<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 16, 1998
REGISTRATION NO. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
INKTOMI CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 7379 94-3238130
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION INDUSTRIAL CLASSIFICATION IDENTIFICATION NUMBER)
OFINCORPORATION OR CODE NUMBER)
ORGANIZATION) ---------------
1900 S. NORFOLK STREET, SUITE 310
SAN MATEO, CA 94403
(650) 653-2800
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
JERRY M. KENNELLY
CHIEF FINANCIAL OFFICER
1900 S. NORFOLK STREET, SUITE 310
SAN MATEO, CA 94403
(650) 653-2800
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
---------------
COPIES TO:
DOUGLAS H. COLLOM DONALD M. KELLER, JR.
ROGER E. GEORGE MARK L. SILVERMAN
WILSON SONSINI GOODRICH & ROSATI VENTURE LAW GROUP
PROFESSIONAL CORPORATION A PROFESSIONAL CORPORATION
650 PAGE MILL ROAD 2800 SAND HILL ROAD
PALO ALTO, CALIFORNIA 94304 MENLO PARK, CALIFORNIA 94025
(650) 493-9300 (650) 854-4488
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
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, 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(c)
under the Securities Act, 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(d)
under the Securities Act, 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
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<TABLE>
<CAPTION>
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE
- --------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, $0.001 par value.............. $35,420,000 $10,450
</TABLE>
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(1) Estimated solely for the purpose of computing the amount of the
registration fee 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 THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SUCH
SECTION 8(a), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+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 APRIL 16, 1998
2,200,000 SHARES
[LOGO]
INKTOMI CORPORATION
COMMON STOCK
(PAR VALUE $0.001 PER SHARE)
-----------
Of the 2,200,000 shares of Common Stock offered hereby, 2,000,000 are being
sold by Inktomi Corporation ("Inktomi" or the "Company") and 200,000 are being
sold by the Selling Stockholders. See "Principal and Selling Stockholders". The
Company will not receive any of the proceeds from the sale of the shares being
sold by the Selling Stockholders.
Prior to this 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 $12.00 and $14.00 per share. For factors to be considered
in determining the initial public offering price, see "Underwriting".
SEE "RISK FACTORS" BEGINNING ON PAGE 5 FOR CERTAIN CONSIDERATIONS RELEVANT TO
AN INVESTMENT IN THE COMMON STOCK.
Application has been made to have the Common Stock approved for quotation on
the Nasdaq National Market under the symbol "INKT".
-----------
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>
<CAPTION>
INITIAL PUBLIC UNDERWRITING PROCEEDS TO PROCEEDS TO SELLING
OFFERING PRICE DISCOUNT(1) COMPANY(2) STOCKHOLDERS
-------------- ------------ ----------- -------------------
<S> <C> <C> <C> <C>
Per Share.......... $ $ $ $
Total (3).......... $ $ $ $
</TABLE>
- -----
(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting".
(2) Before deducting estimated expenses of $700,000 payable by the Company.
(3) The Company has granted the Underwriters an option for 30 days to purchase
up to an additional 330,000 shares of Common Stock at the initial public
offering price per share, less the underwriting discount, solely to cover
over-allotments. If such option is exercised in full, the total initial
public offering price, underwriting discount, proceeds to Company and
proceeds to Selling Stockholders will be $ , $ , $ and $ ,
respectively. See "Underwriting".
-----------
The shares offered hereby are offered severally by the Underwriters, as
specified herein, subject to receipt and acceptance by them and subject to
their right to reject any order in whole or in part. It is expected that
certificates for the shares will be ready for delivery in New York, New York,
on or about , 1998, against payment therefor in immediately available
funds.
GOLDMAN, SACHS & CO.
BT ALEX. BROWN
HAMBRECHT & QUIST
-----------
The date of this Prospectus is , 1998.
<PAGE>
INSIDE FRONT COVER
Short description of the Company with the "Inktomi" logo. Background to
include names of partners: Intel, Sun, Nippon Telegraph and Telephone, Digex,
Digital, America Online, Microsoft and Wired.
Text:
- ----
"Inktomi developed and markets scalable software applications designed for use
by the world's largest Internet infrastructure and media companies. The
Company's innovative software delivers high performance and scalability at a
significant cost savings by leveraging Inktomi's coupled cluster and dataflow
technologies. Inktomi's applications include carrier-class network cache
systems and the world's largest search engines."
[ART WORK]
----------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK OF THE
COMPANY, INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS
IN SUCH SECURITIES, AND THE IMPOSITION OF A PENALTY BID, IN CONNECTION WITH
THE OFFERING. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING".
2
<PAGE>
LEFT PAGE: "SEARCH PRODUCT FAMILY" WITH TEXT AND GRAPHICS APPEARING IN THREE
COLUMNS.
Centered heading: "Search Product Family."
- -----------------
Caption: "Inktomi's award-winning Internet search engine technology enables
customers to provide a variety of on-line search services to end users. The
Company provides information search services based on its Internet search engine
to its customers who in turn incoporate these services into on-line offerings to
end users."
First column
One-line descriptions with lines to each screen graphic:
- --------------------------------------------------------
"The goo search engine, operated by Nippon Telegraph and Telephone, is one of
the most successful web sites in Japan."
"Microsoft Start, once launched, is intended to be a comprehensive web portal
site for consumers."
"Wired's HotBot service, recipient of numerous industry awards, provides search
access to over 110 million web pages."
Across second and third columns
Graphics of goo, msn and Wired screen shots of search page. Goo site is in
Japanese script.
<PAGE>
RIGHT PAGE: "TRAFFIC SERVER PRODUCT FAMILY" WITH TEXT AND GRAPHICS APPEARING IN
THREE COLUMNS.
Centered heading: "Traffic Server Product Family"
- -----------------
Caption:
- --------
"Inktomi's Traffic Server is a large-scale, high-performance network cache
specifically designed to reduce Internet congestion and increase overall network
efficiency. Traffic Server alleviates network congestion and increases network
performance by storing frequently requested information in proximity to users,
thereby greatly reducing the transmission of redundant Internet data."
First column
Heading: "Traffic Server Partners"
- --------
Caption:
- --------
"Inktomi has licensed Traffic Server to America Online, Inc., Digex, Inc., an
Intermedia Communications Company that is a leading national Internet carrier
exclusively serving business customers, Knology Holdings, Inc., a cable
broadband provider in the United States, and Nippon Telegraph and Telephone."
Logos of America Online, Digex, Knology and NTT appear below caption.
Second column
Heading: "Traffic Server Platform Partners"
- --------
Caption:
- --------
"Inktomi's Traffic Server currently operates on the Sun Solaris operating system
and on the Digital UNIX operating system. Inktomi is collaborating with Intel to
port Traffic Server to run on the Windows NT operating system."
Logos of Digital, Intel and Sun appear below caption.
Third column
Graphic of Traffic Server CD, jewel case and user documentation
Caption to graphic:
- -------------------
"Traffic Server is designed to be highly scalable, enabling very large cache
sizes. The ability to incrementally expand cache size on a "pay-as-you-go" basis
enables Traffic Server customers to respond rapidly to changes in network
traffic patterns and increases in the number of users without losing performance
or efficiency."
Across second and third column on bottom of page
Graphic of Traffic Server scalability.
Heading: "Traffic Server Scalability"
- --------
Three bars on graph that show:
175 million Web users by year 2000*
232 million Web devices by year 2001*
300 million hits a day handled by Inktomi's Traffic Server
*Source: International Data Corp.
Caption to bar graph:
- ---------------------
"In an audited benchmark study jointly conducted by Inktomi and Sun
Microsystems, Traffic Server configured with 16 nodes, 1/2 terabyte of cache and
a 40% cache hit rate achieved 3,488 operations per second. This performance
metric implies that Traffic Server can support more than 300 million hits per
day."
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the Consolidated Financial Statements and Notes thereto
appearing elsewhere in this Prospectus. Prospective investors should consider
carefully the information discussed under "Risk Factors". This Prospectus
contains forward-looking statements that involve risks and uncertainties. The
Company's actual results could differ materially from those anticipated in
these forward-looking statements as a result of certain factors, including
those set forth under "Risk Factors" and elsewhere in this Prospectus.
THE COMPANY
Inktomi develops and markets scalable software applications designed to
significantly enhance the performance and intelligence of large-scale networks.
The Company has pioneered the commercial use of parallel processing-based
coupled cluster technology, a software architecture that enables true
scalability, high system availability and fault tolerance, and superior
price/performance compared to traditional mainframe or symmetric multi-
processing-based systems. This architecture and associated core technologies,
which enable multiple workstations collaborating via high-speed connections to
function as one extremely powerful computer, have been designed and developed
specifically to address the challenges of distributed data management posed by
a global information network that consists of millions of users accessing
millions of documents.
In recent years, the dramatic growth in the number of Internet users and the
availability of powerful new tools for the development and distribution of
Internet content have led to a proliferation of richer information and services
on the Internet, including on-line magazines, e-mail services, specialized news
feeds, interactive games, educational and entertainment applications and
electronic commerce. The availability of richer content and services is
attracting greater numbers of Internet users, fueling a cycle of tremendous
growth wherein more users demand more information, and more information
attracts more users. To accommodate and manage increasing data traffic, network
providers must continually expand and upgrade their networks as well as improve
connectivity to other regional networks. Similarly, providers of services such
as search, e-mail and chat must scale and enhance their services to keep pace
with the tremendous growth in user demand and available information. Continued
increases in the volume, variety and richness of this information will magnify
these challenges.
Inktomi believes that in order for the Internet to scale cost-effectively,
network and service providers must deploy a new layer of high-performance
software throughout the network infrastructure. This software must efficiently
leverage the Internet's existing and future network hardware infrastructure to
intelligently locate, retrieve, manage and distribute increasingly richer
content.
Inktomi has developed two scalable network applications based on its software
architecture: a large-scale network cache and an Internet search engine. The
Company's initial application is its powerful, award-winning Internet search
engine. The Company believes that its search engine covers the largest number
of full text and embedded multimedia documents on the Internet, offering
customers fast, scalable and customizable Internet search services. Inktomi
currently provides the search technology underlying services provided by Wired
Digital, Inc., OzEmail, Ltd., Nippon Telegraph and Telephone and Universo On-
Line S/A. In addition, the Company has entered into contracts to provide
services based on its Internet search engine to Microsoft Corporation, Southam,
Inc. and N/2/H/2/, Inc.
Inktomi's second application, Traffic Server, is a large-scale network cache
designed to address capacity constraints in high-traffic network routes.
Traffic Server alleviates network congestion and increases network performance
by storing frequently requested information in proximity to users, thereby
eliminating or greatly reducing the transmission of redundant Internet data,
which the Company believes comprises a significant portion of network traffic.
Traffic Server is initially being targeted at telecommunications carriers and
large Internet Service Providers, which are currently addressing the explosive
growth in the demand for data bandwidth primarily through significant capital
expenditures on network equipment and infrastructure. To date, the Company has
licensed Traffic Server to America Online, Inc., Digex, Inc., Knology Holdings,
Inc. and Nippon Telegraph and Telephone.
The Company's objective is to establish itself as the leading provider of
scalable software applications specifically designed to address the distributed
data management challenges posed by rapidly growing global information
networks. The key elements of the Company's strategy are to: (i) leverage the
Company's core coupled-cluster and dataflow technology to develop multiple
applications; (ii) market Traffic Server to telecommunications carriers and
Internet Service Providers; (iii) establish Traffic Server as the de facto
standard for network cache; (iv) establish the Company as the Internet search
engine vendor of choice; and (v) develop direct and indirect distribution
channels for Inktomi's search services and Traffic Server.
The Company was incorporated in California in February 1996 and was
reincorporated in Delaware in February 1998. Unless the context otherwise
requires, references in this Prospectus to "Inktomi" and the "Company" refer to
Inktomi Corporation, a Delaware corporation, its predecessor, Inktomi
Corporation, a California corporation, and Inktomi Limited, its wholly owned
subsidiary located in the United Kingdom. The Company's principal executive
offices are located at 1900 S. Norfolk Street, Suite 310, San Mateo, California
94403, and its telephone number is (650) 653-2800.
Information contained on the Company's Web site does not constitute part of
this Prospectus.
Inktomi(TM), Traffic Server(TM) and the Inktomi logo are trademarks of the
Company. This Prospectus also contains trademarks of other companies.
3
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company...... 2,000,000 shares
Common Stock offered by the Selling
Stockholders............................ 200,000 shares
Common Stock to be outstanding after the
offering................................ 20,531,813 shares(1)
Use of proceeds.......................... For general corporate purposes
including working capital and capital
expenditures
Proposed Nasdaq National Market symbol... "INKT"
</TABLE>
SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FEBRUARY 2, 1996 FISCAL YEAR MARCH 31,
(INCEPTION) TO ENDED (UNAUDITED)
SEPTEMBER 30, SEPTEMBER 30, ------------------
1996 1997 1997 1998
---------------- ------------- -------- --------
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Total revenues.............. $ 530 $ 5,785 $ 2,282 $ 5,876
Gross profit................ 291 4,273 1,816 4,181
Operating loss ............. (3,431) (8,466) (3,112) (7,793)
Net loss.................... (3,534) (8,662) (3,191) (7,877)
Pro forma basic and diluted
net loss per share(2)...... $ (0.72) $ (0.46)
Shares used in computing pro
forma basic and diluted net
loss per share(2).......... 12,030 17,135
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1998 (UNAUDITED)
-----------------------------------
ACTUAL PRO FORMA(3) AS ADJUSTED(4)
------- ------------ --------------
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents.................. $17,133 $17,406 $40,385
Working capital............................ 11,980 12,252 35,731
Total assets............................... 25,294 25,567 49,046
Debt and capital lease obligations, less
current portion........................... 5,191 5,191 5,191
Total stockholders' equity................. 13,261 13,534 37,013
</TABLE>
- -------
(1) Based on shares outstanding as of March 31, 1998. Includes 562,446 shares
of Common Stock expected to be issued upon the exercise of certain
outstanding warrants prior to completion of this offering. Excludes
3,323,320 shares of Common Stock reserved for issuance under the Company's
stock option and stock purchase plans, of which 2,023,320 shares were
subject to outstanding options as of March 31, 1998, and 813,826 shares of
Common Stock issuable upon exercise of outstanding warrants. See
"Capitalization", "Management--Incentive Stock Plans", "Description of
Capital Stock" and Notes 10 and 11 of Notes to Consolidated Financial
Statements.
(2) See Note 1 of Notes to Consolidated Financial Statements for an explanation
of the determination of the number of shares used in computing per share
data. The pro forma data is unaudited.
(3) Pro forma reflects the conversion of all outstanding shares of Preferred
Stock to Common Stock and the exercise of certain outstanding warrants to
purchase 562,446 shares of Common Stock prior to or upon the closing of
this offering.
(4) As adjusted reflects the application of the net proceeds from the sale of
the 2,000,000 shares of Common Stock offered hereby by the Company and
after deducting the underwriting discount and estimated offering expenses.
--------------
Except as otherwise noted, all information in this Prospectus assumes no
exercise of the Underwriters' over-allotment option. See "Underwriting". Except
as otherwise noted, all information in this Prospectus has been adjusted to
give effect to a two-for-three reverse split of the Company's outstanding
Common Stock approved by the Board of Directors of the Company in April 1998,
for the automatic conversion of the Preferred Stock into Common Stock, for the
exercise of certain outstanding warrants to purchase 562,446 shares of Common
Stock, and for certain changes to the authorized capital stock of the Company
to be effected upon completion of this offering. See "Capitalization",
"Description of Capital Stock" and Note 8 of Notes to Consolidated Financial
Statements.
4
<PAGE>
RISK FACTORS
An investment in the shares of Common Stock offered by this Prospectus
involves a high degree of risk. Prospective purchasers of the Common Stock
offered hereby should carefully review the following risk factors as well as
the other information set forth in this Prospectus. This Prospectus contains
forward-looking statements that involve risks and uncertainties. The Company's
actual results could differ materially from those anticipated in these
forward-looking statements as a result of certain factors, including those set
forth in the following risk factors and elsewhere in this Prospectus.
LIMITED OPERATING HISTORY; HISTORY OF LOSSES AND EXPECTATION OF FUTURE LOSSES
The Company was founded in February 1996 and has a limited operating history
upon which it can be evaluated. Any investment in the Company must be
considered in light of the risks, expenses and difficulties frequently
encountered by companies in an early stage of development in new and rapidly
evolving markets. These risks include the Company's substantial dependence on
two products with only limited market acceptance, need to expand its sales and
support organizations, competition, need to manage changing operations,
customer concentration, reliance on strategic relationships and dependence
upon key personnel, as well as dependence upon the Internet and general
economic conditions. There can be no assurance that the Company will be
successful in addressing such risks. The Company incurred a net loss of $3.5
million for the period from inception through September 30, 1996, $8.6 million
for the year ended September 30, 1997, and $7.9 million for the six months
ended March 31, 1998. As of March 31, 1998, the Company had an accumulated
deficit of $20.1 million. The Company has not achieved profitability on a
quarterly or annual basis, and the Company anticipates that it will incur net
losses for at least the next several quarters. The Company expects to continue
to incur significant product development, sales and marketing, and
administrative expenses and, as a result, will need to generate significant
quarterly revenues to achieve and maintain profitability. There can be no
assurance that any of the Company's business strategies will be successful or
that significant revenues or profitability will ever be achieved or, if they
are achieved, that they can be consistently sustained or increased on a
quarterly or annual basis in the future. See "Selected Consolidated Financial
Data" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations".
SUBSTANTIAL DEPENDENCE ON TRAFFIC SERVER; UNCERTAINTY OF MARKET ACCEPTANCE;
LENGTHY SALES CYCLE
The Company's future growth substantially depends on the commercial success
of its Traffic Server network cache product, which the Company first licensed
in December 1997 and has licensed to four customers to date. The Company is
initially targeting large telecommunications carriers and Internet Service
Providers ("ISPs") for its Traffic Server product. There can be no assurance
that these potential customers will adopt and implement caching technology
throughout their networks. Even if caching technology is adopted, Traffic
Server may not be accepted and implemented on a timely basis or at all. To
date, Traffic Server has not been installed in a large-scale, commercial
deployment, and there can be no assurance that the product will perform
desired functions, offer sufficient price/performance benefits or meet the
technical or other requirements of customers. Despite testing of the Traffic
Server product prior to its initial commercial release, there can be no
assurance that all performance errors or deficiencies have been discovered and
remedied, that additional errors or deficiencies will not occur, or that if
they occur, the Company will be able to correct such errors and deficiencies.
The Company believes that license of Traffic Server will involve an
enterprise-wide decision-making process and that the Company or its
distribution partners will need to provide a significant level of education
and information to prospective customers regarding the use and benefits of
Traffic Server. In addition, the Company believes that the time required to
deploy Traffic Server will vary significantly depending on a number of
factors, including the needs and skill set of the customer, the size of the
deployment, the complexity of the customer's network environment, the quantity
of hardware and degree of hardware configuration necessary to deploy Traffic
Server, and the customer's
5
<PAGE>
installation schedule. For these and other reasons, the license and deployment
of Traffic Server may be characterized by lengthy sales and implementation
cycles. Failure of Traffic Server to achieve market acceptance for these or
any other reasons would have a material adverse effect on the Company's
business, financial condition and results of operations. See "Business--
Industry Background", "--Products and Customers" and "--Sales and Marketing".
NEED TO EXPAND SALES AND SUPPORT ORGANIZATIONS
To date, the Company has sold its products exclusively through its direct
sales organization, which as of March 31, 1998 consisted of 15 individuals.
The Company believes that its future success is dependent upon substantially
increasing the size of its direct sales force, both domestically and
internationally. Competition for such personnel is intense, and there can be
no assurance that the Company will be able to attract, assimilate or retain
additional qualified sales personnel on a timely basis in the future, or at
all. In addition, the Company believes that its future success is dependent
upon establishing relationships with a variety of distribution partners,
including original equipment manufacturers ("OEMs"), systems integrators,
value added resellers ("VARs") and joint marketing partners. The Company has
had discussions with only a limited number of such distribution partners and
has entered into a written agreement with only one such distributor covering
the territory of Japan. There can be no assurance that the Company will be
able to enter into agreements or establish relationships with desired
distribution partners on a timely basis or at all, or that such distributors
will devote adequate resources to selling the Company's products. Failure of
the Company to successfully expand the size of its sales organization or
establish appropriate distribution channels for its products would have a
material adverse effect on the Company's business, financial condition and
results of operations. Moreover, the Company believes that the complexity of
its products and the large-scale deployments anticipated by its customers will
require a number of highly trained customer service and support personnel. The
Company currently has a small customer service and support organization, which
as of March 31, 1998 consisted of four individuals, and only has limited
experience supporting Traffic Server in commercial deployment. There can be no
assurance that the Company will be able to increase the size of its customer
service and support organization on a timely basis or at all, or that the
Company will be able to provide the high level of support required by its
customers. Failure in either of these regards could have a material adverse
effect on the Company's business, financial condition and results of
operations. See "Risk Factors--Need to Manage Changing Operations; Dependence
upon Key Personnel", "Business--Strategy", "--Sales and Marketing" and "--
Customer Service and Support".
RISKS ASSOCIATED WITH INTERNET SEARCH ENGINE SERVICE
The Company's search services revenues are primarily based upon the volume
of end-user search queries that are processed by the Inktomi search engine and
the level of advertising revenue generated by customers. The Company's
contracts do not require the customer to direct its users to the Company's
search services or to use the search service at all. Accordingly, the Company
is highly dependent upon the willingness of customers to promote and use the
search services provided by the Company, the ability of customers to attract
users to their on-line services, the volume of end-user search queries that
are processed by the Inktomi search engine, and the ability and willingness of
customers to sell advertisements on Internet pages viewed by end users.
Failure of customers to promote and use the Company's services, a low volume
of end-user search queries processed by the Inktomi search engine and lower
than expected levels of advertising revenues will result in lower levels of
revenue generated by the Company, which could have a material adverse effect
on the Company's business, financial condition and results of operations. The
Company's contracts require the Company to provide services in accordance with
certain specifications as to the functionality and performance of the search
experience, the size of the Internet database maintained, the frequency of
refreshing the search database, reliability of the service and search response
speeds. Failure of the Company to
6
<PAGE>
perform in accordance with these specifications could result in the
cancellation of one or more customer contracts. The Company will be required
to expand the capacity of its existing data center and/or build out additional
data centers to adequately provide service. These activities require highly
specialized personnel and involve many difficult installation, tuning and
optimization tasks, and will require the Company to expend substantial
financial and management resources. The Company has in the past experienced
difficulties and delays in expanding and stabilizing the cluster of
workstations in its existing data center. As a result, there can be no
assurance that the Company will be able to expand its infrastructure to meet
increased customer demand on a timely basis. The Company houses its data
centers at hosting facilities operated by independent third parties who take
certain precautions to protect the Company's equipment against damage from
fire, earthquakes, floods, power and telecommunications failures, sabotage,
intentional acts of vandalism and similar events. Despite such precautions,
the occurrence of a natural disaster or other unanticipated problems at
current and future data centers of the Company could result in interruptions
in the search services provided by the Company. Such interruptions could
result in reductions in, or terminations of, service provided to the Company's
customers, which could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Business--
Industry Background" and "--Products and Customers".
POTENTIAL FLUCTUATIONS IN QUARTERLY RESULTS
The Company's operating results may fluctuate significantly in the future as
a result of a variety of factors, many of which are outside of the Company's
control. These factors include demand for Traffic Server, demand for
commercial search services powered by the Company's search technology, lengthy
sales cycles, changes in the growth rate of Internet usage, customers' capital
expenditures and other costs relating to the expansion of their respective
operations, demand for Internet advertising, seasonal trends in advertising
sales, introduction of new products or services by the Company or 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, the Company's ability to anticipate and
effectively adapt to developing markets and rapidly changing technologies,
changes in the mix of international and U.S. revenues, changes in foreign
currency exchange rates, mix of products and services sold and the channels
through which those products and services are sold, general economic
conditions and specific economic conditions in Internet and related
industries. Additionally, as a strategic response to a changing competitive
environment, the Company may elect from time to time to make certain pricing,
service, marketing or acquisition decisions that could have a material adverse
effect on the Company's quarterly financial performance.
Quarterly sales and operating results generated by the Company's search
engine application generally depend on per-query fees and advertising revenues
received from the Company's search engine customers within the quarter, which
are difficult to forecast. Advertising revenues generated by the Company's
search engine customers are all pursuant to short-term contracts and are
subject to seasonal trends in advertising sales. Revenues from per-query fees
depend on the volume of end-user search queries processed by the Inktomi
search engine. The Company does not have any substantial historical basis for
predicting the volume of search queries that may be generated by end users of
on-line services provided by many of its customers. Moreover, the Company's
customers are generally under no obligation to direct its users to the
Company's search engine service or use the search service at all. Accordingly,
a low level of usage by end users or the cancellation or deferral of any
customer contract could have a material adverse effect on the Company's
quarterly financial performance.
The Company expects that a significant portion of its future revenues will
be generated by licenses of Traffic Server and further expects that such
revenues will be derived from orders placed by a limited number of customers.
The Company expects that the volume and timing of such orders and their
fulfillment, all of which are difficult to forecast, will cause material
fluctuations in the Company's
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operating results, particularly on a quarterly basis. The Company expects that
revenues from Traffic Server will also be difficult to forecast because the
Company's sales cycle, from initial evaluation to product shipment, is
expected to vary substantially from customer to customer. Accordingly, the
cancellation or deferral of even a small number of licenses of Traffic Server
could have a material adverse effect on the Company's quarterly financial
performance. Conversely, to the extent significant sales occur earlier than
expected, operating results for subsequent quarters may not compare favorably
with those of earlier quarters.
The Company plans to significantly increase its operating expenses to expand
its sales and marketing operations, broaden its customer support capabilities,
develop new distribution channels, fund greater levels of research and
development, and establish strategic alliances. Because the Company's
operating expenses are based on anticipated revenue trends and because a high
percentage of the Company's expenses are fixed, a delay in generating or
recognizing revenue from a limited number of license transactions could cause
significant variations in operating results from quarter to quarter and could
result in operating losses. To the extent that such expenses are not
subsequently followed by increased revenues, this could have a material
adverse effect on the Company's business, financial condition and results of
operations. As a result of these and other factors, the Company believes that
period to period comparisons of its operating results may not be meaningful
and should not be relied upon as an indication of future performance. Due to
all of the foregoing factors, it is likely that in some future quarter, the
Company's operating results may be below the expectations of public market
analysts and investors. In such event, the price of the Company's Common Stock
would likely be materially adversely affected. See "Risk Factors--Substantial
Dependence on Traffic Server; Uncertainty of Market Acceptance; Lengthy Sales
Cycle", "--Risks Associated with Internet Search Engine Service" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations".
SUBSTANTIAL COMPETITION
The markets in which the Company competes are new, intensely competitive,
highly fragmented and characterized by rapidly changing technology and
evolving standards. The Company faces competition in the overall network
computing software market as well as each of the market segments in which its
products and services compete. The Company has experienced and expects to
continue to experience increased competition from current and potential
competitors, many of whom have significantly greater financial, technical,
marketing and other resources than the Company.
In the market for network cache solutions, the Company competes with
companies including CacheFlow, Inc., Cisco Systems, Inc. ("Cisco"), Microsoft
Corporation ("Microsoft"), Netscape Communications Corp. ("Netscape"), Network
Appliance, Inc., Novell, Inc., and Spyglass, Inc. among others, as well as
against freeware caching solutions including CERN, Harvest and Squid. In
addition, other companies may embed competing technology into other products
such as server or firewall software. 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 Traffic Server. The Company
believes that its software may face competition from other providers of
hardware and software claiming to offer competing solutions to network
infrastructure problems, including networking hardware and companion software
manufacturers such as Ascend Communications, Inc., Bay Networks, Inc., Ciena
Corporation and IBM Corporation; hardware manufacturers such as Digital
Equipment Corporation ("Digital"), Hewlett-Packard Company, Intel Corporation
("Intel"), Motorola, Inc. and Sun Microsystems, Inc. ("Sun");
telecommunications providers such as AT&T, Inc., MCI Telecommunications
Corporation, and regional Bell operating companies; cable TV/communications
providers such as @Home Corporation, Continental Cablevision, Inc.,
TimeWarner, Inc. and regional cable operators; software database companies
such as Informix Corporation, Oracle Corporation and Sybase, Inc.; and large
diversified software and technology companies including Microsoft, Netscape
and others. Cisco, Microsoft and
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Netscape provide or have announced their intentions to provide a range of
software and hardware products based on Internet protocols and to compete in
the broad Internet/intranet software market as well as in specific market
segments in which the Company competes. Cisco, Microsoft and Netscape have
often acquired technology and products from other companies to augment their
product lines, in addition to developing their own technology and products.
The Company competes with a number of companies to provide Internet search
services, many of whom have operated services in the market for a longer
period, have greater financial resources, have established marketing
relationships with leading on-line services and advertisers, and have secured
greater presence in distribution channels. Competitors who offer search
services to on-line service providers include Digital (Alta Vista), Excite,
Inc. ("Excite"), Infoseek Corporation ("Infoseek"), Lycos Corporation
("Lycos"), Northern Light, Inc. and Open Text Corporation, among others.
Increased use and visibility of the Company's search engine services depends
on the Company's ability to maintain highly available and reliable services
across multiple data centers and to maintain the freshness of the search
database.
The Company's competitors may be able to respond more quickly to new or
emerging technologies and changes in customer requirements or devote greater
resources to the development, promotion and sales of their products than the
Company. 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. Also, certain current and potential competitors have
greater name recognition or more extensive customer bases that could be
leveraged, thereby gaining market share to the Company's detriment. Inktomi
expects additional competition as other established and emerging companies
enter the network computing software market and new products and technologies
are introduced. Increased competition could result in price reductions, fewer
customer orders, reduced gross margins and loss of market share, any of which
could materially adversely affect the Company's business, financial condition
and results of operations. Current and potential competitors may make
strategic acquisitions or establish cooperative relationships among themselves
or with third parties, thereby increasing the ability of their products to
address the needs of the Company's prospective customers. The Company's
current or future channel partners may establish cooperative relationships
with current or potential competitors of the Company, thereby limiting the
Company's ability to sell its products through particular distribution
channels. Accordingly, it is possible that new competitors or alliances among
current and new competitors may emerge and rapidly gain significant market
share. Such competition could materially adversely affect the Company's
ability to obtain new contracts and maintenance and support renewals for
existing contracts on terms favorable to the Company. Further, competitive
pressures could require the Company to reduce the prices of its products and
services, which could materially adversely affect the Company's business,
financial condition and results of operations. There can be no assurance that
the Company will be able to compete successfully against current and future
competitors, and the failure to do so would have a material adverse effect
upon the Company's business, financial condition and results of operations.
See "Business--Competition".
NEED TO MANAGE CHANGING OPERATIONS; DEPENDENCE UPON KEY PERSONNEL
The ability of the Company to successfully offer products and services and
implement its business plan in a rapidly evolving market requires an effective
planning and management process. The Company has recently increased the scope
of its operations domestically, established a subsidiary in the United Kingdom
to support European operations, and has grown from 33 employees as of
March 31, 1997 to 88 employees as of March 31, 1998. This growth has placed,
and the Company's anticipated future operations will continue to place, a
significant strain on the Company's management systems and resources. The
Company expects that it will be required to continue to improve its
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financial and managerial controls and reporting systems and procedures, and
will need to expand, train and manage its work force worldwide. Furthermore,
the Company expects that it will be required to manage multiple relationships
with various customers and other third parties. There can be no assurance that
the Company will be able to effectively manage these tasks, and the failure to
do so could have a material adverse effect on the Company's business,
financial condition and results of operations. The Company intends to hire a
significant number of additional sales, support, marketing, and research and
development personnel in 1998 and beyond. Competition for such personnel is
intense, and there can be no assurance that the Company will be able to
attract, assimilate or retain additional highly qualified personnel in the
future. If the Company is unable to hire and retain such personnel,
particularly those in key positions, the Company's business, financial
condition and results of operations may be materially adversely affected. The
Company's future success also depends in significant part upon the continued
service of its executive officers and other key sales, marketing and support
personnel. In addition, the Company's products and technologies are complex
and the Company is substantially dependent upon the continued service of its
existing engineering personnel, and especially the founders of the Company,
many of whom have advanced degrees. None of the Company's officers or
employees are bound by an employment agreement for any specific term and the
relationships of such officers and employees with the Company is, therefore,
at will. The Company does not have "key person" life insurance policies
covering any of its employees. The loss of the services of any of its
executive officers, engineering personnel or other key employees would have a
material adverse effect on the business, financial condition and results of
operations of the Company. See "Business--Employees" and "Management".
CUSTOMER CONCENTRATION
The Company has only recently commercially released Traffic Server and, to
date, the Company has generated a substantial portion of its revenues from
contracts with five search engine customers. Of these customers, Wired
Digital, Inc. ("Wired") and Nippon Telegraph and Telephone Corporation ("NTT")
accounted for approximately 79% and 13%, respectively, of total revenues
generated by the Company for the year ended September 30, 1997. For the six
months ended March 31, 1998, Wired, NTT and Microsoft accounted for 59%, 6%
and 20% of total revenues, respectively. The Company expects that a small
number of customers will continue to account for a substantial portion of
revenues for the foreseeable future. As a result, the loss of a major customer
or, in the case of the Company's search engine customers, a decline in the
usage of any such customer's search service, could have a material adverse
effect on the Company's business, financial condition and results of
operations. In addition, there can be no assurance that customers that have
accounted for significant revenues in past periods, individually or as a
group, will continue to generate revenues in any future period. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations".
RISKS OF INFRINGEMENT AND PROPRIETARY RIGHTS
Because materials may be downloaded by the search services operated or
facilitated by the Company, or may be copied and stored by customers that have
deployed the Company's Traffic Server product, and, in either case, may be
subsequently distributed to others, there is a potential that claims will be
made against the Company (directly or through contractual indemnification
provisions with customers) for defamation, negligence, copyright or trademark
infringement, personal injury or other theories based on the nature and
content of such materials. Such claims have been brought, and sometimes
successfully pressed, against on-line services in the past. It is also
possible that if any information provided through the search services operated
or facilitated by the Company or information that is copied and stored by
customers that have deployed Traffic Server, such as stock quotes, analyst
estimates or other trading information, contains errors, third parties could
make claims against the Company for losses incurred in reliance on such
information. Although the Company carries general liability insurance, the
Company's insurance may not cover potential claims of this type or may
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not be adequate to indemnify the Company for all liability that may be
imposed. Any imposition of liability or legal defense expenses that are not
covered by insurance or is in excess of insurance coverage could have a
material adverse effect on the Company's business, financial condition and
results of operations.
The Company's success and ability to compete are substantially dependent
upon its internally developed technology. While the Company relies on
copyright, trade secret and trademark law to protect its technology, the
Company believes that factors such as the technological and creative skills of
its personnel, new product developments, frequent product enhancements and
reliable product maintenance are more essential to establishing and
maintaining a technology leadership position. There can be no assurance that
others will not develop technologies that are similar or superior to the
Company's technology. The Company generally enters into confidentiality or
license agreements with its employees, consultants and corporate partners, and
generally controls access to and distribution of its software, documentation
and other proprietary information. Despite the Company's efforts to protect
its proprietary rights, unauthorized parties may attempt to copy or otherwise
obtain and use the Company's products or technology. Policing unauthorized use
of the Company's products is difficult, and there can be no assurance that the
steps taken by the Company will prevent misappropriation of its technology,
particularly in foreign countries where the laws may not protect the Company's
proprietary rights as fully as do the laws of the United States. Substantial
litigation regarding intellectual property rights exists in the software
industry, and the Company expects that software products may be increasingly
subject to third-party infringement claims as the number of competitors in the
Company's industry segments grows and the functionality of products in
different industry segments grows. There can be no assurance that third
parties will not claim infringement by the Company with respect to its
software or enhancements thereto. Any such claims, with or without merit,
could be time-consuming to defend, result in costly litigation, divert
management's attention and resources, cause product shipment delays or require
the Company to enter into royalty or licensing agreements. Such royalty or
licensing agreements, if required, may not be available on terms acceptable to
the Company, if at all. A successful claim of product infringement against the
Company and failure or inability of the Company to license the infringed or
similar technology could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Business--
Proprietary Rights".
DEPENDENCE ON STRATEGIC RELATIONSHIPS
The Company believes that its success in penetrating markets for its Traffic
Server product and search engine application depends in part on its ability to
develop and maintain strategic relationships with key hardware and software
vendors, distribution partners and customers. The Company further believes
that such relationships are important in order to validate the Company's
technology, facilitate broad market acceptance of the Company's products, and
enhance the Company's sales, marketing and distribution capabilities. The
Company's inability to attract or retain strategic relationships, or the
termination of one or more successful relationships could have a material
adverse effect on the Company's business, financial condition and results of
operations. In addition, the Company has from time to time licensed certain
minor components from third parties such as reporting functions and security
features and incorporated them into the Company's products. Failure of such
third parties to maintain or enhance their products could impair the
functionality of the Company's products and could require the Company to
obtain alternative products from other sources or to develop such software
internally, either of which could involve costs and delays as well as
diversion of engineering resources. See "Business--Sales and Marketing".
RISKS ASSOCIATED WITH NEW VERSIONS OF SOFTWARE AND NEW PRODUCTS; RAPID
TECHNOLOGICAL CHANGE
The Company's future growth depends on its successful and timely
introduction of new products and services in markets that do not currently
exist or are rapidly evolving. The markets for the
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Company's products are characterized by rapid technological change, frequent
new product introductions, changes in customer demands and evolving industry
standards. The introduction of products embodying new technologies and the
emergence of new industry standards can render existing products obsolete and
unmarketable. The Company's future success will depend upon its ability to
address the increasingly sophisticated needs of its customers by developing
and introducing enhancements to its software on a timely basis that keep pace
with technological developments, emerging industry standards and customer
requirements. There can be no assurance that the Company will be successful in
developing and marketing enhancements to its software that respond to
technological change, evolving industry standards or customer requirements,
that the Company will not experience difficulties that could delay or prevent
the successful development, introduction and sale of such enhancements or that
such enhancements will adequately meet the requirements of the marketplace and
achieve any significant degree of market acceptance. The Company has in the
past experienced delays in the release dates of new products and product
enhancements. Any material delay in the release dates of future products or
enhancements or any failure of such future products or enhancements to achieve
market acceptance when released, could have a material adverse effect on the
Company's business, financial condition and results of operations. There can
be no assurance that the introduction or announcement of new product offerings
by the Company or the Company's competitors will not cause customers to defer
or forego purchases of current versions of the Company's software, which could
have a material adverse effect on the Company's business, financial condition
and results of operations.
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS
The Company markets and sells its products in the United States and
internationally. The Company recently established a subsidiary located in the
United Kingdom to market and sell the Company's products in Europe and plans
to establish additional facilities in other parts of the world. The Company's
expansion of its existing international operations and entry into additional
international markets will require significant management attention and
financial resources. If international revenues generated by the Company are
not adequate to offset the expense of establishing and maintaining foreign
operations, the Company's business, financial condition and results of
operations would be materially adversely affected. To date, the Company has
only limited experience in developing localized versions of its products and
marketing and distributing its products internationally. There can be no
assurance that the Company will be able to successfully market, sell and
deliver its products in these international markets. International operations
are subject to inherent risks, including the impact of possible recessionary
environments in economies outside the United States, costs of localizing
products for foreign markets, longer receivables collection periods and
greater difficulty in accounts receivable collection, unexpected changes in
regulatory requirements, difficulties and costs of staffing and managing
foreign operations, reduced protection for intellectual property rights in
some countries, potentially adverse tax consequences and political and
economic instability. There can be no assurance that the Company or its
distribution partners will be able to sustain or increase international
revenues, or that the foregoing factors will not have a material adverse
effect on the Company's future international revenues and, consequently, on
the Company's business, financial condition and results of operations. The
Company's international revenues are generally denominated in local
currencies. The Company does not currently engage in currency hedging
activities. Although exposure to currency fluctuations to date has been
insignificant, there can be no assurance that fluctuations in currency
exchange rates in the future will not have a material adverse impact on
revenues from international sales and thus the Company's business, financial
condition and results of operations. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and "Business--Sales and
Marketing".
YEAR 2000 RISKS
The potential for software failures due to processing errors arising from
calculations using the year 2000 date is a known risk. The Company recognizes
the need to ensure that its operations, products
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and services will not be adversely impacted by Year 2000 software failures.
The Company has established procedures for evaluating and managing the risks
and costs associated with this problem and believes that its internal computer
systems, including its accounting, sales and technical support automation
systems, are currently Year 2000 compliant. However, there can be no guarantee
that the systems of other companies on which the Company's systems and
operations rely will be able to handle all Year 2000 problems.
In addition, although the Company believes that its search engine
application and Traffic Server are Year 2000 compliant, there can be no
assurance that the Company's software products contain all necessary date code
changes. Furthermore, many of the Company's customers use Internet protocols
and maintain their Internet operations on servers that may be impacted by Year
2000 complications. Reliance on such Internet protocols or the failure of the
Company's customers to ensure that their servers are Year 2000 compliant could
have a material adverse effect on the Company's customers and the Company's
products and search services, which in turn could have a material adverse
effect on the Company's business, financial condition and results of
operations.
RISKS ASSOCIATED WITH POTENTIAL ACQUISITIONS
The Company may in the future pursue acquisitions of complementary products,
technologies or businesses. Future acquisitions by the Company may result in
potentially dilutive issuances of equity securities and the incurrence of
additional debt and amortization expenses related to goodwill and other
intangible assets, which could adversely affect the Company's results of
operations. In addition, acquisitions involve numerous risks, including
difficulties in the assimilation of the operations, products and personnel of
the acquired company, the diversion of management's attention from other
business concerns, risks of entering markets in which the Company has no
direct prior experience, and the potential loss of key employees of the
acquired company. There can be no assurance that the Company will ever
successfully complete an acquisition.
GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES
The Company is not currently subject to direct regulation by any government
agency, other than regulations applicable to businesses generally, and there
are currently few laws or regulations directly applicable to access to or
commerce on the Internet. However, due to the increasing popularity and use of
the Internet, it is possible that a number of laws and regulations may be
adopted at the local, state, national or international levels with respect to
the Internet, covering issues such as user privacy, pricing, taxation,
advertising, intellectual property rights, information security or the
convergence of traditional communications services with Internet
communications. The Telecommunications Reform Act of 1996 imposes criminal
penalties (via the Communications Decency Act) on anyone who distributes
obscene communications on the Internet knowing that the recipient of the
communications is under 18 years of age. Other nations, including Germany,
have taken actions to restrict the free flow of material deemed to be
objectionable on the Internet. In addition, the applicability to the Internet
of existing laws governing issues such as property ownership, copyrights and
other intellectual property issues, taxation, libel and personal privacy is
uncertain. The vast majority of such laws were adopted prior to the advent of
the Internet and related technologies and, as a result, do not contemplate or
address the unique issues of the Internet and related technologies. Changes to
such laws or adoption of additional laws or regulations intended to address
these issues, including some recently proposed changes, could create
uncertainty in the marketplace which could reduce demand for the Company's
products and services, could increase the Company's cost of doing business as
a result of compliance, could result in litigation or could in some other
manner have a material adverse effect on the Company's business, financial
condition and results of operations.
DISCRETION AS TO USE OF PROCEEDS
The Company's management will have discretion to allocate a large percentage
of the proceeds from this offering to uses which the stockholders may not deem
desirable, and there can be no
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assurance that the proceeds can or will be invested to yield a significant
return. See "Use of Proceeds".
NO PUBLIC MARKET FOR COMMON STOCK; POTENTIAL VOLATILITY OF STOCK PRICE
Prior to this offering, there has been no public market for the Common
Stock, and there can be no assurance that an active trading market will
develop or, if one does develop, that it will be maintained. The initial
public offering price, which will be determined through negotiations between
the Company and the Underwriters, may not be indicative of prices that will
prevail in the trading market. In addition, the securities markets have from
time to time experienced significant price and volume fluctuations that are
unrelated to the operating performance of particular companies. The market
prices of the common stock of many publicly held Internet companies have in
the past been, and can in the future be expected to be, especially volatile.
The market price of the Company's Common Stock is likely to be highly volatile
and may be subject to wide fluctuations in response to announcements of
technological innovations or new products by the Company or its competitors,
release of reports by securities analysts, developments or disputes concerning
patents or proprietary rights, economic and other external factors, as well as
period-to-period fluctuations in the Company's financial results. See
"Underwriting".
CONTROL BY OFFICERS AND DIRECTORS
The Company anticipates that the executive officers, directors and entities
affiliated with them will, in the aggregate, beneficially own approximately
45% of the Company's outstanding Common Stock following the completion of this
offering. These stockholders, if acting together, would be able to
significantly influence all matters requiring approval by the stockholders of
the Company, including the election of directors and the approval of mergers
or other business combination transactions. See "Principal and Selling
Stockholders".
EFFECT OF CERTAIN CHARTER PROVISIONS; LIMITATION OF LIABILITY OF DIRECTORS;
ANTITAKEOVER EFFECTS OF DELAWARE LAW
Effective upon completion of this offering, the Company will be authorized
to issue 10,000,000 shares of undesignated Preferred Stock. The Board of
Directors has the authority to issue the Preferred Stock in one or more series
and to fix the price, rights, preferences, privileges and restrictions
thereof, including dividend rights, dividend rates, conversion rights, voting
rights, terms of redemption, redemption prices, liquidation preferences and
the number of shares constituting a series or the designation of such series,
without any further vote or action by the Company's stockholders. The issuance
of Preferred Stock, while providing desirable flexibility in connection with
possible acquisitions and other corporate purposes, could have the effect of
delaying, deferring or preventing a change in control of the Company without
further action by the stockholders and may adversely affect the market price
of the Common Stock and the voting and other rights of the holders of Common
Stock. The issuance of Preferred Stock with voting and conversion rights may
adversely affect the voting power of the holders of Common Stock, including
the loss of voting control to others. The Company has no current plans to
issue any shares of Preferred Stock.
Certain provisions of the Company's Certificate of Incorporation and Bylaws
eliminate the right of stockholders to act by written consent without a
meeting, eliminate the right of stockholders to vote cumulatively in the
election of directors (subject to compliance with California corporate law),
provide for a classified Board of Directors and specify certain procedures for
nominating directors and submitting proposals for consideration at stockholder
meetings. Such provisions are intended to enhance the likelihood of continuity
and stability in the composition of the Board of Directors and in the policies
formulated by the Board of Directors and to discourage certain types of
transactions which may involve an actual or threatened change of control of
the Company. Such provisions are designed
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to reduce the vulnerability of the Company to an unsolicited acquisition
proposal and, accordingly, could discourage potential acquisition proposals
and could delay or prevent a change in control of the Company. Such provisions
are also intended to discourage certain tactics that may be used in proxy
fights but could, however, have the effect of discouraging others from making
tender offers for the Company's Common Stock and, consequently, may also
inhibit fluctuations in the market price of the Company's Common Stock that
could result from actual or rumored takeover attempts. These provisions may
also have the effect of preventing changes in the management of the Company.
The Company is subject to Section 203 of the Delaware General Corporation
Law (the "Antitakeover Law"), which regulates corporate acquisitions. The
Antitakeover Law prevents certain Delaware corporations, including those whose
securities are listed for trading on the Nasdaq National Market, from
engaging, under certain circumstances, in a "business combination" with any
"interested stockholder" for three years following the date that such
stockholder became an interested stockholder. For purposes of the Antitakeover
Law, a "business combination" includes, among other things, a merger or
consolidation involving the Company and the interested stockholder and the
sale of more than 10% of the Company's assets. In general, the Antitakeover
Law defines an "interested stockholder" as any entity or person beneficially
owning 15% or more of the outstanding voting stock of the Company and any
entity or person affiliated with or controlling or controlled by such entity
or person. A Delaware corporation may "opt out" of the Antitakeover Law with
an express provision in its original certificate of incorporation or an
express provision in its certificate of incorporation or bylaws resulting from
amendments approved by the holders of at least a majority of the company's
outstanding voting shares. The Company has not opted out of the provisions of
the Antitakeover Law. See "Description of Capital Stock".
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of the Company's Common Stock (including shares
issued upon the exercise of outstanding options and warrants) in the public
market following this offering could adversely affect the market price of the
Common Stock. Such sales also might make it more difficult for the Company to
sell equity or equity-related securities in the future at a time and price
that the Company deems appropriate. In addition to the 2,200,000 shares of
Common Stock offered hereby (assuming no exercise of the Underwriters' over-
allotment option), as of the date of this Prospectus, there will be 18,331,813
shares of Common Stock outstanding, all of which are restricted shares (the
"Restricted Shares") under the Securities Act of 1933, as amended (the
"Securities Act"). As of such date, no Restricted Shares will be eligible for
sale in the public market. Following the expiration of the 180-day lock-up
agreements with the representatives of the Underwriters, the Restricted Shares
will be eligible for sale from time to time thereafter upon expiration of
applicable holding periods under Rule 144 under the Securities Act. In
addition, as of March 31, 1998, there were options outstanding to purchase
2,023,320 shares of Common Stock, and warrants outstanding to purchase
1,376,272 shares of Common Stock (of which approximately 562,446 shares are
expected to be issued prior to the closing of the offering upon the exercise
of warrants), and all of such options and warrants are subject to lock-up
agreements. Goldman, Sachs & Co. may, in their sole discretion and at any time
without notice, release all or any portion of the securities subject to lock-
up agreements. In addition, the holders of 13,505,477 Restricted Shares are
entitled to certain rights with respect to registration of such shares for
sale in the public market. If such holders sell in the public market, such
sales could have a material adverse effect on the market price of the
Company's Common Stock. See "Description of Capital Stock--Registration
Rights", "Shares Eligible for Future Sale" and "Underwriting."
Immediately after this offering, the Company intends to register
approximately 3,323,320 shares of Common Stock subject to outstanding options
and reserved for issuance under its stock option and purchase plans. See
"Management--Incentive Stock Plans" and "Shares Eligible for Future Sale".
15
<PAGE>
NO INTENTION TO PAY DIVIDENDS; DILUTION
The Company has never declared or paid any cash dividends on its capital
stock. The Company currently intends to retain any future earnings for funding
growth and, therefore, does not anticipate paying any dividends in the
foreseeable future. See "Dividend Policy". The initial public offering price
will be substantially higher than the net tangible book value per share of
Common Stock. Investors purchasing shares of Common Stock in this offering
will therefore incur immediate and substantial net tangible book value
dilution. See "Dilution".
16
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,000,000 shares of
Common Stock offered by the Company are estimated to be $23,480,000 at an
assumed initial public offering price of $13.00 per share, after deducting the
estimated underwriting discounts and commissions and estimated offering
expenses payable by the Company ($27,469,700 if the over-allotment option is
exercised in full).
The principal purposes of the offering made hereby are to create a public
market for the Common Stock, to facilitate future access to public capital
markets and to improve the Company's financial position. The Company expects
to use the balance of the net proceeds for working capital and general
corporate purposes. In addition, the Company may use a portion of the net
proceeds to acquire complementary products, technologies or businesses;
however, it currently has no commitments or agreements and is not involved in
any negotiations with respect to any such transactions. Pending use of the net
proceeds of this offering, the Company intends to invest the net proceeds in
interest-bearing, investment-grade securities. The Company will not receive
any proceeds from the sale of the shares being sold by the Selling
Stockholders. See "Principal and Selling Stockholders".
DIVIDEND POLICY
The Company has never declared or paid any dividends on its capital stock.
The Company currently expects to retain future earnings, if any, for use in
the operation and expansion of its business and does not anticipate paying any
cash dividends in the foreseeable future. The covenants made by the Company
under its existing line of credit prohibit the payment of dividends.
17
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of March
31, 1998 (i) on an actual basis, (ii) on a pro forma basis to reflect the
automatic conversion of all outstanding shares of Preferred Stock into Common
Stock upon the closing of this offering and 562,446 shares of Common Stock
expected to be issued upon the exercise of certain outstanding warrants prior
to completion of the offering, and (iii) on an as adjusted basis to give
effect to the receipt by the Company of the estimated net proceeds from the
sale of 2,000,000 shares of Common Stock offered by the Company hereby at an
assumed initial public offering price of $13.00 per share:
<TABLE>
<CAPTION>
MARCH 31, 1998
------------------------------
(UNAUDITED)
AS
ACTUAL PRO FORMA ADJUSTED
-------- ----------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Long-term obligations, less current portion.... $ 5,191 $ 5,191 $ 5,191
Stockholders' equity:
Preferred Stock: $.001 par value, 20,680,000
shares authorized, 19,460,485 issued and
outstanding, actual; 10,000,000 shares
authorized, pro forma and as adjusted, none
issued and outstanding....................... 13 -- --
Common Stock: $.001 par value, 50,000,000
shares authorized, 4,931,468 issued and
outstanding, actual; 100,000,000 shares
authorized, 18,531,813 shares issued and
outstanding, pro forma; 20,531,813 shares
issued and outstanding, as adjusted(1)....... 5 19 21
Additional paid-in capital.................... 32,730 34,994 56,479
Other......................................... 587 587 587
Accumulated deficit........................... (20,074) (20,074) (20,074)
-------- -------- --------
Total stockholders' equity.................... 13,261 15,526 37,013
-------- -------- --------
Total capitalization.......................... $ 18,452 $ 20,717 $ 42,204
======== ======== ========
</TABLE>
- --------
(1) Includes 562,446 shares of Common Stock expected to be issued upon the
exercise of certain outstanding warrants prior to completion of this
offering. Excludes 3,323,320 shares of Common Stock reserved for issuance
under the Company's stock option and stock purchase plans, of which
2,023,320 shares were subject to outstanding options as of March 31, 1998,
and 813,826 shares of Common Stock issuable upon exercise of outstanding
warrants. See "Management--Incentive Stock Plans", "Description of Capital
Stock" and Notes 10 and 11 of Notes to Consolidated Financial Statements.
18
<PAGE>
DILUTION
The pro forma net tangible book value of the Company as of March 31, 1998
was $13,308,000 or approximately $0.72 per share. Pro forma net tangible book
value per share represents the amount of the Company's pro forma total
tangible assets less total liabilities, divided by the pro forma number of
shares of Common Stock outstanding. Dilution in pro forma net tangible book
value per share represents the difference between the amount per share paid by
purchasers of shares of Common Stock in the offering made hereby and the net
tangible book value per share of Common Stock immediately after the completion
of this offering. After giving effect to the sale of the 2,000,000 shares of
Common Stock offered by the Company hereby at an assumed initial public
offering price of $13.00 per share and after deducting the estimated
underwriting discounts and offering expenses payable by the Company, the pro
forma net tangible book value of the Company at March 31, 1998 would have been
$37,013,000 or approximately $1.79 per share. This represents an immediate
increase in pro forma net tangible book value of $1.07 per share to existing
stockholders and an immediate dilution in net tangible book value of $11.21
per share to new investors of Common Stock in this offering. The following
table illustrates this dilution on a per share basis:
<TABLE>
<S> <C> <C>
Assumed public offering price per share........................... $13.00
Pro forma net tangible book value per share as of March 31, 1998.. $0.72
Increase per share attributable to new investors(1)............... 1.07
-----
Pro forma net tangible book value per share after the offering(1). 1.79
------
Dilution in net tangible book value per share to new investors(1). $11.21
======
</TABLE>
- --------
(1) The foregoing table includes 562,446 shares of Common Stock expected to be
issued upon the exercise of certain outstanding warrants prior to
completion of this offering. The foregoing table excludes 3,323,320 shares
of Common Stock reserved for issuance under the Company's stock option and
stock purchase plans, of which 2,023,320 shares were subject to
outstanding options as of March 31, 1998, and 813,826 shares of Common
Stock were issuable upon exercise of outstanding warrants. See
"Capitalization", "Management--Incentive Stock Plans", "Description of
Capital Stock" and Notes 10 and 11 of Notes to Consolidated Financial
Statements.
The following table sets forth, on a pro forma basis as of March 31, 1998,
the differences between the number of shares of Common Stock purchased from
the Company, the total consideration paid and the average price per share paid
by existing holders of Common Stock and by the new investors, before deducting
the underwriting discount and offering expenses payable by the Company, at an
assumed public offering price of $13.00 per share.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
----------------- --------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
-------- -------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1)..... 18,532 90.3% $ 35,013 57.4% $ 1.89
New investors(1)............. 2,000 9.7 26,000 42.6 13.00
-------- ------- ---------- --------
Total...................... 20,532 100.0% $ 61,013 100.0%
======== ======= ========== ========
</TABLE>
- --------
(1) Sales by the Selling Stockholders in this offering will reduce the number
of shares of Common Stock held by existing stockholders to 18,331,813 or
approximately 89.3% (approximately 87.9%, if the Underwriters' over-
allotment option is exercised in full) of the total number of shares of
Common Stock outstanding upon the closing of this offering, and the number
of shares held by new public investors will be 2,200,000 or approximately
10.7% (2,530,000 shares, or approximately 12.1%, if the Underwriters'
over-allotment option is exercised in full) of the total number of shares
of Common Stock outstanding after this offering. See "Principal and
Selling Stockholders".
19
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements and the
Notes thereto of the Company included elsewhere in this Prospectus. The
statement of operations data set forth below for the period from February 2,
1996 (inception) to September 30, 1996 and for the fiscal year ended September
30, 1997 have been derived from the audited financial statements of the
Company included elsewhere in this Prospectus, which have been audited by
Coopers & Lybrand L.L.P., Independent Accountants. The selected consolidated
financial data for the six months ended March 31, 1997 and 1998 have been
derived from unaudited consolidated financial statements prepared by the
Company on a basis consistent with the Company's audited Consolidated
Financial Statements and, in the opinion of management, include all
adjustments, consisting only of normal recurring accruals, necessary for a
fair presentation of the results of such periods. The historical results are
not necessarily indicative of results to be expected for any future period.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations".
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FEBRUARY 2, 1996 FISCAL YEAR MARCH 31,
(INCEPTION) TO ENDED (UNAUDITED)
SEPTEMBER 30, SEPTEMBER 30, ------------------
1996 1997 1997 1998
---------------- ------------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA
Revenues:
Network applications...... $ -- $ 60 $ -- $ 691
Search services........... 530 5,725 2,282 5,185
------- ------- -------- --------
Total revenues.......... 530 5,785 2,282 5,876
Cost of revenues........... 239 1,512 466 1,695
------- ------- -------- --------
Gross profit.............. 291 4,273 1,816 4,181
Operating expenses:
Sales and marketing....... 898 7,043 2,661 6,521
Research and development.. 1,483 4,210 1,665 3,814
General and
administrative........... 1,341 1,486 602 1,639
------- ------- -------- --------
Total operating
expenses............... 3,722 12,739 4,928 11,974
------- ------- -------- --------
Operating loss............. (3,431) (8,466) (3,112) (7,793)
Interest expense, net...... 102 194 78 83
------- ------- -------- --------
Loss before income taxes... (3,533) (8,660) (3,190) (7,876)
Provision for income taxes. 1 2 1 1
------- ------- -------- --------
Net loss................... $(3,534) $(8,662) $ (3,191) $ (7,877)
======= ======= ======== ========
Pro forma basic and diluted
net loss per share(1)..... $ (0.72) $ (0.46)
======= ========
Weighted average shares
outstanding used in pro
forma per share
calculation(1)............ 12,030 17,135
======= ========
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1998
--------------
(IN THOUSANDS)
(UNAUDITED)
<S> <C>
CONSOLIDATED BALANCE SHEET DATA
Cash and cash equivalents...................................... $17,133
Working capital................................................ 11,980
Total assets................................................... 25,294
Debt and capital lease obligations, less current portion....... 5,191
Total stockholders' equity..................................... 13,261
</TABLE>
- --------
(1) See Note 1 of Notes to Consolidated Financial Statements for an
explanation of the determination of the weighted average common and common
equivalent shares used to compute net loss per share.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations contains forward-looking statements based upon
current expectations that involve risks and uncertainties. The Company's
actual results and the timing of certain events could differ materially from
those anticipated in these forward-looking statements as a result of certain
factors, including those set forth under "Risk Factors" and elsewhere in this
Prospectus.
OVERVIEW
Inktomi was incorporated in February 1996 to develop and market scalable
software applications designed to significantly enhance the performance and
intelligence of large-scale networks. From February 1996 to May 1996, the
Company's operations consisted primarily of start-up activities, including
research and development of the Company's core coupled cluster software
architecture and dataflow technology, personnel recruiting and capital
raising. In May 1996, the Company released the first commercial application
based on its core technology, a search engine that enables customers to
provide a variety of Internet search services to end users. In December 1997,
the Company first licensed Traffic Server, the Company's second application, a
large-scale network cache designed to address capacity constraints in high-
traffic network routes.
Inktomi generates search services revenues through a variety of contractual
arrangements, which include per-query search fees, search service hosting
fees, advertising revenue, license fees and/or maintenance fees. Per-query,
hosting and maintenance fees revenues are recognized in the period earned, and
advertising revenues are recognized in the period that the advertisement is
displayed.
Network applications revenues are composed of Traffic Server license,
consulting, support and maintenance fees. Traffic Server license fees are
recognized upon shipment of the software. Consulting, support and maintenance
fees are recognized ratably over the service period.
The Company has only recently commercially released Traffic Server and has
generated only limited revenues from licenses of the product. To date, the
Company has generated substantially all of its revenues from contracts with
five search engine customers. Of these customers, Wired and NTT accounted for
approximately 79% and 13%, respectively, of total revenues generated by the
Company for the fiscal year ended September 30, 1997. For the six months ended
March 31, 1998, Wired, NTT and Microsoft accounted for 59%, 6% and 20% of
total revenues, respectively. The Company expects that a small number of
customers will continue to account for a substantial portion of revenues for
the foreseeable future. As a result, the loss of a major customer or, in the
case of the Company's search engine customers, a decline in the usage of any
such customer's search service, could have a material adverse effect on the
Company's business, financial condition and results of operations. In
addition, there can be no assurance that customers that have accounted for
significant revenues in past periods, individually or as a group, will
continue to generate revenues in any future period.
The Company has a limited operating history upon which it may be evaluated.
Any investment in the Company must be considered in light of the risks,
expenses and difficulties frequently encountered by companies in an early
stage of development in new and rapidly evolving markets. These risks include
the Company's substantial dependence on two products with only limited market
acceptance, need to expand its sales and support organizations, competition,
need to manage changing operations, customer concentration, reliance on
strategic personnel and dependence upon key personnel, as well as dependence
upon the Internet, general economic conditions and other factors. There can be
no assurance that the Company will be successful in addressing such risks. The
Company incurred a net
21
<PAGE>
loss of $3.5 million for the period from inception through September 30, 1996,
$8.7 million for the fiscal year ended September 30, 1997, and $7.9 million
for the six months ended March 31, 1998. As of March 31, 1998, the Company had
an accumulated deficit of $20.1 million. The Company has not achieved
profitability on a quarterly or annual basis and the Company anticipates that
it will incur net losses for at least the next several quarters. The Company
expects to continue to incur significant product development, sales and
marketing, and administrative expenses and, as a result, will need to generate
significant quarterly revenues to achieve and maintain profitability. There
can be no assurance that any of the Company's business strategies will be
successful or that significant revenues or profitability will ever be achieved
or, if they are achieved, that they can be consistently sustained or increased
on a quarterly or annual basis in the future.
