief executive officer or the treasurer (or if there be
no such determination, then in the order determined by their tenure in office),
shall, in the absence of the treasurer or in the event of his or her inability
or refusal to act, perform the duties and exercise the powers of the treasurer
and shall perform such other duties and have such other powers as the board of
directors, the chief executive officer or the treasurer may from time to time
prescribe.
Section 10. Bond. If required by the board of directors, any officer
shall give the corporation a bond in such sum and with such surety or sureties
and upon such terms and conditions as shall be satisfactory to the board of
directors, including without limitation a bond for the faithful performance of
the duties of his or her office and for the restoration to the corporation of
all books, papers, vouchers, money and other property of whatever kind in his or
her possession or under his or her control and belonging to the corporation.
<PAGE> 12
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ARTICLE IV
NOTICES
Section 1. Delivery. Whenever, under the provisions of law, or of the
certificate of incorporation or these by-laws, written notice is required to be
given to any director or stockholder, such notice may be given by mail,
addressed to such director or stockholder, at his or her address as it appears
on the records of the corporation, with postage thereon prepaid, and such notice
shall be deemed to be given at the time when the same shall be deposited in the
United States mail. Unless written notice by mail is required by law, written
notice may also be given by telegram, cable, telecopy, commercial delivery
service, telex or similar means, addressed to such director or stockholder at
his or her address as it appears on the records of the corporation, in which
case such notice shall be deemed to be given when delivered into the control of
the persons charged with effecting such transmission, the transmission charge to
be paid by the corporation or the person sending such notice and not by the
addressee. Oral notice or other in-hand delivery (in person or by telephone)
shall be deemed given at the time it is actually given.
Section 2. Waiver of Notice. Whenever any notice is required to be
given under the provisions of law or of the certificate of incorporation or of
these by-laws, a waiver thereof in writing, signed by the person or persons
entitled to said notice, whether before or after the time stated therein, shall
be deemed equivalent thereto.
ARTICLE V
INDEMNIFICATION
Section 1. Actions other than by or in the Right of the Corporation.
The corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he or she is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him or her in connection with such action, suit or proceeding if he
or she acted in good faith and in a manner he or she reasonably believed to be
in or not opposed to the best interests of the corporation, and, with respect to
any criminal action or proceedings, had no reasonable cause to believe his or
her conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendere
<PAGE> 13
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or its equivalent, shall not, of itself, create a presumption that the person
did not act in good faith and in a manner which he or she reasonably believed to
be in or not opposed to the best interests of the corporation, and, with respect
to any criminal action or proceeding, had reasonable cause to believe that his
or her conduct was unlawful.
Section 2. Actions by or in the Right of the Corporation. The
corporation shall indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action or suit by or in
the right of the corporation to procure a judgment in its favor by reason of the
fact that he or she is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by such person in connection with the defense
or settlement of such action or suit if such person acted in good faith and in a
manner he or she reasonably believed to be in or not opposed to the best
interests of the corporation and except that no indemnification shall be made in
respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable unless and only to the extent that the Court of Chancery
of the State of Delaware or the court in which such action or suit was brought
shall determine upon application that, despite the adjudication of liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the Court of Chancery
of the State of Delaware or such other court shall deem proper.
Section 3. Success on the Merits. To the extent that any person
described in Section 1 or 2 of this Article V has been successful on the merits
or otherwise in defense of any action, suit or proceeding referred to in said
Sections , or in defense of any claim, issue or matter therein, he or she shall
be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him or her in connection therewith.
Section 4. Specific Authorization. Any indemnification under Section 1
or 2 of this Article V (unless ordered by a court) shall be made by the
corporation only as authorized in the specific case upon a determination that
indemnification of any person described in said Sections is proper in the
circumstances because he or she has met the applicable standard of conduct set
forth in said Sections . Such determination shall be made (1) by the board of
directors by a majority vote of directors who were not parties to such action,
suit or proceeding (even though less than a quorum), or (2) if there are no
disinterested directors or if a majority of disinterested directors so directs,
by independent legal counsel (who may be regular legal counsel to the
corporation) in a written opinion, or (3) by the stockholders of the
corporation.
Section 5. Advance Payment. Expenses incurred in defending a pending or
threatened civil or criminal action, suit or proceeding may be paid by the
corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of any person
described in said Section to repay such amount
<PAGE> 14
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if it shall ultimately be determined that he or she is not entitled to
indemnification by the corporation as authorized in this Article V.
Section 6. Non-Exclusivity. The indemnification and advancement of
expenses provided by, or granted pursuant to, the other Sections of this Article
V shall not be deemed exclusive of any other rights to which those provided
indemnification or advancement of expenses may be entitled under any by-law,
agreement, vote of stockholders or disinterested directors or otherwise, both as
to action in his or her official capacity and as to action in another capacity
while holding such office.
Section 7. Insurance. The board of directors may authorize, by a vote
of the majority of the full board, the corporation to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted against
him or her and incurred by him or her in any such capacity, or arising out of
his or her status as such, whether or not the corporation would have the power
to indemnify him or her against such liability under the provisions of this
Article V.
Section 8. Continuation of Indemnification and Advancement of Expenses.
The indemnification and advancement of expenses provided by, or granted pursuant
to, this Article V shall continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person.
Section 9. Severability. If any word, clause or provision of this
Article V or any award made hereunder shall for any reason be determined to be
invalid, the provisions hereof shall not otherwise be affected thereby but shall
remain in full force and effect.
Section 10. Intent of Article. The intent of this Article V is to
provide for indemnification and advancement of expenses to the fullest extent
permitted by Section 145 of the General Corporation Law of Delaware. To the
extent that such Section or any successor section may be amended or supplemented
from time to time, this Article V shall be amended automatically and construed
so as to permit indemnification and advancement of expenses to the fullest
extent from time to time permitted by law.
ARTICLE VI
CAPITAL STOCK
<PAGE> 15
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Section 1. Certificates of Stock. Every holder of stock in the
corporation shall be entitled to have a certificate, signed by, or in the name
of the corporation by, the chairman or vice-chairman of the board of directors,
or the president or a vice-president and the treasurer or an assistant
treasurer, or the secretary or an assistant secretary of the corporation,
certifying the number of shares owned by such holder in the corporation. Any or
all of the signatures on the certificate may be a facsimile. In case any
officer, transfer agent or registrar who has signed or whose facsimile signature
has been placed upon a certificate shall have ceased to be such officer,
transfer agent or registrar before such certificate is issued, it may be issued
by the corporation with the same effect as if he or she were such officer,
transfer agent or registrar at the date of issue. Certificates may be issued for
partly paid shares and in such case upon the face or back of the certificates
issued to represent any such partly paid shares, the total amount of the
consideration to be paid therefor, and the amount paid thereon shall be
specified.
Section 2. Lost Certificates. The board of directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the corporation alleged to have been lost,
stolen or destroyed. When authorizing such issue of a new certificate or
certificates, the board of directors may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen or
destroyed certificate or certificates, or his or her legal representative, to
give reasonable evidence of such loss, theft or destruction, to advertise the
same in such manner as it shall require and/or to give the corporation a bond in
such sum as it may direct as indemnity against any claim that may be made
against the corporation with respect to the certificate alleged to have been
lost, stolen or destroyed or the issuance of such new certificate.
Section 3. Transfer of Stock. Upon surrender to the corporation or the
transfer agent of the corporation of a certificate for shares, duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, and proper evidence of compliance with other conditions to rightful
transfer, it shall be the duty of the corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books.
Section 4. Record Date. In order that the corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, the board of directors may fix a record date, which
shall not precede the date upon which the resolution fixing the record date is
adopted by the board of directors, and which shall not be more than sixty days
nor less then ten days before the date of such meeting. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the board of directors may fix a new record date for the adjourned meeting.
If no record date is fixed, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day before the day on which notice is given, or, if
notice is waived, at the close of business on the day before the day on which
the meeting is held.
<PAGE> 16
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In order that the corporation may determine the stockholders entitled to consent
to corporate action in writing without a meeting, the board of directors may fix
a record date, which shall not precede the date upon which the resolution fixing
the record date is adopted by the board of directors, and which shall not be
more than ten days after the date upon which the resolution fixing the record
date is adopted by the board of directors. If no record date is fixed, the
record date for determining stockholders entitled to consent to corporate action
in writing without a meeting, when no prior action by the board of directors is
required by statute, shall be the first date on which a signed written consent
setting forth the action taken or proposed to be taken is delivered to the
corporation as provided in Section 10 of Article I. If no record date is fixed
and prior action by the board of directors is required, the record date for
determining stockholders entitled to consent to corporate action in writing
without a meeting shall be at the close of business on the date on which the
board of directors adopts the resolution taking such prior action. In order that
the corporation may determine the stockholders entitled to receive payment of
any dividend or other distribution or allotment of any rights or the
stockholders entitled to exercise any rights in respect of any change,
conversion or exchange of stock, or for the purpose of any other lawful action,
the board of directors may fix a record date, which shall not precede the date
upon which the resolution fixing the record date is adopted, and which shall be
not more than sixty days prior to such action. If no record date is fixed, the
record date for determining stockholders for any such purpose shall be at the
close of business on the day on which the board of directors adopts the
resolution relating to such purpose.
Section 5. Registered Stockholders. The corporation shall be entitled
to recognize the exclusive right of a person registered on its books as the
owner of shares to receive dividends, and to vote as such owner, and to hold
liable for calls and assessments a person registered on its books as the owner
of shares, and shall not be bound to recognize any equitable or other claim to
or interest in such share or shares on the part of any other person, whether or
not it shall have express or other notice thereof, except as otherwise provided
by the laws of Delaware.
ARTICLE VII
CERTAIN TRANSACTIONS
Section 1. Transactions with Interested Parties. No contract or
transaction between the corporation and one or more of its directors or
officers, or between the corporation and any other corporation, partnership,
association, or other organization in which one or more of its directors or
officers are directors or officers, or have a financial interest, shall be void
or voidable solely for this reason, or solely because the director or officer is
present at or participates in the meeting of the board or committee thereof
which authorizes the contract or transaction or solely because his, her or their
votes are counted for such purpose, if:
<PAGE> 17
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(a) The material facts as to his or her relationship or
interest and as to the contract or transaction are disclosed or are
known to the board of directors or the committee, and the board or
committee in good faith authorizes the contract or transaction by the
affirmative votes of a majority of the disinterested directors, even
though the disinterested directors be less than a quorum; or
(b) The material facts as to his or her relationship or
interest and as to the contract or transaction are disclosed or are
known to the stockholders entitled to vote thereon, and the contract or
transaction is specifically approved in good faith by vote of the
stockholders; or
(c) The contract or transaction is fair as to the
corporation as of the time it is authorized, approved or ratified, by
the board of directors, a committee thereof, or the stockholders.
Section 2. Quorum. Common or interested directors may be
counted in determining the presence of a quorum at a meeting of the board of
directors or of a committee which authorizes the contract or transaction.
ARTICLE VIII
GENERAL PROVISIONS
Section 1. Dividends. Dividends upon the capital stock of the
corporation, if any, may be declared by the board of directors at any regular or
special meeting or by written consent, pursuant to law. Dividends may be paid in
cash, in property, or in shares of the capital stock, subject to the provisions
of the certificate of incorporation.
Section 2. Reserves. The directors may set apart out of any
funds of the corporation available for dividends a reserve or reserves for any
proper purpose and may abolish any such reserve.
Section 3. Checks. All checks or demands for money and notes
of the corporation shall be signed by such officer or officers or such other
person or persons as the board of directors may from time to time designate.
Section 4. Fiscal Year. The fiscal year of the corporation
shall be fixed by resolution of the board of directors.
Section 5. Seal. The board of directors may, by resolution,
adopt a corporate seal. The corporate seal shall have inscribed thereon the name
of the corporation, the year of its organization and the word "Delaware." The
seal may be used by causing it or a facsimile thereof to be impressed or affixed
or reproduced or otherwise. The seal may be altered from time to time by the
board of directors.
<PAGE> 18
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ARTICLE IX
AMENDMENTS
These by-laws may be altered, amended or repealed or new by-laws may be
adopted by the stockholders or by the board of directors, when such power is
conferred upon the board of directors by the certificate of incorporation, at
any regular meeting of the stockholders or of the board of directors or at any
special meeting of the stockholders or of the board of directors provided,
however, that in the case of a regular or special meeting of stockholders,
notice of such alteration, amendment, repeal or adoption of new by-laws be
contained in the notice of such meeting.
<PAGE> 19
Register of Amendments to the By-laws
Date Section Affected Change
- ---------------------------------------------------------
<PAGE> 1
EXHIBIT 3.4
FORM OF
AMENDED AND RESTATED
BYLAWS
OF
ALTAVISTA INTERNET SOFTWARE, INC.
(Amended and Restated on _________, 1996)
ARTICLE I
STOCKHOLDERS
Section 1.01. Annual Meeting. The annual meeting of the stockholders of
this corporation, for the purpose of fixing or changing the number of directors
of the corporation, electing directors and transacting such other business as
may come before the meeting, shall be held on such date, at such time and at
such place as may be designated by the Board of Directors.
Section 1.02. Special Meetings. Special meetings of the stockholders
may be called at any time by the chairman of the board or the president, or in
case of the death, absence or disability of the chairman of the board and the
president, the vice president, if any, authorized to exercise the authority of
the president, or a majority of the Board of Directors acting with or without a
meeting; provided, that if and to the extent that any special meeting of
stockholders may be called by any other person or persons specified in any
provision of the certificate of incorporation or any amendment thereto or any
certificate filed under Section 151(g) of the Delaware General Corporation Law
(or its successor statute as in effect from time to time), then such special
meeting may also be called by the person or persons, in the manner, at the times
and for the purposes so specified.
Section 1.03. Place of Meetings. Meetings of stockholders shall be held
at the principal office of the corporation, unless the Board of Directors
decides that a meeting shall be held at some other place and causes the notice
thereof to so state.
Section 1.04. Notice of Meetings.
(a) Unless waived, a written, printed or typewritten
notice of each annual or special meeting, stating the date, hour and place and
the purpose or purposes thereof shall be served upon or mailed to each
stockholder of record entitled to vote or entitled to notice, not
<PAGE> 2
more than 60 days nor less than 10 days before any such meeting. If mailed, such
notice shall be directed to a stockholder at his or her address as the same
appears on the records of the corporation. If a meeting is adjourned to another
time or place and such adjournment is for 30 days or less and no new record date
is fixed for the adjourned meeting, no further notice as to such adjourned
meeting need be given if the time and place to which it is adjourned are fixed
and announced at such meeting. In the event of a transfer of shares after notice
has been given and prior to the holding of the meeting, it shall not be
necessary to serve notice on the transferee. Such notice shall specify the place
where the stockholders list will be open for examination prior to the meeting if
required by Section 1.08 hereof. If the adjournment is for more than 30 days, or
after the adjournment a new record date is fixed for the adjourned meeting, a
notice of the adjourned meeting shall be given to each stockholder of record
entitled to vote at the meeting.
(b) A written waiver of any such notice signed by the
person entitled thereto, whether before or after the time stated therein, shall
be deemed equivalent to notice. Attendance of a person at a meeting shall
constitute a waiver of notice of such meeting, except when the person attends
the meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened. Business transacted at any special meeting of stockholders
shall be limited to the purposes stated in the notice.
Section 1.05. Fixing Date for Determination of Stockholders of Record.
In order that the corporation may determine the stockholders entitled to notice
of or to vote at any meeting of stockholders or any adjournment thereof, or
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
change, conversion or exchange of stock or for the purpose of any other lawful
action, the Board of Directors may fix, in advance, a record date, which shall
not be more than 60 nor less than 10 days before the date of such meeting, nor
more than 60 days prior to any other action. If the Board shall not fix such a
record date, the record date for determining stockholders entitled to notice of
or to vote at a meeting of stockholders shall be the close of business on the
day next preceding the day on which notice is given, or, if notice is waived, at
the close of business on the day next preceding the day on which the meeting is
held, and (ii) in any case involving the determination of stockholders for any
purpose other than notice of or voting at a meeting of stockholders, the record
date for determining stockholders for such purpose shall be the close of
business on the day on which the Board of Directors shall adopt the resolution
relating thereto. Determination of stockholders entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of such meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
Section 1.06. Organization. At each meeting of the stockholders, the
chairman of the board, or in his absence, the president, or, in his absence, any
vice-president, or, in the absence of the chairman of the board, the president
and a vice-president, a chairman chosen by a majority in interest of the
stockholders present in person or by proxy and entitled to vote, shall act as
chairman, and the secretary of the corporation, or, if the secretary of the
corporation not be present, the assistant secretary, or if the secretary and the
assistant secretary not be present, any person whom the chairman of the meeting
shall appoint, shall act as secretary of the meeting.
2
<PAGE> 3
Section 1.07. Quorum. A stockholders' meeting duly called shall not be
organized for the transaction of business unless a quorum is present. Except as
otherwise expressly provided by law, the certificate of incorporation, these
bylaws, or any certificate filed under Section 151(g) of the Delaware General
Corporation Law (or its successor statute as in effect from time to time), (i)
at any meeting called by the Board of Directors, the presence in person or by
proxy of holders of record entitling them to exercise at least one-third of the
voting power of the corporation shall constitute a quorum for such meeting and
(ii) at any meeting called other than by the Board of Directors, the presence in
person or by proxy of holders of record entitling them to exercise at least a
majority of the voting power of the corporation shall constitute a quorum for
such meeting. The stockholders present at a duly organized meeting can continue
to do business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum. If a meeting cannot be organized
because a quorum has not attended, a majority in voting interest of the
stockholders present may adjourn, or, in the absence of a decision by the
majority, any officer entitled to preside at such meeting may adjourn the
meeting from time to time to such time (not more than 30 days after the
previously adjourned meeting) and place as they (or he) may determine, without
notice other than by announcement at the meeting of the time and place of the
adjourned meeting. At any such adjourned meeting at which a quorum is present
any business may be transacted which might have been transacted at the meeting
as originally called.
Section 1.08. Order of Business and Procedure. The order of business at
all meetings of the stockholders and all matters relating to the manner of
conducting the meeting shall be determined by the chairman of the meeting.
Meetings shall be conducted in a manner designed to accomplish the business of
the meeting in a prompt and orderly fashion and to be fair and equitable to all
stockholders, but it shall not be necessary to follow any manual of
parliamentary procedure.
Section 1.09. Advance Notice of Stockholder Proposals. In order to
properly submit any business to an annual meeting of stockholders, a stockholder
must give timely notice in writing to the secretary of the corporation. To be
considered timely, a stockholder's notice must be delivered either in person or
by United States certified mail, postage prepaid, and received at the principal
executive offices of the corporation (a) not less than 120 days nor more than
150 days before the first anniversary date of the corporation's proxy statement
in connection with the last annual meeting of stockholders or (b) if no annual
meeting was held in the previous year or the date of the applicable annual
meeting has been changed by more than 30 days from the date contemplated at the
time of the previous year's proxy statement, not less than a reasonable time, as
determined by the Board of Directors, prior to the date of the applicable annual
meeting.
Nomination of persons for election to the Board of Directors may be
made by the Board of Directors or any committee designated by the Board of
Directors or by any stockholder entitled to vote for the election of directors
at the applicable meeting of stockholders. However, nominations other than those
made by the Board of Directors or its designated committee must comply with the
procedures set forth in this Section 1.09, and no person shall be eligible for
election as a director unless nominated in accordance with the terms of this
Section 1.09.
3
<PAGE> 4
A stockholder may nominate a person or persons for election to the
Board of Directors by giving written notice to the secretary of the corporation
in accordance with the procedures set forth above. In addition to the timeliness
requirements set forth above for notice to the corporation by a stockholder of
business to be submitted at an annual meeting of stockholders, with respect to
any special meeting of stockholders called for the election of directors,
written notice must be delivered in the manner specified above and not later
than the close of business on the seventh day following the date on which notice
of such meeting is first given to stockholders.
The secretary of the corporation shall deliver any stockholder
proposals and nominations received in a timely manner for review by the Board of
Directors or a committee designated by the Board of Directors.
A stockholder's notice to submit business to an annual meeting of
stockholders shall set forth (i) the name and address of the stockholder, (ii)
the class and number of shares of stock beneficially owned by such stockholder,
(iii) the name in which such shares are registered on the stock transfer books
of the corporation, (iv) a representation that the stockholder intends to appear
at the meeting in person or by proxy to submit the business specified in such
notice, (v) any material interest of the stockholder in the business to be
submitted and (vi) a brief description of the business desired to be submitted
to the annual meeting, including the complete text of any resolutions to be
presented at the annual meeting, and the reasons for conducting such business at
the annual meeting. In addition, the stockholder making such proposal shall
promptly provide any other information reasonably requested by the corporation.
In addition to the information required above to be given by a
stockholder who intends to submit business to a meeting of stockholders, if the
business to be submitted is the nomination of a person or persons for election
to the Board of Directors then such stockholder's notice must also set forth, as
to each person whom the stockholder proposes to nominate for election as a
director, (a) the name, age, business address and, if known, residence address
of such person, (b) the principal occupation or employment of such person, (c)
the class and number of shares of stock of the corporation which are
beneficially owned by such person, (d) any other information relating to such
person that is required to be disclosed in solicitations of proxies for election
of directors or is otherwise required by the rules and regulations of the
Securities and Exchange Commission promulgated under the Securities Exchange Act
of 1934, as amended, (e) the written consent of such person to be named in the
proxy statement as a nominee and to serve as a director if elected and (f) a
description of all understandings between such stockholder and each nominee and
any other person or persons (naming such person or persons) pursuant to which
the nomination or nominations are to be made by such stockholder.
Any person nominated for election as director by the Board of Directors
or any committee designated by the Board of Directors shall, upon the request of
the Board of Directors or such committee, furnish to the secretary of the
corporation all such information pertaining to such person that is required to
be set forth in a stockholder's notice of nomination.
4
<PAGE> 5
Notwithstanding the foregoing provisions of this Section 1.09, a
stockholder who seeks to have any proposal included in the corporation's proxy
statement shall comply with the requirements of Regulation 14A under the
Securities Exchange Act of 1934, as amended.
Section 1.10. Voting.
(a) Each stockholder shall, at each meeting of the stockholders,
be entitled to vote in person or by proxy each share or fractional share of the
stock of the corporation having voting rights on the matter in question and
which shall have been held by him or her and registered in his name on the books
of the corporation on the date fixed pursuant to Section 1.05 of these bylaws as
the record date for the determination of stockholders entitled to notice of and
to vote at such meeting.
(b) Shares of its own stock belonging to the corporation or to
another corporation, if a majority of the shares entitled to vote in the
election of directors in such other corporation is held, directly or indirectly,
by the corporation, shall neither be entitled to vote nor be counted for quorum
purposes.
(c) Any such voting rights may be exercised by the stockholder
entitled thereto in person or by his proxy appointed by an instrument in
writing, subscribed by such stockholder or by his attorney thereunto authorized
and delivered to the secretary of the meeting in sufficient time to permit the
necessary examination and tabulation thereof before the vote is taken; provided,
however, that no proxy shall be valid after the expiration of three years after
the date of its execution, unless the stockholder executing it shall have
specified therein the length of time it is to continue in force. At any meeting
of the stockholders all matters, except as otherwise provided in the certificate
of incorporation, in these bylaws or by law, shall be decided by the vote of a
majority in voting interest of the stockholders present in person or by proxy
and voting thereon, a quorum being present. The vote at any meeting of the
stockholders on any question need not be by ballot, unless so directed by the
chairman of the meeting or required by the certificate of incorporation. On a
vote by ballot each ballot shall be signed by the stockholder voting, or by his
proxy, if there be such proxy, and it shall state the number of shares voted.
Section 1.11. Inspectors. The Board of Directors, in advance of any
meeting of the stockholders, may appoint one or more inspectors to act at the
meeting. If inspectors are not so appointed, the person presiding at the meeting
may appoint one or more inspectors. If any person so appointed fails to appear
or act, the vacancy may be filled by appointment made by the Board of Directors
in advance of the meeting or at the meeting by the person presiding thereat.
Each inspector, before entering upon the discharge of his duties, shall take and
sign an oath faithfully to execute the duties of inspector at the meeting with
strict impartiality and according to the best of his ability. The inspectors so
appointed, if any, shall determine the number of shares outstanding, the shares
represented at the meeting, the existence of a quorum and the authenticity,
validity and effect of proxies and shall receive votes, ballots, waivers,
releases, or consents, hear and determine all challenges and questions arising
in connection with the right to vote, count and tabulate all votes, ballots,
waivers, releases, or consents, determine and announce
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the results and do such acts as are proper to conduct the election or vote with
fairness to all stockholders. On request of the person presiding at the meeting,
the inspectors shall make a report in writing of any challenge, question or
matter determined by them and execute a certificate of any fact found by them.
Any report or certificate made by them shall be prima facie evidence of the
facts stated and of the vote an certified by them.
ARTICLE II
BOARD OF DIRECTORS
Section 2.01. General Powers of Board. The powers of the corporation
shall be exercised, its business and affairs conducted, and its property
controlled by or under the direction of the Board of Directors, except as
otherwise provided by the law of Delaware or in the certificate of
incorporation.
Section 2.02. Number of Directors; Term of Office. The number of
directors of the corporation (exclusive of directors to be elected by the
holders of any one or more series of Preferred Stock voting separately as a
class or classes) shall not be less than 5 nor more than 11, the exact number of
directors to be such number as may be set from time to time within the limits
set forth above by resolution adopted by affirmative vote of a majority of the
whole Board of Directors. As used in these Bylaws, the term "whole Board" means
the total number of directors which the corporation would have if there were no
vacancies. Each director shall hold office until the next annual meeting of
stockholders, and until his or her successor shall have been duly elected and
qualified, or until his or her earlier death, resignation or removal.
Section 2.03. Election of Directors. At each meeting of the
stockholders for the election of directors, the persons receiving the greatest
number of votes shall be the directors. Directors need not be stockholders.
Section 2.04. Nominations.
2.04.1. Nominations for the election of directors may be made
by the Board of Directors or by any stockholder entitled to vote for the
election of directors.
2.04.2. Such nominations, if not made by the Board of
Directors, shall be made by notice in writing, delivered or mailed by first
class United States mail, postage prepaid, to the secretary of the corporation
not less than 14 days nor more than 50 days prior to any meeting of the
stockholders called for the election of directors; provided, however, that if
less than 21 days' notice of the meeting is given to stockholders, such written
notice shall be delivered or mailed, as prescribed, to the secretary of the
corporation not later than the close of the seventh day following the day on
which notice of the meeting was mailed to stockholders. Each such notice shall
set forth (i) the name, age, business address and, if known, residence address
of each nominee proposed in such notice, (ii) the principal occupation or
employment of each such nominee, and (iii) the number of shares of stock of the
corporation which are beneficially owned by each such nominee.
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2.04.3. Notice of nominations which are proposed by the Board
of Directors shall be given on behalf of the Board by the chairman of the
meeting.
2.04.4. The chairman of the meeting may, if the facts warrant,
determine and declare to the meeting that a nomination was not made in
accordance with the foregoing procedure, and if the chairman should so
determine, the chairman shall so declare to the meeting and the defective
nomination shall be disregarded.
Section 2.05. Resignations. Any director of the corporation may resign
at any time by giving written notice to the chairman of the board or the
secretary of the corporation. Such resignation shall take effect at the time
specified therein, and, unless otherwise specified therein, the acceptance of
such resignation shall not be necessary to make it effective.