RESULTS OF OPERATIONS
The following table sets forth the results of operations for the Company
expressed as a percentage of revenues. The Company's historical operating
results are not necessarily indicative of the results for any future period.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
FEBRUARY 2, 1996 FISCAL YEAR MARCH 31,
(INCEPTION) TO ENDED (UNAUDITED)
SEPTEMBER 30, SEPTEMBER 30, -------------
1996 1997 1997 1998
---------------- ------------- ----- -----
(AS A PERCENTAGE OF TOTAL REVENUES)
<S> <C> <C> <C> <C>
Revenues:
Network applications............ 0% 1% 0% 12%
Search services................. 100 99 100 88
---- ---- ----- -----
Total revenues................ 100 100 100 100
Cost of revenues................. 45 26 20 29
---- ---- ----- -----
Gross profit.................... 55 74 80 71
---- ---- ----- -----
Operating expenses:
Sales and marketing............. 169 122 117 111
Research and development........ 280 73 73 65
General and administrative...... 253 26 27 28
---- ---- ----- -----
Total operating expenses...... 702 221 217 204
---- ---- ----- -----
Operating loss................... (647) (147) (137) (133)
Interest expense, net............ 20 3 3 1
---- ---- ----- -----
Loss before income taxes......... (667) (150) (140) (134)
Provision for income taxes....... 0 0 0 0
---- ---- ----- -----
Net loss......................... (667)% (150)% (140)% (134)%
==== ==== ===== =====
</TABLE>
SIX MONTHS ENDED MARCH 31, 1998 AND 1997
REVENUES
Search services revenues comprise search advertising, licensing and
maintenance fees. A significant portion of advertising revenues are derived
from the HotBot search service maintained by the Company and marketed by
Wired.
Total revenues increased to $5.9 million for the six months ended March 31,
1998 from $2.3 million for the same period of 1997. This increase was due to
increased revenues from its HotBot search service, as well as revenues
generated through additional contract signings and search service launches and
revenues generated from the Company's Traffic Server product first licensed in
early
22
<PAGE>
fiscal year 1998. Traffic Server revenues comprised 12% of total revenues in
the six months ended March 31, 1998. Search services revenues represented 88%
of total revenues during the same period. In the six months ended March 31,
1997, substantially all revenues were generated by the Company's search
services. A portion of the advertising on the HotBot site is exchanged for
advertisements on the Internet sites of other companies. The value of these
advertisements is recognized as barter revenue by the Company. Barter revenues
represented 15% and 32% of total revenues for the six-month periods ended
March 31, 1998 and 1997, respectively. The Company anticipates that barter
revenue will comprise a decreasing percentage of total revenues in future
years.
COST OF REVENUES
Cost of revenues consists primarily of expenses related to the operation of
the Company's search services, which comprise depreciation and network
charges. Cost of revenues increased to $1.7 million for the six months ended
March 31, 1998 from $0.5 million for the six months ended March 31, 1997. The
increase was due primarily to increased depreciation and network charges
resulting from an expansion of the Company's data center in California during
fiscal year 1997. The Company expects cost of revenues to increase
substantially in absolute dollars in fiscal year 1998 as a result of a full
year of expanded cluster operation costs.
SALES AND MARKETING EXPENSES
Sales and marketing expenses consist of personnel and related costs for the
Company's direct sales force and marketing staff and marketing programs,
including trade shows and advertising. Sales and marketing expenses also
include marketing costs related to the Company's support of the HotBot search
site. Sales and marketing expenses increased to $6.5 million for the six
months ended March 31, 1998 from $2.7 million for the six months ended March
31, 1997. The increase was primarily due to an increase in the number of sales
and marketing personnel, increased HotBot marketing expenses, and expenses
incurred in connection with attendance at trade shows and marketing programs.
The Company expects that sales and marketing expenses will increase
substantially in absolute dollars over the next 12 months as the Company hires
additional sales and marketing personnel, initiates additional marketing
programs to support its Traffic Server product and establishes sales offices
in additional domestic and international locations.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses consist primarily of personnel and related
costs for the Company's development and technical support efforts. Research
and development expenses increased to $3.8 million for the six months ended
March 31, 1998 from $1.7 million for the same period in 1997. The increase was
primarily due to an increase in the number of research and development
personnel to support expansion of the Company's search engine business,
creation of the Company's Traffic Server product, and increases in quality
assurance and technical publications personnel. The Company believes
significant investment in research and development is essential to its future
success and expects that research and development expenses will increase in
absolute dollars in future periods. The Company has not capitalized any
software development expenses to date.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses consist primarily of personnel and
related costs for general corporate functions, including finance, accounting,
human resources, facilities and legal. General and administrative expenses
increased to $1.6 million for the six months ended March 31, 1998 from $0.6
million for the same period of 1997. This increase was due primarily to an
increase in the number of general and administrative personnel and increased
legal and accounting costs incurred in connection with business and financing
activities.
23
<PAGE>
INTEREST EXPENSE, NET
Interest expense, net includes income from the Company's cash and
investments, and expenses related to the Company's financing obligations.
Interest expense was $0.1 million for the six months ended March 31, 1998,
consistent with the prior year.
YEAR AND PERIOD ENDED SEPTEMBER 30, 1997 AND 1996
The Company's fiscal year runs from October 1 through September 30. The
Company was incorporated in February 1996 and, accordingly, fiscal year 1996
includes only eight months of financial results. Consequently, all revenue and
expense categories for fiscal year 1997 have increased due to a full year of
revenues and expenses incurred in fiscal year 1997 compared to a partial year
in fiscal year 1996.
REVENUES
Total revenues increased to $5.8 million for the year ended September 30,
1997 from $0.5 million for the eight months ended September 30, 1996. This
increase was due primarily to increased search services revenues generated by
Wired through a higher volume of activity on the HotBot search service, as
well as revenues generated through additional contract signings and search
service launches during fiscal year 1997. Advertising revenues represented 89%
and 90% of total revenues for the year ended September 30, 1997 and the eight
months ended September 30, 1996, respectively. Barter revenues represented 27%
and 25% of total revenues for the year ended September 30, 1997 and the eight
months ended September 30, 1996, respectively. All barter revenues were
generated from the Company's agreement with Wired. The Company anticipates
that advertising revenues will comprise a decreasing percentage of total
revenues in future years.
COST OF REVENUES
Cost of revenues consists primarily of expenses related to the operation of
the Company's search services, which comprise depreciation and network
charges. To date, cost of revenues related to the Company's Traffic Server
product has been immaterial. Cost of revenues increased to $1.5 million for
the year ended September 30, 1997 from $0.2 million for the eight months ended
September 30, 1996. The increase was due primarily to increased depreciation
and network charges resulting from an expansion of the Company's California
data center during fiscal year 1997, and expenses incurred in connection with
the relocation of the master cluster from the Company's former premises
located in Berkeley, California to a third-party hosting site located in Santa
Clara, California. The Company expects cost of revenues to increase
substantially in absolute dollars in fiscal year 1998 as a result of a full
year of expanded cluster operation costs.
SALES AND MARKETING EXPENSES
Sales and marketing expenses consist of personnel and related costs for the
Company's direct sales force and marketing staff and marketing programs. Sales
and marketing expenses also include marketing costs related to the Company's
support of the HotBot search site. Sales and marketing expenses increased to
$7.0 million for the year ended September 30, 1997 from $0.9 million for the
eight months ended September 30, 1996. The increase was primarily due to an
increase in the number of sales and marketing personnel, increased HotBot
marketing expenses and expenses incurred in connection with attendance at
trade shows and marketing programs. The Company expects that sales and
marketing expenses will increase substantially in absolute dollars in fiscal
year 1998 as the Company hires additional sales and marketing personnel,
initiates additional marketing programs to support its Traffic Server product
and establishes sales offices in additional domestic and international
locations.
24
<PAGE>
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses consist primarily of personnel and related
costs for the Company's development and technical support efforts. Research
and development expenses increased to $4.2 million for the year ended
September 30, 1997 from $1.5 million for the eight months ended September 30,
1996. The increase was primarily due to an increase in the number of research
and development personnel to support expansion of the Company's search engine
business, creation of the Company's Traffic Server product, and increases in
quality assurance and technical publications personnel. The Company believes
that significant investment in research and development is essential to its
future success and expects that research and development expenses will
increase in absolute dollars in future periods. The Company has not
capitalized any software development expenses to date.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses consist primarily of personnel and
related costs for general corporate functions, including finance, accounting,
human resources, facilities and legal. General and administrative expenses
increased to $1.5 million for fiscal year 1997 from $1.3 million for fiscal
year 1996. This increase was due primarily to an increase in the number of
general and administrative personnel and increased legal and accounting costs
incurred in connection with business and financing activities.
INTEREST EXPENSE, NET
Interest expense, net includes income from the Company's cash and
investments, and expenses related to the Company's financing obligations.
Interest expense, net increased to $0.2 million for the year ended September
30, 1997 from $0.1 million for the eight months ended September 30, 1996. The
increase was due primarily to higher interest charges incurred by the Company
resulting from larger debt balances maintained during the year ended September
30, 1997.
INCOME TAXES
As of September 30, 1997, the Company had approximately $9.9 million of
federal net operating loss carryforwards for tax reporting purposes available
to offset future taxable income. Such net operating loss carryforwards expire
through 2012.
25
<PAGE>
QUARTERLY RESULTS OF OPERATIONS
The following table presents the Company's operating results for each of the
six quarters in the period ended March 31, 1998. The information for each of
these quarters is unaudited and has been prepared on the same basis as the
audited financial statements appearing elsewhere in this Prospectus. In the
opinion of management, all necessary adjustments (consisting only of normal
recurring adjustments) have been included to present fairly the unaudited
quarterly results when read in conjunction with the audited Consolidated
Financial Statements of the Company and the Notes thereto appearing elsewhere
in this Prospectus. These operating results are not necessarily indicative of
the results of any future period.
<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------------------------------------
DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1996 1997 1997 1997 1997 1998
-------- -------- -------- --------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Network applications... $ -- $ -- $ -- $ 60 $ 70 $ 621
Search services........ 1,138 1,144 1,521 1,922 2,351 2,834
------- ------- ------- ------- ------- -------
Total revenues........ 1,138 1,144 1,521 1,982 2,421 3,455
Cost of revenues........ 186 280 358 688 794 901
------- ------- ------- ------- ------- -------
Gross profit........... 952 864 1,163 1,294 1,627 2,554
Operating expenses:
Sales and marketing.... 1,529 1,132 1,792 2,590 2,816 3,705
Research and develop-
ment.................. 744 921 1,100 1,445 1,814 2,000
General and administra-
tive.................. 231 371 383 501 795 844
------- ------- ------- ------- ------- -------
Total operating ex-
penses............... 2,504 2,424 3,275 4,536 5,425 6,549
------- ------- ------- ------- ------- -------
Operating loss.......... (1,552) (1,560) (2,112) (3,242) (3,798) (3,995)
Interest expense, net... 19 59 28 88 54 29
------- ------- ------- ------- ------- -------
Loss before income tax-
es..................... (1,571) (1,619) (2,140) (3,330) (3,852) (4,024)
Provision for income
taxes.................. -- 1 1 -- 1 --
------- ------- ------- ------- ------- -------
Net loss................ $(1,571) $(1,620) $(2,141) $(3,330) $(3,853) $(4,024)
======= ======= ======= ======= ======= =======
</TABLE>
The Company's operating results may fluctuate significantly in the future as
a result of a variety of factors, many of which are outside of the Company's
control. These factors include demand for Traffic Server, demand for
commercial search services powered by the Company's search technology, lengthy
sales cycles, changes in the growth rate of Internet usage, customers' capital
expenditures and other costs relating to the expansion of their respective
operations, demand for Internet advertising, seasonal trends in advertising
sales, introduction of new products or services by the Company or 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, the Company's ability to anticipate and
effectively adapt to developing markets and rapidly changing technologies,
changes in the mix of international and U.S. revenues, changes in foreign
currency exchange rates, mix of products and services sold and the channels
through which those products and services are sold, general economic
conditions and specific economic conditions in Internet and related
industries. Additionally, as a strategic response to a changing competitive
environment, the Company may elect from time to time to make certain pricing,
service, marketing or acquisition decisions that could have a material adverse
effect on the Company's quarterly financial performance.
Quarterly sales and operating results generated by the Company's search
engine application generally depend on per-query fees and advertising revenues
received from the Company's search
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engine customers within the quarter, which are difficult to forecast.
Advertising revenues generated by the Company's search engine customers are
all pursuant to short-term contracts and are subject to seasonal trends in
advertising sales. Revenues from per-query fees depend on the volume of end-
user search queries processed by the Inktomi search engine. The Company does
not have any substantial historical basis for predicting the volume of search
queries that may be generated by end users of on-line services provided by
many of its customers. Moreover, the Company's customers are generally under
no obligation to direct their users to the Company's search engine service or
use the search service at all. Accordingly, a low level of usage by end users
or the cancellation or deferral of any customer contract could have a material
adverse effect on the Company's quarterly financial performance.
The Company expects that a significant portion of its future revenues will
be generated by licenses of Traffic Server and further expects that such
revenues will be derived from orders placed by a limited number of customers.
The Company expects that the volume and timing of such orders and their
fulfillment, all of which are difficult to forecast, will cause material
fluctuations in the Company's operating results, particularly on a quarterly
basis. The Company expects that revenues from Traffic Server will also be
difficult to forecast because the Company's sales cycle, from initial
evaluation to product shipment, is expected to vary substantially from
customer to customer. Accordingly, the cancellation or deferral of even a
small number of licenses of Traffic Server could have a material adverse
effect on the Company's quarterly financial performance. Conversely, to the
extent significant sales occur earlier than expected, operating results for
subsequent quarters may not compare favorably with those of earlier quarters.
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its operations since inception primarily through the
private placement of its equity securities, equipment lease financing, and
bank and investor borrowings. As of March 31, 1998, the Company had
approximately $17.1 million of cash and cash equivalents. Cash used in
operating activities increased from $2.2 million in the eight months ended
September 30, 1996 to $6.6 million in the year ended September 30, 1997,
reflecting increasing net losses principally related to increased research and
development, and sales and marketing expenditures. Cash used in operations for
the six months ended March 31, 1998 was $5.8 million, compared to $1.6 million
in the six months ended March 31, 1997.
In May 1997, the Company obtained a bank line of credit and used the
proceeds to pay down existing debt and finance the Company's operations. As of
March 31, 1998, the total amount outstanding under the loan, representing
equipment loan and term loan advances, was $3.3 million. In addition, the
Company has provided a letter of credit, drawn against the Company's bank line
of credit, in the amount of $500,000 to the lessor of the Company's
facilities. The loans are collateralized by substantially all of the Company's
assets, except for those assets purchased with the proceeds from loans
provided by Microsoft. The bank loans include certain covenants requiring
minimum liquidity, tangible net worth and profitability over time. The term
portion of the bank loan had $1.5 million outstanding at March 31, 1998 and
equal principal payments are made monthly with the final payment due in June
1999. The equipment loan portion had $1.8 million outstanding at March 31,
1998. Under the equipment loan, the Company paid interest only on a monthly
basis until February 1998, at which time the Company began to make equal
monthly principal payments of $48,611 plus interest through February 2001.
In July 1997, the Company and Microsoft entered into a series of agreements
whereby Microsoft selected the Company's technology as the basis for Internet
search services to be provided by Microsoft. Under the agreements, Inktomi is
responsible for developing and adding certain features to its core search
engine technology and providing search results to Microsoft using the
customized search engine technology. In addition, the Company is responsible
for hosting the search engine
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software and purchasing and operating the cluster on which the software runs.
Among other matters, Microsoft is obligated to loan the price of new
workstations and related hardware and software purchased to service
Microsoft's capacity needs. The loans are collateralized by the purchased
equipment, repayable in equal monthly payments over 36 months from the date of
the loan and bear interest at the lowest applicable federal rate. Microsoft
pays an amount equal to the loan burden on a monthly basis to the Company as
partial compensation for the hosting services provided by the Company. As of
March 31, 1998, loans totaling $3.0 million were outstanding.
The Company had $1.3 million of other leveraged lease agreements outstanding
at March 31, 1998 and may expand the use of such leases in the future. The
Company also had other notes payable totaling $0.4 million at March 31, 1998.
The Company's capital requirements depend on numerous factors, including
market acceptance of the Company's products, the resources the Company devotes
to developing, marketing, selling and supporting its products, the timing and
extent of establishing international operations, and other factors. The
Company expects to devote substantial capital resources to hire and expand its
sales, support, marketing and product development organizations, to expand
marketing programs, to establish additional facilities worldwide and for other
general corporate activities. Although the Company believes that the net
proceeds from this offering together with existing cash and cash equivalents
will be sufficient to fund its operations for at least the next 12 months,
there can be no assurance that the Company will not require additional
financing within this time frame or that such additional funding, if needed,
will be available on terms acceptable to the Company, or at all. Any
additional equity financing may be dilutive to stockholders, and debt
financing, if available, may involve restrictive covenants. See "Risk
Factors--Limited Operating History; History of Losses and Expectation of
Future Losses" and "--Substantial Dependence Upon Traffic Server; Uncertainty
of Market Acceptance; Lengthy Sales Cycle".
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BUSINESS
THE COMPANY
Inktomi develops and markets scalable software applications designed to
significantly enhance the performance and intelligence of large-scale
networks. The Company has pioneered the commercial use of parallel processing-
based coupled cluster technology, a software architecture that provides true
scalability, high system availability and fault tolerance, and superior
price/performance compared to traditional mainframe or symmetric multi-
processing ("SMP") based systems. This architecture enables multiple
workstations collaborating via high-speed connections to function as one
extremely powerful computer. Inktomi has designed and developed this
architecture and associated applications specifically to address the
challenges of distributed data management posed by a global information
network that consists of millions of users accessing millions of documents.
To date, Inktomi has developed two scalable network applications based on
its software architecture: a large-scale network cache and an Internet search
engine. The Company's initial application is a powerful, award-winning
Internet search engine that enables Inktomi's customers to provide a variety
of Internet search services to end users. Wired, NTT, OzEmail Ltd. ("OzEmail")
and Universo On-Line S/A ("UOL") currently provide on-line services that
utilize the Company's Internet search engine, and the Company has entered into
contracts to provide services based on its Internet search engine to
Microsoft, Southam, Inc. ("Southam") and N/2/H/2/, Inc. ("N/2/H/2/"). Wired
launched its HotBot service in May 1996, utilizing an Inktomi-hosted cluster
of five dedicated workstations that has grown to 66 dedicated workstations
today. The Company has established a data center in California consisting of a
cluster of 166 workstations to provide search services to existing customers
and is in the process of establishing a data center in Virginia consisting of
90 workstations to service future customers.
Inktomi's second application, Traffic Server, is a large-scale network cache
designed to address capacity constraints in high-traffic network routes.
Traffic Server alleviates network congestion and increases network performance
by storing frequently requested information in proximity to users, thereby
eliminating or greatly reducing the transmission of redundant Internet data,
which the Company believes comprises a significant portion of network traffic.
Traffic Server is initially being targeted at telecommunications carriers and
large ISPs, which are currently addressing the explosive growth in the demand
for data bandwidth primarily through significant capital expenditures on
network equipment and infrastructure. To date, the Company has licensed
Traffic Server to America Online, Inc. ("AOL"), Digex, Inc. ("Digex"), Knology
Holdings, Inc. ("Knology") and NTT.
INDUSTRY BACKGROUND
The Internet, a network of hundreds of interconnected, separately-
administered public and private networks, has emerged as a global
communications medium enabling millions of people to share information and
conduct business electronically. International Data Corporation estimates that
there were approximately 69 million users of the Internet at the end of 1997
and that the number of users will grow to 320 million by the end of 2002. The
dramatic growth in the number of Internet users and the availability of
powerful new tools for the development and distribution of Internet content
have led to a proliferation of useful information and services on the
Internet, including on-line magazines, e-mail services, specialized news
feeds, interactive games, educational and entertainment applications and
electronic commerce. Although primarily text and graphics-based today,
information and services available on the Internet are increasingly
incorporating multimedia components such as video and audio clips. The
availability of richer content and services is attracting greater numbers of
Internet users, fueling a cycle of tremendous growth wherein more users demand
more information, and more information attracts more users.
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The network architecture underlying the Internet is based on a centralized
data model in which information is stored once at a single location and
accessed multiple times from that location. A user interested in particular
information must first locate the computer on the network where that
information is stored and then establish contact with that computer. Once
contact is established with the source computer, the information is compiled
and sent over the network to the user's computer. This process is repeated
each time a new user requests that same information, resulting in a large
amount of redundant data traversing the network. As the number of contacts and
the amount of information transmitted increase, information delivery
bottlenecks are created, significantly decreasing network performance. This
problem is exacerbated during peak periods of network usage and bursts in
traffic volumes driven by news and other significant events.
Information delivery bottlenecks are particularly acute internationally,
where public networks are not well-developed or well-connected to other
regional networks. This lack of infrastructure internationally, together with
the high concentration of information on servers located in the United States,
has resulted in a substantial and growing amount of traffic congestion on
international routes.
To accommodate and manage increasing traffic, network providers must
continually expand and upgrade their networks as well as improve connectivity
to other regional networks. Similarly, providers of services such as search,
e-mail and chat must scale and enhance their services to keep pace with the
tremendous growth in user demand and available information. Continued
increases in the volume, variety and richness of this information will magnify
these challenges.
To date, network providers have attempted to meet increasing demand by
installing additional telephone lines, fiber optic cable, routers and
switches, and by deploying data compression and multiplexing technologies.
These equipment-based approaches focus exclusively on expanding bandwidth
capacity by increasing the number of lines over which data can be transmitted
or increasing the volume of data that can be transported over existing lines.
However, these approaches do not address the fundamental architectural
shortcomings of these networks. As a result, they have not generated and
cannot generate sufficient bandwidth to keep pace with the anticipated growth
in traffic. Moreover, these approaches are labor-intensive, slow and costly to
implement.
Other approaches employed by network providers, such as client and proxy
server-based caching, are designed to enhance the efficiency of data
distribution by reducing the amount of redundant network traffic. Web browsers
and proxy servers each contain caches that store data, thereby eliminating the
need to traverse the entire network to reacquire data. Browser-based caches,
however, are small and only address the needs of individual users. Proxy
server-based caches can serve large workgroups, but generally are not scalable
beyond several hundred users and can themselves become network bottlenecks.
Service providers have primarily addressed the tremendous growth in user
demand and available information by deploying larger computing systems to run
their services. At times, this growth has substantially outpaced their ability
to deploy these systems, forcing service providers to limit the availability
or functionality of their services or to reduce the number of users utilizing
the service. Deploying larger computing systems is expensive and difficult to
accomplish on an incremental basis. Limiting the availability or functionality
of the service and reducing the number of users can result in lost revenue and
can alienate end users.
Inktomi believes that in order for the Internet to scale cost-effectively,
network and service providers must deploy a new layer of high-performance
software throughout the network infrastructure. This software must efficiently
leverage the Internet's existing and future network hardware infrastructure to
intelligently manage and distribute increasingly more and richer content.
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THE INKTOMI SOLUTION
Inktomi develops, markets and supports scalable software applications
designed to significantly enhance the performance, intelligence and
manageability of large-scale networks. Utilizing the Company's parallel
processing-based coupled cluster architecture and dataflow technology,
Inktomi's applications are specifically designed to address the challenges
posed by explosive growth in the number of network users, documents and
services, and the resultant increase in traffic volume. Inktomi's architecture
and technology enable the Company to develop network applications that provide
the following benefits:
SCALABILITY. Inktomi's coupled cluster software architecture enables
multiple workstations collaborating via high-speed connections to function as
one extremely powerful computer. The architecture is designed to scale without
limit and without significant deterioration in performance as additional
workstations are added to the cluster. Furthermore, the architecture
facilitates the "hot" addition of incremental workstations, without any
negative impact on existing cluster operations.
EFFICIENCY. Inktomi's dataflow technology enables a single workstation to
efficiently process up to thousands of operations simultaneously, as compared
to traditional software architectures that can only process up to tens or
hundreds of operations simultaneously before experiencing significant
performance degradation. This technology greatly improves the performance of
each workstation within the cluster, thereby increasing the efficiency of data
throughput.
HIGH SYSTEM AVAILABILITY. Inktomi's coupled cluster software architecture
enables its applications to be fault-tolerant. If any workstation within the
cluster fails, the cluster management software reassigns the task load among
the remaining workstations running the application. When the failed
workstation is restored, tasks are intelligently reassigned to the newly
functioning workstation. Since each workstation has its own buses, power
supply and disk drives, the failure of an individual workstation generally
does not cause the failure of the entire cluster, thereby maintaining high
system availability.
PRICE/PERFORMANCE. Clusters consist of relatively inexpensive, commodity
workstations and require a significantly smaller initial hardware investment
than mainframe or SMP-based systems of comparable computing power. When a
coupled cluster system requires additional capacity, the customer can add one
or more workstations on an incremental, "pay-as-you-go" basis. In contrast,
when a mainframe or SMP-based system reaches full capacity, the customer must
replace the existing system with a larger system or add an additional system
with similar capabilities. Each of these alternatives, however, requires a
substantial capital outlay and still may not achieve the same performance
capabilities as a cluster-based system.
INTEROPERABILITY. Inktomi's software architecture is designed to
interoperate with standard central processing unit ("CPU") architectures and
operating systems. The Company's search application crawler operates on Intel-
based workstations and its search engine servers operate on Sun SPARC
workstations, in both cases running the Solaris operating system. The
Company's Traffic Server application operates on Sun SPARC workstations
running the Solaris operating system and Digital Alpha workstations running
the Digital UNIX operating system. The Company is collaborating with Intel to
port its applications to Intel-based workstations running Windows NT by mid-
1999. The Company's approach to network caching is distinguished from that of
hardware vendors that may seek to preserve the market for their network
equipment by supporting only their proprietary operating systems or closed CPU
architectures. Inktomi's architecture also seamlessly supports different
generations of workstations in any given cluster, thereby extending the useful
life of customer hardware investments.
MANAGEABILITY. Inktomi's coupled cluster software architecture was designed
from the outset to manage large clusters of workstations easily from a single
management station. The architecture enables cluster managers to monitor and
configure the entire system, either on-site or remotely, through a standard
Web browser interface.
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STRATEGY
The Company's strategy is to establish itself as the leading provider of
scalable network applications specifically designed to address the distributed
data management challenges posed by rapidly growing global information
networks. Key elements of this strategy are:
LEVERAGE CORE TECHNOLOGY TO DEVELOP MULTIPLE APPLICATIONS. The core of
Inktomi's clustering technology was initially developed by key employees of
the Company at the University of California at Berkeley in 1994, and has been
designed from the start to serve as the foundation for a variety of scalable
network applications. The Company has substantially modified and enhanced this
technology. In addition, Inktomi has invested significant time and resources
in creating a structured product development process and has successfully
recruited computer scientists, engineers and software developers with
expertise and advanced degrees in the areas of massively parallel computing,
coupled cluster computing and software dataflow operations. The Company
believes that its technology, personnel and development process will enable it
to enhance its existing products and to develop new scalable network
applications offering distinct advantages over alternative solutions.
TARGET TRAFFIC SERVER AT LARGE NETWORK PROVIDERS. The Company is initially
targeting telecommunications carriers and ISPs for Traffic Server. Traffic
Server is a high-performance caching solution that is designed to be
sufficiently scalable to handle massive and growing network traffic volumes.
Network providers are spending billions of dollars domestically and
internationally to increase bandwidth through the deployment of expensive
network hardware intended to speed data transfer and increase capacity.
Despite this investment, demand for bandwidth continues to outpace the ability
of network providers to increase capacity. Inktomi believes that Traffic
Server provides a more compelling value proposition for these customers
because it reduces redundant traffic, thereby increasing available bandwidth
at a substantially lower cost.
ESTABLISH TRAFFIC SERVER AS THE DE FACTO STANDARD. Inktomi intends to
establish and maintain Traffic Server as the leading cache solution for large-
scale networks. The Company has initially targeted network providers that
operate the largest and most complex networks, and has designed Traffic Server
to easily integrate into their existing network infrastructures. The Company
believes that adoption of Traffic Server by these leading providers will
validate the Company's technology and facilitate broad market acceptance, as
well as aiding the Company's objective of establishing Traffic Server in the
corporate marketplace. In addition, Inktomi believes that, in the absence of
standardized approaches to network caching, the opportunity currently exists
for the Company to establish Traffic Server as the de facto standard through
its adoption and implementation by high profile network providers. The Company
believes that achieving such status would provide it with a significant
competitive advantage and intends to continue to pursue aggressively those
customers Inktomi believes will enable Traffic Server to be recognized as the
standard network caching solution.
BECOME THE INTERNET SEARCH ENGINE VENDOR OF CHOICE. Inktomi believes it can
leverage its powerful Internet search engine technology to become the search
engine vendor of choice for third-party on-line service providers. As the
Internet has continued to develop, the service offerings of these companies
have also evolved so that search capabilities, while remaining integral, are
no longer the sole sources of direct or indirect revenue generation. At the
same time, the significant increase in the size and complexity of the Internet
requires substantial on-going investments in order to maintain and upgrade
these search capabilities. Inktomi believes that these factors will lead many
companies to choose to outsource their search capabilities rather than develop
and maintain them in-house. Already, companies such as Wired, NTT and
Microsoft have elected to use Inktomi's search technology not only because of
the performance and scalability advantages it provides, but also because they
retain the critical flexibility to customize the user interface to meet their
specific requirements. As the Company continues to develop and enhance its
search technology, Inktomi believes that the incentives will increase for
companies to outsource these services to the Company.
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DEVELOP DIRECT AND INDIRECT DISTRIBUTION CHANNELS. The Company's sales
strategy is to pursue opportunities with large accounts through its direct
sales force, and to penetrate various targeted market segments through
multiple indirect distribution channels. The Company has established a direct
sales force covering the United States and Canada as well as a direct sales
force in the United Kingdom to address the European market. The Company
intends to increase the size of its direct sales force and to establish
additional sales offices domestically and internationally. The Company plans
to complement its direct sales force by establishing multiple indirect
distribution channels including OEMs, systems integrators, VARs and joint
marketing partners. These channels are intended to increase geographic sales
coverage and to address mid-tier ISPs and, eventually, large corporate
customers.
PRODUCTS AND CUSTOMERS
Inktomi develops, markets and supports scalable software applications
designed to significantly enhance the performance, intelligence and
manageability of large-scale networks. Inktomi has developed two scalable
network applications to date: Traffic Server, a large-scale network cache, and
an Internet search engine.
TRAFFIC SERVER
Inktomi's Traffic Server application is a scalable, high-performance network
cache designed to reduce Internet congestion and increase overall network
efficiency. Traffic Server is initially being targeted for use by
telecommunications carriers and large ISPs, both domestically and
internationally. To date, the Company has licensed Traffic Server to AOL,
Digex, Knology and NTT.
Information available on traditional data networks is stored in a single
source location. An end user interested in particular information establishes
contact with the source computer on the network and initiates a request for
the information. Once contact is established with the source computer, the
information is compiled and sent over the network to the end user's computer.
Multiple end users initiating multiple requests leads to redundant
transmission of the same information over the network, resulting in network
congestion and data access and information delivery bottlenecks.
[DIAGRAM OF NETWORK WITHOUT CACHING]
Redundant traffic strains the network and consumes bandwidth. Providing
additional bandwidth and infrastructure requires costly investments by
telecommunications carriers and ISPs. Integrating Traffic Server into the
network leverages the existing network infrastructure. As a result, Traffic
Server increases available bandwidth at a substantially lower cost than
expanding existing infrastructure.
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Traffic Server is based on the premise that it is cheaper to store
information than to move it. Traffic Server stores or "caches" locally copies
of frequently accessed information in dedicated storage systems in proximity
to the user. Requests for information are managed by Traffic Server, which
determines if the requested information is located in the cache. If so, the
information is accessed directly from the cache, thereby avoiding the need to
traverse the entire network. If the information is not located in the cache,
the information is accessed and retrieved from the source computer. The
information is then stored in the cache and is thus made available to
subsequent users. In this way, Traffic Server intelligently eliminates
redundant traffic and smooths traffic patterns, thereby leveraging and
enhancing existing bandwidth within the network. In addition, Traffic Server
is designed to be particularly effective in alleviating information delivery
bottlenecks during peak periods of network usage and bursts in traffic volume
driven by news and other significant events, thereby significantly enhancing
the on-line experience for the end user.
[DIAGRAM OF NETWORK WITH CACHING]
Traffic Server offers several key benefits to customers:
PERFORMANCE. Traffic Server is the first large-scale, high performance
network cache specifically designed to improve network efficiency in high-
traffic network routes. In an audited benchmark study jointly conducted by
Inktomi and Sun, Traffic Server configured with 16 nodes, 1/2 terabyte of
cache and a 40% cache hit rate achieved 3,488 operations per second. This
performance metric implies that Traffic Server can support more than 300
million hits per day, a level of performance that Inktomi believes is capable
of addressing the demands of today's most congested Internet traffic routes.
INTELLIGENCE. Traffic Server enables the intelligent management of data.
Traffic Server is designed so that end users determine the composition of the
content included within the cache through their information requests. Traffic
Server's algorithms are designed to automatically maintain the freshness of
this information and to discard information that is no longer needed. This
feature enables Traffic Server to manage the time or event-driven spikes of
network usage that typify Internet traffic patterns. In addition, through its
logging capabilities, Traffic Server tracks cumulative and current information
regarding all transactions in the cache, enabling advertising statistics to be
accurately reported.
SCALABILITY. Traffic Server is designed to be highly scalable, enabling very
large cache sizes. Larger cache size generally increases the probability of
the requested data being present in the cache, thereby reducing the need to
traverse the network to retrieve the data from the source computer and
enhancing the on-line experience for the end user. The ability to
incrementally expand cache size on
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a "pay-as-you-go" basis enables Traffic Server customers to respond rapidly to
changes in network traffic patterns and increases in the number of users
without losing performance or efficiency.
MANAGEABILITY. Traffic Server is designed to be easily configured and
monitored by network administrators. Traffic Server offers a graphical control
panel accessible from anywhere on the network through a standard Web browser.
Through the "dashboard" control panel, an administrator can configure Traffic
Server to pre-load the cache with certain content, avoid caching certain
content, and change logging and security features. In addition, an
administrator can monitor Traffic Server to determine the status and
performance of single or multiple caches spread across a network, and make any
adjustments necessary to enhance overall performance.
ADAPTABILITY. Traffic Server is designed and architected to run on standard
off-the-shelf hardware servers that today include those made by Sun and
Digital. Each of these server platforms operates with standard, open operating
systems. This open platform approach permits Inktomi or third parties to
extend or add new Traffic Server functions or services. Examples include
manipulating the stored or cached information according to user-specific
profiles or supporting new data protocols. Moreover, future versions of
Traffic Server will support audio and video streaming technologies.
EASE OF INTEGRATION. Traffic Server has been designed to integrate quickly
and easily into existing network infrastructures. It interoperates with
standard Internet network equipment, is compatible with standard Web browsers
and supports the HTTP and FTP protocols.
Traffic Server currently operates on Sun SPARC workstations running the
Solaris operating system and Digital Alpha workstations running the Digital
UNIX operating system. Inktomi is collaborating with Intel to port Traffic
Server to operate on Intel-based workstations running Windows NT by mid-1999.
Inktomi intends to port Traffic Server to other systems consistent with market
demand and partner opportunity. Inktomi licenses Traffic Server based on the
number of CPUs running the software. Upgrade subscriptions and support and
maintenance services are priced separately. Inktomi's future growth
substantially depends on the commercial success of Traffic Server. Traffic
Server has only recently been launched commercially and has been licensed by
four customers. Traffic Server has not been installed in a large-scale,
commercial deployment, and there can be no assurance that the product will
perform desired functions, offer sufficient price/performance benefits or meet
the technical or other requirements of target customers. Failure of Traffic
Server to achieve market acceptance for these or other reasons could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Risk Factors--Substantial Dependence on Traffic
Server; Uncertainty of Market Acceptance; Lengthy Sales Cycle".
SEARCH ENGINE
The Company entered the Internet search engine market in May 1996 with the
launch of HotBot, a search service powered by Inktomi's search engine and
marketed by Wired. HotBot has garnered broad media acclaim, including an
"Editor's Choice" designation in the "Search Engine Shootout" sponsored by
c/net (January 1998) and in PC Magazine (December 1997) and a "Most Valuable
Product" designation in the search category from PC Computing (November 1997).
HotBot also won the "Internet Search Engine Shootout" sponsored by PC
Computing (September 1997) and received the highest rating among Internet
search engines by Internet World (September 1997). Inktomi's search engine
technology also underlies search services provided by NTT (goo), OzEmail
(Anzwers) and UOL (Radar). In addition, the Company has entered into contracts
to provide services based on its Internet search engine to Microsoft, Southam
and N/2/H/2/.
Inktomi's Internet search engine technology enables customers to provide a
variety of on-line search services to end users. The Company generally
provides information search services based on its Internet search engine to
its customers, who in turn incorporate these services into on-line offerings
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to end users. Inktomi provides and manages all hardware, software and
operational aspects of its search engine and the associated database of
Internet content. Inktomi also provides the customer with a programming
interface and software tools to enable the customer to custom design its
search service user interface. The user interface communicates with the
Inktomi search engine via a communication protocol (the "Inktomi Data
Protocol"). Separating the user interface enables this portion of the service
to reside in a different physical location from the Inktomi search engine and
to run on the customer's choice of computing equipment. In addition, the
customer can customize the user interface as to look and feel and
functionality and can change the user interface at any time without affecting
the operation of the Inktomi search engine. This turn-key model allows the
Company to serve multiple customers while continuing to concentrate on
developing its search engine technology.
[DIAGRAM OF INKTOMI SEARCH ENGINE]
The Company's search engine application consists of a crawler, an indexer
and search engine servers. The crawler and indexer are software programs that
collect and organize information, and store that information on the cluster of
search engine servers. The search engine servers are a collection of
workstations that are linked together as a coupled cluster through the use of
Inktomi's software. The search engine servers provide powerful full-text query
operations, including full Boolean support, phrase and adjacency searching,
date restrictions and the recognition of multimedia files and other embedded
objects. Search results are relevance-ranked using state-of-the-art text
indexing methods.
Inktomi's search engine technology offers several key benefits to customers:
SERVICE FOCUS. By offering turn-key search engine services, Inktomi enables
customers to outsource search services rather than develop and manage these
services in-house. Inktomi enables its customers to provide powerful search
capabilities to end users of their on-line services without incurring the on-
going development, support and maintenance obligations associated therewith.
This approach enables Inktomi's customers to concentrate on administering key
aspects of their on-line business, including branding, advertising sales, end-
user marketing and publicity, and business development. In addition, the ease
of developing and modifying the user interface to the Inktomi search engine
allows the customer to remain flexible in the face of changing user
requirements.
SCALABILITY AND SPEED. The growth in the number of users and documents on
the Internet places a premium on delivering search services that respond to
end-user queries quickly and with results that are compiled from the largest
available database. The Company's coupled cluster
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technology enables the Company to scale its search engine incrementally as the
Internet grows to maintain speed of response and increase the size of the
database. Although search query speeds depend upon the complexity of the
search, Inktomi has maintained search response times on average of below one
second, and has grown its search database to in excess of 110 million
documents, which the Company believes is the largest database of full text and
embedded multimedia documents of all commercially available Internet search
services.
HIGH AVAILABILITY AND FRESHNESS. High availability of any on-line service is
critical to the success of the service, and the ability to constantly replace
outdated and changed information in an Internet database is important to the
popularity of a search service. Inktomi's coupled clustered technology enables
the Company to provide a highly reliable search service 24 hours a day, seven
days a week, with minimal downtime, and its dataflow technology enables its
crawling software to collect, sort, classify and index a large number of
documents quickly and efficiently. These attributes in turn enable Inktomi's
customers to provide highly reliable services and fresh information to their
end users.
TECHNOLOGY AND SERVICE ENHANCEMENTS. Inktomi expends substantial time and
resources enhancing its core search engine technology and developing new
functionality and service offerings for its customers. In addition to its core
search services, the Company has developed and offers premium private searches
involving the crawling, indexing and hosting of specific sets of content
specified by the customer, and advanced searching features allow end users to
specify the number and types of responses to a search query and to submit
specific documents not currently indexed to the Inktomi database. The Company
is also in the process of developing automated directory capabilities to its
search engine technology which will automatically categorize Internet
information based upon a customer specified taxonomy.
Inktomi generates search service revenues through a variety of contractual
arrangements, which include per-query search fees, search service hosting
fees, advertising revenue sharing plans, license fees and maintenance fees.
The Company's search service revenues are primarily based on the volume of
end-user queries processed by the Inktomi search engine and the level of
advertising revenue generated by customers. The Company's contracts do not
typically require the customer to direct its end users to the Company's search
service or to use the search service at all. Accordingly, the Company is
highly dependent on the willingness of customers to promote and use the search
services provided by the Company, the ability of customers to attract users to
their on-line services, the number of end-user search queries processed by the
Inktomi search engine, and the ability and willingness of customers to sell
advertisements on Internet pages viewed by end users. Failure of customers to
promote and use the Company's services, low volumes of end-user search queries
processed by the Inktomi search engine and lower than expected levels of
advertising revenues will result in low levels of revenues generated by the
Company, which could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Risk Factors--Risks
Associated with Internet Search Engine Service".
TECHNOLOGY
Inktomi's coupled cluster software architecture and dataflow technology have
been designed to serve as the foundation for a variety of scalable network
applications. Inktomi's coupled cluster software architecture enables multiple
workstations to function together as one extremely powerful computer and its
dataflow technology enhances the operating efficiency of individual
workstations within the cluster. Certain key employees of Inktomi initiated
their work on cluster computing at the University of California at Berkeley in
1994 under a grant from the U.S. Department of Defense Advanced Research
Projects Agency to develop networks of workstations with the performance
capabilities of supercomputers, but at substantially lower cost. Inktomi has
licensed aspects of this
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early work, which the Company has significantly modified and enhanced. The
Company developed its dataflow technology internally.
The Company's coupled cluster software architecture provides the foundation
for the scalability, high availability, fault tolerance and high
price/performance characteristics of Inktomi's network applications. Inktomi's
coupled cluster architecture is based on sophisticated parallel processing
techniques that disaggregate tasks and assign them to individual workstations
(or nodes) within the cluster. In order to maximize performance, nodes within
a cluster are connected to each other through a high-speed local area network.
Inktomi has developed complementary proprietary software that enables the
cluster to be managed as if it were a single node, ensuring consistent
configurations and reducing both administrative costs and the possibility of
error. The management software also enables centralized monitoring (via a
standard Web browser) of the full cluster through any individual node. In the
event of a node failure, that node's responsibilities and IP address are
automatically reassigned to other nodes. In addition, nodes may be added or
swapped without interrupting the operations of the cluster and any changes are
automatically recognized and incorporated by the management software. These
two features contribute to enhanced scalability, significantly greater system
availability and reduced administrative costs.
Inktomi's dataflow technology provides a framework for building applications
that focus on input/output ("I/O") and data movement. It bypasses the
operating system to directly handle management tasks such as CPU scheduling,
network I/O and memory allocation. The Company has designed its dataflow
technology from the ground up to address the unique problems of accessing data
over variable-speed Internet connections. This technology is capable of
supporting thousands of simultaneous operations per node, thus maintaining
high CPU and memory utilization despite hundreds of slow network connections.
This capability greatly improves the performance of individual nodes as they
are able to process several operations while waiting for responses to earlier
commands or queries, thereby substantially eliminating idle time.
In addition to the coupled cluster architecture and dataflow technology that
comprise Inktomi's core technologies, the Company has developed technologies
in several important related areas, including information retrieval, secure
remote cluster management and object databases for network caches. The Company
intends to continue to develop new technologies, as well as enhance and extend
its core technology, in order to bring to market new scalable network
applications.
SALES AND MARKETING
The Company's sales strategy is to pursue opportunities with large accounts
through its direct sales force, and to penetrate various targeted market
segments through multiple indirect distribution channels.
Inktomi's worldwide direct sales organization consisted of 15 individuals as
of March 31, 1998, ten of whom are located at the Company's San Mateo,
California headquarters and five of whom are located at the Company's
subsidiary office in the United Kingdom. The direct sales force is organized
into individual account teams, each consisting of a sales representative and a
systems engineer. The Company generates leads from contacts made through
seminars, conferences, trade shows, customers and an ongoing public relations
program. Inktomi qualifies the leads and assigns an account team to major
prospective customers. The account team then initiates the sales process,
which generally involves multiple presentations to information technology and
business professionals within the prospective customer's organization. In
addition, Inktomi expects that sales of the Traffic Server application will
generally include a pilot implementation, successful completion and testing of
which will be a pre-requisite to full-scale deployment. The Company intends to
increase the size of its direct sales force and to establish additional sales
offices domestically and internationally. Competition for sales
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personnel is intense, and there can be no assurance that the Company will be
able to attract, assimilate or retain additional qualified personnel in the
future.
In order to achieve broad distribution of the Company's products and
services, Inktomi intends to complement its direct sales force by establishing
multiple indirect distribution channels, including OEMs, systems integrators,
VARs and joint marketing partners. These channels are intended to increase
geographic sales coverage and to address mid-tier ISPs and, eventually, large
corporate customers. Inktomi is in the early stages of building these channels
and currently has entered into a written agreement with one such distributor
covering the territory of Japan. There can be no assurance that the Company
will be able to enter into agreements or establish relationships with desired
distribution partners on a timely basis, or at all, or that such distribution
partners will devote adequate resources to selling the Company's products.
The Company believes it is important to have a strong international presence
and intends to translate and localize its products to address international
markets. The Company intends to employ a mix of channels similar to its U.S.
model through the use of OEMs, system integrators and VARs. In October 1997,
the Company established a subsidiary in the United Kingdom to address the
European market. Inktomi has hired a general manager to run the subsidiary and
intends to hire additional sales and marketing personnel.
The Company's marketing group consisted of 11 individuals at March 31, 1998,
all of whom are located at the Company's San Mateo, California headquarters.
Inktomi conducts a variety of programs worldwide to stimulate market demand
for its products, including public relations activities, advertising, trade
shows and collateral development. These programs are focused on Inktomi's
target markets and are designed to create awareness and generate sales leads.
The Company believes that strategic relationships will assist Inktomi's
products and technology in gaining broad market acceptance as well as
enhancing the Company's marketing, sales and distribution capabilities. The
Company has informally collaborated with Sun since early 1997 regarding a
range of marketing and sales activities relating to Traffic Server. Inktomi's
sales force and Sun's sales force have worked together and participated in
joint sales calls to several large ISPs and other network providers. The
companies have also worked together to conduct joint marketing activities,
including public relations, sales seminars and field marketing. In August
1997, Inktomi and Digital entered into a software porting agreement in which
Digital provided funds and loaned equipment to Inktomi to enable Inktomi to
port its Traffic Server application to run on Digital equipment. Inktomi and
Digital are also informally collaborating on joint market development
activities. In September 1997, Inktomi and Intel entered into a strategic
development agreement in which Inktomi agreed to port its Traffic Server
application to run on Intel architecture and Intel agreed to provide Inktomi
with porting assistance and access to Intel's tuning and optimization lab. At
the same time, Intel made an equity investment in Inktomi. Intel has the right
to distribute the ported application as an OEM and as a VAR, and Intel has
agreed to use reasonable efforts to introduce Inktomi to other OEMs. Inktomi
intends to pursue other strategic relationships. See "Risk Factors--Dependence
on Strategic Relationships".
CUSTOMER SERVICE AND SUPPORT
The Company believes that a high level of customer service and support is
critical to the successful marketing and sale of its products. The Company is
developing a comprehensive service and support organization to manage customer
accounts and expects to provide an increasing level of support as its Traffic
Server and search engine applications are deployed across a range of
customers. The Company's service and support organization consisted of four
individuals at March 31, 1998, all of whom are located at Inktomi's San Mateo,
California headquarters. The Company plans to establish additional service and
support sites internationally commensurate with customer needs.
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Inktomi provides a base level of technical support to its customers through
maintenance and support agreements. The base level of support includes
assistance with installation, configuration and initial set-up of the
application, run-time support, and software maintenance releases. For an
additional fee, a customer may choose to receive software upgrades, training
and support during extended hours. Inktomi generally provides its base level
of support via e-mail, the Internet, fax and telephone.
Inktomi also provides a variety of value-added services to its customers.
These services include customer network evaluation and implementation
guidance, assistance with installation, configuration and initial set-up of
the application at the customer's facility, and cluster growth and other
scaling recommendations.
The Company believes that the complexity of its products and the large-scale
deployments anticipated by customers will require a number of highly trained
customer service and support personnel. The Company currently has a small
customer service and support organization, and only limited experience
supporting Traffic Server in a commercial deployment. There can be no
assurance that the Company will be able to increase the size of its customer
service and support organization on a timely basis or at all, or that the
Company will be able to provide the high level of support required by its
customers. See "Risk Factors--Need to Expand Sales and Support Organizations".
RESEARCH AND DEVELOPMENT
Inktomi believes that strong product development capabilities are essential
to its strategy of enhancing its core technology, developing additional
applications incorporating that technology, and maintaining the
competitiveness of its product and service offerings. Inktomi has invested
significant time and resources in creating a structured process for
undertaking all product development projects. This process involves all
functional groups and all levels within the Company and is designed to provide
the framework for defining and addressing the steps, tasks and activities
required to bring product concepts and development projects to market
successfully. In addition, Inktomi has actively recruited key computer
scientists, engineers and software developers with expertise and degrees in
the areas of massively parallel computing, coupled cluster computing, and
software dataflow operations to work for the Company, and has complemented
these individuals by hiring senior management with extensive backgrounds in
the network infrastructure, enterprise software and Internet industries.
Through this mix of personnel, the Company strives to create and maintain an
environment of rapid innovation and product release.
Since inception, the Company has focused its research and development
efforts on developing and enhancing its coupled cluster software architecture
and dataflow technology and on applying these technologies to its search
engine and network cache products. The Company is currently working to add
features and new functionality to its existing products, port its products to
operate on Intel-based workstations running Windows NT, and develop new
Internet products and services. The Company's research and development
expenses totaled $3.8 million, $4.2 million and $1.5 million for the six
months ended March 31, 1998, for the fiscal year ended September 30, 1997 and
for the period from February 2, 1996 (inception) to September 30, 1996,
respectively. As of March 31, 1998, the Company had 45 individuals engaged in
research and development.
COMPETITION
The markets in which the Company competes are new, intensely competitive,
highly fragmented and characterized by rapidly changing technology and
evolving standards. The Company faces competition in the overall network
computing software market as well as in each of the market segments in which
its products and services compete. The Company has experienced and expects to
continue to experience increased competition from current and potential
competitors, many of whom have significantly greater financial, technical,
marketing and other resources than the Company.
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In the market for network cache solutions, the Company competes on the basis
of performance, scalability, data throughput, ease of integration and
manageability. The Company competes primarily against companies including
CacheFlow, Inc., Cisco, Microsoft, Netscape, Network Appliance, Inc., Novell,
Inc. and Spyglass, Inc. among others, as well as against freeware caching
solutions including CERN, Harvest and Squid. In addition, other companies may
embed competing technology into other products such as server or firewall
software. 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 Traffic Server. The Company believes that its software may face
competition from other providers of hardware and software claiming to offer
competing solutions to network infrastructure problems, including networking
hardware and companion software manufacturers such as Ascend Communications,
Inc., Bay Networks, Inc., Ciena Corporation and IBM Corporation; hardware
manufacturers such as Digital, Hewlett-Packard Company, Intel, Motorola, Inc.
and Sun; telecommunications providers such as AT&T, Inc., MCI
Telecommunications Corporation, and regional Bell operating companies; cable
TV/communications providers such as @Home Corporation, Continental
Cablevision, Inc., TimeWarner, Inc. and regional cable operators; software
database companies such as Informix Corporation, Oracle Corporation and
Sybase, Inc.; and large diversified software and technology companies
including Microsoft, Netscape and others. Cisco, Microsoft and Netscape
provide or have announced their intentions to provide a range of software and
hardware products based on Internet protocols and to compete in the broad
Internet/intranet software market as well as in specific market segments in
which the Company competes. Cisco, Microsoft and Netscape have often acquired
technology and products from other companies to augment their product lines,
in addition to developing their own technology and products.
In the market for providing turn-key search services, the Company competes
on the basis of performance, scalability, price, relevance of results and user
response time. The Company competes with a number of companies to provide
Internet search services, many of whom have operated services in the market
for a longer period, have greater financial resources, have established
marketing relationships with leading on-line services and advertisers, and
have secured greater presence in distribution channels. Competitors who offer
search services to on-line service providers include Digital (Alta Vista),
Excite, Infoseek, Lycos, Northern Light, Inc. and Open Text Corporation, among
others. Increased use and visibility of the Company's search engine services
depends on the Company's ability to maintain highly available and reliable
services across multiple data centers and to maintain the freshness of the
search database.
The Company's competitors may be able to respond more quickly to new or
emerging technologies and changes in customer requirements or devote greater
resources to the development, promotion and sales of their products than the
Company. 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. Also, certain current and potential competitors have
greater name recognition or more extensive customer bases that could be
leveraged, thereby gaining market share to the Company's detriment. Inktomi
expects additional competition as other established and emerging companies
enter the network computing software market and new products and technologies
are introduced. Increased competition could result in price reductions, fewer
customer orders, reduced gross margins and loss of market share, any of which
could materially adversely affect the Company's business, financial condition
and results of operations. Current and potential competitors may make
strategic acquisitions or establish cooperative relationships among themselves
or with third parties, thereby increasing the ability of their products to
address the needs of the Company's prospective customers. The Company's
current or future channel partners may establish cooperative relationships
with current or potential competitors of the Company, thereby limiting the
Company's ability to sell its products through particular distribution
channels. Accordingly, it is possible that new competitors or alliances among
current and new competitors may emerge and rapidly gain significant market
share. Such competition
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could materially adversely affect the Company's ability to obtain new
contracts and maintenance and support renewals for existing contracts on terms
favorable to the Company. Further, competitive pressures could require the
Company to reduce the prices of its products and services, which could
materially adversely affect the Company's business, financial condition and
results of operations. There can be no assurance that the Company will be able
to compete successfully against current and future competitors, and the
failure to do so would have a material adverse effect upon the Company's
business, financial condition and results of operations.
PROPRIETARY RIGHTS
Because materials may be downloaded by the search services operated or
facilitated by the Company, or may be copied and stored by customers that have
deployed the Company's Traffic Server product, and, in either case, may be
subsequently distributed to others, there is a potential that claims will be
made against the Company (directly or through contractual indemnification
provisions with customers) for defamation, negligence, copyright or trademark
infringement, personal injury or other theories based on the nature and
content of such materials. Such claims have been brought, and sometimes
successfully pressed, against on-line services in the past. It is also
possible that if any information provided through the search services operated
or facilitated by the Company or information that is copied and stored by
customers that have deployed Traffic Server, such as stock quotes, analyst
estimates or other trading information, contains errors, third parties could
make claims against the Company for losses incurred in reliance on such
information. Although the Company carries general liability insurance, the
Company's insurance may not cover potential claims of this type or may not be
adequate to indemnify the Company for all liability that may be imposed. Any
imposition of liability or legal defense expenses that are not covered by
insurance or is in excess of insurance coverage could have a material adverse
effect on the Company's business, financial condition and results of
operations.
The Company's success and ability to compete are substantially dependent
upon its internally developed technology. While the Company relies on
copyright, trade secret and trademark law to protect its technology, the
Company believes that factors such as the technological and creative skills of
its personnel, new product developments, frequent product enhancements and
reliable product maintenance are more essential to establishing and
maintaining a technology leadership position. There can be no assurance that
others will not develop technologies that are similar or superior to the
Company's technology. The Company generally enters into confidentiality or
license agreements with its employees, consultants and corporate partners, and
generally controls access to and distribution of its software, documentation
and other proprietary information. Despite the Company's efforts to protect
its proprietary rights, unauthorized parties may attempt to copy or otherwise
obtain and use the Company's products or technology. Policing unauthorized use
of the Company's products is difficult, and there can be no assurance that the
steps taken by the Company will prevent misappropriation of its technology,
particularly in foreign countries where the laws may not protect the Company's
proprietary rights as fully as do the laws of the United States. Substantial
litigation regarding intellectual property rights exists in the software
industry, and the Company expects that software products may be increasingly
subject to third-party infringement claims as the number of competitors in the
Company's industry segments grows and the functionality of products in
different industry segments overlaps. There can be no assurance that third
parties will not claim infringement by the Company with respect to its
software or enhancements thereto. Any such claims, with or without merit,
could be time-consuming to defend, result in costly litigation, divert
management's attention and resources, cause product shipment delays or require
the Company to enter into royalty or licensing agreements. Such royalty or
licensing agreements, if required, may not be available on terms acceptable to
the Company, if at all. A successful claim of product infringement against the
Company and failure or inability of the Company to license the infringed or
similar technology could have a material adverse effect on the Company's
business, financial condition and results of operations.
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EMPLOYEES
As of March 31, 1998, Inktomi had 88 full-time employees, 45 of whom were
engaged in research and development, 26 in sales and marketing, four in
customer support, and 13 in finance, administration and operations. The
Company's future performance depends in significant part upon the continued
service of its key technical, sales and senior management personnel, none of
whom is bound by an employment agreement requiring service for any defined
period of time. The loss of the services of one or more of the Company's key
employees could have a material adverse effect on the Company's business,
financial condition and results of operations. The Company's future success
also depends on its continuing ability to attract, train and retain highly
qualified technical, sales and managerial personnel. Competition for such
personnel is intense, and there can be no assurance that the Company can
retain its key personnel in the future. None of the Company's employees is
represented by a labor union. The Company has not experienced any work
stoppages and considers its relations with its employees to be good.
TECHNICAL ADVISORY BOARD
The Company has assembled a Technical Advisory Board comprised of experts in
the fields of clustering and networking technology. The Technical Advisory
Board meets quarterly to review Inktomi design plans and products and provide
specific feedback on technology applications and business market focus. The
Technical Advisory Board is chaired by Dr. Eric A. Brewer, Chief Scientist of
the Company, and includes as members Dr. David Black, a technology partner at
Oak Investment Partners and Chief Technology Officer of PaySys International,
Inc.; Dr. David E. Culler, associate professor of Electrical Engineering and
Computer Science at the University of California, Berkeley; Dr. Greg
Papadopolous, Chief Technology Officer at Sun; Dr. Lawrence A. Rowe, professor
of Electrical Engineering and Computer Science at the University of
California, Berkeley; and Justin Rattner, senior fellow at Intel.
FACILITIES
Inktomi leases approximately 32,000 square feet of office space in a single
office building located in San Mateo, California. Approximately 16,400 square
feet of space is leased pursuant to a sublease agreement which expires in
February 2000 and approximately 15,600 square feet of space is leased pursuant
to a lease agreement which expires in October 2002. The Company has secured an
extension from the master landlord for the subleased office space. The term of
this extension is from the expiration of the sublease through September 2001.
The Company believes its current facilities will be adequate through calendar
1998 and is currently searching for additional space. The Company also
subleases approximately 1,300 square feet of office space in the United
Kingdom. The sublease expires in October 1999.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information with respect to the
executive officers and directors of the Company as of March 31, 1998.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
David C. Peterschmidt(1)....... 50 Chairman of the Board, President and
Chief Executive Officer
Dr. Eric A. Brewer............. 31 Chief Scientist and Director
Paul Gauthier.................. 25 Chief Technology Officer
Jerry M. Kennelly.............. 47 Vice President of Finance, Chief Financial
Officer and Secretary
Dennis L. McEvoy............... 50 Vice President of Development and Support
Richard B. Pierce.............. 39 Vice President of Marketing
Timothy Stevens................ 31 Vice President of Corporate and Legal
Affairs, General Counsel and Assistant
Secretary
Vince Vannelli................. 39 Vice President of Worldwide Field Operations
Fredric W. Harman(1)(2)(3)..... 37 Director
John A. Porter(1)(2)(3)........ 54 Director
Alan F. Shugart(2)(3).......... 67 Director
</TABLE>
- --------
(1) Member of Nominating Committee
(2) Member of Audit Committee
(3) Member of Compensation Committee
DAVID C. PETERSCHMIDT has served as President, Chief Executive Officer and a
Director of Inktomi since July 1996. He was appointed Chairman of the Board in
December 1997. From 1991 until joining Inktomi, he served as Chief Operating
Officer and Executive Vice President of Sybase, Inc., a database company. From
1988 to 1991, Mr. Peterschmidt was a consultant with The Kappa Group, a
management consulting firm, where he provided senior level sales and marketing
training to a variety of companies. From 1987 to 1988, he served as Vice
President of Sales and Marketing for System Industries, Inc., a manufacturer
of storage subsystems for Digital Equipment Corporation computers. From 1984
to 1987, Mr. Peterschmidt was Vice President of Sales and Marketing for LEX
Computer Systems. Mr. Peterschmidt also served as a Captain in the United
States Air Force for nine years, where he was Lead Contract Negotiator on the
B1 Bomber Program at Rockwell International, Inc. Mr. Peterschmidt holds a
Bachelor of Arts degree in Political Science from the University of Missouri
and a Masters of Business Administration from Chapman College.
DR. ERIC A. BREWER has served as a Director of the Company since its
inception in February 1996. From February 1996 to December 1997, Dr. Brewer
was Chief Technology Officer of the Company and was appointed Chief Scientist
in December 1997. From May 1996 to July 1996, he served as interim President
and Chief Executive Officer of the Company. Dr. Brewer has been an Assistant
Professor in the Computer Science Division at the University of California,
Berkeley since July 1994, and a consultant to the Idea Group since August
1990. Dr. Brewer served as a research assistant at the Massachusetts Institute
of Technology from September 1989 to August 1994. From June 1986 to November
1992, Dr. Brewer was a software engineer at CADAM, Inc. Dr. Brewer holds a
Bachelor of
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Science degree in Computer Science from the University of California, Berkeley
and a doctorate degree in Computer Science from the Massachusetts Institute of
Technology.
PAUL GAUTHIER served as Vice President of Research and Development of the
Company from February 1996 until his appointment as Chief Technology Officer
in December 1997. From May 1995 to August 1995, Mr. Gauthier served as an
intern at Digital Equipment Corporation's Systems Research Center. Mr.