Section 2.06. Vacancies. In the event that any vacancy shall occur in
the Board of Directors, whether because of death, resignation, removal, newly
created directorships resulting from any increase in the authorized number of
directors, the failure of the stockholders to elect the whole authorized number
of directors, or any other reason, such vacancy may be filled by the vote of a
majority of the directors then in office, although less than a quorum. A
director elected to fill a vacancy, other than a newly created directorship,
shall hold office for the unexpired term of his predecessor. Whenever the
holders of any class or classes of stock or series thereof are entitled to elect
one or more directors by the certificate of incorporation, vacancies and newly
created directorships of such class or classes or series may be filled by a
majority of directors elected by such class or classes or series thereof then in
office, or by a sole remaining director so elected.
Section 2.07. Place of Meeting, etc. The Board of Directors may hold
any of its meetings at the principal office of the corporation or at such other
place or places as the Board of Directors (or the chairman in the absence of a
determination by the Board of Directors) may from time to time designate.
Directors may participate in any regular or special meeting of the Board of
Directors by means of conference telephone or similar communications equipment
pursuant to which all persons participating in the meeting of the Board of
Directors can hear each other and such participation shall constitute presence
in person at such meeting.
Section 2.08. Annual Meeting. A regular annual meeting of the Board of
Directors shall be held each year at the same place as and immediately after the
annual meeting of stockholders, or at such other place and time as shall
theretofore have been determined by the Board of Directors and notice thereof
need not be given. At its regular annual meeting the Board of Directors shall
organize itself and elect the officers of the corporation for the ensuing year,
and may transact any other business.
Section 2.09. Regular Meetings. Regular meetings of the Board of
Directors may be held at such intervals at such time as shall from time to time
be determined by the Board of Directors. After such determination and notice
thereof has been once given to each person then a member of the Board of
Directors, regular meetings may be held at such intervals and time and place
without further notice being given.
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Section 2.10. Special Meetings. Special meetings of the Board of
Directors may be called at any time by the Board of Directors or by the chairman
or by a majority of directors then in office to be held on such day and at such
time as shall be specified by the person or persons calling the meeting.
Section 2.11. Notice of Meetings. Notice of each special meeting or,
where required, each regular meeting, of the Board of Directors shall be given
to each director either by being mailed on at least the third day prior to the
date of the meeting or by being telegraphed, faxed or given personally or by
telephone on at least 24 hours notice prior to the date of meeting. Such notice
shall specify the place, date and hour of the meeting and, if it is for a
special meeting, the purpose or purposes for which the meeting is called. At any
meeting of the Board of Directors at which every director shall be present, even
though without such notice, any business may be transacted. Any acts or
proceedings taken at a meeting of the Board of Directors not validly called or
constituted may be made valid and fully effective by ratification at a
subsequent meeting which shall be legally and validly called or constituted.
Notice of any regular meeting of the Board of Directors need not state the
purpose of the meeting and, at any regular meeting duly held, any business may
be transacted. If the notice of a special meeting shall state as a purpose of
the meeting the transaction of any business that may come before the meeting,
then at the meeting any business may be transacted, whether or not referred to
in the notice thereof. A written waiver of notice of a special or regular
meeting, signed by the person or persons entitled to such notice, whether before
or, after the time stated therein shall be deemed the equivalent of such notice,
and attendance of a director at a meeting shall constitute a waiver of notice of
such meeting except when the director attends the meeting and prior to or at the
commencement of such meeting protests the lack of proper notice.
Section 2.12. Quorum and Voting. At all meetings of the Board of
Directors, the presence of a majority of the directors then in office shall
constitute a quorum for the transaction of business. Except as otherwise
required by law, the certificate of incorporation, or these bylaws, the vote of
a majority of the directors present at any meeting at which a quorum is present
shall be the act of the Board of Directors. At all meetings of the Board of
Directors, each director shall have one vote.
Section 2.13. Committees. The Board of Directors may appoint an
executive committee and any other committee of the Board of Directors, to
consist of one or more directors of the corporation, and may delegate to any
such committee any of the authority of the Board of Directors, however
conferred, other than the power or authority in reference to amending the
certificate of incorporation, adopting an agreement of merger or consolidation,
recommending to the stockholders the sale, lease or exchange of all or
substantially all of the corporation's property and assets, recommending to the
stockholders a dissolution of the corporation or a revocation of a dissolution,
or amending the bylaws of the corporation. No committee shall have the power or
authority to declare a dividend or to authorize the issuance of stock unless the
resolution creating such committee expressly so provides. Each such committee
shall serve at the pleasure of the Board of Directors, shall act only in the
intervals between meetings of the Board of Directors and shall be subject to the
control and direction of the Board of Directors. Any such committee may act by a
majority of its members at a meeting or by a writing or
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writings signed by all of its members. Any such committee shall keep written
minutes of its meetings and report the same to the Board of Directors at the
next regular meeting of the Board of Directors.
Section 2.14. Compensation. The Board of Directors may, by resolution
passed by a majority of those in office, fix the compensation of directors for
service in any capacity and may fix fees for attendance at meetings and may
authorize the corporation to pay the traveling and other expenses of directors
incident to their attendance at meetings, or may delegate such authority to a
committee of the board.
Section 2.15. Action by Consent. Any action required or permitted to be
taken at any meeting of the board or of any committee thereof may be taken
without a meeting if a written consent thereto is signed by all members of the
board or of such committee, as the case may be, and such written consent is
filed with the minutes of proceedings of the board or such committee.
ARTICLE III
OFFICERS
Section 3.01. General Provisions. The principal officers of the
corporation shall be the chairman of the Board (who shall be a director), a
president, such number of vice-presidents as the board may from time to time
determine, a secretary and a treasurer. Any person may hold any two or more
offices and perform the duties thereof, except the offices of president and
vice-president or the offices of president and secretary.
Section 3.02. Election, Terms of Office, and Qualification. The
officers of the corporation named in Section 3.01 of this Article III shall be
elected by the Board of Directors for an indeterminate term and shall hold
office at the pleasure of the Board of Directors.
Section 3.03. Additional Officers, Agents, etc. In addition to the
officers mentioned in Section 3.01 of this Article III, the corporation may have
such other officers or agents as the Board of Directors may deem necessary and
may appoint, each of whom shall hold office for such period, have such authority
and perform such duties as the Board of Directors may from time to time
determine. The Board of Directors may delegate to any officer the power to
appoint any subordinate officers or agents. In the absence of any officer of the
corporation, or for any other reason the Board of Directors may deem sufficient,
the Board of Directors may delegate, for the time being, the powers and duties,
or any of them, of such officer to any other officer, or to any director.
Section 3.04. Removal. Except as set forth below, any officer of the
corporation may be removed, either with or without cause, at any time, by
resolution adopted by the Board of Directors at any meeting, the notice (or
waivers of notice) of which shall have specified that such removal action was to
be considered. Any officer appointed not by the Board of Directors but by an
officer or committee to which the Board of Directors shall have delegated the
power of appointment may be removed, with or without cause, by the committee or
superior officer
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(including successors) who made the appointment, or by any committee or officer
upon whom such power of removal may be conferred by the Board of Directors.
Section 3.05. Resignations. Any officer may resign at any time by
giving written notice to the Board of Directors, or to the chairman of the
board, the president or the secretary of the corporation. Any such resignation
shall take effect at the time specified therein, and unless otherwise specified
therein, the acceptance of such resignation shall not be necessary to make it
effective.
Section 3.06. Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification, or otherwise, shall be filled in the
manner prescribed in these bylaws for regular appointments or elections to such
office.
ARTICLE IV
DUTIES OF THE OFFICERS
Section 4.01. Chairman of the Board. The chairman of the board shall,
if present, preside at all meetings of the stockholders and of the Board of
Directors. The chairman shall perform such duties as are conferred upon him or
her by these bylaws or as may from time to time be assigned to him or her by the
Board of Directors.
Section 4.02. President. The president shall be chief executive officer
of the corporation and shall have general supervision over the property,
business and affairs of the corporation and over its several officers, subject,
however, to the control of the Board of Directors. The president may sign, with
the secretary, treasurer or any other proper officer of the corporation
thereunto authorized by the Board of Directors, certificates for shares in the
corporation. The president may sign, execute and deliver in the name of the
corporation all deeds, mortgages, bonds, leases, contracts, or other instruments
either when specially authorized by the Board of Directors or when required or
deemed necessary or advisable by him or her in the ordinary conduct of the
corporation's normal business, except in cases where the signing and execution
thereof shall be expressly delegated by these bylaws to some other officer or
agent of the corporation or shall be required by law or otherwise to be signed
or executed by some other officer or agent, and the president may cause the seal
of the corporation, if any, to be affixed to any instrument requiring the
same.The president shall perform such duties as are conferred upon him or her by
these bylaws or as may from time to time be assigned to him or her by the Board
of Directors.
Section 4.03. Vice-Presidents. The vice-presidents shall perform such
duties as are conferred upon them by these bylaws or as may from time to time be
assigned to them by the Board of Directors, the chairman of the board or the
president. At the request of the chairman of the board, in the absence or
disability of the president, the vice-president designated by the chairman of
the board shall perform all the duties of the president, and when so acting,
shall have all of the powers of the president.
Section 4.04. The Treasurer. The treasurer shall be the custodian of
all funds and securities of the corporation. Whenever so directed by the Board
of Directors, the treasurer shall
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render a statement of the cash and other accounts of the corporation, and the
treasurer shall cause to be entered regularly in the books and records of the
corporation to be kept for such purpose full and accurate accounts of the
corporation's receipts and disbursements. The treasurer shall have such other
powers and shall perform such other duties as may from time to time be assigned
to him or her by the Board of Directors or the president.
Section 4.05. The Secretary. The secretary shall record and keep the
minutes of all meetings of the stockholders and the Board of Directors in a book
to be kept for that purpose. The secretary shall be the custodian of, and shall
make or cause to be made the proper entries in, the minute book of the
corporation and such other books and records as the Board of Directors may
direct. The secretary shall be the custodian of the seal of the corporation, if
any, and shall affix such seal to such contracts, instruments and other
documents as the Board of Directors or any committee thereof may direct. The
secretary shall have such other powers and shall perform such other duties as
may from time to time be assigned to him or her by the Board of Directors or the
president.
ARTICLE V
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 5.01. Indemnification.
(a) The corporation shall indemnify and hold harmless any person
(and the heirs, executors or administrators of such person) who was or is a
party or is threatened to be made a party to, or is involved in, any threatened,
pending, or completed action, suit, or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that he, his testator, or
intestate is or was a director or officer of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee, or
agent of another corporation, partnership, joint venture, trust or other
enterprise, or as a member of any committee or similar body, to the fullest
extent permitted by the laws of Delaware as they may exist from time to time.
The right to indemnification conferred in this Article V shall also include the
right to be paid by the Corporation the expenses incurred in connection with any
such proceeding in advance of its final disposition to the fullest extent
permitted by the laws of Delaware as they may exist from time to time.
(b) The corporation may, by action of its Board of Directors,
provide indemnification to such of the employees and agents of the corporation
to such extent and to such affect as the Board of Directors shall determine to
be appropriate and authorized by the laws of Delaware as they may exist from
time to time.
Section 5.02. Insurance. The proper officers of the corporation,
without further authorization by the Board of Directors, may in their discretion
purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent for
another corporation, partnership, joint venture, trust or other enterprise,
against any liability.
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Section 5.03. ERISA. To assure indemnification under this Article of
all such persons who are or were "fiduciaries" of an employee benefit plan
governed by the Act of Congress entitled "Employee Retirement Income Security
Act of 1974", as amended from time to time, the provisions of this Article V
shall, for the purposes hereof, be interpreted as follows: an "other enterprise"
shall be deemed to include an employee benefit plan; the corporation shall be
deemed to have requested a person to serve as an employee of an employee benefit
plan where the performance by such person of his duties to the corporation also
imposes duties on, or otherwise involves services by, such person to the plan or
participants or beneficiaries of the plan; excise taxes assessed on a person
with respect to an employee benefit plan pursuant to said Act of Congress shall
be deemed "fines"; and action taken or omitted by a person with respect to an
employee benefit plan in the performance of such person's duties for a purpose
reasonably believed by such person to be in the interest of the participants and
beneficiaries of the plan shall be deemed to be for a purpose which is not
opposed to the best interests of the corporation.
Section 5.04. Contractual Nature. The foregoing provisions of this
Article V shall be deemed to be a contract between the corporation and each
director and officer who serves in such capacity at any time while this Article
is in effect. Neither any repeal or modification of this Article or, to the
fullest extent permitted by the laws of Delaware, any repeal or modification of
laws, shall affect any rights or obligations then existing with respect to any
state of facts then or theretofore existing or any action, suit or proceeding
theretofore or thereafter brought based in whole or in part upon any such state
of facts.
Section 5.05. Construction. For the purposes of this Article V,
references to "the corporation" include in addition to the resulting
corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers and employees or agents, so that any person who is or was a
director or officer of such constituent corporation or is or was serving at the
request of such constituent corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise or as a member of any committee or similar body shall stand in the
same position under the provisions of this Article with respect to the resulting
or surviving corporation as such person would have with respect to such
constituent corporation if its separate existence had continued.
ARTICLE VI
DEPOSITORIES, CONTRACTS AND OTHER INSTRUMENTS
Section 6.01. Depositories. The chairman of the board, the president,
the treasurer, and any vice-president of the corporation whom the Board of
Directors authorizes to designated depositories for the funds of the corporation
are each authorized to designate depositories for the funds of the corporation
deposited in its name and the signatories and conditions with respect thereto in
each case, and from time to time, to change such depositories, signatories and
conditions, with the same force and effect as if each such depository, the
signatories and conditions with respect thereto and changes therein had been
specifically designated or
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authorized by the Board of Directors; and each depository designated by the
Board of Directors or by the chairman of the board, the president, the
treasurer, or any such vice-president of the corporation, shall be entitled to
rely upon the certificate of the secretary or any assistant secretary
of the corporation setting forth the fact of such designation and of the
appointment of the officers of the corporation or of other persons who are to be
signatories with respect to the withdrawal of funds deposited with such
depository, or from time to time the fact of any change in any depository or in
the signatories with respect thereto.
Section 6.02. Execution of Instruments Generally. In addition to the
powers conferred upon the chairman of the board in Section 4.1 and except as
otherwise provided in Section 6.01 of this Article VI, all contracts and other
instruments entered into in the ordinary course of business requiring execution
by the corporation may be executed and delivered by the president, the
treasurer, or any vice president and authority to sign any such contracts or
instruments, which may be general or confined to specific instances, may be
conferred by the Board of Directors upon any other person or persons. Any person
having authority to sign on behalf of the corporation may delegate, from time to
time, by instrument in writing, all or any part of such authority to any person
or persons if authorized so to do by the Board of Directors.
ARTICLE VII
SHARES AND THEIR TRANSFER
Section 7.01. Certificate for Shares. Every owner of one or more shares
in the corporation shall be entitled to a certificate, which shall be in such
form as the Board of Directors shall prescribe, certifying the number and class
of shares in the corporation owned by him or her. When such certificate is
counter-signed by an incorporated transfer agent or registrar, the signature of
any of said officers may be facsimile, engraved, stamped or printed. The
certificates for the respective classes of such shares shall be numbered in the
order in which they shall be issued and shall be signed in the name of the
corporation by the chairman of the board or the president or a vice president,
and by the secretary or an assistant secretary or the treasurer or an assistant
treasurer. A record shall be kept of the name of the person, firm, or
corporation owning the shares represented by each such certificate and the
number of shares represented thereby, the date thereof, and in case of
cancellation, the date of cancellation. Every certificate surrendered to the
corporation for exchange or transfer shall be canceled and no new certificate or
certificates shall be issued in exchange for any existing certificates until
such existing certificates shall have been so canceled.
Section 7.02. Lost, Destroyed and Mutilated Certificates. If any
certificates for shares in this corporation become worn, defaced, or mutilated
but are still substantially intact and recognizable, the directors or authorized
officers, upon production and surrender thereof, shall order the same canceled
and shall issue a new certificate in lieu of same. The holder of any shares in
the corporation shall immediately notify the corporation if a certificate
therefor shall be lost, destroyed, or mutilated beyond recognition, and the
corporation may issue a new certificate in the place of any certificate
theretofore issued by it which is alleged to have been lost or destroyed or
mutilated beyond recognition, and the Board of Directors may, in its discretion,
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require the owner of the certificate which has been lost, destroyed, or
mutilated beyond recognition, or his legal representative, to give the
corporation a bond in such sum and with such surety or sureties as it may
direct, not exceeding double the value of the stock, to indemnity the
corporation against any claim that may be made against it on account of the
alleged loss, destruction, or mutilation of any such certificate. The Board of
Directors may, however, in its discretion, refuse to issue any such new
certificate except pursuant to legal proceedings, under the laws of the State of
Delaware in such case made and provided.
Section 7.03. Transfers of Shares. Transfers of shares in the
corporation shall be made only on the books of the corporation by the registered
holder thereof, his legal guardian, executor, or administrator, or by his
attorney thereunto authorized by power of attorney duly executed and filed with
the secretary of the corporation or with a transfer agent appointed by the Board
of Directors, and on surrender of the certificate or certificates for such
shares properly endorsed or accompanied by properly executed stock powers and
evidence of the payment of all taxes imposed upon such transfer. The person in
whose name shares stand on the books of the corporation shall, to the full
extent permitted by law, be deemed the owner thereof for all purposes as regards
the corporation.
Section 7.04. Regulations. The Board of Directors may make such rules
and regulations as it may deem expedient, not inconsistent with these bylaws
concerning the issue, transfer, and registration of certificates for shares in
the corporation. It may appoint one or more transfer agents or one or more
registrars, or both, and may require all certificates for shares to bear the
signature of either or both.
ARTICLE VIII
SEAL
The Board of Directors may provide a corporate seal, which shall be
circular and contain the name of the corporation engraved around the margin and
the words "corporate seal", the year of its organization, and the word
"Delaware".
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Exhibit 10.1
FORM OF
SERVICES AGREEMENT
This Services Agreement (this "Agreement") is entered into as of
_________, 1996, by and between AltaVista Internet Software, Inc., a Delaware
corporation ("AltaVista"), and Digital Equipment Corporation, a Massachusetts
corporation ("Digital").
RECITALS:
WHEREAS, AltaVista is issuing shares of Class A Common Stock, $0.01 par
value per share ("Class A Common Stock"), to the public in an offering (the
"Initial Public Offering") registered under the Securities Act of 1933, as
amended;
WHEREAS, Digital beneficially owns all of the issued and outstanding
AltaVista Class B Common Stock, par value $0.01 per share ("Class B Common
Stock");
WHEREAS, Digital has heretofore directly or indirectly provided certain
administrative, financial, management and other services to AltaVista and its
Subsidiaries (as defined below);
WHEREAS, on the terms and subject to the conditions set forth herein,
AltaVista desires to retain Digital as an independent contractor to provide,
directly or indirectly, certain of those services to AltaVista and its
Subsidiaries after the Closing Date (as defined below); and
WHEREAS, on the terms and subject to the conditions set forth herein,
Digital desires to provide, directly or indirectly, such services to AltaVista
and its Subsidiaries.
AGREEMENTS:
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Digital and AltaVista, for
themselves, their successors and assigns, hereby agree as follows:
ARTICLE I
DEFINITIONS
1.01. Definitions. As used in this Agreement, the following terms will
have the following meanings, applicable both to the singular and the plural
forms of the terms described:
"Actions" has the meaning ascribed thereto in Section 4.04.
<PAGE> 2
"Agreement" has the meaning ascribed thereto in the preamble
hereto, as such agreement may be amended and supplemented from time to time in
accordance with its terms.
"AltaVista" has the meaning ascribed thereto in the preamble
hereto.
"AltaVista Entities" means AltaVista and its Subsidiaries and
"AltaVista Entity" shall mean any of the AltaVista Entities.
"AltaVista Indemnified Person" has the meaning ascribed thereto
in Section 4.05.
"Benefit Billing" has the meaning ascribed thereto in Section
3.01.
"Benefits Services" has the meaning ascribed thereto in Section
3.05.
"Change Notice" has the meaning ascribed thereto in Section 3.07.
"Class A Common Stock" has the meaning ascribed thereto in the
recitals to this Agreement.
"Class B Common Stock" has the meaning ascribed thereto in the
recitals to this Agreement.
"Closing Date" means the date of the closing of the initial sale
of Class A Common Stock in the Initial Public Offering.
"Common Stock" means the Class B Common Stock, the Class A Common
Stock and any other class of AltaVista capital stock representing the right to
vote generally for the election of directors.
"Cost Plus Billing" has the meaning ascribed thereto in Section
3.01.
"Customary Billing" has the meaning ascribed thereto in Section
3.01.
"Digital" has the meaning ascribed thereto in the preamble
hereto.
"Digital Entities" means Digital and its Subsidiaries (excluding
the AltaVista Entities, unless otherwise required by the context) and "Digital
Entity" shall mean any of the Digital Entities.
"Digital Indemnified Person" has the meaning ascribed thereto in
Section 4.03.
"Digital Plans" has the meaning ascribed thereto in Section 3.05.
"Employee Welfare Plans" has the meaning ascribed thereto in
Section 4.02.
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"Initial Public Offering" has the meaning ascribed thereto in the
recitals to this Agreement.
"Pass-Through Billing" has the meaning ascribed thereto in
Section 3.01.
"Payment Date" has the meaning ascribed thereto in Section
3.06(b).
"Percent of Sales Billing" has the meaning ascribed thereto in
Section 3.01.
"Person" means any individual, partnership, limited liability
company, joint venture, corporation, trust, unincorporated organization,
government (and any department or agency thereof) or other entity.
"Schedule I" means the first schedule hereto which lists the
Services (other than Services relating to certain commercial services and to
employee plan and benefit matters) to be provided by Digital to AltaVista and
sets forth the related billing methodology.
"Schedule II" means the second schedule attached hereto which
describes certain commercial services that may be provided by Digital to
AltaVista and sets forth the related billing methodology.
"Schedule III" means the third schedule attached hereto which
lists the Services relating to employee plans and benefit arrangements to be
provided by Digital to AltaVista and sets forth the related billing methodology.
"Schedules" has the meaning ascribed thereto in Section 3.01.
"SEC" means the United States Securities and Exchange Commission.
"Service Costs" has the meaning ascribed thereto in Section 3.01.
"Services" has the meaning ascribed thereto in Section 2.01.
"Subsidiary" means, as to any Person, any corporation,
association, partnership, joint venture or other business entity of which more
than 50% of the voting capital stock or other voting ownership interests is
owned or controlled directly or indirectly by such Person or by one or more of
the Subsidiaries of such Person or by a combination thereof. Subsidiary, when
used with respect to Digital or AltaVista, shall also include any other entity
affiliated with Digital and AltaVista, as the case may be, that Digital and
AltaVista may hereafter agree in writing shall be treated as a "Subsidiary" for
the purposes of this Agreement.
1.02. Internal References. Unless the context indicates
otherwise, references to Articles, Sections and paragraphs shall refer to the
corresponding articles, sections and paragraphs in this Agreement and references
to the parties shall mean the parties to this Agreement.
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ARTICLE II
PURCHASE AND SALE OF SERVICES
Section 2.01. Purchase and Sale of Services. (a) On the terms and
subject to the conditions of this Agreement and in consideration of the Service
Costs described below, Digital agrees to provide to AltaVista, or procure the
provision to AltaVista of, and AltaVista agrees to purchase from Digital, the
services described in Schedules I, II and III (the "Services"). Unless otherwise
specifically agreed by Digital and AltaVista, the Services to be provided or
procured by Digital hereunder shall be substantially similar in scope, quality,
and nature to those provided to, or procured on behalf of, the AltaVista
Entities prior to the Closing Date.
(b) It is understood that (i) Services to be provided to
AltaVista under this Agreement will, at AltaVista's request, be provided to
Subsidiaries of AltaVista and (ii) Digital may satisfy its obligation to provide
or procure Services hereunder by causing one or more of its Subsidiaries to
provide or procure such Services. With respect to Services provided to, or
procured on behalf of, any Subsidiary of AltaVista, AltaVista agrees to pay on
behalf of such Subsidiary all amounts payable by or in respect of such Services.
Section 2.02. Additional Services. In addition to the Services to be
provided or procured by Digital pursuant to Section 2.01, if requested by
AltaVista, and to the extent that Digital and AltaVista may mutually agree,
Digital shall provide additional services (including services not provided by
Digital to the AltaVista Entities prior to the Closing Date) to AltaVista. The
scope of any such services, as well as the term, costs, and other terms and
conditions applicable to such services, shall be as mutually agreed by Digital
and AltaVista.
ARTICLE III
SERVICE COSTS; OTHER CHARGES
Section 3.01. Service Costs Generally. (a) Schedules I and II hereto
(collectively, the "Schedules") indicate, with respect to each Service listed
therein, whether the costs to be charged to AltaVista for such Service or
program are determined by (i) the customary billing method ("Customary
Billing"), (ii) the pass-through billing method ("Pass-Through Billing"), (iii)
the cost-plus-fixed-fee billing method ("Cost Plus Billing") or (iv) based upon
a calculation of certain costs relating to employee benefit plans and benefit
arrangements ("Benefit Billing"). The Customary Billing, Pass-Through Billing,
Cost Plus Billing and Benefit Billing methods applicable to Services provided to
AltaVista are collectively referred to herein as the "Service Costs". AltaVista
agrees to pay to Digital in the manner set forth in Section 3.06 the Service
Costs applicable to each of the Services provided by Digital.
(b) As provided herein, Digital shall permit eligible AltaVista
employees to participate in certain of the Digital Plans. In addition to
reimbursing Digital for the Services as set forth herein, AltaVista shall
reimburse Digital for Digital's costs (including any contributions and premium
costs and including certain third-party expenses and allocations of certain
Digital personnel expenses), subject to Section 3.05 hereof, relating to
participation by AltaVista
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employees in the Digital Plans. It is the express intent of the parties that
Service Costs relating to the administration of AltaVista employee plans and the
performance of related Services will not exceed reasonable compensation for such
Services as defined in 29 CFR Section 2550.408c-2.
Section 3.02. Customary Billing. The costs of Services determined by
the Customary Billing method shall be comparable to the costs charged from time
to time to other businesses and subsidiaries operated by Digital for comparable
services.
Section 3.03. Pass-Through Billing. The costs of Services determined by
the Pass-Through Billing method shall be equal to the third-party costs and
expenses incurred by Digital or any of its Subsidiaries on behalf of any
AltaVista Entity. If Digital incurs costs or expenses on behalf of AltaVista or
any of its Subsidiaries as well as other businesses operated by Digital, Digital
will allocate any such costs or expenses in good faith between the various
businesses on behalf of which such costs or expenses were incurred as Digital
shall determine in the exercise of Digital's reasonable judgment. Digital shall
apply usual and accepted accounting conventions in making such allocations and
Digital or its agents shall keep and maintain such books and records as may be
reasonably necessary to make such allocations. Digital shall make copies of such
books and records available to any business upon request and with reasonable
notice.
Section 3.04. Cost Plus. The costs of Services determined by the Cost
Plus Billing method shall be equal to the costs and expenses incurred by Digital
or any of its Subsidiaries on behalf of any AltaVista Entity, plus the fixed
percentage of such costs and expenses set forth on Schedule II. If Digital
incurs costs or expenses on behalf of AltaVista or any of its Subsidiaries as
well as other businesses operated by Digital, Digital will allocate any such
costs or expenses in good faith between the various businesses on behalf of
which such costs or expenses were incurred as Digital shall determine in the
exercise of Digital's reasonable judgment. Digital shall apply usual and
accepted accounting conventions in making such allocations and Digital or its
agents shall keep and maintain such books and records as may be reasonably
necessary to make such allocations. Digital shall make copies of such books and
records available to any business upon request and with reasonable notice.