Gauthier served as a programmer analyst for Seimac Limited from May 1994 to
July 1994. From July 1989 to April 1994, Mr. Gauthier served as Technical
Director for Worthington Software Company. Mr. Gauthier served as a programmer
at Dymaxion Research from June 1987 to July 1989. Mr. Gauthier holds a
Bachelor of Science degree, with honors, in Computer Science from Dallhousie
University.
JERRY M. KENNELLY joined the Company as Vice President of Finance and Chief
Financial Officer in October 1996. From June 1990 until joining Inktomi, Mr.
Kennelly worked for Sybase, Inc. in a number of senior financial positions.
Most recently, he served as Vice President of Corporate Finance. From November
1988 to May 1990, Mr. Kennelly served as the Controller for U.S. Operations at
Oracle Corporation. From December 1980 to October 1988, he served as World
Wide Sales and Marketing Controller at Tandem Computers, Inc. Mr. Kennelly
holds a Bachelor of Arts degree in Political Economy from Williams College and
a Masters degree in Accounting from the New York University Graduate School of
Business Administration. He is also a Certified Public Accountant.
DENNIS L. MCEVOY joined the Company as a consultant in March 1997 and as
Vice President of Development and Support in June 1997. From October 1996 to
February 1997, Mr. McEvoy served as Executive Vice President of Products and
Services at Verity, Inc., a provider of information search, retrieval and push
software for corporate intranets and the Internet. From October 1994 to
September 1996, he served in several executive management positions at Sybase,
Inc., most recently as President, Enterprise Business Group. Prior to joining
Sybase, in January 1989, Mr. McEvoy co-founded and served as President and
Chief Executive Officer of Cooperative Solutions, Inc., a client/server
software company focused on development tools and production software for
mission-critical applications. Cooperative Solutions was acquired by Bachman
Information Services, Inc. in August 1993, whereupon Mr. McEvoy joined Bachman
as a Vice President and served in such capacity until August 1994. From
December 1974 to June 1988, Mr. McEvoy worked at Tandem Computers, Inc., most
recently as Vice President, Software Division. Mr. McEvoy holds a Bachelor of
Science in Mathematics from Carnegie-Mellon University.
RICHARD B. PIERCE joined Inktomi as its Vice President of Marketing in
November 1996. From December 1981 until joining Inktomi, Mr. Pierce worked at
Intel Corporation where he held a variety of marketing, strategic planning and
operations management positions. Most recently, he was marketing director of
Intel's mobile and handheld products group. Mr. Pierce holds a Bachelor of
Science degree in Electrical Engineering from Purdue University.
TIMOTHY STEVENS joined Inktomi as its Vice President of Corporate and Legal
Affairs and General Counsel in July 1997. Prior to joining Inktomi, Mr.
Stevens was an attorney with Wilson Sonsini Goodrich & Rosati, where he served
as primary outside counsel for more than thirty private and public companies,
specifically in the areas of venture capital and corporate financing, public
offerings, mergers and acquisitions, and securities and intellectual property
law. Mr. Stevens holds Bachelor of Science degrees in Finance and Management
from the University of Oregon and a Juris Doctor degree from the University of
California, Davis.
VINCE VANNELLI joined Inktomi as Vice President of Worldwide Field
Operations in January 1998. Prior to joining Inktomi, Mr. Vannelli was most
recently the Vice President and General Manager for U.S. Operations for
Hitachi Data Systems, Inc., a computer services and equipment company. Mr.
Vannelli worked for Hitachi for eight years, first as a District Sales Manager
in Northern California, then as the
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Regional Manager of the Mid-Atlantic states, then as the Eastern Division
Manager. Following these assignments, Mr. Vannelli returned to the West Coast
to assist the Chief Executive Officer of Hitachi in re-engineering worldwide
sales and marketing, then after a brief period running the Western Division,
was named Vice President and General Manager for U.S. Operations. Prior to
working for Hitachi, Mr. Vannelli was employed by IBM Corporation for eight
years in a variety of sales and sales management roles. Mr. Vannelli holds a
Bachelor of Science and a Masters degree in Industrial Engineering from
Stanford University.
FREDRIC W. HARMAN joined the Company as a Director in April 1997. Since July
1994, Mr. Harman has served as a Managing Member of the General Partners of
venture capital funds affiliated with Oak Investment Partners. From April 1991
to June 1994, he served as a General Partner of Morgan Stanley Venture
Capital, L.P. Mr. Harman is a director of ILOG, S.A., SPSS, Inc. and
International Manufacturing Services, Inc. and several privately held
companies. Mr. Harman holds a Bachelor of Science and Masters degree in
Electrical Engineering from Stanford University and a Masters of Business
Administration from Harvard University.
JOHN A. PORTER joined the Company as a Director in March 1997. Mr. Porter is
currently actively involved in a variety of private investment and business
ventures. He is a director of WorldCom, Inc., a full-service
telecommunications provider and, through its wholly owned subsidiary UUNet,
Inc., the largest Internet Service Provider in the United States. Mr. Porter
has served on the Board of Directors of WorldCom since 1989, serving as
Chairman of the Board from 1989 to 1993 and as Vice Chairman from 1993 to
1996. Mr. Porter also serves as Chairman of the Board and Chief Executive
Officer of Industrial Electric Manufacturing, Inc., a switch gear
manufacturer, which he joined in 1995, and Chairman of the Board and Chief
Executive Officer of Phillips & Brooks Gladwin, Inc., a full-service provider
of public communications equipment and national outsourced services, which he
joined in 1989. He is also a director of Uniroyal Technologies, Inc.,
Intelligent Electronics, Inc. and XLConnect, Inc.
ALAN F. SHUGART joined the Company as a Director in December 1997. Since
1979, Mr. Shugart has been Chief Executive Officer of Seagate Technology,
Inc., a manufacturer of disk drives and other computer equipment. From 1979
until September 1991 and since October 1992, Mr. Shugart has also served as
Chairman of the Board of Seagate. He also served as President of Seagate from
September 1991 until September 1997 and Chief Operating Officer of Seagate
from September 1991 until March 1995. Mr. Shugart is currently a director of
Valence Technology, Inc., SanDisk Corporation and Seagate Software, Inc., a
subsidiary of Seagate.
BOARD COMPOSITION
The Company's Board of Directors currently consists of five members. In
addition, both Intel and Microsoft have observation rights to attend Board
meetings. In accordance with the terms of the Company's Certificate of
Incorporation, effective upon the closing of this offering, the terms of
office of the Board of Directors will be divided into three classes: Class I
directors, whose terms will expire at the annual meeting of stockholders to be
held in 1999; Class II directors, whose terms will expire at the annual
meeting of stockholders to be held in 2000; and Class III directors, whose
terms will expire at the annual meeting of stockholders to be held in 2001.
The Class I directors will be , the Class II directors will be ,
and the Class III directors will be . At each annual meeting of
stockholders held after the initial classification, the successors to
directors whose terms will then expire will be elected to serve from the time
of election and qualification until the third annual meeting following
election. The Company's Bylaws provide that the authorized number of directors
may be changed only by resolution of the Board of Directors. Any additional
directorships resulting from an increase in the number of directors will be
distributed among the three classes so that, as nearly as possible, each class
will consist of one-third of the total number of directors. This
classification of the Board of Directors may have the effect of delaying or
preventing changes in control or management of the Company.
46
<PAGE>
Executive officers are elected by the Board of Directors on an annual basis
and serve until their successors have been duly elected and qualified. There
are no family relationships among any of the directors, officers or key
employees of the Company.
BOARD COMMITTEES
The Company has established an Audit Committee, a Compensation Committee and
a Nominating Committee. The Audit Committee reviews the internal accounting
procedures of the Company and consults with and reviews the services provided
by the Company's independent accountants. The Compensation Committee reviews
and recommends to the Board of Directors the compensation and benefits of all
officers of the Company and establishes and reviews general policies relating
to compensation and benefits of employees of the Company. The Nominating
Committee is responsible for establishing general qualification guidelines
applicable to nominees to the Board of Directors, and for identifying,
interviewing and recommending persons meeting such guidelines to serve as
members of the Board of Directors.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Board of Directors established its Compensation Committee in December
1997. Prior to establishing the Compensation Committee, the Board of Directors
as a whole performed the functions delegated to the Compensation Committee.
DIRECTOR COMPENSATION
Directors do not currently receive any cash compensation from the Company
for their service as members of the Board of Directors, although they are
reimbursed for certain expenses in connection with attendance at Board and
Committee meetings. Under the Company's 1998 Stock Plan, nonemployee directors
are eligible to receive stock option grants at the discretion of the Board of
Directors or other administrator of the plan. See "--Incentive Stock Plans".
In January 1997, the Board of Directors granted an option to purchase 66,667
shares of Common Stock at $1.95 per share to John Porter in connection with
his appointment as a member of the Company's Board of Directors. This option
was subsequently repriced to $0.45 per share in connection with the stock
option repricing program approved by the Board of Directors in May 1997. In
December 1997, the Board of Directors granted an option to purchase 50,000
shares of Common Stock at $3.33 per share to Alan F. Shugart in connection
with his appointment as a member of the Company's Board of Directors.
47
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE. The following table sets forth the compensation
earned for services rendered to the Company in all capacities for the fiscal
year ended September 30, 1997 by the Company's Chief Executive Officer and the
Company's four next most highly compensated executive officers who earned more
than $100,000 during the fiscal year ended September 30, 1997 (collectively,
the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
-------------------- -------------
SECURITIES
UNDERLYING
NAME AND PRINCIPAL POSITIONS SALARY($) BONUS($) OPTIONS(#)(1)
---------------------------- ---------- --------- -------------
<S> <C> <C> <C>
David C. Peterschmidt.................... $ 150,000 $ 280,000(2) --
President and Chief Executive Officer
Paul Gauthier............................ 105,000 14,977 --
Chief Technology Officer
Jerry M. Kennelly(3)..................... 184,102 37,045 200,001
Vice President of Finance and Chief
Financial Officer
Dennis L. McEvoy(4)...................... 66,667 92,210 268,801
Vice President of Development and
Support
Richard B. Pierce(5)..................... 150,016 333,776 233,334
Vice President of Marketing
</TABLE>
- --------
(1) Shares subject to options granted under the Company's 1996 Equity
Incentive Plan. Excludes 133,334 shares and 233,334 shares issuable upon
exercise of options granted during the fiscal year under the 1996 Equity
Incentive Plan to Mr. Kennelly and Mr. Pierce, respectively. Such options
were cancelled during the fiscal year.
(2) Bonus earned and accrued during the fiscal year ended September 30, 1997.
Bonus to be paid over fiscal 1998.
(3) Mr. Kennelly joined the Company in October 1996.
(4) Mr. McEvoy joined the Company in June 1997.
(5) Mr. Pierce joined the Company in November 1996.
48
<PAGE>
OPTION GRANTS. The following table sets forth certain information with
respect to stock options granted to each of the Named Executive Officers
during the fiscal year ended September 30, 1997. In accordance with the rules
of the Securities and Exchange Commission, also shown below is the potential
realizable value over the term of the option (the period from the grant date
to the expiration date) based on assumed rates of stock appreciation of 5% and
10%, compounded annually. These amounts are based on certain assumed rates of
appreciation and do not represent the Company's estimate of future stock
price. Actual gains, if any, on stock option exercises will be dependent on
the future performance of the Common Stock.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM(3)
------------------------------------------------------ ---------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO EXERCISE
OPTIONS EMPLOYEES PRICE EXPIRATION
NAME GRANTED(#) DURING PERIOD(1) ($/SHARE)(2) DATE 5% 10%
---- ---------- ---------------- ------------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
David C. Peterschmidt... -- -- -- -- -- --
Paul Gauthier........... -- -- -- -- -- --
Jerry M. Kennelly....... 133,334 (4) 6.0%(5) $1.95 (4) $ 163,513 $ 414,375
133,334 (6) 6.4 0.45 05/15/07 37,734 95,625
66,667 (6) 3.2 0.45 06/30/07 18,867 47,813
Dennis L. McEvoy........ 2,134 (7) 0.1 0.45 06/30/07 604 1,530
266,667 (8) 12.8 0.45 06/30/07 75,467 191,249
Richard B. Pierce....... 166,667 (4) 7.4 (5) 1.95 (4) 204,391 517,967
66,667 (4) 3.1 (5) 1.95 (4) 81,757 207,188
166,667 (9) 8.0 0.45 05/15/07 47,167 119,531
66,667(10) 3.2 0.45 05/15/07 18,867 47,813
</TABLE>
OPTION GRANTS IN LAST FISCAL YEAR
- --------
(1) Based on an aggregate of 2,078,052 options granted by the Company during
the fiscal year ended September 30, 1997 to employees of and consultants
to the Company, including the Named Executive Officers.
(2) The exercise price per share of each option was equal to the fair market
value of the Common Stock on the date of grant as determined by the Board
of Directors.
(3) The potential realizable value is calculated based on the term of the
option at its time of grant (ten years). It is calculated assuming that
the fair market value of the Company's Common Stock on the date of grant
appreciates at the indicated annual rate compounded annually for the
entire term of the option and that the option is exercised and sold on
the last day of its term for the appreciated stock price.
(4) Options were granted in November 1996 and cancelled and regranted in
connection with a stock option repricing program in May 1997.
(5) Percentage calculated as if options granted and subsequently cancelled
remained outstanding as of the end of the fiscal year.
(6) Option was granted under the Company's 1996 Equity Incentive Plan. All
shares under the option are immediately exercisable; however, as a
condition of exercise the optionee must enter into a stock restriction
agreement giving the Company the right in the event of any termination of
employment to repurchase all then unvested shares at cost. 12% of the
shares become vested six months following the date of commencement of
employment and 2% of the shares become vested monthly thereafter,
provided however that all shares become vested in the event of an
acquisition of the Company. Mr. Kennelly exercised and purchased all
shares under this option in July 1997.
(7) Option was granted under the Company's 1996 Equity Incentive Plan. All
shares under the option are immediately exercisable and fully vested. Mr.
McEvoy exercised and purchased all shares under this option in July 1997.
(8) Option was granted under the Company's 1996 Equity Incentive Plan. All
shares under the option are immediately exercisable; however, as a
condition of exercise the optionee must enter into a stock restriction
agreement giving the Company the right in the event of any termination of
employment to repurchase all then unvested shares at cost. 12% of the
shares become vested six months following the date of commencement of
employment and 2% of the shares become vested monthly thereafter,
provided however that 25% of the shares become vested upon consummation
of this offering and all shares become vested in the event of an
acquisition of the Company. Mr. McEvoy exercised and purchased all shares
under this option in July 1997.
(9) Option was granted under the Company's 1996 Equity Incentive Plan. All
shares under the option are immediately exercisable; however, as a
condition of exercise the optionee must enter into a stock restriction
agreement giving the Company the right in the event of any termination of
employment to repurchase all then unvested shares at cost. 12% of the
shares become vested six months following the date of commencement of
employment and 2% of the shares become vested monthly thereafter. Mr.
Pierce exercised and purchased all shares under this option in July 1997.
(10) Option was granted under the Company's 1996 Equity Incentive Plan. All
shares under the option are immediately exercisable; however, as a
condition of exercise the optionee must enter into a stock restriction
agreement giving the Company the right in the event of any termination of
employment to repurchase all then unvested shares at cost. 50% of the
shares become vested one year following the date of commencement of
employment and the remaining 50% of the shares become vested two years
following the date of commencement of employment. Mr. Pierce exercised
and purchased all shares under this option in July 1997.
49
<PAGE>
AGGREGATE OPTION EXERCISES AND OPTION VALUES. The following table sets forth
information with respect to the Named Executive Officers concerning option
exercises for the fiscal year ended September 30, 1997 and exercisable and
unexercisable options held as of September 30, 1997:
OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
SHARES OPTIONS AT OPTIONS AT
ACQUIRED SEPTEMBER 30, 1997(#) SEPTEMBER 30, 1997($)(2)
ON VALUE ------------------------- -------------------------
NAME EXERCISE(#) REALIZED($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
David C. Peterschmidt
(3).................... 266,667 $768,001 716,867 -- $2,064,577 --
Paul Gauthier........... -- -- -- -- -- --
Jerry M. Kennelly (4)... 200,001 576,003 -- -- -- --
Dennis L. McEvoy (5).... 268,801 774,147 -- -- -- --
Richard B. Pierce (6)... 233,334 672,002 -- -- -- --
</TABLE>
- --------
(1) Based on a value of $3.33 per share, the deemed fair market value at
September 30, 1997, minus the per share exercise price, multiplied by the
number of shares issued upon exercise of the option.
(2) Based on a value of $3.33 per share, the deemed fair market value at
September 30, 1997, minus the per share exercise price, multiplied by the
number of shares underlying the option.
(3) All shares subject to unexercised options held by Mr. Peterschmidt become
fully vested and exercisable upon consummation of the offering, and are
therefore included in the Exercisable column above.
(4) As of March 31, 1998, 142,667 of the shares acquired by Mr. Kennelly were
subject to a right of repurchase by the Company at cost in the event of
termination of employment with the Company. The repurchase option lapses
at the rate of 4,000 shares per month, provided however that the
repurchase option lapses in full in the event of an acquisition of the
Company.
(5) As of March 31, 1998, 213,334 of the shares acquired by Mr. McEvoy were
subject to a right of repurchase by the Company at cost in the event of
termination of employment with the Company. The repurchase option lapses
as to 66,667 shares upon consummation of the offering and at the rate of
approximately 3,667 additional shares per month thereafter, provided
however that the repurchase option lapses in full in the event of an
acquisition of the Company.
(6) As of March 31, 1998, 146,668 of the shares acquired by Mr. Pierce were
subject to a right of repurchase by the Company at cost in the event of
termination of employment with the Company. The repurchase option lapses
as to 3,333 shares per month and as to an additional 33,333 shares on
November 18, 1998.
INCENTIVE STOCK PLANS
1996 EQUITY INCENTIVE PLAN. The Company's 1996 Equity Incentive Plan (the
"Incentive Plan") provides for the grant of incentive stock options to
employees and nonstatutory stock options, stock purchase rights and stock
bonus rights to employees, directors and consultants. As of March 31, 1998,
options to purchase 1,947,763 shares of Common Stock were outstanding and
2,143,355 shares had been issued upon exercise of outstanding options. Options
granted under the Incentive Plan are exercisable in full when granted; however
to the extent unvested the shares issuable upon exercise of an option are
subject to a right of repurchase in favor of the Company at the exercise
price. For employees, the stock options typically vest or the right of
repurchase generally lapses as to 12% of the granted shares six months
following the first date of employment and as to an additional 2% of the
granted shares at the end of each full month thereafter, subject to continued
employment with the Company. For consultants and directors, the right of
repurchase generally lapses over the term of service. Prior to adopting the
Incentive Plan, the Company granted nonstatutory stock options to
50
<PAGE>
purchase Common Stock to certain employees and consultants. As of March 31,
1998, options to purchase 75,557 shares were outstanding and options to
purchase 317,676 shares had been issued upon exercise of options. These
options carry substantially the same provisions as the options granted under
the Incentive Plan. Options granted under the Incentive Plan will remain
outstanding in accordance with their terms, but the Board of Directors has
determined that no further options or other awards will be granted under the
Incentive Plan.
1998 STOCK PLAN. The Company's 1998 Stock Plan (the "Stock Plan") provides
for the grant of incentive stock options to employees and nonstatutory stock
options and stock purchase rights to employees, directors and consultants. A
total of 1,000,000 shares of Common Stock has been reserved for issuance under
the Stock Plan, all of which are currently available for grant. The number of
shares reserved for issuance under the Stock Plan will be subject to an annual
increase every April equal to that number of shares necessary to ensure that
1,000,000 shares are available for issuance thereunder. The Stock Plan is
currently administered by the Board of Directors, although the Board may
designate certain committees to administer the Stock Plan with respect to
different groups of service providers. Options and stock purchase rights
granted under the Stock Plan will vest as determined by the relevant
administrator, and if not assumed or substituted by a successor corporation
will accelerate and become fully vested in the event of an acquisition of the
Company. The exercise price of options and stock purchase rights granted under
the Stock Plan will be as determined by the relevant administrator, although
the exercise price of incentive stock options must be at least equal to the
fair market value of the Company's Common Stock on the date of grant. The
Board of Directors may amend, modify or terminate the Stock Plan at any time
as long as such amendment, modification or termination does not impair vesting
rights of plan participants. The Stock Plan will terminate in April 2008,
unless terminated earlier by the Board of Directors.
1998 EMPLOYEE STOCK PURCHASE PLAN. The Company's 1998 Employee Stock
Purchase Plan (the "Purchase Plan") provides employees of the Company with an
opportunity to purchase Common Stock of the Company through accumulated
payroll deductions. A total of 300,000 shares of Common Stock have been
reserved for issuance under the Purchase Plan, none of which have been issued.
The number of shares reserved for issuance under the Purchase Plan will be
subject to an annual increase every April equal to that number of shares
necessary to ensure that 300,000 shares are available for issuance thereunder.
The Purchase Plan will be administered by the Board of Directors of the
Company or by a committee appointed by the Board. The Purchase Plan permits
eligible employees to purchase Common Stock through payroll deductions of up
to 20% of an employee's compensation for the first offering period, and up to
15% of an employee's compensation for subsequent offering periods, up to a
maximum of $25,000 for all purchases ending within the same calendar year.
Employees are eligible to participate if they are customarily employed by the
Company for at least 20 hours per week and more than five months in any
calendar year. Unless the Board of Directors or its committee determine
otherwise, each offering period with run for 24 months and will be divided
into four consecutive purchase periods of approximately six months. The first
offering period and the first purchase period commence on the date of this
Prospectus, and new 24 month offering periods will commence every six months
thereafter. In the event of an acquisition of the Company, offering and
purchase periods then in progress will be shortened and all options
automatically exercised. The price at which Common Stock will be purchased
under the Purchase Plan is equal to 85% of the fair market value of the Common
Stock on the first day of the applicable offering period or the last day of
the applicable purchase period, whichever is lower. Employees may end their
participation in the offering period at any time, and participation
automatically ends on termination of employment. The Board may amend, modify
or terminate the Purchase Plan at any time as long as such amendment,
modification or termination does not impair vesting rights of plan
participants. The Purchase Plan will terminate in April 2008, unless
terminated earlier in accordance with its provisions.
51
<PAGE>
401(k) PLAN
In 1996, the Company adopted a Retirement Savings and Investment Plan (the
"401(k) Plan") covering the Company's full-time employees located in the
United States. The 401(k) Plan is intended to qualify under Section 401(k) of
the Internal Revenue Code of 1986, as amended (the "Code"), so that
contributions to the 401(k) Plan by employees or by the Company, and the
investment earnings thereon, are not taxable to employees until withdrawn from
the 401(k) Plan, and so that contributions by the Company, if any, will be
deductible by the Company when made. Pursuant to the 401(k) Plan, employees
may elect to reduce their current compensation by up to the statutorily
prescribed annual limit ($10,000 in 1998) and to have the amount of such
reduction contributed to the 401(k) Plan. The 401(k) Plan permits, but does
not require, additional matching contributions to the 401(k) Plan by the
Company on behalf of all participants in the 401(k) Plan. To date, the Company
has not made any contributions to the 401(k) Plan.
EMPLOYMENT AGREEMENT
The Company has an employment agreement with David C. Peterschmidt, its
President and Chief Executive Officer. The agreement provides for an initial
annual salary of $150,000. The agreement is for no specified length of term,
and either party has the right to terminate the agreement at any time with or
without cause. The agreement does not provide for any mandatory severance,
although the Company has the right to continue to pay Mr. Peterschmidt his
then current salary for up to 12 months following termination of employment,
in which case Mr. Peterschmidt may not compete against the Company for such
time period.
LIMITATIONS ON DIRECTORS' LIABILITY AND INDEMNIFICATION
The Company's Certificate of Incorporation limits the liability of directors
to the maximum extent permitted by Delaware law. Delaware law provides that
directors of a corporation will not be personally liable for monetary damages
for breach of their fiduciary duties as directors, except liability for (i)
any breach of their duty of loyalty to the corporation or its stockholders,
(ii) acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) unlawful payments of dividends
or unlawful stock repurchases or redemptions, or (iv) any transaction from
which the director derived an improper personal benefit. Such limitation of
liability does not apply to liabilities arising under the federal securities
laws and does not affect the availability of equitable remedies such as
injunctive relief or rescission.
The Company's Certificate of Incorporation and Bylaws provide that the
Company shall indemnify its directors and executive officers and may indemnify
its other officers and employees and other agents to the fullest extent
permitted by law. The Company believes that indemnification under its Bylaws
covers at least negligence and gross negligence on the part of indemnified
parties. The Company's Bylaws also permit it to secure insurance on behalf of
any officer, director, employee or other agent for any liability arising out
of his or her actions in such capacity, regardless of whether the Bylaws would
permit indemnification.
The Company has entered into agreements to indemnify its directors and
executive officers, in addition to indemnification provided for in the
Company's Bylaws. These agreements, among other things, provide for
indemnification of the Company's directors and executive officers for certain
expenses (including attorneys' fees), judgments, fines and settlement amounts
incurred by any such person in any action or proceeding, including any action
by or in the right of the Company, arising out of such person's services as a
director or executive officer of the Company, any subsidiary of the Company or
any other company or enterprise to which the person provides services at the
request of the Company. The Company believes that these provisions and
agreements are necessary to attract and retain qualified persons as directors
and executive officers.
52
<PAGE>
CERTAIN TRANSACTIONS
In February 1996, the Company issued 751,815, 751,815 and 283,038 shares of
Common Stock to Dr. Eric A. Brewer, Paul Gauthier and David A. Brewer,
respectively, at a cash price of $0.000075 per share. In March 1996, the
Company issued 1,683,168, 1,683,168, and 633,664 shares of Series A Preferred
Stock to Dr. Brewer, Mr. Gauthier and Mr. Brewer, respectively, at a cash
price of $0.00075 per share. Dr. Brewer and Mr. Gauthier are each executive
officers of the Company, and Dr. Brewer is a Director of the Company. Mr.
Brewer is a 5% stockholder of the Company.
In March 1996, Inktomi LLC, a California limited liability company whose
members consist of Dr. Brewer, Mr. Gauthier and Mr. Brewer, and Dr. Brewer,
Mr. Gauthier and Mr. Brewer as individuals, transferred to the Company all of
their right, title and interest in certain technology in exchange for $100,000
cash and a promissory note of the Company in the principal amount of
$3,132,759. The assigned technology included all technology developed by any
of them directly or indirectly related to scalable web servers built out of
commodity workstations and the Myrinet network, a search engine utilizing
these scalable Web servers, a "crawler" that scans the Web to locate Web pages
for indexing into the search engine database, and any other applications of
parallel processing to Web servers, search engines, "crawlers", and related
products which have been conceived by any of them. In April 1997, Inktomi LLC
and the Company entered into an agreement in which Inktomi LLC converted
approximately $43,800 of the outstanding principal of the promissory note into
a warrant to purchase 417,701 shares of the Company's Common Stock at an
exercise price of $0.33 per share and forgave all other indebtedness under the
promissory note.
In July 1996, the Company entered into an employment agreement with David C.
Peterschmidt, the Company's President and Chief Executive Officer. The
agreement provides for an initial annual salary of $150,000. The agreement is
for no specified length of term, and either party has the right to terminate
the agreement at any time with or without cause. The agreement does not
provide for any mandatory severance, although the Company has the right to
continue to pay Mr. Peterschmidt his then current salary for up to twelve
months following termination of employment, in which case Mr. Peterschmidt may
not compete against the Company for such time period.
In January 1997, the Board of Directors granted an option to purchase 66,667
shares of Common Stock at $1.95 per share to John A. Porter in connection with
his appointment as a member of the Company's Board of Directors. This option
was subsequently repriced to $0.45 per share in connection with the stock
option repricing program approved by the Board of Directors in May 1997.
From March 1997 to June 1997, Dennis L. McEvoy worked as a part-time
consultant to the Company. In exchange for consulting services, the Company
issued to Mr. McEvoy a stock option to purchase 2,134 shares of Common Stock
at $0.45 per share. Mr. McEvoy exercised the stock option in full in July
1997. Mr. McEvoy joined the Company full time as Vice President of Development
and Support in June 1997.
In April 1997, the Company issued and sold to entities affiliated with Oak
Investment Partners ("Oak Partners") 2,405,653 shares of Series D Preferred
Stock at $3.3255 per share and warrants to purchase 801,884 shares of Series
D1 Preferred Stock at $4.98825 per share. Oak Partners exercised its warrants
in full in March 1998 (after assigning warrants to purchase 10,024 shares to a
technology partner of Oak Partners, which warrants were subsequently
exercised). Each outstanding share of Series D Preferred Stock and Series D1
Preferred Stock will convert into one share of Common Stock upon consummation
of the offering. Oak Partners is a 5% stockholder of the Company. Fredric W.
Harman is a Managing Partner of the General Partners of the Oak Partners
entities and is a director of the Company.
In December 1997, the Board of Directors granted an option to purchase
50,000 shares of Common Stock at $3.33 per share to Alan F. Shugart in
connection with his appointment as a member of the Company's Board of
Directors.
53
<PAGE>
All future transactions, including any loans from the Company to its
officers, directors, principal stockholders or affiliates, will be approved by
a majority of the Board of Directors, including a majority of the independent
and disinterested members of the Board of Directors or, if required by law, a
majority of disinterested stockholders, and will be on terms no less favorable
to the Company than could be obtained from unaffiliated third parties.
54
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth information known to the Company with respect
to the beneficial ownership of its Common Stock as of March 31, 1998, and as
adjusted to reflect the sale of Common Stock offered hereby by (i) each
stockholder known by the Company to own beneficially more than 5% of the
Common Stock, (ii) each of the Named Executive Officers, (iii) each director
of the Company, (iv) all directors and executive officers as a group, and (v)
all other Selling Stockholders. As of March 31, 1998, there were 18,531,813
shares of Common Stock outstanding, as adjusted to reflect the conversion of
all outstanding shares of Preferred Stock upon closing of this offering and
the issuance of 562,446 shares of Common Stock upon the exercise of warrants
held by certain stockholders on or before the closing of this offering.
<TABLE>
<CAPTION>
SHARES SHARES
BENEFICIALLY OWNED NUMBER OF BENEFICIALLY OWNED
PRIOR TO OFFERING(1) SHARES AFTER OFFERING(1)(2)
----------------------- BEING -----------------------
NUMBER PERCENT OFFERED(2) NUMBER PERCENT
------------ ---------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Entities affiliated with
Oak Investment
Partners(3)............ 3,197,514 17.3% -- 3,197,514 15.6%
525 University Avenue,
Suite 1300
Palo Alto, CA 94301
Fredric W. Harman(4).... 3,197,514 17.3 -- 3,197,514 15.6
525 University Avenue,
Suite 1300
Palo Alto, CA 94301
Dr. Eric A. Brewer(5)... 2,347,983 12.6 -- 2,347,983 11.3
1900 S. Norfolk St.,
Suite 310
San Mateo, CA 94403
Paul Gauthier(6)........ 2,147,429 11.5 -- 2,147,429 10.4
1900 S. Norfolk St.,
Suite 310
San Mateo, CA 94403
David A. Brewer(7)...... 956,871 5.1 -- 956,871 4.6
941 West Moana Lane
Reno, NV 89509
David C.
Peterschmidt(8)........ 856,867 4.5 -- 856,867 4.0
Jerry M. Kennelly(9).... 276,926 1.5 276,926 1.3
Dennis L. McEvoy(10).... 268,801 1.5 -- 268,801 1.3
Richard B. Pierce(11)... 335,898 1.8 -- 335,898 1.6
John A. Porter(12)...... 66,667 * -- 66,667 *
Alan F. Shugart(13)..... 50,000 * -- 50,000 *
Selling Stockholders....
All directors and
executive officers as a
group (11 persons)(14). 9,817,960 49.6 -- 9,817,960 45.1
</TABLE>
- --------
* Less than 1%
(1) Assumes no exercise of Underwriters' over-allotment option.
(2) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that
person, shares of Common Stock subject to options or warrants held by
that person that are currently exercisable or will become exercisable
within 60 days after March 31, 1998 are deemed outstanding, while such
shares are not deemed outstanding for purposes of computing percentage
ownership of any other person. Unless otherwise indicated in the
footnotes below, the persons and entities named in the table have sole
voting and investment power with respect to all shares beneficially
owned, subject to community property laws where applicable. Unless
otherwise indicated in the table above, the address of each of the
individuals listed in the table is Inktomi Corporation, 1900 South
Norfolk Street, Suite 310, San Mateo, California 94403.
(3) Includes 3,119,174 shares held by Oak Investment Partners VII, Limited
Partnership, and 78,340 shares held by Oak VII Affiliates Fund, Limited
Partnership.
55
<PAGE>
(4) Includes 3,119,174 shares held by Oak Investment Partners VII, Limited
Partnership, and 78,340 shares held by Oak VII Affiliates Fund, Limited
Partnership. Mr. Harman is a Managing Partner of the General Partners of
the Oak Partners entities and is a director of the Company. He disclaims
beneficial ownership of the shares held by the Oak Partners entities
except to the extent of his proportionate partnership interest therein.
(5) Includes 2,172,549 shares held by Dr. Brewer and his wife, Lisa M.
Sardegna. Also includes Dr. Brewer's pro rata interest in a warrant held
by Inktomi LLC, which pro rata interest equals 175,434 shares. All such
shares and warrants are fully vested and are not subject to repurchase by
the Company.
(6) Includes 1,971,995 shares held by Mr. Gauthier. Also includes Mr.
Gauthier's pro rata interest in a warrant held by Inktomi LLC, which pro
rata interest equals 175,434 shares. All such shares and warrants are
fully vested and are not subject to repurchase by the Company.
(7) Includes 890,038 shares held by Mr. Brewer. Also includes Mr. Brewer's
pro rata interest in a warrant held by Inktomi LLC, which pro rata
interest equals 66,833 shares.
(8) Includes 206,667 shares held by David C. Peterschmidt and Roxanne N.
Peterschmidt, Trustees of the Peterschmidt Family Trust U/D/T Dtd
12/30/91. Also includes 650,200 shares issuable upon exercise of stock
options that vest in full upon completion of the offering.
(9) Includes 667 shares held by William Kennelly, Dorothy Kennelly and Jerry
Kennelly, as joint tenants, 6,667 shares held by Jerry Kennelly, as
trustee for Christopher Kennelly, 6,667 shares held by Jerry Kennelly, as
trustee for Michael Kennelly, and 262,925 shares held by Mr. Kennelly. As
of March 31, 1998, 142,667 of the shares held by Mr. Kennelly were
subject to a right of repurchase by the Company at cost in the event Mr.
Kennelly ceases to be an employee of the Company. The right of repurchase
lapses at the rate of 4,000 shares per month and lapses in full upon
consummation of an acquisition of the Company.
(10) All shares are held by Mr. McEvoy and his wife, Kim Worsencroft. At March
31, 1998, 213,334 of the shares held by Mr. McEvoy and Ms. Worsencroft
were subject to a right of repurchase by the Company at cost in the event
Mr. McEvoy ceases to be an employee of the Company. The right of
repurchase lapses as to 66,667 shares upon completion of the offering, as
to the remaining shares at the rate of approximately 3,667 shares per
month, and as to all shares upon consummation of an acquisition of the
Company.
(11) Includes 44,444 shares held by UTMA: Richard B. Pierce Custodian for
Garrett Dean Pierce, 44,444 shares held by UTMA: Audrey Jean Brandt
Custodian for Adrianna Jean Brandt Pierce, and 247,010 shares held by The
Richard Pierce and Audrey Brandt-Pierce Family Trust. As of March 31,
1998, 146,668 of the shares held by the Pierce Family Trust were subject
to a right of repurchase by the Company at cost in the event Mr. Pierce
ceases to be an employee of the Company. The right of repurchase lapses
at the rate of 3,333 shares per month and as to an additional 33,333
shares on November 18, 1998.
(12) All shares are held by Integra Holdings, L.P. As of March 31, 1998,
33,334 of the shares held by Integra Holdings were subject to a right of
repurchase by the Company at cost in the event Mr. Porter ceases to be a
director of the Company. The right of repurchase lapses at the rate of
2,778 shares per month.
(13) Consists of an option held by Mr. Shugart to purchase 50,000 shares of
Common Stock. The option is fully exercisable although as of March 31,
1998, 33,332 of the shares issuable upon exercise of the option are
subject to a right of repurchase by the Company at cost in the event Mr.
Shugart ceases to be a director of the Company. The right of repurchase
lapses at the rate of 2,778 shares per month.
(14) Includes 350,868 shares issuable upon exercise of warrants and options to
purchase 900,200 shares, which options are immediately exercisable as of
March 31, 1998.
56
<PAGE>
DESCRIPTION OF CAPITAL STOCK
GENERAL
Upon the completion of this offering, the Company will be authorized to
issue 100,000,000 shares of Common Stock, $0.001 par value, and 10,000,000
shares of undesignated Preferred Stock, $0.001 par value. The following
description of the Company's capital stock does not purport to be complete and
is subject to and qualified in its entirety by the Company's Certificate of
Incorporation and Bylaws, which are included as exhibits to the Registration
Statement of which this Prospectus forms a part, and by the provisions of
applicable Delaware law.
COMMON STOCK
As of March 31, 1998, there were 18,531,813 shares of Common Stock
outstanding which were held of record by approximately 250 stockholders, as
adjusted to reflect the conversion of all outstanding shares of Preferred
Stock upon closing of this offering and the issuance of 562,446 shares of
Common Stock upon the exercise of warrants held by certain stockholders on or
before the closing of this offering.
The holders of Common Stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. Subject to preferences that may
be applicable to any outstanding Preferred Stock, the holders of Common Stock
are entitled to receive ratably such dividends, if any, as may be declared
from time to time by the Board of Directors out of funds legally available for
that purpose. See "Dividend Policy". In the event of a liquidation,
dissolution or winding up of the Company, the holders of Common Stock are
entitled to share ratably in all assets remaining after payment of
liabilities, subject to prior distribution rights of Preferred Stock, if any,
then outstanding. The Common Stock has no preemptive or conversion rights or
other subscription rights. There are no redemption or sinking fund provisions
applicable to the Common Stock. All outstanding shares of Common Stock are
fully paid and nonassessable, and the shares of Common Stock to be issued upon
the closing of this offering will be fully paid and nonassessable.
PREFERRED STOCK
The Board of Directors has the authority, without action by the
stockholders, to designate and issue Preferred Stock in one or more series and
to designate the rights, preferences and privileges of each series, any or all
of which may be greater than the rights of the Common Stock. It is not
possible to state the actual effect of the issuance of any shares of Preferred
Stock upon the rights of holders of the Common Stock until the Board of
Directors determines the specific rights of the holders of such Preferred
Stock. However, the effects might include, among other things, restricting
dividends on the Common Stock, diluting the voting power of the Common Stock,
impairing the liquidation rights of the Common Stock and delaying or
preventing a change in control of the Company without further action by the
stockholders. The Company has no present plans to issue any shares of
Preferred Stock.
WARRANTS
At March 31, 1998, there were warrants outstanding to purchase a total of
1,376,272 shares of Common Stock. The Company anticipates that warrants to
purchase 562,446 shares at a weighted average exercise price of $0.48 per
share will be exercised on or before completion of this offering. Warrants to
purchase 200,472 shares at $4.99 per share will expire in April 1999, warrants
to purchase 170,667 shares at $11.25 per share will expire in October 1999,
warrants to purchase 3,334 shares at $7.50 per share will expire in August
2001, warrants to purchase 417,701 shares at $0.33 per share will expire in
April 2002 and warrants to purchase 21,652 shares at $3.33 per share will
expire in February 2007.
57
<PAGE>
REGISTRATION RIGHTS
The holders of 13,505,477 shares of Common Stock (the "registrable
securities") or their permitted transferees are entitled to certain rights
with respect to registration of such shares under the Securities Act. These
rights are provided under the terms of an agreement between the Company and
the holders of registrable securities. Under these registration rights,
beginning 180 days following the date of this Prospectus, holders of at least
a majority of the then outstanding registrable securities may require on one
occasion that the Company register their shares for public resale. The Company
is obligated to register these shares if the holders of a majority of such
shares request registration and only if the shares to be registered constitute
at least 50% of the then outstanding registrable securities or have an
anticipated public offering price of at least $2,000,000. In addition, holders
of registrable securities may require on five separate occasions that the
Company register their shares for public resale on Form S-3 or similar short-
form registration, provided the Company is eligible to use Form S-3 or similar
short-form registration and provided further that the value of the securities
to be registered is at least $500,000. Furthermore, in the event the Company
elects to register any of its shares of Common Stock for purposes of effecting
any public offering, the holders of registrable securities are entitled to
include their shares of Common Stock in the registration, subject however to
the right of the Company to reduce the number of shares proposed to be
registered in view of market conditions. All expenses in connection with any
registration (other than underwriting discounts and commissions) will be borne
by the Company. All registration rights will terminate four years following
the consummation of this offering, or, with respect to each holder of
registrable securities, at such time as the Company's shares are publicly
traded and the holder is entitled to sell all of its shares in any three month
period under Rule 144 of the Securities Act.
DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER AND BYLAW PROVISIONS
Certain provisions of Delaware law and the Company's Certificate of
Incorporation and Bylaws could make more difficult the acquisition of the
Company by means of a tender offer, a proxy contest or otherwise and the
removal of incumbent officers and directors. These provisions, summarized
below, are expected to discourage certain types of coercive takeover practices
and inadequate takeover bids and to encourage persons seeking to acquire
control of the Company to first negotiate with the Company. The Company
believes that the benefits of increased protection of the Company's potential
ability to negotiate with the proponent of an unfriendly or unsolicited
proposal to acquire or restructure the Company outweigh the disadvantages of
discouraging such proposals because, among other things, negotiation of such
proposals could result in an improvement of their terms.
The Company is subject to Section 203 of the Delaware General Corporation
Law, an anti-takeover law. In general, Section 203 prohibits a publicly held
Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years following the date the
person became an interested stockholder, unless (with certain exceptions) the
"business combination" or the transaction in which the person became an
interested stockholder is approved in a prescribed manner. Generally, a
"business combination" includes a merger, asset or stock sale, or other
transaction resulting in a financial benefit to the interested stockholder.
Generally, an "interested stockholder" is a person who, together with
affiliates and associates, owns (or within three years prior to the
determination of interested stockholder status, did own) 15% or more of a
corporation's voting stock. The existence of this provision would be expected
to have an anti-takeover effect with respect to transactions not approved in
advance by the Board of Directors, including discouraging attempts that might
result in a premium over the market price for the shares of Common Stock held
by stockholders.
The Company's Certificate of Incorporation provides that, upon the closing
of the offering, the Board of Directors will be divided into three classes of
directors with each class serving a staggered three-year term. The
classification system of electing directors may tend to discourage a third
party
58
<PAGE>
from making a tender offer or otherwise attempting to obtain control of the
Company and may maintain the incumbency of the Board of Directors, as the
classification of a board of directors generally increases the difficulty of
replacing a majority of the directors. The Company's Certificate of
Incorporation eliminates the right of stockholders to act by written consent
without a meeting. The Certificate of Incorporation and Bylaws do not provide
for cumulative voting in the election of directors. The authorization of
undesignated Preferred Stock makes it possible for the Board of Directors to
issue Preferred Stock with voting or other rights or preferences that could
impede the success of any attempt to change control of the Company. These and
other provisions may have the effect of deferring hostile takeovers or
delaying changes in control or management of the Company. The amendment of any
of these provisions would require approval by holders of at least 66 2/3% of
the outstanding Common Stock.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is Norwest Shareowner
Services, South St. Paul, Minnesota.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for the Common Stock of the
Company, and there can be no assurance that a significant public market for
the Common Stock will develop or be sustained after this offering. Future
sales of substantial amounts of Common Stock (including shares issued upon
exercise of outstanding options and warrants) in the public market following
this offering could adversely affect market prices prevailing from time to
time and could impair the Company's ability to raise capital through sale of
its equity securities. As described below, no shares currently outstanding
will be available for sale immediately after this offering because of certain
contractual restrictions on resale. Sales of substantial amounts of Common
Stock of the Company in the public market after the restrictions lapse could
adversely affect the prevailing market price and the ability of the Company to
raise equity capital in the future.
Upon completion of this offering, the Company will have outstanding
20,531,813 shares of Common Stock (based upon shares outstanding as of March
31, 1998), assuming no exercise of the Underwriters' over-allotment option and
no exercise of outstanding options or warrants that do not expire upon the
closing. Of these shares, the 2,200,000 shares sold in this offering will be
freely tradable without restriction under the Securities Act except for any
shares purchased by "affiliates" of the Company as that term is defined in
Rule 144 under the Securities Act. The remaining 18,331,813 shares of Common
Stock held by existing stockholders are "Restricted Shares" as that term is
defined in Rule 144. All such Restricted Shares are subject to lock-up
agreements providing that, with certain limited exceptions, the stockholder
will not offer, sell, contract to sell or otherwise dispose of any securities
of the Company that are substantially similar to the Common Stock, including
but not limited to any securities that are convertible into or exchangeable
for, or that represent the right to receive, Common Stock or any such
substantially similar securities (other than pursuant to employee stock option
plans existing on, or upon the conversion or exchange of convertible or
exchangeable securities outstanding as of, the date of the lock-up agreement)
for a period of 180 days after the date of this Prospectus without the prior
written consent of Goldman, Sachs & Co. As a result of these lock-up
agreements, notwithstanding possible earlier eligibility for sale under the
provisions of Rules 144, 144(k) and 701, none of these shares will be salable
until 181 days after the date of this Prospectus. Beginning 181 days after the
date of this Prospectus, approximately 14,462,219 Restricted Shares will be
eligible for sale in the public market, all of which are subject to volume
limitations under Rule 144, except 4,477,459 shares. Thereafter, approximately
3,350,008 Restricted Shares will become eligible for sale between the end of
the lock-up period and March 31, 1999 and the remaining 519,586 Restricted
Shares will become eligible for sale one year from the date of this
Prospectus. In addition,
59
<PAGE>
as of March 31, 1998, there were outstanding 2,023,320 options and 1,376,272
warrants to purchase Common Stock (of which warrants for 562,446 shares are
expected to be exercised on or before the closing of this offering). All such
options and warrants are subject to lock-up agreements. Goldman, Sachs & Co.
may, in their sole discretion and at any time without notice, release all or
any portion of the securities subject to lock-up agreements.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this Prospectus, a person (or persons whose shares are aggregated)
who has beneficially owned Restricted Shares for at least one year (including
the holding period of any prior owner except an affiliate) would be entitled
to sell within any three-month period a number of shares that does not exceed
the greater of: (i) 1% of the number of shares of Common Stock then
outstanding (which will equal approximately 2,000,000 shares immediately after
this offering); or (ii) the average weekly trading volume of the Common Stock
during the four calendar weeks preceding the filing of a Form 144 with respect
to such sale. Sales under Rule 144 are also subject to certain manner of sale
provisions and notice requirements and to the availability of current public
information about the Company. Under Rule 144(k), a person who is not deemed
to have been an affiliate of the Company at any time during the three months
preceding a sale, and who has beneficially owned the shares proposed to be
sold for at least two years (including the holding period of any prior owner
except an affiliate), is entitled to sell such shares without complying with
the manner of sale, public information, volume limitation or notice provisions
of Rule 144.
Rule 701, as currently in effect, permits resales of shares in reliance upon
Rule 144 but without compliance with certain restrictions, including the
holding period requirement, of Rule 144. Any employee, officer or director of
or consultant to the Company who purchased shares pursuant to a written
compensatory plan or contract may be entitled to rely on the resale provisions
of Rule 701. Rule 701 permits affiliates to sell their Rule 701 shares under
Rule 144 without complying with the holding period requirements of Rule 144.
Rule 701 further provides that non-affiliates may sell such shares in reliance
on Rule 144 without having to comply with the holding period, public
information, volume limitation or notice provisions of Rule 144. All holders
of Rule 701 shares are required to wait until 90 days after the date of this
Prospectus before selling such shares. However, all Rule 701 shares are
subject to lock-up agreements and will only become eligible for sale at the
earlier of the expiration of the 180-day lock-up agreements or no sooner than
90 days after the offering upon obtaining the prior written consent of
Goldman, Sachs & Co.
Immediately after this offering, the Company intends to file a registration
statement under the Securities Act covering shares of Common Stock subject to
outstanding options under the 1996 Equity Incentive Plan, the 1998 Stock Plan
and the 1998 Employee Stock Purchase Plan (collectively the "Incentive Stock
Plans"). See "Management--Incentive Stock Plans". Based on the number of
shares subject to outstanding options as of March 31, 1998 and currently
reserved for issuance under the Incentive Stock Plans, such registration
statement would cover approximately 3,323,320 shares. Such registration
statement will automatically become effective upon filing. Accordingly, shares
registered under such registration statement will, subject to Rule 144 volume
limitations applicable to affiliates of the Company, be available for sale in
the open market immediately after the 180-day lock-up agreements expire.
Also beginning six months after the date of this offering, holders of
13,505,477 Restricted Shares will be entitled to certain rights with respect
to registration of such shares for sale in the public market. See "Description
of Capital Stock--Registration Rights". Registration of such shares under the
Securities Act would result in such shares becoming freely tradable without
restriction under the Securities Act (except for shares purchased by
affiliates) immediately upon the effectiveness of such registration.
60
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C., a Registration Statement on Form S-1 under
the Securities Act with respect to the shares of Common Stock offered hereby.
This Prospectus does not contain all the information set forth in the
Registration Statement and the exhibits and schedules thereto. For further
information with respect to the Company and such Common Stock, reference is
made to the Registration Statement and to the exhibits and schedules filed
therewith. Statements contained in this Prospectus as to the contents of any
contract or other document referred to are not necessarily complete, and in
each instance reference is made to the copy of such contract or other document
filed as an exhibit to the Registration Statement, each such statement being
qualified in all respects by such reference. A copy of the Registration
Statement may be inspected by anyone without charge at the Public Reference
Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549. Copies of all or any portion of the Registration
Statement may be obtained from the Public Reference Section of the Commission,
450 Fifth Street, N.W., Washington, D.C. 20549, upon payment of prescribed
fees. The Commission maintains a Web site at http://www.sec.gov that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo
Alto, California. Certain legal matters will be passed upon for the
Underwriters by Venture Law Group, A Professional Corporation, Menlo Park,
California. As of the date of this prospectus, WS Investment Company 97A, an
investment partnership composed of certain current and former members of and
persons associated with Wilson Sonsini Goodrich & Rosati, Professional
Corporation, beneficially owns an aggregate of 12,829 shares of the Company's
Common Stock.
EXPERTS
The consolidated balance sheets as of September 30, 1996 and 1997 and the
consolidated statements of operations, changes in stockholders' deficiency and
cash flows for the period from February 2, 1996 (date of incorporation)
through September 30, 1996 and the year ended September 30, 1997 included in
this Prospectus have been included herein in reliance on the report of Coopers
& Lybrand L.L.P., Independent Accountants, which report is given on the
authority of that firm as experts in auditing and accounting.
61
<PAGE>
INKTOMI CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Accountants........................................... F-2
Consolidated Balance Sheets................................................. F-3
Consolidated Statements of Operations....................................... F-4
Consolidated Statements of Changes in Stockholders' (Deficiency) Equity..... F-5
Consolidated Statements of Cash Flows....................................... F-6
Notes to Consolidated Financial Statements.................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors of
Inktomi Corporation:
We have audited the accompanying balance sheets of Inktomi Corporation as of
September 30, 1996 and 1997, and the related statements of operations, changes
in stockholders' (deficiency) equity, and cash flows for the period from
February 2, 1996 (date of inception) through September 30, 1996 and the year
ended September 30, 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Inktomi Corporation as of
September 30, 1996 and 1997, and the results of its operations and its cash
flows for the period from February 2, 1996 (date of inception) through
September 30, 1996 and the year ended September 30, 1997, in conformity with
generally accepted accounting principles.
San Francisco, California
November 3, 1997
- --------
The foregoing report is in the form that will be signed upon the completion of
the 2:3 reverse stock split as described in Note 1 to the Consolidated
Financial Statements.
San Francisco, California
April 15, 1998
F-2
<PAGE>
INKTOMI CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31,
SEPTEMBER 30, SEPTEMBER 30, MARCH 31, 1998
1996 1997 1998 PRO FORMA
------------- ------------- ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents........... $ 415,847 $ 6,323,895 $ 17,133,295 $17,405,519
Accounts receivable,
net of allowances of
$50,000, $80,519 and
$174,458,
respectively.......... 127,798 829,427 1,186,365 1,186,365
Prepaid expenses....... 37,574 142,255 477,274 477,274
Other current assets... -- 20,431 25,155 25,155
----------- ------------ ------------ ------------
Total current assets... 581,219 7,316,008 18,822,089 19,094,313
Property and equipment,
net.................... 1,890,717 6,808,469 6,414,178 6,414,178
Other assets............ 48,860 192,320 58,126 58,126
----------- ------------ ------------ ------------
Total assets........... $ 2,520,796 $ 14,316,797 $ 25,294,393 $ 25,566,617
=========== ============ ============ ============
LIABILITIES AND
STOCKHOLDERS'
(DEFICIENCY) EQUITY
Current liabilities:
Current portion of
notes payable......... $ 3,332,759 $ 2,449,601 $ 2,514,764 $ 2,514,764
Current portion of
capital lease
obligations........... -- -- 331,228 331,228
Accounts payable....... 388,665 927,044 1,266,311 1,266,311
Accrued liabilities.... 458,295 1,147,217 1,935,753 1,935,753
Deferred revenue....... -- 714,822 794,309 794,309
----------- ------------ ------------ ------------
Total current
liabilities........... 4,179,719 5,238,684 6,842,365 6,842,365
Notes payable........... -- 5,029,411 4,189,042 4,189,042
Capital lease
obligations, less
current portion........ -- -- 1,001,546 1,001,546
----------- ------------ ------------ ------------
Total liabilities...... 4,179,719 10,268,095 12,032,953 12,032,953
----------- ------------ ------------ ------------
Commitments (Note 4)
Stockholders'
(deficiency) equity:
Series A through E
convertible Preferred
Stock, $.001 par
value:
Authorized: 14,000,000
shares in 1996,
17,080,000 shares in
1997, 20,630,000
shares at March 31,
1998 (unaudited) and
no pro forma shares
(unaudited); Issued
and outstanding:
10,072,468 shares in
1996, 14,938,121
shares in 1997,
19,460,486 shares at
March 31, 1998
(unaudited) and no pro
forma shares
(unaudited);
(liquidation value:
$21,408,156 at March
31,1998).............. 10,073 14,938 19,461 --
Common Stock, $.001 par
value:
Authorized: 33,333,333
shares in 1996 and
1997, 33,666,667
shares at March 31,
1998 (unaudited) and
33,666,667 shares pro
forma (unaudited);
Issued and
outstanding: 2,467,137
shares in 1996,
4,632,208 shares in
1997, 4,931,468 shares
at March 31, 1998
(unaudited) and
18,531,813 shares pro
forma (unaudited)..... 2,467 4,632 4,931 18,532
Additional paid-in
capital............... 4,404,725 15,635,127 32,724,110 33,002,194
Other.................. (2,541,757) 590,662 586,711 586,711
Accumulated deficit.... (3,534,431) (12,196,657) (20,073,773) (20,073,773)
----------- ------------ ------------ ------------
Total stockholders'
(deficiency) equity... (1,658,923) 4,048,702 13,261,440 13,533,664
----------- ------------ ------------ ------------
Total liabilities and
stockholders'
(deficiency) equity.. $ 2,520,796 $ 14,316,797 $ 25,294,393 $ 25,566,617
=========== ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
INKTOMI CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
FEBRUARY 2, 1996 FOR THE SIX
(DATE OF INCEPTION) FOR THE YEAR MONTHS ENDED
THROUGH ENDED MARCH 31,
SEPTEMBER 30, SEPTEMBER 30, ------------------------
1996 1997 1997 1998
------------------- ------------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Revenues:
Network applications... -- $ 60,000 -- $ 690,688
Search services........ $ 530,088 5,725,120 $2,282,341 5,185,215
---------- ---------- ---------- ----------
Total revenues...... 530,088 5,785,120 2,282,341 5,875,903
Cost of revenues........ 238,756 1,511,933 466,103 1,694,849
---------- ---------- ---------- ----------
Gross profit........ 291,332 4,273,187 1,816,238 4,181,054
Operating expenses:
Sales and marketing.... 898,227 7,043,494 2,661,186 6,521,317
Research and
development........... 1,482,406 4,210,482 1,665,203 3,813,823
General and
administrative........ 1,341,244 1,485,539 601,957 1,638,480
---------- ---------- ---------- ----------
Operating loss...... 3,430,545 8,466,328 3,112,108 7,792,566
Interest income......... (6,841) (175,108) (14,523) (148,589)
Interest expense........ 109,927 369,356 92,218 232,339
---------- ---------- ---------- ----------
Loss before income
taxes.............. 3,533,631 8,660,576 3,189,803 7,876,316
Provision for income
taxes.................. 800 1,650 850 800
---------- ---------- ---------- ----------
Net loss............ $3,534,431 $8,662,226 $3,190,653 $7,877,116
========== ========== ========== ==========
Basic and diluted net
loss per share......... $ (1.88) $ (2.96) $ (1.29) $ (1.65)
========== ========== ========== ==========
Weighted average shares
outstanding used in per
share calculation...... 1,883,701 2,927,318 2,477,045 4,765,532
========== ========== ========== ==========
Pro forma basic and
diluted net loss per
share.................. $ (0.72) $ (0.46)
========== ==========
Weighted average shares
outstanding used in pro
forma per share
calculation............ 12,029,713 17,135,058
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
INKTOMI CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' (DEFICIENCY) EQUITY
FOR THE PERIOD FROM FEBRUARY 2, 1996 (DATE OF INCEPTION)
THROUGH SEPTEMBER 30, 1996, THE YEAR ENDED SEPTEMBER 30, 1997
AND THE SIX MONTHS ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED STOCK COMMON STOCK ADDITIONAL
------------------ ---------------- PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL OTHER DEFICIT TOTAL
---------- ------- --------- ------ ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Transfer of technology.. $(3,132,759) $(3,132,759)
Issuance of Common
Stock................... 2,186,470 $2,186 $ 42,948 45,134
Issuance of Preferred
Stock................... 10,072,468 $10,073 4,011,513 4,021,586
Issuance of Common Stock
warrants................ 910,000 910,000
Conversion of warrants
to Common Stock......... 280,667 281 350,264 (318,998) 31,547
Net loss................ $ (3,534,431) (3,534,431)
---------- ------- --------- ------ ----------- ----------- ------------ -----------
Balance, September 30,
1996.................... 10,072,468 10,073 2,467,137 2,467 4,404,725 (2,541,757) (3,534,431) (1,658,923)
Exercise of stock
options................. 1,956,904 1,957 775,056 777,013
Issuance of Preferred
Stock, net of issuance
costs of $109,471....... 4,865,653 4,865 10,361,879 10,366,744
Forgiveness of note
payable related to
transfer of technology.. 3,132,759 3,132,759
Issuance of Preferred
Stock warrants.......... 160 160
Stock options granted to
consultants............. 93,175 93,175
Exercise of stock
options in exchange for
note receivable......... 208,167 208 93,467 (93,675) --
Net loss................ (8,662,226) (8,662,226)
---------- ------- --------- ------ ----------- ----------- ------------ -----------
Balance, September 30,
1997.................... 14,938,121 14,938 4,632,208 4,632 15,635,127 590,662 (12,196,657) 4,048,702
Exercise of stock
options................. 295,927 296 201,396 201,692
Exercise of Common Stock
warrants................ 3,333 3 24,997 25,000
Exercise of Preferred
Stock warrants.......... 1,224,545 1,225 4,070,994 4,072,219
Issuance of Preferred
Stock, net of issuance
costs of $1,220,847..... 3,297,820 3,298 12,791,596 12,794,894
Foreign currency
translation............. (3,951) (3,951)
Net loss................ (7,877,116) (7,877,116)
---------- ------- --------- ------ ----------- ----------- ------------ -----------
Balance, March 31, 1998
(unaudited)............. 19,460,486 $19,461 4,931,468 $4,931 $32,724,110 $ 586,711 $(20,073,773) $13,261,440
========== ======= ========= ====== =========== =========== ============ ===========
</TABLE>
F-5
<PAGE>
INKTOMI CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
FEBRUARY 2, 1996 FOR THE YEAR FOR THE SIX MONTHS
(DATE OF INCEPTION) ENDED ENDED MARCH 31,
THROUGH SEPTEMBER 30, ------------------------
SEPTEMBER 30, 1996 1997 1997 1998
------------------- ------------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from
operating activities:
Net loss.............. $(3,534,431) $(8,662,226) $(3,190,653) $(7,877,116)
Adjustments to
reconcile net loss to
net cash used in
operating activities:
Depreciation and
amortization......... 336,115 1,384,570 445,541 1,387,276
Noncash consulting
services............. 390,000 93,175 93,175 --
Other................. -- -- -- (3,951)
Change in assets and
liabilities:
Increase in accounts
receivable.......... (127,798) (701,629) (88,998) (356,938)
Increase in prepaid
expenses and other
assets.............. (86,434) (268,572) (9,362) (205,549)
Increase in accounts
payable............. 388,665 124,980 698,266 339,267
Increase in accrued
liabilities......... 458,295 688,922 205,593 788,536
Increase in deferred
revenue............. -- 714,822 215,562 79,487
----------- ----------- ----------- -----------
Net cash used in
operating
activities......... (2,175,588) (6,625,958) (1,630,876) (5,848,988)
----------- ----------- ----------- -----------
Cash flows used in
(provided by)
investing activities:
Purchase of property
and equipment........ (2,226,832) (5,888,923) (464,466) (468,072)
Proceeds from sale of
equipment............ -- -- -- 927,627
----------- ----------- ----------- -----------
Net cash used in
(provided by)
investing
activities......... (2,226,832) (5,888,923) (464,466) 459,555
Cash flows from
financing activities:
Proceeds from note
payable.............. 500,000 7,746,424 2,600,000 156,893
Repayments on notes
payable.............. -- (267,412) (223,846) (932,099)
Payments on
obligations under
capital lease........ -- -- -- (119,766)
Proceeds from issuance
of unsecured
promissory note...... -- 2,000,000 -- --
Repayments of
unsecured promissory
note................. -- (2,000,000) -- --
Payments of
convertible notes
payable.............. (300,000) -- -- --
Proceeds from issuance
of Preferred Stock,
net of issuance
costs................ 3,631,586 10,166,744 233,235 12,794,894
Proceeds from exercise
of stock options and
warrants............. 31,547 777,013 12,000 4,298,911
Proceeds from issuance
of Common Stock...... 45,134 -- -- --
Proceeds from issuance
of Common and
Preferred Stock
warrants............. 910,000 160 -- --
----------- ----------- ----------- -----------
Net cash provided by
financing
activities......... 4,818,267 18,422,929 2,621,389 16,198,833
----------- ----------- ----------- -----------
Increase in cash and
cash equivalents...... 415,847 5,908,048 526,047 10,809,400
Cash and cash
equivalents at
beginning of period... -- 415,847 415,847 6,323,895
----------- ----------- ----------- -----------
Cash and cash
equivalents at end of
period................ $ 415,847 $ 6,323,895 $ 941,894 $17,133,295
=========== =========== =========== ===========
Supplemental disclosure
of cash flow
information:
Cash paid for
interest............. $ -- $ 380,487 $ -- $ 202,665
=========== =========== =========== ===========
SUPPLEMENTAL SCHEDULE
OF
NONCASH INVESTING AND
FINANCING ACTIVITIES
Technology acquired for
notes payable......... $ 3,132,759 $ -- $ -- $ --
=========== =========== =========== ===========
Accounts payable
related to purchase of
PP&E.................. $ -- $ 413,399 $ 398,910 $ 126,160
=========== =========== =========== ===========
Forgiveness of note
payable related to
technology acquired... $ -- $ 3,132,759 $ -- $ --
=========== =========== =========== ===========
Series B Preferred
Stock issued as
compensation for
services received..... $ 390,000 $ -- $ -- $ --
=========== =========== =========== ===========
Exercise of Common
Stock options in
exchange for note
receivable............ $ -- $ 93,675 $ -- $ --
=========== =========== =========== ===========
Stock options issued as
compensation for
services rendered..... $ -- $ 93,175 $ -- $ --
=========== =========== =========== ===========
Conversion of note
payable into Preferred
Stock................. $ -- $ 200,000 $ 200,000 $ --
=========== =========== =========== ===========
Assets acquired under
capital lease......... $ -- $ -- $ -- $ 524,913
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
INKTOMI CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INFORMATION AS OF MARCH 31, 1998 AND WITH RESPECT TO THE SIX MONTHS ENDED
MARCH 31, 1997 AND 1998 IS UNAUDITED.