Section 3.05. Benefit Billing. (a) Prior to the Closing Date, certain
employees of AltaVista participated in certain benefit plans sponsored by
Digital. On and after the Closing Date, AltaVista employees shall continue to be
eligible to participate in certain Digital Plans, as specified by Digital prior
to the Closing Date ("Digital Plans"), subject to the terms of the governing
plan documents as interpreted by the appropriate plan fiduciaries. On and after
the Closing Date, subject to regulatory requirements and the provisions of
Section 4.01 hereof, Digital will continue to provide Benefits Services to and
in respect of AltaVista employees with reference to such Digital Plans as it
administered them prior to the Closing Date.
(b) The costs payable by AltaVista for Services relating to
employee plans and benefit arrangements ("Benefits Services") may be charged on
the basis of Customary Billing, Pass-Through Billing or Benefit Billing. In
addition, costs associated with certain plans and programs identified in
Schedule III will be paid principally through employee payroll
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deductions for such plans and programs. Benefit Services consists of those
categories of Services which are more fully described on Schedule III attached
hereto.
(c) Each party to this Agreement may request changes in the
applicable terms of or services relating to Digital Plans, approval of which
shall not be unreasonably withheld; provided, however, that approval of changes
in the terms of any of Digital Plans shall be in the sole discretion of Digital.
(d) Digital and AltaVista agree to cooperate fully with each
other in the administration and coordination of regulatory and administrative
requirements associated with Digital Plans. Such coordination, upon request,
will include (but is not limited to) the following: sharing payroll data for
determination of highly compensated employees, providing census information
(including accrued benefits) for purposes of running discrimination tests,
providing actuarial reports for purposes of determining the funded status of any
plan, review and coordination of insurance and other independent third party
contracts, and providing for review of all summary plan descriptions, requests
for determination letters, insurance contracts, Forms 5500, financial statement
disclosures and plan documents.
Section 3.06. Invoicing and Settlement of Costs. (a) Digital will
invoice or notify AltaVista for the Service Costs on a monthly basis, in
arrears, either directly or through Digital's intracompany billing system, in a
manner substantially consistent with the billing practices used in connection
with services provided to the AltaVista Entities prior to the Closing Date
(except as otherwise agreed). In connection with the invoicing described in this
Section 3.06(a), Digital will provide to AltaVista the same billing data and
level of detail as it customarily provided to the AltaVista Entities prior to
the Closing Date and as it customarily provides to other businesses and
subsidiaries operated by Digital and such other data as may be reasonably
requested by AltaVista.
(b) AltaVista agrees to pay on or before 30 days after the date
on which Digital invoices or notifies AltaVista of the Service Costs after the
Closing Date (or the next Business Day, if such day is not a Business Day)
(each, a "Payment Date"), at Digital's option upon reasonable notice to
AltaVista, through Digital's intra-company billing system, cash management
systems, or, if requested by Digital, by wire transfer of immediately available
funds payable to the order of Digital and without set off, all amounts invoiced
by Digital pursuant to paragraph (a) during the preceding calendar month (or
since the Closing Date, in the case of the first Payment Date). If AltaVista
fails to pay any monthly payment within 90 days of the relevant Payment Date,
AltaVista shall be obligated to pay, in addition to the amount due on such
Payment Date, interest on such amount at the prime, or best rate announced by
[Name of bank] plus __% per annum compounded monthly from the relevant Payment
Date through the date of payment.
(c) Except as otherwise provided in the Schedules or agreed in
writing by the parties, AltaVista shall take such action as is necessary to
establish bank accounts (to be funded by AltaVista) or to otherwise fund all
wage and salary payments to AltaVista employees and to fund all medical,
retirement and other benefit claims payable to or on behalf of AltaVista
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employees and their dependents to the extent not covered by third party
insurance. Payroll services and benefit claims processing activities performed
by Digital or Digital's subcontractors shall be coordinated to facilitate
payments. Following prior written notice of not less than 15 business days,
Digital shall be relieved of any obligation to deliver benefit and payroll
services under this Agreement to the extent that such bank accounts or other
funding arrangements are not established at the time drafts are presented for
payment, or at any time when there are insufficient funds in the relevant
account or such other arrangements fail to satisfy a properly presented claim.
Section 3.07. Amended Schedules. (a) Prior to the end of Digital's
fiscal year in each year for so long as the relevant Services continue to be
provided under this Agreement, Digital shall prepare and deliver to AltaVista
updated versions of Schedules I, II and III (to the extent applicable), setting
forth with respect to the Services described in such schedules, any proposed
changes in billing methodology and, to the extent available, the Service Costs
estimated to be payable for such Services for the next fiscal year. Except as
AltaVista and Digital may otherwise agree, and except as specifically described
in this Agreement (including the Schedules), the method of allocating and
charging the costs reflected on Schedules I, II and III, and any updated
versions of such schedules, shall be consistent with Digital's prior practices
with respect to the allocation of costs for services to the AltaVista Entities
immediately prior to the Closing Date; provided that if Digital changes the
method of allocating and charging such costs to Digital businesses generally,
such revised method shall also be applied to AltaVista and AltaVista shall be
notified in writing not less than 60 days in advance of implementing such
revised method (a "Change Notice"). If a revised method of allocating and
charging costs for particular Services would result in a significant increase in
the amount of Service Costs that AltaVista would be obligated to pay under this
Agreement as compared to those that would be payable were such method not
revised, then, notwithstanding Article VI, AltaVista shall have the right during
the 45-day period following receipt of Digital's Change Notice to terminate such
Services upon written notice to Digital, and such termination shall be effective
on the implementation date of the change in methodology. Such change in
allocation method shall be deemed accepted by AltaVista if no such notice of
termination is received by Digital during such 45-day period, and thereafter any
termination shall be governed by the provisions of Article VI. For purposes of
this paragraph (a), a "significant increase" means, with respect to any amount,
an aggregate increase of more than the greater of (i) 10% of the base amount of
Service Costs applicable to all such Services and (ii) $100,000.
ARTICLE IV
THE SERVICES
Section 4.01. General Standard of Service. Except as otherwise agreed
with AltaVista or as described in this Agreement, and provided that Digital is
not restricted by contract with third parties or by applicable law, Digital
agrees that the nature, quality and standard of care applicable to the delivery
of the Services hereunder will be substantially the same as that of the Services
which Digital provides from time to time throughout its businesses; provided
that in no event shall such standard of care be less than the standard of care
that Digital has customarily provided to the AltaVista Entities with respect to
the relevant Service prior to the Closing Date. Digital
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shall use its reasonable efforts to ensure that the nature and quality of
Services provided to AltaVista employees either by Digital directly or through
administrators under contract shall be undifferentiated as compared with the
same services provided to or on behalf of Digital employees under Digital Plans.
Section 4.02. Delegation. Subject to Section 4.01 above, AltaVista
hereby delegates to Digital final, binding, and exclusive authority,
responsibility, and discretion to interpret and construe the provisions of
employee welfare benefit plans in which AltaVista has elected to participate and
which are administered by Digital under this Agreement (collectively, "Employee
Welfare Plans"). Digital may further delegate such authority to plan
administrators to:
(i) provide administrative and other services;
(ii) reach factually supported conclusions consistent
with the terms of the Employee Welfare Plans;
(iii) make a full and fair review of each claim
denial and decision related to the provision of benefits
provided or arranged for under the Employee Welfare Plans,
pursuant to the requirements of ERISA, if within sixty days
after receipt of the notice of denial, a claimant requests in
writing a review for reconsideration of such decisions. The
administrator shall notify the claimant in writing of its
decision on review. Such notice shall satisfy all ERISA
requirements relating thereto; and
(iv) notify the claimant in writing of its decision
on review.
Section 4.03. Limitation of Liability. AltaVista agrees that none of
Digital and its Subsidiaries and their respective directors, officers, agents,
and employees (each, a "Digital Indemnified Person") shall have any liability,
whether direct or indirect, in contract or tort or otherwise, to AltaVista for
or in connection with the Services rendered or to be rendered by any Digital
Indemnified Person pursuant to this Agreement, the transactions contemplated
hereby or any Digital Indemnified Person's actions or inactions in connection
with any such Services or transactions, except for damages which have resulted
from such Digital Indemnified Person's gross negligence or willful misconduct in
connection with any such Services, actions or inactions.
Section 4.04. Indemnification of Digital by AltaVista. AltaVista agrees
to indemnify and hold harmless each Digital Indemnified Person from and against
any damages, and to reimburse each Digital Indemnified Person for all reasonable
expenses as they are incurred in investigating, preparing, pursuing, or
defending any claim, action, proceeding, or investigation, whether or not in
connection with pending or threatened litigation and whether or not any Digital
Indemnified Person is a party (collectively, "Actions"), arising out of or in
connection with Services rendered or to be rendered by any Digital Indemnified
Person pursuant to this Agreement, the transactions contemplated hereby or any
Digital Indemnified Person's actions or inactions in connection with any such
Services or transactions; provided that AltaVista will not
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be responsible for any damages of any Digital Indemnified Person that have
resulted from such Digital Indemnified Person's gross negligence or willful
misconduct in connection with any of the advice, actions, inactions, or Services
referred to above.
Section 4.05. Indemnification of AltaVista by Digital. Digital agrees
to indemnify and hold harmless AltaVista and its Subsidiaries and their
respective directors, officers, agents, and employees (each, an "AltaVista
Indemnified Person") from and against any damages, and will reimburse each
AltaVista Indemnified Person for all reasonable expenses as they are incurred in
investigating, preparing, or defending any Action, arising out of the gross
negligence or willful misconduct of any Digital Indemnified Person in connection
with the Services rendered or to be rendered pursuant to this Agreement.
Section 4.06. Further Indemnification. To the extent that any other
Person has agreed to indemnify any Digital Indemnified Person or to hold a
Digital Indemnified Person harmless and such Person provides services to Digital
or any affiliate of Digital relating directly or indirectly to any employee plan
or benefit arrangement for which Benefit Services are provided under this
Agreement, Digital will exercise reasonable efforts (x) to make such agreement
applicable to any AltaVista Indemnified Person so that each AltaVista
Indemnified Person is held harmless or indemnified to the same extent as any
Digital Indemnified Person or (y) otherwise make available to each AltaVista
Indemnified Person the benefits of such agreement.
Section 4.07. Reports. Digital shall provide or shall cause to be
provided to AltaVista with data or reports requested by AltaVista relating to
(i) benefits paid to or on behalf of AltaVista employees under Digital Plans,
including but not limited to financial statements, claims history, and census
information, and (ii) other information relating to the Services that is
required to satisfy any reporting or disclosure requirement of ERISA or the
Code. Digital will provide such information within a reasonable period of time
after it is requested. The costs for reports which are substantially similar to
reports prepared by Digital or on behalf of Digital generally for its businesses
shall be billed as part of the Benefit Costs. The cost for additional reports
shall be billed as incremental costs in accordance with Section 3.06.
ARTICLE V
ADDITIONAL AGREEMENT
Section 5.01. Notice. Unless otherwise agreed in writing by the
parties, AltaVista agrees to provide Digital with at least two months prior
written notice of any material change in the eligible AltaVista employees and
retirees covered by Digital Plans, and any change in the scope of Services to be
provided by Digital with respect thereto. Notwithstanding the preceding
sentence, if AltaVista provides Digital with less than two months notice of any
such change and Digital is nonetheless able, with reasonable efforts, to
effectuate such change with such shorter notice, than Digital shall implement
the requested change.
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ARTICLE VI
TERM AND TERMINATION
Section 6.01. Term. Except as otherwise provided in this Article VI or
in Section 7.05 or as otherwise agreed in writing by the parties, this Agreement
shall have an initial term of two years from the Closing Date, and will be
renewed automatically thereafter for successive one-year terms unless either
AltaVista or Digital elects not to renew this Agreement upon not less than 90
days' written notice.
Section 6.02. Termination. (a) After the initial two-year term,
AltaVista may from time to time terminate this Agreement with respect to one or
more of the Services, in whole or in part, upon giving at least 90 days' prior
notice to Digital.
(b) This Agreement will be subject to early termination by either
AltaVista or Digital upon 90 days' written notice if Digital ceases to own
shares of Common Stock representing more than 50% of the combined voting power
of the Common Stock of AltaVista.
(c) Digital may, at its option, terminate this Agreement as it
relates to any given Service if Digital would otherwise not be required to
provide such Service with respect to any employee benefit plan or program that
is substantially similar to a corresponding plan or program of Digital (as such
plans and programs of Digital exist from time to time) or if the method of
delivering such Service would no longer be substantially similar to the manner
in which such Service was delivered to the AltaVista Entities, as such delivery
may change from time to time.
(d) Digital may terminate any affected Service at any time if
AltaVista shall have failed to perform any of its material obligations under
this Agreement relating to any such Service, Digital has notified AltaVista in
writing of such failure, and such failure shall have continued for a period of
60 days after receipt of AltaVista of notice of such failure.
(e) AltaVista may terminate any affected Service at any time if
Digital shall have failed to perform any of its material obligations under this
Agreement relating to any such Service, AltaVista has notified Digital in
writing of such failure, and such failure shall have continued for a period of
60 days after receipt by Digital of notice of such failure.
(f) Each of AltaVista and Digital agrees that prior to exercising
its rights under this Section 6.02 it will consult for a reasonable period with
the other party in advance of such termination as to its implementation.
(g) Notwithstanding this Section 6.02 either Digital or AltaVista
may terminate coverage of AltaVista under Digital's umbrella liability,
property, casualty or fiduciary insurance policies (as more fully described in
Schedule I) at any time on 90 days written notice prior to the anniversary day
of the policy; provided that termination of coverage by AltaVista may only be
for nonpayment and only if a replacement policy, acceptable to Digital, is
entered into by AltaVista.
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(h) AltaVista may terminate any affected Service pursuant to
Section 3.07 hereof.
Section 6.03. Effect of Termination. (a) Other than as required by law,
upon termination of any Service pursuant to Section 6.01 or Section 6.02, and
upon termination of this Agreement in accordance with its terms, Digital will
have no further obligation to provide the terminated Service (or any Service, in
the case of termination of this Agreement) and AltaVista will have no obligation
to pay any fees relating to such Services or make any other payments hereunder;
provided that notwithstanding such termination, (i) AltaVista shall remain
liable to Digital for fees owed and payable in respect of Services provided
prior to the effective date of the termination; (ii) Digital shall continue to
charge AltaVista for administrative and program costs relating to benefits paid
after but incurred prior to the termination of any Service and other services
required to be provided after the termination of such Service and AltaVista
shall be obligated to pay such expenses in accordance with the terms of this
Agreement; and (iii) the provisions of Articles IV, V, VI and VII shall survive
any such termination. All program and administrative costs attributable to
AltaVista employees for Digital Plans that relate to any period after the
effective date of any such termination shall be for the account of AltaVista.
(b) Following termination of this Agreement with respect to any
Service, Digital and AltaVista agree to cooperate in providing for an orderly
transition of such Service to AltaVista or to a successor service provider.
Without limiting the foregoing, Digital agrees to (i) provide, within 90 days of
the termination, copies in a format designated by Digital, all records relating
directly or indirectly to benefit determinations of AltaVista employees,
including but not limited to compensation and service records, correspondence,
plan interpretive policies, plan procedures, administration guidelines, minutes,
or any data or records required to be maintained by law and (ii) work with
AltaVista in developing a transition schedule.
ARTICLE VII
MISCELLANEOUS
Section 7.01. Other Agreements. In addition to the services described
herein, Digital is providing AltaVista with certain additional services pursuant
to a Facilities Agreement and an Intercompany Distribution, Strategic
Development and Services Agreement.
Section 7.02. Future Litigation and Other Proceedings. In the event
that AltaVista (or any of its officers or directors) or Digital (or any of its
officers or directors) at any time after the date hereof initiates or becomes
subject to any litigation or other proceedings before any governmental authority
or arbitration panel with respect to which the parties have no prior agreements
(as to indemnification or otherwise), the party (and its officers and directors)
that has not initiated and is not subject to such litigation or other
proceedings shall comply, at the other party's expense, with any reasonable
requests by the other party for assistance in connection with such litigation or
other proceedings (including by way of provision of information and making
available of employees as witnesses). In the event that AltaVista (or any of its
officers or directors) and Digital (or any of its officers and directors) at any
time after the date hereof initiate or become subject to any litigation or other
proceedings before any governmental authority or
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arbitration panel with respect to which the parties have no prior agreements (as
to indemnification or otherwise), each party (and its officers and directors)
shall, at their own expense, coordinate their strategies and actions with
respect to such litigation or other proceedings to the extent such coordination
would not be detrimental to their respective interests and shall comply, at the
expense of the requesting party, with any reasonable requests of the other party
for assistance in connection therewith (including by way of provision of
information and making available of employees as witnesses).
Section 7.03. No Agency. Nothing in this Agreement shall constitute or
be deemed to constitute a partnership or joint venture between the parties
hereto or, except to the extent provided in Section 4.02, constitute or be
deemed to constitute any party the agent or employee of the other party for any
purpose whatsoever and neither party shall have authority or power to bind the
other or to contract in the name of, or create a liability against, the other in
any way or for any purpose.
Section 7.04. Subcontractors. Digital may hire or engage one or more
subcontractors to perform all or any of its obligations under this Agreement,
provided that, subject to Section 4.03, Digital will in all cases remain
primarily responsible for all obligations undertaken by it in this Agreement
with respect to the scope, quality and nature of the Services provided to
AltaVista.
Section 7.05. Force Majeure. (a) For purposes of this Section , "force
majeure" means an event beyond the control of either party, which by its nature
could not have been foreseen by such party, or, if it could have been foreseen,
was unavoidable, and includes without limitation, acts of God, storms, floods,
riots, fires, sabotage, civil commotion or civil unrest, interference by civil
or military authorities, acts of war (declared or undeclared) and failure of
energy sources.
(b) Neither party shall be under any liability for failure to
fulfill any obligation under this Agreement, so long as and to the extent to
which the fulfillment of such obligation is prevented, frustrated, hindered, or
delayed as a consequence of circumstances of force majeure, provided always that
such party shall have exercised all due diligence to minimize to the greatest
extent possible the effect of force majeure on its obligations hereunder.
(c) Promptly on becoming aware of force majeure causing a delay
in performance or preventing performance of any obligations imposed by this
Agreement (and termination of such delay), the party affected shall give written
notice to the other party giving details of the same, including particulars of
the actual and, if applicable, any estimated continuing effects of such force
majeure on the obligations of the party whose performance is prevented or
delayed. If such notice shall have been duly given, and actual delay resulting
from such force majeure shall be deemed not to be a breach of this Agreement,
and the period for performance of the obligation to which it relates shall be
extended accordingly, provided that if force majeure results in the performance
of a party being delayed by more than 60 days, the other party shall have the
right to terminate this Agreement with respect to any Service effected by such
delay forthwith by written notice.
Section 7.06 Entire Agreement. This Agreement (including the Schedules
constituting a part of this Agreement) and any other writing signed by the
parties that specifically references
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this Agreement constitute the entire agreement among the parties with respect to
the subject matter hereof and supersede all prior agreements, understandings and
negotiations, both written and oral, between the parties with respect to the
subject matter hereof. The Agreement is not intended to confer upon any Person
other than the parties hereto any rights or remedies hereunder.
Section 7.07. Information. Subject to applicable law and privileges,
each party hereto covenants and agrees to provide the other party with all
information regarding itself and transactions under this Agreement that the
other party reasonably believes are required to comply with all applicable
federal, state, county and local laws, ordinances, regulations and codes,
including, but not limited to, securities laws and regulations.
Section 7.08. Confidential Information. AltaVista and Digital hereby
covenant and agree to hold in trust and maintain confidential all Confidential
Information relating to the other party. "Confidential Information" shall mean
all information disclosed by either party to the other in connection with this
Agreement whether orally, visually, in writing or in any other tangible form,
and includes, but is not limited to, economic and business data, business plans,
and the like, but shall not include (i) information which becomes generally
available other than by release in violation of the provisions of this Section
7.08, (ii) information which becomes available on a nonconfidential basis to a
party from a source other than the other party to this Agreement provided the
party in question reasonably believes that such source is not or was not bound
to hold such information confidential, (iii) information acquired or developed
independently by a party without violating this Section 7.08 or any other
confidentiality agreement with the other party and (iv) information that any
party hereto reasonably believes it is required to disclose by law, provided
that it first notifies the other party hereto of such requirement and allows
such party a reasonable opportunity to seek a protective order or other
appropriate remedy to prevent such disclosure. Without prejudice to the rights
and remedies of either party to this Agreement, a party disclosing any
Confidential Information to the other party in accordance with the provisions of
this Agreement shall be entitled to equitable relief by way of an injunction if
the other party hereto breaches or threatens to breach any provision of this
Section 7.08.
Section 7.09. Notices. Any notice, instruction, direction or demand
under the terms of this Agreement required to be in writing will be duly given
upon delivery, if delivered by hand, facsimile transmission, intercompany mail,
or mail, to the following addresses:
(a) If to AltaVista, to:
AltaVista Internet Software, Inc.
30 Porter Road
Littleton, MA 01460
Attention: Chief Financial Officer
Fax: 617-
(b) If to Digital, to:
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<PAGE> 14
Digital Equipment Corporation
111 Powdermill Road
Maynard, MA 01754-1418
Attention: Treasurer
Fax: 617-
or to such other addresses or telecopy numbers as may be specified by like
notice to the other parties.
Section 7.10. Governing Law. This Agreement shall be construed in
accordance with and governed by the substantive internal laws of the
Commonwealth of Massachusetts.
Section 7.11. Severability. If any provision of this Agreement shall be
invalid or unenforceable, such invalidity or unenforceability shall not render
the entire Agreement invalid. Rather, the Agreement shall be construed as if not
containing the particular invalid or unenforceable provision, and the rights and
obligations of each party shall be construed and enforced accordingly.
Section 7.12. Amendment. This Agreement may only be amended by a
written agreement executed by both parties hereto.
Section 7.13. Counterparts. This Agreement may be executed in separate
counterparts, each of which shall be deemed an original and all of which, when
taken together, shall constitute one agreement.
[Remainder of page intentionally left blank]
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<PAGE> 15
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed
by their duly authorized representatives.
ALTAVISTA INTERNET SOFTWARE, INC.
By:________________________________
Name:
Title:
DIGITAL EQUIPMENT CORPORATION
By:________________________________
Name:
Title:
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<PAGE> 16
Services Agreement - Schedule I
General Corporate Services(1)
SERVICE
PART I -- CORPORATE AND SHARED SERVICES. The billing methodology for each of the
following services is "Customary Billing" and shall be based on Digital's
internal apportionment formulas
Travel administration
Property administration
Office of the Chief Information Officer
Office of the President
Shared Service Centers (transaction processing and accounting)
Treasury Department (money and banking and other treasury services)
Corporate Controller's Headquarters (financial planning and analysis)
Human resource services--baseline, corporate, shared and transition services
Development and learning--company-wide and executive training, Digital
Management Institute and administration
Corporate general and administrative purchasing and "core group" purchasing
Law Department (legal services)
Environmental health and safety
Trade (import/export and shipping services)
Corporate security
Ethics
Credit and collection
"SAP Project" (management reporting system)
Corporate communications--baseline, public relations, employee communications,
customer communications, corporate advertising and trade shows
Insurance Policies (liability, property, casualty and fiduciary)
Tax return preparation
- --------
(1) In each case, third-party costs incurred by Digital on behalf of AltaVista
will be billed using the Pass-Through Billing methodology.
-16-
<PAGE> 17
PART II -- COMPUTING AND COMMUNICATIONS SERVICES. The billing methodology for
each of the following services is "Customary Billing" and shall be based on
actual usage
Global data processing
Voice/data transmission services
Timesharing (computer resources)
Personal computer and workstation (maintenance and repair services)
Contracts--fixed price (contract administration)
Global telecommunications and network services
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<PAGE> 18
Services Agreement - Schedule II
Commercial Services
Commercial services to be provided under this Agreement shall include
any commercial services that Digital provides from time to time to third parties
on a fee basis, in each case as requested by AltaVista to be provided by
Digital, unless Digital determines in its reasonable discretion that the
provision of such requested services would not be economic or would be
otherwise unfeasible. All such services shall be provided in accordance with
the Cost Plus Billing method, with the percentage of costs and expenses to be
negotiated by the parties in good faith.
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<PAGE> 19
Services Agreement - Schedule III
Benefits Services
<TABLE>
<CAPTION>
SERVICE BILLING
METHODOLOGY
<S> <C>
The billing methodology for each of the following services is "Customary
Billing" (except as noted) and shall be based on apportioned customary Digital
"fringe rate" allocations.
MEDICAL/DENTAL PROGRAMS
Benefits/Claims
- - Claims costs for AltaVista Employees participating in Digital Plans and Customary Billing
programs
Administration
- - Administration of AltaVista plans and programs, including: Customary Billing
- - maintenance of eligibility files upon AltaVista's notification of status
changes
- - claim adjudication under the terms of applicable plans
- - maintenance of toll-free telephone lines for inquiries, etc.
- - support services (internal and external, including COBRA)
Participant Contributions
- - Participant contributions for deductions above plans or direct bill to Participant payroll
employees/retirees
OTHER BENEFIT PLANS
- - Life Insurance Customary Billing
Life insurance for AltaVista Employees (including Accidental Death and
Dismemberment)
- - Savings/Retirement Plans
- Company match/retirement contribution Customary Billing
- Participant Contributions Payroll Deduction
- - Long-Term Disability Plans
- Employer contributions Customary Billing
- Employee contributions Payroll Deduction
Other Benefit Support Services
</TABLE>
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<PAGE> 20
<TABLE>
<S> <C>
- - Audit, Legal, Actuarial Fees and related recoveries Customary Billing
- - Payroll support of benefits administration (insurance, savings, other Customary Billing
benefit plans and statutory requirements)
Payroll Services Customary Billing
</TABLE>
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<PAGE> 1
EXHIBIT 10.2
FORM OF
FACILITIES AGREEMENT
THIS FACILITIES AGREEMENT (this "Agreement"), dated as of August __,
1996, is made by and between Digital Equipment Corporation, a Massachusetts
corporation ("Digital"), and AltaVista Internet Software, Inc., a Delaware
corporation ("ALTV"). The terms "ALTV" and "Digital" shall include any
subsidiary or affiliate of ALTV and Digital, respectively. A "subsidiary or
affiliate" of ALTV or Digital is a company or operating entity in which ALTV or
Digital, as the case may be, now or in the future, directly or indirectly, owns
more than 50% of the shares.
W I T N E S S E T H:
WHEREAS, Digital and ALTV have executed and delivered an Asset Purchase
Agreement dated the date hereof (the "Asset Purchase Agreement") pursuant to
which Digital has agreed to sell to ALTV, and ALTV has agreed to purchase from
Digital, certain tangible and intangible property and assets of Digital relating
to a portion of the business heretofore conducted by the Internet Software
Business Unit ("ISBU") of Digital (the "Internet Business");
WHEREAS, Digital and ALTV desire to provide ALTV with the right to use
certain portions of facilities owned or leased, as applicable, by Digital
including but not limited to those locations identified on Schedule I hereto
(the "Facilities") on the terms and conditions set forth herein for certain
periods specified herein, unless sooner terminated pursuant to the terms of this
Agreement (the Facilities and any and all walkways, parking areas and landscaped
areas appurtenant thereto referred to collectively as "Sites"); and
WHEREAS, the parties understand that the Facilities are currently and,
at Digital's election, will continue to be occupied and used by Digital for the
conduct of Digital's business and that the joint use of the Facilities and the
Sites as contemplated by this Agreement will require mutual cooperation and
accommodation by the parties;
NOW, THEREFORE, in consideration of the premises and mutual covenants
and agreements herein contained, the sufficiency of which is hereby
acknowledged, Digital and ALTV agree as follows:
<PAGE> 2
1. Premises and Terms.
1.1 Subject to all of the terms and conditions hereof, ALTV shall
have the right to use certain portions of the Facilities (the
"Premises");
1.2 Notwithstanding anything in this Agreement to the contrary, the
term during which ALTV may use any of the Premises shall end on
the earliest of (a) the expiration or termination for any
reason of the underlying lease for any of the Premises that are
leased and not owned by Digital or (b) the sale, abandonment or
vacation of any of the Premises that are owned by Digital.