(1) SIGNIFICANT ACCOUNTING POLICIES:
ORGANIZATION:
Inktomi was formed in February 1996 to develop and market scalable software
applications designed to significantly enhance the performance and
intelligence of large-scale networks. In May 1996, the Company released the
first commercial application based on its core technology, a search engine
that enables customers to provide a variety of Internet search services to end
users. In December 1997, the Company first licensed Traffic Server, the
Company's second application, which is a network cache product designed to
address capacity constraints in high-traffic network routes.
REVERSE STOCK SPLIT:
In April 1998, the Board of Directors approved a 2:3 reverse stock split of
the Company's Common Stock which is subject to stockholder approval. All share
and per share information in the accompanying consolidated financial
statements and notes thereto have been restated for such stock split.
USE OF ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the 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 revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiary, Inktomi Limited, which was formed in October
1997. All significant intercompany balances and transactions have been
eliminated in the consolidated financial statements.
REVENUE RECOGNITION:
Search service revenues are comprised of search advertising, licensing, and
maintenance fees. Advertising revenues are recognized in the period that the
advertisement is displayed and comprised 90%, 89%, 82% and 69% of total
revenues for the period from February 2, 1996 (date of inception) through
September 30, 1996, for the year ended September 30, 1997 and for the six
months ended March 31, 1997 and 1998, respectively. A significant portion of
the Company's advertising revenues are from a search service which is
maintained by the Company and marketed by Wired Digital, Inc. ("Wired").
Revenues from this agreement are recorded in full and amounts allocable to the
partner for marketing costs are included in sales and marketing expenses.
Search license revenues are recognized as amounts are earned under the terms
of applicable agreements, provided no significant Company obligations exist
and collection of the resulting receivable is probable. Fees for maintenance
and support services are deferred and recognized ratably over the service
period.
A portion of the advertising on the Wired search site is exchanged for
advertisements on the Internet sites of other companies. These revenues and
marketing expenses are recorded at the fair value of services provided or
received, whichever is more determinable in the circumstances. Revenue from
barter transactions is recognized as income when advertisements are delivered
on the Wired site,
F-7
<PAGE>
INKTOMI CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
INFORMATION AS OF MARCH 31, 1998 AND WITH RESPECT TO THE SIX MONTHS ENDED
MARCH 31, 1997 AND 1998 IS UNAUDITED.
and expense from barter transactions is recognized when advertisements are
delivered on the other companies' Internet sites. Barter revenues and expenses
were approximately $133,000, $1,580,000, $738,801 and $864,961 for the period
from February 2, 1996 (date of inception) through September 30, 1996, for the
year ended September 30, 1997 and for the six months ended March 31, 1997 and
1998, respectively.
Network application revenues for the year ended September 30, 1997
represented fees for the modification of the Company's Traffic Server product
to run on a hardware partner's platform. Revenue is recognized as contractual
and developmental milestones are achieved.
COMPUTATION OF HISTORICAL NET LOSS PER SHARE AND PRO FORMA NET LOSS PER
SHARE:
Basic and diluted net loss per share is computed using the weighted average
number of common and common equivalent shares outstanding during the period.
Common equivalent shares, comprising the incremental common shares issuable
upon the exercise of stock options and warrants and upon conversion of
convertible Preferred Stock, have not been included, except as provided below,
as such shares are anti-dilutive.
Pro forma net loss per share for the period from February 2, 1996 through
September 30, 1996, the year ended September 30, 1997 and the six months ended
March 31, 1998 assumes that the common shares issuable upon conversion of the
outstanding convertible Preferred Stock and certain warrants had been
outstanding during such period.
CASH AND CASH EQUIVALENTS:
Cash and cash equivalents are stated at cost, which approximates fair value.
The Company includes in cash equivalents all highly liquid investments which
mature within three months of their purchase date. Cash equivalents consist
primarily of commercial paper and other debt instruments, money market funds
and U.S. Treasury bills.
PROPERTY AND EQUIPMENT:
Property and equipment is stated at cost and is depreciated using the
straight-line method over the estimated useful lives of the related assets,
generally three years.
INCOME TAXES:
Income taxes are accounted for in accordance with Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes, which requires
recognition of deferred tax liabilities and assets for the expected future tax
consequences of events that have been included in the financial statements or
tax returns. Under this method, deferred tax liabilities and assets are
determined based on the difference between the financial statement and tax
bases of assets and liabilities using enacted tax rates in effect for the year
in which the differences are expected to reverse. Valuation allowances are
established when necessary to reduce deferred tax assets to the amounts
expected to be realized. Income tax expense is the tax payable for the period
and the change during the period in deferred tax assets and liabilities.
SOFTWARE DEVELOPMENT COSTS:
Software development costs have been accounted for in accordance with
Statement of Financial Accounting Standards No. 86, Accounting for the Costs
of Computer Software to be Sold, Leased or
F-8
<PAGE>
INKTOMI CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
INFORMATION AS OF MARCH 31, 1998 AND WITH RESPECT TO THE SIX MONTHS ENDED
MARCH 31, 1997 AND 1998 IS UNAUDITED.
Otherwise Marketed. Under the standard, capitalization of software development
costs begins upon the establishment of technological feasibility which, for
the Company, is upon completion of a working model. To date, all such amounts
have been insignificant, and accordingly, the Company has charged all such
costs to research and development expenses.
BUSINESS RISK AND CONCENTRATION OF CREDIT RISK:
The Company operates in the Internet industry, which is new, rapidly
evolving and intensely competitive.
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of temporary cash investments
(including money market accounts). The Company places its temporary cash
investments with two major financial institutions.
The Company performs ongoing credit evaluations, does not require
collateral, and maintains reserves for potential credit losses on customer
accounts when deemed necessary. For the period from February 2, 1996 (date of
inception) through September 30, 1996, one customer accounted for 90% of
revenues, and at September 30, 1996, this customer accounted for 100% of
accounts receivable. For the year ended September 30, 1997, three customers
accounted for approximately 79%, 6% and 13%, respectively, of all revenue
generated by the Company, and 62%, 37% and 0% of accounts receivable at
September 30, 1997, respectively. For the six months ended March 31, 1997 the
same customers accounted for approximately 77%, 22% and 0%, respectively, of
all revenues generated by the Company. For the six months ended March 31,
1998, the same customers accounted for 59%, 6% and 20%, respectively, of all
revenues generated by the Company, and 26%, 1% and 8% of accounts receivable
at March 31, 1998, respectively.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS:
During 1997, the Financial Accounting Standards Board released Statements of
Financial Accounting Standards No. 128, No. 129, Disclosure of Information
About Capital Structure, No. 130, Reporting Comprehensive Income, and No. 131,
Disclosure About Segments of an Enterprise and Related Information, all
effective for the year ended September 30, 1999. The Company is currently
determining the disclosures which may be required under these pronouncements.
(2) PROPERTY AND EQUIPMENT:
Property and equipment consists of:
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30, MARCH 31,
1996 1997 1998
------------- ------------- ----------
<S> <C> <C> <C>
Computer equipment................... $2,047,029 $7,956,960 $8,601,101
Office equipment, furniture and fix-
tures............................... 99,779 448,512 739,302
Leasehold improvements............... 80,024 43,225 101,279
---------- ---------- ----------
2,226,832 8,448,697 9,441,682
Less accumulated depreciation and am-
ortization.......................... 336,115 1,640,228 3,027,504
---------- ---------- ----------
Property and equipment, net.......... $1,890,717 $6,808,469 $6,414,178
========== ========== ==========
</TABLE>
F-9
<PAGE>
INKTOMI CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
INFORMATION AS OF MARCH 31, 1998 AND WITH RESPECT TO THE SIX MONTHS ENDED
MARCH 31, 1997 AND 1998 IS UNAUDITED.
In May 1997, the Company recognized a loss for the abandonment of leasehold
improvements with a cost of $80,457 and accumulated amortization of $34,542
due to a corporate relocation. Assets acquired under capitalized lease
obligations are included in computer equipment and office equipment and
totaled $0, $0 and $1,452,540 (including equipment previously purchased), with
related amortization of $0, $0 and $119,766, as of September 30, 1996 and 1997
and March 31, 1998, respectively.
(3) INCOME TAXES:
Net deferred tax assets comprise:
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1996 1997
------------- -------------
<S> <C> <C>
Net operating loss carryforwards -- federal and
state......................................... $ 1,586,755 $ 4,005,740
Research and experimentation credit
carryforwards................................. 56,740 132,168
Other liabilities and reserves................. 36,453 83,548
Property and equipment......................... 21,127 (209,967)
Acquired technology............................ 1,012,977 593,215
Deferred revenue............................... -- 356,513
Valuation allowance............................ (2,714,052) (4,961,217)
----------- -----------
Net deferred tax asset..................... -- --
=========== ===========
</TABLE>
Due to the uncertainty surrounding the realization of the favorable tax
attributes in future tax returns, the Company has placed a valuation allowance
against its otherwise recognizable net deferred tax assets. Differences
between the federal statutory and effective tax rates were primarily due to
the nonrealizability of net operating losses.
At September 30, 1997, the Company had the following carryforwards available
to reduce future taxable income and income taxes:
<TABLE>
<CAPTION>
1997
---------------------
FEDERAL STATE
---------- ----------
<S> <C> <C>
Net operating loss carryforwards....................... $9,885,167 $9,927,603
Research and experimentation credit carryforwards...... 83,636 48,532
</TABLE>
The federal and state net operating loss carryforwards expire through 2012
and 2005, respectively, and the research and experimentation credits expire in
2002.
For federal and state tax purposes, the Company's net operating loss and
research and experimentation credit carryforwards could be subject to certain
limitations on annual utilization if certain changes in ownership were to
occur, as defined by federal and state tax laws.
F-10
<PAGE>
INKTOMI CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
INFORMATION AS OF MARCH 31, 1998 AND WITH RESPECT TO THE SIX MONTHS ENDED
MARCH 31, 1997 AND 1998 IS UNAUDITED.
(4) COMMITMENTS:
The Company has entered into noncancellable operating leases for office
space and equipment and capital leases for equipment with original terms
ranging from six to 60 months. The future minimum lease payments under these
leases at March 31, 1998, are as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
---------- ----------
<S> <C> <C>
Six months ending September 30, 1998................ $ 477,157 $293,807
Years ending:
September 30, 1999................................. 1,246,068 587,613
September 30, 2000................................. 1,130,417 587,613
September 30, 2001................................. 782,662 373,062
September 30, 2002................................. 778,662 --
and thereafter..................................... 64,889 --
---------- ----------
Total minimum lease payments.......................... $4,479,855 1,842,095
==========
Less amount representing interest..................... (509,321)
----------
Present value of minimum lease payments............... 1,332,774
Less current portion.................................. (331,228)
----------
$1,001,546
==========
</TABLE>
Rent expense for the period from inception through September 30, 1996 was
$83,886, and for the year ended September 30, 1997 was $312,660 and for the
six months ended March 31, 1997 and 1998 was $134,636 and $680,126,
respectively.
F-11
<PAGE>
INKTOMI CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
INFORMATION AS OF MARCH 31, 1998 AND WITH RESPECT TO THE SIX MONTHS ENDED
MARCH 31, 1997 AND 1998 IS UNAUDITED.
(5) NOTES PAYABLE AND LINE OF CREDIT:
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30, MARCH 31,
1996 1997 1998
------------- ------------- -----------
<S> <C> <C> <C>
Note payable to stockholders (1)... $ 3,332,759 $ -- $ --
Line of credit (2)................. -- -- --
Bank equipment note (3)............ -- 1,750,000 1,750,000
Bank term note (4)................. -- 1,833,334 1,500,000
Notes payable (5).................. -- 3,396,423 3,031,459
Other notes payable (6)............ -- 499,255 422,347
----------- ----------- -----------
3,332,759 7,479,012 6,703,806
Less current portion............... (3,332,759) (2,449,601) (2,514,764)
----------- ----------- -----------
$ -- $ 5,029,411 $ 4,189,042
=========== =========== ===========
</TABLE>
- --------
(1) In February 1996, the Company issued a $500,000 unsecured promissory note
for cash, due on or before January 31, 1997, with a stated interest rate
of 6.0% per annum, convertible (principal and accrued interest) into
Series B Preferred Stock, to certain stockholders of the Company. At
September 30, 1996, $200,000 of principal and $59,935 of accrued interest
was outstanding. In October 1996, the note was converted into 80,000
shares of Series B Preferred Stock.
In connection with the formation of the Company, the founders transferred
certain technology to the Company in exchange for a promissory note in the
amount of $3,132,759. The technology was not assigned any value, and the
face amount of the note was charged to reduction in capital. The note had a
stated interest rate of 6.0% per annum and was collateralized by
substantially all of the intellectual property of the Company. In April
1997, the founders forgave the note payable in exchange for warrants to
purchase 417,701 shares of Common Stock exercisable at $0.33 per share. Due
to the related party nature of the transaction, no accounting recognition
was given.
(2) The Company has a $2,500,000 revolving line of credit collateralized by
substantially all assets. The line requires monthly payments of interest
only at prime (8.5% at March 31, 1998) and any unpaid principal and
interest will be due on May 2, 1998. At March 31, 1998, the Company had a
letter of credit of $500,000 outstanding against the line and future draw
downs are contingent upon the Company raising additional financing of at
least $4,000,000. At March 31, 1998 the Company had no borrowings
outstanding. The bank credit agreement requires the Company to comply with
certain financial covenants related to tangible net worth, a ratio of debt
to net worth, debt service coverage, liquidity coverage and quarterly
profitability. Pursuant to the agreement, the Company may not distribute
cash dividends. As of March 31, 1998, the Company was in compliance with
the covenants.
(3) The bank equipment note was interest only until February 1998 and then
payable in equal monthly payments of $48,611 plus interest at 0.5% over
prime (a total of 9.0% at March 31, 1998) through February 2001. The note
has collateralization and covenant requirements consistent with the bank
line of credit as described above.
(4) The bank term note is payable in equal monthly payments of $83,333 plus
interest at 0.5% over prime (9.0% at March 31, 1998) through June 1999.
The note has collateralization and covenant requirements consistent with
the bank line of credit as described above.
(5) The two notes payable are payable in equal monthly payments of $102,895
and $4,741 which includes interest of 5.7% and 5.6% through September 2000
and November 2000, respectively. The notes are collateralized by all
equipment purchased with the notes.
(6) Other notes payable are payable in equal monthly payments totaling $19,680
through March 2000, with a final balloon payment of $60,000. The notes
payments include interest of 18.0%. The notes are collateralized by all
equipment purchased with the notes.
F-12
<PAGE>
INKTOMI CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
INFORMATION AS OF MARCH 31, 1998 AND WITH RESPECT TO THE SIX MONTHS ENDED
MARCH 31, 1997 AND 1998 IS UNAUDITED.
Scheduled maturities of long-term debt at March 31,1998 are as follows:
<TABLE>
<S> <C>
Six months ending September 30, 1998............................ $ 1,274,680
Years ending:
September 30, 1999............................................ 2,622,929
September 30, 2000............................................ 2,484,322
September 30, 2001............................................ 321,875
-----------
$ 6,703,806
===========
</TABLE>
The book value of notes payable approximated fair value as such debt
agreements were recently negotiated.
(6) ACCRUED LIABILITIES:
Accrued liabilities comprise:
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30, MARCH 31,
1996 1997 1998
------------- ------------- ----------
<S> <C> <C> <C>
Accrued payroll, vacation and
bonuses............................ $117,394 $1,078,938 $1,265,633
Other accrued liabilities........... 340,901 68,279 670,120
-------- ---------- ----------
Total accrued liabilities....... $458,295 $1,147,217 $1,935,753
======== ========== ==========
</TABLE>
(7) OTHER RELATED PARTY TRANSACTIONS:
In April 1996, the Company entered into a consulting agreement for
management services with certain stockholders in conjunction with a securities
purchase agreement. While no direct compensation was required under the
agreement, the Company made fixed monthly payments through November 1996 of
$17,500 to cover expenses.
F-13
<PAGE>
INKTOMI CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
INFORMATION AS OF MARCH 31, 1998 AND WITH RESPECT TO THE SIX MONTHS ENDED
MARCH 31, 1997 AND 1998 IS UNAUDITED.
(8) EARNINGS PER SHARE:
The following is a reconciliation of the numerator and denominator of basic
and diluted EPS (in thousands, except per share amounts):
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
SEPTEMBER 30, MARCH 31,
---------------- ------------------
1996 1997 1997 1998
------- ------- -------- --------
<S> <C> <C> <C> <C>
Numerator--Basic and Diluted EPS
Net loss............................ $(3,534) $(8,662) $ (3,191) $ (7,877)
======= ======= ======== ========
Denominator--Basic and Diluted EPS
Weighted average Common Stock
outstanding........................ 1,884 2,927 2,477 4,766
======= ======= ======== ========
Basic and diluted loss per share...... $ (1.88) $ (2.96) $ (1.29) $ (1.65)
======= ======= ======== ========
Pro forma:
Denominator--Basic and Diluted EPS
Weighted average Common Stock
outstanding........................ 2,927 4,766
Conversion of Preferred Stock and
warrants........................... 9,103 12,369
------- --------
Total weighted average Common Stock
outstanding pro forma.............. 12,030 17,135
======= ========
Basic and diluted pro forma loss per
share................................ $(0.72) $ (0.46)
======= ========
</TABLE>
(9) STOCKHOLDERS' EQUITY:
PREFERRED STOCK:
As of March 31, 1998, the Company had six series of convertible Preferred
Stock authorized and outstanding. The holders of the various Preferred Stock
generally have the same rights unless specified.
Dividends:
The holders of the outstanding Common and Preferred Stock are entitled to
receive in any fiscal year, when and if declared by the Board of Directors,
out of any funds legally available, cash dividends at the same rate per share
for all classes of stock. The right to dividends is not cumulative, and no
dividends have been declared through March 31, 1998.
Conversion Rights:
At the option of the holder, each share of Series D, D1 and E Preferred
Stock is convertible, at any time, into shares of Common Stock. On or after
February 2, 1998, at the option of the holder, each share of Series A, B and C
Preferred Stock is convertible, at any time, into shares of Common Stock.
Series C Preferred Stock is convertible into Common Stock on a .76-for-one
basis. All other preferred shares are convertible into Common Stock on a .67-
for-one basis, subject to adjustment resulting from future capital
transactions.
In addition, each share of Series A, B and C Preferred Stock automatically
converts into Common Stock: (i) immediately prior to the closing of a firm
commitment underwritten public offering, provided
F-14
<PAGE>
INKTOMI CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
INFORMATION AS OF MARCH 31, 1998 AND WITH RESPECT TO THE SIX MONTHS ENDED
MARCH 31, 1997 AND 1998 IS UNAUDITED.
the net proceeds to the Company are at least $7,500,000 and the public
offering price per share is at least $3.75 per share; (ii) upon consolidation
or merger of the Company with or into another corporation in which the holders
of the outstanding shares do not retain stock representing a majority of the
voting power of the surviving corporation; or (iii) upon a sale of all or
substantially all of the assets of the Company. Each share of Series D, D1 and
E Preferred Stock automatically converts into Common Stock immediately prior
to the closing of a firm commitment underwritten public offering, provided the
net proceeds to the Company are at least $15,000,000 and the public offering
price per share is at least $9.57 share.
Liquidation Preference:
In the event of any liquidation, dissolution or winding up of the Company,
either voluntary or involuntary, the holders of the Series C, D, D1 and E
Preferred Stock retain liquidation preference over Series A and B Preferred
Stock equal to the original issue price of each series of stock ($5.00,
$2.217, $3.3255 and $4.25 per share, respectively) plus any declared but
unpaid dividends. Series A and B Preferred Stock retain liquidation preference
over Common Stock equal to the original issuance price ($0.0005 per share) for
each series plus declared but unpaid dividends. If there are any available
funds and assets remaining after payments or distributions are made to the
holders of Preferred Stock for their full preferential amounts, then all such
remaining funds and assets will be distributed pro rata among the holders of
the then outstanding Common Stock and Series D, D1 and E Preferred Stock,
until holders of Series D, D1 and E Preferred Stock have received an aggregate
amount equal to $6.651, $9.9765 and $12.75 per share, respectively, after
which the remaining available funds and assets shall be distributed pro rata
among holders of Common Stock.
Voting Rights:
The holders of Series A, D, D1 and E Preferred Stock and the holders of
Common Stock are entitled to notice of any stockholders' meeting and to vote
as a single class upon any matter submitted to the stockholders for a vote, as
follows: (i) each holder of Series A, D, D1 and E Preferred Stock have one
vote for each full share of Common Stock into which their respective shares of
Preferred Stock would be convertible on the record date for the vote, and (ii)
each holder of Common Stock has one vote per share of Common Stock. Except as
otherwise required by law, the holders of shares of Series B and C Preferred
Stock have no voting rights.
(10) WARRANTS:
In 1996 and 1997, the Company issued warrants to purchase Common and
Preferred Stock to investors and an equipment lease provider. At March 31,
1998 such warrants were as follows:
<TABLE>
<CAPTION>
AGGREGATE
SHARES EXERCISE PRICE EXPIRATION DATES
------- -------------- --------------------------
<C> <C> <C> <S>
Common Stock.............. 3,333 $ 25,000 August 2001
Common Stock.............. 519,586 $ 58,453 Upon closing of an initial
public offering
Common Stock.............. 417,701 $ 137,841 April 2001
Common Stock.............. 170,667 $1,920,000 October 1999
Series D Preferred Stock.. 32,477 $ 71,999 February 2007
Series D1 Preferred Stock. 64,290 $ 213,771 Upon the closing of an
initial public offering or
April 1998, if earlier.
Series D1 Preferred Stock. 300,707 $1,000,000 April 1999
</TABLE>
F-15
<PAGE>
INKTOMI CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
INFORMATION AS OF MARCH 31, 1998 AND WITH RESPECT TO THE SIX MONTHS ENDED
MARCH 31, 1997 AND 1998 IS UNAUDITED.
The fair value of warrants issued in connection with the various financing
and purchase transactions does not have a material effect on the financial
statements.
The Company has reserved 19,345,462 shares of Common Stock for the exercise
of Common Stock warrants and conversion and/or exercise of Preferred Stock and
Preferred Stock warrants.
(11) STOCK OPTIONS:
Pursuant to the Inktomi Corporation 1996 Equity Incentive Plan (the "Plan")
as amended, employees, directors and consultants of the Company may be granted
options to purchase shares of Common Stock. At March 31, 1998, 4,333,333
shares of Common Stock were reserved for issuance pursuant to the Plan.
Options granted under the Plan include incentive stock options and
nonqualified stock options. All stock options granted under the Plan are
exercisable but subject to repurchase at cost in the event that the individual
ceases to be an employee or provide services to the Company. Repurchase rights
lapse according to various vesting schedules (generally over 50 months). Prior
to adopting the Plan, the Company granted nonqualified stock options to
purchase Common Stock to certain employees and consultants.
A summary of the activity under the Plan is set forth below:
<TABLE>
<CAPTION>
WEIGHTED
AGGREGATE AVERAGE
EXERCISE PRICE EXERCISE EXERCISE
SHARES PER SHARE PRICE PRICE
---------- -------------- ---------- --------
<S> <C> <C> <C> <C>
Outstanding at February 2,
1996....................... -- -- -- --
Granted..................... 2,450,693 $0.11-$0.45 $ 939,408 $0.384
Canceled.................... (180,000) $0.11-$0.45 $ (69,750) $0.387
---------- ----------- ---------- ------
Outstanding at September 30,
1996....................... 2,270,693 $0.11-$0.45 $ 869,658 $0.384
Granted..................... 1,988,680 $0.33-$1.95 $1,126,906 $0.567
Exercised................... (2,165,071) $0.11-$0.45 $ (870,668) $0.402
Canceled.................... (174,227) $0.45 $ (78,402) $0.45
---------- ----------- ---------- ------
Outstanding and exercisable
at September 30, 1997...... 1,920,075 $0.11-$1.95 $1,047,494 $0.546
========== =========== ========== ======
</TABLE>
At September 30, 1997, 1,333,326 shares were no longer subject to
repurchase. Of the stock options exercised, 459,399 shares were no longer
subject to repurchase.
The following table summarizes information with respect to stock options
outstanding at September 30, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------- ---------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
RANGE OF NUMBER REMAINING AVERAGE NUMBER AVERAGE
EXERCISE OUTSTANDING CONTRACTUAL EXERCISE EXERCISABLE EXERCISE
PRICES AT 9/30/97 LIFE (YEARS) PRICE AT 9/30/97 PRICE
-------- ----------- ------------ --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$0.11 143,823 8.62 $0.11 143,823 $0.11
$0.33-$0.45 1,613,587 9.15 $0.44 1,613,587 $0.44
$1.95 162,665 9.94 $1.95 162,667 $1.95
</TABLE>
F-16
<PAGE>
INKTOMI CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
INFORMATION AS OF MARCH 31, 1998 AND WITH RESPECT TO THE SIX MONTHS ENDED
MARCH 31, 1997 AND 1998 IS UNAUDITED.
The following information concerning the Plan is provided in accordance with
Statement of Financial Accounting Standards No. 123, Accounting for Stock-
Based Compensation (SFAS 123). The Company accounts for the Plan in accordance
with Accounting Principles Board (APB) Opinion No. 25 and related
Interpretations.
The fair value of each employee and director stock option grant has been
estimated on the date of grant using the minimum value method with the
following weighted average assumptions used for grants in September 30, 1996
and 1997:
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1996 1997
------------- -------------
<S> <C> <C>
Risk-free interest rates......................... 6.48%-6.60% 6.00%-6.47%
Expected life.................................... 5 5
Dividends........................................ $0 $0
</TABLE>
The weighted average fair value per option for employee and director stock
options granted in 1996 and 1997 were $0.105 and $0.15, respectively.
The following comprises the pro forma income information pursuant to the
provisions of SFAS 123:
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1996 1997
------------- -------------
<S> <C> <C>
Net loss--Historical............................. $3,534,431 $8,662,226
Net loss--Pro Forma.............................. $3,576,847 $9,021,251
</TABLE>
These pro forma amounts may not be representative of the effects on pro
forma net income (loss) for future years as options vest over several years
and additional awards are generally made each year.
(12) 401(k) PROFIT SHARING PLAN:
In May 1996, the Company established a 401(k) Profit Sharing Plan (the
"401(k) Plan") which covers substantially all employees. Under the 401(k)
Plan, employees are permitted to contribute up to 20% of gross compensation
not to exceed the annual 402(g) limitation for any plan year. Discretionary
contributions may be made by the Company. No contributions have been made by
the Company during the period ended September 30, 1997.
(13) SUBSEQUENT EVENT:
In April 1998, the Board of Directors authorized management of the Company
to file a Registration Statement with the Securities Exchange Commission
covering the proposed sale of shares of its Common Stock to the public. Upon
completion of this proposed sale, all outstanding shares of the Company's
convertible Preferred Stock will automatically convert into Common Stock.
Unaudited pro forma stockholders' equity, as adjusted for the assumed
conversion of the convertible Preferred Stock and exercise of certain warrants
that would otherwise expire upon the Company's initial public offering, is
disclosed in the accompanying unaudited pro forma balance sheet.
The Board also adopted, subject to stockholder approval, a 1998 Stock Plan
and 1998 Employee Stock Purchase Plan and reserved a total of 1,300,000 shares
of Common Stock for issuance thereunder.
F-17
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement,
the Company and the Selling Stockholders have agreed to sell to each of the
Underwriters named below (the "Underwriters"), for whom Goldman, Sachs & Co.,
BT Alex. Brown Incorporated and Hambrecht & Quist LLC are acting as
representatives (the "Representatives"), and each Underwriter has severally
agreed to purchase from the Company and the Selling Stockholders, the
respective number of shares of Common Stock set forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
COMMON
UNDERWRITER STOCK
----------- ---------
<S> <C>
Goldman, Sachs & Co...............................................
BT Alex. Brown Incorporated.......................................
Hambrecht & Quist LLC.............................................
---------
Total......................................................... 2,200,000
=========
</TABLE>
Under the terms and conditions of the Underwriting Agreement, the
Underwriters are committed to take and pay for all of the shares offered
hereby, if any are taken.
The Underwriters propose to offer the shares of Common Stock in part
directly to the public at the initial public offering price set forth on the
cover page of this Prospectus and in part to certain securities dealers at
such price less a concession of $ per share. The Underwriters may allow, and
such dealers may reallow, a concession not in excess of $ per share to
certain brokers and dealers. After the shares of Common Stock are released for
sale to the public, the offering price and other selling terms may from time
to time be varied by the representatives.
The Company has granted the Underwriters an option exercisable for 30 days
after the date of this Prospectus to purchase up to an aggregate of 330,000
additional shares of Common Stock to cover over-allotments, if any. If the
Underwriters exercise their over-allotment option, the Underwriters have
severally agreed, subject to certain conditions, to purchase approximately the
same percentage thereof that the number of shares to be purchased by each of
them, as shown in the foregoing table, bears to the total number of option
shares of Common Stock offered.
At the request of the Company, the Underwriters have reserved up to 115,000
shares of Common Stock for sale, at the initial public offering price, to
directors, officers, employees and friends of the Company through a directed
share program. The number of shares of Common Stock available for sale to the
general public in the public offering will be reduced to the extent such
persons purchase such reserved shares.
The representatives of the Underwriters have informed the Company that they
do not expect sales to accounts over which they exercise discretionary
authority to exceed five percent of the total number of shares of Common Stock
offered by them.
The Company and the Selling Stockholders have agreed that, during the period
from the date of this Prospectus and continuing to and including the date 180
days after the date of this Prospectus, they will not offer, sell, contract to
sell or otherwise dispose of any securities of the Company (other than
pursuant to employee stock option plans existing, or on the conversion or
exchange of convertible or exchangeable securities outstanding, on the date of
this Prospectus) which are substantially similar to the shares of Common Stock
or which are convertible into or exchangeable for securities which are
substantially similar to the shares of Common Stock without the prior written
consent of the representatives, except for the shares of Common Stock offered
in connection with the offering.
U-1
<PAGE>
The Company and the Selling Stockholders have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities under
the Securities Act of 1933.
In connection with the offering, the Underwriters may purchase and sell
shares of the Company's Common Stock in the open market. These transactions
may include over-allotment and stabilizing transactions, and purchases to
cover syndicate short positions created in connection with the offering.
Stabilizing transactions consist of certain bids or purchases for the purpose
of preventing or retarding a decline in the market price of the Common Stock;
and syndicate short positions involve the sale by the Underwriters of a
greater number of shares of Common Stock than they are required to purchase
from the Company and the Selling Stockholders in the offering. The
Underwriters also may impose a penalty bid, whereby selling concessions
allowed to syndicate members or other broker-dealers in respect of the
securities sold in the offering for their account may be reclaimed by the
syndicate if such shares of Common Stock are repurchased by the syndicate in
stabilizing or covering transactions. These activities may stabilize, maintain
or otherwise affect the market price of the Common Stock, which may be higher
than the price that might otherwise prevail in the open market; and these
activities, if commenced, may be discontinued at any time. These transactions
may be effected on the Nasdaq National Market in the over-the-counter market
or otherwise.
Prior to this offering, there has been no public market for the shares. The
initial public offering price was negotiated among the Company, the Selling
Stockholders and the representatives. Among the factors considered in
determining the initial public offering price of the Common Stock, in addition
to prevailing market conditions, were the Company's historical performance,
estimates of the business potential and earnings prospects of the Company, an
assessment of the Company's management and the consideration of the above
factors in relation to market valuation of companies in related businesses.
U-2
<PAGE>
[LOGO OF INKTOMI APPEARS HERE]
Heading: "Inktomi: Scaling the Internet"
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRE-
SENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFOR-
MATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 5
Use of Proceeds........................................................... 17
Dividend Policy........................................................... 17
Capitalization............................................................ 18
Dilution.................................................................. 19
Selected Consolidated Financial Data...................................... 20
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 21
Business.................................................................. 29
Management................................................................ 44
Certain Transactions...................................................... 53
Principal and Selling Stockholders........................................ 55
Description of Capital Stock.............................................. 57
Shares Eligible for Future Sale........................................... 59
Additional Information.................................................... 61
Legal Matters............................................................. 61
Experts................................................................... 61
Index to Consolidated Financial Statements................................ F-1
Underwriting.............................................................. U-1
</TABLE>
THROUGH AND INCLUDING , 1998 (THE 25TH DAY AFTER THE DATE OF THIS PRO-
SPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR
NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPEC-
TUS. 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.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
2,200,000 SHARES
INKTOMI CORPORATION
COMMON STOCK
(PAR VALUE $0.001 PER SHARE)
----------------
[LOGO]
----------------
GOLDMAN, SACHS & CO.
BT ALEX. BROWN
HAMBRECHT & QUIST
REPRESENTATIVES OF THE UNDERWRITERS
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Company in connection
with the sale of Common Stock being registered. All amounts are estimates
except the SEC registration fee and the NASD filing fee.
<TABLE>
<S> <C>
SEC registration fee................................................ $10,450
NASD filing fee..................................................... 4,042
Nasdaq National Market listing fee.................................. 90,000
Printing and engraving costs........................................ 150,000
Legal fees and expenses............................................. 200,000
Accounting fees and expenses........................................ 200,000
Blue Sky fees and expenses.......................................... 5,000
Transfer Agent and Registrar fees................................... 10,000
Miscellaneous expenses.............................................. 30,508
-------
Total............................................................. 700,000
=======
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law permits a corporation to
include in its charter documents, and in agreements between the corporation
and its directors and officers, provisions expanding the scope of
indemnification beyond that specifically provided by the current law.
Article X of the Registrant's Restated Certificate of Incorporation provides
for the indemnification of directors to the fullest extent permissible under
Delaware law.
Article VI of the Registrant's Bylaws provides for the indemnification of
officers, directors and third parties acting on behalf of the Registrant if
such person acted in good faith and in a manner reasonably believed to be in
and not opposed to the best interest of the Registrant, and, with respect to
any criminal action or proceeding, the indemnified party had no reason to
believe his or her conduct was unlawful.
The Registrant has entered into indemnification agreements with its
directors and executive officers, in addition to indemnification provided for
in the Registrant's Bylaws, and intends to enter into indemnification
agreements with any new directors and executive officers in the future.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
During the past three years, the Registrant and its predecessor, Inktomi
Corporation, a California corporation ("Predecessor") have issued unregistered
securities to a limited number of persons as described below. The share
information presented has been adjusted to give effect to the two-for-three
reverse stock split of the Registrant's Common Stock approved by the Board of
Directors of the Registrant in April 1998.
(a) In February 1996, the Predecessor issued and sold an aggregate of
1,786,668 shares of Common Stock to three employees for an aggregate
purchase price of $134.
(b) In February 1996, the Predecessor issued and sold an aggregate of
6,000,000 shares of Series A Preferred Stock convertible into 4,000,001
shares of Common Stock to three employees for an aggregate purchase price
of $3,000.
II-1
<PAGE>
(c) In March 1996, the Predecessor issued and sold an aggregate of
700,000 shares of Series B Preferred Stock convertible into 466,667 shares
of Common Stock to an employee and two consultants for an aggregate
purchase price of $350.
(d) From March 1996 to October 1996, the Predecessor issued and sold an
aggregate of 489,502 shares of Series C Preferred Stock convertible into
371,868 shares of Common Stock to 25 investors for an aggregate purchase
price of $2,864,763.
(e) In April 1996, the Predecessor issued an aggregate of 1,400,000
shares of Series B Preferred Stock convertible into 933,334 shares of
Common Stock to one employee and two consultants in a voluntary share
exchange transaction. In the transaction, the Predecessor issued such
shares of Series B Preferred Stock in exchange for all shares of a
privately held California corporation held by the employee and the
consultants.
(f) In April 1996, the Predecessor issued and sold 400,000 shares of
Common Stock, warrants to purchase 800,000 shares of Common Stock and
200,000 shares of Series C Preferred Stock convertible into 151,938 shares
of Common Stock to two investors for an aggregate purchase price of
$1,955,000.
(g) In May 1996, the Predecessor issued and sold 280,415 shares of Common
Stock to two investors upon exercise of warrants for an aggregate purchase
price of $31,547.
(h) In August 1996, the Predecessor issued warrants to purchase an
aggregate of 6,667 shares of Common Stock to the Regents of the University
of California in partial consideration for the execution of a software
license agreement. The aggregate exercise price for these warrants is
$50,000.
(i) In September 1996, the Company issued and sold 1,300,000 shares of
Series B Preferred Stock convertible into 866,667 shares of Common Stock to
three consultants in exchange for services rendered having an aggregate
value of $390,000.
(j) In October 1996, the Company issued and sold 80,000 shares of Series
B Preferred Stock convertible into 53,334 shares of Common Stock to six
investors upon conversion of a promissory note having a principal balance
of $200,000.
(k) In October 1996, the Predecessor issued warrants to purchase an
aggregate of 170,667 shares of Common Stock to a consultant in
consideration for sales representative services rendered. The aggregate
exercise price for these warrants is $1,920,000.
(l) In February 1997, the Predecessor issued warrants to purchase an
aggregate of 32,476 shares of Series D Preferred Stock convertible into
21,562 shares of Common Stock to two equipment lessors in partial
consideration of the execution of equipment lease agreements. The aggregate
exercise price for these warrants is $71,999.
(m) In April 1997, the Predecessor issued warrants to purchase an
aggregate of 417,701 shares of Common Stock to Inktomi LLC in consideration
of the cancellation of approximately $43,800 of the then outstanding
principal of a promissory note held by Inktomi LLC. The aggregate exercise
price for these warrants is $137,841.
(n) In April and May 1997, the Predecessor issued and sold an aggregate
of (i) 3,866,499 shares of Series D Preferred Stock convertible into
2,577,666 shares of Common Stock and (ii) warrants to purchase an aggregate
of 1,288,826 shares of Series D1 Preferred Stock convertible into 85,922
shares of Common Stock to Oak Investment Partners VII, Limited Partnership,
Oak VII Affiliates Fund, Limited Partnership and 15 other investors for an
aggregate purchase price of $8,572,228. The aggregate exercise price for
the warrants is $4,285,991. The Predecessor paid a commission of $428,611
to the placement agent in such transaction.
(o) In September 1997, the Predecessor issued and sold an aggregate of
(i) 902,120shares of Series D Preferred Stock convertible into 601,413
shares of Common Stock and (ii) warrants to purchase an aggregate of
300,707 shares of Series D1 Preferred Stock convertible into 200,471
II-2
<PAGE>
shares of Common Stock to Intel Corporation for an aggregate purchase price
of $2,000,000. The aggregate exercise price for the warrants is $1,000,001.
(p) In December 1997, the Registrant issued and sold 1,000 shares of
Common Stock to the Predecessor for an aggregate purchase price of $100.
(q) In February 1998, the Registrant issued shares of its capital stock
to the shareholders of the Predecessor in connection with the
reincorporation merger of the Predecessor with and into the Registrant. The
Registrant believes this transaction was exempt from registration under
Section 2(3) on the basis that such transaction did not involve a "sale" of
securities.
(r) In February 1998, the Registrant issued an aggregate of 3,297,820
shares of Series E Preferred Stock convertible into 2,198,547 shares of
Common Stock for an aggregate purchase price of $14,015,735. The Registrant
paid a commission of $840,944 to the placement agent in such transaction.
(s) In March 1998, the Registrant issued and sold 1,224,544 shares of
Series D1 Preferred Stock convertible into 816,365 shares of Common Stock
to eight investors upon exercise of warrants for an aggregate purchase
price of $4,072,221.
(t) As of March 31, 1998, an aggregate of 2,461,031 shares of Common
Stock had been issued upon exercise of options under the Registrant's 1996
Equity Incentive Plan and granted prior to adoption of such plan.
Except as indicated above, none of the foregoing transactions involved any
underwriters, underwriting discounts or commissions, or any public offering,
and the Registrant believes that each transaction was exempt from the
registration requirements of the Securities Act by virtue of Section 4(2)
thereof, Regulation D promulgated thereunder or Rule 701 pursuant to
compensatory benefit plans and contracts relating to compensation as provided
under such Rule 701. The recipients in such transaction represented their
intention to acquire the securities for investment only and not with a view to
or for sale in connection with any distribution thereof, and appropriate
legends were affixed to the share certificates and instruments issued in such
transactions. All recipients had adequate access, through their relationships
with the Registrant and the Predecessor, to information about the Registrant
and the Predecessor.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1 Amended and Restated Certificate of Incorporation of the Registrant,
as currently in effect.
3.2 Amended and Restated Certificate of Incorporation of the Registrant to
be filed after the closing of the offering made under this
Registration Statement.
3.3 Amended and Restated Bylaws of the Registrant, as currently in effect.
3.4 Bylaws of the Registrant to be in effect after the closing of the
offering made under this Registration Statement.
4.1* Specimen Common Stock Certificate.
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation.
10.1 Form of Indemnification Agreement between the Registrant and each of
its directors and officers.
10.2 1998 Stock Plan and form of agreements thereunder.
10.3 1998 Employee Stock Purchase Plan and form of agreements thereunder.
10.4 1996 Equity Incentive Plan and form of agreement thereunder.
10.5 Fifth Amended and Restated Investors' Rights Agreement dated as of
February 13, 1998 among the Registrant and certain of the Registrant's
securityholders named therein.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<C> <S>
10.6 Executive Employment Agreement dated as of July 1, 1996 between the
Registrant and David C. Peterschmidt.
10.7 Loan and Security Agreement dated as of May 2, 1997 between the
Registrant and Silicon Valley Bank, together with the First Amendment,
Second Amendment, Third Amendment and Fourth Amendment to such
agreement.
10.8 Sublease Agreement dated November 27, 1996 between the Registrant and
Macromedia, Inc.
10.9 Office Lease dated July 31, 1997 between the Registrant and Norfolk
Atrium, a California limited partnership.
10.10 Underlease Agreement (undated) between Inktomi Limited and Technomic
Research Associates Limited.
10.11*+ Information Services Agreement dated as of April 1, 1998 between the
Registrant and Wired Digital, Inc.
10.12*+ Information Services Agreement dated as of July 27, 1997 between the
Registrant and Microsoft Corporation.
10.13*+ Software Development Agreement dated as of July 27, 1997 between the
Registrant and Microsoft Corporation.
10.14*+ Software Hosting Agreement dated as of July 27, 1997 between the
Registrant and Microsoft Corporation.
10.15*+ Loan Agreement dated as of July 27, 1997 between the Registrant and
Microsoft Corporation.
10.16*+ Security Agreement dated as of July 27, 1997 between the Registrant
and Microsoft Corporation.
10.17*+ Escrow Agreement dated as of July 29, 1997 among the Registrant, Data
Base, Inc., and Microsoft Corporation.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Coopers & Lybrand L.L.P., Independent Accountants.
23.2 Consent of Counsel (see Exhibit 5.1).
24.1 Power of Attorney (see page II-6).
27.1 Financial Data Schedules.
</TABLE>
- --------
* To be filed by amendment
+ Confidential treatment requested as to a portion of this exhibit.
(B) FINANCIAL STATEMENT SCHEDULES
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the
financial statements or notes thereto.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification by the Registrant for liabilities arising under
the Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions referenced in Item 14 of
this Registration Statement 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 Securities 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 a director, officer or controlling person in connection with the
II-4
<PAGE>
securities being registered hereunder, 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 Securities
Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
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-5
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1993, AS AMENDED, THE
REGISTRANT HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF SAN
MATEO, STATE OF CALIFORNIA, ON THE 15TH DAY OF APRIL, 1998.
Inktomi Corporation
By /s/ David C. Peterschmidt
_________________________________
DAVID C. PETERSCHMIDT,
PRESIDENTAND CHIEF EXECUTIVE
OFFICER
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, THAT EACH PERSON WHOSE SIGNATURE APPEARS
BELOW CONSTITUTES AND APPOINTS DAVID C. PETERSCHMIDT AND JERRY M. KENNELLY AND
EACH OF THEM, HIS ATTORNEYS-IN-FACT, EACH WITH THE POWER OF SUBSTITUTION, FOR
HIM AND IN HIS NAME, PLACE AND STEAD, IN ANY AND ALL CAPACITIES, TO SIGN ANY
AND ALL AMENDMENTS (INCLUDING POST-EFFECTIVE AMENDMENTS) TO THIS REGISTRATION
STATEMENT, AND TO SIGN ANY REGISTRATION STATEMENT FOR THE SAME OFFERING
COVERED BY THIS REGISTRATION STATEMENT THAT IS TO BE EFFECTIVE UPON FILING
PURSUANT TO RULE 462(B) PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND ALL POST-EFFECTIVE AMENDMENTS THERETO, AND TO FILE THE SAME, WITH
ALL EXHIBITS THERETO AND ALL DOCUMENTS IN CONNECTION THEREWITH, WITH THE
SECURITIES AND EXCHANGE COMMISSION, GRANTING UNTO SAID ATTORNEYS-IN-FACT AND
AGENTS, AND EACH OF THEM, FULL POWER AND AUTHORITY TO DO AND PERFORM EACH AND
EVERY ACT AND THING REQUISITE AND NECESSARY TO BE DONE IN AND ABOUT THE
PREMISES, AS FULLY TO ALL INTENTS AND PURPOSES AS HE MIGHT OR COULD DO IN
PERSON, HEREBY RATIFYING AND CONFIRMING ALL THAT SUCH ATTORNEYS-IN-FACT AND
AGENTS OR ANY OF THEM, OR HIS OR THEIR SUBSTITUTE OR SUBSTITUTES, MAY LAWFULLY
DO OR CAUSE TO BE DONE BY VIRTUE HEREOF.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED:
SIGNATURE TITLE DATE
/s/ David C. Peterschmidt President, Chief April 15, 1998
- ------------------------------------- Executive Officer
(DAVID C. PETERSCHMIDT) and Director
(Principal
Executive Officer)
/s/ Jerry M. Kennelly Vice President of April 15, 1998
- ------------------------------------- Finance and Chief
(JERRY M. KENNELLY) Financial Officer
(Principal
Financial Officer)
/s/ Eric A. Brewer Director April 15, 1998
- -------------------------------------
(ERIC A. BREWER)
II-6
<PAGE>
SIGNATURE TITLE DATE
/s/ Fredric W. Harman Director April 15, 1998
- -------------------------------------
(FREDRIC W. HARMAN)
/s/ John A. Porter Director April 15, 1998
- -------------------------------------
(JOHN A. PORTER)
/s/ Alan F. Shugart Director April 15, 1998
- -------------------------------------
(ALAN F. SHUGART)
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER PAGE
------- ----
<C> <S> <C>
1.1* Form of Underwriting Agreement.
3.1 Amended and Restated Certificate of Incorporation of the
Registrant, as currently in effect.
3.2 Amended and Restated Certificate of Incorporation of the
Registrant to be filed after the closing of the offering made
under this Registration Statement.
3.3 Amended and Restated Bylaws of the Registrant, as currently in
effect.
3.4 Bylaws of the Registrant to be in effect after the closing of
the offering made under this Registration Statement.
4.1* Specimen Common Stock Certificate.
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation.
10.1 Form of Indemnification Agreement between the Registrant and
each of its directors and officers.
10.2 1998 Stock Plan and form of agreements thereunder.
10.3 1998 Employee Stock Purchase Plan and form of agreements
thereunder.
10.4 1996 Equity Incentive Plan and form of agreement thereunder.
10.5 Fifth Amended and Restated Investors' Rights Agreement dated as
of February 13, 1998 among the Registrant and certain of the
Registrant's securityholders named therein.
10.6 Executive Employment Agreement dated as of July 1, 1996 between
the Registrant and David C. Peterschmidt.
10.7 Loan and Security Agreement dated as of May 2, 1997 between the
Registrant and Silicon Valley Bank, together with the First
Amendment, Second Amendment, Third Amendment and Fourth
Amendment to such agreement.
10.8 Sublease Agreement dated November 27, 1996 between the
Registrant and Macromedia, Inc.
10.9 Office Lease dated July 31, 1997 between the Registrant and
Norfolk Atrium, a California limited partnership.
10.10 Underlease Agreement (undated) between Inktomi Limited and
Technomic Research Associates Limited.
10.11*+ Information Services Agreement dated as of April 1, 1998
between the Registrant and Wired Digital, Inc.
10.12*+ Information Services Agreement dated as of July 27, 1997
between the Registrant and Microsoft Corporation.
10.13*+ Software Development Agreement dated as of July 27, 1997
between the Registrant and Microsoft Corporation.
10.14*+ Software Hosting Agreement dated as of July 27, 1997 between
the Registrant and Microsoft Corporation.
10.15*+ Loan Agreement dated as of July 27, 1997 between the Registrant
and Microsoft Corporation.
10.16*+ Security Agreement dated as of July 27, 1997 between the
Registrant and Microsoft Corporation.
10.17*+ Escrow Agreement dated as of July 29, 1997 among the
Registrant, Data Base, Inc., and Microsoft Corporation.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Coopers & Lybrand L.L.P., Independent Accountants.
23.2 Consent of Counsel (see Exhibit 5.1).
24.1 Power of Attorney (see page II-6).
27.1 Financial Data Schedules.
</TABLE>
- --------
* To be filed by amendment
+ Confidential treatment requested as to a portion of this exhibit.
<PAGE>
EXHIBIT 3.1
State of Delaware PAGE 1
OFFICE OF THE SECRETARY OF STATE
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE RESTATED CERTIFICATE OF
"INKTOMI CORPORATION", FILED IN THIS OFFICE ON THE TWELFTH DAY OF FEBRUARY, A.D.
1998, AT 4:30 O'CLOCK P.M.
[SEAL APPEARS HERE] /s/ Edward J. Freel
-----------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION:
2682488 DATE: 8920104
981057538 8100 02-13-98
<PAGE>
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
INKTOMI CORPORATION
Inktomi Corporation, a corporation organized and existing under the laws of
the State of Delaware, hereby certifies as follows:
A. The name of the corporation is Inktomi Corporation. The corporation was
originally incorporated under the same name and the original Certificate of
Incorporation of the corporation was filed with the Secretary of State of the
State of Delaware on November 12, 1996.
B. This Certificate of Incorporation has been duly adopted in accordance
with the provisions of the General Corporation Law of the State of Delaware by
the Board of Directors and the stockholders of the corporation.
C. Pursuant to Sections 242 and 245 of the General Corporation Law of the
State of Delaware, this Certificate of Incorporation restates and integrates and
further amends the provisions of the Certificate of Incorporation of this
corporation.
D. The text of the Certificate of Incorporation is hereby amended and
restated in its entirety to read as follows:
ARTICLE I
The name of the corporation is Inktomi Corporation.
ARTICLE II
The address of the Company's registered office in the State of Delaware is
1209 Orange Street, City of Wilmington, County of New Castle, Delaware 19801.
The name of its registered agent at such address is The Corporation Trust
Company.
ARTICLE III
The purpose of the Company is to engage in any lawful act or activity for
which corporations may be organized under the General Corporation Law of
Delaware.
<PAGE>
ARTICLE IV
The Company is authorized to issue two classes of shares, designated
"Common Stock" and "Preferred Stock," respectively. The number of shares of
Common Stock authorized to be issued is 50,000,000 shares, $0.001 par value.
The number of shares of Preferred Stock authorized to be issued is 20,680,000
shares, $0.001 par value. Of the authorized shares of Preferred Stock,
6,000,000 shares are designated as "Series A Preferred Stock," 3,480,000 shares
are designated as "Series B Preferred Stock," 1,000,000 shares are designated as
"Series C Preferred Stock," 4,900,000 shares are designated as "Series D
Preferred Stock," 1,700,000 shares are designated as "Series D1 Preferred Stock"
and 3,600,000 shares are designated as "Series E Preferred Stock."
ARTICLE V
The rights, preferences, privileges and restrictions granted to and imposed
on the Series A Preferred Stock, the Series B Preferred Stock, the Series C
Preferred Stock, the Series D Preferred Stock, the Series D1 Preferred Stock,
the Series E Preferred Stock and the Common Stock are as follows:
1. Definitions. For purposes of this Article V, the following definitions
-----------
shall apply:
1.1 "Board" shall mean the Board of Directors of the Company.
-----
1.2 "Company" shall mean this corporation.
-------
1.3 "Common Stock" shall mean the Common Stock, $0.001 par value, of
------------
the Company.
1.4 "Filing Date" shall mean April 15, 1997.
-----------
1.5 "Original Issue Price" shall mean $0.0005 per share for the
--------------------
Series A Preferred Stock, $0.0005 per share for the Series B Preferred Stock,
$5.00 per share for the Series C Preferred Stock, $2.217 per share for the
Series D Preferred Stock, $3.3255 for the Series D1 Preferred Stock and $4.25
per share for the Series E Preferred Stock.
1.6 "Permitted Repurchases" shall mean the repurchase by the Company
---------------------
of shares of Common Stock held by employees, officers, directors, consultants,
independent contractors, advisors, or other persons performing services for the
Company or a subsidiary that are subject to restricted stock purchase agreements
or stock option exercise agreements under which the Company has the option to
repurchase such shares: (i) at cost, upon the occurrence of certain events, such
as the termination of employment or services; or (ii) at any price pursuant to
the Company's exercise of a right of first refusal to repurchase such shares.
2
<PAGE>
1.7 "Preferred Stock" shall mean the Series A Preferred Stock, the
---------------
Series B Preferred Stock, the Series C Preferred Stock, the Series D Preferred
Stock, the Series D1 Preferred Stock and the Series E Preferred Stock,
collectively.
1.8 "Series A Preferred Stock" shall mean the Series A Preferred
------------------------
Stock, $0.001 par value, of the Company.
1.9 "Series B Preferred Stock" shall mean the Series B Preferred
------------------------
Stock, $0.001 par value, of the Company.
1.10 "Series C Preferred Stock" shall mean the Series C Preferred
------------------------
Stock, $0.001 par value, of the Company.
1.11 "Series D Preferred Stock" shall mean the Series D Preferred
------------------------
Stock, $0.001 par value, of the Company.
1.12 "Series D1 Preferred Stock" shall mean the Series D1 Preferred
-------------------------
Stock, $0.001 par value, of the Company.
1.13 "Series E Preferred Stock" shall mean the Series E Preferred
------------------------
Stock, $0.001 par value, of the Company.
1.14 "Subsidiary" shall mean any corporation of which at least fifty
----------
percent (50%) of the outstanding voting stock is at the time owned directly or
indirectly by the Company or by one or more of such subsidiary corporations.
2. Dividend Rights. The holders of the Preferred Stock and Common Stock
---------------
shall be entitled to receive dividends, when, as and if declared by the Board,
out of any funds and assets of the Company legally available therefor, or as
otherwise required by law; provided that no dividend shall be paid unless such
dividend is paid at the same time and at the same rate per share on both the
Preferred Stock and Common Stock.
3. Liquidation Rights. In the event of any liquidation, dissolution or
------------------
winding up of the Company, whether voluntary or involuntary, the funds and
assets of the Company that may be legally distributed to the Company's
stockholders (the "Available Funds and Assets") shall be distributed to
--------------------------
stockholders in the following manner:
3.1 Liquidation Preferences.
-----------------------
(a) The holder of each share of Series C Preferred Stock, Series
D Preferred Stock, Series D1 Preferred Stock and Series E Preferred Stock then
outstanding shall be entitled to be paid, out of the Available Funds and Assets,
and prior and in preference to any payment or distribution (or any setting apart
of any payment or distribution) of any Available Funds and Assets on shares of
Series A Preferred Stock, Series B Preferred Stock or Common
3
<PAGE>
Stock, an amount equal to the Original Issue Price per share of Series C
Preferred Stock, Series D Preferred Stock, Series D1 Preferred Stock and Series
E Preferred Stock then held, respectively, plus all declared but unpaid
dividends thereon. If upon any liquidation, dissolution or winding up of the
Company, the Available Funds and Assets to be distributed to the holders of the
Series C Preferred Stock, Series D Preferred Stock, Series D1 Preferred Stock
and Series E Preferred Stock shall be insufficient to permit the payment to such
stockholders of their full preferential amount described in this subsection,
then all of the Available Funds and Assets shall be distributed among the
holders of the then outstanding Series C Preferred Stock, Series D Preferred
Stock, Series D1 Preferred Stock and Series E Preferred Stock pro rata, on an
equal priority, pari passu basis, according to their respective liquidation
preferences as set forth herein.
(b) Subject to payment in full of the liquidation preference of
the Series C Preferred Stock, Series D Preferred Stock, Series D1 Preferred
Stock and Series E Preferred Stock as provided in subsection 3.1(a) above, the
holders of each share of Series A Preferred Stock and Series B Preferred Stock
then outstanding shall be entitled to be paid, out of the Available Funds and
Assets, and prior and in preference to any payment or distribution (or any
setting apart of any payment or distribution) of any Available Funds and Assets
on any shares of Common Stock, an amount equal to the Original Issue Price per
share of Series A Preferred Stock and Series B Preferred Stock then held,
respectively, plus all declared but unpaid dividends thereon. If upon any
liquidation, dissolution or winding up of the Company and after payment in full
of the preferential amount specified for the Series C Preferred Stock, Series D
Preferred Stock, Series D1 Preferred Stock and Series E Preferred Stock in
subsection 3.1(a), the Available Funds and Assets shall be insufficient to
permit the payment to holders of the Series A Preferred Stock and Series B
Preferred Stock of their full preferential amount described in this subsection,
then all of the remaining Available Funds and Assets shall be distributed among
the holders of the then outstanding Series A Preferred Stock and Series B
Preferred Stock pro rata, on an equal priority, pari passu basis, according to
their respective liquidation preferences as set forth herein.
3.2 Remaining Assets. If there are any Available Funds and Assets
----------------
remaining after the payments or distribution (or the setting aside for payment
or distribution) to the holders of the Preferred Stock of their full
preferential amounts described above in this section 3.1, then all such
remaining Available Funds and Assets shall be distributed pro rata among the
holders of the then outstanding Common Stock, Series D Preferred Stock, Series
D1 Preferred Stock and Series E Preferred Stock until (i) with respect to the
holders of Series D Preferred Stock, such holders have received an aggregate
amount under subsection 3.1(a) and this section 3.2 equal to $6.651 per share,
(ii) with respect to the holders of Series D1 Preferred Stock, such holders have
received an aggregate amount under subsection 3.1(a) and this section 3.2 equal
to $9.9765 per share, and (iii) with respect to the holders of Series E
Preferred Stock, such holders have received an aggregate amount under subsection
3.1(a) and this section 3.2 equal to $12.75 per share, after which all remaining
Available Funds and Assets shall be distributed pro rata among the holders of
Common Stock.
4
<PAGE>
3.3 Non-Cash Consideration. If any assets of the Company distributed
----------------------
to stockholders in connection with any liquidation, dissolution, or winding up
of the Company are other than cash, then the value of such assets shall be their
fair market value as determined in good faith by the Board, except that any
securities to be distributed to stockholders in a liquidation, dissolution, or
winding up of the Company shall be valued as follows:
(a) The method of valuation of securities not subject to
investment letter or other similar restrictions on free marketability shall be
as follows:
(i) if the securities are then traded on a national
securities exchange or the Nasdaq National Market (or a similar national
quotation system), then the value shall be deemed to be the average of the
closing prices of the securities on such exchange or system over the 30-day
period ending three (3) days prior to the distribution; and
(ii) if actively traded over-the-counter, then the value
shall be deemed to be the average of the closing bid prices or sale prices
(whichever is applicable) over the 30-day period ending three (3) days prior to
the distribution; and
(iii) if there is no active public market, then the value
shall be the fair market value thereof, as mutually determined by the Company
and the holders of at least a majority of the voting power of all then
outstanding shares of Preferred Stock.
(b) The method of valuation of securities subject to investment
letter or other restrictions on free marketability shall be to make an
appropriate discount from the market value determined as above in subparagraphs
(a)(i), (ii) or (iii) of this subsection to reflect the approximate fair market
value thereof, as mutually determined by the Company and the holders of at least
a majority of the voting power of all then outstanding shares of Preferred
Stock.
3.4 Reorganization or Merger. A reorganization or merger of the
------------------------
Company with or into any other corporation or entity, or a sale of all or
substantially all of the assets of the Company, in which transaction the
Company's stockholders immediately prior to such transaction own immediately
after such transaction less than 50% of the equity securities of the surviving
corporation or its parent, shall be deemed to be a liquidation, dissolution or
winding up within the meaning of this Section 3.
4. Voting Rights.
-------------
4.1 Common Stock. Each holder of shares of Common Stock shall be
------------
entitled to one (1) vote for each share thereof held.
4.2 Preferred Stock. Each holder of shares of Series A Preferred
---------------
Stock, Series D Preferred Stock, Series D1 Preferred Stock and Series E
Preferred Stock shall be entitled to the number of votes equal to the number of
whole shares of Common Stock into
5
<PAGE>
which such shares of Preferred Stock could be converted pursuant to the
provisions of Section 5 below at the record date for the determination of the
stockholders entitled to vote on such matters or, if no such record date is
established, the date such vote is taken or any written consent of stockholders
is solicited. Each holder of shares of Series B Preferred Stock and each holder
of shares of Series C Preferred Stock shall have no voting rights, except as
provided by law.
4.3 General. Subject to the foregoing provisions of this Section 4,
-------
each holder of Series A Preferred Stock, Series D Preferred Stock, Series D1
Preferred Stock and Series E Preferred Stock shall have full voting rights and
powers equal to the voting rights and powers of the holders of Common Stock, and
shall be entitled to notice of any stockholders' meeting in accordance with the
bylaws of the Company (as in effect at the time in question) and applicable law,
and shall be entitled to vote, together with the holders of Common Stock, with
respect to any question upon which holders of Common Stock have the right to
vote, except as may be otherwise provided by applicable law. Except as
otherwise expressly provided herein or as required by law, the holders of Series
A Preferred Stock, Series D Preferred Stock, Series D1 Preferred Stock, Series E
Preferred Stock and Common Stock shall vote together and not as separate
classes.
4.4 Board of Directors. Notwithstanding the foregoing, so long as
------------------
there are at least 1,000,000 shares of Series D Preferred Stock and/or Series D1
Preferred Stock issued and outstanding (as adjusted for subsequent stock splits,
combinations, recapitalizations and the like), the holders of Series D Preferred
Stock and Series D1 Preferred Stock, voting together as a separate class, shall
be entitled to elect one (1) director of the Company. All other directors shall
be elected by the holders of Common Stock, Series A Preferred Stock and Series E
Preferred Stock voting together as a separate class. Notwithstanding any bylaw
provision to the contrary, the stockholders entitled to elect a particular
director shall be entitled to remove such director or to fill a vacancy in the
seat formerly held by such director, all in accordance with the provisions of
applicable law.
5. Conversion Rights. The outstanding shares of Preferred Stock shall be
-----------------
convertible into Common Stock as follows:
5.1 Optional Conversion.
-------------------
(a) At the option of the holder thereof, each share of Series D
Preferred Stock, Series D1 Preferred Stock and Series E Preferred Stock shall be
convertible, at any time, into fully paid and nonassessable shares of Common
Stock as provided herein.
(b) On or after February 2, 1998, at the option of the holder
thereof, each share of Series A Preferred Stock, Series B Preferred Stock and
Series C Preferred Stock shall be convertible, at any time, into fully paid and
nonassessable shares of Common Stock as provided herein.
6
<PAGE>
(c) Each holder of Preferred Stock who elects to convert the same
into shares of Common Stock shall surrender the certificate or certificates
therefor, duly endorsed, at the office of the Company or any transfer agent for
the Preferred Stock or Common Stock, and shall give written notice to the
Company at such office that such holder elects to convert the same and shall
state therein the number of shares of Preferred Stock being converted. Thereupon
the Company shall promptly issue and deliver at such office to such holder a
certificate or certificates for the number of shares of Common Stock to which
such holder is entitled upon such conversion. Such conversion shall be deemed to
have been made immediately prior to the close of business on the date of such
surrender of the certificate or certificates representing the shares of
Preferred Stock to be converted, and the person entitled to receive the shares
of Common Stock issuable upon such conversion shall be treated for all purposes
as the record holder of such shares of Common Stock on such date. If the
conversion is in connection with an underwritten offering of securities
registered pursuant to the Securities Act of 1933, as amended, the conversion
may, at the option of any holder tendering Preferred Stock for conversion, be
conditioned upon the closing with the underwriters of the sale of securities
pursuant to such offering, in which event the person(s) entitled to receive the
Common Stock upon conversion of the Preferred Stock shall not be deemed to have
converted such Preferred Stock until immediately prior to the closing of such
sale of securities.
5.2 Automatic Conversion.
--------------------
(a) Each share of Series A Preferred Stock, Series B Preferred
Stock and Series C Preferred Stock shall automatically be converted into fully
paid and nonassessable shares of Common Stock, as provided herein: (i)
immediately prior to the closing of a firm commitment underwritten public
offering pursuant to an effective registration statement filed under the
Securities Act of 1933, as amended, covering the offer and sale of Common Stock
for the account of the Company in which the aggregate public offering price
(before deduction of underwriters' discounts and commissions) equals or exceeds
$7,500,000 and the public offering price per share of which equals or exceeds
$2.50 per share before deduction of underwriters' discounts and commissions
(such price per share of Common Stock to be appropriately adjusted to reflect
Common Stock Events (as defined in subsection 5.4); (ii) upon a consolidation or
merger of the Company with or into any other corporation or corporations in
which the holders of the Company's outstanding shares immediately before such
consolidation or merger do not, immediately after such consolidation or merger,
retain stock representing a majority of the voting power of the surviving
corporation of such consolidation or merger; or (iii) upon a sale of all or
substantially all of the assets of the Company.
(b) Each share of Series D Preferred Stock, Series D1 Preferred
Stock and Series E Preferred Stock shall automatically be converted into fully
paid and nonassessable shares of Common Stock, as provided herein, immediately
prior to the closing of a firm commitment underwritten public offering pursuant
to an effective registration statement filed under the Securities Act of 1933,
as amended, covering the offer and sale of Common Stock for the account of the
Company in which the aggregate public offering price (before deduction of
underwriters' discounts and commissions) equals or exceeds $10,000,000 and the
public offering
7
<PAGE>
price per share of which equals or exceeds $6.38 per share before deduction of
underwriters' discounts and commissions (such price per share of Common Stock to
be appropriately adjusted to reflect Common Stock Events (as defined in
subsection 5.4).
(c) Upon the occurrence of any event specified in subsection
5.2(a) and/or 5.2(b) above, the outstanding shares of the affected series of
Preferred Stock shall be converted into Common Stock automatically without the
need for any further action by the holders of such shares and whether or not the
certificates representing such shares are surrendered to the Company or its
transfer agent; provided, however, that the Company shall not be obligated to
-------- -------
issue certificates evidencing the shares of Common Stock issuable upon such
conversion unless the certificates evidencing such shares of Preferred Stock are
either delivered to the Company or its transfer agent as provided below, or the
holder notifies the Company or its transfer agent that such certificates have
been lost, stolen or destroyed and executes an agreement satisfactory to the
Company to indemnify the Company from any loss incurred by it in connection with
such certificates. Upon the occurrence of such automatic conversion of the
Preferred Stock, the holders of Preferred Stock shall surrender the certificates
representing such shares at the office of the Company or any transfer agent for
the Preferred Stock or Common Stock. Thereupon, there shall be issued and
delivered to such holder promptly at such office and in its name as shown on
such surrendered certificate or certificates, a certificate or certificates for
the number of shares of Common Stock into which the shares of Preferred Stock
surrendered were convertible on the date on which such automatic conversion
occurred.
5.3 Conversion Price. Each share of Preferred Stock shall be
----------------
convertible in accordance with subsection 5.1 or subsection 5.2 above into the
number of shares of Common Stock which results from dividing the Original Issue
Price for such series of Preferred Stock by the conversion price for such series
of Preferred Stock that is in effect at the time of conversion (the "Conversion
Price"). The initial Conversion Price for the Series A Preferred Stock shall be
the Original Issue Price for the Series A Preferred Stock; the initial
conversion price for the Series B Preferred Stock shall be the Original Issue
Price for the Series B Preferred Stock; the initial conversion price for the
Series C Preferred Stock shall be the Original Issue Price for the Series C
Preferred Stock; the initial conversion price for the Series D Preferred Stock
shall be the Original Issue Price for the Series D Preferred Stock; the initial
conversion price for the Series D1 Preferred Stock shall be the Original Issue
Price for the Series D1 Preferred Stock; and the initial conversion price for
the Series E Preferred Stock shall be the Original Issue Price for the Series E
Preferred Stock. The Conversion Price of each series of Preferred Stock shall
be subject to adjustment from time to time as provided below.
5.4 Adjustment Upon Common Stock Event. Upon the happening of a
----------------------------------
Common Stock Event (as hereinafter defined), the Conversion Price of the Series
A Preferred Stock, the Conversion Price of the Series B Preferred Stock, the
Conversion Price of the Series C Preferred Stock, the Conversion Price of the
Series D Preferred Stock, the Conversion Price of the Series D1 Preferred Stock
and the Conversion Price of the Series E Preferred Stock shall, simultaneously
with the happening of such Common Stock Event, be adjusted by multiplying the
Conversion Price of each such series of Preferred Stock in effect immediately
prior to such
8
<PAGE>
Common Stock Event by a fraction, (i) the numerator of which shall be the number
of shares of Common Stock issued and outstanding immediately prior to such
Common Stock Event, and (ii) the denominator of which shall be the number of
shares of Common Stock issued and outstanding immediately after such Common
Stock Event, and the product so obtained shall thereafter be the Conversion
Price for such series of Preferred Stock. The Conversion Price for a series of
Preferred Stock shall be readjusted in the same manner upon the happening of
each subsequent Common Stock Event. As used herein, the term "Common Stock
Event" shall mean (i) the issue by the Company of additional shares of Common
Stock as a dividend or other distribution on outstanding Common Stock, (ii) a
subdivision of the outstanding shares of Common Stock into a greater number of
shares of Common Stock, or (iii) a combination of the outstanding shares of
Common Stock into a smaller number of shares of Common Stock.
5.5 Adjustments for Other Dividends and Distributions. If at any
-------------------------------------------------
time or from time to time after the Filing Date the Company pays a dividend or
makes another distribution to the holders of Common Stock payable in securities
of the Company other than shares of Common Stock, then in each such event
provision shall be made so that the holders of the Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock,
Series D1 Preferred Stock and Series E Preferred Stock shall receive upon
conversion thereof, in addition to the number of shares of Common Stock
receivable upon conversion thereof, the amount of securities of the Company
which they would have received had their Preferred Stock been converted into
Common Stock on the date of such event (or such record date, as applicable) and
had they thereafter, during the period from the date of such event (or such
record date, as applicable) to and including the conversion date, retained such
securities receivable by them as aforesaid during such period, subject to all
other adjustments called for during such period under this section 5 with
respect to the rights of the holders of the Preferred Stock or with respect to
such other securities by their terms.
5.6 Adjustment for Reclassification, Exchange and Substitution. If
----------------------------------------------------------
at any time or from time to time after the Filing Date the Common Stock issuable
upon the conversion of the Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock, Series D1 Preferred Stock
and Series E Preferred Stock is changed into the same or a different number of
shares of any class or classes of stock, whether by recapitalization,
reclassification or otherwise (other than by a Common Stock Event or a stock
dividend, reorganization, merger, consolidation or sale of assets provided for
elsewhere in this section 5), then in any such event each holder of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock, Series D1 Preferred Stock and Series E Preferred Stock shall
have the right thereafter to convert such stock into the kind and amount of
stock and other securities and property receivable upon such recapitalization,
reclassification or other change by holders of the number of shares of Common
Stock into which such shares of Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock, Series D Preferred Stock, Series D1 Preferred
Stock and Series E Preferred Stock could have been converted immediately prior
to such recapitalization, reclassification or change, all subject to further
adjustment as provided herein or with respect to such other securities or
property by the terms thereof.
9
<PAGE>
5.7 Sale of Shares Below Conversion Price.
-------------------------------------
(a) Special Adjustment for Series E Preferred Stock. If at any
-----------------------------------------------
time or from time to time during the time period beginning on the date of the
first issuance of Series E Preferred Stock and ending 18 months thereafter (such
ending date being referred to herein as the "Termination Date") the Company
issues or sells, or is deemed by the provisions of this subsection 5.7 to have
issued or sold, Additional Shares of Common Stock (as hereinafter defined),
otherwise than in connection with a Common Stock Event as provided in subsection
5.4, a dividend or distribution as provided in subsection 5.5 or a
recapitalization, reclassification or other change as provided in subsection
5.6, for an Effective Price (as hereinafter defined) that is less than the
Conversion Price for the Series E Preferred Stock in effect immediately prior to
such issue or sale, then, and in each such case, the Conversion Price for the
Series E Preferred Stock shall be reduced (to no less than $2.217 per share
until such time as there are first issued and outstanding at least 795,000
shares of Series D1 Preferred Stock and then to no less than $3.3255 per share)
to the Effective Price of the Additional Shares of Common Stock issued or sold
by the Company.
(b) General Adjustment Formula. If at any time or from time to
--------------------------
time after the Filing Date (and in the case of the Series E Preferred Stock the
Termination Date) the Company issues or sells, or is deemed by the provisions of
this Section 5.7 to have issued or sold, Additional Shares of Common Stock,
otherwise than in connection with a Common Stock Event as provided in subsection
5.4, a dividend or distribution as provided in subsection 5.5 or a
recapitalization, reclassification or other change as provided in subsection
5.6, for an Effective Price that is less than the Conversion Price for a series
of Preferred Stock in effect immediately prior to such issue or sale, then, and
in each such case, the Conversion Price for such series of Preferred Stock shall
be reduced, as of the close of business on the date of such issue or sale, to
the price obtained by multiplying such Conversion Price by a fraction
(i) The numerator of which shall be the sum of (A) the
number of Common Stock Equivalents Outstanding (as hereinafter defined)
immediately prior to such issue or sale of Additional Shares of Common Stock
plus (B) the quotient obtained by dividing the Aggregate Consideration Received
(as hereinafter defined) by the Company for the total number of Additional
Shares of Common Stock so issued or sold (or deemed so issued and sold) by the
Conversion Price for such series of Preferred Stock in effect immediately prior
to such issue or sale; and
(ii) The denominator of which shall be the sum of (A) the
number of Common Stock Equivalents Outstanding immediately prior to such issue
or sale plus (B) the number of Additional Shares of Common Stock so issued or
sold (or deemed so issued and sold).
(c) Certain Definitions. For the purpose of making any
-------------------
adjustment required under this subsection 5.7:
10
<PAGE>
(i) "Additional Shares of Common Stock" shall mean all
---------------------------------
shares of Common Stock issued by the Company after the Filing Date, other than:
(A) all shares of Common Stock issued or issuable upon conversion of the
Preferred Stock; (B) up to a total of 7,802,791 shares of Common Stock (or
options, warrants or rights therefor) now or hereafter issued to employees,
officers, or directors of, or contractors, consultants or advisers to, or any
entity affiliated with any of the foregoing, the Company or any Subsidiary
pursuant to stock purchase or stock option plans, stock bonuses or awards,
warrants, contracts, note conversions or other arrangements that are approved by
the Board (such number of shares to be calculated net of any repurchases of such
shares by the Company and net of any such expired or terminated options,
warrants or rights and to be proportionally adjusted to reflect any subsequent
Common Stock Event); (C) all shares of Common Stock or other securities now or
hereinafter issued to parties providing the Company with equipment leases, real
property leases, loans, credit lines, guaranties of indebtedness, cash price
reductions or similar financing, provided the transaction is approved by a
majority of the members of the Board, and provided further that in the case the
proposed transaction is with an affiliate of the Company, the transaction is
unanimously approved by all disinterested members of the Board; (D) all shares
of Common Stock now or hereinafter issued upon exercise of the Antidilution
Warrants originally issued by the corporation on April 24, 1996; and (E) up to
50,000 shares of Common Stock or other securities now or hereinafter issued to
academic institutions with which the officers and/or key employees have a
relationship pursuant to any plan or arrangement approved by the Board
(including the one director elected by the holders of Series D Preferred Stock
and Series D1 Preferred Stock).
(ii) The "Aggregate Consideration Received" by the
--------------------------------
Company for any issue or sale (or deemed issue or sale) of securities shall (A)
to the extent it consists of cash, be computed at the gross amount of cash
received by the Company before deduction of any underwriting or similar
commissions, compensation or concessions paid or allowed by the Company in
connection with such issue or sale and without deduction of any expenses payable
by the Company; (B) to the extent it consists of property other than cash, be
computed at the fair value of that property as determined in good faith by the
Board; and (C) if Additional Shares of Common Stock, Convertible Securities or
Rights or Options to purchase either Additional Shares of Common Stock or
Convertible Securities are issued or sold together with other stock or
securities or other assets of the Company for a consideration which covers both,
be computed as the portion of the consideration so received that may be
reasonably determined in good faith by the Board to be allocable to such
Additional Shares of Common Stock, Convertible Securities or Rights or Options.
(iii) "Common Stock Equivalents Outstanding" shall mean
------------------------------------
the number of shares of Common Stock that is equal to the sum of (A) all shares
of Common Stock of the Company that are outstanding at the time in question,
plus (B) all shares of Common Stock of the Company issuable upon conversion of
all shares of Preferred Stock or other Convertible Securities that are
outstanding at the time in question, plus (C) all shares of Common Stock of the
Company that are issuable upon the exercise of Rights or Options that are
outstanding at the time in question assuming the full conversion or exchange
into Common Stock
11
<PAGE>
of all such Rights or Options that are Rights or Options to purchase or acquire
Convertible Securities into or for Common Stock.
(iv) "Convertible Securities" shall mean stock or other
----------------------
securities convertible into or exchangeable for shares of Common Stock.
(v) The "Effective Price" of Additional Shares of Common
---------------
Stock shall mean the quotient determined by dividing the total number of
Additional Shares of Common Stock issued or sold, or deemed to have been issued
or sold, by the Company under this subsection 5.7, into the Aggregate
Consideration Received, or deemed to have been received, by the Company under
this subsection 5.7, for the issue of such Additional Shares of Common Stock;
and
(vi) "Rights or Options" shall mean warrants, options or
-----------------
other rights to purchase or acquire shares of Common Stock or Convertible
Securities.
(d) Deemed Issuances. For the purpose of making any adjustment
----------------
to the other rights Conversion Price of a series of Preferred Stock required
under this subsection 5.7, if the Company issues or sells any Rights or Options
or Convertible Securities and if the Effective Price of the shares of Common
Stock issuable upon exercise of such Rights or Options and/or the conversion or
exchange of Convertible Securities (computed without reference to any additional
or similar protective or antidilution clauses) is less than the Conversion Price
then in effect for a series of Preferred Stock, then the Company shall be deemed
to have issued, at the time of the issuance of such Rights, Options or
Convertible Securities, that number of Additional Shares of Common Stock that is
equal to the maximum number of shares of Common Stock issuable upon exercise or
conversion of such Rights, Options or Convertible Securities upon their issuance
and to have received, as the Aggregate Consideration Received for the issuance
of such shares, an amount equal to the total amount of the consideration, if
any, received by the Company for the issuance of such Rights or Options or
Convertible Securities, plus, in the case of such Rights or Options, the minimum
amounts of consideration, if any, payable to the Company upon the exercise in
full of such Rights or Options, plus, in the case of Convertible Securities, the
minimum amounts of consideration, if any, payable to the Company (other than by
cancellation of liabilities or obligations evidenced by such Convertible
Securities) upon the conversion or exchange thereof; provided that:
(i) if the minimum amounts of such consideration cannot
be ascertained, but are a function of antidilution or similar protective
clauses, then the Company shall be deemed to have received the minimum amounts
of consideration without reference to such clauses;
(ii) if the minimum amount of consideration payable to the
Company upon the exercise of Rights or Options or the conversion or exchange of
Convertible Securities is reduced over time or upon the occurrence or non-
occurrence of specified events other than by reason of antidilution or similar
protective adjustments, then the Effective Price
12
<PAGE>
shall be recalculated using the figure to which such minimum amount of
consideration is reduced; and
(iii) if the minimum amount of consideration payable to the
Company upon the exercise of such Rights or Options or the conversion or
exchange of Convertible Securities is subsequently increased, then the Effective
Price shall again be recalculated using the increased minimum amount of
consideration payable to the Company upon the exercise of such Rights or Options
or the conversion or exchange of such Convertible Securities.
No further adjustment of the Conversion Price, adjusted upon the issuance
of such Rights or Options or Convertible Securities shall be made as a result of
the actual issuance of shares of Common Stock on the exercise of any such Rights
or Options or the conversion or exchange of any such Convertible Securities. If
any such Rights or Options or the conversion rights represented by any such
Convertible Securities shall expire without having been fully exercised, then
the Conversion Price as adjusted upon the issuance of such Rights or Options or
Convertible Securities shall be readjusted to the Conversion Price which would
have been in effect had an adjustment been made on the basis that the only
shares of Common Stock so issued were the shares of Common Stock, if any, that
were actually issued or sold on the exercise of such Rights or Options or rights
of conversion or exchange of such Convertible Securities, and such shares of
Common Stock, if any, were issued or sold for the consideration actually
received by the Company upon such exercise, plus the consideration, if any,
actually received by the Company for the granting of all such Rights or Options,
whether or not exercised, plus the consideration received for issuing or selling
all such Convertible Securities actually converted or exchanged, plus the
consideration, if any, actually received by the Company (other than by
cancellation of liabilities or obligations evidenced by such Convertible
Securities) on the conversion or exchange of such Convertible Securities,
provided that such readjustment shall not apply to prior conversions of
Preferred Stock.
5.8 Special Series D Conversion Price Adjustment. The Conversion
--------------------------------------------
Price of the Series D Preferred Stock shall be reduced by .004616986, and the
Conversion Price of the Series D1 Preferred Stock shall be reduced by .00625479,
for every $100,000 or fraction thereof expended by the Company (whether in legal
fees, costs, expenses, amounts paid in settlement, amounts paid in judgment or
otherwise, and, in the case of transferred property, assets and/or securities,
the amount expended shall include the fair market value of such transferred
property, assets and/or securities as mutually determined by the corporation and
the holders of at least a majority of all shares of Series D Preferred Stock and
Series D1 Preferred Stock outstanding on the date of transfer voting together)
after the date of the first issuance of Series D Preferred Stock in connection
with the lawsuit for breach of contract initially filed on October 31, 1996 in
Alameda County by Pareto Partners Ltd. against the Company (or any other
lawsuit, claim or cause of action that Pareto Partners Ltd., any affiliate
thereof or John Nafeh may allege or assert against the Company on the basis of
substantially the same facts and circumstances set forth in the breach of
contract lawsuit), provided however that no such adjustment shall be made for
the first $100,000 or portion thereof so expended by the Company.
13
<PAGE>
5.9 Certificate of Adjustment. In each case of an adjustment or
-------------------------
readjustment of the Conversion Price for a series of Preferred Stock, the
Company, at its expense, shall cause its Chief Financial Officer to compute such
adjustment or readjustment in accordance with the provisions hereof and prepare
a certificate showing such adjustment or readjustment, and shall mail such
certificate, by first class mail, postage prepaid, to each registered holder of
such series of Preferred Stock at the holder's address as shown in the Company's
books.
5.10 Fractional Shares. No fractional shares of Common Stock shall
-----------------
be issued upon any conversion of Preferred Stock. In lieu of any fractional
share to which the holder would otherwise be entitled, the Company shall pay the
holder cash equal to the product of such fraction multiplied by the Common
Stock's fair market value as determined in good faith by the Board as of the
date of conversion.
5.11 Reservation of Stock Issuable Upon Conversion. The Company
---------------------------------------------
shall at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the shares of the Preferred Stock, such number of its shares of Common Stock as
shall from time to time be sufficient to effect the conversion of all
outstanding shares of the Preferred Stock; and if at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to effect
the conversion of all then outstanding shares of the Preferred Stock, the
Company will take such corporate action as may, in the opinion of its counsel,
be necessary to increase its authorized but unissued shares of Common Stock to
such number of shares as shall be sufficient for such purpose.
5.12 Notices. Any notice required by the provisions of this Section
-------
5 to be given to the holders of shares of the Preferred Stock shall be deemed
given upon the earlier of actual receipt or deposit in the United States mail,
by certified or registered mail, return receipt requested, postage prepaid,
addressed to each holder of record at the address of such holder appearing on
the books of the Company.
5.13 No Impairment. The Company shall not avoid or seek to avoid the
-------------
observance or performance of any of the terms to be observed or performed
hereunder by the Company, but shall at all times in good faith assist in
carrying out all such action as may be reasonably necessary or appropriate in
order to protect the conversion rights of the holders of the Preferred Stock
against impairment.
6. Protective Provisions. In addition to any other class vote that may
---------------------
be required by law, so long as at least 900,000 shares of Series D Preferred
Stock, Series D1 Preferred Stock and/or Series E Preferred Stock are outstanding
(as adjusted for any stock splits, combinations, recapitalizations and the
like), the Company shall not without first obtaining the approval (by vote or
written consent, as provided by law) of the holders of a majority of the then
outstanding shares of Series D Preferred Stock, Series D1 Preferred Stock and
Series E Preferred Stock voting together:
14
<PAGE>
(a) sell, convey or otherwise dispose of all or substantially all of
its property or business or merge into or consolidate with any other corporation
(other than a wholly-owned subsidiary corporation) or effect any transaction or
series of related transactions in which more than fifty percent (50%) of the
voting power of the Company is disposed of;
(b) amend or repeal any provision of, or add any provision to, this
Amended and Restated Certificate of Incorporation if such action would
materially and adversely alter or change the rights, preferences or privileges
of the shares of Series D Preferred Stock, Series D1 Preferred Stock or Series E
Preferred Stock;
(c) increase or decrease (other than by redemption or conversion) the
total number of authorized shares of Series D Preferred Stock, Series D1
Preferred Stock or Series E Preferred Stock;
(d) authorize or issue, or obligate itself to issue, any other equity
security, including any security convertible into or exercisable for any equity
security, having a preference over, or being on parity with, the Series D
Preferred Stock, Series D1 Preferred Stock or Series E Preferred Stock with
respect to voting, dividends or upon liquidation;
(e) increase the authorized size of the Board to a number greater than
five (5);
(f) liquidate, dissolve or wind up the Company, or take any action for
the purpose of liquidating, dissolving or winding up the Company; or
(g) materially change the nature of the business of the Company as
described in the Company's business plan in effect immediately prior to the
filing of this Amended and Restated Certificate of Incorporation.
7. Miscellaneous. No share or shares of Preferred Stock acquired by the
-------------
Company by reason of redemption, purchase, conversion or otherwise shall be
reissued, and all such shares shall be canceled, retired and eliminated from the
shares which the Company shall be authorized to issue.
ARTICLE VI
The Company is to have perpetual existence.
ARTICLE VII
Elections of directors need not be by written ballot unless the Bylaws of
the Company shall so provide.
At a stockholders' meeting at which directors are to be elected, or at
elections held under special circumstances, a stockholder shall be entitled to
cumulate votes (i.e., cast for any
15
<PAGE>
candidate a number of votes greater than the number of votes which such
stockholder normally is entitled to cast). Each holder of stock, or of any class
or classes or of a series or series thereof, who elects to cumulate votes shall
be entitled to as many votes as equals the number of votes which (absent this
provision as to cumulative voting) he would be entitled to cast for the election
of directors with respect to his shares of stock multiplied by the number of
directors to be elected by him, and he may cast all of such votes for a single
director or may distribute them among the number to be voted for, or for any two
or more of them, as he may see fit.
ARTICLE VIII
The number of directors which constitute the whole Board of Directors of
the Company shall be designated in the Bylaws of the Company.
ARTICLE IX
In furtherance and not in limitation of the powers conferred by statute,
the Board of Directors is expressly authorized to make, alter, amend or repeal
the Bylaws of the Company.
ARTICLE X
1. To the fullest extent permitted by the Delaware General Corporation Law
as the same exists or as may hereafter be amended, a director of the Company
shall not be personally liable to the Company or its stockholders for monetary
damages for breach of fiduciary duty as a director.
2. The Company shall indemnify to the fullest extent permitted by law any
person made or threatened to be made a party to an action or proceeding, whether
criminal, civil, administrative or investigative, by reason of the fact that he,
his testator or intestate is or was a director, officer or employee of the
Company or any predecessor of the Company, or serves or served at any other
enterprise as a director, officer or employee at the request of the Company or
any predecessor to the Company.
3. Neither any amendment nor repeal of this Article X, nor the adoption of
any provision of the Company's Certificate of Incorporation inconsistent with
this Article X, shall eliminate or reduce the effect of this Article X, in
respect of any matter occurring, or any action or proceeding accruing or arising
or that, but for this Article X, would accrue or arise, prior to such amendment,
repeal or adoption of an inconsistent provision.
ARTICLE XI
Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. The books of the Company may be kept
(subject to any provision contained in the statutes) outside of the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the Bylaws of the Company.
16
<PAGE>
ARTICLE XII
Subject to the provisions of Section 4.4 hereof, vacancies created by the
resignation of one or more members of the Board of Directors and newly created
directorships, created in accordance with the Bylaws of this Company, may be
filled by the vote of a majority, although less than a quorum, of the directors
then in office, or by a sole remaining director.
ARTICLE XIII
Advance notice of new business and stockholder nominations for the election
of directors shall be given in the manner and to the extent provided in the
Bylaws of the Company.
17
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Amended and Restated
Certificate of Incorporation to be signed by David C. Peterschmidt, its
President and Chief Executive Officer, effective as of February 12, 1998.
INKTOMI CORPORATION
By: /s/ David C. Peterrschmidt
----------------------------------------
David C. Peterschmidt,
President and Chief Executive Officer
18
<PAGE>
EXHIBIT 3.2
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
INKTOMI CORPORATION
Inktomi Corporation, a corporation organized and existing under the laws of
the State of Delaware, hereby certifies as follows:
A. The name of the corporation is Inktomi Corporation. The corporation
was originally incorporated under the same name and the original Certificate of
Incorporation of the corporation was filed with the Secretary of State of the
State of Delaware on November 12, 1996.
B. This Certificate of Incorporation has been duly adopted in accordance
with the provisions of the General Corporation Law of the State of Delaware by
the Board of Directors and the Stockholders of the corporation.
C. Pursuant to Sections 242 and 245 of the General Corporation Law of the
State of Delaware, this Certificate of Incorporation restates and integrates and
further amends the provisions of the Certificate of Incorporation of this
corporation.
D. The text of the Certificate of Incorporation is hereby amended and
restated in its entirety to read as follows:
ARTICLE I
The name of the corporation is Inktomi Corporation (the "Company").
ARTICLE II
The address of the Company's registered office in the State of Delaware is
1209 Orange Street, City of Wilmington, County of New Castle, Delaware 19801.
The name of its registered agent at such address is The Corporation Trust
Company.
ARTICLE III
The purpose of the Company is to engage in any lawful act or activity for
which corporations may be organized under the General Corporation Law of
Delaware.
ARTICLE IV
The Company is authorized to issue two classes of shares of stock to be
designated, respectively, Common Stock, $0.001 par value, and Preferred Stock,
$0.001 par value. The total number of shares that the Company is authorized to
issue is 110,000,000 shares. The number of shares of Common Stock authorized is
100,000,000. The number of shares of Preferred Stock authorized is 10,000,000.
<PAGE>
The Preferred Stock may be issued from time to time in one or more series
pursuant to a resolution or resolutions providing for such issue duly adopted by
the Board of Directors (authority to do so being hereby expressly vested in the
board). The Board of Directors is further authorized to determine or alter the
rights, preferences, privileges and restrictions granted to or imposed upon any
wholly unissued series of Preferred Stock and to fix the number of shares of any
series of Preferred Stock and the designation of any such series of Preferred
Stock. The Board of Directors, within the limits and restrictions stated in any
resolution or resolutions of the Board of Directors originally fixing the number
of shares constituting any series, may increase or decrease (but not below the
number of shares in any such series then outstanding) the number of shares of
any series subsequent to the issue of shares of that series.
The authority of the Board of Directors with respect to each such class or
series shall include, without limitation of the foregoing, the right to
determine and fix:
(a) the distinctive designation of such class or series and the
number of shares to constitute such class or series;
(b) the rate at which dividends on the shares of such class or
series shall be declared and paid, or set aside for payment, whether dividends
at the rate so determined shall be cumulative or accruing, and whether the
shares of such class or series shall be entitled to any participating or other
dividends in addition to dividends at the rate so determined, and if so, on what
terms;
(c) the right or obligation, if any, of the Company to redeem
shares of the particular class or series of Preferred Stock and, if redeemable,
the price, terms and manner of such redemption;
(d) the special and relative rights and preferences, if any, and
the amount or amounts per share, which the shares of such class or series of
Preferred Stock shall be entitled to receive upon any voluntary or involuntary
liquidation, dissolution or winding up of the Company;
(e) the terms and conditions, if any, upon which shares of such
class or series shall be convertible into, or exchangeable for, shares of
capital stock of any other class or series, including the price or prices or the
rate or rates of conversion or exchange and the terms of adjustment, if any;
(f) the obligation, if any, of the Company to retire, redeem or
purchase shares of such class or series pursuant to a sinking fund or fund of a
similar nature or otherwise, and the terms and conditions of such obligation;
(g) voting rights, if any, on the issuance of additional shares
of such class or series or any shares of any other class or series of Preferred
Stock;
(h) limitations, if any, on the issuance of additional shares of
such class or series or any shares of any other class or series of Preferred
Stock; and
2
<PAGE>
(i) such other preferences, powers, qualifications, special or
relative rights and privileges thereof as the Board of Directors of the Company,
acting in accordance with this Restated Certificate of Incorporation, may deem
advisable and are not inconsistent with law and the provisions of this Restated
Certificate of Incorporation.
ARTICLE V
The Company is to have perpetual existence.
ARTICLE VI
Elections of directors need not be by written ballot unless the Bylaws of
the Company shall so provide.
ARTICLE VII
The number of directors which constitute the whole Board of Directors of
the Company shall be designated in the Bylaws of the Company. The directors
shall be divided into three classes with the term of office of the first class
(Class I) to expire at the annual meeting of stockholders held in 1999; the term
of office of the second class (Class II) to expire at the annual meeting of
stockholders in 2000; the term of office of the third class (Class III) to
expire at the annual meeting of stockholders held in 2001; and thereafter for
each such term to expire at each third succeeding annual meeting of stockholders
after such election.
ARTICLE VIII
Holders of stock of any class or series of the Company shall not be
entitled to cumulate their votes for the election of directors or any other
matter submitted to a vote of the stockholders.
ARTICLE IX
In furtherance and not in limitation of the powers conferred by statute,
the Board of Directors is expressly authorized to make, alter, amend or repeal
the Bylaws of the Company.
ARTICLE X
1. To the fullest extent permitted by the Delaware General Corporation Law
as the same exists or as may hereafter be amended, a director of the Company
shall not be personally liable to the Company or its stockholders for monetary
damages for breach of fiduciary duty as a director.
2. The Company shall indemnify to the fullest extent permitted by law any
person made or threatened to be made a party to an action or proceeding, whether
criminal, civil, administrative or investigative, by reason of the fact that he,
his testator or intestate is or was a director or officer of the Company or any
predecessor of the
3
<PAGE>
Company, or serves or served at any other enterprise as a director or officer at
the request of the Company or any predecessor to the Company. The Company may
indemnify to the fullest extent permitted by law any person made or threatened
to be made a party to an action or proceeding, whether criminal, civil,
administrative or investigative, by reason of the fact that he, his testator or
intestate is or was an employee or agent of the Company or any predecessor of
the Company, or serves or served at any other enterprise as an employee or agent
at the request of the Company or any predecessor to the Company.
3. Neither any amendment nor repeal of this Article X, nor the adoption of
any provision of the Company's Certificate of Incorporation inconsistent with
this Article X, shall eliminate or reduce the effect of this Article X, in
respect of any matter occurring, or any action or proceeding accruing or arising
or that, but for this Article X, would accrue or arise, prior to such amendment,
repeal or adoption of an inconsistent provision.
ARTICLE XI
Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. The books of the Company may be kept
(subject to any provision contained in the statutes) outside of the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the Bylaws of the Company.
ARTICLE XII
Vacancies created by the resignation of one or more members of the Board of
Directors and newly created directorships, created in accordance with the Bylaws
of this Company, may be filled by the vote of a majority, although less than a
quorum, of the directors then in office, or by a sole remaining director.
ARTICLE XIII
Advance notice of new business and stockholder nominations for the election
of directors shall be given in the manner and to the extent provided in the
Bylaws of the Company.
ARTICLE XIV
No action shall be taken by the stockholders of the Company except at an
annual or special meeting of the stockholders called in accordance with the
Bylaws and no action shall be taken by the stockholders by written consent.
ARTICLE XV
The affirmative vote of sixty-six and two-thirds percent (66 2/3%) of the
then outstanding voting securities of the Company, voting together as a single
class, shall be required for the amendment, repeal or modification of the
provisions of Article IV, Article VII, Article VIII, Article XIV and Article XV
of this Restated Certificate of Incorporation, or Section 2.3 (Special Meeting),
Section 2.10 (Stockholder Action by Written Consent Without a Meeting) or
Section 3.2 (Number of Directors) of the Company's Bylaws.
4
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Amended and Restated
Certificate of Incorporation to be signed by David C. Peterschmidt, its
President and Chief Executive Officer, effective as of June __, 1998.
INKTOMI CORPORATION
By:_______________________________________
David C. Peterschmidt,
President and Chief Executive Officer
5
<PAGE>
EXHIBIT 3.3
BYLAWS
OF
INKTOMI CORPORATION
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I - CORPORATE OFFICES................................................. 1
1.1 REGISTERED OFFICE.................................................. 1
1.2 OTHER OFFICES...................................................... 1
ARTICLE II - MEETINGS OF STOCKHOLDERS......................................... 1
2.1 PLACE OF MEETINGS.................................................. 1
2.2 ANNUAL MEETING..................................................... 1
2.3 SPECIAL MEETING.................................................... 2
2.4 NOTICE OF STOCKHOLDERS' MEETINGS................................... 2
2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE....................... 2
2.6 QUORUM............................................................. 2
2.7 ADJOURNED MEETING; NOTICE.......................................... 3
2.8 VOTING............................................................. 3
2.9 WAIVER OF NOTICE................................................... 3
2.10 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING............ 4
2.11 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS........ 4
2.12 PROXIES............................................................ 5
2.13 LIST OF STOCKHOLDERS ENTITLED TO VOTE.............................. 5
2.14 ADVANCE NOTICE OF STOCKHOLDER NOMINATIONS AND STOCKHOLDERS
BUSINESS........................................................... 5
ARTICLE III - DIRECTORS....................................................... 7
3.1 POWERS............................................................. 7
3.2 NUMBER OF DIRECTORS................................................ 7
3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS............ 7
3.4 RESIGNATION AND VACANCIES.......................................... 7
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE........................... 8
3.6 FIRST MEETINGS..................................................... 9
3.7 REGULAR MEETINGS................................................... 9
3.8 SPECIAL MEETINGS; NOTICE........................................... 9
3.9 QUORUM............................................................. 9
3.10 WAIVER OF NOTICE................................................... 9
3.11 ADJOURNED MEETING; NOTICE.......................................... 10
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
----
<S> <C>
3.12 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING.................. 10
3.13 FEES AND COMPENSATION OF DIRECTORS................................. 10
3.14 APPROVAL OF LOANS TO OFFICERS...................................... 10
3.15 REMOVAL OF DIRECTORS............................................... 11
ARTICLE IV - COMMITTEES....................................................... 11
4.1 COMMITTEES OF DIRECTORS............................................ 11
4.2 COMMITTEE MINUTES.................................................. 12
4.3 MEETINGS AND ACTION OF COMMITTEES.................................. 12
ARTICLE V - OFFICERS.......................................................... 12
5.1 OFFICERS........................................................... 12
5.2 ELECTION OF OFFICERS............................................... 12
5.3 SUBORDINATE OFFICERS............................................... 13
5.4 REMOVAL AND RESIGNATION OF OFFICERS................................ 13
5.5 VACANCIES IN OFFICES............................................... 13
5.6 CHAIRMAN OF THE BOARD.............................................. 13
5.7 PRESIDENT.......................................................... 13
5.8 VICE PRESIDENT..................................................... 14
5.9 SECRETARY.......................................................... 14
5.10 TREASURER.......................................................... 14
5.11 ASSISTANT SECRETARY................................................ 15
5.12 ASSISTANT TREASURER................................................ 15
5.13 AUTHORITY AND DUTIES OF OFFICERS................................... 15
ARTICLE VI - INDEMNITY........................................................ 15
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS.......................... 15
6.2 INDEMNIFICATION OF OTHERS.......................................... 16
6.3 INSURANCE.......................................................... 16
ARTICLE VII - RECORDS AND REPORTS............................................. 16
7.1 MAINTENANCE AND INSPECTION OF RECORDS.............................. 16
7.2 INSPECTION BY DIRECTORS............................................ 17
7.3 ANNUAL STATEMENT TO STOCKHOLDERS................................... 17
7.4 REPRESENTATION OF SHARES OF OTHER CORPORATIONS..................... 17
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
----
<S> <C>
ARTICLE VIII - GENERAL MATTERS................................................ 18
8.1 CHECKS............................................................. 18
8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS................... 18
8.3 STOCK CERTIFICATES; PARTLY PAID SHARES............................. 18
8.4 SPECIAL DESIGNATION ON CERTIFICATES................................ 19
8.5 LOST CERTIFICATES.................................................. 19
8.6 CONSTRUCTION; DEFINITIONS.......................................... 19
8.7 DIVIDENDS.......................................................... 19
8.8 FISCAL YEAR........................................................ 20
8.9 SEAL............................................................... 20
8.10 TRANSFER OF STOCK.................................................. 20
8.11 STOCK TRANSFER AGREEMENTS.......................................... 20
8.12 REGISTERED STOCKHOLDERS............................................ 20
ARTICLE IX - AMENDMENTS....................................................... 21
ARTICLE X - DISSOLUTION....................................................... 21
ARTICLE XI - CUSTODIAN........................................................ 22
11.1 APPOINTMENT OF A CUSTODIAN IN CERTAIN CASES........................ 22
11.2 DUTIES OF CUSTODIAN................................................ 22
</TABLE>
<PAGE>
BYLAWS
------
OF
--
INKTOMI CORPORATION
-------------------
ARTICLE I
CORPORATE OFFICES
-----------------
1.1 REGISTERED OFFICE
-----------------
The registered office of the corporation shall be in the City of
Wilmington, County of New Castle, State of Delaware. The name of the registered
agent of the corporation at such location is The Corporation Trust Company.
1.2 OTHER OFFICES
-------------
The board of directors may at any time establish other offices at any place
or places where the corporation is qualified to do business.
ARTICLE II
MEETINGS OF STOCKHOLDERS
------------------------
2.1 PLACE OF MEETINGS
-----------------
Meetings of stockholders shall be held at any place, within or outside the
State of Delaware, designated by the board of directors. In the absence of any
such designation, stockholders' meetings shall be held at the registered office
of the corporation.
2.2 ANNUAL MEETING
--------------
The annual meeting of stockholders shall be held each year on a date and at
a time designated by the board of directors. At the meeting, directors shall be
elected and any other proper business may be transacted.
<PAGE>
2.3 SPECIAL MEETING
---------------
A special meeting of the stockholders may be called at any time by the
board of directors, the chairman of the board, the president, the chief
executive officer, or the holders of shares entitled to cast not less than ten
percent (10%) of the votes at the meeting.
If a special meeting is called by any person other than the board of
directors, the request shall be in writing, specifying the time of such meeting
and the general nature of the business proposed to be transacted, and shall be
delivered personally or sent by registered mail or by telegraphic or other
facsimile transmission to the chairman of the board, the president, any vice
president, or the secretary of the corporation. No business may be transacted
at such special meeting otherwise than specified in such notice. The officer
receiving the request shall cause notice to be promptly given to the
stockholders entitled to vote, in accordance with the provisions of Sections 2.4
and 2.5 of this Article II, that a meeting will be held at the time requested by
the person or persons who called the meeting, not less than thirty-five (35) nor
more than sixty (60) days after the receipt of the request. If the notice is not
given within twenty (20) days after the receipt of the request, the person or
persons requesting the meeting may give the notice. Nothing contained in this
paragraph of this Section 3 shall be construed as limiting, fixing, or affecting
the time when a meeting of stockholders called by action of the board of
directors may be held.
2.4 NOTICE OF STOCKHOLDERS' MEETINGS
--------------------------------
All notices of meetings with stockholders shall be in writing and shall be
sent or otherwise given in accordance with Section 2.5 of these bylaws not less
than ten (10) nor more than sixty (60) days before the date of the meeting to
each stockholder entitled to vote at such meeting. The notice shall specify 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.
2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE
--------------------------------------------
Written notice of any meeting of stockholders, if mailed, is given when
deposited in the United States mail, postage prepaid, directed to the
stockholder at his address as it appears on the records of the corporation. An
affidavit of the secretary or an assistant secretary or of the transfer agent of
the corporation that the notice has been given shall, in the absence of fraud,
be prima facie evidence of the facts stated therein.
2.6 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 or by the certificate of incorporation.
If, however, such quorum is not present or represented at any meeting of the
stockholders, then the stockholders entitled to vote thereat, present in person
or represented
<PAGE>
by proxy, shall have power to adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum is present or
represented. At such adjourned meeting at which a quorum is present or
represented, any business may be transacted that might have been transacted at
the meeting as originally noticed.
2.7 ADJOURNED MEETING; NOTICE
-------------------------
When a meeting is adjourned to another time or place, unless these bylaws
otherwise require, notice need not be given of the adjourned meeting if the time
and place thereof are announced at the meeting at which the adjournment is
taken. At the adjourned meeting the corporation may transact any business that
might have been transacted at the original meeting. If the adjournment is for
more than thirty (30) 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.
2.8 VOTING
------
The stockholders entitled to vote at any meeting of stockholders shall be
determined in accordance with the provisions of Section 2.11 of these bylaws,
subject to the provisions of Sections 217 and 218 of the General Corporation Law
of Delaware (relating to voting rights of fiduciaries, pledgors and joint owners
of stock and to voting trusts and other voting agreements).
Except as provided in the last paragraph of this Section 2.8, or as may be
otherwise provided in the certificate of incorporation, each stockholder shall
be entitled to one vote for each share of capital stock held by such
stockholder.
At a stockholders' meeting at which directors are to be elected, or at
elections held under special circumstances, a stockholder shall be entitled to
cumulate votes (i.e., cast for any candidate a number of votes greater than the
number of votes which such stockholder normally is entitled to cast). Each
holder of stock, or of any class or classes or of a series or series thereof,
who elects to cumulate votes shall be entitled to as many votes as equals the
number of votes which (absent this provision as to cumulative voting) he would
be entitled to cast for the election of directors with respect to his shares of
stock multiplied by the number of directors to be elected by him, and he may
cast all of such votes for a single director or may distribute them among the
number to be voted for, or for any two or more of them, as he may see fit.
2.9 WAIVER OF NOTICE
----------------
Whenever notice is required to be given under any provision of the General
Corporation Law of Delaware or of the certificate of incorporation or these
bylaws, a written waiver thereof, signed by the person entitled to notice,
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 a meeting for the express
purpose of objecting, at the
-3-
<PAGE>
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened. Neither the business to be transacted at,
nor the purpose of, any regular or special meeting of the stockholders need be
specified in any written waiver of notice unless so required by the certificate
of incorporation or these bylaws.
2.10 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING
-------------------------------------------------------
Unless otherwise provided in the certificate of incorporation, any action
required by this chapter to be taken at any annual or special meeting of
stockholders of a corporation, or any action that 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 in writing, setting forth the
action so taken, is signed 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.
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. If the action which is consented to is such as
would have required the filing of a certificate under any section of the General
Corporation Law of Delaware if such action had been voted on by stockholders at
a meeting thereof, then the certificate filed under such section shall state, in
lieu of any statement required by such section concerning any vote of
stockholders, that written notice and written consent have been given as
provided in Section 228 of the General Corporation Law of Delaware.
2.11 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS
-----------------------------------------------------------
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 express consent to corporate action in writing without a meeting,
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
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 sixty (60) nor less than ten (10) days before the date of such
meeting, nor more than sixty (60) days prior to any other action.
If the board of directors does not so fix a record date:
(i) 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 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.
-4-
<PAGE>
(ii) The record date for determining stockholders entitled to express
consent to corporate action in writing without a meeting, when no prior action
by the board of directors is necessary, shall be the day on which the first
written consent is expressed.
(iii) The record date for determining stockholders for any other
purpose shall be at the close of business on the day on which the board of
directors adopts the resolution relating thereto.
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.
2.12 PROXIES
-------
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 by a written proxy, signed by
the stockholder and filed with the secretary of the corporation, but no such
proxy shall be voted or acted upon after three (3) years from its date, unless
the proxy provides for a longer period. A proxy shall be deemed signed if the
stockholder's name is placed on the proxy (whether by manual signature,
typewriting, telegraphic transmission or otherwise) by the stockholder or the
stockholder's attorney-in-fact. The revocability of a proxy that states on its
face that it is irrevocable shall be governed by the provisions of Section
212(c) of the General Corporation Law of Delaware.
2.13 LIST OF STOCKHOLDERS ENTITLED TO VOTE
-------------------------------------
The officer who has charge of the stock ledger of a corporation shall
prepare and make, at least ten (10) days before every meeting of 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 (10) days prior to
the meeting, either at a place within the city 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.
2.14 ADVANCE NOTICE OF STOCKHOLDER NOMINEES AND STOCKHOLDER BUSINESS
---------------------------------------------------------------
Subject to the rights of holders of any class or series of stock having a
preference over the Common Stock as to dividends or upon liquidation,
nominations for the election of directors and business proposed to be brought
before any stockholder meeting may be made by the board of
-5-
<PAGE>
directors or proxy committee appointed by the board of directors or by any
stockholder entitled to vote in the election of directors generally if such
nomination or business proposed is otherwise proper business before such
meeting. However, any such stockholder may nominate one or more persons for
election as directors at a meeting or propose business to be brought before a
meeting, or both, only if such stockholder has given timely notice in proper
written form of their intent to make such nomination or nominations or to
propose such business. To be timely, such stockholder's notice must be delivered
to or mailed and received at the principal executive offices of the corporation
not less than one hundred twenty (120) calendar days in advance of the date
specified in the corporation's proxy statement released to stockholders in
connection with the previous year's annual meeting of stockholders; provided,
however, that in the event that no annual meeting was held in the previous year
or the date of the annual meeting has been changed by more than thirty (30) days
from the date contemplated at the time of the previous year's proxy statement,
notice by the stockholder to be timely must be so received a reasonable time
before the solicitation is made. To be in proper form, a stockholder's notice to
the secretary shall set forth:
(i) the name and address of the stockholder who intends to make the
nominations or propose the business and, as the case may be, of the person or
persons to be nominated or of the business to be proposed;
(ii) a representation that the stockholder is a holder of record of
stock of the corporation entitled to vote at such meeting and, if applicable,
intends to appear in person or by proxy at the meeting to nominate the person or
persons specified in the notice;
(iii) if applicable, a description of all arrangements or
understandings between the 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 the stockholder;
(iv) such other information regarding each nominee or each matter of
business to be proposed by such stockholder as would be required to be included
in a proxy statement filed pursuant to the proxy rules of the Securities and
Exchange Commission had the nominee been nominated, or intended to be nominated,
or the matter been proposed, or intended to be proposed by the board of
directors; and
(v) if applicable, the consent of each nominee to serve as director
of the corporation if so elected.
The chairman of the meeting shall refuse to acknowledge the nomination of
any person or the proposal of any business not made in compliance with the
foregoing procedure.
-6-
<PAGE>
ARTICLE III
DIRECTORS
---------
3.1 POWERS
------
Subject to the provisions of the General Corporation Law of Delaware and
any limitations in the certificate of incorporation or these bylaws relating to
action required to be approved by the stockholders or by the outstanding shares,
the business and affairs of the corporation shall be managed and all corporate
powers shall be exercised by or under the direction of the board of directors.
3.2 NUMBER OF DIRECTORS
-------------------
The number of directors of the corporation shall be not less than five (5)
nor more than nine (9). The exact number of directors shall be five (5) until
changed, within the limits specified above, by a bylaw amending this Section
3.2, duly adopted by the board of directors or by the stockholders. The
indefinite number of directors may be changed, or a definite number may be fixed
without provision for an indefinite number, by a duly adopted amendment to the
certificate of incorporation or by an amendment to this bylaw duly adopted by
the vote or written consent of the holders of a majority of the stock issued and
outstanding and entitled to vote or by resolution of a majority of the board of
directors.
No reduction of the authorized number of directors shall have the effect of
removing any director before that director's term of office expires.
3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS
-------------------------------------------------------
Except as provided in Section 3.4 of these bylaws, directors shall be
elected at each annual meeting of stockholders to hold office until the next
annual meeting. Directors need not be stockholders unless so required by the
certificate of incorporation or these bylaws, wherein other qualifications for
directors may be prescribed. Each director, including a director elected to
fill a vacancy, shall hold office until his successor is elected and qualified
or until his earlier resignation or removal.
Elections of directors need not be by written ballot.
3.4 RESIGNATION AND VACANCIES
-------------------------
Any director may resign at any time upon written notice to the corporation.
When one or more directors so resigns and the resignation is effective at a
future date, a majority of the directors then in office, including those who
have so resigned, shall have power to fill such vacancy or vacancies, the vote
thereon to take effect when such resignation or resignations shall become
effec-
-7-
<PAGE>
tive, and each director so chosen shall hold office as provided in this section
in the filling of other vacancies.
Unless otherwise provided in the certificate of incorporation or these
bylaws:
(i) Vacancies and newly created directorships resulting from any
increase in the authorized number of directors elected by all of the
stockholders having the right to vote as a single class may be filled by a
majority of the directors then in office, although less than a quorum, or by a
sole remaining director.
(ii) Whenever the holders of any class or classes of stock or series
thereof are entitled to elect one or more directors by the provisions of the
certificate of incorporation, vacancies and newly created directorships of such
class or classes or series may be filled by a majority of the directors elected
by such class or classes or series thereof then in office, or by a sole
remaining director so elected.
If at any time, by reason of death or resignation or other cause, the
corporation should have no directors in office, then any officer or any
stockholder or an executor, administrator, trustee or guardian of a stockholder,
or other fiduciary entrusted with like responsibility for the person or estate
of a stockholder, may call a special meeting of stockholders in accordance with
the provisions of the certificate of incorporation or these bylaws, or may apply
to the Court of Chancery for a decree summarily ordering an election as provided
in Section 211 of the General Corporation Law of Delaware.
If, at the time of filling any vacancy or any newly created directorship,
the directors then in office constitute less than a majority of the whole board
(as constituted immediately prior to any such increase), then the Court of
Chancery may, upon application of any stockholder or stockholders holding at
least ten (10) percent of the total number of the shares at the time outstanding
having the right to vote for such directors, summarily order an election to be
held to fill any such vacancies or newly created directorships, or to replace
the directors chosen by the directors then in office as aforesaid, which
election shall be governed by the provisions of Section 211 of the General
Corporation Law of Delaware as far as applicable.
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE
----------------------------------------
The board of directors of the corporation may hold meetings, both regular
and special, either within or outside the State of Delaware.
Unless otherwise restricted by the certificate of incorporation or these
bylaws, members of the board of directors, or any committee designated by the
board of directors, may participate in a meeting of the board of directors, or
any committee, 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 participation in a meeting shall constitute presence in
person at the meeting.
-8-
<PAGE>
3.6 FIRST MEETINGS
--------------
The first meeting of each newly elected board of directors shall be held at
such time and place as shall be fixed by the vote of the stockholders at the
annual meeting and no notice of such meeting shall be necessary to the newly
elected directors in order legally to constitute the meeting, provided a quorum
shall be present. In the event of the failure of the stockholders to fix the
time or place of such first meeting of the newly elected board of directors, or
in the event such meeting is not held at the time and place so fixed by the
stockholders, the meeting may be held at such time and place as shall be
specified in a notice given as hereinafter provided for special meetings of the
board of directors, or as shall be specified in a written waiver signed by all
of the directors.
3.7 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.
3.8 SPECIAL MEETINGS; NOTICE
------------------------
Special meetings of the board of directors for any purpose or purposes may
be called at any time by the chairman of the board, the president, any vice
president, the secretary or any two (2) directors.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail or
telegram, charges prepaid, addressed to each director at that director's address
as it is shown on the records of the corporation. If the notice is mailed, it
shall be deposited in the United States mail at least four (4) days before the
time of the holding of the meeting. If the notice is delivered personally or by
telephone or by telegram, it shall be delivered personally or by telephone or to
the telegraph company at least forty-eight (48) hours before the time of the
holding of the meeting. Any oral notice given personally or by telephone may be
communicated either to the director or to a person at the office of the director
who the person giving the notice has reason to believe will promptly communicate
it to the director. The notice need not specify the purpose or the place of the
meeting, if the meeting is to be held at the principal executive office of the
corporation.
3.9 QUORUM
------
At all meetings of the board of directors, a majority of the authorized
number of directors 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 statute or by the certificate of
incorporation. If a quorum is not present at any meeting of the board of
directors, then the directors present thereat may
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adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum is present.
3.10 WAIVER OF NOTICE
----------------
Whenever notice is required to be given under any provision of the General
Corporation Law of Delaware or of the certificate of incorporation or these
bylaws, a written waiver thereof, signed by the person entitled to notice,
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 a 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. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the directors, or members of a committee of directors, need be specified in
any written waiver of notice unless so required by the certificate of
incorporation or these bylaws.
3.11 ADJOURNED MEETING; NOTICE
-------------------------
If a quorum is not present at any meeting of the board of directors, then
the directors present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum is present.
3.12 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING
-------------------------------------------------
Unless otherwise restricted by the certificate of incorporation or these
bylaws, 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.
3.13 FEES AND COMPENSATION OF DIRECTORS
----------------------------------
Unless otherwise restricted by the certificate of incorporation or these
bylaws, the board of directors shall have the authority to fix the compensation
of directors.
3.14 APPROVAL OF LOANS TO OFFICERS
-----------------------------
The corporation may lend money to, or guarantee any obligation of, or
otherwise assist any officer or other employee of the corporation or of its
subsidiary, including any officer or employee who is a director of the
corporation or its subsidiary, whenever, in the judgment of the directors, such
loan, guaranty or assistance may reasonably be expected to benefit the
corporation. The loan, guaranty or other assistance may be with or without
interest and may be unsecured, or secured in such manner as the board of
directors shall approve, including, without limitation, a pledge of shares
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of stock of the corporation. Nothing in this section contained shall be deemed
to deny, limit or restrict the powers of guaranty or warranty of the corporation
at common law or under any statute.
3.15 REMOVAL OF DIRECTORS
--------------------
Unless otherwise restricted by statute, by the certificate of incorporation
or by these bylaws, 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.
No reduction of the authorized number of directors shall have the effect of
removing any director prior to the expiration of such director's term of office.
ARTICLE IV
COMMITTEES
----------
4.1 COMMITTEES OF DIRECTORS
-----------------------
The board of directors may, by resolution passed by a majority of the whole
board, designate one or more committees, with 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. In the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the board of
directors to act at the meeting in the place of any such absent or disqualified
member. Any such committee, to the extent provided in the resolution of the
board of directors or in the bylaws of the corporation, 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 that may require it; but no
such committee shall have the power or authority to (i) amend the certificate of
incorporation (except that a committee may, to the extent authorized in the
resolution or resolutions providing for the issuance of shares of stock adopted
by the board of directors as provided in Section 151(a) of the General
Corporation Law of Delaware, fix any of the preferences or rights of such shares
relating to dividends, redemption, dissolution, any distribution of assets of
the corporation or the conversion into, or the exchange of such shares for,
shares of any other class or classes or any other series of the same or any
other class or classes of stock of the corporation), (ii) adopt an agreement of
merger or consolidation under Sections 251 or 252 of the General Corporation Law
of Delaware, (iii) recommend to the stockholders the sale, lease or exchange of
all or substantially all of the corporation's property and assets, (iv)
recommend to the stockholders a dissolution of the corporation or a revocation
of a dissolution, or (v) amend the bylaws of the corporation; and, unless the
board resolution establishing the committee, the bylaws or the certificate of
incorporation expressly so provide, no such committee shall have the power or
authority to declare a dividend, to
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authorize the issuance of stock, or to adopt a certificate of ownership and
merger pursuant to Section 253 of the General Corporation Law of Delaware.
4.2 COMMITTEE MINUTES
-----------------
Each committee shall keep regular minutes of its meetings and report the
same to the board of directors when required.
4.3 MEETINGS AND ACTION OF COMMITTEES
---------------------------------
Meetings and actions of committees shall be governed by, and held and taken
in accordance with, the provisions of Article III of these bylaws, Section 3.5
(place of meetings and meetings by telephone), Section 3.7 (regular meetings),
Section 3.8 (special meetings and notice), Section 3.9 (quorum), Section 3.10
(waiver of notice), Section 3.11 (adjournment and notice of adjournment), and
Section 3.12 (action without a meeting), with such changes in the context of
those bylaws as are necessary to substitute the committee and its members for
the board of directors and its members; provided, however, that the time of
regular meetings of committees may also be called by resolution of the board of
directors and that notice of special meetings of committees shall also be given
to all alternate members, who shall have the right to attend all meetings of the
committee. The board of directors may adopt rules for the government of any
committee not inconsistent with the provisions of these bylaws.
ARTICLE V
OFFICERS
--------
5.1 OFFICERS
--------
The officers of the corporation shall be a president, one or more vice
presidents, a secretary, and a treasurer. The corporation may also have, at the
discretion of the board of directors, a chairman of the board, one or more
assistant vice presidents, assistant secretaries, assistant treasurers, and any
such other officers as may be appointed in accordance with the provisions of
Section 5.3 of these bylaws. Any number of offices may be held by the same
person.
5.2 ELECTION OF OFFICERS
--------------------
The officers of the corporation, except such officers as may be appointed
in accordance with the provisions of Sections 5.3 or 5.5 of these bylaws, shall
be chosen by the board of directors, subject to the rights, if any, of an
officer under any contract of employment.
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<PAGE>
5.3 SUBORDINATE OFFICERS
--------------------
The board of directors may appoint, or empower the president to appoint,
such other officers and agents as the business of the corporation may require,
each of whom shall hold office for such period, have such authority, and perform
such duties as are provided in these bylaws or as the board of directors may
from time to time determine.
5.4 REMOVAL AND RESIGNATION OF OFFICERS
-----------------------------------
Subject to the rights, if any, of an officer under any contract of
employment, any officer may be removed, either with or without cause, by an
affirmative vote of the majority of the board of directors at any regular or
special meeting of the board or, except in the case of an officer chosen by the
board of directors, by any officer upon whom such power of removal may be
conferred by the board of directors.
Any officer may resign at any time by giving written notice to the
corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless otherwise
specified in that notice, the acceptance of the resignation shall not be
necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the corporation under any contract to which the officer is a
party.
5.5 VACANCIES IN OFFICES
--------------------
Any vacancy occurring in any office of the corporation shall be filled by
the board of directors.
5.6 CHAIRMAN OF THE BOARD
---------------------
The chairman of the board, if such an officer be elected, shall, if
present, preside at meetings of the board of directors and exercise and perform
such other powers and duties as may from time to time be assigned to him by the
board of directors or as may be prescribed by these bylaws. If there is no
president, then the chairman of the board shall also be the chief executive
officer of the corporation and shall have the powers and duties prescribed in
Section 5.7 of these bylaws.