Digital shall give ALTV as much advance notice as is reasonably
practicable in connection with any planned early termination of
any leased Premises or the sale, abandonment or vacation by
Digital of any of the owned Premises.
1.3 Subject to Section 1.2 hereof, the initial term of this
Agreement shall be for two years (the "Initial Term"). So long
as ALTV is not in default under the terms of this Agreement,
Digital does hereby grant to ALTV the right and option to
extend and renew any terms of this Agreement for additional
period(s) of one year each (herein the "Renewal Term(s)" and
together with the Initial Term, the "Term"), beginning the date
immediately following the designated termination date, upon the
same terms, conditions, covenants and provisions as are
provided in this Agreement. Unless Digital or ALTV notifies the
other party, at least thirty (30) days prior to the expiration
of the Initial Term or Renewal Term then in effect, of its
intent not to extend and renew the term of this Agreement, ALTV
shall be deemed to have exercised its Renewal Option in respect
of that Renewal Term. If the Renewal Option is exercised as
provided herein, then this Agreement shall be amended to
reflect the changes which will result from such extension of
the term of this Agreement.
2 . Relocation from Premises.
ALTV agrees to take all reasonable actions to accommodate Digital's
real estate objectives, including, without limitation, vacating
Premises where Digital plans to terminate its own lease or
operations at that particular Premises.
3. Right to Use Premises.
3.1 ALTV's right to use any of the Premises shall include a
nonexclusive right to use such interior common areas as may
exist with respect to the Facility in which the Premises is
located and as designated by Digital, which may include
circulation corridors, stairwells, lobbies, library, cafeteria,
restrooms and conference rooms, if any, and exterior common
areas serving the Facilities, including parking areas and
sidewalks, if any (which
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<PAGE> 3
designated interior common areas and exterior common parking
and other such exterior common areas within the Site are herein
collectively referred to as the "Common Areas"). Digital
reserves the right to limit access to any part of any Facility
for confidentiality purposes, so long as access to the Premises
is not unreasonably restricted.
3.2 ALTV shall not be entitled to enter in or on any other portions
of the Facilities, including without limitation all non-ALTV
office areas and laboratory spaces, unless with express written
permission from Digital and in the company of an authorized
Digital employee. Except (a) in connection with the performance
of its obligations under this Agreement or any underlying
lease, (b) for purposes of inspecting the Premises for
compliance with ALTV's obligations under this Agreement, (c) to
show the Facility to any prospective purchaser or mortgagor,
(d) to make alterations, additions, repairs or improvements
pursuant to Section 5.3 below, or (e) in an emergency, Digital
shall not be entitled to enter in the Premises unless with
express written permission from and in the company of an ALTV
employee.
4. Payment for Premises.
4.1 Monthly payment to Digital for each such Premises shall be
equal to Digital's Cost Center Charge (as hereinafter defined)
for such Premises from time to time for the balance of the
term. Any adjustment thereto shall be effective as of the date
of adjustment of Digital's Cost Center Charge as set forth in a
written notice from Digital to ALTV. Any increase in payments
for any portion of a term that has expired at the time that
ALTV receives such a notice from Digital of an increase in
Digital's Cost Center Charge for a given Premises shall be due
and payable within thirty (30) days after ALTV receives the
notice from Digital.
4.1.1 For purposes of this Agreement, "Digital's Cost Center
Charge" for any given Premises shall mean the cost of
Digital's occupancy of a given Facility charged as an
allocated cost item each month to each Digital cost
center on a per square foot basis based on the amount of
space allocated to the cost center in the Facility,
determined in a manner consistent with Digital's past
practices in determining such charge. Digital's Cost
Center Charge generally consists of Digital's annual
estimates of all costs of operating a Facility,
including the costs of Facility management, depreciation
of the building (or lease charges), utilities charges,
etc. The number of square feet of each Premises for
purposes of determining Digital's Cost Center Charge for
any Premises hereunder shall be determined on the same
basis that Digital uses to determine the number of
square feet allocated to Digital's cost centers from
time to time.
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<PAGE> 4
4.1.2 Such payments shall be made monthly in arrears during
the Term with respect to each Premises and such payment
shall be delivered to the location designated by Digital
from time to time for each Premises (or if no location
is so designated, to the address for notices in this
Agreement) and in the local currency of the country in
which such Premises is located.
4.1.3 If the first or last months of any term of use are
partial months, the monthly charge shall be prorated
based upon the actual number of days in such partial
month.
4.1.4 In the event any monthly payment is not received by
Digital by the tenth day of the following month, ALTV
shall make an additional payment to Digital equal to 5 %
of said overdue monthly payment at the time of and in
addition to the monthly payment as a late payment
charge.
5. Use
5.1 ALTV specifically agrees that its right to use each of the
Premises is limited to each of the Premises and the Common
Areas in its existing condition "as-is" and "where-is" and
acknowledges that, in entering into this Agreement, ALTV does
not rely on, and, Digital does not make, any express or implied
representations or warranties as to any matters including,
without limitation, any characteristics of any of the Sites,
Facilities or the Premises, the suitability of any of the
Premises for ALTV's intended use, or the compliance or
noncompliance of the Premises or the Sites, the Facilities or
any use thereof with any Applicable Laws (as defined below).
ALTV has inspected the Premises and has found it to be in
satisfactory condition.
5.2 ALTV shall not make any alterations or improvements to any of
the Premises whatsoever, including without limitation, placing
any sign or identification of any kind whatsoever in or on any
of the Facilities or Sites, without the prior written consent
of Digital, which may be withheld in Digital's sole discretion,
except that Digital's consent shall not be unreasonably
withheld as to alterations or improvements that are not
material and that are not inconsistent with Digital's local
space allocation policies and interior decor. Failure of
Digital's landlord to consent to or approve the alterations or
improvements, where required by an underlying lease, shall be a
reasonable grounds for Digital to withhold consent under this
Section and Section 6.2.
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<PAGE> 5
5.3 Digital reserves the right, at any time, and from time to time,
to make alterations, additions, repairs or improvements to or
in, or to decrease the size or area of all or any part of any
Site or Facility, including, without limitation, building
partitions around, and establishing separate access to, any of
the Premises for security purposes, provided that any such
alterations shall not materially and adversely affect ALTV's
use of the Premises located therein and provided any
alterations to any Facility which would materially affect
ALTV's use of the Premises located therein shall not be made
without reasonable notice to ALTV.
5.4 ALTV shall use each of the Premises only for general office and
related incidental purposes for which they have historically
been used by Digital and for no other use or purpose
whatsoever. In no event shall ALTV use or permit the use of any
of the Premises or the Common Areas for any purpose or use that
is inconsistent with or interferes in any way with the conduct
of other business operations in the respective Facilities or on
the respective Sites.
5.5 ALTV shall be responsible for and shall supervise and control
all of its officers, agents, employees, licensees, contractors,
customers and other invitees (collectively "Personnel") so as
to assure compliance with all of the terms and conditions of
this Agreement. ALTV shall comply with all present and future
security measures implemented by Digital in each of the
Facilities, including, without limitation, prohibitions on
access to certain Facilities and Premises to competitors of
Digital. Without limitation of the foregoing, ALTV shall ensure
that no Personnel enter onto an space other than the Premises
or the Common Areas except with express written permission from
Digital and in the company of an authorized Digital employee,
that all Personnel comply with all Applicable Laws, and do not
conduct any illegal activities or activities resulting in any
nuisance or which may constitute harassment of any kind. All
Personnel shall be clearly identified as affiliated with ALTV
and ALTV shall require each person to comply with any
applicable dress code and wear appropriate name badges or other
easily visible identification approved by Digital at all times
while on any of the Premises, Facilities and/or Sites.
6. Maintenance; Compliance with Laws, Rules and Regulations; Hazardous
Materials
6.1 ALTV shall not cause or permit any damage to any of the
Premises, Facilities or Sites and shall maintain each of the
Premises in a clean, safe and sanitary condition, reasonable
wear and tear associated with normal office usage excluded.
ALTV shall not make any repairs to any of the Premises or
Facilities, without the prior written consent of Digital, which
may be withheld in Digital's sole discretion. If Digital
determines that it is
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<PAGE> 6
necessary to repair any damage attributable to ALTV's use, ALTV
shall reimburse Digital for the cost of all such repairs within
thirty (30) days of receipt by ALTV of an invoice from Digital.
ALTV shall not permit or suffer any injury, waste or nuisance
in or to any of the Premises, Facilities or Sites.
6.2 ALTV, at ALTV's sole cost and expense, shall comply in all
material respects with all Applicable Laws relating to ALTV's
use of each of the Premises provided that if structural or
capital improvements are required, either Digital or ALTV may
terminate this Agreement with respect to any such Premises.
Notwithstanding the foregoing, ALTV shall not make any physical
change to the Premises in order to comply with Applicable Laws
without the prior written consent of Digital, which may be
withheld in Digital's sole discretion, except that Digital's
consent shall not be unreasonably withheld as to changes that
are not structural or capital improvements and are required in
order to comply with Applicable Laws. If Digital consents to
any changes, at Digital's election, Digital may make such
changes. As used herein, the term "Applicable Laws" means all
applicable laws, codes, ordinances, rules and regulations of
all foreign, federal, state, county, municipal or other
governmental authorities or instrumentalities.
6.3 ALTV shall comply with the requirements of Digital's property,
liability and workers compensation insurance carriers and all
rules and regulations of the Facilities and/or the Sites as are
established from time to time including, without limitation,
all Facility and/or Site security procedures and requirements.
6.4 ALTV shall comply with all provisions of any underlying lease
for any of the Premises that are leased and not owned by
Digital, to the extent that such requirements are or have been
communicated to ALTV employees. Either party may request that
the other party enter into a specific sublease or similar
arrangement with respect to any Premises and the parties shall
negotiate in good faith such a sublease or other arrangement on
terms customary for the location of the Premises and consistent
with the terms of this Agreement. At the request of Digital,
ALTV shall use diligent efforts to satisfy the requirements of
any underlying lease with respect to ALTV's use of the
Premises, including, but not limited to, executing and
delivering such documents and taking such other actions as
reasonably may be required by the landlord under the terms of
any underlying lease (including terminating this Agreement with
respect to the Premises and vacating the Premises, provided
that Digital and ALTV will cooperate in good faith to vacate in
a manner so as to minimize any disruption of ALTV's business
and any cost to ALTV) or to prevent or cure a default
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<PAGE> 7
under any underlying lease, as well as any other actions
reasonably requested by Digital with respect thereto;
6.5 ALTV shall not cause or permit any Hazardous Material to be
used, stored, discharged, released or disposed of in, from,
under or about any of the Premises, Facilities or Sites. As
used herein, the term "Hazardous Material" means any substance
or material which has been determined by any applicable
foreign, federal, state, county, municipal or other
governmental authority to be capable of posing a risk of injury
to health or safety or damage to the environment. ALTV shall
not undertake any hazardous or other activity at any of the
Premises which could result in an increase in Digital's
insurance premiums.
7. Insurance; Condemnation.
7.1 At all times during ALTV's use of any of the Premises under
this Agreement, ALTV shall procure at its cost and expense and
keep in effect comprehensive general liability insurance,
including contractual liability with a combined single limit of
liability of not less than two million dollars ($2,000,000).
7.1.1 Such coverage shall be in a commercial or comprehensive
general liability form with at least the following
coverages: (i) including employees as additional
insureds, and (ii) providing for blanket contractual
coverage, broad form property damage coverage and
products and completed operations coverage. Such
coverage may be provided by a combination of primary and
umbrella liability coverage.
7.1.2 Such insurance shall be issued by financially reputable
insurance companies acceptable to Digital, shall name
Digital as an additional insured, shall include
contractual liability coverage insuring the liability
assumed hereunder by ALTV, shall provide that it is
primary insurance and not excess over or contributory
with any other valid, existing and applicable insurance
covering the same loss carried by Digital or any other
party, shall provide for severability of interests,
shall further provide that an act or omission of one of
the named insureds which would void or otherwise reduce
coverage shall not reduce or void the coverage as to any
insured, shall afford coverage for all claims based on
acts, omissions, injury or damage which occurred or
arose (or the onset of which occurred or arose) in whole
or in part during the policy period, and shall provide
that Digital will receive thirty (30) days' written
notice from the insurer prior to any cancellation or
change of coverage.
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<PAGE> 8
7.2 ALTV shall also maintain Worker's Compensation Insurance in the
amounts and coverages required under worker's compensation,
disability and similar employee benefit laws applicable to the
states and countries where each of the Premises is located and
Employer's Liability Insurance, with limits customary to the
state or country where each Premises is located.
7.3 ALTV shall maintain automobile liability insurance in the
amounts and coverages required by the states and countries
where each of the Premises is located, with limits customary to
the state or country where each Premises is located, for bodily
injury and property damage combined. Coverage shall include
owned (if any), leased (if any) and non-owned, hired
automobiles.
7.4 ALTV shall bear all risk to its property at each of the
Premises and may maintain at its sole expense such fire and
other property insurance on the property of ALTV in the
Facilities as it deems desirable for its protection. If any of
the Premises or Facilities shall be damaged or destroyed by
fire or any other casualty howsoever caused or by any other
cause whatsoever, ALTV agrees to give prompt notice thereof to
Digital. Digital shall have no obligation to ALTV whatsoever to
repair any damage done to the Premises or the Facilities or
replace any property of ALTV located therein. If a casualty
occurs such that the underlying lease with respect to any
Premises is terminated, by Digital or the landlord, or Digital
otherwise elects to cease using the Facility as a result of the
casualty, the provisions of Section 1. 2 above shall apply, and
this Agreement shall terminate with respect to such Premises.
If a casualty occurs such that ALTV's use of a Premises is
materially adversely affected and the damage is not repaired
within one hundred twenty (120) days, ALTV shall have the right
to terminate this Agreement with respect to such Premises by
written notice to Digital within thirty (30) days thereafter.
7.6 If all or any part of any of the Premises or Facilities or any
material portion of any of the Sites shall be taken as a result
of the exercise of the power of eminent domain or any transfer
in lieu thereof, this Agreement shall terminate as to the
property so taken as of the date of taking, and, in the case of
a partial taking, either Digital or ALTV shall have the right
to terminate this Agreement with respect to such Premises by
written notice to the other within thirty (30) days after such
date.
7.6.1 In the event of any taking, Digital shall be entitled to
any and all compensation, damages, income, rent, awards,
or any interest herein whatsoever which may be paid or
made in connection therewith, and ALTV shall have no
claim against Digital for the value of any
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<PAGE> 9
unexpired term of this Agreement or otherwise; provided
that Digital shall have no claim to any portion of the
award that is specifically allocable to ALTV's
relocation expenses or the interruption of or damage to
ALTV's business.
7.6.2 In the event of a partial taking that does not result in
a termination of this Agreement, the amount payable
under Section 4 shall be proportionately reduced for
such Premises.
8. Utilities and Services.
8.1 During the use by ALTV of any Premises in accordance
with this Agreement, if Digital owns the Facility,
subject to force majeure (including any cause beyond
Digital's commercially reasonable control), Digital
shall furnish to ALTV such services and utilities as are
furnished currently at each such Premises, each in such
amounts, on average, as have been customarily furnished
to equivalent space in the respective Facilities, it
being understood and agreed that Digital shall not be
required to make any improvements to the respective
Facilities or the Facilities systems or provide any
greater services to the applicable Premises than the
greater of such services as (a) are currently furnished
or (b) Digital reasonably determines from time to time
to be necessary or appropriate for the conduct of
Digital's business in the respective Facilities. During
the use by ALTV of any Premises in accordance with this
Agreement, if Digital leases the Facility, Digital shall
use reasonable efforts to cause the landlord of the
leased Facility to furnish to or for the benefit of the
Premises the services and utilities that the landlord is
obligated to provide under the underlying lease, it
being understood and agreed that Digital shall not be
required to make any improvements or provide any
services to these Premises.
8.2 ALTV's rights, if any, with respect to computers or
networks available in the Facilities, shall be the
subject of a separate agreement. The foregoing
notwithstanding, ALTV shall not use any computer
terminal in any of the Facilities other than those owned
by ALTV unless with express written permission from
Digital and in the company of an authorized Digital
employee. Digital shall have no liability hereunder to
ALTV for any computer crash, system programming error,
virus or other hardware software malfunction of any kind
which results in ALTV being unable to use any computer,
network or system or which results in a loss of data or
the destruction or degradation of any programs or source
codes.
9. Termination.
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<PAGE> 10
9.1 ALTV shall have the right to terminate this Agreement with
respect to any of the Premises for any reason before the end of
the respective term, the termination to be effective thirty
(30) days after written notice of termination from ALTV is
received by Digital. In the event of any such termination of
this Agreement with respect to any such Premises by ALTV,
ALTV's obligations to make payments to Digital pursuant to
Section 4 hereof with respect to any such Premises which it
will no longer use as of the effective date of termination
shall cease as the last day of the month in which such
effective date of termination occurred.
9.2 This Agreement will be subject to early termination by either
ALTV or DIGITAL upon six months' written notice if Digital
ceases to own shares of Common Stock representing more than 50%
of the combined voting power of the Common Stock of ALTV.
9.3 If either ALTV or Digital shall default in the performance or
observance of any material covenant or condition under this
Agreement, the other party may give written notice to such
defaulting party of its intent to terminate this Agreement,
which notice shall be effective thirty (30) days after the date
of such notice if such default remains uncured at the end of
such thirty (30)-day period if the default by its nature can be
cured within thirty (30) days, or, if the default by its nature
cannot be cured within thirty (30) days, if such default
remains uncured at the end of such longer period as may be
required to cure the default, so long as the cure is commenced
within the thirty (30) day period and thereafter diligently
prosecuted to completion; provided, however, that if the notice
is from Digital, the maximum cure period shall not in any event
exceed whatever cure period may remain under the underlying
lease for Digital to prevent or cure a default. Upon such
termination, ALTV shall immediately vacate and surrender the
Premises to Digital in accordance with Section 9.6 below. In
the event of any such termination by ALTV, ALTV's right to
terminate shall be ALTV's sole and exclusive remedy in the
event of any default on the part of Digital hereunder, except
as follows. If Digital fails to provide services or utilities
to ALTV in a Facility owned by Digital pursuant to Section 8.1
or fails to use reasonable efforts to cause the landlord of a
leased Facility to furnish to or for the benefit of the
Premises the services and utilities that the landlord is
obligated to provide under the underlying lease pursuant to
Section 8. 1 and fails to cure any such default after notice
within the cure period provided for above, ALTV shall be
entitled to ALTV's actual damages for such default.
9.4 In addition to the foregoing rights to terminate, Digital shall
be entitled to exercise all other rights and remedies under
this Agreement and under Applicable Laws (which shall be
cumulative and not exclusive), specifically including the right
to summary dispossession of ALTV.
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<PAGE> 11
9.5 Digital shall be entitled to perform any obligation of ALTV
hereunder the performance of which is not commenced within five
(5) business days after notice from Digital or which obligation
is not thereafter diligently prosecuted to completion, and in
such event ALTV shall reimburse Digital for all actual costs
and expenses incurred by Digital in performing such obligation.
9.6 Upon the expiration or termination of this Agreement for
whatever reason with respect to any of the Premises, ALTV shall
surrender the applicable Premises to Digital in good order and
repair, free and clear of all occupancies, liens and
encumbrances and shall remove all of its personal property.
9.6.1 Any items of ALTV's personal property that remain on any
Premises after the expiration or termination of this
Agreement with respect to such Premises, may, at the
option of Digital, be deemed abandoned, and, in such
case, may either be retained by Digital as its property
or disposed of, without accountability, at ALTV's
expense in such manner as Digital may see fit.
9.6.2 ALTV shall not hold over beyond the expiration or
termination of this Agreement with respect to any
Premises without the express written consent of Digital.
9.7 ALTV's obligations under this Section 9 shall survive the
expiration or termination of this Agreement.
10. Release.
10.1 ALTV acknowledges and agrees that, anything set forth in this
Agreement to the contrary notwithstanding, other than the last
sentence of Section 9.3, Digital shall not be responsible for
or liable to ALTV and ALTV hereby waives and releases, to the
fullest extent permitted by Applicable Laws, all claims against
Digital for any injury, loss or damage to any person or
property in or about the Premises, the Facilities or the Sites
by or from any cause whatsoever including, without limitation,
acts or omissions of persons using adjoining premises or any
part of the Facilities or areas in the vicinity of the
Premises, the Facilities or the Sites; theft; burst, stopped or
leaking water, gas, sewer or steam pipes; or interruption or
failure of utility or other services for, or existence of, gas,
fire, oil or electricity in, on or about the Premises, the
Facilities or the Sites. Further notwithstanding anything to
the contrary set forth in this Agreement, in no event shall
Digital be liable for any consequential damages, including
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<PAGE> 12
without limitation, lost profits, lost opportunity or
interference with ALTV's business, arising out of a breach of
this Agreement.
10.2 ALTV agrees to indemnify, protect and defend Digital against,
and save and hold Digital harmless from, any and all losses,
costs, liabilities, claims, damages and expenses, including,
without limitation, reasonable attorneys' fees and expenses,
incurred in connection with any injury, loss or damage to any
person or property arising from the use or occupancy or manner
of use or occupancy of any of the Premises, the Facilities or
the Sites by ALTV or ALTV's contractors, agents, servants,
employees, visitors or licensees. This Section 10.2 shall
survive expiration or termination of this Agreement.
12. Taxes. ALTV acknowledges and agrees that real and personal property
taxes relating to the Premises will be paid as provided in the
Services Agreement. ALTV shall pay all such taxes attributable to
the Premises in accordance with the terms and conditions of the
Services Agreement immediately upon request by ALTV, of a written
statement from Digital detailing the cost thereof.
13. Miscellaneous.
13.1 This Agreement may not be amended except by an instrument in
writing, executed by Digital and ALTV.
13.2 Whenever this Agreement requires or permits consent or
agreement by or on behalf of any party hereto, such consent or
agreement shall be given in writing.
13.3 ALTV's rights under this Agreement are personal to ALTV and
ALTV shall not assign, sublet or otherwise transfer any right
or interest under this Agreement to any other party. Subject
to the foregoing, this Agreement and all of the provisions
hereof shall be binding upon and inure to the benefit of, and
be enforceable by, the parties hereto and their respective
heirs, administrators, executors, successors, and permitted
assigns.
13.4 This Agreement constitutes the entire agreement and
understanding between the parties hereto with respect to the
subject matter hereof and supersede all prior agreements,
understandings or representations pertaining to the subject
matter hereof.
13.5 Any notice hereunder by either party shall be given in writing
and shall be sufficient in all respects if (i) delivered
personally, (ii) mailed by registered or certified mail,
return receipt requested and postage prepaid, (iii) sent via a
nationally recognized overnight courier service, or (iv) sent
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<PAGE> 13
via facsimile confirmed in writing to the recipient, in each
case to the other party at its address set forth below or at
such other address designated by notice in the manner provided
in this subparagraph. Such notice shall be deemed to have been
received upon the date of actual delivery if personally
delivered or, in the case of mailing, five (5) business days
after deposit in the mail, or, in the case of overnight
courier, one business day after delivered to such courier, or,
in the case of facsimile transmission, when confirmed by the
facsimile machine report.
If to Digital: Digital Equipment Corporation
111 Powdermill Road
Maynard, MA 01754-1418
Attn: Paul J. Milbury, Treasurer
Tel: (508) 493-7824
Fax: (508) 496-7419
EMAIL: [email protected]
with a copy to: Digital Equipment Corporation
Law Department
111 Powdermill Road
Maynard, MA 01754-1418
Attn: Gail S. Mann, Vice President,
Assistant General Counsel, Secretary
and Clerk
Tel: (508) 493-2206
Fax: (508) 493-7310
EMAIL: [email protected]
If to ALTV: AltaVista Internet Software, Inc.
30 Porter Road
Littleton, MA 01460
Attn:
Tel:
Fax:
EMAIL:
with a copy to:
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<PAGE> 14
13.6 This Agreement shall be governed by, and construed and
enforced in accordance with the laws of the Commonwealth of
Massachusetts, without regard for the conflict of laws
provisions thereof.
13.7 Neither party is hereby designated or appointed an agent for
the other and neither party shall have any authority, either
express or implied, to assume any agency or obligation on
behalf of or in the name of the other.
13.9 If a jurisdiction outside the United States in which a
Premises is located requires that this Agreement be registered
or filed with any governmental office in order for this
Agreement to be enforceable against Digital in that
jurisdiction, Digital shall not unreasonably refuse to
cooperate with such filing or registration, provided that the
registration or filing will not give rise to a default under
an underlying lease or unreasonably increase the likelihood of
an exercise of remedies for default under an underlying lease
or create a cloud on title to any Site.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE> 15
IN WITNESS WHEREOF, this Facilities Agreement has been duly executed
and delivered by the duly authorized officers of Digital and ALTV under seal as
of the date first above written.
DIGITAL EQUIPMENT CORPORATION
By: ________________________________
Name:
Title:
ALTAVISTA INTERNET SOFTWARE, INC.
By: ______________________________________
Name:
Title:
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<PAGE> 16
Schedule I
Facility
30 Porter Road
Littleton MA
1825 South Grant Avenue
San Mateo, CA
130 Lytton Avenue
Palo Alto, CA
529 Bryant Avenue
Palo Alto, CA
250 University Avenue
Palo Alto, CA
Digital Equipment Co. Limited
Digital Park
Imperial Way
Worton Grange
Reading, Berkshire
RG2 OTE United Kingdom
Digital Equipment Corporation
Research and Development Centre
Burnet Place
Bond Unviersity
Quennsland, Australia 4229
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<PAGE> 1
EXHIBIT 10.3
FORM OF
TAX SHARING AGREEMENT
This Tax Sharing Agreement ("Agreement") is entered into as of
____________, 1996 by and between AltaVista Internet Software, Inc., a Delaware
corporation ("AltaVista"), and Digital Equipment Corporation, a Massachusetts
corporation ("Digital").
RECITALS:
WHEREAS, Digital is the common parent corporation of an affiliated
group of corporations within the meaning of Section 1504(a) of the Internal
Revenue Code of 1986, as amended (the "Code");
WHEREAS, Digital beneficially owns all of the issued and outstanding
AltaVista Class B Common Stock, par value $.01 per share, and AltaVista is a
member of Digital's consolidated group for federal income tax purposes;
WHEREAS, the parties are contemplating the possibility that AltaVista
will issue shares of Class A Common Stock, $.01 par value per share, to the
public in an offering (the "Initial Public Offering") registered under the
Securities Act of 1933, as amended;
WHEREAS, the Digital Group (as defined below) has filed and intends to
file consolidated federal income tax returns as permitted by Section 1501 of the
Code, and certain members of the AltaVista Group (as defined below) and certain
members of the Digital Sub-Group (as defined below) have filed and intend to
file returns relating to Combined State Taxes (as defined below);
WHEREAS, AltaVista desires to engage Digital to provide certain
services, and Digital desires to provide certain services, relating to federal,
state, local and foreign taxes; and
WHEREAS, Digital and AltaVista desire to agree upon a method for
determining the financial consequences to each party and their subsidiaries
resulting from the filing of a consolidated federal income tax return and the
filing of returns relating to Combined State Taxes.
<PAGE> 2
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AGREEMENTS:
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Digital and AltaVista, for
themselves, their successors, and assigns, hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. For purposes of this Agreement, the terms set forth
below shall have the following meanings.
"AltaVista Combined State Tax Liability" shall mean, with
respect to any taxable year and any jurisdiction, an amount of Combined State
Taxes determined in accordance with the principles set forth in the definition
of AltaVista Federal Tax Liability; provided, however, that the total amount of
the AltaVista Combined State Tax Liability shall also include, to the extent not
included after application of the principles set forth in the definition of
AltaVista Federal Tax Liability, any actual income, franchise or similar state
or local tax liability (a "State Liability") owed in a jurisdiction (a "Combined
Jurisdiction") in which a member of the AltaVista Group files tax returns with a
member of the Digital Sub-Group, on a consolidated, combined or unitary basis,
to the extent the Combined State Tax liability exceeds the amount of such
liability that would have been owed had no member of the AltaVista Group been
included in such returns.
"AltaVista Federal Tax Liability" shall mean, with respect to
any taxable year, the sum of the AltaVista Group's Federal Tax liability and any
interest, penalties and other additions to such taxes for such taxable year,
computed as if the AltaVista Group were not and never were part of the Digital
Group, but rather were a separate affiliated group of corporations filing a
consolidated federal income tax return pursuant to Section 1501 of the Code;
provided, however, that transactions with members of the Digital Sub-Group shall
be reflected according to the provisions of the consolidated return regulations
promulgated under the Code governing intercompany transactions, and that
Deconsolidation will trigger any deferred amounts, excess loss accounts or
similar items. Such computation shall be made (A) without regard to the income,
deductions (including net operating loss and capital loss deductions) and
credits in any year of any member of the Digital Group that is not a member of
the AltaVista Group, (B) by taking account of any Tax Asset of the AltaVista
Group other than (I) any such Tax Asset that produces a Tax Savings to Digital
in accordance with Section 2.1(c)(iii) hereof and (II) any such Tax Asset from a
tax period (or portion thereof) ending on or before the date of the Initial
Public Offering and arising solely due to treating the AltaVista Group as if it
were never part of Digital Group, (C) as though the highest rate of tax
specified in subsection (b) of Section 11 of the Code (or any other similar
rates applicable to specific types of income) were the only rate set forth in
that subsection, and with other similar adjustments as described in Section 1561
of the Code, (D) reflecting the positions, elections and accounting methods used
by Digital in preparing the consolidated federal income tax return for the
Digital Group and (E) by not permitting the AltaVista Group any compensation
deductions arising in respect of the issuance by Digital of Digital stock to any
employee of the AltaVista Group.
<PAGE> 3
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"AltaVista Group" shall mean, at any time, AltaVista and any
direct or indirect corporate subsidiaries of AltaVista that would be eligible to
join with AltaVista, with respect to Federal Taxes, in the filing of a
consolidated federal income tax return and, with respect to Combined State
Taxes, in the filing of a consolidated, combined or unitary income or franchise
tax return if AltaVista were not consolidated, combined or filing on a unitary
basis with any member of Digital Sub-Group.
"Combined State Tax" means, with respect to each state or
local taxing jurisdiction, any income, franchise or similar tax payable to such
state or local taxing jurisdiction in which a member of the AltaVista Group
files tax returns with a member of the Digital Sub-Group, on a consolidated,
combined or unitary basis for purposes of such income or franchise tax.
"Deconsolidation" means any event pursuant to which AltaVista
ceases to be a subsidiary corporation includible in a consolidated tax return of
the Digital Group for Federal Tax purposes.
"Digital Group" shall mean, at any time, Digital and each
direct and indirect corporate subsidiary eligible to join with Digital in the
filing of a consolidated federal income tax return.
"Digital Sub-Group" shall mean, at any time, Digital and each
of its direct and indirect corporate subsidiaries other than those subsidiaries
that are members of the AltaVista Group.
"Federal Tax" means any tax imposed under Subtitle A of the
Code.
"Final Determination" shall mean (i) with respect to Federal
Taxes, a "determination" as defined in Section 1313(a) of the Code or execution
of an Internal Revenue Service Form 870AD and, with respect to taxes other than
Federal Taxes, any final determination of liability in respect of a tax that,
under applicable law, is not subject to further appeal, review or modification
through proceedings or otherwise, (ii) any final disposition of a tax issue by
reason of the expiration of a statute of limitations or (iii) the payment of tax
by Digital with respect to any item disallowed or adjusted by any taxing
authority where Digital determines in good faith that no action should be taken
to recoup such payment.
"Post-Deconsolidation Tax Period" means (i) any tax period
beginning and ending after the date of Deconsolidation and (ii) with respect to
a tax period that begins before and ends after the date of Deconsolidation, such
portion of the tax period that commences on the day immediately after the date
of Deconsolidation.
"Pre-Deconsolidation Tax Period" means (i) any tax period
beginning and ending before or on the date of Deconsolidation and (ii) with
respect to a period that begins before and ends after the date of
Deconsolidation, such portion of the tax period ending on and including the date
of Deconsolidation.
<PAGE> 4
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"Tax Asset" means any net operating loss, net capital loss,
investment tax credit, foreign tax credit, charitable deduction or any other
deduction, credit or tax attribute which could reduce taxes (including, without
limitation, deductions and credits related to alternative minimum taxes).
"Tax Savings" means the actual amount of reduction in taxes
payable (including refunds actually received) to a taxing authority with respect
to a tax period as a result of a Tax Asset as compared to the taxes that would
have been payable to a taxing authority for that tax period in the absence of
such Tax Asset; provided, however, Tax Savings shall not include any reduction
in alternative minimum tax.
1.2 Internal References. Unless the context indicates otherwise,
references to Articles, Sections and paragraphs shall refer to the corresponding
articles, sections and paragraphs in this Agreement and references to the
parties shall mean the parties to this Agreement.
ARTICLE II
TAX SHARING
2.1 Tax Sharing. (a) General. For each taxable year of the Digital
Group during which income, loss, or credit against tax of the AltaVista Group
are includible in the consolidated Federal Tax return of the Digital Group,
AltaVista shall pay to Digital an amount equal to the AltaVista Federal Tax
Liability and for each taxable period during which income, loss or credit
against tax of any member of the AltaVista Group are includible in a return
relating to a Combined State Tax, AltaVista shall pay Digital an amount equal to
the AltaVista Combined State Tax Liability for such taxable period, each as
shown on the Pro Forma Returns (as defined in paragraph (c) below).
(b) Estimated Payments. For each taxable period, Digital may
determine the amount of the estimated tax installment of the AltaVista Federal
Tax Liability (corresponding to Digital's estimated Federal Tax installment), as
determined under the principles of Section 2.1(a) of this Agreement. If Digital
makes such a determination, AltaVista shall, within five (5) days of receipt of
such determination, pay to Digital the amount so determined. For each taxable
period, Digital may determine under provisions of applicable law the amount of
the estimated tax installment of the AltaVista Combined State Tax Liability
(corresponding to the relevant estimated Combined State Tax installment), as
determined under the principles of Section 2.1(a) of this Agreement. If Digital
makes such a determination, AltaVista shall, within five (5) days of receipt of
such determination, pay to Digital the amount so determined.
(c) Payment of Taxes at Year-End.
(i) Within thirty (30) days after the date the
Digital Group's consolidated Federal Tax return is filed, Digital shall
make available to AltaVista a pro forma Federal Tax return (a "Pro
Forma Federal Return") of the AltaVista Group reflecting the AltaVista
Federal Tax Liability. Within thirty (30) days after the date the last
Combined State Tax return is filed for the fiscal year to which such
returns relate,
<PAGE> 5
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Digital shall make available to AltaVista the relevant pro forma
Combined State Tax Returns (each a "Pro Forma Combined State Return"
and together with the Pro Forma Federal Return, the "Pro Forma
Returns") of the AltaVista Group reflecting the relevant AltaVista
Combined State Tax Liability. The Pro Forma Returns shall be prepared
in good faith in a manner generally consistent with past practice.
(ii) Within five (5) days of receipt of the Pro Forma
Federal Return, AltaVista shall pay to Digital, or Digital shall pay to
AltaVista, as appropriate, an amount equal to the difference, if any,
between the AltaVista Federal Tax Liability reflected on the Pro Forma
Federal Return for such year and the aggregate amount of the estimated
installments of the AltaVista Federal Tax Liability for such year made
pursuant to Section 2.1(b). Within five (5) days of receipt of the Pro
Forma Combined State Return, AltaVista shall pay to Digital, or Digital
shall pay to AltaVista, as appropriate, an amount equal to the
difference, if any, between the AltaVista Combined State Tax Liability
reflected on the relevant Pro Forma Combined State Tax Return and the
aggregate amount of the estimated installments paid with respect to the
corresponding AltaVista Combined State Tax Liability pursuant to
Section 2.1(b).
(iii) If a Pro Forma Return reflects a Tax Asset
that, under applicable law and consistent with this Agreement, produces
a Tax Savings for any member of the Digital Sub-Group, Digital shall
pay to AltaVista an amount equal to the Tax Saving attributable to such
Tax Asset, if and when realized by Digital, and the future Pro Forma
Returns of the AltaVista Group shall be adjusted to reflect such use.
(iv) In the event that Digital makes a cash deposit
with a taxing authority in order to stop the running of interest or
makes a payment of tax and correspondingly takes action to recoup such
payment (such as suing for a refund), AltaVista shall pay to Digital an
amount equal to AltaVista's share of the amount so deposited or paid
(calculated in a manner consistent with the determinations provided in
this Article 2). Upon receipt by Digital of a refund of any amounts
paid by it in respect of which AltaVista shall have advanced an amount
hereunder, Digital shall pay to AltaVista the amount of such refund,
together with any interest received by it on such refund. If and to the
extent that any claim for refund or contest based thereupon shall be
unsuccessful, the payment by AltaVista under Section 2.1(c)(iv) shall
be credited toward AltaVista's obligations under this Section 2(c)(iv)
and any other payment obligation of AltaVista under Section 2(d) below.
(d) Treatment of Adjustments. If any adjustment is made in a
Federal Tax return of the Digital Group or in a return relating to a Combined
State Tax, after the filing thereof, in which income or loss of the AltaVista
Group (or any member thereof) is included, then at the time of a Final
Determination of the adjustment, AltaVista shall pay to Digital or Digital shall
pay to AltaVista, as the case may be, the difference between all payments
actually made under Section 2.1 with respect to the taxable year or period
covered by such tax return and all payments that would have been made under
Section 2.1 taking such adjustment into account, together with any penalties
actually paid and interest for each day until the date of Final
<PAGE> 6
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Determination calculated at the rate determined, in the case of a payment by
AltaVista, under Section 6621(a)(2) of the Code and, in the case of a payment by
Digital, under Section 6621(a)(1) of the Code.
(e) Preparation of Returns and Contests. So long as the
Digital Group elects to file (i) consolidated Federal Tax returns as permitted
by Section 1501 of the Code or (ii) any Combined State Tax return as permitted
by applicable state law, AltaVista shall consent to the filing of such returns
with Digital. Digital shall prepare and file such returns and any other returns,
documents or statements required to be filed with the Internal Revenue Service
with respect to the determination of the Federal Tax liability of the Digital
Group and with the appropriate taxing authorities with respect to the
determination of a Combined State Tax liability. With respect to such return
preparation, Digital shall act in good faith with regard to all members included
in an applicable return. Digital shall have the right with respect to any
consolidated Federal Tax returns or returns relating to a Combined State Tax
that it has filed or will file to determine in good faith (i) the manner in
which such returns, documents or statements shall be prepared and filed,
including, without limitation, the manner in which any item of income, gain,
loss, deduction or credit shall be reported, (ii) whether any extensions should
be requested, and (iii) the elections that will be made by any member of the
Digital Group. In addition, Digital shall have the right, in good faith, to (i)
contest, compromise or settle any adjustment or deficiency proposed, asserted or
assessed as a result of any audit of any Federal Tax return or return relating
to a Combined State Tax, (ii) file, prosecute, compromise or settle any claim
for refund, and (iii) determine whether any refunds shall be received by way of
refund or credited against tax liabilities. In addition, Digital shall prepare
and file ruling requests, and take all other actions on behalf of any member of
the Digital Group that it deems appropriate in providing tax services to the
members of the Digital Group. Digital shall, to the extent such information is
available, advise AltaVista of any significant AltaVista tax issue being
contested by the federal, state, local or other relevant taxing authorities, and
shall keep AltaVista informed with respect to any contest, compromise or
settlement thereof.
(f) Foreign Tax Returns. AltaVista shall not be required to
consent to the filing of any foreign tax return to be filed on a combined,
consolidated or unitary basis with the Digital Sub-Group unless and until this
Agreement is modified to take into account the allocation of such foreign tax
liability between the Digital Sub-Group and the AltaVista Group. The allocation
of such foreign tax liability shall be in accordance with the principles set
forth in this Agreement.
2.2 Reimbursement for Certain Services. Digital shall provide services
in connection with this Agreement, including but not limited to, (i) those
services relating to the preparation of returns (including Pro Forma Returns)
described in paragraphs 2.1(b), 2.1(c) and 2.1(e) and (ii) services relating to
the other activities described in paragraph 2.1(e). As compensation for these
services, AltaVista shall pay Digital a fee calculated on a basis such that
Digital is reimbursed for all direct and indirect costs and expenses incurred
with respect to AltaVista's share of the overall costs and expenses incurred by
Digital with respect to tax related services. Digital shall calculate the fee
payable, invoice AltaVista for the fee and AltaVista will pay the
<PAGE> 7
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invoiced amount in a manner consistent with the invoice and payment procedures
provided for in the intercompany Services Agreement.
2.3 Additional Services. Digital will provide the tax services
described in this Article II with respect to all of the separate state, local
and foreign taxes of any members of the AltaVista Group that do not relate to
consolidated Federal Taxes or Combined State Taxes. Digital will provide these
services in a manner consistent with the principles contained in Article II and
be compensated in the same manner as described in Section 2.2.
ARTICLE III
POST-DECONSOLIDATION
3.1. Additional Rights and Liabilities Post-Deconsolidation.
(a) AltaVista covenants that on or after a Deconsolidation it
will not, nor will it cause or permit any member of the AltaVista Group to make
or change any tax election, change any accounting method, amend any tax return
or take any tax position on any tax return, take any other action, omit to take
any action or enter into any transaction that results in any increased tax
liability or reduction of any Tax Asset of the Digital Group or any member
thereof (immediately after the Deconsolidation) in respect of any
Pre-Deconsolidation Tax Period, without first obtaining the written consent of
an authorized representative of Digital.
(b) In the event of a Deconsolidation, Digital may, at its
option, elect, and AltaVista shall join Digital in electing (if necessary), (i)
to reattribute to itself certain Tax Assets of the AltaVista Group pursuant to
Treasury Regulations Section 1.1502-20(g) and, if Digital makes such election,
AltaVista shall comply with the requirements of Treasury Regulations Section
1.1502-20(g)(5)), and (ii) to ratably allocate items (other than extraordinary
items) of the AltaVista Group in accordance with relevant provisions of the
Treasury Regulations Section 1.1502-76.
(c) Digital agrees to pay to AltaVista the Tax Savings
received by the Digital Group from the use in any Pre-Deconsolidation Tax Period
of a carryback of any Tax Asset of the AltaVista Group from a
Post-Deconsolidation Tax Period, if and when such Tax Savings are realized.
(d) Any amounts owed by Digital to AltaVista pursuant to
Section 3.1(c) shall be paid within 90 days of the filing of the applicable tax
return for the taxable year in which such Tax Savings are realized. If,
subsequent to the payment by Digital to AltaVista of any such amount, there
shall be (A) a Final Determination which results in a disallowance or a
reduction of any Tax Asset of AltaVista or (B) a reduction in the amount of the
Tax Savings realized by the Digital Group as a result of any other Tax Asset of
Digital that arises in a Post-Deconsolidation Tax Period, AltaVista shall repay
to Digital, within 90 days of such event described in (A) or (B) (an "Event" or,
collectively, the "Events") any amount which would not have been payable to
AltaVista pursuant to this Section 3.1 had the amount of the Tax Savings
calculated in Sections
<PAGE> 8
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3.1(c) been determined in light of the Events. AltaVista shall hold Digital
harmless for any penalty or interest payable by any member of the Digital Group,
as a result of any Event. Any such amount shall be paid by AltaVista to Digital
within 90 days of the payment by Digital or any member of the Digital Group of
any such interest or penalty. Nothing in this Agreement shall require Digital to
file a claim for refund of Federal Taxes or Combined State Taxes which Digital,
in its sole discretion, determines lacks substantial authority, as defined in
the Code and the regulations thereunder.
ARTICLE IV
MISCELLANEOUS
4.1. Limitation of Liability. Neither Digital nor AltaVista shall be
liable to the other for any special, indirect, incidental or consequential
damages of the other arising in connection with this Agreement; provided,
however, that in the event that (i) the Internal Revenue Service (or other
competent taxing authority) asserts a tax liability directly against AltaVista
or any member of the AltaVista Group, pursuant to its authority under Treasury
Regulation Section 1.1502-6 (or other similar provision of state or local law),
(ii) AltaVista has made all payments and performed all of its obligations
otherwise required of it under this Agreement with respect to such liability or
otherwise, and (iii) Digital was given the opportunity to contest, settle or
compromise such liability pursuant to Section 2.1(e) of this Agreement, Digital
shall indemnify AltaVista for actual payments made after a Final Determination
with respect to such liability to the extent that such payments exceed
AltaVista's share of such liability (calculated in a manner that avoids
double-counting under this Agreement), such share determined in accordance with
Article II of this Agreement.
4.2. Subsidiaries. (a) Performance. Digital agrees and acknowledges
that Digital shall be responsible for the performance of the obligations of each
member of the Digital Sub-Group hereunder applicable to such subsidiary.
AltaVista agrees and acknowledges that AltaVista shall be responsible for the
performance by each member of the AltaVista Group of the obligations hereunder
applicable to such member.
(b) Application to Present and Future Subsidiaries. This
Agreement is being entered into by Digital and AltaVista on behalf of themselves
and each member of the Digital Sub-Group and the AltaVista Group, respectively.
This Agreement shall constitute a direct obligation of each such member and
shall be deemed to have been readopted and affirmed on behalf of any corporation
which becomes a member of the Digital Sub-Group or the AltaVista Group in the
future.
4.3. Cooperation. Digital and AltaVista shall cooperate fully in the
implementation of this Agreement, including but not limited to, providing
promptly to the requesting party such assistance and documentation as may be
reasonably requested by such party in connection with any of the activities
described in Article II or Article III. In addition, Digital and AltaVista shall
retain all relevant tax records for relevant open periods in accordance with
past practice.
<PAGE> 9
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4.4 Agent. Each member of the AltaVista Group hereby irrevocably
appoints Digital as its agent and attorney-in-fact to take any action as Digital
may deem necessary or appropriate to effect Section 2.1 including, without
limitation, those actions specified in Treasury Regulation Section 1.1502-77(a).
4.5. Amendments. This Agreement may not be amended or terminated
orally, but only by a writing duly executed by or on behalf of the parties
hereto. Any such amendment shall be validly and sufficiently authorized for
purposes of this Agreement if it is signed on behalf of Digital and AltaVista by
any of their respective presidents or vice presidents.
4.6. Term. Subject to Article III, this Agreement shall expire upon the
date of Deconsolidation with respect to all Post-Deconsolidation periods;
provided, however, that all rights and obligations arising hereunder with
respect to a Pre-Deconsolidation Tax Period shall survive until they are fully
effectuated or performed and, provided, further, that notwithstanding anything
in this Agreement to the contrary, all rights and obligations arising hereunder
with respect to a Post-Deconsolidation Tax Period shall remain in effect and its
provisions shall survive for the full period of all applicable statutes of
limitation (giving effect to any extension, waiver or mitigation thereof).
4.7. Effective Date. This Agreement shall be effective as of the date
that the Initial Public Offering is consummated ("effective date"), shall govern
all open taxable periods and shall supersede all prior agreements as to the
allocation of federal income tax liability between the parties to this Agreement
for all such open taxable years and for all subsequent taxable years. As of the
effective date, all such prior agreements are hereby canceled with respect to
members of the AltaVista Group.
4.8. Severability. If any provision of this Agreement or the
application of any such provision to any party or circumstances shall be
determined by any court of competent jurisdiction to be invalid, illegal or
unenforceable to any extent, the remainder of this Agreement or such provision
or the application of such provision to such party or circumstances, other than
those to which it is so determined to be invalid, illegal or unenforceable,
shall remain in full force and effect to the fullest extent permitted by law and
shall not be affected thereby, unless such a construction would be unreasonable.
4.9. Notices. All notices and other communications required or
permitted hereunder shall be in writing, shall be deemed duly given upon actual
receipt, and shall be delivered (a) in person, (b) by registered or certified
mail, postage prepaid, return receipt requested, or (c) by facsimile or other
generally accepted means of electronic transmission (provided that a copy of any
notice delivered pursuant to this clause (c) shall also be sent pursuant to
clause (b), addressed as follows:
(a) If to AltaVista, to:
AltaVista Internet Software, Inc.
30 Porter Road
<PAGE> 10
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Littleton, MA 01460
Attention: Chief Financial Officer
Fax: 617-
(b) If to Digital, to:
Digital Equipment Corporation
111 Powdermill Road
Maynard, MA 01754-1418
Attention: Treasurer
Fax: 617-
or to such other addresses or telecopy numbers as may be specified by like
notice to the other parties.
4.10. Further Assurances. Digital and AltaVista shall execute,
acknowledge and deliver, or cause to be executed, acknowledged and delivered,
such instruments and take such other action as may be necessary or advisable to
carry out their obligations under this Agreement and under any exhibit, document
or other instrument delivered pursuant hereto.
4.11 Entire Agreement. This Agreement constitutes the entire
understanding of the parties hereto with respect to the subject matter hereof.
4.12. Successors. This agreement shall be binding on and inure to the
benefit of any successor, by merger, acquisition of assets or otherwise, to any
of the parties hereto (including but not limited to any successor of Digital and
AltaVista succeeding to the tax attributes of such party under Section 381 of
the Code), to the same extent as if such successor had been an original party
hereto.
4.13. Authorization, etc. Each of the parties hereto hereby represents
and warrants that it has the power and authority to execute, deliver and perform
this Agreement, that this Agreement has been duly authorized by all necessary
corporate action on the part of such party that this Agreement constitutes a
legal, valid and binding obligation of each such party and that the execution,
delivery and performance of this Agreement by such party does not contravene or
conflict with any provision of law or of its charter or bylaws or any agreement,
instrument or order binding on such party.
4.14. Section Captions. Section captions used in this Agreement are for
convenience and reference only and shall not affect the construction of this
Agreement.
4.15. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS WITHOUT GIVING
EFFECT TO LAWS AND PRINCIPLES RELATING TO CONFLICTS OF LAW.
<PAGE> 11
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4.16. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same Agreement.
IN WITNESS WHEREOF, each of the parties hereto has caused this
agreement to be executed by a duly authorized officer as of the date first above
written.
ALTAVISTA INTERNET SOFTWARE, INC.
By:________________________________
Name:
Title:
DIGITAL EQUIPMENT CORPORATION
By:________________________________
Name:
Title:
<PAGE> 1
EXHIBIT 10.4
FORM OF
CORPORATE AGREEMENT
This Corporate Agreement ("Agreement") is entered into as of ________,
1996, by and between AltaVista Internet Software, Inc., a Delaware corporation
("AltaVista"), and Digital Equipment Corporation, a Massachusetts corporation
("Digital").
RECITALS:
WHEREAS, Digital beneficially owns all of the issued and outstanding
AltaVista Class B Common Stock, par value $0.01 per share ("Class B Common
Stock"), and AltaVista is a member of Digital's "affiliated group" of
corporations ("Digital Group") for federal income tax and certain state tax
purposes;
WHEREAS, AltaVista issued shares of Class A Common Stock, $0.01 par
value per share ("Class A Common Stock"), to the public in an offering (the
"Initial Public Offering") registered under the Securities Act of 1933, as
amended; and
WHEREAS, the parties desires to enter into this Agreement to set forth
their agreement regarding (i) Digital's rights to purchase additional shares of
Class B Common Stock to permit Digital to maintain its then current percentage
ownership interest in AltaVista, (ii) Digital's rights to purchase shares of
non-voting classes of capital stock of AltaVista to permit Digital to own 80
percent of the number of shares of each class of such stock outstanding, (iii)
certain registration rights with respect to Class B Common Stock (and any other
securities issued in respect thereof or in exchange therefor) and (iv) certain
representations, warranties, covenants and agreements applicable to AltaVista so
long as it is a subsidiary of Digital.
AGREEMENTS:
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Digital and AltaVista, for
themselves, their successors and assigns, hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. As used in this Agreement, the following terms will
have the following meanings, applicable both to the singular and the plural
forms of the terms described:
"Affiliate" means, with respect to any Person, any Person
controlling, controlled by or under common control with such Person. For
purposes of this definition, "control" (including, with correlative meanings,
the terms "controlled by" and "under common control
<PAGE> 2
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with"), as applied to any Person, means the possession, directly or indirectly,
of the power to vote a majority of the securities having voting power for the
election of directors (or other Persons acting in similar capacities) of such
Person or otherwise to direct or cause the direction of the management and
policies of such Person, whether through the ownership of voting securities, by
contract or otherwise.
"Agreement" has the meaning ascribed thereto in the preamble
hereto, as such agreement may be amended and supplemented from time to time in
accordance with its terms.
"AltaVista" has the meaning ascribed thereto in the preamble
hereto.
"AltaVista Entities" means AltaVista and its Subsidiaries and
"AltaVista Entity" shall mean any of the AltaVista Entities.
"Applicable Stock" means at any time the (i) shares of Class B
Common Stock owned by the Digital Entities that were owned on the date hereof,
plus (ii) shares of Class B Common Stock owned by the Digital Entities that were
purchased by the Digital Entities pursuant to Article II of this Agreement, plus
(iii) shares of Common Stock that were issued to the Digital Entities in respect
of shares described in either clause (i) or clause (ii) in any reclassification,
share combination, share subdivision, share dividend, share exchange, merger,
consolidation or similar transaction or event.
"Class A Common Stock" has the meaning ascribed thereto in the
recitals to this Agreement.
"Class B Common Stock" has the meaning ascribed thereto in the
recitals to this Agreement.
"Class B Common Stock Option" has the meaning ascribed thereto
in Section 2.1(a).
"Class B Common Stock Option Notice" has the meaning ascribed
thereto in Section 2.2.
"Common Stock" means the Class B Common Stock, the Class A
Common Stock, any other class of AltaVista capital stock having the right to
vote generally for the election of directors or otherwise treated as a class of
stock entitled to vote for purposes of Section 368(c) of the Internal Revenue
Code of 1986, as amended (the "Code"), and, for so long as AltaVista continues
to be a subsidiary corporation includible in a consolidated federal income tax
return of the Digital Group, any other security of AltaVista treated as voting
stock for purposes of Section 1504 of the Code.
"Company Securities" has the meaning ascribed thereto in
Section 3.2(b).
"Digital" has the meaning ascribed thereto in the preamble
hereto.