5.7 PRESIDENT
---------
Subject to such supervisory powers, if any, as may be given by the board of
directors to the chairman of the board, if there be such an officer, the
president shall be the chief executive officer of the corporation and shall,
subject to the control of the board of directors, have general supervision,
direction, and control of the business and the officers of the corporation. He
shall preside at all meetings of the shareholders and, in the absence or
nonexistence of a chairman of the board, at all meetings of the board of
directors. He shall have the general powers and duties of management
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usually vested in the office of president of a corporation and shall have such
other powers and duties as may be prescribed by the board of directors or these
bylaws.
5.8 VICE PRESIDENT
--------------
In the absence or disability of the president, the vice presidents, if any,
in order of their rank as fixed by the board of directors or, if not ranked, a
vice president designated by the board of directors, shall perform all the
duties of the president and when so acting shall have all the powers of, and be
subject to all the restrictions upon, the president. The vice presidents shall
have such other powers and perform such other duties as from time to time may be
prescribed for them respectively by the board of directors, these bylaws, the
president or the chairman of the board.
5.9 SECRETARY
---------
The secretary shall keep or cause to be kept, at the principal executive
office of the corporation or such other place as the board of directors may
direct, a book of minutes of all meetings and actions of directors, committees
of directors, and shareholders. The minutes shall show the time and place of
each meeting, whether regular or special (and, if special, how authorized and
the notice given), the names of those present at directors' meetings or
committee meetings, the number of shares present or represented at shareholders'
meetings, and the proceedings thereof.
The secretary shall keep, or cause to be kept, at the principal executive
office of the corporation or at the office of the corporation's transfer agent
or registrar, as determined by resolution of the board of directors, a share
register, or a duplicate share register, showing the names of all shareholders
and their addresses, the number and classes of shares held by each, the number
and date of certificates evidencing such shares, and the number and date of
cancellation of every certificate surrendered for cancellation.
The secretary shall give, or cause to be given, notice of all meetings of
the shareholders and of the board of directors required to be given by law or by
these bylaws. He shall keep the seal of the corporation, if one be adopted, in
safe custody and shall have such other powers and perform such other duties as
may be prescribed by the board of directors or by these bylaws.
5.10 TREASURER
---------
The treasurer shall keep and maintain, or cause to be kept and maintained,
adequate and correct books and records of accounts of the properties and
business transactions of the corporation, including accounts of its assets,
liabilities, receipts, disbursements, gains, losses, capital, retained earnings,
and shares. The books of account shall at all reasonable times be open to
inspection by any director.
The treasurer shall deposit all money and other valuables in the name and
to the credit of the corporation with such depositaries as may be designated by
the board of directors. He shall disburse
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the funds of the corporation as may be ordered by the board of directors, shall
render to the president and directors, whenever they request it, an account of
all of his transactions as treasurer and of the financial condition of the
corporation, and shall have such other powers and perform such other duties as
may be prescribed by the board of directors or these bylaws.
5.11 ASSISTANT SECRETARY
-------------------
The assistant secretary, or, if there is more than one, the assistant
secretaries in the order determined by the stockholders or board of directors
(or if there be no such determination, then in the order of their election)
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 or the stockholders may from time to time prescribe.
5.12 ASSISTANT TREASURER
-------------------
The assistant treasurer, or, if there is more than one, the assistant
treasurers, in the order determined by the stockholders or board of directors
(or if there be no such determination, then in the order of their election),
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 or the stockholders may from time to time prescribe.
5.13 AUTHORITY AND DUTIES OF OFFICERS
--------------------------------
In addition to the foregoing authority and duties, all officers of the
corporation shall respectively have such authority and perform such duties in
the management of the business of the corporation as may be designated from time
to time by the board of directors or the stockholders.
ARTICLE VI
INDEMNITY
---------
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS
-----------------------------------------
The corporation shall, to the maximum extent and in the manner permitted by
the General Corporation Law of Delaware, indemnify each of its directors and
officers against expenses (including attorneys' fees), judgments, fines,
settlements, and other amounts actually and reasonably incurred in connection
with any proceeding, arising by reason of the fact that such person is or was an
agent of the corporation. For purposes of this Section 6.1, a "director" or
"officer" of the corporation includes any person (i) who is or was a director or
officer of the corporation, (ii) who is or was serving at the request of the
corporation as a director or officer of another corporation,
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<PAGE>
partnership, joint venture, trust or other enterprise, or (iii) who was a
director or officer of a corporation which was a predecessor corporation of the
corporation or of another enterprise at the request of such predecessor
corporation.
6.2 INDEMNIFICATION OF OTHERS
-------------------------
The corporation shall have the power, to the extent and in the manner
permitted by the General Corporation Law of Delaware, to indemnify each of its
employees and agents (other than directors and officers) against expenses
(including attorneys' fees), judgments, fines, settlements, and other amounts
actually and reasonably incurred in connection with any proceeding, arising by
reason of the fact that such person is or was an agent of the corporation. For
purposes of this Section 6.2, an "employee" or "agent" of the corporation (other
than a director or officer) includes any person (i) who is or was an employee or
agent of the corporation, (ii) who is or was serving at the request of the
corporation as an employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, or (iii) who was an employee or agent of a
corporation which was a predecessor corporation of the corporation or of another
enterprise at the request of such predecessor corporation.
6.3 INSURANCE
---------
The corporation may 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 and incurred by him
in any such capacity, or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such liability under
the provisions of the General Corporation Law of Delaware.
ARTICLE VII
RECORDS AND REPORTS
-------------------
7.1 MAINTENANCE AND INSPECTION OF RECORDS
-------------------------------------
The corporation shall, either at its principal executive office or at such
place or places as designated by the board of directors, keep a record of its
shareholders listing their names and addresses and the number and class of
shares held by each shareholder, a copy of these bylaws as amended to date,
accounting books, and other records.
Any stockholder of record, in person or by attorney or other agent, shall,
upon written demand under oath stating the purpose thereof, have the right
during the usual hours for business to inspect for any proper purpose the
corporation's stock ledger, a list of its stockholders, and its other books and
records and to make copies or extracts therefrom. A proper purpose shall mean a
purpose
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reasonably related to such person's interest as a stockholder. In every instance
where an attorney or other agent is the person who seeks the right to
inspection, the demand under oath shall be accompanied by a power of attorney or
such other writing that authorizes the attorney or other agent to so act on
behalf of the stockholder. The demand under oath shall be directed to the
corporation at its registered office in Delaware or at its principal place of
business.
The officer who has charge of the stock ledger of a corporation shall
prepare and make, at least ten (10) days before every meeting of 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 (10) days prior to
the meeting, either at a place within the city 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.
7.2 INSPECTION BY DIRECTORS
-----------------------
Any director shall have the right to examine the corporation's stock
ledger, a list of its stockholders, and its other books and records for a
purpose reasonably related to his position as a director. The Court of Chancery
is hereby vested with the exclusive jurisdiction to determine whether a director
is entitled to the inspection sought. The Court may summarily order the
corporation to permit the director to inspect any and all books and records, the
stock ledger, and the stock list and to make copies or extracts therefrom. The
Court may, in its discretion, prescribe any limitations or conditions with
reference to the inspection, or award such other and further relief as the Court
may deem just and proper.
7.3 ANNUAL STATEMENT TO STOCKHOLDERS
--------------------------------
The board of directors shall present at each annual meeting, and at any
special meeting of the stockholders when called for by vote of the stockholders,
a full and clear statement of the business and condition of the corporation.
7.4 REPRESENTATION OF SHARES OF OTHER CORPORATIONS
----------------------------------------------
The chairman of the board, the president, any vice president, the
treasurer, the secretary or assistant secretary of this corporation, or any
other person authorized by the board of directors or the president or a vice
president, is authorized to vote, represent, and exercise on behalf of this
corporation all rights incident to any and all shares of any other corporation
or corporations standing in the name of this corporation. The authority granted
herein may be exercised either by such person directly or by any other person
authorized to do so by proxy or power of attorney duly executed by such person
having the authority.
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ARTICLE VIII
GENERAL MATTERS
---------------
8.1 CHECKS
------
From time to time, the board of directors shall determine by resolution
which person or persons may sign or endorse all checks, drafts, other orders for
payment of money, notes or other evidences of indebtedness that are issued in
the name of or payable to the corporation, and only the persons so authorized
shall sign or endorse those instruments.
8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS
------------------------------------------------
The board of directors, except as otherwise provided in these bylaws, may
authorize any officer or officers, or agent or agents, to enter into any
contract or execute any instrument in the name of and on behalf of the
corporation; such authority may be general or confined to specific instances.
Unless so authorized or ratified by the board of directors or within the agency
power of an officer, no officer, agent or employee shall have any power or
authority to bind the corporation by any contract or engagement or to pledge its
credit or to render it liable for any purpose or for any amount.
8.3 STOCK CERTIFICATES; PARTLY PAID SHARES
--------------------------------------
The shares of a corporation shall be represented by certificates, provided
that the board of directors of the corporation may provide by resolution or
resolutions that some or all of any or all classes or series of its stock shall
be uncertificated shares. Any such resolution shall not apply to shares
represented by a certificate until such certificate is surrendered to the
corporation. Notwithstanding the adoption of such a resolution by the board of
directors, every holder of stock represented by certificates and upon request
every holder of uncertificated shares 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 vice-president, and by the treasurer
or an assistant treasurer, or the secretary or an assistant secretary of such
corporation representing the number of shares registered in certificate form.
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 has 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 were such officer, transfer agent or
registrar at the date of issue.
The corporation may issue the whole or any part of its shares as partly
paid and subject to call for the remainder of the consideration to be paid
therefor. Upon the face or back of each stock certificate issued to represent
any such partly paid shares, upon the books and records of the
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corporation in the case of uncertificated partly paid shares, the total amount
of the consideration to be paid therefor and the amount paid thereon shall be
stated. Upon the declaration of any dividend on fully paid shares, the
corporation shall declare a dividend upon partly paid shares of the same class,
but only upon the basis of the percentage of the consideration actually paid
thereon.
8.4 SPECIAL DESIGNATION ON CERTIFICATES
-----------------------------------
If the corporation is authorized to issue more than one class of stock or
more than one series of any class, then the powers, the designations, the
preferences, and the relative, participating, optional or other special rights
of each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate that the corporation shall
issue to represent such class or series of stock; provided, however, that,
except as otherwise provided in Section 202 of the General Corporation Law of
Delaware, in lieu of the foregoing requirements there may be set forth on the
face or back of the certificate that the corporation shall issue to represent
such class or series of stock a statement that the corporation will furnish
without charge to each stockholder who so requests the powers, the designations,
the preferences, and the relative, participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights.
8.5 LOST CERTIFICATES
-----------------
Except as provided in this Section 8.5, no new certificates for shares
shall be issued to replace a previously issued certificate unless the latter is
surrendered to the corporation and cancelled at the same time. The corporation
may issue a new certificate of stock or uncertificated shares in the place of
any certificate theretofore issued by it, alleged to have been lost, stolen or
destroyed, and the corporation may require the owner of the lost, stolen or
destroyed certificate, or his legal representative, to give the corporation a
bond sufficient to indemnify it against any claim that may be made against it on
account of the alleged loss, theft or destruction of any such certificate or the
issuance of such new certificate or uncertificated shares.
8.6 CONSTRUCTION; DEFINITIONS
-------------------------
Unless the context requires otherwise, the general provisions, rules of
construction, and definitions in the Delaware General Corporation Law shall
govern the construction of these bylaws. Without limiting the generality of
this provision, the singular number includes the plural, the plural number
includes the singular, and the term "person" includes both a corporation and a
natural person.
8.7 DIVIDENDS
---------
The directors of the corporation, subject to any restrictions contained in
the certificate of incorporation, may declare and pay dividends upon the shares
of its capital stock pursuant to the
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General Corporation Law of Delaware. Dividends may be paid in cash, in property,
or in shares of the corporation's capital stock.
The directors of the corporation may set apart out of any of the funds of
the corporation available for dividends a reserve or reserves for any proper
purpose and may abolish any such reserve. Such purposes shall include but not be
limited to equalizing dividends, repairing or maintaining any property of the
corporation, and meeting contingencies.
8.8 FISCAL YEAR
-----------
The fiscal year of the corporation shall be fixed by resolution of the
board of directors and may be changed by the board of directors.
8.9 SEAL
----
The corporation may adopt a corporate seal, which shall be adopted and
which may be altered by the board of directors, and may use the same by causing
it or a facsimile thereof to be impressed or affixed or in any manner
reproduced.
8.10 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, assignation or authority to 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 in its books.
8.11 STOCK TRANSFER AGREEMENTS
-------------------------
The corporation shall have power to enter into and perform any agreement
with any number of shareholders of any one or more classes of stock of the
corporation to restrict the transfer of shares of stock of the corporation of
any one or more classes owned by such stockholders in any manner not prohibited
by the General Corporation Law of Delaware.
8.12 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, shall be entitled to hold liable for calls and
assessments the 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 another person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
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EXHIBIT 3.4
BYLAWS
OF
INKTOMI CORPORATION
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I - CORPORATE OFFICES........................................... 1
1.1 REGISTERED OFFICE............................................. 1
1.2 OTHER OFFICES................................................. 1
ARTICLE II - MEETINGS OF STOCKHOLDERS................................... 1
2.1 PLACE OF MEETINGS............................................ 1
2.2 ANNUAL MEETING............................................... 1
2.3 SPECIAL MEETING.............................................. 2
2.4 NOTICE OF STOCKHOLDERS' MEETINGS............................. 2
2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE................. 2
2.6 QUORUM....................................................... 2
2.7 ADJOURNED MEETING; NOTICE.................................... 3
2.8 VOTING....................................................... 3
2.9 WAIVER OF NOTICE............................................. 3
2.10 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING...... 3
2.11 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS.. 4
2.12 PROXIES...................................................... 4
2.13 LIST OF STOCKHOLDERS ENTITLED TO VOTE........................ 4
2.14 ADVANCE NOTICE OF STOCKHOLDER NOMINATIONS AND
STOCKHOLDERS BUSINESS........................................ 5
ARTICLE III - DIRECTORS................................................. 6
3.1 POWERS....................................................... 6
3.2 NUMBER OF DIRECTORS.......................................... 6
3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS...... 7
3.4 RESIGNATION AND VACANCIES.................................... 7
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE..................... 8
3.6 FIRST MEETINGS............................................... 8
3.7 REGULAR MEETINGS............................................. 8
3.8 SPECIAL MEETINGS; NOTICE..................................... 8
3.9 QUORUM....................................................... 9
3.10 WAIVER OF NOTICE............................................. 9
</TABLE>
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TABLE OF CONTENTS
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3.11 ADJOURNED MEETING; NOTICE.................................... 9
3.12 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING............ 10
3.13 FEES AND COMPENSATION OF DIRECTORS........................... 10
3.14 APPROVAL OF LOANS TO OFFICERS................................ 10
3.15 REMOVAL OF DIRECTORS......................................... 10
ARTICLE IV - COMMITTEES................................................. 10
4.1 COMMITTEES OF DIRECTORS....................................... 10
4.2 COMMITTEE MINUTES............................................. 11
4.3 MEETINGS AND ACTION OF COMMITTEES............................. 11
ARTICLE V - OFFICERS.................................................... 12
5.1 OFFICERS..................................................... 12
5.2 ELECTION OF OFFICERS......................................... 12
5.3 SUBORDINATE OFFICERS......................................... 12
5.4 REMOVAL AND RESIGNATION OF OFFICERS.......................... 12
5.5 VACANCIES IN OFFICES......................................... 13
5.6 CHAIRMAN OF THE BOARD........................................ 13
5.7 PRESIDENT.................................................... 13
5.8 VICE PRESIDENT............................................... 13
5.9 SECRETARY.................................................... 13
5.10 TREASURER.................................................... 14
5.11 ASSISTANT SECRETARY.......................................... 14
5.12 ASSISTANT TREASURER.......................................... 14
5.13 AUTHORITY AND DUTIES OF OFFICERS............................. 15
ARTICLE VI - INDEMNITY.................................................. 15
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS..................... 15
6.2 INDEMNIFICATION OF OTHERS..................................... 15
6.3 INSURANCE..................................................... 16
ARTICLE VII - RECORDS AND REPORTS....................................... 16
7.1 MAINTENANCE AND INSPECTION OF RECORDS......................... 16
7.2 INSPECTION BY DIRECTORS....................................... 17
7.3 ANNUAL STATEMENT TO STOCKHOLDERS.............................. 17
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TABLE OF CONTENTS
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7.4 REPRESENTATION OF SHARES OF OTHER CORPORATIONS............... 17
ARTICLE VIII - GENERAL MATTERS.......................................... 17
8.1 CHECKS....................................................... 17
8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS............. 18
8.3 STOCK CERTIFICATES; PARTLY PAID SHARES....................... 18
8.4 SPECIAL DESIGNATION ON CERTIFICATES.......................... 18
8.5 LOST CERTIFICATES............................................ 19
8.6 CONSTRUCTION; DEFINITIONS.................................... 19
8.7 DIVIDENDS.................................................... 19
8.8 FISCAL YEAR.................................................. 19
8.9 SEAL......................................................... 20
8.10 TRANSFER OF STOCK............................................ 20
8.11 STOCK TRANSFER AGREEMENTS.................................... 20
8.12 REGISTERED STOCKHOLDERS...................................... 20
ARTICLE IX - AMENDMENTS................................................. 20
ARTICLE X - DISSOLUTION................................................. 21
ARTICLE XI - CUSTODIAN.................................................. 21
11.1 APPOINTMENT OF A CUSTODIAN IN CERTAIN CASES.................. 21
11.2 DUTIES OF CUSTODIAN.......................................... 22
</TABLE>
<PAGE>
AMENDED AND RESTATED BYLAWS
---------------------------
OF
--
INKTOMI CORPORATION
-------------------
ARTICLE I
CORPORATE OFFICES
-----------------
1.1 REGISTERED OFFICE
-----------------
The registered office of the corporation shall be in the City of
Wilmington, County of New Castle, State of Delaware. The name of the registered
agent of the corporation at such location is The Corporation Trust Company.
1.2 OTHER OFFICES
-------------
The board of directors may at any time establish other offices at any place
or places where the corporation is qualified to do business.
ARTICLE II
MEETINGS OF STOCKHOLDERS
------------------------
2.1 PLACE OF MEETINGS
-----------------
Meetings of stockholders shall be held at any place, within or outside the
State of Delaware, designated by the board of directors. In the absence of any
such designation, stockholders' meetings shall be held at the registered office
of the corporation.
2.2 ANNUAL MEETING
--------------
The annual meeting of stockholders shall be held each year on a date and at
a time designated by the board of directors. At the meeting, directors shall be
elected and any other proper business may be transacted.
<PAGE>
2.3 SPECIAL MEETING
---------------
A special meeting of the stockholders may be called at any time by the
board of directors, the chairman of the board, the president, or the chief
executive officer.
If a special meeting is called by any person other than the board of
directors, the request shall be in writing, specifying the time of such meeting
and the general nature of the business proposed to be transacted, and shall be
delivered personally or sent by registered mail or by telegraphic or other
facsimile transmission to the chairman of the board, the president, any vice
president, or the secretary of the corporation. No business may be transacted at
such special meeting otherwise than specified in such notice. The officer
receiving the request shall cause notice to be promptly given to the
stockholders entitled to vote, in accordance with the provisions of Sections 2.4
and 2.5 of this Article II, that a meeting will be held at the time requested by
the person or persons who called the meeting, not less than thirty-five (35) nor
more than sixty (60) days after the receipt of the request. If the notice is not
given within twenty (20) days after the receipt of the request, the person or
persons requesting the meeting may give the notice. Nothing contained in this
paragraph of this Section 2.3 shall be construed as limiting, fixing, or
affecting the time when a meeting of stockholders called by action of the board
of directors may be held.
2.4 NOTICE OF STOCKHOLDERS' MEETINGS
--------------------------------
All notices of meetings with stockholders shall be in writing and shall be
sent or otherwise given in accordance with Section 2.5 of these bylaws not less
than ten (10) nor more than sixty (60) days before the date of the meeting to
each stockholder entitled to vote at such meeting. The notice shall specify 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.
2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE
--------------------------------------------
Written notice of any meeting of stockholders, if mailed, is given when
deposited in the United States mail, postage prepaid, directed to the
stockholder at his address as it appears on the records of the corporation. An
affidavit of the secretary or an assistant secretary or of the transfer agent of
the corporation that the notice has been given shall, in the absence of fraud,
be prima facie evidence of the facts stated therein.
2.6 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 or by the certificate of incorporation.
If, however, such quorum is not present or represented at any meeting of the
stockholders, then the stockholders entitled to vote thereat, present in person
or represented by proxy, shall have power to adjourn the meeting from time to
time, without notice other than
<PAGE>
announcement at the meeting, until a quorum is present or represented. At such
adjourned meeting at which a quorum is present or represented, any business may
be transacted that might have been transacted at the meeting as originally
noticed.
2.7 ADJOURNED MEETING; NOTICE
-------------------------
When a meeting is adjourned to another time or place, unless these bylaws
otherwise require, notice need not be given of the adjourned meeting if the time
and place thereof are announced at the meeting at which the adjournment is
taken. At the adjourned meeting the corporation may transact any business that
might have been transacted at the original meeting. If the adjournment is for
more than thirty (30) 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.
2.8 VOTING
------
The stockholders entitled to vote at any meeting of stockholders shall be
determined in accordance with the provisions of Section 2.11 of these bylaws,
subject to the provisions of Sections 217 and 218 of the General Corporation Law
of Delaware (relating to voting rights of fiduciaries, pledgors and joint owners
of stock and to voting trusts and other voting agreements).
Except as provided in the last paragraph of this Section 2.8, or as may be
otherwise provided in the certificate of incorporation, each stockholder shall
be entitled to one vote for each share of capital stock held by such
stockholder.
2.9 WAIVER OF NOTICE
----------------
Whenever notice is required to be given under any provision of the General
Corporation Law of Delaware or of the certificate of incorporation or these
bylaws, a written waiver thereof, signed by the person entitled to notice,
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 a 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. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the stockholders need be specified in any written waiver of notice unless so
required by the certificate of incorporation or these bylaws.
2.10 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING
-------------------------------------------------------
No action shall be taken by the stockholders of the Company except at any
annual or special meeting of the stockholders called in accordance with the
Bylaws and no action shall be taken by the stockholders by written consent.
-3-
<PAGE>
2.11 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS
-----------------------------------------------------------
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
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 sixty (60) nor less than ten (10) days before the date of such
meeting, nor more than sixty (60) days prior to any other action.
If the board of directors does not so fix a record date:
(i) 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 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.
(ii) The record date for determining stockholders for any other
purpose shall be at the close of business on the day on which the board of
directors adopts the resolution relating thereto.
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.
2.12 PROXIES
-------
Each stockholder entitled to vote at a meeting of stockholders may
authorize another person or persons to act for him by a written proxy, signed by
the stockholder and filed with the secretary of the corporation, but no such
proxy shall be voted or acted upon after three (3) years from its date, unless
the proxy provides for a longer period. A proxy shall be deemed signed if the
stockholder's name is placed on the proxy (whether by manual signature,
typewriting, telegraphic transmission or otherwise) by the stockholder or the
stockholder's attorney-in-fact. The revocability of a proxy that states on its
face that it is irrevocable shall be governed by the provisions of Section
212(c) of the General Corporation Law of Delaware.
2.13 LIST OF STOCKHOLDERS ENTITLED TO VOTE
-------------------------------------
The officer who has charge of the stock ledger of a corporation shall
prepare and make, at least ten (10) days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder
-4-
<PAGE>
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 (10)
days prior to the meeting, either at a place within the city 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.
2.14 ADVANCE NOTICE OF STOCKHOLDER NOMINEES AND STOCKHOLDER BUSINESS
---------------------------------------------------------------
Subject to the rights of holders of any class or series of stock having a
preference over the Common Stock as to dividends or upon liquidation,
nominations for the election of directors and business proposed to be brought
before any stockholder meeting may be made by the board of directors or proxy
committee appointed by the board of directors or by any stockholder entitled to
vote in the election of directors generally if such nomination or business
proposed is otherwise proper business before such meeting. However, any such
stockholder may nominate one or more persons for election as directors at a
meeting or propose business to be brought before a meeting, or both, only if
such stockholder has given timely notice in proper written form of their intent
to make such nomination or nominations or to propose such business. To be
timely, such stockholder's notice must be delivered to or mailed and received at
the principal executive offices of the corporation not less than one hundred
twenty (120) calendar days in advance of the date specified in the corporation's
proxy statement released to stockholders in connection with the previous year's
annual meeting of stockholders; provided, however, that in the event that no
annual meeting was held in the previous year or the date of the annual meeting
has been changed by more than thirty (30) days from the date contemplated at the
time of the previous year's proxy statement, notice by the stockholder to be
timely must be so received a reasonable time before the solicitation is made.
To be in proper form, a stockholder's notice to the secretary shall set forth:
(i) the name and address of the stockholder who intends to make the
nominations or propose the business and, as the case may be, of the person or
persons to be nominated or of the business to be proposed;
(ii) a representation that the stockholder is a holder of record of
stock of the corporation entitled to vote at such meeting and, if applicable,
intends to appear in person or by proxy at the meeting to nominate the person or
persons specified in the notice;
(iii) if applicable, a description of all arrangements or
understandings between the 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 the stockholder;
(iv) such other information regarding each nominee or each matter of
business to be proposed by such stockholder as would be required to be included
in a proxy statement filed
-5-
<PAGE>
pursuant to the proxy rules of the Securities and Exchange Commission had the
nominee been nominated, or intended to be nominated, or the matter been
proposed, or intended to be proposed by the board of directors; and
(v) if applicable, the consent of each nominee to serve as director
of the corporation if so elected.
The chairman of the meeting shall refuse to acknowledge the nomination of
any person or the proposal of any business not made in compliance with the
foregoing procedure.
ARTICLE III
DIRECTORS
---------
3.1 POWERS
------
Subject to the provisions of the General Corporation Law of Delaware and
any limitations in the certificate of incorporation or these bylaws relating to
action required to be approved by the stockholders or by the outstanding shares,
the business and affairs of the corporation shall be managed and all corporate
powers shall be exercised by or under the direction of the board of directors.
3.2 NUMBER OF DIRECTORS
-------------------
The number of directors of the corporation shall be fixed from time to time
by duly adopted resolution of the Board of Directors, and shall initially
consist of five (5) members.
The directors shall be divided into three classes, with the term of office
of the first class, which class shall initially consist of two directors, to
expire at the annual meeting of stockholders held in 1999; the term of office of
the second class, which class shall initially consist of two directors, to
expire at the second annual meeting of stockholders held in 2000; the term of
office of the third class, which class shall initially consist of three
directors, to expire at the third annual meeting of stockholders held in 2001;
and thereafter for each such term to expire at each third succeeding annual
meeting of stockholders held after such election.
Any additional directorships resulting from an increase in the number of
directors will be distributed among the three classes set forth above so that,
as nearly as possible, each class will consist of one-third the total number of
directors.
-6-
<PAGE>
No reduction of the authorized number of directors shall have the effect of
removing any director before that director's term of office expires.
3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS
-------------------------------------------------------
Except as provided in Section 3.4 of these bylaws, directors shall be
elected at each annual meeting of stockholders to hold office until the next
annual meeting. Directors need not be stockholders unless so required by the
certificate of incorporation or these bylaws, wherein other qualifications for
directors may be prescribed. Each director, including a director elected to
fill a vacancy, shall hold office until his successor is elected and qualified
or until his earlier resignation or removal.
Elections of directors need not be by written ballot.
3.4 RESIGNATION AND VACANCIES
-------------------------
Any director may resign at any time upon written notice to the corporation.
When one or more directors so resigns and the resignation is effective at a
future date, a majority of the directors then in office, including those who
have so resigned, shall have power to fill such vacancy or vacancies, the vote
thereon to take effect when such resignation or resignations shall become
effective, and each director so chosen shall hold office as provided in this
section in the filling of other vacancies.
Unless otherwise provided in the certificate of incorporation or these
bylaws:
(i) Vacancies and newly created directorships resulting from any
increase in the authorized number of directors elected by all of the
stockholders having the right to vote as a single class may be filled by a
majority of the directors then in office, although less than a quorum, or by a
sole remaining director.
(ii) Whenever the holders of any class or classes of stock or series
thereof are entitled to elect one or more directors by the provisions of the
certificate of incorporation, vacancies and newly created directorships of such
class or classes or series may be filled by a majority of the directors elected
by such class or classes or series thereof then in office, or by a sole
remaining director so elected.
If at any time, by reason of death or resignation or other cause, the
corporation should have no directors in office, then any officer or any
stockholder or an executor, administrator, trustee or guardian of a stockholder,
or other fiduciary entrusted with like responsibility for the person or estate
of a stockholder, may call a special meeting of stockholders in accordance with
the provisions of the certificate of incorporation or these bylaws, or may apply
to the Court of Chancery for a decree summarily ordering an election as provided
in Section 211 of the General Corporation Law of Delaware.
-7-
<PAGE>
If, at the time of filling any vacancy or any newly created directorship,
the directors then in office constitute less than a majority of the whole board
(as constituted immediately prior to any such increase), then the Court of
Chancery may, upon application of any stockholder or stockholders holding at
least ten (10) percent of the total number of the shares at the time outstanding
having the right to vote for such directors, summarily order an election to be
held to fill any such vacancies or newly created directorships, or to replace
the directors chosen by the directors then in office as aforesaid, which
election shall be governed by the provisions of Section 211 of the General
Corporation Law of Delaware as far as applicable.
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE
----------------------------------------
The board of directors of the corporation may hold meetings, both regular
and special, either within or outside the State of Delaware.
Unless otherwise restricted by the certificate of incorporation or these
bylaws, members of the board of directors, or any committee designated by the
board of directors, may participate in a meeting of the board of directors, or
any committee, 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 participation in a meeting shall constitute presence in
person at the meeting.
3.6 FIRST MEETINGS
--------------
The first meeting of each newly elected board of directors shall be held at
such time and place as shall be fixed by the vote of the stockholders at the
annual meeting and no notice of such meeting shall be necessary to the newly
elected directors in order legally to constitute the meeting, provided a quorum
shall be present. In the event of the failure of the stockholders to fix the
time or place of such first meeting of the newly elected board of directors, or
in the event such meeting is not held at the time and place so fixed by the
stockholders, the meeting may be held at such time and place as shall be
specified in a notice given as hereinafter provided for special meetings of the
board of directors, or as shall be specified in a written waiver signed by all
of the directors.
3.7 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.
3.8 SPECIAL MEETINGS; NOTICE
------------------------
Special meetings of the board of directors for any purpose or purposes may
be called at any time by the chairman of the board, the president, any vice
president, the secretary or any two (2) directors.
-8-
<PAGE>
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail or
telegram, charges prepaid, addressed to each director at that director's address
as it is shown on the records of the corporation. If the notice is mailed, it
shall be deposited in the United States mail at least four (4) days before the
time of the holding of the meeting. If the notice is delivered personally or by
telephone or by telegram, it shall be delivered personally or by telephone or to
the telegraph company at least forty-eight (48) hours before the time of the
holding of the meeting. Any oral notice given personally or by telephone may
be communicated either to the director or to a person at the office of the
director who the person giving the notice has reason to believe will promptly
communicate it to the director. The notice need not specify the purpose or the
place of the meeting, if the meeting is to be held at the principal executive
office of the corporation.
3.9 QUORUM
------
At all meetings of the board of directors, a majority of the authorized
number of directors 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 statute or by the certificate of
incorporation. If a quorum is not present at any meeting of the board of
directors, then the directors present thereat may adjourn the meeting from time
to time, without notice other than announcement at the meeting, until a quorum
is present.
3.10 WAIVER OF NOTICE
----------------
Whenever notice is required to be given under any provision of the General
Corporation Law of Delaware or of the certificate of incorporation or these
bylaws, a written waiver thereof, signed by the person entitled to notice,
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 a 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. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the directors, or members of a committee of directors, need be specified in
any written waiver of notice unless so required by the certificate of
incorporation or these bylaws.
3.11 ADJOURNED MEETING; NOTICE
-------------------------
If a quorum is not present at any meeting of the board of directors, then
the directors present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum is present.
-9-
<PAGE>
3.12 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING
-------------------------------------------------
Unless otherwise restricted by the certificate of incorporation or these
bylaws, 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.
3.13 FEES AND COMPENSATION OF DIRECTORS
----------------------------------
Unless otherwise restricted by the certificate of incorporation or these
bylaws, the board of directors shall have the authority to fix the compensation
of directors.
3.14 APPROVAL OF LOANS TO OFFICERS
-----------------------------
The corporation may lend money to, or guarantee any obligation of, or
otherwise assist any officer or other employee of the corporation or of its
subsidiary, including any officer or employee who is a director of the
corporation or its subsidiary, whenever, in the judgment of the directors, such
loan, guaranty or assistance may reasonably be expected to benefit the
corporation. The loan, guaranty or other assistance may be with or without
interest and may be unsecured, or secured in such manner as the board of
directors shall approve, including, without limitation, a pledge of shares of
stock of the corporation. Nothing in this section contained shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the corporation at
common law or under any statute.
3.15 REMOVAL OF DIRECTORS
--------------------
Unless otherwise restricted by statute, by the certificate of incorporation
or by these bylaws, 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.
No reduction of the authorized number of directors shall have the effect of
removing any director prior to the expiration of such director's term of office.
ARTICLE IV
COMMITTEES
----------
4.1 COMMITTEES OF DIRECTORS
-----------------------
The board of directors may, by resolution passed by a majority of the whole
board, designate one or more committees, with 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,
-10-
<PAGE>
who may replace any absent or disqualified member at any meeting of the
committee. In the absence or disqualification of a member of a committee, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the board of directors to act at the meeting in the place of
any such absent or disqualified member. Any such committee, to the extent
provided in the resolution of the board of directors or in the bylaws of the
corporation, 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 that may require it; but no such committee shall have the power or
authority to (i) amend the certificate of incorporation (except that a committee
may, to the extent authorized in the resolution or resolutions providing for the
issuance of shares of stock adopted by the board of directors as provided in
Section 151(a) of the General Corporation Law of Delaware, fix any of the
preferences or rights of such shares relating to dividends, redemption,
dissolution, any distribution of assets of the corporation or the conversion
into, or the exchange of such shares for, shares of any other class or classes
or any other series of the same or any other class or classes of stock of the
corporation), (ii) adopt an agreement of merger or consolidation under Sections
251 or 252 of the General Corporation Law of Delaware, (iii) recommend to the
stockholders the sale, lease or exchange of all or substantially all of the
corporation's property and assets, (iv) recommend to the stockholders a
dissolution of the corporation or a revocation of a dissolution, or (v) amend
the bylaws of the corporation; and, unless the board resolution establishing the
committee, the bylaws or the certificate of incorporation expressly so provide,
no such committee shall have the power or authority to declare a dividend, to
authorize the issuance of stock, or to adopt a certificate of ownership and
merger pursuant to Section 253 of the General Corporation Law of Delaware.
4.2 COMMITTEE MINUTES
-----------------
Each committee shall keep regular minutes of its meetings and report the
same to the board of directors when required.
4.3 MEETINGS AND ACTION OF COMMITTEES
---------------------------------
Meetings and actions of committees shall be governed by, and held and taken
in accordance with, the provisions of Article III of these bylaws, Section 3.5
(place of meetings and meetings by telephone), Section 3.7 (regular meetings),
Section 3.8 (special meetings and notice), Section 3.9 (quorum), Section 3.10
(waiver of notice), Section 3.11 (adjournment and notice of adjournment), and
Section 3.12 (action without a meeting), with such changes in the context of
those bylaws as are necessary to substitute the committee and its members for
the board of directors and its members; provided, however, that the time of
regular meetings of committees may also be called by resolution of the board of
directors and that notice of special meetings of committees shall also be given
to all alternate members, who shall have the right to attend all meetings of the
committee. The board of directors may adopt rules for the government of any
committee not inconsistent with the provisions of these bylaws.
-11-
<PAGE>
ARTICLE V
OFFICERS
--------
5.1 OFFICERS
--------
The officers of the corporation shall be a president, one or more vice
presidents, a secretary, and a treasurer. The corporation may also have, at the
discretion of the board of directors, a chairman of the board, one or more
assistant vice presidents, assistant secretaries, assistant treasurers, and any
such other officers as may be appointed in accordance with the provisions of
Section 5.3 of these bylaws. Any number of offices may be held by the same
person.
5.2 ELECTION OF OFFICERS
--------------------
The officers of the corporation, except such officers as may be appointed
in accordance with the provisions of Sections 5.3 or 5.5 of these bylaws, shall
be chosen by the board of directors, subject to the rights, if any, of an
officer under any contract of employment.
5.3 SUBORDINATE OFFICERS
--------------------
The board of directors may appoint, or empower the president to appoint,
such other officers and agents as the business of the corporation may require,
each of whom shall hold office for such period, have such authority, and perform
such duties as are provided in these bylaws or as the board of directors may
from time to time determine.
5.4 REMOVAL AND RESIGNATION OF OFFICERS
-----------------------------------
Subject to the rights, if any, of an officer under any contract of
employment, any officer may be removed, either with or without cause, by an
affirmative vote of the majority of the board of directors at any regular or
special meeting of the board or, except in the case of an officer chosen by the
board of directors, by any officer upon whom such power of removal may be
conferred by the board of directors.
Any officer may resign at any time by giving written notice to the
corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless otherwise
specified in that notice, the acceptance of the resignation shall not be
necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the corporation under any contract to which the officer is a
party.
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5.5 VACANCIES IN OFFICES
--------------------
Any vacancy occurring in any office of the corporation shall be filled by
the board of directors.
5.6 CHAIRMAN OF THE BOARD
---------------------
The chairman of the board, if such an officer be elected, shall, if
present, preside at meetings of the board of directors and exercise and perform
such other powers and duties as may from time to time be assigned to him by the
board of directors or as may be prescribed by these bylaws. If there is no
president, then the chairman of the board shall also be the chief executive
officer of the corporation and shall have the powers and duties prescribed in
Section 5.7 of these bylaws.
5.7 PRESIDENT
---------
Subject to such supervisory powers, if any, as may be given by the board of
directors to the chairman of the board, if there be such an officer, the
president shall be the chief executive officer of the corporation and shall,
subject to the control of the board of directors, have general supervision,
direction, and control of the business and the officers of the corporation. He
shall preside at all meetings of the shareholders and, in the absence or
nonexistence of a chairman of the board, at all meetings of the board of
directors. He shall have the general powers and duties of management usually
vested in the office of president of a corporation and shall have such other
powers and duties as may be prescribed by the board of directors or these
bylaws.
5.8 VICE PRESIDENT
--------------
In the absence or disability of the president, the vice presidents, if any,
in order of their rank as fixed by the board of directors or, if not ranked, a
vice president designated by the board of directors, shall perform all the
duties of the president and when so acting shall have all the powers of, and be
subject to all the restrictions upon, the president. The vice presidents shall
have such other powers and perform such other duties as from time to time may be
prescribed for them respectively by the board of directors, these bylaws, the
president or the chairman of the board.
5.9 SECRETARY
---------
The secretary shall keep or cause to be kept, at the principal executive
office of the corporation or such other place as the board of directors may
direct, a book of minutes of all meetings and actions of directors, committees
of directors, and shareholders. The minutes shall show the time and place of
each meeting, whether regular or special (and, if special, how authorized and
the notice given), the names of those present at directors' meetings or
committee meetings, the number of shares present or represented at shareholders'
meetings, and the proceedings thereof.
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<PAGE>
The secretary shall keep, or cause to be kept, at the principal executive
office of the corporation or at the office of the corporation's transfer agent
or registrar, as determined by resolution of the board of directors, a share
register, or a duplicate share register, showing the names of all shareholders
and their addresses, the number and classes of shares held by each, the number
and date of certificates evidencing such shares, and the number and date of
cancellation of every certificate surrendered for cancellation.
The secretary shall give, or cause to be given, notice of all meetings of
the shareholders and of the board of directors required to be given by law or by
these bylaws. He shall keep the seal of the corporation, if one be adopted, in
safe custody and shall have such other powers and perform such other duties as
may be prescribed by the board of directors or by these bylaws.
5.10 TREASURER
---------
The treasurer shall keep and maintain, or cause to be kept and maintained,
adequate and correct books and records of accounts of the properties and
business transactions of the corporation, including accounts of its assets,
liabilities, receipts, disbursements, gains, losses, capital, retained earnings,
and shares. The books of account shall at all reasonable times be open to
inspection by any director.
The treasurer shall deposit all money and other valuables in the name and
to the credit of the corporation with such depositaries as may be designated by
the board of directors. He shall disburse the funds of the corporation as may
be ordered by the board of directors, shall render to the president and
directors, whenever they request it, an account of all of his transactions as
treasurer and of the financial condition of the corporation, and shall have such
other powers and perform such other duties as may be prescribed by the board of
directors or these bylaws.
5.11 ASSISTANT SECRETARY
-------------------
The assistant secretary, or, if there is more than one, the assistant
secretaries in the order determined by the stockholders or board of directors
(or if there be no such determination, then in the order of their election)
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 or the stockholders may from time to time prescribe.
5.12 ASSISTANT TREASURER
-------------------
The assistant treasurer, or, if there is more than one, the assistant
treasurers, in the order determined by the stockholders or board of directors
(or if there be no such determination, then in the order of their election),
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
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<PAGE>
other duties and have such other powers as the board of directors or the
stockholders may from time to time prescribe.
5.13 AUTHORITY AND DUTIES OF OFFICERS
--------------------------------
In addition to the foregoing authority and duties, all officers of the
corporation shall respectively have such authority and perform such duties in
the management of the business of the corporation as may be designated from time
to time by the board of directors or the stockholders.
ARTICLE VI
INDEMNITY
---------
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS
-----------------------------------------
The corporation shall, to the maximum extent and in the manner permitted by
the General Corporation Law of Delaware, indemnify each of its directors and
officers against expenses (including attorneys' fees), judgments, fines,
settlements, and other amounts actually and reasonably incurred in connection
with any proceeding, arising by reason of the fact that such person is or was an
agent of the corporation. For purposes of this Section 6.1, a "director" or
"officer" of the corporation includes any person (i) who is or was a director or
officer of the corporation, (ii) who is or was serving at the request of the
corporation as a director or officer of another corporation, partnership, joint
venture, trust or other enterprise, or (iii) who was a director or officer of a
corporation which was a predecessor corporation of the corporation or of another
enterprise at the request of such predecessor corporation.
6.2 INDEMNIFICATION OF OTHERS
-------------------------
The corporation shall have the power, to the extent and in the manner
permitted by the General Corporation Law of Delaware, to indemnify each of its
employees and agents (other than directors and officers) against expenses
(including attorneys' fees), judgments, fines, settlements, and other amounts
actually and reasonably incurred in connection with any proceeding, arising by
reason of the fact that such person is or was an agent of the corporation. For
purposes of this Section 6.2, an "employee" or "agent" of the corporation (other
than a director or officer) includes any person (i) who is or was an employee or
agent of the corporation, (ii) who is or was serving at the request of the
corporation as an employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, or (iii) who was an employee or agent of a
corporation which was a predecessor corporation of the corporation or of another
enterprise at the request of such predecessor corporation.
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6.3 INSURANCE
---------
The corporation may 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 and incurred by him
in any such capacity, or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such liability under
the provisions of the General Corporation Law of Delaware.
ARTICLE VII
RECORDS AND REPORTS
-------------------
7.1 MAINTENANCE AND INSPECTION OF RECORDS
-------------------------------------
The corporation shall, either at its principal executive office or at such
place or places as designated by the board of directors, keep a record of its
shareholders listing their names and addresses and the number and class of
shares held by each shareholder, a copy of these bylaws as amended to date,
accounting books, and other records.
Any stockholder of record, in person or by attorney or other agent, shall,
upon written demand under oath stating the purpose thereof, have the right
during the usual hours for business to inspect for any proper purpose the
corporation's stock ledger, a list of its stockholders, and its other books and
records and to make copies or extracts therefrom. A proper purpose shall mean a
purpose reasonably related to such person's interest as a stockholder. In every
instance where an attorney or other agent is the person who seeks the right to
inspection, the demand under oath shall be accompanied by a power of attorney or
such other writing that authorizes the attorney or other agent to so act on
behalf of the stockholder. The demand under oath shall be directed to the
corporation at its registered office in Delaware or at its principal place of
business.
The officer who has charge of the stock ledger of a corporation shall
prepare and make, at least ten (10) days before every meeting of 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 (10) days prior to
the meeting, either at a place within the city 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.
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<PAGE>
7.2 INSPECTION BY DIRECTORS
-----------------------
Any director shall have the right to examine the corporation's stock
ledger, a list of its stockholders, and its other books and records for a
purpose reasonably related to his position as a director. The Court of Chancery
is hereby vested with the exclusive jurisdiction to determine whether a director
is entitled to the inspection sought. The Court may summarily order the
corporation to permit the director to inspect any and all books and records, the
stock ledger, and the stock list and to make copies or extracts therefrom. The
Court may, in its discretion, prescribe any limitations or conditions with
reference to the inspection, or award such other and further relief as the Court
may deem just and proper.
7.3 ANNUAL STATEMENT TO STOCKHOLDERS
--------------------------------
The board of directors shall present at each annual meeting, and at any
special meeting of the stockholders when called for by vote of the stockholders,
a full and clear statement of the business and condition of the corporation.
7.4 REPRESENTATION OF SHARES OF OTHER CORPORATIONS
----------------------------------------------
The chairman of the board, the president, any vice president, the
treasurer, the secretary or assistant secretary of this corporation, or any
other person authorized by the board of directors or the president or a vice
president, is authorized to vote, represent, and exercise on behalf of this
corporation all rights incident to any and all shares of any other corporation
or corporations standing in the name of this corporation. The authority granted
herein may be exercised either by such person directly or by any other person
authorized to do so by proxy or power of attorney duly executed by such person
having the authority.
ARTICLE VIII
GENERAL MATTERS
---------------
8.1 CHECKS
------
From time to time, the board of directors shall determine by resolution
which person or persons may sign or endorse all checks, drafts, other orders for
payment of money, notes or other evidences of indebtedness that are issued in
the name of or payable to the corporation, and only the persons so authorized
shall sign or endorse those instruments.
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<PAGE>
8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS
------------------------------------------------
The board of directors, except as otherwise provided in these bylaws, may
authorize any officer or officers, or agent or agents, to enter into any
contract or execute any instrument in the name of and on behalf of the
corporation; such authority may be general or confined to specific instances.
Unless so authorized or ratified by the board of directors or within the agency
power of an officer, no officer, agent or employee shall have any power or
authority to bind the corporation by any contract or engagement or to pledge its
credit or to render it liable for any purpose or for any amount.
8.3 STOCK CERTIFICATES; PARTLY PAID SHARES
--------------------------------------
The shares of a corporation shall be represented by certificates, provided
that the board of directors of the corporation may provide by resolution or
resolutions that some or all of any or all classes or series of its stock shall
be uncertificated shares. Any such resolution shall not apply to shares
represented by a certificate until such certificate is surrendered to the
corporation. Notwithstanding the adoption of such a resolution by the board of
directors, every holder of stock represented by certificates and upon request
every holder of uncertificated shares 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 vice-president, and by the treasurer
or an assistant treasurer, or the secretary or an assistant secretary of such
corporation representing the number of shares registered in certificate form.
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 has 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 were such officer, transfer
agent or registrar at the date of issue.
The corporation may issue the whole or any part of its shares as partly
paid and subject to call for the remainder of the consideration to be paid
therefor. Upon the face or back of each stock certificate issued to represent
any such partly paid shares, upon the books and records of the corporation in
the case of uncertificated partly paid shares, the total amount of the
consideration to be paid therefor and the amount paid thereon shall be stated.
Upon the declaration of any dividend on fully paid shares, the corporation shall
declare a dividend upon partly paid shares of the same class, but only upon the
basis of the percentage of the consideration actually paid thereon.
8.4 SPECIAL DESIGNATION ON CERTIFICATES
-----------------------------------
If the corporation is authorized to issue more than one class of stock or
more than one series of any class, then the powers, the designations, the
preferences, and the relative, participating, optional or other special rights
of each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate that the corporation shall
issue to represent such class or series of stock; provided, however, that,
except as otherwise provided in Section 202 of the General
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Corporation Law of Delaware, in lieu of the foregoing requirements there may be
set forth on the face or back of the certificate that the corporation shall
issue to represent such class or series of stock a statement that the
corporation will furnish without charge to each stockholder who so requests the
powers, the designations, the preferences, and the relative, participating,
optional or other special rights of each class of stock or series thereof and
the qualifications, limitations or restrictions of such preferences and/or
rights.
8.5 LOST CERTIFICATES
-----------------
Except as provided in this Section 8.5, no new certificates for shares
shall be issued to replace a previously issued certificate unless the latter is
surrendered to the corporation and cancelled at the same time. The corporation
may issue a new certificate of stock or uncertificated shares in the place of
any certificate theretofore issued by it, alleged to have been lost, stolen or
destroyed, and the corporation may require the owner of the lost, stolen or
destroyed certificate, or his legal representative, to give the corporation a
bond sufficient to indemnify it against any claim that may be made against it on
account of the alleged loss, theft or destruction of any such certificate or the
issuance of such new certificate or uncertificated shares.
8.6 CONSTRUCTION; DEFINITIONS
-------------------------
Unless the context requires otherwise, the general provisions, rules of
construction, and definitions in the Delaware General Corporation Law shall
govern the construction of these bylaws. Without limiting the generality of
this provision, the singular number includes the plural, the plural number
includes the singular, and the term "person" includes both a corporation and a
natural person.
8.7 DIVIDENDS
---------
The directors of the corporation, subject to any restrictions contained in
the certificate of incorporation, may declare and pay dividends upon the shares
of its capital stock pursuant to the General Corporation Law of Delaware.
Dividends may be paid in cash, in property, or in shares of the corporation's
capital stock.
The directors of the corporation may set apart out of any of the funds of
the corporation available for dividends a reserve or reserves for any proper
purpose and may abolish any such reserve. Such purposes shall include but not be
limited to equalizing dividends, repairing or maintaining any property of the
corporation, and meeting contingencies.
8.8 FISCAL YEAR
-----------
The fiscal year of the corporation shall be fixed by resolution of the
board of directors and may be changed by the board of directors.
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8.9 SEAL
----
The corporation may adopt a corporate seal, which shall be adopted and
which may be altered by the board of directors, and may use the same by causing
it or a facsimile thereof to be impressed or affixed or in any manner
reproduced.
8.10 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, assignation or authority to 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 in its books.
8.11 STOCK TRANSFER AGREEMENTS
-------------------------
The corporation shall have power to enter into and perform any agreement
with any number of shareholders of any one or more classes of stock of the
corporation to restrict the transfer of shares of stock of the corporation of
any one or more classes owned by such stockholders in any manner not prohibited
by the General Corporation Law of Delaware.
8.12 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, shall be entitled to hold liable for calls and
assessments the 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 another person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
ARTICLE IX
AMENDMENTS
----------
The original or other bylaws of the corporation may be adopted, amended or
repealed by the stockholders entitled to vote; provided, however, that the
corporation may, in its certificate of incorporation, confer the power to adopt,
amend or repeal bylaws upon the directors. The fact that such power has been so
conferred upon the directors shall not divest the stockholders of the power, nor
limit their power to adopt, amend or repeal bylaws.
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ARTICLE X
DISSOLUTION
-----------
If it should be deemed advisable in the judgment of the board of directors
of the corporation that the corporation should be dissolved, the board, after
the adoption of a resolution to that effect by a majority of the whole board at
any meeting called for that purpose, shall cause notice to be mailed to each
stockholder entitled to vote thereon of the adoption of the resolution and of a
meeting of stockholders to take action upon the resolution.
At the meeting a vote shall be taken for and against the proposed
dissolution. If a majority of the outstanding stock of the corporation entitled
to vote thereon votes for the proposed dissolution, then a certificate stating
that the dissolution has been authorized in accordance with the provisions of
Section 275 of the General Corporation Law of Delaware and setting forth the
names and residences of the directors and officers shall be executed,
acknowledged, and filed and shall become effective in accordance with Section
103 of the General Corporation Law of Delaware. Upon such certificate's
becoming effective in accordance with Section 103 of the General Corporation Law
of Delaware, the corporation shall be dissolved.
Whenever all the stockholders entitled to vote on a dissolution consent in
writing, either in person or by duly authorized attorney, to a dissolution, no
meeting of directors or stockholders shall be necessary. The consent shall be
filed and shall become effective in accordance with Section 103 of the General
Corporation Law of Delaware. Upon such consent's becoming effective in
accordance with Section 103 of the General Corporation Law of Delaware, the
corporation shall be dissolved. If the consent is signed by an attorney, then
the original power of attorney or a photocopy thereof shall be attached to and
filed with the consent. The consent filed with the Secretary of State shall
have attached to it the affidavit of the secretary or some other officer of the
corporation stating that the consent has been signed by or on behalf of all the
stockholders entitled to vote on a dissolution; in addition, there shall be
attached to the consent a certification by the secretary or some other officer
of the corporation setting forth the names and residences of the directors and
officers of the corporation.
ARTICLE XI
CUSTODIAN
---------
11.1 APPOINTMENT OF A CUSTODIAN IN CERTAIN CASES
-------------------------------------------
The Court of Chancery, upon application of any stockholder, may appoint one
or more persons to be custodians and, if the corporation is insolvent, to be
receivers, of and for the corporation when:
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(i) at any meeting held for the election of directors the
stockholders are so divided that they have failed to elect successors to
directors whose terms have expired or would have expired upon qualification of
their successors; or
(ii) the business of the corporation is suffering or is threatened
with irreparable injury because the directors are so divided respecting the
management of the affairs of the corporation that the required vote for action
by the board of directors cannot be obtained and the stockholders are unable to
terminate this division; or
(iii) the corporation has abandoned its business and has failed
within a reasonable time to take steps to dissolve, liquidate or distribute its
assets.
11.2 DUTIES OF CUSTODIAN
-------------------
The custodian shall have all the powers and title of a receiver appointed
under Section 291 of the General Corporation Law of Delaware, but the authority
of the custodian shall be to continue the business of the corporation and not
to liquidate its affairs and distribute its assets, except when the Court of
Chancery otherwise orders and except in cases arising under Sections 226(a)(3)
or 352(a)(2) of the General Corporation Law of Delaware.
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WILSON SONSINI & ROSATI
Professional Corporation
650 Page Mill Road
Palo Alto, California 94304-1050
Telephone (650) 493-9300 Facsimile (650) 493-6811
April 16, 1998
Inktomi Corporation
1900 S. Norfolk Street, Suite 310
San Mateo, California 94403
RE: REGISTRATION STATEMENT ON FORM S-1
Ladies and Gentlemen:
We have examined the Registration Statement on Form S-1 to be filed by you
with the Securities and Exchange Commission on April 16, 1998 (the "Registration
Statement") in connection with the registration under the Securities Act of
1933, as amended, of 2,200,000 Shares of Common Stock of Inktomi Corporation
(the "Shares"). As your counsel in connection with this transaction, we have
examined the proceedings proposed to be taken in connection with said sale and
issuance of the Shares.
It is our opinion that, upon completion of the proceedings being taken or
contemplated by us, as your counsel, to be taken prior to the issuance of the
Shares, and upon completion of the proceedings being taken in order to permit
such transactions to be carried out in accordance with the securities laws of
various states, where required, the Shares when issued and sold in the manner
referred to in the Registration Statement will be legally and validly issued,
fully paid and nonassessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement, and further consent to the use of our name wherever appearing in the
Registration Statement, including the prospectus constituting a part thereof,
and any amendment thereto.
Very truly yours,
WILSON, SONSINI, GOODRICH & ROSATI
Professional Corporation
<PAGE>
EXHIBIT 10.1
INKTOMI CORPORATION
INDEMNIFICATION AGREEMENT
This Indemnification Agreement ("Agreement") is effective as of
_______________, 1998, by and between Inktomi Corporation, a Delaware
corporation (the "Company"), and ______________________________ ("Indemnitee").
WHEREAS, the Company desires to attract and retain the services of highly
qualified individuals, such as Indemnitee, to serve the Company and its related
entities;
WHEREAS, in order to induce Indemnitee to continue to provide services to
the Company, the Company wishes to provide for the indemnification of, and
advancement of expenses to, Indemnitee to the maximum extent permitted by law;
WHEREAS, Indemnitee does not regard the current protection available as
adequate under the present circumstances, and the Indemnitee and other
directors, officers, employees, agents and fiduciaries of the Company may not be
willing to continue to serve in such capacities without additional protection;
WHEREAS, the Company and Indemnitee recognize the continued difficulty in
obtaining liability insurance for the Company's directors, officers, employees,
agents and fiduciaries, the significant increases in the cost of such insurance
and the general reductions in the coverage of such insurance;
WHEREAS, the Company and Indemnitee further recognize the substantial
increase in corporate litigation in general, subjecting directors, officers,
employees, agents and fiduciaries to expensive litigation risks at the same time
as the availability and coverage of liability insurance has been severely
limited; and
WHEREAS, in view of the considerations set forth above, the Company desires
that Indemnitee shall be indemnified by the Company as set forth herein;
NOW, THEREFORE, the Company and Indemnitee hereby agree as set forth below.
1. Certain Definitions.
-------------------
(a) "Change in Control" shall mean, and shall be deemed to have
occurred if, on or after the date of this Agreement, (i) any "person" (as such
term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934,
as amended), other than a trustee or other fiduciary holding securities under an
employee benefit plan of the Company acting in such capacity or a corporation
<PAGE>
owned directly or indirectly by the stockholders of the Company in substantially
the same proportions as their ownership of stock of the Company, becomes the
"beneficial owner" (as defined in Rule 13d-3 under said Act), directly or
indirectly, of securities of the Company representing more than 50% of the total
voting power represented by the Company's then outstanding Voting Securities,
(ii) during any period of two consecutive years, individuals who at the
beginning of such period constitute the Board of Directors of the Company and
any new director whose election by the Board of Directors or nomination for
election by the Company's stockholders was approved by a vote of at least two
thirds (2/3) of the directors then still in office who either were directors at
the beginning of the period or whose election or nomination for election was
previously so approved, cease for any reason to constitute a majority thereof,
or (iii) the stockholders of the Company approve a merger or consolidation of
the Company with any other corporation other than a merger or consolidation
which would result in the Voting Securities of the Company outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into Voting Securities of the surviving
entity) at least 80% of the total voting power represented by the Voting
Securities of the Company or such surviving entity outstanding immediately after
such merger or consolidation, or the stockholders of the Company approve a plan
of complete liquidation of the Company or an agreement for the sale or
disposition by the Company of (in one transaction or a series of related
transactions) all or substantially all of the Company's assets.
(b) "Claim" shall mean any threatened, pending or completed action,
suit, proceeding or alternative dispute resolution mechanism, or any hearing,
inquiry or investigation that Indemnitee in good faith believes might lead to
the institution of any such action, suit, proceeding or alternative dispute
resolution mechanism, whether civil, criminal, administrative, investigative or
other.
(c) References to the "Company" shall include, in addition to Inktomi
Corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger to which Inktomi Corporation
(or any of its wholly owned subsidiaries) is a party which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers, employees, agents or fiduciaries, so that if Indemnitee is
or was a director, officer, employee, agent or fiduciary of such constituent
corporation, or is or was serving at the request of such constituent corporation
as a director, officer, employee, agent or fiduciary of another corporation,
partnership, joint venture, employee benefit plan, trust or other enterprise,
Indemnitee shall stand in the same position under the provisions of this
Agreement with respect to the resulting or surviving corporation as Indemnitee
would have with respect to such constituent corporation if its separate
existence had continued.
(d) "Expenses" shall mean any and all expenses (including attorneys'
fees and all other costs, expenses and obligations incurred in connection with
investigating, defending, being a witness in or participating in (including on
appeal), or preparing to defend, to be a witness in or to participate in, any
action, suit, proceeding, alternative dispute resolution mechanism, hearing,
inquiry or investigation), judgments, fines, penalties and amounts paid in
settlement (if such
2
<PAGE>
settlement is approved in advance by the Company, which approval shall not be
unreasonably withheld) of any Claim regarding any Indemnifiable Event and any
federal, state, local or foreign taxes imposed on the Indemnitee as a result of
the actual or deemed receipt of any payments under this Agreement.
(e) "Expense Advance" shall mean an advance payment of Expenses to
Indemnitee pursuant to Section 3(a).
(f) "Indemnifiable Event" shall mean any event or occurrence related
to the fact that Indemnitee is or was a director, officer, employee, agent or
fiduciary of the Company, or any subsidiary of the Company, or is or was serving
at the request of the Company as a director, officer, employee, agent or
fiduciary of another corporation, partnership, joint venture, trust or other
enterprise, or by reason of any action or inaction on the part of Indemnitee
while serving in such capacity.
(g) "Independent Legal Counsel" shall mean an attorney or firm of
attorneys, selected in accordance with the provisions of Section 2(c) hereof,
who shall not have otherwise performed services for the Company or Indemnitee
within the last three years (other than with respect to matters concerning the
rights of Indemnitee under this Agreement, or of other indemnitees under similar
indemnity agreements).
(h) References to "other enterprises" shall include employee benefit
plans; references to "fines" shall include any excise taxes assessed on
Indemnitee with respect to an employee benefit plan; and references to "serving
at the request of the Company" shall include any service as a director, officer,
employee, agent or fiduciary of the Company which imposes duties on, or involves
services by, such director, officer, employee, agent or fiduciary with respect
to an employee benefit plan, its participants or its beneficiaries; and if
Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to
be in the interest of the participants and beneficiaries of an employee benefit
plan, Indemnitee shall be deemed to have acted in a manner "not opposed to the
best interests of the Company" as referred to in this Agreement.
(i) "Reviewing Party" shall mean any appropriate person or body
consisting of a member or members of the Company's Board of Directors or any
other person or body appointed by the Board of Directors who is not a party to
the particular Claim for which Indemnitee is seeking indemnification, or
Independent Legal Counsel.
(j) "Voting Securities" shall mean any securities of the Company that
vote generally in the election of directors.
2. Indemnification.
---------------
(a) Indemnification of Expenses. The Company shall indemnify
---------------------------
Indemnitee to the fullest extent permitted by law if Indemnitee was or is or
becomes a party to or witness or other participant in, or is threatened to be
made a party to or witness or other
3
<PAGE>
participant in, any Claim by reason of (or arising in part out of) any
Indemnifiable Event against Expenses, including all interest, assessments and
other charges paid or payable in connection with or in respect of such Expenses.
Such payment of Expenses shall be made by the Company as soon as practicable but
in any event no later than five (5) business days after written demand by
Indemnitee therefor is presented to the Company.