<PAGE> 3
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"Digital Entities" means Digital and Subsidiaries of Digital
(other than AltaVista) and "Digital Entity" shall mean any of the Digital
Entities.
"Digital Group" has the meaning ascribed thereto in the
recitals to this Agreement.
"Digital Ownership Reduction" means any decrease at any time
in the Ownership Percentage to less than 50%.
"Digital Transferee" has the meaning ascribed thereto in
Section 3.9.
"Disadvantageous Condition" has the meaning ascribed thereto
in Section 3.1(a).
"Holder" means Digital and any Transferee.
"Holder Securities" has the meaning ascribed thereto in
Section 3.2(b).
"Initial Public Offering" has the meaning ascribed thereto in
the recitals to this Agreement.
"Initial Public Offering Date" means the date of completion of
the initial sale of Class A Common Stock in the Initial Public Offering.
"Issuance Event" has the meaning ascribed thereto in Section
2.2.
"Issuance Event Date" has the meaning ascribed thereto in
Section 2.2.
"Market Price" of any shares of Class A Common Stock on any
date means (i) the average of the last sale price of such shares on each of the
five trading days on the principal national securities exchange or automated
interdealer quotation system on which such shares are traded or (ii) if such
sale prices are unavailable or such shares are not so traded, the value of such
shares on such date determined in accordance with agreed-upon procedures
reasonably satisfactory to AltaVista and Digital.
"Nonvoting Stock" means any class of AltaVista capital stock
not having the right to vote generally for the election of directors or not
treated as a class of stock entitled to vote within the meaning of Section
368(c) of the Code, or, for so long as AltaVista continues to be a subsidiary
corporation includible in a consolidated federal income tax return of the
Digital Group, any other security of AltaVista treated as stock other than
voting stock for purposes of Section 1504 of the Code.
"Nonvoting Stock Option" has the meaning ascribed thereto in
Section 2.1(b).
"Other Holders" has the meaning ascribed thereto in Section
3.2(c).
<PAGE> 4
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"Other Securities" has the meaning ascribed thereto in Section
3.2.
"Ownership Percentage" means, at any time, the fraction,
expressed as a percentage and rounded to the next highest thousandth of a
percent, whose numerator is the aggregate value of the Applicable Stock and
whose denominator is the sum of the aggregate Value of the then outstanding
shares of Common Stock of AltaVista plus Repurchased Shares; provided, however,
that any shares of Common Stock issued by AltaVista in violation of its
obligations under Article II of this Agreement shall not be deemed outstanding
for the purpose of determining the Ownership Percentage. For purposes of this
definition and the definition of Repurchased Shares, "Value" means, with respect
to any share of stock, the value of such share determined by Digital under
principles applicable for purposes of Section 1504 of the Code.
"Person" means any individual, partnership, limited liability
company, joint venture, corporation, trust, unincorporated organization,
government (and any department or agency thereof) or other entity.
"Registrable Securities" means Class B Common Stock and any
stock or other securities into which or for which such Class B Common Stock may
hereafter be changed, converted or exchanged and any other shares or securities
issued to Holders of such Class B Common Stock (or such shares or other
securities into which or for which such shares are so changed, converted or
exchanged) upon any reclassification, share combination, share subdivision,
share dividend, share exchange, merger, consolidation or similar transaction or
event or pursuant to the Nonvoting Stock Option. As to any particular
Registrable Securities, such Registrable Securities shall cease to be
Registrable Securities when (i) a registration statement with respect to the
sale by the Holder thereof shall have been declared effective under the
Securities Act and such securities shall have been disposed of in accordance
with such registration statement, (ii) they shall have been sold in accordance
with Rule 144, (iii) subsequent disposition of them in any manner shall not
require registration or qualification of them under the Securities Act or any
state securities or blue sky law then in effect or (iv) they shall have ceased
to be outstanding.
"Registration Expenses" means any and all expenses incident to
performance of or compliance with any registration of securities pursuant to
Article III, including, without limitation, (i) the fees, disbursements and
expenses of AltaVista's counsel and accountants and the reasonable fees and
expenses of counsel selected by the Holders in accordance with this Agreement in
connection with the registration of the securities to be disposed of; (ii) all
expenses, including filing fees, in connection with the preparation, printing
and filing of the registration statement, any preliminary prospectus or final
prospectus, any other offering document and amendments and supplements thereto
and the mailing and delivering of copies thereof to any underwriters and
dealers; (iii) the cost of printing or producing any agreements among
underwriters, underwriting agreements, and blue sky or legal investment
memoranda, any selling agreements and any other documents in connection with the
offering, sale or delivery of the securities to be disposed of; (iv) all
expenses in connection with the qualification of the securities to be disposed
of for offering and sale under state securities laws, including the fees
<PAGE> 5
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and disbursements of counsel for the underwriters or the Holders of securities
in connection with such qualification and in connection with any blue sky and
legal investment surveys; (v) the filing fees incident to securing any required
review by the National Association of Securities Dealers, Inc. of the terms of
the sale of the securities to be disposed of; (vi) transfer agents' and
registrars' fees and expenses and the fees and expenses of any other agent or
trustee appointed in connection with such offering; (vii) all security engraving
and security printing expenses; (viii) all fees and expenses payable in
connection with the listing of the securities on any securities exchange or
automated interdealer quotation system or the rating of such securities; (ix)
any other fees and disbursements of underwriters customarily paid by the issuers
of securities, but excluding underwriting discounts and commissions and transfer
taxes, if any; and (x) other reasonable out-of-pocket expenses of Holders other
than legal fees and expenses referred to in clause (i) and (iv) above.
"Repurchased Shares" mean the aggregate Value of shares of
AltaVista's Common Stock that are, from and after the date hereof, repurchased
by AltaVista from its stockholders, less the aggregate Value of shares of Common
Stock (up to the aggregate Value so repurchased) that are re-issued from and
after the date hereof upon the exercise of stock options or otherwise.
"Rule 144" means Rule 144 (or any successor rule to similar
effect) promulgated under the Securities Act.
"Rule 415 Offering" means an offering on a delayed or
continuous basis pursuant to Rule 415 (or any successor rule to similar effect)
promulgated under the Securities Act.
"SEC" means the United States Securities and Exchange
Commission.
"Securities Act" means the Securities Act of 1933, as amended,
or any successor statute.
"Selling Holder" has the meaning ascribed thereto in Section
3.4(e).
"Subsidiary" means, as to any Person, any corporation,
association, limited liability company, partnership, joint venture or other
business entity of which more than 50% of the voting capital stock or other
voting ownership interests is owned or controlled directly or indirectly by such
Person or by one or more of the Subsidiaries of such Person or by a combination
thereof.
"Transferee" has the meaning ascribed thereto in Section 3.9.
1.2 Internal References. Unless the context indicates otherwise,
references to Articles, Sections and paragraphs shall refer to the corresponding
articles, sections and paragraphs in this Agreement, and references to the
parties shall mean the parties to this Agreement.
<PAGE> 6
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ARTICLE II
OPTIONS
2.1 Options. (a) AltaVista hereby grants to Digital, on the terms and
conditions set forth herein, a continuing right (the "Class B Common Stock
Option") to purchase from AltaVista, at the times set forth herein, such number
of shares of Class B Common Stock as is necessary to allow the Digital Entities
to maintain the then-current Ownership Percentage. The Class B Common Stock
Option shall be assignable, in whole or in part and from time to time, by
Digital to any Digital Entity. The per share exercise price for the shares of
Class B Common Stock purchased pursuant to the Class B Common Stock Option shall
be the Market Price of a share of Class A Common Stock as of the date of first
delivery of notice of exercise of the Class B Common Stock Option by Digital (or
its permitted assignee hereunder) to AltaVista.
(b) AltaVista hereby grants to Digital, on the terms and
conditions set forth herein, a continuing right (the "Nonvoting Stock Option"
and, together with the Class B Common Stock Option, the "Options") to purchase
from AltaVista, at the times set forth herein, such number of shares of
Nonvoting Stock as is necessary to allow the Digital Entities to own 80 percent
of the total number of shares of each class of outstanding Nonvoting Stock. The
Nonvoting Stock Option shall be assignable, in whole or in part and from time to
time, by Digital to any Digital Entity. The per share exercise price for the
shares of Nonvoting Stock purchased pursuant to the Nonvoting Stock Option shall
be the per share price at which such Nonvoting Stock is then being sold to third
parties or, if no Nonvoting Stock is being sold, the fair market value thereof
as determined in good faith by the Board of Directors of AltaVista.
2.2. Notice. (a) At least 10 business days prior to the issuance of any
shares of Common Stock or the first date on which any event could occur that, in
the absence of a full or partial exercise of the Class B Common Stock Option,
would result in a reduction in the Ownership Percentage, AltaVista will notify
the Corporate Tax Director of Digital in writing (a "Class B Common Stock Option
Notice") of any plans it has to issue such shares or the date on which such
event could first occur. At least 10 business days prior to the issuance of any
shares of Nonvoting Stock or the first date on which any event could occur that,
in the absence of a full or partial exercise of the Nonvoting Stock Option,
would result in the Digital Entities owning less than 80 percent of the total
number of shares of each class of outstanding Nonvoting Stock, AltaVista will
notify the Corporate Tax Director of Digital in writing (a "Nonvoting Stock
Option Notice" and, together with a Class B Common Stock Option, an "Option
Notice") of any plans it has to issue such shares or the date on which such
event could first occur. Each Option Notice must specify the date on which
AltaVista intends to issue such additional shares or on which such event could
first occur (such issuance or event being referred to herein as an "Issuance
Event" and the date of such issuance or event as an "Issuance Event Date"), the
number of shares AltaVista intends to issue or may issue and the other terms and
conditions of such Issuance Event.
(b) Notwithstanding the provisions of Sections 2.2(a), if,
after the issuance of Common Stock or Nonvoting Stock pursuant to the exercise
of an option to acquire such shares, (i) AltaVista would continue to be a member
of the Digital Group and (ii) Digital would continue
<PAGE> 7
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to control AltaVista within the meaning of Section 368(c) of the Code, then the
Option Notice required with respect to the issuance of such shares shall be
given to the Corporate Tax Director of Digital within 10 business days after the
issuance of such shares.
2.3. Option Exercise and Payment. The Class B Common Stock Option may
be exercised by Digital (or any Digital Entity to which all or any part of the
Class B Common Stock Option has been assigned) for a number of shares equal to
or less than the number of shares that are necessary for the Digital Entities to
maintain, in the aggregate, the Ownership Percentage. The Nonvoting Stock Option
may be exercised by Digital (or any Digital Entity to which all or any part of
the Nonvoting Stock Option has been assigned) for a number of shares equal to or
less than the number of shares that are necessary for the Digital Entities to
own, in the aggregate, 80 percent of the total number of shares of each class of
outstanding Nonvoting Stock. Each Option may be exercised at any time after
receipt of an applicable Option Notice and within twenty business days after the
applicable Issuance Event Date by the delivery to AltaVista of a written notice
to such effect specifying (i) the number of shares of Class B Common Stock or
Nonvoting Stock (as the case may be) to be purchased by Digital, or any of the
Digital Entities, and (ii) a calculation of the exercise price for such shares.
Upon any such exercise of either Option, AltaVista will, simultaneously with the
issuance of Class B Common Stock, Class A Common Stock or Nonvoting Stock in
connection with an Issuance Event, deliver to Digital (or any Digital Entity
designated by Digital), against payment therefor, certificates (issued in the
name of Digital or its permitted assignee hereunder, or as directed by Digital)
representing the shares of Class B Common Stock or Nonvoting Stock (as the case
may be) being purchased upon such exercise. Payment for such shares shall be
made by wire transfer or intrabank transfer to such account as shall be
specified by AltaVista, for the full purchase price for such shares.
2.4 Effect of Failure to Exercise. Any failure by Digital to exercise
either Option, or any exercise for less than all shares purchasable under either
Option, in connection with any particular Issuance Event shall not affect
Digital's right to exercise the relevant Option in connection with any
subsequent Issuance Event; provided, however, that, in the case of the Class B
Common Stock Option, the Ownership Percentage following such Issuance Event in
connection with which Digital so failed to exercise such Option in full or in
part shall be recalculated as set forth in Section 1.1.
2.5 Initial Public Offering. Notwithstanding the foregoing, Digital
shall not be entitled to exercise the Class B Common Stock Option in connection
with the Initial Public Offering of the Class A Common Stock., including any
exercise of the underwriters' over-allotment option with respect thereto.
2.6 Termination of Options. The Options shall terminate upon the
occurrence of the first Issuance Event that results in the Ownership Percentage
being less than 60%, other than any Issuance Event in violation of this
Agreement. Each Option, or any portion thereof assigned to any Digital Entity
other than Digital, also shall terminate in the event that the Person to whom
such Option, or such portion thereof has been transferred, ceases to be a
Digital Entity for any reason whatsoever.
<PAGE> 8
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2.7 Additional Obligation of AltaVista. This Article II is intended, in
part, (i) to cause AltaVista to continue to be a member of the Digital Group,
and (ii) to allow Digital to maintain "control" of AltaVista within the meaning
of Section 368(c) of the Code. Notwithstanding anything to the contrary in this
Agreement or any other agreement, without the express written consent of
Digital, AltaVista shall not take or fail to take any action that would (i)
cause AltaVista to cease to be a member of the Digital Group or (ii) result in
Digital losing control of AltaVista within the meaning of Section 368(c) of the
Code.
ARTICLE III
REGISTRATION RIGHTS
3.1 Demand Registration - Registrable Securities. (a) Upon written
notice provided at any time after the Initial Public Offering Date from any
Holder of Registrable Securities requesting that AltaVista effect the
registration under the Securities Act of any or all of the Registrable
Securities held by such Holder, which notice shall specify the intended method
or methods of disposition of such Registrable Securities, AltaVista shall use
its best efforts to effect the registration under the Securities Act and
applicable state securities laws of such Registrable Securities for disposition
in accordance with the intended method or methods of disposition stated in such
request (including in a Rule 415 Offering, if AltaVista is then eligible to
register such Registrable Securities on Form S-3 (or a successor form) for such
offering); provided that:
(i) with respect to any registration statement filed,
or to be filed, pursuant to this Section 3.1, if AltaVista shall
furnish to the Holders of Registrable Securities that have made such
request a certified resolution of the Board of Directors of AltaVista
(adopted by the affirmative vote of a majority of the directors not
designated by the Digital Entities) stating that in the Board of
Director's good faith judgment it would (because of the existence of,
or in anticipation of, any acquisition or financing activity, or the
unavailability for reasons beyond AltaVista's reasonable control of any
required financial statements, or any other event or condition of
similar significance to AltaVista) be significantly disadvantageous (a
"Disadvantageous Condition") to AltaVista for such a registration
statement to be maintained effective, or to be filed and become
effective, and setting forth the general reasons for such judgment,
AltaVista shall be entitled to cause such registration statement to be
withdrawn and the effectiveness of such registration statement
terminated, or, in the event no registration statement has been filed,
shall be entitled not to file any such registration statement, until
such Disadvantageous Condition no longer exists (notice of which
AltaVista shall promptly deliver to such Holders). Upon receipt of any
such notice of a Disadvantageous Condition, such Holders shall
forthwith discontinue use of the prospectus contained in such
registration statement; provided, that the filing of any such
registration statement may not be delayed for a period in excess of six
months due to the occurrence of any particular Disadvantageous
Condition;
(ii) after the occurrence of the Digital Ownership
Reduction, if any, the Holders of Registrable Securities may
collectively exercise their rights under this
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Section 3.1 on not more than three occasions (it being acknowledged
that prior to the Digital Ownership Reduction, if any, there shall be
no limit to the number of occasions on which such Holders (other than
any of the Digital Transferees and their Affiliates (other than the
Digital Entities )) may exercise such rights); and
(iii) the Holders of Registrable Securities shall not
have the right to exercise registration rights pursuant to this Section
3.1 in any six-month period following the registration and sale of
Registrable Securities effected pursuant to a prior exercise of the
registration rights provided in this Section 3.1.
(b) Notwithstanding any other provision of this Agreement to
the contrary, a registration requested by a Holder of Registrable Securities
pursuant to this Section 3.1 shall not be deemed to have been effected (and
therefore, not requested for purposes of paragraph (a) above), (i) unless it has
become effective, (ii) if after it has become effective such registration is
interfered with by any stop order, injunction or other order or requirement of
the SEC or other governmental agency or court for any reason other than a
misrepresentation or an omission by such Holder and, as a result thereof, the
Registrable Securities requested to be registered cannot be completely
distributed in accordance with the plan of distribution set forth in the related
registration statement or (iii) if the conditions to closing specified in the
purchase agreement or underwriting agreement entered into in connection with
such registration are not satisfied or waived other than by reason of some act
or omission by such Holder of Registrable Securities.
(c) In the event that any registration pursuant to this
Section 3.1 shall involve, in whole or in part, an underwritten offering, the
Holders of a majority of the Registrable Securities to be registered shall have
the right to designate an underwriter or underwriters as the lead or managing
underwriters of such underwritten offering reasonably acceptable to AltaVista
and, in connection with each registration pursuant to this Section 3.1, such
Holders may select one counsel to represent all such Holders.
(d) AltaVista shall have the right to cause the registration
of additional equity securities for sale for the account of any Person
(including, without limitation, AltaVista and any existing or former directors,
officers or employees of the AltaVista Entities) in any registration of
Registrable Securities requested by the Holders pursuant to paragraph (a) above;
provided, that if such Holders are advised in writing (with a copy to AltaVista
by a nationally recognized investment banking firm selected by such Holders
reasonably acceptable to AltaVista (which shall be the lead underwriter or a
managing underwriter in the case of an underwritten offering) that, in such
firm's good faith view, all or a part of such additional equity securities
cannot be sold or the inclusion of such additional equity securities in such
registration would be likely to have an adverse effect on the price, timing or
distribution of the offering and sale of the Registrable Securities then
contemplated by any Holder, the registration of such additional equity
securities or part thereof shall not be permitted. The Holders of the
Registrable Securities to be offered may require that any such additional equity
securities be included in the offering proposed by such Holders on the same
conditions as the Registrable Securities that are included therein. In the event
that the number of Registrable Securities requested to be included in a
registration statement by the Holders thereof exceeds the number which, in the
good faith view
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of such investment banking firm, can be sold without adversely affecting the
price, timing, distribution or sale of securities in the offering, the number
shall be allocated pro rata among the requesting Holders on the basis of the
relative number of Registrable Securities then held by each such Holder
(provided that any number in excess of a Holder's request may be reallocated
among the remaining requesting Holders in a like manner).
3.2 Piggyback Registration. In the event that AltaVista at any time
after the Initial Public Offering Date proposes to register any of its Common
Stock, any other of its equity securities or securities convertible into or
exchangeable for its equity securities (collectively, including Common Stock,
"Other Securities") under the Securities Act, whether or not for sale for its
own account, in a manner that would permit registration of Registrable
Securities for sale for cash to the public under the Securities Act, it shall at
each such time give prompt written notice to each Holder of Registrable
Securities of its intention to do so and of the rights of such Holder under this
Section 3.2. Subject to the terms and conditions hereof, such notice shall offer
each such Holder the opportunity to include in such registration statement such
number of Registrable Securities as such Holder may request. Upon the written
request of any such Holder made within 15 days after the receipt of AltaVista's
notice (which request shall specify the number of Registrable Securities
intended to be disposed of and the intended method of disposition thereof),
AltaVista shall use its best efforts to effect, in connection with the
registration of the Other Securities, the registration under the Securities Act
of all Registrable Securities which AltaVista has been so requested to register,
to the extent required to permit the disposition (in accordance with such
intended methods thereof) of the Registrable Securities so requested to be
registered; provided, that:
(a) if, at any time after giving such written notice of its
intention to register any Other Securities and prior to the effective date of
the registration statement filed in connection with such registration, AltaVista
shall determine for any reason not to register the Other Securities, AltaVista
may, at its election, give written notice of such determination to such Holders
and thereupon AltaVista shall be relieved of its obligation to register such
Registrable Securities in connection with the registration of such Other
Securities, without prejudice, however, to the rights of the Holders of
Registrable Securities immediately to request that such registration be effected
as a registration under Section 3.1 to the extent permitted thereunder;
(b) if the registration referred to in the first sentence of
this Section 3.2 is to be an underwritten registration on behalf of AltaVista,
and a nationally recognized investment banking firm selected by AltaVista
advises AltaVista in writing that, in such firm's good faith view, the inclusion
of all or a part of such Registrable Securities in such registration would be
likely to have an adverse effect upon the price, timing or distribution of the
offering and sale of the Other Securities then contemplated, AltaVista shall
include in such registration: (1) first, all Other Securities AltaVista proposes
to sell for its own account ("Company Securities"), (ii) second, up to the full
number of Registrable Securities held by Holders constituting the Digital
Entities that are requested to be included in such registration (Registrable
Securities that are so held being sometimes referred to herein as "Holder
Securities") in excess of the number of Company Securities to be sold in such
offering which, in the good faith view of such investment banking firm, can be
sold without adversely affecting such offering and the sale of the Other
<PAGE> 11
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Securities then contemplated (and (x) if such number is less than the full
number of such Holder Securities, such number shall be allocated by Digital
among such Digital Entities and (y) in the event that such investment banking
firm advises that less than all of such Holder Securities may be included in
such offering, such Digital Entities may withdraw their request for registration
of their Registrable Securities under this Section 3.2 and 90 days subsequent to
the effective date of the registration statement for the registration of such
Other Securities request that such registration be effected as a registration
under Section 3.1 to the extent permitted thereunder), (iii) third, up to the
full number of Registrable Securities held by Holders (other than the Digital
Entities) of Registrable Securities that are requested to be included in such
registration in excess of the number of Company Securities and Holder Securities
to be sold in such offering which, in the food faith view of such investment
banking firm, can be so sold without so adversely affecting such offering (and
(x) if such number is less than the full number of such Registrable Securities,
such number shall be allocated pro rata among such Holders on the basis of the
number of Registrable Securities requested to be included therein by each such
Holder and (y) in the event that such investment banking firm advises that less
than all of such Registrable Securities may be included in such offering, such
Holders may withdraw their request for registration of their Registrable
Securities under this Section 3.2 and 90 days subsequent to the effective date
of the registration statement for the registration of such Other Securities
request that such registration be effected as a registration under Section 3.1
to the extent permitted thereunder), and (iv) fourth, up to the full number of
the Other Securities (other than Company Securities), if any, in excess of the
number of Company Securities and Registrable Securities to be sold in such
offering which, in the good faith view of such investment banking firm, can be
sold without so adversely affecting such offering (and, if such number is less
than the full number of such Other Securities, such number shall be allocated
pro rata among the holders of such Other Securities (other than Company
Securities) on the basis of the number of securities requested to be included
therein by each such holder);
(c) if the registration referred to in the first sentence of
this Section 3.2 is to be an underwritten secondary registration on behalf of
holders of Other Securities (the "Other Holders"), and the lead underwriter or
managing underwriter advises AltaVista in writing that in their good faith view,
all or a part of such additional securities cannot be sold and the inclusion of
such additional securities in such registration would be likely to have an
adverse effect on the price, timing or distribution of the offering and sale of
the Other Securities then contemplated, AltaVista shall include in such
registration the number of securities (including Registrable Securities) that
such underwriters advise can be so sold without adversely affecting such
offering, allocated pro rata among the Other Holders and the Holders of
Registrable Securities on the basis of the number of securities (including
Registrable Securities) requested to be included therein by each Other Holder
and each Holder of Registrable Securities; provided, that if such registration
statement is to be filed at any time after the Digital Ownership Reduction, if
any, and if such Other Holders have requested that such registration statement
be filed pursuant to demand registration rights granted to them by AltaVista,
AltaVista shall include in such registration (1) first, Other Securities sought
to be included therein by the Other Holders pursuant to the exercise of such
demand registration rights, (2) second, the number of Holder Securities sought
to be included in such registration in excess of the number of Other Securities
sought to be included in such registration by the Other Holders which in the
good faith view of such investment banking
<PAGE> 12
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firm, can be so sold without so adversely affecting such offering (and (x) if
such number is less than the full number of such Holder Securities, such number
shall be allocated by Digital among such Digital Entities and (y) in the event
that such investment banking firm advises that less than all of such Holder
Securities may be included in such offering, such Digital Entities may withdraw
their request for registration of their Registrable Securities under this
Section 3.2 and 90 days subsequent to the effective date of the registration
statement for the registration of such Other Securities request that such
registration be effected as a registration under Section 3.1 to the extent
permitted thereunder) and (3) third, the number of Registrable Securities sought
to be included in such registration by Holders (other than the Digital Entities)
of Registrable Securities in excess of the number of Other Securities and the
number of Holder Securities sought to be included in such registration which, in
the good faith view of such investment banking firm, can be so sold without so
adversely affecting such offering (and (x) if such number is less than the full
number of such Registrable Securities, such number shall be allocated pro rata
among such Holders on the basis of the number of Registrable Securities
requested to be included therein by each such Holder and (y) in the event that
such investment banking firm advises that less than all of such Registrable
Securities may be included in such offering, such Holders may withdraw their
request for registration of their Registrable Securities under this Section 3.2
and 90 days subsequent to the effective date of the registration statement for
the registration of such Other Securities request that such registration be
effected as a registration under Section 3.1 to the extent permitted
thereunder);
(d) AltaVista shall not be required to effect any registration
of Registrable Securities under this Section 3.2 incidental to the registration
of any of its securities in connection with mergers, acquisitions, exchange
offers, subscription offers, dividend reinvestment plans or stock option or
other executive or employee benefit or compensation plans; and
(e) no registration of Registrable Securities effected under
this Section 3.2 shall relieve AltaVista of its obligation to effect a
registration of Registrable Securities pursuant to Section 3.1.
3.3 Expenses. Except as provided herein, AltaVista shall pay all
Registration Expenses with respect to a particular offering (or proposed
offering). Notwithstanding the foregoing, each Holder and AltaVista shall be
responsible for its own internal administrative and similar costs, which shall
not constitute Registration Expenses.
3.4 Registration and Qualification. If and whenever AltaVista is
required to effect the registration of any Registrable Securities under the
Securities Act as provided in Sections 3.1 or 3.2, AltaVista shall as promptly
as practicable
(a) prepare, file and use its best efforts to cause to become
effective a registration statement under the Securities Act relating to the
Registrable Securities to be offered;
(b) prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to
<PAGE> 13
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keep such registration statement effective and to comply with the provisions of
the Securities Act with respect to the disposition of all Registrable Securities
until the earlier of (A) such time as all of such Registrable Securities have
been disposed of in accordance with the intended methods of disposition set
forth in such registration statement and (B) the expiration of six-months after
such registration statement becomes effective; provided, that such six-month
period shall be extended for such number of days that equals the number of days
elapsing from (x) the date the written notice contemplated by paragraph (f)
below is given by AltaVista to (y) the date on which AltaVista delivers to the
Holders of Registrable Securities the supplement or amendment contemplated by
paragraph (f) below;
(c) furnish to the Holders of Registrable Securities and to
any underwriter of such Registrable Securities such number of conformed copies
of such registration statement and of each such amendment and supplement thereto
(in each case including all exhibits), such number of copies of the prospectus
included in such registration statement (including each preliminary prospectus
and any summary prospectus), in conformity with the requirements of the
Securities Act, such documents incorporated by reference in such registration
statement or prospectus, and such other documents as the Holders of Registrable
Securities or such underwriter may reasonably request, and a copy of any and all
transmittal letters or other correspondence to or received from, the SEC or any
other governmental agency or self-regulatory body or other body having
jurisdiction (including any domestic or foreign securities exchange) relating to
such offering;
(d) use its best efforts to register or qualify all
Registrable Securities covered by such registration statement under the
securities or blue sky laws of such jurisdictions as the Holders of such
Registrable Securities or any underwriter to such Registrable Securities shall
request, and use its best efforts to obtain all appropriate registrations,
permits and consents in connection therewith, and do any and all other acts and
things which may be necessary or advisable to enable the Holders of Registrable
Securities or any such underwriter to consummate the disposition in such
jurisdictions of its Registrable Securities covered by such registration
statement; provided, that AltaVista shall not for any such purpose be required
to qualify generally to do business as a foreign corporation in any such
jurisdiction wherein it is not so qualified or to consent to general service of
process in any such jurisdiction;
(e) (i) use its best efforts to furnish to each Holder of
Registrable Securities included in such registration (each, a "Selling Holder")
and to any underwriter of such Registrable Securities an opinion of counsel for
AltaVista addressed to each Selling Holder and dated the date of the closing
under the underwriting agreement (if any), (or if such offering is not
underwritten, dated the effective date of the registration statement), and (ii)
use its best efforts to furnish to each Selling Holder a "cold comfort" letter
addressed to each Selling Holder and signed by the independent public
accountants who have audited the financial statements of AltaVista included in
such registration statement, in each such case covering substantially the same
matters with respect to such registration statement (and the prospectus included
therein) as are customarily covered in opinions of issuer's counsel and in
accountants' letters delivered to underwriters in underwritten public offerings
of securities and such other matters as the Selling
<PAGE> 14
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Holders may reasonably request, and, in the case of such accountants' letter,
with respect to events subsequent to the date of such financial statements;
(f) as promptly as practicable, notify the Selling Holders in
writing (i) at any time when a prospectus relating to a registration pursuant to
Sections 3.1 or 3.2 is required to be delivered under the Securities Act of the
happening of any event as a result of which the prospectus included in such
registration statement, as then in effect, includes an untrue statement of a
material fact or omits to state any material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, and (ii) of any request by the SEC or any
other regulatory body or other body having jurisdiction for any amendment of or
supplement to any registration statement or other document relating to such
offering, and in either such case, at the request of the Selling Holders prepare
and furnish to the Selling Holders a reasonable number of copies of a supplement
to or an amendment of such prospectus as may be necessary so that, as thereafter
delivered to the purchasers of such Registrable Securities, such prospectus
shall not include an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they are made, not
misleading;
(g) if reasonably requested by the lead or managing
underwriters, use its best efforts to list all such Registrable Securities
covered by such registration on each securities exchange and automated
inter-dealer quotation system on which a class of common equity securities of
AltaVista is then listed;
(h) to the extent reasonably requested by the lead or managing
underwriters, send appropriate officers of AltaVista to attend any "road shows"
scheduled in connection with any such registration, with all out-of-pocket costs
and expense incurred by AltaVista or such officers in connection with such
attendance to be paid by AltaVista; and
(i) furnish for delivery in connection with the closing of any
offering of Registrable Securities pursuant to a registration effected pursuant
to Sections 3.1 or 3.2 unlegended certificates representing ownership of the
Registrable Securities being sold in such denominations as shall be requested by
the Selling Holders or the underwriters.
3.5 Conversion of Other Securities, Etc. In the event that any Holder
offers any options, rights, warrants or other securities issued by it or any
other Person that are offered with, convertible into or exercisable or
exchangeable for any Registrable Securities, the Registrable Securities
underlying such options, rights, warrants or other securities shall continue to
be eligible for registration pursuant to Sections 3.1 and 3.2.
3.6 Underwriting; Due Diligence. (a) If requested by the underwriters
for any underwritten offering of Registrable Securities pursuant to a
registration requested under this Article III, AltaVista shall enter into an
underwriting agreement with such underwriters for such offering, which agreement
will contain such representations and warranties by AltaVista and such other
terms and provisions as are customarily contained in underwriting agreements
with
<PAGE> 15
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respect to secondary distributions, including, without limitation,
indemnification and contribution provisions substantially to the effect and to
the extent provided in Section 3.7, and agreements as to the provision of
opinions of counsel and accountants' letters to the effect and to the extent
provided in Section 3.4(e). The Selling Holders on whose behalf the Registrable
Securities are to be distributed by such underwriters shall be parties to any
such underwriting agreement and the representations and warranties by, and the
other agreements on the part of, AltaVista to and for the benefit of such
underwriters, shall also be made to and for the benefit of such Selling Holders.
Such underwriting agreement shall also contain such representations and
warranties by such Selling Holders and such other terms and provisions as are
customarily contained in underwriting agreements with respect to secondary
distributions, including, without limitation, indemnification and contribution
provisions substantially to the effect and to the extent provided in Section
3.7.
(b) In connection with the preparation and filing of each
registration statement registering Registrable Securities under the Securities
Act pursuant to this Article III, AltaVista shall give the Holders of such
Registrable Securities and the underwriters, if any, and their respective
counsel and accountants, such reasonable and customary access to its books and
records and such opportunities to discuss the business of AltaVista with its
officers and the independent public accountants who have certified the financial
statements of AltaVista as shall be necessary, in the opinion of such Holders
and such underwriters or their respective counsel, to conduct a reasonable
investigation within the meaning of the Securities Act; provided, that such
Holders and the underwriters and their respective counsel and accountants shall
use their reasonable best efforts to coordinate any such investigation of the
books and records of AltaVista and any such discussions with AltaVista's
officers and accountants so that all such investigations occur at the same time
and all such discussions occur at the same time.
3.7. Indemnification and Contribution. (a) In the case of each offering
of Registrable Securities made pursuant to this Article III, AltaVista agrees to
indemnify and hold harmless, to the extent permitted by law, each Selling
Holder, each underwriter of Registrable Securities so offered and each Person,
if any, who controls any of the foregoing Persons within the meaning of the
Securities Act and the officers, directors, partners, affiliates, employees and
agents of each of the foregoing, against any and all losses, liabilities, costs
(including reasonable attorney's fees and disbursements), claims and damages,
joint or several to which they or any of them may become subject, under the
Securities Act of otherwise, including any amount paid in settlement of any
litigation commenced or threatened, insofar as such losses, liabilities, costs,
claims and damages (or actions or proceedings in respect thereof, whether or not
such indemnified Person is a party thereto) arise out of or are based upon any
untrue statement by AltaVista or alleged untrue statement by AltaVista of a
material fact contained in the registration statement (or in any preliminary or
final prospectus included therein) or in any offering memorandum or other
offering document relating to the offering and sale of such Registrable
Securities prepared by AltaVista or at its direction, or any amendment thereof
or supplement thereto, or in any document incorporated by reference therein, or
any omission by AltaVista or alleged omission by AltaVista to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading; provided, that AltaVista shall not be liable to any
Person in any such case to the extent that any such loss, liability, cost, claim
or damage arises out of or
<PAGE> 16
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relates to any untrue statement or alleged untrue statement, or any omission, if
such statement or omission shall have been made in reliance upon and in
conformity with information relating to a Selling Holder or any other holder of
securities including in such registration statement furnished to AltaVista by or
on behalf of such Selling Holder, other holder or underwriter, as the case may
be, specifically for use in the registration statement (or in any preliminary or
final prospectus included therein), offering memorandum or other offering
document, or any amendment thereof or supplement thereto. Such indemnity shall
remain in full force and effect regardless of any investigation made by or on
behalf of any Selling Holder or any other holder and shall survive the transfer
of such securities. The foregoing indemnity agreement is in addition to any
liability that AltaVista may otherwise have to each Selling Holder, other holder
or underwriter of the Registrable Securities or any controlling person of the
foregoing and the officers, directors, partners, affiliates, employees and
agents of each of the foregoing; provided, further, that, in the case of an
offering with respect to which a Selling Holder has designated the lead or
managing underwriters (or a Selling Holder is offering Registrable Securities
directly, without an underwriter), this indemnity does not apply to any loss,
liability, cost, claim or damage arising out of or relating to any untrue
statement or alleged untrue statement or omission or alleged omission in any
preliminary prospectus or offering memorandum if a copy of a final prospectus or
offering memorandum was not sent or given by or on behalf of any underwriter (or
such Selling Holder or other holder, as the case may be) to such Person
asserting such loss, liability, cost, claim or damage at or prior to the written
confirmation of the sale of the Registrable Securities as required by the
Securities Act and such untrue statement or omission had been corrected in such
final prospectus or offering memorandum.
(b) In the case of each offering made pursuant to this
Agreement, each Selling Holder, by exercising its registration rights hereunder,
agrees to indemnify and hold harmless, and to cause each underwriter of
Registrable Securities included in such offering (in the same manner and to the
same extent as set forth in Section 3.7(a)) to agree to indemnify and hold
harmless, AltaVista, each other underwriter who participates in such offering,
each other Selling Holder or other holder with securities included in such
offering and in the case of an underwriter, such Selling Holder or other holder,
and each Person, if any, who controls any of the foregoing within the meaning of
the Securities Act and the officers, directors, affiliates, employees and agents
of each of the foregoing, against any and all losses, liabilities, costs, claims
and damages to which they or any of them may become subject, under the
Securities Act or otherwise, including any amount paid in settlement of any
litigation commenced or threatened, insofar as such losses, liabilities, costs,
claims and damages (or actions or proceedings in respect thereof, whether or not
such indemnified Person is a party thereto) arise out of or are based upon any
untrue statement or alleged untrue statement by such Selling Holder or
underwriter, as the case may be, of a material fact contained in the
registration statement (or in any preliminary or final prospectus included
therein) or in any offering memorandum or other offering document relating to
the offering and sale of such Registrable Securities prepared by AltaVista or at
its direction, or any amendment thereof or supplement thereto, or any omission
by such Selling Holder or underwriter, as the case may be, or alleged omission
by such Selling Holder or underwriter, as the case may be, of a material fact
required to be stated therein or necessary to make the statements therein not
misleading, but in each case only to the extent that such untrue statement of a
material fact is contained in, or such material fact is omitted from,
information relating to
<PAGE> 17
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such Selling Holder or underwriter, as the case may be, furnished to AltaVista
by or on behalf of such Selling Holder or underwriter, as the case may be,
specifically for use in such registration statement (or in any preliminary or
final prospectus included therein), offering memorandum or other offering
document. The foregoing indemnity is in addition to any liability which such
Selling Holder or underwriter, as the case may be, may otherwise have to
AltaVista, or controlling persons and the officers, directors, affiliates,
employees, and agents of each of the foregoing; provided, that, in the case of
an offering made pursuant to this Agreement with respect to which AltaVista has
designated the lead or managing underwriters (or AltaVista is offering
securities directly, without an underwriter), this indemnity does not apply to
any loss, liability, cost, claim, or damage arising out of or based upon any
untrue statement or alleged untrue statement or omission or alleged omission in
any preliminary prospectus or offering memorandum if a copy of a final
prospectus or offering memorandum was not sent or given by or on behalf of any
underwriter (or AltaVista, as the case may be) to such Person asserting such
loss, liability, cost, claim or damage at or prior to the written confirmation
of the sale of the Registrable Securities as required by the Securities Act and
such untrue statement or omission had been corrected in such final prospectus or
offering memorandum.
(c) Each party indemnified under paragraph (a) or (b) above
shall, promptly after receipt of notice of a claim or action against such
indemnified part in respect of which indemnity may be sought hereunder, notify
the indemnifying party in writing of the claim or action; provided, that the
failure to notify the indemnifying party shall not relieve it from any liability
that it may have to an indemnified party on account of the indemnity agreement
contained in paragraph (a) or (b) above except to the extent that the
indemnifying party was actually prejudiced by such failure, and in no event
shall such failure relieve the indemnifying party from any other liability that
it may have to such indemnified party. If any such claim or action shall be
brought against an indemnified party, and it shall have notified the
indemnifying party thereof, unless in such indemnified party's reasonable
judgment a conflict of interest between such indemnified party and indemnifying
parties may exist in respect of such claim, the indemnifying party shall be
entitled to participate therein, and, to the extent that it wishes, jointly with
any other similarly notified indemnifying party, to assume the defense thereof
with counsel satisfactory to the indemnified party. After notice from the
indemnifying party to the indemnified party of its election to assume the
defense of such claim or action, the indemnifying party shall not be liable to
the indemnified party under this Section 3.7 for any legal or other expenses
subsequently incurred by the indemnified party in connection with the defense
thereof other than reasonable costs of investigation. Any indemnifying party
against whom indemnity may be sought under this Section 3.7 shall not be liable
to indemnify an indemnified party if such indemnified party settles such claim
or action without the consent of the indemnifying party. The indemnifying party
may not agree to any settlement of any such claim or action, other than solely
for monetary damages for which the indemnifying party shall be responsible
hereunder, the result of which any remedy or relief shall be applied to or
against the indemnified party, without the prior written consent of the
indemnified party, which consent shall not be unreasonably withheld. In any
action hereunder as to which the indemnifying party has assumed the defense
thereof with counsel satisfactory to the indemnified party, the indemnified
party shall continue to be entitled to participate in the defense thereof, with
counsel of its own choice, but
<PAGE> 18
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the indemnifying party shall not be obligated hereunder to reimburse the
indemnified party for the costs thereof.
(d) If the indemnification provided for in this Section 3.7
shall for any reason be unavailable (other than in accordance with its terms) to
an indemnified party in respect of any loss, liability, cost, claim or damage
referred to therein, then each indemnifying party shall, in lieu of indemnifying
such indemnified party, contribute to the amount paid or payable by such
indemnified party as a result of such loss, liability, cost, claim or damage (i)
as between AltaVista and the Selling Holders on the one hand and the
underwriters on the other, in such proportion as shall be appropriate to reflect
the relative benefits received by AltaVista and the Selling Holders on the one
hand and the underwriters on the other hand or, if such allocation is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits but also the relative fault of AltaVista and the
Selling Holders on the one hand and the underwriters on the other with respect
to the statements or omissions which resulted in such loss, liability, cost,
claim or damage as well as any other relevant equitable considerations and (ii)
as between AltaVista on the one hand and each Selling Holder on the other, in
such proportion as is appropriate to reflect the relative fault of AltaVista and
of each Selling Holder in connection with such statements or omissions as well
as any other relevant equitable considerations. The relative benefits received
by AltaVista and the Selling Holders on the one hand and the underwriters on the
other shall be deemed to be in the same proportion as the total proceeds from
the offering (net of underwriting discounts and commissions but before deducting
expenses) received by AltaVista and the Selling Holders bear to the total
underwriting discounts and commissions received by the underwriters, in each
case as set forth in the table on the cover page of the prospectus. The relative
fault of AltaVista and the Selling Holders on the one hand and of the
underwriters on the other shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by AltaVista
and the Selling Holders or by the underwriters. The relative fault of AltaVista
on the one hand and of each Selling Holder on the other shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by such party, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission, but not by reference to any indemnified party's stock
ownership in AltaVista. The amount paid or payable by an indemnified party as a
result of the loss, cost, claim, damage or liability, or action in respect
thereof, referred to above in this paragraph (d) shall be deemed to include, for
purposes of this paragraph (d), any legal or other expenses reasonably incurred
by such indemnified party in connection with investigating or defending any such
action or claim. AltaVista and the Selling Holders agree that it would not be
just and equitable if contribution pursuant to this Section 3.7 were determined
by pro rata allocation (even if the underwriters were treated as one entity for
such purpose) or by any other method of allocation which does not take account
of the equitable considerations referred to in this paragraph. Notwithstanding
any other provision of this Section 3.7, no Selling Holder shall be required to
contribute any amount in excess of the amount by which the total price at which
the Registrable Securities of such Selling Holder were offered to the public
exceeds the amount of any damages which such Selling Holder has otherwise been
required to pay by reason of such untrue or alleged untrue statement or omission
or alleged
<PAGE> 19
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omission. Each Selling Holder's obligations to contribute pursuant to this
Section 3.7 are several in proportion to the proceeds of the offering received
by such Selling Holder bears to the total proceeds of the offering received by
all the Selling Holders and not joint. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of any such
fraudulent misrepresentation.
(e) Indemnification and contribution similar to that specified
in the preceding paragraphs of this Section 3.7 (with appropriate modifications)
shall be given by AltaVista, the Selling Holders and underwriters with respect
to any required registration or other qualification of securities under any
state law or regulation or governmental authority.
(f) The obligations of the parties under this Section 3.7
shall be in addition to any liability which any party may otherwise have to any
other party.
3.8 Rule 144 and Form S-3. Commencing 90 days after the Initial Public
Offering Date, AltaVista shall use its best efforts to ensure that the
conditions to the availability of Rule 144 set forth in paragraph (c) thereof
shall be satisfied. Upon the request of any Holder of Registrable Securities,
AltaVista will deliver to such Holder a written statement as to whether it has
complied with such requirements. AltaVista further agrees to use its reasonable
efforts to cause all conditions to the availability of Form S-3 (or any
successor form) under the Securities Act of the filing of registration
statements under this Agreement to be met as soon as practicable after the
Initial Public Offering Date. Notwithstanding anything contained in this Section
3.8, AltaVista may deregister under Section 12 of the Securities Exchange Act of
1934, as amended, if it then is permitted to do so pursuant to said Act and the
rules and regulations thereunder.
3.9 Transfer of Registration Rights. Any Holder may transfer all or any
portion of its rights under Article III to any transferee of a number of
Registrable Securities owned by such Holder exceeding three percent (3%) of the
outstanding class or series of such securities at the time of transfer (each
transferee that receives such minimum number of Registrable Securities, a
"Transferee"); provided, that each Transferee of Registrable Securities to which
Registrable Securities are transferred, sold or assigned directly by a Digital
Entity (such Transferee, a "Digital Transferee"), together with any Affiliate of
such Digital Transferee (and any subsequent direct or indirect Transferees of
Registrable Securities from such Digital Transferee and any Affiliates (other
than the Digital Entities) thereof, shall be entitled to request the
registration of Registrable Securities pursuant to Section 3.1 only once. Any
transfer of registration rights pursuant to this Section 3.9 shall be effective
upon receipt by AltaVista of (i) written notice from such Holder stating the
name and address of any Transferee and identifying the number of Registrable
Securities with respect to which the rights under this Agreement are being
transferred and the nature of the rights so transferred and (ii) a written
agreement from such Transferee to be bound by the terms of this Article III and
Sections 5.3, 5.4, 5.9, 5.10, and 5.11 of this Agreement. The Holders may
exercise their rights hereunder in such priority as they shall agree upon among
themselves.
<PAGE> 20
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3.10 Holdback Agreement. If any registration pursuant to this Article
III shall be in connection with an underwritten public offering of Registrable
Securities, each Selling Holder agrees not to effect any public sale or
distribution, including any sale under Rule 144, of any equity security of
AltaVista (otherwise than through the registered public offering then being
made), within 7 days prior to or 180 days (or such lesser period as the lead or
managing underwriters may permit) after the effective date of the registration
statement (or the commencement of the offering to the public of such Registrable
Securities in the case of Rule 415 offerings).
ARTICLE IV
CERTAIN COVENANTS AND AGREEMENTS
4.1 No Violations. (a) For so long as the Ownership Percentage is equal
to or greater than 50%, AltaVista covenants and agrees that it will not take any
action or enter into any commitment or agreement which may reasonably be
anticipated to result, with or without notice and with or without lapse of time
or otherwise, in a contravention or event of default by any Digital Entity of
(i) any provisions of applicable law or regulation, including but not limited to
provisions pertaining to the Internal Revenue Code of 1986, as amended, or the
Employee Retirement Income Security Act of 1974, as amended, (ii) any provision
of Digital's certificate of incorporation or bylaws, (iii) any credit agreement
or other material instrument binding upon Digital, or (iv) any judgment, order
or decree of any governmental body, agency or court having jurisdiction over
Digital or any of its assets.
(b) AltaVista and Digital agree to provide to the other any
information and documentation requested by the other for the purpose of
evaluating and ensuring compliance with Section 4.1.(a) hereof.
(c) Notwithstanding the foregoing Sections 4.1(a) an 4.1(b),
nothing in this Agreement is intended to limit or restrict in any way the
ability of Digital to effect, restrict or limit any action or proposed action of
AltaVista, including, but not limited to, the incurrence by AltaVista of
indebtedness, based upon Digital's internal policies or other factors.
ARTICLE V
MISCELLANEOUS
5.1 Limitation of Liability. Neither Digital nor AltaVista shall be
liable to the other for any special, indirect, incidental or consequential
damages of the other arising in connection with this Agreement.
5.2 Subsidiaries. Digital agrees and acknowledges that Digital shall be
responsible for the performance of each Digital Entity of the obligations
hereunder applicable to such Digital Entity.
<PAGE> 21
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5.3 Amendments. This Agreement may not be amended or terminated orally,
but only by a writing duly executed by or on behalf of the parties hereto. Any
such amendment shall be validly and sufficiently authorized for purposes of this
Agreement if it is signed on behalf of Digital and AltaVista by any of their
respective presidents or vice presidents.
5.4 Term. This Agreement shall remain in effect until all Registrable
Securities held by Holders have been transferred by them to Persons other than
Transferees; provided, that the provisions of Section 3.7 shall survive any such
expiration.
5.5 Severability. If any provisions of this Agreement or the
application of any such provision to any party or circumstances shall be
determined by any court of competent jurisdiction to be invalid, illegal or
unenforceable to any extent, the remainder of this Agreement or such provision
of the application of such provision to such party or circumstances, other than
those to which it is so determined to be invalid, illegal or unenforceable,
shall remain in full force and effect to the fullest extent permitted by law and
shall not be affected thereby, unless such a construction would be unreasonable.
5.6 Notices. All notices and other communications required or permitted
hereunder shall be in writing, shall be deemed duly given upon actual receipt,
and shall be delivered (a) in person, (b) by registered or certified mail,
postage prepaid, return receipt requested, or (c) by facsimile or other
generally accepted means of electronic transmission (provided that a copy of any
notice delivered pursuant to this clause (c) shall also be sent pursuant to
clause (b), addressed as follows:
(a) If to AltaVista, to:
AltaVista Internet Software, Inc.
30 Porter Road
Littleton, MA 01460
Attention: Chief Financial Officer
Fax:
(b) If to Digital, to:
Digital Equipment Corporation
111 Powdermill Road
Maynard, MA 01754-1418
Attention: Treasurer
Fax:
or to such other addresses or telecopy numbers as may be specified by like
notice to the other parties.
5.7 Further Assurances. Digital and AltaVista shall execute,
acknowledge and deliver, or cause to be executed, acknowledged and delivered,
such instruments and take such
<PAGE> 22
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other action as may be necessary or advisable to carry out their obligations
under this Agreement and under any exhibit, document or other instrument
delivered pursuant hereto.
5.8 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original instrument, but all of
which together shall constitute but one and the same agreement.
5.9 Governing Law. This Agreement and the transactions contemplated
hereby shall be construed in accordance with, and governed by, the laws of the
Commonwealth of Massachusetts.
5.10 Entire Agreement. This Agreement constitutes the entire
understanding of the parties hereto with respect to the subject matter hereof.
5.11 Successors. This Agreement shall be binding upon, and shall inure
to the benefit of, the parties hereto and their respective successors and
assigns. Nothing contained in this Agreement, express or implied, is intended to
confer upon any other person or entity any benefits, rights or remedies.
5.12 Specific Performance. The parties hereto acknowledge and agree
that irreparable damage would occur in the event that any of the provisions of
this Agreement were not performed in accordance with their specific terms or
were otherwise breached. Accordingly, it is agreed that they shall be entitled
to an injunction or injunctions to prevent breaches of the provisions of this
Agreement and to enforce specifically the terms and provisions hereof in any
court of competent jurisdiction in the United States or any state thereof, in
addition to any other remedy to which they may be entitled at law or equity.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the
day and year first above written.
ALTAVISTA INTERNET SOFTWARE, INC.
By: _____________________________________
Name:
Title:
DIGITAL EQUIPMENT CORPORATION
By: _____________________________________
Name:
Title:
<PAGE> 1
EXHIBIT 10.5
FORM OF
STRATEGIC ALLIANCE AGREEMENT
This Strategic Alliance Agreement dated as of ______ __, 1996 is entered into
between DIGITAL EQUIPMENT CORPORATION, having a principal place of business at
111 Powdermill Road, Maynard, Massachusetts 01754-1418 (together with all
subsidiary and affiliated companies collectively referred to as "DIGITAL") and
AltaVista Internet Software, Inc., having a principal place of business at 30
Porter Road, Littleton, Massachusetts 01460 (together with all subsidiary and
affiliated companies collectively referred to as "ALTV").
WHEREAS, ALTV has developed or acquired the rights to computer programs;
WHEREAS, DIGITAL has established procedures for evaluating and distributing
computer programs and for delivering services to users of computer programs;
WHEREAS, both parties desire that DIGITAL distribute ALTV's computer program(s)
and provide services to ALTV customers.
NOW, THEREFORE, in consideration of the mutual covenants and promises contained
herein, the parties, intending to be legally bound hereby, agree as follows:
1.0 DEFINITIONS
1.1 Program means the computer programs related to the Products,
Documentation, Demonstration Programs, and all future
Revisions, enhancements and modifications to such programs.
1.2 Object Code means machine readable code commonly referred to
as binary code or executable code.
1.3 Documentation means a functional description of a Program,
directions for installation, verification of installation, and
use, and any other explanatory material necessary for a user
to perform all of the functions of a Program.
1.4 Demonstration Program means an illustrative version(s) of a
Program, in Object Code form, which demonstrates its key
features.
1.5 Revision means any correction, modification, update,
enhancement, and new version of a Program, Documentation, and
Demonstration Program.
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1.6 Products mean now existing or later created ALTV Programs in
Object Code form, including Documentation, Demonstration
Programs, and Revisions.
1.7 Source Code means code which may be printed out or displayed
in a form readable and understandable by a programmer of
ordinary skill, and which cannot be executed on a computer
system without first being assembled or compiled.
1.8 DIGITAL's Service Provider(s) means DIGITAL authorized
dealers, distributors and/or other third parties who are
authorized by DIGITAL to provide warranty, maintenance and/or
other support services for the Product.
1.9 Service Agreement(s) means agreements between DIGITAL and
end-user customers and agreements between DIGITAL's Service
Providers and end-user customers under which DIGITAL or
DIGITAL's Service Providers offer end-user software product
services, including services such as telephone support,
electronic access to problem/solution information, critical
on-site support, rights to new versions of the Product, and
Documentation updates for the Products.
1.10 DIGITAL-ALTV Fee Schedule means the then current schedule of
fees and prices relating to the Products and services
hereunder as agreed upon by DIGITAL and ALTV.
2.0 LICENSES
2.1 ALTV grants to DIGITAL a non-exclusive, royalty-free license
to execute the Product, and to load, copy or transmit the
Programs and/or Demonstration programs in whole or in part,
for the purposes of evaluation, marketing and promotional
activities related to the Product in connection with the
distribution of the Product and the provision of Services
hereunder to end-users of the Product.
2.2 ALTV grants DIGITAL a non-exclusive, royalty-free license to
make copies of each Program and/or Product to be used for the
purposes of customer evaluation at customer facilities.
2.3 ALTV grants DIGITAL a non-exclusive, worldwide license to (i)
each Product, (ii) load, copy or transmit such Product, and
(iii) market, demonstrate and distribute directly or by means
of sublicenses and grant to its sublicensees the right to
sublicense, market, distribute and demonstrate the Product to
its customers. Distribution shall be subject to ALTV's then
current applicable software license agreement(s). The license
granted
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under this Section 2.3 shall be subject to a fee set
forth in the DIGITAL-ALTV Fee Schedule.