(b) Reviewing Party. Notwithstanding the foregoing, (i) the
---------------
obligations of the Company under Section 2(a) shall be subject to the condition
that the Reviewing Party shall not have determined (in a written opinion, in any
case in which the Independent Legal Counsel referred to in Section 2(c) hereof
is involved) that Indemnitee would not be permitted to be indemnified under
applicable law, and (ii) the obligation of the Company to make an Expense
Advance shall be subject to the condition that, if, when and to the extent that
the Reviewing Party determines that Indemnitee would not be permitted to be so
indemnified under applicable law, the Company shall be entitled to be reimbursed
by Indemnitee (who hereby agrees to reimburse the Company) for all such amounts
theretofore paid; provided, however, that if Indemnitee has commenced or
-------- -------
thereafter commences legal proceedings in a court of competent jurisdiction to
secure a determination that Indemnitee should be indemnified under applicable
law, any determination made by the Reviewing Party that Indemnitee would not be
permitted to be indemnified under applicable law shall not be binding and
Indemnitee shall not be required to reimburse the Company for any Expense
Advance until a final judicial determination is made with respect thereto (as to
which all rights of appeal therefrom have been exhausted or lapsed).
Indemnitee's obligation to reimburse the Company for any Expense Advance shall
be unsecured and no interest shall be charged thereon. If there has not been a
Change in Control, the Reviewing Party shall be selected by the Board of
Directors, and if there has been such a Change in Control (other than a Change
in Control which has been approved by a majority of the Company's Board of
Directors who were directors immediately prior to such Change in Control), the
Reviewing Party shall be the Independent Legal Counsel. If there has been no
determination by the Reviewing Party or if the Reviewing Party determines that
Indemnitee substantively would not be permitted to be indemnified in whole or in
part under applicable law, Indemnitee shall have the right to commence
litigation seeking an initial determination by the court or challenging any such
determination by the Reviewing Party or any aspect thereof, including the legal
or factual bases therefor, and the Company hereby consents to service of process
and to appear in any such proceeding. Absent such litigation, any determination
by the Reviewing Party shall be conclusive and binding on the Company and
Indemnitee.
(c) Change in Control. The Company agrees that if there is a Change
-----------------
in Control of the Company (other than a Change in Control which has been
approved by a majority of the Company's Board of Directors who were directors
immediately prior to such Change in Control), then with respect to all matters
thereafter arising concerning the rights of Indemnitee to payments of Expenses
and Expense Advances under this Agreement or any other agreement or under the
Company's Certificate of Incorporation or Bylaws as now or hereafter in effect,
Independent Legal Counsel, if desired by Indemnitee, shall be selected by
Indemnitee and approved by the Company (which approval shall not be unreasonably
withheld). Such counsel, among other things, shall render
4
<PAGE>
its written opinion to the Company and Indemnitee as to whether and to what
extent Indemnitee would be permitted to be indemnified under applicable law and
the Company agrees to abide by such opinion. The Company agrees to pay the
reasonable fees of the Independent Legal Counsel referred to above and to
indemnify fully such counsel against any and all expenses (including attorneys'
fees), claims, liabilities and damages arising out of or relating to this
Agreement or its engagement pursuant hereto. Notwithstanding any other provision
of this Agreement, the Company shall not be required to pay Expenses of more
than one Independent Legal Counsel in connection with all matters concerning a
single Indemnitee, and such Independent Legal Counsel shall be the Independent
Legal Counsel for any or all other Indemnitees unless (i) the Company otherwise
determines or (ii) any Indemnitee shall provide a written statement setting
forth in detail a reasonable objection to such Independent Legal Counsel
representing other Indemnitees.
(d) Mandatory Payment of Expenses. Notwithstanding any other
-----------------------------
provision of this Agreement other than Section 10 hereof, to the extent that
Indemnitee has been successful on the merits or otherwise, including, without
limitation, the dismissal of an action without prejudice, in defense of any
Claim regarding any Indemnifiable Event, Indemnitee shall be indemnified against
all Expenses incurred by Indemnitee in connection therewith.
3. Expenses; Indemnification Procedure.
-----------------------------------
(a) Advancement of Expenses. The Company shall advance all Expenses
-----------------------
incurred by Indemnitee. The advances to be made hereunder shall be paid by the
Company to Indemnitee as soon as practicable but in any event no later than five
(5) business days after written demand by Indemnitee therefor to the Company.
Expenses incurred in defending any proceeding may be advanced by the Company
prior to the final disposition of the proceeding upon receipt of an undertaking
by or on behalf of Indemnitee to repay the Expenses incurred, if it shall be
determined ultimately that Indemnitee is not entitled to be indemnified.
(b) Notice/Cooperation by Indemnitee. Indemnitee shall, as a
--------------------------------
condition precedent to Indemnitee's right to be indemnified under this
Agreement, give the Company notice in writing as soon as practicable of any
Claim made against Indemnitee for which indemnification will or could be sought
under this Agreement. Notice to the Company shall be directed to the Chief
Executive Officer of the Company at the address shown on the signature page of
this Agreement (or such other address as the Company shall designate in writing
to Indemnitee). In addition, Indemnitee shall give the Company such information
and cooperation as it may reasonably require and as shall be within Indemnitee's
power.
(c) No Presumptions; Burden of Proof. For purposes of this Agreement,
--------------------------------
the termination of any Claim by judgment, order, settlement (whether with or
without court approval) or conviction, or upon a plea of nolo contendere, or its
---------------
equivalent, shall not create a presumption that Indemnitee did not meet any
particular standard of conduct or have any particular belief or that a court has
determined that indemnification is not permitted by applicable law. In
addition, neither the failure of the Reviewing Party to have made a
determination as to whether Indemnitee has met
5
<PAGE>
any particular standard of conduct or had any particular belief, nor an actual
determination by the Reviewing Party that Indemnitee has not met such standard
of conduct or did not have such belief, prior to the commencement of legal
proceedings by Indemnitee to secure a judicial determination that Indemnitee
should be indemnified under applicable law, shall be a defense to Indemnitee's
claim or create a presumption that Indemnitee has not met any particular
standard of conduct or did not have any particular belief.
(d) Notice to Insurers. If, at the time of the receipt by the Company
------------------
of a notice of a Claim pursuant to Section 3(b) hereof, the Company has
liability insurance in effect which may cover such Claim, the Company shall give
prompt notice of the commencement of such Claim to the insurers in accordance
with the procedures set forth in the respective policies. The Company shall
thereafter take all necessary or desirable action to cause such insurers to pay,
on behalf of the Indemnitee, all amounts payable as a result of such Claim in
accordance with the terms of such policies.
(e) Selection of Counsel. In the event the Company shall be obligated
--------------------
hereunder to pay the Expenses of any Claim, the Company, if appropriate, shall
be entitled to assume the defense of such Claim with counsel approved by
Indemnitee (not to be unreasonably withheld) upon the delivery to Indemnitee of
written notice of the Company's election so to do. After delivery of such
notice, approval of such counsel by Indemnitee and the retention of such counsel
by the Company, the Company will not be liable to Indemnitee under this
Agreement for any fees of counsel subsequently incurred by Indemnitee with
respect to the same Claim; provided that, (i) Indemnitee shall have the right to
employ Indemnitee's separate counsel in any such Claim at Indemnitee's expense
and (ii) if (A) the employment of separate counsel by Indemnitee has been
previously authorized by the Company, (B) Indemnitee shall have reasonably
concluded that there may be a conflict of interest between the Company and
Indemnitee in the conduct of any such defense, or (C) the Company shall not
continue to retain such counsel to defend such Claim, then the fees and expenses
of Indemnitee's separate counsel shall be at the expense of the Company.
4. Additional Indemnification Rights; Nonexclusivity.
-------------------------------------------------
(a) Scope. The Company hereby agrees to indemnify the Indemnitee to
-----
the fullest extent permitted by law, notwithstanding that such indemnification
is not specifically authorized by the other provisions of this Agreement, the
Company's Certificate of Incorporation, the Company's Bylaws or by statute. In
the event of any change after the date of this Agreement in any applicable law,
statute or rule which expands the right of a Delaware corporation to indemnify a
member of its board of directors or an officer, employee, agent or fiduciary, it
is the intent of the parties hereto that Indemnitee shall enjoy by this
Agreement the greater benefits afforded by such change. In the event of any
change in any applicable law, statute or rule which narrows the right of a
Delaware corporation to indemnify a member of its board of directors or an
officer, employee, agent or fiduciary, such change, to the extent not otherwise
required by such law, statute or rule to be applied to this Agreement, shall
have no effect on this Agreement or the parties' rights and obligations
hereunder except as set forth in Section 9(a) hereof.
6
<PAGE>
(b) Nonexclusivity. The indemnification provided by this Agreement
--------------
shall be in addition to any rights to which Indemnitee may be entitled under the
Company's Certificate of Incorporation, its Bylaws, any other agreement, any
vote of stockholders or disinterested directors, the General Corporation Law of
the State of Delaware, or otherwise. The indemnification provided under this
Agreement shall continue as to Indemnitee for any action taken or not taken
while serving in an indemnified capacity even though Indemnitee may have ceased
to serve in such capacity.
5. No Duplication of Payments. The Company shall not be liable under this
--------------------------
Agreement to make any payment in connection with any Claim made against
Indemnitee to the extent Indemnitee has otherwise actually received payment
(under any insurance policy, provision of the Company's Certificate of
Incorporation, bylaw or otherwise) of the amounts otherwise indemnifiable
hereunder.
6. Partial Indemnification. If Indemnitee is entitled under any provision
-----------------------
of this Agreement to indemnification by the Company for some or a portion of
Expenses incurred in connection with any Claim, but not, however, for all of the
total amount thereof, the Company shall nevertheless indemnify Indemnitee for
the portion of such Expenses to which Indemnitee is entitled.
7. Mutual Acknowledgment. Both the Company and Indemnitee acknowledge
---------------------
that in certain instances, federal law or applicable public policy may prohibit
the Company from indemnifying its directors, officers, employees, agents or
fiduciaries under this Agreement or otherwise. Indemnitee understands and
acknowledges that the Company has undertaken or may be required in the future to
undertake with the Securities and Exchange Commission to submit the question of
indemnification to a court in certain circumstances for a determination of the
Company's right under public policy to indemnify Indemnitee.
8. Liability Insurance. To the extent the Company maintains liability
-------------------
insurance applicable to directors, officers, employees, agents or fiduciaries,
Indemnitee shall be covered by such policies in such a manner as to provide
Indemnitee the same rights and benefits as are provided to the most favorably
insured of the Company's directors, if Indemnitee is a director; or of the
Company's officers, if Indemnitee is not a director of the Company but is an
officer; or of the Company's key employees, agents or fiduciaries, if Indemnitee
is not an officer or director but is a key employee, agent or fiduciary.
9. Exceptions. Notwithstanding any other provision of this Agreement, the
----------
Company shall not be obligated pursuant to the terms of this Agreement:
(a) Excluded Action or Omissions. To indemnify Indemnitee for acts,
----------------------------
omissions or transactions from which Indemnitee may not be relieved of liability
under applicable law.
(b) Claims Initiated by Indemnitee. To indemnify or advance expenses
------------------------------
to Indemnitee with respect to Claims initiated or brought voluntarily by
Indemnitee and not by way of
7
<PAGE>
defense, except (i) with respect to actions or proceedings brought to establish
or enforce a right to indemnification under this Agreement or any other
agreement or insurance policy or under the Company's Certificate of
Incorporation or Bylaws now or hereafter in effect relating to Claims for
Indemnifiable Events, (ii) in specific cases if the Board of Directors has
approved the initiation or bringing of such Claim, or (iii) as otherwise
required under Section 145 of the Delaware General Corporation Law, regardless
of whether Indemnitee ultimately is determined to be entitled to such
indemnification, advance expense payment or insurance recovery, as the case may
be.
(c) Lack of Good Faith. To indemnify Indemnitee for any expenses
------------------
incurred by the Indemnitee with respect to any proceeding instituted by
Indemnitee to enforce or interpret this Agreement, if a court of competent
jurisdiction determines that each of the material assertions made by the
Indemnitee in such proceeding was not made in good faith or was frivolous.
(d) Claims Under Section 16(b). To indemnify Indemnitee for expenses
--------------------------
and the payment of profits arising from the purchase and sale by Indemnitee of
securities in violation of Section 16(b) of the Securities Exchange Act of 1934,
as amended, or any similar successor statute.
10. Period of Limitations. No legal action shall be brought and no cause
---------------------
of action shall be asserted by or in the right of the Company against
Indemnitee, Indemnitee's estate, spouse, heirs, executors or personal or legal
representatives after the expiration of two years from the date of accrual of
such cause of action, and any claim or cause of action of the Company shall be
extinguished and deemed released unless asserted by the timely filing of a legal
action within such two-year period; provided, however, that if any shorter
-------- -------
period of limitations is otherwise applicable to any such cause of action, such
shorter period shall govern.
11. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall constitute an original.
12. Binding Effect; Successors and Assigns. This Agreement shall be
--------------------------------------
binding upon and inure to the benefit of and be enforceable by the parties
hereto and their respective successors, assigns (including any direct or
indirect successor by purchase, merger, consolidation or otherwise to all or
substantially all of the business or assets of the Company), spouses, heirs and
personal and legal representatives. The Company shall require and cause any
successor (whether direct or indirect, and whether by purchase, merger,
consolidation or otherwise) to all, substantially all, or a substantial part, of
the business or assets of the Company, by written agreement in form and
substance satisfactory to Indemnitee, expressly to assume and agree to perform
this Agreement in the same manner and to the same extent that the Company would
be required to perform if no such succession had taken place. This Agreement
shall continue in effect regardless of whether Indemnitee continues to serve as
a director, officer, employee, agent or fiduciary (as applicable) of the Company
or of any other enterprise at the Company's request.
13. Attorneys' Fees. In the event that any action is instituted by
---------------
Indemnitee under this Agreement or under any liability insurance policies
maintained by the Company to enforce or
8
<PAGE>
interpret any of the terms hereof or thereof, Indemnitee shall be entitled to be
paid all Expenses incurred by Indemnitee with respect to such action, regardless
of whether Indemnitee is ultimately successful in such action, and shall be
entitled to the advancement of Expenses with respect to such action, unless as a
part of such action a court of competent jurisdiction over such action
determines that each of the material assertions made by Indemnitee as a basis
for such action were not made in good faith or were frivolous. In the event of
an action instituted by or in the name of the Company under this Agreement to
enforce or interpret any of the terms of this Agreement, Indemnitee shall be
entitled to be paid all Expenses incurred by Indemnitee in defense of such
action (including costs and expenses incurred with respect to Indemnitee's
counterclaims and cross-claims made in such action), and shall be entitled to
the advancement of Expenses with respect to such action, unless as a part of
such action a court having jurisdiction over such action determines that each of
Indemnitee's material defenses to such action were made in bad faith or were
frivolous.
14. Notice. All notices, requests, demands and other communications under
------
this Agreement shall be in writing and shall be deemed duly given (i) if
delivered by hand and signed for by the party addressed, on the date of such
delivery, or (ii) if mailed by domestic certified or registered mail with
postage prepaid, on the third business day after the date postmarked. Addresses
for notice to either party are as shown on the signature page of this Agreement,
or as subsequently modified by written notice.
15. Consent to Jurisdiction. The Company and Indemnitee each hereby
-----------------------
irrevocably consent to the jurisdiction of the courts of the State of Delaware
for all purposes in connection with any action or proceeding which arises out of
or relates to this Agreement and agree that any action instituted under this
Agreement shall be commenced, prosecuted and continued only in the Court of
Chancery of the State of Delaware in and for New Castle County, which shall be
the exclusive and only proper forum for adjudicating such a claim.
16. Severability. The provisions of this Agreement shall be severable in
------------
the event that any of the provisions hereof (including any provision within a
single section, paragraph or sentence) are held by a court of competent
jurisdiction to be invalid, void or otherwise unenforceable, and the remaining
provisions shall remain enforceable to the fullest extent permitted by law.
Furthermore, to the fullest extent possible, the provisions of this Agreement
(including, without limitations, each portion of this Agreement containing any
provision held to be invalid, void or otherwise unenforceable, that is not
itself invalid, void or unenforceable) shall be construed so as to give effect
to the intent manifested by the provision held invalid, illegal or
unenforceable.
17. Choice of Law. This Agreement shall be governed by and its provisions
-------------
construed and enforced in accordance with the laws of the State of Delaware as
applied to contracts between Delaware residents entered into and to be performed
entirely within the State of Delaware.
9
<PAGE>
18. Subrogation. In the event of payment under this Agreement, the
-----------
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of Indemnitee, who shall execute all documents required and shall do
all acts that may be necessary to secure such rights and to enable the Company
effectively to bring suit to enforce such rights.
19. Amendment and Termination. No amendment, modification, termination or
-------------------------
cancellation of this Agreement shall be effective unless it is in writing signed
by both the parties hereto. No waiver of any of the provisions of this
Agreement shall be deemed to be or shall constitute a waiver of any other
provisions hereof (whether or not similar), nor shall such waiver constitute a
continuing waiver.
20. Integration and Entire Agreement. This Agreement sets forth the
--------------------------------
entire understanding between the parties hereto and supersedes and merges all
previous written and oral negotiations, commitments, understandings and
agreements relating to the subject matter hereof between the parties hereto.
21. No Construction as Employment Agreement. Nothing contained in this
---------------------------------------
Agreement shall be construed as giving Indemnitee any right to be retained in
the employ of the Company or any of its subsidiaries or affiliated entities.
IN WITNESS WHEREOF, the parties hereto have executed this Indemnification
Agreement as of the date first above written.
INKTOMI CORPORATION INDEMNITEE
By:________________________________ ________________________________
(signature)
Title:_____________________________
________________________________
Address: 1900 S. Norfolk Street, (name of Indemnitee)
Suite 350 San Mateo,
CA 94403
________________________________
(address)
________________________________
10
<PAGE>
EXHIBIT 10.2
INKTOMI CORPORATION
1998 STOCK PLAN
1. Purposes of the Plan. The purposes of this Stock Plan are (i) to
--------------------
attract and retain the best available personnel for positions of substantial
responsibility, (ii) to provide additional incentive to Employees, Directors and
Consultants, and (iii) to promote the success of the Company's business.
Options granted under the Plan may be Incentive Stock Options or Nonstatutory
Stock Options, as determined by the Administrator at the time of grant. Stock
Purchase Rights may also be granted under the Plan.
2. Definitions. As used herein, the following definitions shall apply:
-----------
(a) "Administrator" means the Board or any of its Committees as shall
-------------
be administering the Plan, in accordance with Section 4 of the Plan.
(b) "Applicable Laws" means the requirements relating to the
---------------
administration of stock option plans under U. S. state corporate laws, U.S.
federal and state securities laws, the Code, any stock exchange or quotation
system on which the Common Stock is listed or quoted and the applicable laws of
any foreign country or jurisdiction where Options or Stock Purchase Rights are,
or will be, granted under the Plan.
(c) "Board" means the Board of Directors of the Company.
-----
(d) "Code" means the Internal Revenue Code of 1986, as amended.
----
(e) "Committee" means a committee of Directors appointed by the Board
---------
in accordance with Section 4 of the Plan.
(f) "Common Stock" means the common stock of the Company.
------------
(g) "Company" means Inktomi Corporation.
-------
(h) "Consultant" means any person, including an advisor, engaged by
----------
the Company or a Parent or Subsidiary to render services to such entity.
(i) "Director" means a member of the Board.
--------
(j) "Disability" means total and permanent disability as defined in
----------
Section 22(e)(3) of the Code.
(k) "Employee" means any person, including Officers and Directors,
--------
employed by the Company or any Parent or Subsidiary of the Company. A Service
Provider shall not cease to be an Employee in the case of (i) any leave of
absence approved by the Company or
<PAGE>
(ii) transfers between locations of the Company or between the Company, its
Parent, any Subsidiary, or any successor. For purposes of Incentive Stock
Options, no such leave may exceed ninety days, unless reemployment upon
expiration of such leave is guaranteed by statute or contract. If reemployment
upon expiration of a leave of absence approved by the Company is not so
guaranteed, on the 181st day of such leave any Incentive Stock Option held by
the Optionee shall cease to be treated as an Incentive Stock Option and shall be
treated for tax purposes as a Nonstatutory Stock Option. Neither service as a
Director nor payment of a director's fee by the Company shall be sufficient to
constitute "employment" by the Company.
(l) "Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended.
(m) "Fair Market Value" means, as of any date, the value of Common
-----------------
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the time of determination, as reported in
The Wall Street Journal or such other source as the Administrator deems
reliable;
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a Share of Common Stock shall be the mean between the high bid and low asked
prices for the Common Stock on the last market trading day prior to the day of
determination, as reported in The Wall Street Journal or such other source as
the Administrator deems reliable; or
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value shall be determined in good faith by the
Administrator.
(n) "Incentive Stock Option" means an Option intended to qualify as an
----------------------
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(o) "Nonstatutory Stock Option" means an Option not intended to
-------------------------
qualify as an Incentive Stock Option.
(p) "Notice of Grant" means a written or electronic notice evidencing
---------------
certain terms and conditions of an individual Option or Stock Purchase Right
grant. The Notice of Grant is part of the Option Agreement.
(q) "Officer" means a person who is an officer of the Company within
-------
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
2
<PAGE>
(r) "Option" means a stock option granted pursuant to the Plan.
------
(s) "Option Agreement" means an agreement between the Company and an
----------------
Optionee evidencing the terms and conditions of an individual Option grant. The
Option Agreement is subject to the terms and conditions of the Plan.
(t) "Option Exchange Program" means a program whereby outstanding
-----------------------
Options are surrendered in exchange for Options with a lower exercise price.
(u) "Optioned Stock" means the Common Stock subject to an Option or
--------------
Stock Purchase Right.
(v) "Optionee" means the holder of an outstanding Option or Stock
--------
Purchase Right granted under the Plan.
(w) "Parent" means a "parent corporation," whether now or hereafter
------
existing, as defined in Section 424(e) of the Code.
(x) "Plan" means this 1998 Stock Plan.
----
(y) "Restricted Stock" means shares of Common Stock acquired pursuant
----------------
to a grant of Stock Purchase Rights under Section 11 of the Plan.
(z) "Restricted Stock Purchase Agreement" means a written agreement
-----------------------------------
between the Company and the Optionee evidencing the terms and restrictions
applying to stock purchased under a Stock Purchase Right. The Restricted Stock
Purchase Agreement is subject to the terms and conditions of the Plan and the
Notice of Grant.
(aa) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any successor
----------
to Rule 16b-3, as in effect when discretion is being exercised with respect to
the Plan.
(bb) "Section 16(b)" means Section 16(b) of the Exchange Act.
-------------
(cc) "Service Provider" means an Employee, Director or Consultant.
----------------
(dd) "Share" means a share of the Common Stock, as adjusted in
-----
accordance with Section 13 of the Plan.
(ee) "Stock Purchase Right" means the right to purchase Common Stock
--------------------
pursuant to Section 11 of the Plan, as evidenced by a Notice of Grant.
(ff) "Subsidiary" means a "subsidiary corporation", whether now or
----------
hereafter existing, as defined in Section 424(f) of the Code.
3
<PAGE>
3. Stock Subject to the Plan. Subject to the provisions of Section 13 of
-------------------------
the Plan, the maximum aggregate number of Shares which may be optioned and sold
under the Plan is 1,000,000 Shares, plus an annual increase to be added on each
anniversary date of the adoption of the Plan equal to the lesser of (i) the
number of Shares needed to restore the maximum aggregate number of Shares which
may be optioned and sold under the Plan to 1,000,000 Shares or (ii) a lesser
amount determined by the Board. The Shares may be authorized, but unissued, or
reacquired Common Stock. If an Option or Stock Purchase Right expires or
becomes unexercisable without having been exercised in full, or is surrendered
pursuant to an Option Exchange Program, the unpurchased Shares which were
subject thereto shall become available for future grant or sale under the Plan
(unless the Plan has terminated); provided, however, that Shares that have
-------- -------
actually been issued under the Plan, whether upon exercise of an Option or
Right, shall not be returned to the Plan and shall not become available for
future distribution under the Plan, except that if Shares of Restricted Stock
are repurchased by the Company at their original purchase price, such Shares
shall become available for future grant under the Plan.
4. Administration of the Plan.
--------------------------
(a) Procedure.
---------
(i) Multiple Administrative Bodies. The Plan may be administered
------------------------------
by different Committees with respect to different groups of Service Providers.
(ii) Section 162(m). To the extent that the Administrator
--------------
determines it to be desirable to qualify Options granted hereunder as
"performance-based compensation" within the meaning of Section 162(m) of the
Code, the Plan shall be administered by a Committee of two or more "outside
directors" within the meaning of Section 162(m) of the Code.
(iii) Rule 16b-3. To the extent desirable to qualify transactions
----------
hereunder as exempt under Rule 16b-3, the transactions contemplated hereunder
shall be structured to satisfy the requirements for exemption under Rule 16b-3.
(iv) Other Administration. Other than as provided above, the Plan
--------------------
shall be administered by (A) the Board or (B) a Committee, which committee shall
be constituted to satisfy Applicable Laws.
(b) Powers of the Administrator. Subject to the provisions of the
---------------------------
Plan, and in the case of a Committee, subject to the specific duties delegated
by the Board to such Committee, the Administrator shall have the authority, in
its discretion:
(i) to determine the Fair Market Value;
(ii) to select the Service Providers to whom Options and Stock
Purchase Rights may be granted hereunder;
4
<PAGE>
(iii) to determine the number of shares of Common Stock to be
covered by each Option and Stock Purchase Right granted hereunder;
(iv) to approve forms of agreement for use under the Plan;
(v) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any Option or Stock Purchase Right granted
hereunder. Such terms and conditions include, but are not limited to, the
exercise price, the time or times when Options or Stock Purchase Rights may be
exercised (which may be based on performance criteria), any vesting acceleration
or waiver of forfeiture restrictions, and any restriction or limitation
regarding any Option or Stock Purchase Right or the shares of Common Stock
relating thereto, based in each case on such factors as the Administrator, in
its sole discretion, shall determine;
(vi) to reduce the exercise price of any Option or Stock
Purchase Right to the then current Fair Market Value if the Fair Market Value of
the Common Stock covered by such Option or Stock Purchase Right shall have
declined since the date the Option or Stock Purchase Right was granted;
(vii) to institute an Option Exchange Program;
(viii) to construe and interpret the terms of the Plan and awards
granted pursuant to the Plan;
(ix) to prescribe, amend and rescind rules and regulations
relating to the Plan, including rules and regulations relating to sub-plans
established for the purpose of qualifying for preferred tax treatment under
foreign tax laws;
(x) to modify or amend each Option or Stock Purchase Right
(subject to Section 15(c) of the Plan), including the discretionary authority to
extend the post-termination exercisability period of Options longer than is
otherwise provided for in the Plan;
(xi) to allow Optionees to satisfy withholding tax obligations
by electing to have the Company withhold from the Shares to be issued upon
exercise of an Option or Stock Purchase Right that number of Shares having a
Fair Market Value equal to the amount required to be withheld. The Fair Market
Value of the Shares to be withheld shall be determined on the date that the
amount of tax to be withheld is to be determined. All elections by an Optionee
to have Shares withheld for this purpose shall be made in such form and under
such conditions as the Administrator may deem necessary or advisable;
(xii) to authorize any person to execute on behalf of the Company
any instrument required to effect the grant of an Option or Stock Purchase Right
previously granted by the Administrator;
(xiii) to make all other determinations deemed necessary or
advisable for administering the Plan.
5
<PAGE>
(c) Effect of Administrator's Decision. The Administrator's decisions,
----------------------------------
determinations and interpretations shall be final and binding on all Optionees
and any other holders of Options or Stock Purchase Rights.
5. Eligibility. Nonstatutory Stock Options and Stock Purchase Rights may
-----------
be granted to Service Providers. Incentive Stock Options may be granted only to
Employees.
6. Limitations.
-----------
(a) Each Option shall be designated in the Option Agreement as either
an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year (under
all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such
Options shall be treated as Nonstatutory Stock Options. For purposes of this
Section 6(a), Incentive Stock Options shall be taken into account in the order
in which they were granted. The Fair Market Value of the Shares shall be
determined as of the time the Option with respect to such Shares is granted.
(b) Neither the Plan nor any Option or Stock Purchase Right shall
confer upon an Optionee any right with respect to continuing the Optionee's
relationship as a Service Provider with the Company, nor shall they interfere in
any way with the Optionee's right or the Company's right to terminate such
relationship at any time, with or without cause.
(c) The following limitations shall apply to grants of Options:
(i) No Service Provider shall be granted, in any fiscal year of
the Company, Options to purchase more than 500,000 Shares.
(ii) In connection with his or her initial service, a Service
Provider may be granted Options to purchase up to an additional 250,000 Shares
which shall not count against the limit set forth in subsection (i) above.
(iii) The foregoing limitations shall be adjusted proportionately
in connection with any change in the Company's capitalization as described in
Section 13.
(iv) If an Option is cancelled in the same fiscal year of the
Company in which it was granted (other than in connection with a transaction
described in Section 13), the cancelled Option will be counted against the
limits set forth in subsections (i) and (ii) above. For this purpose, if the
exercise price of an Option is reduced, the transaction will be treated as a
cancellation of the Option and the grant of a new Option.
6
<PAGE>
7. Term of Plan. Subject to Section 19 of the Plan, the Plan shall become
------------
effective upon its adoption by the Board. It shall continue in effect for a
term of ten (10) years unless terminated earlier under Section 15 of the Plan.
8. Term of Option. The term of each Option shall be stated in the Option
--------------
Agreement. In the case of an Incentive Stock Option, the term shall be ten (10)
years from the date of grant or such shorter term as may be provided in the
Option Agreement. Moreover, in the case of an Incentive Stock Option granted to
an Optionee who, at the time the Incentive Stock Option is granted, owns stock
representing more than ten percent (10%) of the total combined voting power of
all classes of stock of the Company or any Parent or Subsidiary, the term of the
Incentive Stock Option shall be five (5) years from the date of grant or such
shorter term as may be provided in the Option Agreement.
9. Option Exercise Price and Consideration.
---------------------------------------
(a) Exercise Price. The per share exercise price for the Shares to be
--------------
issued pursuant to exercise of an Option shall be determined by the
Administrator, subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time the Incentive
Stock Option is granted, owns stock representing more than ten percent (10%) of
the voting power of all classes of stock of the Company or any Parent or
Subsidiary, the per Share exercise price shall be no less than 110% of the Fair
Market Value per Share on the date of grant.
(B) granted to any Employee other than an Employee described
in paragraph (A) immediately above, the per Share exercise price shall be no
less than 100% of the Fair Market Value per Share on the date of grant.
(ii) In the case of a Nonstatutory Stock Option, the per Share
exercise price shall be determined by the Administrator. In the case of a
Nonstatutory Stock Option intended to qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Code, the per Share
exercise price shall be no less than 100% of the Fair Market Value per Share on
the date of grant.
(iii) Notwithstanding the foregoing, Options may be granted with a
per Share exercise price of less than 100% of the Fair Market Value per Share on
the date of grant pursuant to a merger or other corporate transaction.
(b) Waiting Period and Exercise Dates. At the time an Option is
---------------------------------
granted, the Administrator shall fix the period within which the Option may be
exercised and shall determine any conditions which must be satisfied before the
Option may be exercised.
7
<PAGE>
(c) Form of Consideration. The Administrator shall determine the
---------------------
acceptable form of consideration for exercising an Option, including the method
of payment. In the case of an Incentive Stock Option, the Administrator shall
determine the acceptable form of consideration at the time of grant. Such
consideration may consist entirely of:
(i) cash;
(ii) check;
(iii) promissory note;
(iv) other Shares which (A) in the case of Shares acquired upon
exercise of an option, have been owned by the Optionee for more than six months
on the date of surrender, and (B) have a Fair Market Value on the date of
surrender equal to the aggregate exercise price of the Shares as to which said
Option shall be exercised;
(v) consideration received by the Company under a cashless
exercise program implemented by the Company in connection with the Plan;
(vi) a reduction in the amount of any Company liability to the
Optionee, including any liability attributable to the Optionee's participation
in any Company-sponsored deferred compensation program or arrangement;
(vii) any combination of the foregoing methods of payment; or
(viii) such other consideration and method of payment for the
issuance of Shares to the extent permitted by Applicable Laws.
10. Exercise of Option.
------------------
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
-----------------------------------------------
granted hereunder shall be exercisable according to the terms of the Plan and at
such times and under such conditions as determined by the Administrator and set
forth in the Option Agreement. Unless the Administrator provides otherwise,
vesting of Options granted hereunder shall be tolled during any unpaid leave of
absence. An Option may not be exercised for a fraction of a Share.
An Option shall be deemed exercised when the Company receives: (i)
written or electronic notice of exercise (in accordance with the Option
Agreement) from the person entitled to exercise the Option, and (ii) full
payment for the Shares with respect to which the Option is exercised. Full
payment may consist of any consideration and method of payment authorized by the
Administrator and permitted by the Option Agreement and the Plan. Shares issued
upon exercise of an Option shall be issued in the name of the Optionee or, if
requested by the Optionee, in the name of the Optionee and his or her spouse.
Until the Shares are issued (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer
8
<PAGE>
agent of the Company), no right to vote or receive dividends or any other rights
as a shareholder shall exist with respect to the Optioned Stock, notwithstanding
the exercise of the Option. The Company shall issue (or cause to be issued) such
Shares promptly after the Option is exercised. No adjustment will be made for a
dividend or other right for which the record date is prior to the date the
Shares are issued, except as provided in Section 13 of the Plan.
Exercising an Option in any manner shall decrease the number of
Shares thereafter available, both for purposes of the Plan and for sale under
the Option, by the number of Shares as to which the Option is exercised.
(b) Termination of Relationship as a Service Provider. If an Optionee
-------------------------------------------------
ceases to be a Service Provider, other than upon the Optionee's death or
Disability, the Optionee may exercise his or her Option within such period of
time as is specified in the Option Agreement to the extent that the Option is
vested on the date of termination (but in no event later than the expiration of
the term of such Option as set forth in the Option Agreement). In the absence
of a specified time in the Option Agreement, the Option shall remain exercisable
for three (3) months following the Optionee's termination. If, on the date of
termination, the Optionee is not vested as to his or her entire Option, the
Shares covered by the unvested portion of the Option shall revert to the Plan.
If, after termination, the Optionee does not exercise his or her Option within
the time specified by the Administrator, the Option shall terminate, and the
Shares covered by such Option shall revert to the Plan.
(c) Disability of Optionee. If an Optionee ceases to be a Service
----------------------
Provider as a result of the Optionee's Disability, the Optionee may exercise his
or her Option within such period of time as is specified in the Option Agreement
to the extent the Option is vested on the date of termination (but in no event
later than the expiration of the term of such Option as set forth in the Option
Agreement). In the absence of a specified time in the Option Agreement, the
Option shall remain exercisable for twelve (12) months following the Optionee's
termination. If, on the date of termination, the Optionee is not vested as to
his or her entire Option, the Shares covered by the unvested portion of the
Option shall revert to the Plan. If, after termination, the Optionee does not
exercise his or her Option within the time specified herein, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.
(d) Death of Optionee. If an Optionee dies while a Service Provider,
-----------------
the Option may be exercised within such period of time as is specified in the
Option Agreement (but in no event later than the expiration of the term of such
Option as set forth in the Notice of Grant), by the Optionee's estate or by a
person who acquires the right to exercise the Option by bequest or inheritance,
but only to the extent that the Option is vested on the date of death. In the
absence of a specified time in the Option Agreement, the Option shall remain
exercisable for twelve (12) months following the Optionee's termination. If, at
the time of death, the Optionee is not vested as to his or her entire Option,
the Shares covered by the unvested portion of the Option shall immediately
revert to the Plan. The Option may be exercised by the executor or
administrator of the Optionee's estate or, if none, by the person(s) entitled to
exercise the Option under the Optionee's will or the laws of descent or
distribution. If the Option is not so exercised within the
9
<PAGE>
time specified herein, the Option shall terminate, and the Shares covered by
such Option shall revert to the Plan.
(e) Buyout Provisions. The Administrator may at any time offer to buy
-----------------
out for a payment in cash or Shares an Option previously granted based on such
terms and conditions as the Administrator shall establish and communicate to the
Optionee at the time that such offer is made.
11. Stock Purchase Rights.
---------------------
(a) Rights to Purchase. Stock Purchase Rights may be issued either
------------------
alone, in addition to, or in tandem with other awards granted under the Plan
and/or cash awards made outside of the Plan. After the Administrator determines
that it will offer Stock Purchase Rights under the Plan, it shall advise the
offeree in writing or electronically, by means of a Notice of Grant, of the
terms, conditions and restrictions related to the offer, including the number of
Shares that the offeree shall be entitled to purchase, the price to be paid, and
the time within which the offeree must accept such offer. The offer shall be
accepted by execution of a Restricted Stock Purchase Agreement in the form
determined by the Administrator.
(b) Repurchase Option. Unless the Administrator determines otherwise,
-----------------
the Restricted Stock Purchase Agreement shall grant the Company a repurchase
option exercisable upon the voluntary or involuntary termination of the
purchaser's service with the Company for any reason (including death or
Disability). The purchase price for Shares repurchased pursuant to the
Restricted Stock Purchase Agreement shall be the original price paid by the
purchaser and may be paid by cancellation of any indebtedness of the purchaser
to the Company. The repurchase option shall lapse at a rate determined by the
Administrator.
(c) Other Provisions. The Restricted Stock Purchase Agreement shall
----------------
contain such other terms, provisions and conditions not inconsistent with the
Plan as may be determined by the Administrator in its sole discretion.
(d) Rights as a Shareholder. Once the Stock Purchase Right is
-----------------------
exercised, the purchaser shall have the rights equivalent to those of a
shareholder, and shall be a shareholder when his or her purchase is entered upon
the records of the duly authorized transfer agent of the Company. No adjustment
will be made for a dividend or other right for which the record date is prior to
the date the Stock Purchase Right is exercised, except as provided in Section 13
of the Plan.
12. Non-Transferability of Options and Stock Purchase Rights. Unless
--------------------------------------------------------
determined otherwise by the Administrator, an Option or Stock Purchase Right may
not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any
manner other than by will or by the laws of descent or distribution and may be
exercised, during the lifetime of the Optionee, only by the Optionee. If the
Administrator makes an Option or Stock Purchase Right transferable, such Option
or Stock Purchase Right shall contain such additional terms and conditions as
the Administrator deems appropriate.
10
<PAGE>
13. Adjustments Upon Changes in Capitalization, Dissolution, Merger or
------------------------------------------------------------------
Asset Sale.
----------
(a) Changes in Capitalization. Subject to any required action by the
-------------------------
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option and Stock Purchase Right, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options or Stock Purchase Rights have yet been granted or which have
been returned to the Plan upon cancellation or expiration of an Option or Stock
Purchase Right, as well as the price per share of Common Stock covered by each
such outstanding Option or Stock Purchase Right, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without receipt
of consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an Option or Stock
Purchase Right.
(b) Dissolution or Liquidation. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, the Administrator shall notify each
Optionee as soon as practicable prior to the effective date of such proposed
transaction. The Administrator in its discretion may provide for an Optionee to
have the right to exercise his or her Option until ten (10) days prior to such
transaction as to all of the Optioned Stock covered thereby, including Shares as
to which the Option would not otherwise be exercisable. In addition, the
Administrator may provide that any Company repurchase option applicable to any
Shares purchased upon exercise of an Option or Stock Purchase Right shall lapse
as to all such Shares, provided the proposed dissolution or liquidation takes
place at the time and in the manner contemplated. To the extent it has not been
previously exercised, an Option or Stock Purchase Right will terminate
immediately prior to the consummation of such proposed action.
(c) Merger or Asset Sale. In the event of a merger of the Company with
--------------------
or into another corporation, or the sale of substantially all of the assets of
the Company, each outstanding Option and Stock Purchase Right shall be assumed
or an equivalent option or right substituted by the successor corporation or a
Parent or Subsidiary of the successor corporation. In the event that the
successor corporation refuses to assume or substitute for the Option or Stock
Purchase Right, the Optionee shall fully vest in and have the right to exercise
the Option or Stock Purchase Right as to all of the Optioned Stock, including
Shares as to which it would not otherwise be vested or exercisable. If an
Option or Stock Purchase Right becomes fully vested and exercisable in lieu of
assumption or substitution in the event of a merger or sale of assets, the
Administrator shall notify the Optionee in writing or electronically that the
Option or Stock Purchase Right shall be fully vested and exercisable for a
period of fifteen (15) days from the date of such notice, and the Option or
Stock Purchase Right shall terminate upon the expiration
11
<PAGE>
of such period. For the purposes of this paragraph, the Option or Stock Purchase
Right shall be considered assumed if, following the merger or sale of assets,
the option or right confers the right to purchase or receive, for each Share of
Optioned Stock subject to the Option or Stock Purchase Right immediately prior
to the merger or sale of assets, the consideration (whether stock, cash, or
other securities or property) received in the merger or sale of assets by
holders of Common Stock for each Share held on the effective date of the
transaction (and if holders were offered a choice of consideration, the type of
consideration chosen by the holders of a majority of the outstanding Shares);
provided, however, that if such consideration received in the merger or sale of
assets is not solely common stock of the successor corporation or its Parent,
the Administrator may, with the consent of the successor corporation, provide
for the consideration to be received upon the exercise of the Option or Stock
Purchase Right, for each Share of Optioned Stock subject to the Option or Stock
Purchase Right, to be solely common stock of the successor corporation or its
Parent equal in fair market value to the per share consideration received by
holders of Common Stock in the merger or sale of assets.
14. Date of Grant. The date of grant of an Option or Stock Purchase Right
-------------
shall be, for all purposes, the date on which the Administrator makes the
determination granting such Option or Stock Purchase Right, or such other later
date as is determined by the Administrator. Notice of the determination shall
be provided to each Optionee within a reasonable time after the date of such
grant.
15. Amendment and Termination of the Plan.
-------------------------------------
(a) Amendment and Termination. The Board may at any time amend, alter,
-------------------------
suspend or terminate the Plan.
(b) Shareholder Approval. The Company shall obtain shareholder
--------------------
approval of any Plan amendment to the extent necessary and desirable to comply
with Applicable Laws.
(c) Effect of Amendment or Termination. No amendment, alteration,
----------------------------------
suspension or termination of the Plan shall impair the rights of any Optionee,
unless mutually agreed otherwise between the Optionee and the Administrator,
which agreement must be in writing and signed by the Optionee and the Company.
Termination of the Plan shall not affect the Administrator's ability to exercise
the powers granted to it hereunder with respect to Options granted under the
Plan prior to the date of such termination.
16. Conditions Upon Issuance of Shares.
----------------------------------
(a) Legal Compliance. Shares shall not be issued pursuant to the
----------------
exercise of an Option or Stock Purchase Right unless the exercise of such Option
or Stock Purchase Right and the issuance and delivery of such Shares shall
comply with Applicable Laws and shall be further subject to the approval of
counsel for the Company with respect to such compliance.
(b) Investment Representations. As a condition to the exercise of an
--------------------------
Option or Stock Purchase Right, the Company may require the person exercising
such Option or Stock
12
<PAGE>
Purchase Right to represent and warrant at the time of any such exercise that
the Shares are being purchased only for investment and without any present
intention to sell or distribute such Shares if, in the opinion of counsel for
the Company, such a representation is required.
17. Inability to Obtain Authority. The inability of the Company to obtain
-----------------------------
authority from any regulatory body having jurisdiction, which authority is
deemed by the Company's counsel to be necessary to the lawful issuance and sale
of any Shares hereunder, shall relieve the Company of any liability in respect
of the failure to issue or sell such Shares as to which such requisite authority
shall not have been obtained.
18. Reservation of Shares. The Company, during the term of this Plan, will
---------------------
at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
19. Shareholder Approval. The Plan shall be subject to approval by the
--------------------
shareholders of the Company within twelve (12) months after the date the Plan is
adopted. Such shareholder approval shall be obtained in the manner and to the
degree required under Applicable Laws.
13
<PAGE>
EXHIBIT 10.3
INKTOMI CORPORATION
1998 EMPLOYEE STOCK PURCHASE PLAN
1. Purpose. The purpose of the Plan is to provide employees of the
-------
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company through accumulated payroll deductions. It is the
intention of the Company to have the Plan qualify as an "Employee Stock Purchase
Plan" under Section 423 of the Internal Revenue Code of 1986, as amended. The
provisions of the Plan, accordingly, shall be construed so as to extend and
limit participation in a manner consistent with the requirements of that section
of the Code.
2. Definitions.
-----------
(a) "Board" shall mean the Board of Directors of the Company.
-----
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
----
(c) "Common Stock" shall mean the Common Stock of the Company.
------------
(d) "Company" shall mean Inktomi Corporation and any Designated
-------
Subsidiary of the Company.
(e) "Compensation" shall mean all base straight time gross earnings
------------
and commissions, but exclusive of payments for overtime, shift premium,
incentive compensation, incentive payments, bonuses and other compensation.
(f) "Designated Subsidiary" shall mean any Subsidiary which has been
---------------------
designated by the Board from time to time in its sole discretion as eligible to
participate in the Plan.
(g) "Employee" shall mean any individual who is an Employee of the
--------
Company for tax purposes whose customary employment with the Company is at least
twenty (20) hours per week and more than five (5) months in any calendar year.
For purposes of the Plan, the employment relationship shall be treated as
continuing intact while the individual is on sick leave or other leave of
absence approved by the Company. Where the period of leave exceeds 90 days and
the individual's right to reemployment is not guaranteed either by statute or by
contract, the employment relationship shall be deemed to have terminated on the
91st day of such leave.
(h) "Enrollment Date" shall mean the first day of each Offering
---------------
Period.
<PAGE>
(i) "Exercise Date" shall mean the last day of each Purchase Period.
-------------
(j) "Fair Market Value" shall mean, as of any date, the value of
-----------------
Common Stock determined as follows:
(1) If the Common Stock is listed on any established stock exchange
or a national market system, including without limitation the Nasdaq National
Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its Fair Market
Value shall be the closing sales price for such stock (or the closing bid, if no
sales were reported) as quoted on such exchange or system for the last market
trading day on the date of such determination, as reported in The Wall Street
Journal or such other source as the Administrator deems reliable, or;
(2) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean of the closing bid and asked prices for the Common Stock on
the date of such determination, as reported in The Wall Street Journal or such
other source as the Board deems reliable, or;
(3) In the absence of an established market for the Common Stock,
the Fair Market Value thereof shall be determined in good faith by the Board,
or;
(4) For purposes of the Enrollment Date of the first Offering
Period under the Plan, the Fair Market Value shall be the initial price to the
public as set forth in the final prospectus included within the registration
statement on Form S-1 filed with the Securities and Exchange Commission for the
initial public offering of the Company's Common Stock (the "Registration
Statement").
(k) "Offering Periods" shall mean the periods of approximately twenty-
----------------
four (24) months during which an option granted pursuant to the Plan may be
exercised, commencing on the first Trading Day on or after May 1 and November 1
of each year and terminating on the last Trading Day in the periods ending
twenty-four months later; provided, however, that the first Offering Period
under the Plan shall commence with the first Trading Day on or after the date on
which the Securities and Exchange Commission declares the Company's Registration
Statement effective and ending on the last Trading Day on or before April 30,
2000. The duration and timing of Offering Periods may be changed pursuant to
Section 4 of this Plan.
(l) "Plan" shall mean this Employee Stock Purchase Plan.
----
(m) "Purchase Price" shall mean an amount equal to 85% of the Fair
--------------
Market Value of a share of Common Stock on the Enrollment Date or on the
Exercise Date, whichever is lower.
(n) "Purchase Period" shall mean the approximately six month period
---------------
commencing after one Exercise Date and ending with the next Exercise Date.
2
<PAGE>
(o) "Reserves" shall mean the number of shares of Common Stock covered
--------
by each option under the Plan which have not yet been exercised and the number
of shares of Common Stock which have been authorized for issuance under the Plan
but not yet placed under option.
(p) "Subsidiary" shall mean a corporation, domestic or foreign, of
----------
which not less than 50% of the voting shares are held by the Company or a
Subsidiary, whether or not such corporation now exists or is hereafter organized
or acquired by the Company or a Subsidiary.
(q) "Trading Day" shall mean a day on which national stock exchanges
-----------
and the Nasdaq System are open for trading.
3. Eligibility.
-----------
(a) Any Employee who shall be employed by the Company on a given
Enrollment Date shall be eligible to participate in the Plan.
(b) Any provisions of the Plan to the contrary notwithstanding, no
Employee shall be granted an option under the Plan (i) to the extent that,
immediately after the grant, such Employee (or any other person whose stock
would be attributed to such Employee pursuant to Section 424(d) of the Code)
would own capital stock of the Company and/or hold outstanding options to
purchase such stock possessing five percent (5%) or more of the total combined
voting power or value of all classes of the capital stock of the Company or of
any Subsidiary, or (ii) to the extent that his or her rights to purchase stock
under all employee stock purchase plans of the Company and its subsidiaries
accrues at a rate which exceeds Twenty-Five Thousand Dollars ($25,000) worth of
stock (determined at the fair market value of the shares at the time such option
is granted) for each calendar year in which such option is outstanding at any
time.
4. Offering Periods. The Plan shall be implemented by consecutive,
----------------
overlapping Offering Periods with a new Offering Period commencing on the first
Trading Day on or after May 1 and November 1 each year, or on such other date as
the Board shall determine, and continuing thereafter until terminated in
accordance with Section 20 hereof; provided, however, that the first Offering
Period under the Plan shall commence with the first Trading Day on or after the
date on which the Securities and Exchange Commission declares the Company's
Registration Statement effective and ending on the last Trading Day on or before
April 30, 2000. The Board shall have the power to change the duration of
Offering Periods (including the commencement dates thereof) with respect to
future offerings without shareholder approval if such change is announced at
least five (5) days prior to the scheduled beginning of the first Offering
Period to be affected thereafter.
3
<PAGE>
5. Participation.
-------------
(a) An eligible Employee may become a participant in the Plan by
completing a subscription agreement authorizing payroll deductions in the form
of Exhibit A to this Plan and filing it with the Company's payroll office prior
to the applicable Enrollment Date.
(b) Payroll deductions for a participant shall commence on the first
payroll following the Enrollment Date and shall end on the last payroll in the
Offering Period to which such authorization is applicable, unless sooner
terminated by the participant as provided in Section 10 hereof.
6. Payroll Deductions.
------------------
(a) At the time a participant files his or her subscription agreement,
he or she shall elect to have payroll deductions ("Payroll Deductions") made on
each pay day during the Offering Period in an amount not exceeding fifteen
percent (15%) of the Compensation which he or she receives on each pay day
during the Offering Period. For purposes of the first Offering Period only, the
maximum payroll deductions a participant may elect shall not exceed twenty
percent (20%) of Compensation. In the event the participant elects to deduct
greater than fifteen percent (15%) of Compensation in the first Offering Period,
then for all other Offering Periods and Purchase Periods, the maximum payroll
deductions a participant may elect shall automatically be reduced to fifteen
percent (15%) of his or her Compensation.
(b) All payroll deductions made for a participant shall be credited to
his or her account under the Plan and shall be withheld in whole percentages
only. A participant may not make any additional payments into such account.
(c) A participant may discontinue his or her participation in the Plan
as provided in Section 10 hereof, or may increase or decrease the rate of his or
her payroll deductions during the Offering Period by completing or filing with
the Company a new subscription agreement authorizing a change in payroll
deduction rate. The Board may, in its discretion, limit the number of
participation rate changes during any Offering Period. The change in rate shall
be effective with the first full payroll period following five (5) business days
after the Company's receipt of the new subscription agreement unless the Company
elects to process a given change in participation more quickly. A participant's
subscription agreement shall remain in effect for successive Offering Periods
unless terminated as provided in Section 10 hereof.
(d) Notwithstanding the foregoing, to the extent necessary to comply
with Section 423(b)(8) of the Code and Section 3(b) hereof, a participant's
payroll deductions may be decreased to zero percent (0%) at any time during a
Purchase Period. Payroll deductions shall recommence at the rate provided in
such participant's subscription agreement at the beginning of
4
<PAGE>
the first Purchase Period which is scheduled to end in the following calendar
year, unless terminated by the participant as provided in Section 10 hereof.
(e) At the time the option is exercised, in whole or in part, or at
the time some or all of the Company's Common Stock issued under the Plan is
disposed of, the participant must make adequate provision for the Company's
federal, state, or other tax withholding obligations, if any, which arise upon
the exercise of the option or the disposition of the Common Stock. At any time,
the Company may, but shall not be obligated to, withhold from the participant's
compensation the amount necessary for the Company to meet applicable withholding
obligations, including any withholding required to make available to the Company
any tax deductions or benefits attributable to sale or early disposition of
Common Stock by the Employee.
7. Grant of Option. On the Enrollment Date of each Offering Period, each
---------------
eligible Employee participating in such Offering Period shall be granted an
option to purchase on each Exercise Date during such Offering Period (at the
applicable Purchase Price) up to a number of shares of the Company's Common
Stock determined by dividing such Employee's payroll deductions accumulated
prior to such Exercise Date and retained in the Participant's account as of the
Exercise Date by the applicable Purchase Price; provided that in no event shall
an Employee be permitted to purchase during each Purchase Period more than
25,000 shares of the Company's Common Stock (subject to any adjustment pursuant
to Section 19) on the Enrollment Date, and provided further that such purchase
shall be subject to the limitations set forth in Sections 3(b) and 13 hereof.
Exercise of the option shall occur as provided in Section 8 hereof, unless the
participant has withdrawn pursuant to Section 10 hereof. The option shall
expire on the last day of the Offering Period.
8. Exercise of Option. Unless a participant withdraws from the Plan as
------------------
provided in Section 10 hereof, his or her option for the purchase of shares
shall be exercised automatically on the Exercise Date, and the maximum number of
full shares subject to option shall be purchased for such participant at the
applicable Purchase Price with the accumulated payroll deductions in his or her
account. No fractional shares shall be purchased; any payroll deductions
accumulated in a participant's account which are not sufficient to purchase a
full share shall be retained in the participant's account for the subsequent
Purchase Period or Offering Period, subject to earlier withdrawal by the
participant as provided in Section 10 hereof. Any other monies left over in a
participant's account after the Exercise Date shall be returned to the
participant. During a participant's lifetime, a participant's option to
purchase shares hereunder is exercisable only by him or her.
9. Delivery. As promptly as practicable after each Exercise Date on which
--------
a purchase of shares occurs, the Company shall arrange the delivery to each
participant, as appropriate, of a certificate representing the shares purchased
upon exercise of his or her option.
5
<PAGE>
10. Withdrawal.
----------
(a) A participant may withdraw all but not less than all the payroll
deductions credited to his or her account and not yet used to exercise his or
her option under the Plan at any time by giving written notice to the Company in
the form of Exhibit B to this Plan. All of the participant's payroll deductions
credited to his or her account shall be paid to such participant promptly after
receipt of notice of withdrawal and such participant's option for the Offering
Period shall be automatically terminated, and no further payroll deductions for
the purchase of shares shall be made for such Offering Period. If a participant
withdraws from an Offering Period, payroll deductions shall not resume at the
beginning of the succeeding Offering Period unless the participant delivers to
the Company a new subscription agreement.
(b) A participant's withdrawal from an Offering Period shall not have
any effect upon his or her eligibility to participate in any similar plan which
may hereafter be adopted by the Company or in succeeding Offering Periods which
commence after the termination of the Offering Period from which the participant
withdraws.
11. Termination of Employment.
-------------------------
Upon a participant's ceasing to be an Employee, for any reason, he or
she shall be deemed to have elected to withdraw from the Plan and the payroll
deductions credited to such participant's account during the Offering Period but
not yet used to exercise the option shall be returned to such participant or, in
the case of his or her death, to the person or persons entitled thereto under
Section 15 hereof, and such participant's option shall be automatically
terminated. The preceding sentence notwithstanding, a participant who receives
payment in lieu of notice of termination of employment shall be treated as
continuing to be an Employee for the participant's customary number of hours per
week of employment during the period in which the participant is subject to such
payment in lieu of notice.
12. Interest. No interest shall accrue on the payroll deductions of a
--------
participant in the Plan.
13. Stock.
-----
(a) The maximum number of shares of the Company's Common Stock which
shall be made available for sale under the Plan shall be 300,000 shares, plus an
annual increase to be added on each anniversary date of the adoption of the Plan
equal to the lesser of (i) the number of shares needed to restore the maximum
aggregate number of shares available for purchase under the Plan to 300,000
shares or (ii) a lesser amount determined by the Board, subject to adjustment
upon changes in capitalization of the Company as provided in Section 19 hereof.
If, on a given Exercise Date, the number of shares with respect to which options
are to be exercised exceeds the number of shares then available under the Plan,
the Company shall make a pro rata allocation of the shares
6
<PAGE>
remaining available for purchase in as uniform a manner as shall be practicable
and as it shall determine to be equitable.
(b) The participant shall have no interest or voting right in shares
covered by his option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan shall be
registered in the name of the participant or in the name of the participant and
his or her spouse.
14. Administration. The Plan shall be administered by the Board or a
--------------
committee of members of the Board appointed by the Board. The Board or its
committee shall have full and exclusive discretionary authority to construe,
interpret and apply the terms of the Plan, to determine eligibility and to
adjudicate all disputed claims filed under the Plan. Every finding, decision
and determination made by the Board or its committee shall, to the full extent
permitted by law, be final and binding upon all parties.
15. Designation of Beneficiary.
--------------------------
(a) A participant may file a written designation of a beneficiary who
is to receive any shares and cash, if any, from the participant's account under
the Plan in the event of such participant's death subsequent to an Exercise Date
on which the option is exercised but prior to delivery to such participant of
such shares and cash. In addition, a participant may file a written designation
of a beneficiary who is to receive any cash from the participant's account under
the Plan in the event of such participant's death prior to exercise of the
option. If a participant is married and the designated beneficiary is not the
spouse, spousal consent shall be required for such designation to be effective.
(b) Such designation of beneficiary may be changed by the participant
at any time by written notice. In the event of the death of a participant and
in the absence of a beneficiary validly designated under the Plan who is living
at the time of such participant's death, the Company shall deliver such shares
and/or cash to the executor or administrator of the estate of the participant,
or if no such executor or administrator has been appointed (to the knowledge of
the Company), the Company, in its discretion, may deliver such shares and/or
cash to the spouse or to any one or more dependents or relatives of the
participant, or if no spouse, dependent or relative is known to the Company,
then to such other person as the Company may designate.
16. Transferability. Neither payroll deductions credited to a
---------------
participant's account nor any rights with regard to the exercise of an option or
to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 15 hereof) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the
7
<PAGE>
Company may treat such act as an election to withdraw funds from an Offering
Period in accordance with Section 10 hereof.
17. Use of Funds. All payroll deductions received or held by the Company
------------
under the Plan may be used by the Company for any corporate purpose, and the
Company shall not be obligated to segregate such payroll deductions.
18. Reports. Individual accounts shall be maintained for each participant
-------
in the Plan. Statements of account shall be given to participating Employees at
least annually, which statements shall set forth the amounts of payroll
deductions, the Purchase Price, the number of shares purchased and the remaining
cash balance, if any.
19. Adjustments Upon Changes in Capitalization, Dissolution, Liquidation,
---------------------------------------------------------------------
Merger or Asset Sale.
--------------------
(a) Changes in Capitalization. Subject to any required action by the
-------------------------
shareholders of the Company, the Reserves, the maximum number of shares each
participant may purchase each Purchase Period (pursuant to Section 7), as well
as the price per share and the number of shares of Common Stock covered by each
option under the Plan which has not yet been exercised shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration". Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an option.
(b) Dissolution or Liquidation. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, the Offering Period then in progress
shall be shortened by setting a new Exercise Date (the "New Exercise Date"), and
shall terminate immediately prior to the consummation of such proposed
dissolution or liquidation, unless provided otherwise by the Board. The New
Exercise Date shall be before the date of the Company's proposed dissolution or
liquidation. The Board shall notify each participant in writing, at least ten
(10) business days prior to the New Exercise Date, that the Exercise Date for
the participant's option has been changed to the New Exercise Date and that the
participant's option shall be exercised automatically on the New Exercise Date,
unless prior to such date the participant has withdrawn from the Offering Period
as provided in Section 10 hereof.
8
<PAGE>
(c) Merger or Asset Sale. In the event of a proposed sale of all or
--------------------
substantially all of the assets of the Company, or the merger of the Company
with or into another corporation, each outstanding option shall be assumed or an
equivalent option substituted by the successor corporation or a Parent or
Subsidiary of the successor corporation. In the event that the successor
corporation refuses to assume or substitute for the option, any Purchase Periods
then in progress shall be shortened by setting a new Exercise Date (the "New
Exercise Date") and any Offering Periods then in progress shall end on the New
Exercise Date. The New Exercise Date shall be before the date of the Company's
proposed sale or merger. The Board shall notify each participant in writing, at
least ten (10) business days prior to the New Exercise Date, that the Exercise
Date for the participant's option has been changed to the New Exercise Date and
that the participant's option shall be exercised automatically on the New
Exercise Date, unless prior to such date the participant has withdrawn from the
Offering Period as provided in Section 10 hereof.
20. Amendment or Termination.
------------------------
(a) The Board of Directors of the Company may at any time and for any
reason terminate or amend the Plan. Except as provided in Section 19 hereof, no
such termination can affect options previously granted, provided that an
Offering Period may be terminated by the Board of Directors on any Exercise
Date. Except as provided in Section 19 hereof, no amendment may make any change
in any option theretofore granted which adversely affects the rights of any
participant. To the extent necessary to comply with Section 423 of the Code (or
any successor rule or provision or any other applicable law, regulation or stock
exchange rule), the Company shall obtain shareholder approval in such a manner
and to such a degree as required.
(b) Without shareholder consent and without regard to whether any
participant rights may be considered to have been "adversely affected," the
Board (or its committee) shall be entitled to change the Offering Periods, limit
the frequency and/or number of changes in the amount withheld during an Offering
Period, establish the exchange ratio applicable to amounts withheld in a
currency other than U.S. dollars, permit payroll withholding in excess of the
amount designated by a participant in order to adjust for delays or mistakes in
the Company's processing of properly completed withholding elections, establish
reasonable waiting and adjustment periods and/or accounting and crediting
procedures to ensure that amounts applied toward the purchase of Common Stock
for each participant properly correspond with amounts withheld from the
participant's Compensation, and establish such other limitations or procedures
as the Board (or its committee) determines in its sole discretion advisable
which are consistent with the Plan.
21. Notices. All notices or other communications by a participant to the
-------
Company under or in connection with the Plan shall be deemed to have been duly
given when received in
9
<PAGE>
the form specified by the Company at the location, or by the person, designated
by the Company for the receipt thereof.