2.4 ALTV grants to DIGITAL, a non-exclusive, worldwide license to
execute the Products for internal end use purposes, and to
load, copy or transmit the Products to the extent necessary
for such execution. The license granted under this Section 2.4
shall be subject to a fee set forth in the DIGITAL-ALTV Fee
Schedule.
2.5 To the extent necessary to give effect to this Agreement, the
licenses granted to DIGITAL shall include rights under any
applicable patents, copyrights, trademarks, trade secrets and
any other intellectual property rights belonging to ALTV or
which ALTV has acquired or may acquire from any third party
other than DIGITAL.
2.6 DIGITAL shall not decompile, or reverse assemble any Product,
or analyze or otherwise examine the Product for the purpose of
reverse engineering, except as authorized by law.
2.7 ALTV grants Digital, a non-exclusive, worldwide license to
market and distribute the Product in combination with or
bundled together with DIGITAL products or systems integration
services by means of sublicenses and grant to its sublicensees
the right to sublicense, market and demonstrate such combined
Product to its customers. Distribution shall be subject to
ALTV's then current applicable software license agreement(s).
The license granted under this Section 2.7 shall be subject to
a fee set forth in the DIGITAL-ALTV Fee Schedule.
2.8 Upon DIGITAL's request and on terms, including fees payable to
DIGITAL, satisfactory to DIGITAL and ALTV, ALTV shall grant
DIGITAL the non-exclusive, royalty-free license to manufacture
the Product, and shall provide DIGITAL with all materials
necessary to do so, including Product masters.
3.0 STRATEGIC DEVELOPMENT
3.1 For so long as ALTV (a) adapts its Products, and any
subsequent product offerings, to run on the DIGITAL Unix
operating system and (b) simultaneously releases its Products
and any subsequent product offerings in a form adapted to run
on the DIGITAL Unix operating system, DIGITAL shall provide to
ALTV, at no charge, by loan or otherwise, certain DIGITAL
hardware and software products for use by ALTV for product
development.
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3.2 DIGITAL shall sell ALTV hardware equipment for use at its
public WEB service sites at its then prevailing inter-company
rate for such equipment for so long as ALTV identifies such
sites in all of its marketing, advertising and other
publications as being supported by DIGITAL.
3.3 Subject to the prior written consent of ALTV with respect to
any Program and Product, ALTV grants DIGITAL a non-exclusive,
worldwide license to combine, incorporate or embed the Program
and the Product, including the right to modify the Source Code
and Object Code of any such Product, into DIGITAL's or any
other products or programs, or as a new product, and to
distribute the new product pursuant to Section 2.3 hereof.
Such new product shall be considered a derivative work, and
all right, title and interest in the derivative work shall be
owned by Digital, subject to the ownership by ALTV of any of
the Programs, Source Code or Object Code incorporated therein.
The license granted under this Section 3.3 shall be subject to
a fee based on Digital's then prevailing inter-company rate
for such products.
3.4 DIGITAL represents that it will provide to ALTV certain
hardware and software products for internal use at a rate set
forth in the DIGITAL-ALTV Fee Schedule.
4.0 ACCEPTANCE
4.1 DIGITAL shall evaluate each Product and shall give written
notice to ALTV if such Product does not operate in conformance
with the applicable Documentation.
4.2 If DIGITAL determines not to accept or distribute any one or
all of the Products for any reason, it shall give written
notice to ALTV and DIGITAL shall have the right to eliminate
the specified Products from this Agreement or to terminate
this Agreement in its entirety. In this event, DIGITAL shall,
at its option, either return to ALTV or destroy copies of the
eliminated Products in its possession.
5.0 PURCHASING REQUIREMENTS
5.1 Subject to acceptance and ALTV's performance of all of its
duties and obligations hereunder, DIGITAL shall pay ALTV
license fees, as hereafter described.
5.2 All shipments shall be F.O.B. Origin. Payments from DIGITAL to
ALTV shall be due on a net 30-day basis from the date of
ALTV's invoice. Prices do not include any shipping charges, or
federal, state, county, local or other governmental taxes,
duties, excise taxes now or hereafter imposed
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<PAGE> 5
on the storage, sale, transportation, licensing or use of the
Products, which charges shall be borne by DIGITAL. Any taxes
imposed by any federal, state, or municipal government,
including any interest due thereon, if any, paid or payable in
connection with ALTV sales to DIGITAL, shall be borne by
DIGITAL. If ALTV supplies DIGITAL with a valid tax exemption
certificate, DIGITAL shall not be liable for such taxes as are
exempted.
5.3 Unless otherwise approved by ALTV, orders must be placed via
the ALTV Internet Website, and request delivery within three
(3) months.
5.4 DIGITAL may reschedule or cancel delivery of individual
Purchase Orders, or portions thereof, upon at least thirty
(30) days advance notice to ALTV prior to DIGITAL's required
delivery date, subject to charges set forth on the
DIGITAL-ALTV Fee Schedule. All rescheduling requests and
cancellations shall be placed via the ALTV Internet Website
unless otherwise approved by ALTV.
5.5 ALTV shall inspect all Product before shipment. DIGITAL may
inspect the Product at its destination. Subject to Section 4.2
hereof, DIGITAL may return nonconforming Product to ALTV for
credit, refund of purchase price or replacement at DIGITAL's
option, with ALTV bearing all costs and risk of loss. ALTV
authorizes DIGITAL to perform source inspection and quality
assurance audits at ALTV's manufacturing facilities, but this
shall in no way relieve ALTV of its obligation to deliver
conforming Product or waive DlGITAL's right of inspection and
acceptance at destination.
5.6 For each individual Product shipped, a packing slip is
required specifying Purchase Order, DIGITAL Part Number,
Quantity, and Date Shipped. The packing slip is to be attached
to the outside of one of the cartons shipped. Each individual
product shall be packaged individually inside an outer carton
and labeled with the typewritten DIGITAL Part Number
specified. Each carton is to be properly packaged and
protected from shipping and handling hazards, and in
compliance with applicable laws, regulations and requirements.
DIGITAL may request ALTV to provide replacement packaging for
those cartons that get damaged in transit.
5.7 If there is any conflict between terms and conditions,
precedence shall be as follows:
a) Terms of this Agreement,
b) Terms written or typed by DIGITAL on the face of its
Purchase Order
c) Terms preprinted on a Purchase Order.
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6.0 PRICE CHANGES
6.1 ALTV shall provide DIGITAL with three (3) months' prior
written notice of any change in ALTV's list price or discount
schedule.
6.2 If ALTV fails to give DIGITAL such notice:
a) and the net price to DIGITAL including discounts is
increased, the lower price shall remain in effect for
a three (3) months' time period following such time
as ALTV formally notifies DIGITAL of the price change
in writing;
b) and if the net price to DIGITAL including discounts
is decreased, DIGITAL shall be credited with the net
change for any Product ordered within the three (3)
months' time period prior to the effective date of
such change.
6.3 ALTV warrants that all the prices and terms it has granted
herein are equal to or better than the prices and/or terms
being offered by ALTV to any other similarly situated
customer. If during the term of this Agreement, ALTV enters
into a like arrangement with any other similarly situated
customer which provides better prices or terms, this Agreement
shall be deemed amended to provide the same to DIGITAL and
notice of the such arrangement shall be given to DIGITAL
immediately.
7.0 COPYRIGHT AND TRADEMARKS
7.1 ALTV agrees to secure and maintain copyright protection of the
Product in the name of ALTV.
7.2 DIGITAL agrees to include ALTV's copyright notice on all
copies of the Product in substantially the following form:
Licensed to Digital Equipment Corporation, Maynard,
Massachusetts Copyright (C) [ALTV] 19-. All rights reserved.
7.3 ALTV hereby grants to DIGITAL a non-exclusive license to use
the ALTV tradenames, logos and other ALTV trademarks and
service marks relating to the Products (the "ALTV Marks") in
connection with DIGITAL's distribution, marketing and services
activities under this Agreement. DIGITAL's use shall be in
accordance with ALTV's policies regarding advertising and
trademark usage as established from time to time by ALTV and
as provided by ALTV. DIGITAL agrees to cooperate
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with ALTV in facilitating ALTV's monitoring and control of the
nature and quality of products and services bearing the ALTV
Marks, and to supply ALTV with specimens of DIGITAL's use of
the ALTV Marks upon request. In the event that ALTV determines
that DIGITAL's use of ALTV Marks, or that the services in
connection with which such ALTV Marks are used is inconsistent
with ALTV's quality standards, then upon ALTV's written
request, DIGITAL shall within a reasonable period thereafter
conform such use or service to ALTV's standards. If DIGITAL
fails to confirm such use or service, ALTV shall have the
right to suspend such use of the ALTV Marks.
8.0 SUPPORT
8.1 ALTV designates DIGITAL as a non-exclusive Authorized Service
Provider. DIGITAL shall pay ALTV a fee for support services as
set forth on the DIGITAL-ALTV Fee Schedule.
8.2 DIGITAL, in its capacity as an Authorized Service Provider,
shall provide training, documentation and technical support to
ALTV customers, including the performance of service
evaluations, installation and remedial support.
8.3 ALTV and DIGITAL agree to provide support and services to ALTV
customers through WEB-based technologies, where commercially
reasonable.
8.4 ALTV grants to DIGITAL a non-exclusive, royalty-free,
worldwide license to execute the Products, and to load, copy
or transmit the Programs and/or Demonstration Programs in
whole or in part, and to copy, use and distribute the Product
and the Program for the purpose of providing support and
maintenance of the Programs, and the right to sublicense such
support rights to DIGITAL and DIGITAL's Service Providers,
authorized dealers, distributors and other third parties
within their distribution chains; and to distribute product
information and documentation, and any Revisions to Customers.
8.5 ALTV grants to DIGITAL a non-exclusive, royalty-free license
to copy and use internally ALTV's training materials for each
Product. Such training materials may be used for training,
maintenance and other similar activities connected with
DIGITAL's support of such Product. DIGITAL agrees to include
ALTV's copyright notice on all copies of ALTV's training
materials for such Product which DIGITAL makes.
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8.6 Services shall be provided by DIGITAL subject to DIGITAL's
Services Terms and Conditions, or such other Terms and
Conditions as may be agreed to by the parties.
9.0 MARKETING
9.1 ALTV and DIGITAL will mutually agree on a joint marketing and
public relations plan. The plan will be updated from time to
time to ensure that it remains relevant and current. The
marketing plan may include the following types of activities:
(a) press releases and press conferences regarding the
Products and Services;
(b) consultant briefings;
(c) production of marketing brochures, flyers, presentations,
customer references, sales kits, etc.
(c) participation at major trade shows and user conferences
(e) creation of demonstration programs that highlight Product
and Services features and benefits;
(f) creation of white papers as technical proof points for the
benefits of the Products and Services;
(g) faxback programs;
(h) business partner recruitment and promotional campaigns in
both DIGITAL's and ALTV's Product and Services
distribution channels; and
(i) web-based communications
9.2 DIGITAL and ALTV will inform the sales and support personnel
of each as to the availability, pricing, and positioning of
the Products and Services consistent with the purposes of
DIGITAL's role as reseller, including but not limited to
appropriate information regarding DIGITAL's role in ALTV sales
and marketing literature, Website, tradeshows, customer
seminars, sales training, and other appropriate
marketing/business development activities.
9.3 DIGITAL and ALTV will include the Products and Services in the
appropriate sales and sales support training sessions.
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10.0 RELATIONSHIP OF PARTIES
10.1 ALTV and DIGITAL are independent contractors acting for their
own accounts and are not authorized to make any commitment or
representation on the other's behalf unless authorized in
writing. Each party is solely responsible for establishing its
prices for the Product(s).
10.2 ALTV is authorized to use the designation "Digital Distributed
Software."
11.0 WARRANTY AND INDEMNIFICATION
11.1 ALTV warrants that no security measures have been or will be
incorporated in the Products which would impair their use and
operation except such measures as are disclosed to DIGITAL in
writing and approved by DIGITAL in writing.
11.2 ALTV warrants to DIGITAL that the Products do not and will not
infringe or violate any patent, copyright, trademark, trade
secret or other proprietary right of any third party.
11.3 ALTV warrants that any services performed by ALTV in
connection with this Agreement shall be performed in a
workmanlike manner and that in the event of a breach of this
warranty ALTV shall perform the services to DIGITAL's
satisfaction.
11.4 ALTV warrants that each Product: (1) is and shall remain free
of all liens and title encumbrances; (2) is and shall remain
free from defects in design, material and workmanship; and (3)
conforms and shall continue to conform to applicable
specifications. In the case of a breach of these warranties
ALTV shall, at DIGITAL's option: (1) repair or replace
nonconforming or unsuitable Product within thirty (30) days of
notice of such condition; or (2) credit or refund to DIGITAL
the purchase price for such Product. All expenses associated
with the return to ALTV of such Product and the delivery to
DIGITAL of repair or replacement Product shall be borne by
ALTV.
11.5 The above warranties shall survive any delivery, acceptance,
payment, termination or expiration of a Purchase Order and
shall run to DIGITAL, its successors, assigns, customers and
users of its products.
11.6 ALTV shall indemnity, hold harmless and defend DIGITAL and its
customers from and against any and all suits, actions,
damages, costs, losses, expenses (including settlement awards
and reasonable attorney's fees) and other liabilities arising
from or in connection with any claim that
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ALTV does not have sufficient right, title or interest in the
Product to enter into this Agreement, or that the Product
infringes or violates any patent, copyright, trademark, trade
secret, or other proprietary right of any third party. Without
limiting ALTV's obligations as set forth above, ALTV, upon the
request of DIGITAL, and at ALTV's expense, shall either
procure for DIGITAL and its customers the right to continue
using the Product, or, if such is not possible, replace or
modify the Product so that it becomes noninfringing but
functionally equivalent.
11.7 ALTV shall defend, at its expense, and shall pay all costs and
damages awarded for any claim against DIGITAL to the extent
that such claim is based upon a breach by ALTV of its
warranties hereunder.
11.8 THE FOREGOING WARRANTIES OF ALTV ARE IN LIEU OF ALL OTHER
WARRANTIES, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION
ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE.
11.9 EXCEPT FOR AMOUNTS PAYABLE PURSUANT TO SECTION 12.6 HEREOF,
NEITHER PARTY HERETO SHALL BE LIABLE FOR ANY SPECIAL, DIRECT,
INCIDENTAL, OR CONSEQUENTIAL DAMAGES, EVEN IF ADVISED OF THE
POSSIBILITY THEREOF. THE FOREGOING LIMITATIONS OF LIABILITY
SHALL APPLY REGARDLESS OF THE CAUSE OF ACTION UNDER WHICH SUCH
DAMAGES ARE SOUGHT, INCLUDING, WITHOUT LIMITATION, BREACH OF
CONTRACT, NEGLIGENCE, STRICT LIABILITY, OR OTHER TORT.
12.0 EXPORT
12.1 DIGITAL and ALTV agree to comply with US laws and regulations
governing the export of technology and products, including the
Export Administration Act of 1979, as amended, any successor
legislation, and the Export Administration Regulations issued
by the Department of Commerce, Bureau of Export
Administration. DIGITAL and ALTV agree to cooperate with each
other, including, without limitation, providing required
documentation and information, in order to obtain the
necessary government authorizations prior to any export of
technology or Products under this Agreement.
13.0 TERM AND TERMINATION
13.1 This Agreement shall extend for a period of two years from its
effective date unless terminated sooner in accordance
herewith; provided, however,
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this Agreement shall be subject to early termination by either
ALTV or DIGITAL upon six months' written notice if DIGITAL
ceases to own shares of Common Stock representing more than
50% of the combined voting power of the Common Stock of ALTV.
After the initial term, this Agreement shall automatically be
renewed on a year-to-year basis unless terminated by either
party upon written notice to the other at least sixty (60)
days prior to the end of the initial term of this Agreement,
or any renewal term.
13.2 Either party may terminate this Agreement
a) if the other party breaches any warranty or fails to
perform any material obligation hereunder, and such breach
is not remedied within thirty (30) days after written
notice thereof to the party in default; or
b) at any time, if the other party shall become insolvent or
make an assignment for the benefit of creditors, or if a
receiver or similar officer shall be appointed to take
charge of all or part of that party's assets.
c) at any time, without cause, upon ninety (90) days' advance
written notice.
13.3 Upon termination of this Agreement, the license provided in
Paragraph 2.3 shall remain in effect for six (6) months from
the effective date of termination to permit DIGITAL to
liquidate its inventory of Products in existence as of the
date of termination. However, ALTV shall have the option,
either during or after the six (6) month period, to purchase
any inventory in DIGITAL's at the purchase prices paid by
DIGITAL, except for inventory necessary for DIGITAL to meet
any outstanding contractual obligations to its customers.
13.4 The license granted to DIGITAL herein for support and
maintenance purposes, the rights and sublicenses which DIGITAL
has granted or agreed to grant under this Agreement (including
DIGITAL's right to distribute the Product) and any warranties,
indemnities, and irrevocable license grants made to DIGITAL
shall survive any termination or expiration of this Agreement.
After termination, DIGITAL's sole remaining obligation shall
be to remit to ALTV any payments due. Sections 1, 11, 12, 13
and 14 shall survive any termination of this Agreement.
13.5 After termination, DIGITAL's sole remaining obligation shall
be to remit to ALTV any payments due.
11
<PAGE> 12
14.0 GENERAL
14.1 The rights and remedies of the parties provided in this
Agreement shall not be exclusive and are in addition to any
other rights and remedies provided at law or in equity.
14.2 This Agreement shall be binding upon and inure to the benefit
of the successors and permitted assigns of the parties hereto.
Neither party shall assign this Agreement or any rights or
obligations under it without the prior written consent of the
other party.
14.3 Nothing in this Agreement shall be construed as making either
party the agent of the other.
14.4 Notices under this Agreement shall be addressed to DIGITAL at:
DIGITAL EQUIPMENT CORPORATION
111 Powdermill Road
Maynard, MA 01754
Attn.: Treasurer
DIGITAL EQUIPMENT CORPORATION
111 Powdermill Road
Maynard, MA 01754
Attn.: Law Department
and to ALTV at the address given at the beginning of this
Agreement unless otherwise specified.
Notice shall be sent by registered or certified mail, postage
prepaid, return receipt requested. The date of receipt shall
be deemed to be the date on which such notice was actually
received. Each party shall promptly give the other party
written notice of any change of address.
14.5 If any provision of this Agreement is held illegal or
unenforceable by any court of competent jurisdiction, such
provision shall be deemed separable from the remaining
provisions of this Agreement and shall not affect or impair
the validity or enforceability of the remaining provisions of
this Agreement. The parties hereto agree to replace any such
illegal or unenforceable provision that has the most nearly
similar permissible economic or other effect.
14.6 This Agreement shall be governed by the laws of the
Commonwealth of Massachusetts, without regard to its conflicts
of law principles. The
12
<PAGE> 13
parties hereto exclude the United Nations Conventions on
Contracts of the International Sale of Goods from this
Agreement and any transaction between them that may be
implemented in connection with this Agreement.
14.7 The failure of either party to enforce, in any one or more
instances, any of the terms or conditions of the Agreement
shall not be construed as a waiver of the future performance
of any such term or condition.
14.8 Neither party shall be liable for its failure to perform any of
its obligations hereunder during any period in which such
performance is directly delayed by the occurrence of events
beyond the control of the failing party such as fire,
explosion, flood, storm or the acts of God, war, embargo, riot,
or the intervention of any government authority, provided that
the party suffering the delay immediately notifies the other
party of the delay.
14.9 This Agreement supersedes all prior oral and written
understandings and agreements between the parties concerning
the subject matter hereof and may not be modified except in a
writing signed by the authorized representatives of the parties
hereto.
14.10 This Agreement may be executed in one or more counterparts,
each of which shall be deemed to be an original, but all of
which together shall constitute one and the same instrument.
DIGITAL EQUIPMENT CORPORATION ALTAVISTA INTERNET
SOFTWARE, INC.
- ---------------------------------- -------------------------------
Authorized Signature Authorized Signature
- ---------------------------------- -------------------------------
Name and Title Name and Title
Date Date
------------------------------ ---------------------------
13
<PAGE> 1
EXHIBIT 10.6
FORM OF
TECHNICAL ASSISTANCE AGREEMENT
This Technical Assistance Agreement dated as of _____ is entered into
between AltaVista Internet Software, Inc., having a principal place of business
at 30 Porter Road, Littleton, Massachusetts 01460 (together with all subsidiary
and affiliated companies collectively referred to as "ALTV") and Digital
Equipment Corporation, having a principal place of business at 111 Powdermill
Road, Maynard, Massachusetts 01754-1418 (together with all subsidiary and
affiliated companies collectively referred to as "Digital").
WHEREAS, ALTV has developed or acquired the rights to certain computer
software programs;
WHEREAS, DIGITAL has certain expertise with respect to such programs;
WHEREAS, ALTV desires to retain DIGITAL to perform certain consulting
and technical expertise in connection with ALTV's use of such programs and
DIGITAL desires to perform such services;
NOW THEREFORE, in consideration of the mutual obligations specified in
this Agreement, and any compensation paid to DIGITAL for its services, the
parties agree to the following:
I. PURCHASE ORDERS
ALTV shall issue Purchase Orders containing a statement of the work to
be performed by DIGITAL, DIGITAL's rate of payment for such work, and expenses
to be paid in connection with such work. DIGITAL shall not be obligated to
accept any Purchase Order under this Agreement, but shall not commence services
without first obtaining an approved Purchase Order.
II. CONFIDENTIAL INFORMATION
Each party hereto acknowledges that during the course of this Agreement
it will be entrusted with information of the other party that is identified by
such other party as its confidential information. Each party hereto agrees to
protect the confidentiality of the other party's confidential information with
the same measures that it would use to protect its own similar information, but
in no event shall such measures be less than reasonable in light of general
industry practices.
<PAGE> 2
-2-
III. BACKGROUND TECHNOLOGY/OWNERSHIP.
DIGITAL may use certain technology in performing services under this
Agreement that is either owned solely by DIGITAL or licensed to DIGITAL with a
right to sublicense. ("Background Technology"). DIGITAL shall use reasonable
commercial efforts to disclose in writing the existence of such Background
Technology to ALTV upon acceptance of any Purchase Order. Ownership of
Background Technology (including, without limitation, all rights under
applicable patents, copyrights, trademarks, and trade secrets) shall at all
times remain with Digital and/or its licensors.
Ownership of and rights to any and all ideas, improvements and
inventions conceived, created or first reduced to practice in the performance of
work under this Agreement shall be determined in writing between the parties as
part of each Purchase Order accepted by Digital hereunder.
To the extent that a party is entitled to ownership of work product
created under this Agreement as specified in a Purchase Order, the other party
agrees to execute all papers including, without limitation, assignments, and
shall otherwise reasonably assist the party entitled to ownership as shall be
required to perfect in such party the rights, title and other interests in
applicable work product.
This Section III shall survive the termination of this Agreement for
any reason including expiration of term.
IV. INDEMNIFICATION
"DIGITAL shall indemnify, hold harmless, and defend ALTV and its
customers from and against any and all suits, actions, damages, costs, losses,
expenses (including settlement awards and reasonable attorney's fees) and other
liabilities arising from or in connection with any third party claim that
DIGITAL does not have sufficient right, title or interest in the Background
Technology, or that the Background Technology infringes or violates any patent,
copyright, trademark, trade secret, or other proprietary right of any third
party. Without limiting DIGITAL's obligations as set forth above, DIGITAL, upon
the request of ALTV, and at DIGITAL's expense, shall either procure for ALTV and
its customers the right to continue using the Background Technology, or if such
is not possible, replace or modify the Background Technology so that it becomes
noninfringing but functionally equivalent. Such indemnification obligation shall
not apply (a) unless DIGITAL is given prompt notice of any claim or threat after
DIGITAL learns of such claim or threat; (b) unless DIGITAL is given the
opportunity to control the defense in such action; (c) to ALTV's attorney fees
after DIGITAL has assumed such defense; (d) to portions of Background Technology
not developed or owned by DIGITAL; or (e) claims based on Background Technology
combinations with other products or services. This Section states DIGITAL's
entire liability, and ALTV's exclusive remedy, whether statutory, contractual,
express, implied, or otherwise for claims of intellectual property infringement.
<PAGE> 3
-3-
V. TERMINATION
Either DIGITAL or ALTV may terminate this Agreement in the event of a
material breach of the Agreement which is not cured within ten (10) days of
written notice to the other of such breach.
DIGITAL may terminate this Agreement and/or any purchase order issued
hereunder for convenience within ten (10) days' prior written notice.
VI. COMPLIANCE WITH APPLICABLE LAWS
DIGITAL warrants that the material supplied and work performed under
this Agreement complies with or will comply with all applicable United States
and foreign laws and regulations.
VII. INDEPENDENT CONTRACTOR
DIGITAL is an independent contractor, is not an agent or employee of
ALTV and is not authorized to act on behalf of ALTV.
VIII. GENERAL
This Agreement may not be changed unless mutually agreed upon in
writing by both parties.
In the event any provision of this Agreement is found to be legally
unenforceable, such unenforceability shall not prevent enforcement of any other
provision of this Agreement The parties hereto agree to replace such illegal or
unenforceable provision with a new provision that has the most nearly similar
permissible economic or other effect.
This Agreement shall be governed by the laws of the Commonwealth of
Massachusetts, without regard to its conflicts of law principles.
<PAGE> 4
-4-
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the Effective Date.
DIGITAL EQUIPMENT CORPORATION: ALTAVISTA INTERNET SOFTWARE, INC.
- ---------------------------------- -----------------------------------
Signature (Duly Authorized) Signature (Duly Authorized)
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES
AltaVista Internet Software B.V.
Jurisdiction of Organization: The Netherlands
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1
(File No. 333- ) of our report dated August 26, 1996, on our audits of the
financial statements of AltaVista Internet Software Products and of our report
dated August 26, 1996, on our audit of the balance sheet of AltaVista Internet
Software, Inc. We also consent to the reference to our firm under the caption
"Experts."
Coopers & Lybrand L.L.P.
Boston, Massachusetts
August 26, 1996
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ALTAVISTA
INTERNET SOFTWARE PRODUCTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS FOR THE PERIOD ENDED JUNE 29, 1996.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-29-1996
<PERIOD-START> JUL-02-1995
<PERIOD-END> JUN-29-1996
<EXCHANGE RATE> 1
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 1,086
<ALLOWANCES> 76
<INVENTORY> 45
<CURRENT-ASSETS> 1,055
<PP&E> 14,372
<DEPRECIATION> 8,496
<TOTAL-ASSETS> 7,508
<CURRENT-LIABILITIES> 1,950
<BONDS> 0
<COMMON> 45,322
0
0
<OTHER-SE> (39,794)
<TOTAL-LIABILITY-AND-EQUITY> 7,508
<SALES> 3,602
<TOTAL-REVENUES> 3,632
<CGS> 1,110
<TOTAL-COSTS> 1,110
<OTHER-EXPENSES> 32,390
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (29,868)
<INCOME-TAX> 0
<INCOME-CONTINUING> (29,868)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (29,868)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
THE FINANCIAL STATEMENTS REFLECT THE MOST RECENT FISCAL YEAR ENDED JUNE 29,
1996 FOR ALTA VISTA INTERNET SOFTWARE PRODUCTS. (DATA EXCLUDES IMMATERIAL
BALANCE SHEET ELEMENTS (ASSETS OF ONE THOUSAND DOLLARS) OF THE NEWLY FORMED
CORPORATE ENTITY, ALTAVISTA INTERNET SOFTWARE, INC.
</TABLE>