22. Conditions Upon Issuance of Shares. Shares shall not be issued with
----------------------------------
respect to an option unless the exercise of such option and the issuance and
delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange upon which the shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
As a condition to the exercise of an option, the Company may require
the person exercising such option to represent and warrant at the time of any
such exercise that the shares are being purchased only for investment and
without any present intention to sell or distribute such shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned applicable provisions of law.
23. Term of Plan. The Plan shall become effective upon the earlier to
------------
occur of its adoption by the Board of Directors or its approval by the
shareholders of the Company. It shall continue in effect for a term of ten (10)
years unless sooner terminated under Section 20 hereof.
24. Automatic Transfer to Low Price Offering Period. To the extent
-----------------------------------------------
permitted by any applicable laws, regulations, or stock exchange rules, if the
Fair Market Value of the Common Stock on any Exercise Date in an Offering Period
is lower than the Fair Market Value of the Common Stock on the Enrollment Date
of such Offering Period, then all participants in such Offering Period shall be
automatically withdrawn from such Offering Period immediately after the exercise
of their option on such Exercise Date and automatically re-enrolled in the
immediately following Offering Period as of the first day thereof.
10
<PAGE>
EXHIBIT A
---------
INKTOMI CORPORATION
1998 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
_____ Original Application Enrollment Date: ____________
_____ Change in Payroll Deduction Rate
_____ Change of Beneficiary(ies)
1. _________________________________________________________________ hereby
elects to participate in the Inktomi Corporation 1998 Employee Stock
Purchase Plan (the "Employee Stock Purchase Plan") and subscribes to
purchase shares of the Company's Common Stock in accordance with this
Subscription Agreement and the Employee Stock Purchase Plan.
2. I hereby authorize payroll deductions from each paycheck in the amount of
____% of my Compensation on each payday (up to 15%) during the Offering
Period in accordance with the Employee Stock Purchase Plan. (Please note
that no fractional percentages are permitted.)
3. I understand that said payroll deductions shall be accumulated for the
purchase of shares of Common Stock at the applicable Purchase Price
determined in accordance with the Employee Stock Purchase Plan. I
understand that if I do not withdraw from an Offering Period, any
accumulated payroll deductions will be used to automatically exercise my
option.
4. I have received a copy of the complete Employee Stock Purchase Plan. I
understand that my participation in the Employee Stock Purchase Plan is in
all respects subject to the terms of the Plan. I understand that my
ability to exercise the option under this Subscription Agreement is subject
to shareholder approval of the Employee Stock Purchase Plan.
5. Shares purchased for me under the Employee Stock Purchase Plan should be
issued in the name(s) of (Employee or Employee and Spouse only):__________
__________________________________________________________________________.
6. I understand that if I dispose of any shares received by me pursuant to the
Plan within 2 years after the Enrollment Date (the first day of the
Offering Period during which I purchased such shares) or one year after the
Exercise Date, I will be treated for federal income tax purposes as having
received ordinary income at the time of such disposition in an amount equal
to the excess of the fair market value of the shares at the time such
shares were purchased by me over the price which I paid for the shares. I
-
hereby agree to notify the Company in writing within 30 days after the date
---------------------------------------------------------------------------
of any disposition of my shares and I will make adequate provision for
----------------------------------------------------------------------
Federal, state or other tax withholding obligations, if any, which arise
------------------------------------------------------------------------
upon the disposition of the Common Stock. The Company may, but will not be
----------------------------------------
obligated to, withhold from my compensation the amount necessary to meet
any applicable withholding obligation including any withholding necessary
to make available to the Company any tax deductions or benefits
attributable to sale or early disposition of Common Stock by me. If I
dispose of such shares at any time after the expiration of the 2-year and
1-year holding periods, I understand that I will be treated for federal
income tax purposes as having received income only at the time of such
disposition, and that such income
<PAGE>
will be taxed as ordinary income only to the extent of an amount equal to
the lesser of (1) the excess of the fair market value of the shares at the
time of such disposition over the purchase price which I paid for the
shares, or (2) 15% of the fair market value of the shares on the first day
of the Offering Period. The remainder of the gain, if any, recognized on
such disposition will be taxed as capital gain.
7. I hereby agree to be bound by the terms of the Employee Stock Purchase
Plan. The effectiveness of this Subscription Agreement is dependent upon
my eligibility to participate in the Employee Stock Purchase Plan.
8. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due me under the
Employee Stock Purchase Plan (please print first, middle and last name of
beneficiary(ies), address of beneficiary(ies) and relationship to you: ____
___________________________________________________________________________
___________________________________________________________________________
__________________________________________________________________________.
I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT
SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME.
Dated:_________________________ ________________________________________
Signature of Employee
________________________________________
Spouse's Signature (If beneficiary other
than spouse)
________________________________________
Employee's Social Security Number
________________________________________
Employee's Address
________________________________________
<PAGE>
EXHIBIT A-1
INKTOMI CORPORATION
1998 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT FOR THE FIRST OFFERING PERIOD
_____ Original Application Enrollment Date: _____________
_____ Change in Payroll Deduction Rate
_____ Change of Beneficiary(ies)
1. _____________________________________________________ hereby elects to
participate in the Inktomi Corporation 1998 Employee Stock Purchase Plan
(the "Employee Stock Purchase Plan") and subscribes to purchase shares of
the Company's Common Stock in accordance with this Subscription Agreement
and the Employee Stock Purchase Plan.
2. a. For the first Purchase Period of the first Offering Period only, I
hereby authorize payroll deductions from each paycheck in the amount
of ____% (up to 20%) of my Compensation on each payday during the
Purchase Period in accordance with the Employee Stock Purchase Plan.
(Please note that no fractional percentages are permitted.)
b. For all subsequent Purchase Periods and Offering Periods that begin
after April 30, 2000, I hereby authorize payroll deductions from each
paycheck in the amount of ____% (up to 15%) of my Compensation on each
payday during the Offering Period in accordance with the Employee
Stock Purchase Plan. (Please note that no fractional percentages are
permitted.)
3. I understand that said payroll deductions shall be accumulated for the
purchase of shares of Common Stock at the applicable Purchase Price
determined in accordance with the Employee Stock Purchase Plan. I
understand that if I do not withdraw from an Offering Period, any
accumulated payroll deductions will be used to automatically exercise my
option.
4. I have received a copy of the complete Employee Stock Purchase Plan. I
understand that my participation in the Employee Stock Purchase Plan is in
all respects subject to the terms of the Plan. I understand that my
ability to exercise the option under this Subscription Agreement is subject
to shareholder approval of the Employee Stock Purchase Plan.
5. Shares purchased for me under the Employee Stock Purchase Plan should be
issued in the name(s) of (Employee or Employee and Spouse only):___________
__________________________________________________________________________.
6. I understand that if I dispose of any shares received by me pursuant to the
Plan within 2 years after the Enrollment Date (the first day of the
Offering Period during which I purchased such shares) or one year after the
Exercise Date, I will be treated for federal income tax purposes as having
received ordinary income at the time of such disposition in an amount equal
to the excess
<PAGE>
of the fair market value of the shares at the time such shares were
purchased by me over the price which I paid for the shares. I hereby agree
--------------
to notify the Company in writing within 30 days after the date of any
---------------------------------------------------------------------
disposition of my shares and I will make adequate provision for Federal,
------------------------------------------------------------------------
state or other tax withholding obligations, if any, which arise upon the
------------------------------------------------------------------------
disposition of the Common Stock. The Company may, but will not be obligated
-------------------------------
to, withhold from my compensation the amount necessary to meet any
applicable withholding obligation including any withholding necessary to
make available to the Company any tax deductions or benefits attributable
to sale or early disposition of Common Stock by me. If I dispose of such
shares at any time after the expiration of the 2-year and 1-year holding
periods, I understand that I will be treated for federal income tax
purposes as having received income only at the time of such disposition,
and that such income will be taxed as ordinary income only to the extent of
an amount equal to the lesser of (1) the excess of the fair market value of
the shares at the time of such disposition over the purchase price which I
paid for the shares, or (2) 15% of the fair market value of the shares on
the first day of the Offering Period. The remainder of the gain, if any,
recognized on such disposition will be taxed as capital gain.
7. I hereby agree to be bound by the terms of the Employee Stock Purchase
Plan. The effectiveness of this Subscription Agreement is dependent upon
my eligibility to participate in the Employee Stock Purchase Plan.
8. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due me under the
Employee Stock Purchase Plan (please print first, middle and last name of
beneficiary(ies), address of beneficiary(ies) and relationship to you):___
___________________________________________________________________________
__________________________________________________________________________.
I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT
SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME.
Dated:_____________________ ________________________________________
Signature of Employee
_______________________________________
Spouse's Signature (If beneficiary other
than spouse)
________________________________________
Employee's Social Security Number
________________________________________
Employee's Address
________________________________________
<PAGE>
EXHIBIT B
---------
INKTOMI CORPORATION
1998 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
The undersigned participant in the Offering Period of the Inktomi
Corporation 1998 Employee Stock Purchase Plan which began on
___________________________________, 19____ (the "Enrollment Date") hereby
notifies the Company that he or she hereby withdraws from the Offering Period.
He or she hereby directs the Company to pay to the undersigned as promptly as
practicable all the payroll deductions credited to his or her account with
respect to such Offering Period. The undersigned understands and agrees that his
or her option for such Offering Period will be automatically terminated. The
undersigned understands further that no further payroll deductions will be made
for the purchase of shares in the current Offering Period and the undersigned
shall be eligible to participate in succeeding Offering Periods only by
delivering to the Company a new Subscription Agreement.
Name and Address of Participant:
_____________________________________________
_____________________________________________
_____________________________________________
Signature:
_____________________________________________
Date:________________________________________
<PAGE>
EXHIBIT 10.4
INKTOMI CORPORATION
1996 EQUITY INCENTIVE PLAN
As Adopted March 15, 1996
As Amended October 7, 1996
1. PURPOSE. The purpose of the Plan is to provide incentives to attract,
-------
retain and motivate eligible persons whose present and potential contributions
are important to the success of the Company, its Parent, Subsidiaries and
Affiliates, by offering them an opportunity to participate in the Company's
future performance through awards of Options, Restricted Stock and Stock
Bonuses. Capitalized terms not defined in the text are defined in Section 24.
2. SHARES SUBJECT TO THE PLAN.
----------------------------
2.1 Number of Shares Available. Subject to Sections 2.2 and 18, the
--------------------------
total number of Shares reserved and available for grant and issuance pursuant to
the Plan shall be 6,000,000 Shares. Subject to Sections 2.2 and 18, Shares shall
again be available for grant and issuance in connection with future Awards under
the Plan that: (a) are subject to issuance upon exercise of an Option but cease
to be subject to such Option for any reason other than exercise of such Option,
(b) are subject to an Award granted hereunder but are forfeited or are
repurchased by the Company at the original issue price, or (c) are subject to an
Award that otherwise terminates without Shares being issued.
2.2 Adjustment of Shares. In the event that the number of outstanding
--------------------
Shares is changed by a stock dividend, recapitalization, stock split, reverse
stock split, subdivision, combination, reclassification or similar change in the
capital structure of the Company without consideration, then (a) the number of
Shares reserved for issuance under the Plan, (b) the Exercise Prices of and
number of Shares subject to outstanding Options, and (c) the number of Shares
subject to other outstanding Awards shall be proportionately adjusted, subject
to any required action by the Board or the shareholders of the Company and
compliance with applicable securities laws; provided, however, that fractions of
-------- -------
a Share shall not be issued but shall either be paid in cash at Fair Market
Value or shall be rounded up to the nearest Share, as determined by the
Committee.
3. ELIGIBILITY. ISOs (as defined in Section 5 below) may be granted only
-----------
to employees (including officers and directors who are also employees) of the
Company or of a Parent or Subsidiary of the Company. All other Awards may be
granted to employees, officers, directors, consultants, independent contractors
and advisers of the Company or any Parent, Subsidiary or Affiliate of the
Company; provided such consultants, contractors and advisers render bona fide
--------
services not in connection with the offer and sale of securities in a
capital-raising transaction. A person may be granted more than one Award under
the Plan.
<PAGE>
4. ADMINISTRATION.
--------------
4.1 Committee Authority. The Plan shall be administered by the
-------------------
Committee or the Board acting as the Committee. Subject to the general purposes,
terms and conditions of the Plan, and to the direction of the Board, the
Committee shall have full power to implement and carry out the Plan. The
Committee shall have the authority to:
(a) construe and interpret the Plan, any Award Agreement and any
other agreement or document executed pursuant to the Plan;
(b) prescribe, amend and rescind rules and regulations relating
to the Plan;
(c) select persons to receive Awards;
(d) determine the form and terms of Awards;
(e) determine the number of Shares or other consideration
subject to Awards;
(f) determine whether Awards will be granted singly, in
combination, in tandem with, in replacement of, or as
alternatives to, other Awards under the Plan or any other
incentive or compensation plan of the Company or any Parent,
Subsidiary or Affiliate of the Company;
(g) grant waivers of Plan or Award conditions;
(h) determine the vesting, exercisability and payment of Awards;
(i) correct any defect, supply any omission, or reconcile any
inconsistency in the Plan, any Award or any Award Agreement;
(j) determine whether an Award has been earned; and
(k) make all other determinations necessary or advisable for the
administration of the Plan.
4.2 Committee Discretion. Any determination made by the Committee
--------------------
with respect to any Award shall be made in its sole discretion at the time of
grant of the Award or, unless in contravention of any express terms of the Plan
or Award, at any later time, and such determination shall be final and binding
on the Company and all persons having an interest in any Award under the Plan.
The Committee may delegate to one or more officers of the Company the authority
to grant an Award under the Plan to Participants who are not Insiders of the
Company.
-2-
<PAGE>
4.3 Exchange Act Requirements. If the Company is subject to the
-------------------------
Exchange Act, the Company will take appropriate steps to comply with the
disinterested director requirements of Section 16(b) of the Exchange Act,
including but not limited to, the appointment by the Board of a Committee
consisting of not less than two persons (who are members of the Board), each of
whom is a Disinterested Person.
5. OPTIONS. The Committee may grant Options to eligible persons and shall
-------
determine whether such Options shall be Incentive Stock Options within the
meaning of the Code ("ISOs") or Nonqualified Stock Options ("NQSOs"), the number
---- ------
of Shares subject to the Option, the Exercise Price of the Option, the period
during which the Option may be exercised, and all other terms and conditions of
the Option, subject to the following:
5.1 Form of Option Grant. Each Option granted under the Plan shall be
--------------------
evidenced by an Award Agreement which shall expressly identify the Option as an
ISO or NQSO ("Stock Option Agreement"), and be in such form and contain such
----------------------
provisions (which need not be the same for each Participant) as the Committee
shall from time to time approve, and which shall comply with and be subject to
the terms and conditions of the Plan.
5.2 Date of Grant. The date of grant of an Option shall be the date
-------------
on which the Committee makes the determination to grant such Option, unless
otherwise specified by the Committee. The Stock Option Agreement and a copy of
the Plan will be delivered to the Participant within a reasonable time after the
granting of the Option.
5.3 Exercise Period. Options shall be exercisable within the times
---------------
or upon the events determined by the Committee as set forth in the Stock Option
Agreement; provided, however, that no Option, shall be exercisable after the
-------- -------
expiration of ten (10) years from the date the Option is granted, and provided
further that no Option granted to a person who directly or by attribution owns
more than ten percent (10%) of the total combined voting power of all classes
of stock of the Company or any Parent or Subsidiary of the Company ("Ten Percent
-----------
Shareholder") shall be exercisable after the expiration of five (5) years from
- -----------
the date the Option is granted. The Committee also may provide for the exercise
of Options to become exercisable at one time or from time to time, periodically
or otherwise, in such number or percentage as the Committee determines.
5.4 Exercise Price. The Exercise Price shall be determined by the
--------------
Committee when the Option is granted and may be not less than 85% of the Fair
Market Value of the Shares on the date of grant; provided that (i) the Exercise
Price of an ISO shall be not less than 100% of the Fair Market Value of the
Shares on the date of grant and (ii) the Exercise Price of any Option granted to
a Ten Percent Shareholder shall not be less than 110% of the Fair Market Value
of the Shares on the date of grant. Payment for the Shares purchased may be made
in accordance with Section 8 of the Plan.
5.5 Method of Exercise. Options may be exercised only by delivery to
------------------
the Company of a written stock option exercise agreement ("the Exercise
--------
Agreement") in a form approved by the Committee (which need not be the same for
- ---------
each Particiapnt), stating the number of Shares being purchased, the
restrictions imposed on the Shares, if any, and such representations and
agreements regarding Participant's investment intent and access to
-3-
<PAGE>
information, if any, as may be required or desirable by the Company to comply
with applicable securities laws, together with payment in full of the Exercise
Price for the number of Shares being purchased.
5.6 Termination. Notwithstanding the exercise periods set forth in
-----------
the Stock Option Agreement, exercise of an Option shall always be subject to the
following:
(a) If the Participant is Terminated for any reason except death
or Disability, then Participant may exercise such
Participant's Options only to the extent that such Options
would have been exercisable upon the Termination Date no
later than three (3) months after the Termination Date (or
such shorter time period as may be specified in the Stock
Option Agreement), but in any event, no later than the
expiration date of the Options.
(b) If the Participant is terminated because of death or
Disability (or the Participant dies within three (3) months
of such termination), then Participant's Options may be
exercised only to the extent that such Options would have
been exercisable by Participant on the Termination Date and
must be exercised by Participant (or Participant's legal
representative or authorized assignee) no later than twelve
(12) months after the Termination Date (or such shorter time
period as may be specified in the Stock Option Agreement),
but in any event no later than the expiration date of the
Options.
5.7 Limitations on Exercise. The Committee may specify a reasonable
-----------------------
minimum number of Shares that may be purchased on any exercise of an Option,
provided that such minimum number will not prevent Participant from exercising
the Option for the full number of Shares for which it is then exercisable.
5.8 Limitations on ISOs. The aggregate Fair Market Value (determined
-------------------
as of the date of grant) of Shares with respect to which ISOs are exercisable
for the first time by a Participant during any calendar year (under the Plan or
under any other incentive stock option plan of the Company or any Affiliate,
Parent or Subsidiary of the Company) shall not exceed $100,000. If the Fair
Market Value of Shares on the date of grant with respect to which ISOs are
exercisable for the first time by a Participant during any calendar year exceeds
$100,000, the Options for the first $100,000 worth of Shares to become
exercisable in such calendar year shall be ISOs and the Options for the amount
in excess of $100,000 that become exercisable in that calendar year shall be
NQSOs. In the event that the Code or the regulations promulgated thereunder are
amended after the Effective Date of the Plan to provide for a different limit on
the Fair Market Value of Shares permitted to be subject to ISOs, such different
limit shall be automatically incorporated herein and shall apply to any Options
granted after the effective date of such amendment.
5.9 Modification, Extension or Renewal. The Committee may modify,
----------------------------------
extend or renew outstanding Options and authorize the grant of new Options in
substitution therefor,
-4-
<PAGE>
provided that any such action may not, without the written consent of
Participant, impair any of Participant's rights under any Option previously
granted. Any outstanding ISO that is modified, extended, renewed or otherwise
altered shall be treated in accordance with Section 424(h) of the Code. The
Committee may reduce the Exercise Price of outstanding Options without the
consent of Participants affected by a written notice to them; provided, however,
-------- -------
that the Exercise Price may not be reduced below the minimum Exercise Price that
would be permitted under Section 5.4 of the Plan for Options granted on the date
the action is taken to reduce the Exercise Price.
5.10 No Disqualification. Notwithstanding any other provision in the
-------------------
Plan, no term of the Plan relating to ISOs shall be interpreted, amended or
altered, nor shall any discretion or authority granted under the Plan be
exercised, so as to disqualify the Plan under Section 422 of the Code or,
without the consent of the Participant affected, to disqualify any ISO under
Section 422 of the Code.
6. RESTRICTED STOCK. A Restricted Stock Award is an offer by the Company
----------------
to sell to an eligible person Shares that are subject to restrictions. The
Committee shall determine to whom an offer will be made, the number of Shares
the person may purchase, the price to be paid (the "Purchase Price"), the
--------------
restrictions to which the Shares shall be subject, and all other terms and
conditions of the Restricted Stock Award, subject to the following:
6.1 Form of Restricted Stock Award. All purchases under a
------------------------------
Restricted Stock Award made pursuant to the Plan shall be evidenced by an Award
Agreement ("Restricted Stock Purchase Agreement") that shall be in such form
-----------------------------------
(which need not be the same for each Participant) as the Committee shall from
time to time approve, and shall comply with and be subject to the terms and
conditions of the Plan. The offer of the Restricted Stock shall be accepted by
the Participant's execution and delivery of the Restricted Stock Purchase
Agreement and full payment for the Shares to the Company within thirty (30) days
from the date of the Restricted Stock Purchase Agreement is delivered to the
person. If such person does not execute and deliver the Restricted Stock
Purchase Agreement along with full payment for the Shares to the Company within
thirty (30) days, then the offer shall terminate, unless otherwise determined by
the Committee.
6.2 Purchase Price. The Purchase Price of Shares sold pursuant to a
--------------
Restricted Stock Award shall be determined by the Committee and shall be at
least 85% of the Fair Market Value of the Shares on the date the Restricted
Stock Award is granted, except in the case of a sale to a Ten Percent
Shareholder, in which case the Purchase Price shall be 100% of the Fair Market
Value. Payment of the Purchase Price may be made in accordance with Section 8 of
the Plan.
6.3 Restrictions. Restricted Stock Awards shall be subject to such
------------
restrictions as the Committee may impose. The Committee may provide for the
lapse of such restrictions in installments and may accelerate or waive such
restrictions, in whole or part, based on length of service, performance or such
other factors or criteria as the Committee may determine; provided that
--------
Restricted Stock Awards containing restrictions which are subject to lapse at a
rate of less than 20% of the shares per year may be granted only to officers,
directors or consultants of the Company or employees of the Company earning at
least $60,000 per year and having adequate
-5-
<PAGE>
sophistication and sufficient empowerment to enable such employees to achieve
the performance goals.
7. STOCK BONUSES.
-------------
7.1 Awards of Stock Bonuses. A Stock Bonus is an award of Shares
-----------------------
(which may consist of Restricted Stock) for services rendered to the Company or
any Parent, Subsidiary or Affiliate of the Company. A Stock Bonus may be awarded
for past services already rendered to the Company, or any Parent, Subsidiary or
Affiliate of the Company pursuant to an Award Agreement (the "Stock Bonus
-----------
Agreement") that shall be in such form (which need not be the same for each
- ---------
Participant) as the Committee shall from time to time approve, and shall comply
with and be subject to the terms and conditions of the Plan. A Stock Bonus may
be awarded upon satisfaction of such performance goals as are set out in advance
in Participant's individual Award Agreement (the "Performance Stock Bonus
-----------------------
Agreement") that shall be in such form (which need not be the same for each
- ---------
Participant) as the Committee shall from time to time approve, and shall comply
with and be subject to the terms and conditions of the Plan. Stock Bonuses may
vary from Participant to Participant and between groups of Participants, and may
be based upon the achievement of the Company, Parent, Subsidiary or Affiliate
and/or individual performance factors or upon such other criteria as the
Committee may determine; provided, however, that performance-based bonuses that
--------
do not vest at least as to 20% of the shares per year shall be restricted to
officers, directors and consultants of the Company and employees of the Company
earning at least $60,000 per year and having adequate sophistication and
sufficient empowerment to enable such individuals to achieve the performance
goals.
7.2 Terms of Stock Bonuses. The Committee shall determine the number
----------------------
of Shares to be awarded to the Participant and whether such Shares shall be
Restricted Stock. If the Stock Bonus is being earned upon the satisfaction of
performance goals pursuant to a Performance Stock Bonus Agreement, then the
Committee shall determine; (a) the nature, length and starting date of any
period during which performance is to be measured (the "Performance Period") for
------------------
each Stock Bonus; (b) the performance goals and criteria to be used to measure
the performance, if any; (c) the number of Shares that may be awarded to the
Participant; and (d) the extent to which such Stock Bonuses have be earned.
Performance Periods may overlap and Participants may participate simultaneously
with respect to Stock Bonuses that are subject to different Performance Periods
and different performance goals and other criteria. The number of Shares may be
fixed or may vary in accordance with such performance goals and criteria. The
number of Shares may be fixed or may vary in accordance with such performance
goals and criteria as may be determined by the Committee. The Committee may
adjust the performance goals applicable to the Stock Bonuses to take into
account changes in law and accounting or tax rules and to make such adjustments
as the Committee deems necessary or appropriate to reflect the impact of
extraordinary or unusual items, events or circumstances to avoid windfalls or
hardships.
7.3 Form of Payment. The earned portion of a Stock Bonus may be paid
---------------
currently or on a deferred basis with such interest or dividend equivalent, if
any, as the Committee may determine. Payment may be made in the form of cash,
whole Shares, including Restricted Stock, or a combination thereof, either in a
lump sum payment or in installments, all as the Committee shall determine.
<PAGE>
7.4 Termination During Performance Period. If a Participant is
-------------------------------------
Terminated during a Performance Period for any reason, then such Participant
shall be entitled to payment (whether in Shares, cash or otherwise) with respect
to the Stock Bonus only to the extent earned as of the date of Termination in
accordance with the Performance Stock Bonus Agreement, unless the Committee
shall determine otherwise.
8. PAYMENT FOR SHARE PURCHASES.
---------------------------
8.1 Payment. Payment for Shares purchased pursuant to the Plan may be
-------
made in cash (by check) or, where expressly approved for the Participant by the
Committee and where permitted by law:
(a) by cancellation of indebtedness of the Company to the
Participant;
(b) by surrender of Shares that either: (1) have been owned by
Participant for more than six (6) months and have been paid
for within the meaning of SEC Rule 144 (and, if such shares
were purchased from the Company by use of a promissory note,
such note has been fully paid with respect to such Shares);
or (2) were obtained by Participant in the public market;
(c) by tender of a full recourse promissory note having such
terms as may be approved by the Committee and bearing
interest at a rate sufficient to avoid imputation of income
under Sections 483 and 1274 of the Code; provided, however,
-------- -------
that Participant who are not employees of the Company shall
not be entitled to purchase Shares with a promissory note
unless the note is adequately secured by collateral other
than the Shares; provided further that the portion of the
----------------
Purchase Price equal to the par value of the Shares, if any,
must be paid in cash.
(d) by waiver of compensation due or accrued to Participant for
services rendered;
(e) with respect only to purchases upon exercise of an Option,
and provided that a public market for the Company's Stock
exists:
(1) through a "same day sale" committee from Participant
and a broker-dealer that is a member of the National
Association of Securities Dealers (an "NASD Dealer")
-----------
whereby the Participant irrevocably elects to exercise
the Option and to sell a portion of the Shares so
purchased to pay for the Exercise Price, and whereby
the NASD Dealer irrevocably commits upon receipt of
such Shares to forward the Exercise Price directly to
the Company; or
<PAGE>
(2) through a "margin" commitment from Participant and an
NASD Dealer whereby Participant irrevocably elects to
exercise the Option and to pledge the Shares so
purchased to the NASD Dealer in a margin account as
security for a loan from the NASD Dealer in the amount
of the Exercise Price, and whereby the NASD Dealer
irrevocably commits upon receipt of such Shares to
forward the exercise price directly to the Company; or
(f) by any combination of the foregoing.
8.2 Loan Guarantees. The Committee may help the Participant pay for
---------------
Shares purchased under the Plan by authorizing a guarantee by the Company of a
third-party loan to the Participant.
9. WITHHOLDING TAXES.
-----------------
9.1 Withholding Generally. Wherever Shares are to issued in
---------------------
satisfaction of Awards granted under the Plan, the Company may require the
Participant to remit to the Company an amount sufficient to satisfy federal,
state and local withholding tax requirements prior to the delivery of any
certificate or certificates for such Shares. Whenever, under the Plan, payments
in satisfaction of Awards are to be made in cash, such payment shall be net of
an amount sufficient to satisfy federal, state, and local withholding tax
requirements.
9.2 Stock Withholding. When, under applicable tax laws, a
-----------------
Participant incurs tax liability in connection with the exercise or vesting of
any Award that is subject to tax withholding and the Participant is obligated to
pay the Company the amount required to be withheld, the Committee may, in its
sole discretion, allow the Participant to satisfy the minimum withholding tax
obligation by electing to have the Company withhold from the Shares to be issued
that number of Shares having a Fair Market Value equal to the minimum amount
required to be withheld, determined on the date that the amount of tax to be
withheld is to be determined (the "Tax Date"). All elections by a Participant to
--------
have Shares withheld for this purpose shall be made in writing in a form
acceptable to the Committee and shall be subject to the following restrictions:
(a) the election must be made on or prior to the applicable Tax
Date;
(b) once made, then except as provided below, the election shall
be irrevocable as to the particular Shares as to which the
election is made;
(c) all elections shall be subject to the consent or disapproval
of the Committee;
(d) if the Participant is an Insider and if the Company is
subject to Section 16(b) of the Exchange Act: (1) the
election may not be
<PAGE>
made within six (6) months of the date of grant of the Award
except as otherwise permitted by SEC Rule 16b-3(e) under the
Exchange Act, and (2) either (A) the election to use stock
withholding must be irrevocably made at least six (6) months
prior to the Tax Date (although such election may be revoked
at any time at least six (6) months prior to the Tax Date)
or (B) the exercise of the Option or election to use stock
withholding must be made in the ten (10) day period
beginning on the third day following the release of the
Company's quarterly or annual summary statement of sales or
earnings;
(e) in the event that the Tax Date is deferred until six (6)
months after the delivery of Shares under Section 83(b) of
the Code, the Participant shall receive the full number of
Shares with respect to which the exercise occurs, but such
Participant shall be unconditionally obligated to tender
back to the Company the proper number of Shares on the Tax
Date.
10. PRIVILEGES OF STOCK OWNERSHIP
-----------------------------
10.1 Voting and Dividends. No Participant shall have any of the rights
--------------------
of a shareholder with respect to any Shares until the Shares are issued to the
Participant. After Shares are issued to the Participant, the Participant shall
be a shareholder and have all the rights of a shareholder with respect to such
Shares, including the right to vote and receive all dividends or other
distributions made or paid with respect to such Shares; provided, that if such
--------
Shares are Restricted Stock, then any new, additional or different securities
the Participant may become entitled to receive with respect to such Shares by
virtue of a stock dividend, stock split or any other change in the corporate or
capital structure of the Company shall be subject to the same restrictions as
the Restricted Stock; provided, further, that the Participant shall have no
-------- -------
right to retain such stock dividends or stock distributions with respect to
Shares that are later repurchased at the Participant's original Purchase Price
pursuant to Section 12.
10.2 Financial Statements. The Company shall provide financial
--------------------
statements to each Participant prior to such Participant's purchase of Shares
under the Plan, and to each Participant annually during the period such
Participant has Awards outstanding; provided, however, the Company shall not be
-------- -------
required to provide such financial statements to Participants whose services in
connection with the Company assure them access to equivalent information.
11. TRANSFERABILITY. Awards granted under the Plan, and any interest
---------------
therein, shall not be transferable or assignable by Participant, and may not be
made subject to execution, attachment or similar process, otherwise than by will
or by the laws of descent and distribution or as consistent with the specific
Plan and Award Agreement provisions relating thereto. During the lifetime of the
Participant an Award shall be exercisable only by the Participant, and any
elections with respect to an Award, may be made only by the Participant.
12. RESTRICTIONS ON SHARES. At the discretion of the Committee, the
----------------------
Company may reserve to itself and/or its assignee(s) in the Award Agreement (a)
a right of first
<PAGE>
refusal to purchase all Shares that a Participant (or a subsequent transferee)
may propose to transfer to a third party, and/or (b) a right to repurchase a
portion of or all Shares held by a Participant following such Participant's
Termination at any time within ninety (90) days after the later of Participant's
Termination Date and the date Participant purchases Shares under the Plan, for
cash or cancellation of purchase money indebtedness, at: (A) with respect to
Shares that are "Vested" (as defined in the Award Agreement), the Fair Market
Value of such Shares on Participant's Termination Date, provided, that such
--------
right of repurchase (i) must be exercised as to all such "Vested" Shares unless
a Participant consents to the Company's repurchase of only a portion of such
"Vested" Shares and (ii) terminates when the Company's securities become
publicly traded; or (B) with respect to Shares that are not "Vested" (as defined
in the Award Agreement), at the Participant's original Purchase Price or such
higher price as determined by the Committee; provided, however, that except with
-------- -------
respect to Awards granted to officers, directors or consultants of the Company
or employees of the Company earning at least $60,000 per year and having
adequate sophistication and sufficient empowerment to enable such employees to
achieve the performance goals, the right to repurchase at the original Purchase
Price lapses at the rate of at least 20% per year over 5 years from the date the
Shares were purchased (or from the date of grant of options in the case of
Shares obtained pursuant to a Stock Option Agreement and Stock Option Exercise
Agreement).
13. CERTIFICATES. All certificates for Shares or other securities
------------
delivered under the Plan shall be subject to such stock transfer orders, legends
and other restrictions as the Committee may deem necessary or advisable,
including restrictions under any applicable federal, state or foreign securities
law, or any rules, regulations and other requirements of the SEC or any stock
exchange or automated quotation system upon which the Shares may be listed.
14. ESCROW; PLEDGE OF SHARES. To enforce any restrictions on a
------------------------
Participant's Shares, the Committee may require the Participant to deposit all
certificates representing Shares, together with stock powers or other
instruments of transfer approved by the Committee, appropriately endorsed in
blank, with the Company or an agent designated by the Company to hold in escrow
until such restrictions have lapsed or terminated, and the Committee may cause a
legend or legends referencing such restrictions to be placed on the
certificates. Any Participant who is permitted to execute a promissory note as
partial or full consideration for the purchase of Shares under the Plan shall be
required to pledge and deposit with the Company all or part of the Shares so
purchased as collateral to secure the payment of Participant's obligation to the
Companyunder the promissory note; provided, however, that the Committee may
-------- -------
require or accept other additional forms of collateral to secure the payment of
such obligation and, in any event, the Company shall have full recourse against
the Participant under the promissory note notwithstanding any pledge of the
Participant's Shares or other collateral. In connection with any pledge of the
Shares, Participant shall be required to execute and deliver a written pledge
agreement in such from as the Committee shall from time to time approve. The
Shares purchased with the promissory note may be released from the pledge on a
pro rata basis as the promissory note is paid.
15. EXCHANGE AND BUYOUT OF AWARDS. The Committee may, at any time or from
-----------------------------
time to time, authorize the Company, with the consent of the respective
Participants, to issue new Awards in exchange for the surrender and cancellation
of any or all outstanding Awards. The Committee may at any time buy from a
Participant an Award previously granted
<PAGE>
with payment in cash. Shares (including Restricted Stock) or other
consideration, based on such terms and conditions as the Committee and the
Participant shall agree.
16. SECURITIES LAW AND OTHER REGULATORY COMPLIANCE. An Award shall not be
----------------------------------------------
effective unless such Award is in compliance with all applicable federal and
state securities laws, rules and regulations of any governmental body, and the
requirements of any stock exchange or automated quotation system upon which the
Shares may then be listed, as they are in effect on the date of grant of the
Award and also on the date of exercise or other issuance. Notwithstanding any
other provision in the Plan, the Company shall have no obligation to issue or
deliver certificates for Shares under the Plan prior to (a) obtaining any
approvals from governmental agencies that the Company determines are necessary
or advisable, and/or (b) completion of any registration or other qualification
of such shares under any state or federal law or ruling of any governmental body
that the Company determines to be necessary or advisable. The Company shall be
under no obligation to register the Shares with the SEC or to effect compliance
with the registration, qualification or listing requirements of any state
securities laws, stock exchange or automated quotation system, and the Company
shall have no liability for any inability or failure to do so.
17. NO OBLIGATION TO EMPLOY. Nothing in the Plan or any Award granted
-----------------------
under the Plan shall confer or be deemed to confer on any Participant any right
to continue in the employ of, or to continue any other relationship with, the
Company or any Parent, Subsidiary or Affiliate of the Company or limit in any
way the right of the Company or any Parent, Subsidiary or Affiliate of the
Company to terminate Participant's employment or other relationship at any
time, with or without cause.
18. CORPORATE TRANSACTIONS.
----------------------
18.1 Assumption or Replacement of Awards by Successor. In the event of
------------------------------------------------
(a) a merger or consolidation in which the Company is not the surviving
corporation (other than a merger or consolidation with a wholly-owned
subsidiary, a reincorporation of the Company in a different jurisdiction, or
other transaction in which there is no substantial change in the shareholders of
the Company and the Awards granted under the Plan are assumed or replaced by the
successor corporation, which assumption shall be binding on all Participants),
(b) a dissolution or liquidation of the Company, (c) the sale of substantially
all of the assets of the Company, or (d) any other transaction which qualifies
as a "corporate transaction" under Section 424(a) of the Code wherein the
shareholders of the Company give up all of their equity interest in the Company
(except for the acquisition, sale or transfer of all or substantially all of the
------
outstanding shares of the Company) any or all outstanding Awards may be assumed
or replaced by the successor corporation (if any), which assumption or
replacement shall be binding on all Participants. In the alternative, the
successor corporation may substitute equivalent Awards or provide substantially
similar consideration to Participants as was provided to shareholders (after
taking into account the existing provisions of the Awards). The successor
corporation may also issue, in place of outstanding Shares of the Company held
by the Participant substantially similar shares or other property subject to
repurchase restrictions no less favorable to the Participant.
In the event such successor corporation, if any, refuses to
assume or substitute the Awards, as provided above, pursuant to a transaction
described in this Subsection
-11-
<PAGE>
18.1. such Awards shall expire in connection with such transaction at such time
and on such conditions as the Board shall determine.
18.2 Other Treatment of Awards. Subject to any greater rights
-------------------------
granted to Participants under the foregoing provisions of this Section 18. in
the event of the occurrence of any transaction described in Section 18.1. any
outstanding Awards shall be treated as provided in the applicable agreement or
plan of merger, consolidation, dissolution, liquidation, sale of assets or other
"corporate transaction."
18.3 Assumption of Awards by the Company. The Company, from time
-----------------------------------
to time, also may substitute or assume outstanding awards granted by another
company, whether in connection with an acquisition of such other company or
otherwise, by either (a) granting an Award under the Plan in substitution of
such other company's award, or (b) assuming such award as if it had been granted
under the Plan if the terms of such assumed award could be applied to an Award
granted under the Plan. Such substitution or assumption shall be permissible if
the holder of the substituted or assumed award would have been eligible to be
granted an Award under the Plan if the other company had applied the rules of
the Plan to such grant. In the event the Company assumes an award granted by
another company, the terms and conditions of such award shall remain unchanged
(except that the exercise price and the number and nature of Shares issuable
upon exercise of any such option will be adjusted appropriately pursuant to
Section 424(a) of the Code). In the event the Company elects to grant a new
Option rather than assuming an existing option, such new Option may be granted
with a similarly adjusted Exercise Price.
19. ADOPTION AND SHAREHOLDER APPROVAL. The Plan shall become
---------------------------------
effective on the date that it is adopted by the Board (the "Effective Date").
--------------
The Plan shall be approved by the shareholders of the Company (excluding Shares
issued pursuant to this Plan), consistent with applicable laws, within twelve
months before or after the Effective Date. Upon the Effective Date, the Board
may grant Awards pursuant to the Plan; provided, however, that: (a) no Option
-------- -------
may be exercised prior to initial shareholder approval of the Plan; (b) no
Option granted pursuant to an increase in the number of Shares approved by the
Board shall be exercised prior to the time such increase has been approved by
the shareholders of the Company; and (c) in the event that shareholder approval
is not obtained within the time period provided herein, all Awards granted
hereunder shall be cancelled, any shares issued pursuant to any Award shall be
cancelled and any purchase of Shares hereunder shall be rescinded. After the
Company becomes subject to Section 16(b) of the Exchange act, the Company will
comply with the requirements of Rule 16b-3 (or its successor), as amended,
with respect to shareholder approval.
20. TERM OF PLAN. The Plan will terminate ten (10) years from the
------------
Effective Date or, if earlier, the date of shareholder approval.
21. AMENDMENT OR TERMINATION OF PLAN. The Board may at any time terminate
--------------------------------
or amend the Plan in any respect, including without limitation amendment of any
form of Award Agreement or instrument to be executed pursuant to the Plan:
provided, however, that the Board shall not, without the approval of the
- -------- -------
shareholders of the Company, amend the Plan in any manner that requires such
shareholder approval pursuant to the Code or the regulations
-12-
<PAGE>
promulgated thereunder as such provisions apply to ISO plans or pursuant to the
Exchange Act or Rule 16b-3 (or its successor), as amended, thereunder.
22. NONEXCLUSIVITY OF THE PLAN. Neither the adoption of the Plan by the
--------------------------
Board, the submission of the Plan to the shareholders of the Company for
approval, nor any provision of the Plan shall be construed as creating any
limitations on the power of the Board to adopt such additional compensation
arrangements as it may deem desirable, including, without limitation, the
granting of stock options and bonuses otherwise than under the Plan, and such
arrangements may be either generally applicable or applicable only in specific
cases.
23. GOVERNING LAW. The Plan and all agreements, documents and instruments
-------------
entered into pursuant to the Plan shall be governed by and construed in
accordance with the internal laws of the State of California, excluding that
body of law pertaining to conflict of law or choice of law.
24. DEFINITIONS. As used in the Plan, the following terms shall have the
-----------
following meanings:
"Affiliate" means any corporation that directly, or indirectly through
---------
one or more intermediaries, controls or is controlled by, or is under common
control with, another corporation, where "control" (including the terms
"controlled by" and "under common control with") means the possession, direct or
indirect, of the power to cause the direction of the management and policies of
the corporation, whether through the ownership of voting securities, by contract
or otherwise.
"Award" means any award under the Plan, including any Option,
-----
Restricted Stock of Stock Bonus.
"Award Agreement" means, with respect to each Award, the signed
---------------
written agreement between the Company and the Participant setting forth the
terms and conditions of the Award.
"Board" means the Board of Directors of the Company.
-----
"Code" means the Internal Revenue Code of 1986, as amended.
----
"Committee" means the committee appointed by the Board to administer
---------
the Plan, or if no committee is appointed the Board.
"Company" means Inktomi Corporation, a corporation organized under the
-------
laws of the State of California or any successor corporation.
"Disability" means a permanent or total disability, whether temporary
----------
or permanent, partial or total, within the meaning of Section 22(e)(3) of the
Code, or as determined by the Committee.
-13-
<PAGE>
"Disinterested Person" means a director who has not, during the period
--------------------
that person is a member of the Committee and for one year prior to service as a
member of the Committee, been granted or awarded equity securities pursuant to
the Plan or any other plan of the Company or any Parent, Subsidiary or Affiliate
of the Company, except in accordance with the requirements set forth in Rule 16
b-3(c)(2)(i) (and any successor regulation thereto) as promulgated by the SEC
under Section 16(b) of the Exchange Act, as such rule is amended from time to
time and as interpreted by the SEC.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
------------
"Exercise Price" means the price at which a holder of an Option may
--------------
purchase the Shares issuable upon exercise of the Option.
"Fair Market Value" means, as of any date, the value of a share of the
-----------------
Company's Common Stock determined as follows:
(a) if such Common Stock is then quoted on the Nasdaq National
Market, its last reported sale price on the Nasdaq National
Market or, if no such reported sale takes place on such date, the
average of the closing bid and asked prices;
(b) if such Common Stock is publicly traded and is then listed on a
national securities exchange, the last reported sale price or, if
no such reported sale takes place on such date, the average of
the closing bid and asked prices on the principal national
securities exchange on which the Common Stock is listed or
admitted to trading;
(c) if such Common Stock is publicly traded but is not quoted on the
Nasdaq National Market nor listed or admitted to trading on a
national securities exchange, the average of the closing bid and
asked prices on such date, as reported by the The Wall Street
Journal, for the over-the-counter market; or
(d) if none of the foregoing is applicable, by the Board of Directors
of the Company in good faith.
"Insider" means an officer or director of the Company or any other
-------
person whose transactions in the Company's Common Stock are subject to Section
16 of the Exchange Act.
"Option" means an award of an option to purchase Shares pursuant to
------
Section 5.
"Parent" means any corporation (other than the Company) in an unbroken
------
chain of corporations ending with the Company, if at the time of the granting of
an Award under the Plan, each of such corporations other than the Company owns
stock possession 50% or more of the total combined voting power of all classes
of stock in one of the other corporations in such chain.
"Participant" means a person who receives an Award under the Plan.
-----------
-14-
<PAGE>
"Plan" means this Inktomi Corporation 1996 Equity Incentive Plan, as
----
amended from time to time
"Restricted Stock Award" means an award of Shares pursuant to Section
----------------------
6.
"SEC" means the Securities and Exchange Commission.
---
"Securities Act" means the Securities Act of 1933, as amended.
--------------
"Shares" means shares of the Company's Common Stock reserved for
------
issuance under the Plan, as adjusted pursuant to Section 2 and 15, and any
successor security.
"Stock Bonus" means an award of Shares, or cash in lieu of Shares,
-----------
pursuant to Section 7.
"Subsidiary" means any corporation (other than the Company) in an
----------
unbroken chain of corporations beginning with the Company if, at the time of
granting of the Award, each of the corporations other than the last corporation
in the unbroken chain owns stock possessing 50% or more of the total combined
voting power of all classes of stock in one of the other corporations in such
chain.
"Termination" or "Terminated" means, for purposes of the Plan with
----------- ----------
respect to a Participant, that the Participant has ceased to provide services as
an employee, director, consultant, independent contractor or adviser, to the
Company or a Parent, Subsidiary or Affiliate of the Company, except in the case
of sick leave, military leave, or any other leave of absence approved by the
Committee, provided, that such leave is for a period of not more than ninety
--------
(90) days, or reinstatement upon the expiration of such leave is guaranteed by
contract or statute. The Committee shall have sole discretion to determine
whether a Participant has ceased to provide services and the effective date on
which the Participant ceased to provide services (the "Termination Date").
-----------------
-15-
<PAGE>
INKTOMI CORPORATION
1996 EQUITY INCENTIVE PLAN
STOCK OPTION AGREEMENT
This Stock Option Agreement ("Agreement") is made and entered into as of
---------
the date of grant set forth below (the "Date of Grant") by and between Inktomi
-------------
Corporation, a California corporation (the "Company"), and the participant named
-------
below ("Participant"). Capitalized terms not defined herein shall have the
-----------
meaning ascribed to them in the Company's 1996 Equity Incentive Plan (the
"Plan").
----
PARTICIPANT: ____________________________
SOCIAL SECURITY NUMBER: ____________________________
ADDRESS: ____________________________
TOTAL OPTION SHARES: ____________________________
EXERCISE PRICE PER SHARE: ____________________________
DATE OF GRANT: ____________________________
FIRST VESTING DATE: ____________________________
EXPIRATION DATE: ____________________________
TYPE OF STOCK OPTION: [ ] INCENTIVE STOCK OPTION
[ ] NONQUALIFIED STOCK OPTION
1. GRANT OF OPTION. The Company hereby grants to Participant an option
---------------
(the "Option") to purchase the total number of shares of Common Stock of the
------
Company set forth above (the "Shares") at the Exercise Price Per Share set forth
------
above (the "Exercise Price"), subject to all of the terms and conditions of this
--------------
Agreement and the Plan. If designated as an Incentive Stock Option above, the
Option is intended to qualify as an "incentive stock option" ("ISO") within the
---
meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code").
----
<PAGE>
2. EXERCISE PERIOD.
---------------
2.1 Exercise Period of Option. This Option is exercisable
-------------------------
immediately, in whole or in part, conditioned upon Participant entering into a
Restricted Stock Purchase Agreement substantially in the form attached hereto as
Exhibit C-1 (the "Restricted Stock Purchase Agreement") with respect to any
- ----------- -----------------------------------
unvested Option Shares. The Shares subject to this Option shall vest and/or be
released from the Company's repurchase option, as set forth in the Restricted
Stock Purchase Agreement, according to the following schedule:_____________,
provided however that (a) Shares subject to this Option shall vest and/or be
released from the Company's repurchase option based on Participant's continued
employment with or services to the Company and (b) vested Shares shall not be
subject to the Company's repurchase option.
2.2 Expiration. The Option shall expire on the Expiration Date set
----------
forth above and must be exercised, if at all, on or before the Expiration Date.
3. TERMINATION.
-----------
3.1 Termination for Any Reason Except Death or Disability. If
-----------------------------------------------------
Participant is Terminated for any reason, except death or Disability, the
Option, to the extent (and only to the extent) that it would have been
exercisable by Participant on the date of Termination, may be exercised by
Participant no later than three (3) months after the date of Termination, but in
any event no later than the Expiration Date.
3.2 Termination Because of Death or Disability. If Participant is
------------------------------------------
Terminated because of death or Disability of Participant, the Option, to the
extent that it is exercisable by Participant on the date of Termination, may be
exercised by Participant (or Participant's legal representative) no later than
twelve (12) months after the date of Termination, but in any event no later than
the Expiration Date.
3.3 No Obligation to Employ. Participant acknowledges and agrees
-----------------------
that the vesting of Shares is earned only by continuing consultancy or
employment at the will of the Company (not through the act of being hired, being
granted this Option or acquiring Shares hereunder). Participant further
acknowledges and agrees that nothing in the Plan or this Agreement (or any prior
or future amendment thereto or restatement thereof) shall confer on Participant
any right to continue in the employ of, or other relationship with, the Company
or any Parent, Subsidiary or Affiliate of the Company, or limit in any way the
right of the Company or any Parent, Subsidiary or Affiliate of the Company to
terminate Participant's employment or other relationship at any time, with or
without cause.
2
<PAGE>
4. MANNER OF EXERCISE.
------------------
4.1 Stock Option Exercise Agreement. To exercise this Option,
-------------------------------
Participant (or in the case of exercise after Participant's death, Participant's
executor, administrator, heir or legatee, as the case may be) must deliver to
the Company (a) an executed stock option exercise agreement substantially in the
form attached hereto as Exhibit A (the "Exercise Agreement"), and (b) in the
--------- ------------------
event the Shares purchasable pursuant to the exercise of this Option have not
been registered under the Securities Act of 1933, as amended, at the time the
Option is exercised, an Investment Representation Statement in substantially the
form attached hereto as Exhibit B (the "Investment Representation Statement"),
--------- -----------------------------------
and (c) if Participant is purchasing any unvested Shares, an executed Restricted
Stock Purchase Agreement. If someone other than Participant exercises the
Option, then such person must submit documentation reasonably acceptable to the
Company that such person has the right to exercise the Option.
4.2 Limitations on Exercise. The Option may not be exercised unless
-----------------------
such exercise is in compliance with all applicable federal and state securities
laws and with all applicable requirements of any stock exchange on which the
Company's Common Stock may be listed from time to time. The Option may not be
exercised as to fewer than 100 Shares unless it is exercised as to all Shares as
to which the Option is then exercisable.
4.3 Payment. The Exercise Agreement shall be accompanied by full
-------
payment of the Exercise Price for the Shares being purchased in cash (by check),
or where permitted by law:
(a) by cancellation of indebtedness of the Company to the
Participant;
(b) at the discretion of the Committee, by surrender of shares
of the Company's Common Stock that either: (1) have been owned by Participant
for more than six (6) months and have been paid for within the meaning of SEC
Rule 144 and, if such shares were purchased from the Company by use of a
promissory note, such note has been fully paid with respect to such shares); or
(2) were obtained by Participant in the open public market; and (3) are clear of
all liens, claims, encumbrances or security interests;
(c) at the discretion of the Committee, by tender of a full
recourse promissory note having such terms as may be approved by the Committee
and bearing interest at a rate sufficient to avoid imputation of income under
Sections 483 and 1274 of the Code provided, however, Participants who are not
-------- -------
employees of the Company shall not be entitled to purchase Shares with a
promissory note unless the note is adequately secured by collateral other than
the Shares.
(d) by waiver of compensation due or accrued to Participant for
services rendered;
3
<PAGE>
(e) provided that a public market for the Company's stock
exists, (1) through a "same day sale" commitment from Participant and a broker-
dealer that is a member of the National Association of Securities Dealers (an
"NASD Dealer") whereby Participant irrevocably elects to exercise the Option and
-----------
to sell a portion of the Shares so purchased to pay for the exercise price and
whereby the NASD Dealer irrevocably commits upon receipt of such Shares to
forward the exercise price directly to the Company, or (2) through a "margin"
--
commitment from Participant and an NASD Dealer whereby Participant irrevocably
elects to exercise the Option and to pledge the Shares so purchased to the NASD
Dealer in a margin account as security for a loan from the NASD Dealer in the
amount of the exercise price, and whereby the NASD Dealer irrevocably commits
upon receipt of such Shares to forward the exercise price directly to the
Company; or
(f) by any combination of the foregoing.
4.4 Tax Withholding. Prior to the issuance of the Shares upon
---------------
exercise of the Option, Participant must pay or provide for any applicable
federal or state withholding obligations of the Company. If the Committee
permits, Participant may provide for payment of withholding taxes upon exercise
of the Option by requesting that the Company retain Shares with a Fair Market
Value equal to the minimum amount of taxes required to be withheld. In such
case, the Company shall issue the net number of Shares to the Participant by
deducting the Shares retained from the Shares issuable upon exercise.
4.5 Issuance of Shares. Provided that the Exercise Agreement,
------------------
Investment Representation Statement (if applicable), Restricted Stock Purchase
Agreement (if applicable) and payment are in form and substance satisfactory to
counsel for the Company, the Company shall issue the Shares registered in the
name of Participant, Participant's authorized assignee, or Participant's legal
representative, and shall deliver certificates representing the Shares with the
appropriate legends affixed thereto (subject to the escrow provisions applicable
to the Restricted Stock Purchase Agreement).
5. NONTRANSFERABILITY OF OPTION. The Option may not be transferred in any
----------------------------
manner other than by will or by the laws of descent and distribution and may be
exercised during the lifetime of Participant only by Participant. The terms of
the Option shall be binding upon the executors, administrators, successors and
assigns of Participant.
6. TAX CONSEQUENCES. Set forth below is a brief summary as of the Date of
----------------
Grant of some of the federal and California tax consequences of exercise of the
Option and disposition of the Shares. THIS SUMMARY IS NECESSARILY INCOMPLETE,
AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. PARTICIPANT SHOULD
CONSULT A TAX ADVISER BEFORE EXERCISING THE OPTION OR DISPOSING OF THE SHARES.
6.1 Exercise of ISO. If the Option qualifies as an ISO, there will
---------------
be no regular federal or California income tax liability upon the exercise of
the Option, although the excess, if any, of the Fair Market Value of the Shares
on the date of exercise over the Exercise Price will be treated
4
<PAGE>
as a tax preference item for federal income tax purposes and may subject the
Participant to the alternative minimum tax in the year of exercise.
6.2 Exercise of Nonqualified Stock Option. If the Option does not
-------------------------------------
qualify as an ISO, there may be regular federal and California income tax
liability upon the exercise of the Option. Participant will be treated as
having received compensation income (taxable at ordinary income tax rates) equal
to the excess, if any, of the Fair Market Value of the Shares on the date of
exercise over the Exercise Price. If the Participant is an employee, the
Company will be required to withhold from Participant's compensation or collect
from Participant and pay to the applicable taxing authorities an amount equal to
a percentage of this compensation income at the time of exercise.
6.3 Disposition of Shares. If the Shares are held for more than
---------------------
twelve (12) months after the date of the transfer of the Shares pursuant to the
exercise of the Option (and, in the case of an ISO, are disposed of more than
two years after the Date of Grant), any gain realized on disposition of the
Shares will be treated as long term capital gain for federal and California
income tax purposes. If Shares purchased under an ISO are disposed of within
one year of exercise or within two years after the Date of Grant, any gain
realized on such disposition will be treated as compensation income (taxable at
ordinary income rates) to the extent of the excess, if any, of the Fair Market
Value of the Shares on the date of exercise over the Exercise Price. The
Company will be required to withhold from Participant's compensation or collect
from Participant and pay to the applicable taxing authorities an amount equal to
a percentage of this compensation income at the time of exercise.
6.4 Section 83(b) Election for Unvested Shares Purchased Pursuant to
----------------------------------------------------------------
Nonqualified Stock Options. With respect to the exercise of a nonqualified
- --------------------------
stock option for unvested Shares, an election may be filed by the Participant
with the Internal Revenue Service and, if necessary, the proper state taxing
authorities, within 30 days of the purchase of the Shares, electing pursuant to
--------------
Section 83(b) of the Code (and similar state tax provisions if applicable) to be
taxed currently on any difference between the purchase price of the Shares and
their Fair Market Value on the date of purchase. This will result in a
recognition of taxable income to the Participant on the date of exercise,
measured by the excess, if any, of the Fair Market Value of the Shares, at the
time the Option is exercised over the purchase price for the Shares. Absent
such an election, taxable income will be measured and recognized by the
Participant at the time or times on which the Company's repurchase option
lapses. Participant is strongly encouraged to seek the advice of his or her own
tax consultants in connection with the purchase of the Shares and the
advisability of filing of the Election under Section 83(b) and similar tax
provisions. A form of Election under Section 83(b) is attached hereto as
Exhibit C-5 for reference.
6.5 Section 83(b) Election for Unvested Shares Purchased Pursuant to
----------------------------------------------------------------
ISOs. With respect to the exercise of an ISO for unvested Shares, an election
- ----
may be filed by the Participant with the Internal Revenue Service and, if
necessary, the proper state taxing authorities, within 30 days of the purchase
--------------
of the Shares, electing pursuant to Section 83(b) of the Code (and similar state
tax provisions, if applicable) to be taxed currently on any difference between
the purchase
5
<PAGE>
price of the Shares and their Fair Market Value on the date of purchase for
alternative minimum tax purposes. This will result in a recognition of income to
the Participant on the date of exercise, for alternative minimum tax purposes,
measured by the excess, if any, of the fair market value of the Shares, at the
time the option is exercised, over the purchase price for the Shares. Absent
such an election, alternative minimum taxable income will be measured and
recognized by Participant at the time or times on which the Company's repurchase
option under the Restricted Stock Purchase Agreement lapses. Participant is
strongly encouraged to seek the advice of his or her tax consultants in
connection with the purchase of the Shares and the advisability of filing of the
Election under Section 83(b) and similar tax provisions. A form of Election
under Section 83(b) for alternative minimum tax purposes is attached hereto as
Exhibit C-6 for reference.
PARTICIPANT ACKNOWLEDGES THAT IT IS OPTIONEE'S SOLE RESPONSIBILITY AND NOT
THE COMPANY'S TO FILE TIMELY THE ELECTION UNDER SECTION 83(b), EVEN IF
PARTICIPANT REQUESTS THE COMPANY OR ITS REPRESENTATIVE TO MAKE THIS FILING ON
PARTICIPANT'S BEHALF.
7. NOTICE OF DISQUALIFYING DISPOSITION OF ISO SHARES. If the Option is an
-------------------------------------------------
ISO, and if Participant sells or otherwise disposes of any of the Shares
acquired pursuant to the ISO on or before the later of (1) the date two years
after the Date of Grant, and (2) the date one year after transfer of such Shares
to Participant upon exercise of the Option, Participant shall immediately notify
the Company in writing of such disposition. Participant agrees that Participant
may be subject to income tax withholding by the Company on the compensation
income recognized by Participant from the early disposition by payment in cash
or out of the current wages or other compensation payable to Participant.
8. PRIVILEGE OF STOCK OWNERSHIP. Participant shall not have any of the
----------------------------
rights of a shareholder with respect to any Shares until Participant exercises
the Option and pays the Exercise Price.
9. MARKET STANDOFF AGREEMENT. Participant agrees in connection with any
-------------------------
registration of the Company's securities that, upon the request of the Company
or the underwriters managing any public offering of the Company's securities,
Participant will not sell or otherwise dispose of any securities of the Company
(including, without limitation, the Shares) without the prior written consent of
the Company or such underwriters, as the case may be, for such period of time
(not to exceed 180 days) after the effective date of such registration requested
by such managing underwriters and subject to all restrictions as the Company or
the underwriters may specify.
10. INTERPRETATION. Any dispute regarding the interpretation of this
--------------
Agreement shall be submitted by Participant or the Company to the Committee for
review. The resolution of such a dispute by the Committee shall be final and
binding on the Company and Participant.
11. ENTIRE AGREEMENT. The Plan is incorporated herein by reference. This
----------------
Agreement and the Plan constitute the entire agreement of the parties and
supersede all prior undertakings and
6
<PAGE>
agreements with respect to the subject matter hereof. This Agreement may be
modified, waived or amended only in writing signed by both parties hereto. This
Agreement may only be amended, modified or waived in writing signed by both
parties hereto.
12. NOTICES. Any notice required to be given or delivered to the Company
-------
under the terms of this Agreement shall be in writing and addressed to the
Corporate Secretary of the Company at its principal corporate offices. Any
notice required to be given or delivered to Participant shall be in writing and
addressed to Participant at the address indicated above or to such other address
as such party may designate in writing from time to time to the Company. All
notices shall be deemed to have been given or delivered upon: personal delivery;
three (3) days after deposit in the United States mail by certified or
registered mail (return receipt requested); one (1) business day after deposit
with any return receipt express courier (prepaid); or one (1) business day after
transmission by fax or telecopier.
13. SUCCESSORS AND ASSIGNS. The Company may assign any of its rights
----------------------
under this Agreement. This Agreement shall be binding upon and inure to the
benefit of the successors and assigns of the Company. Subject to the
restrictions on transfer set forth herein, this Agreement shall be binding upon
Participant and Participant's heirs, executors, administrators, legal
representatives, successors and assigns.
14. GOVERNING LAW; SEVERABILITY. This Agreement shall be governed by and
---------------------------
construed in accordance with the internal laws of the State of California as
such laws are applied to agreements between California residents entered into
and to be performed entirely within California, excluding that body of laws
pertaining to conflict of laws. If any provision of this Agreement is
determined by a court of law to be illegal or unenforceable, then such provision
will be enforced to the maximum extent possible and the other provisions will
remain fully effective and enforceable.
15. ACCEPTANCE. Participant hereby acknowledges receipt of a copy of the
----------
Plan and this Agreement. Participant has read and understands the terms and
provisions thereof, and accepts the Option subject to all the terms and
conditions of the Plan and this Agreement. Participant acknowledges that there
may be adverse tax consequences upon exercise of the Option or disposition of
the Shares and that Participant should consult a tax adviser prior to such
exercise or disposition.
7
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed in
duplicate by its duly authorized representative and Participant has executed
this Agreement in duplicate as of the Date of Grant.
INKTOMI CORPORATION PARTICIPANT
By:_____________________________ _____________________________
(Signature)
________________________________ _____________________________
(Please print name) (Please print name)
________________________________
(Please print title)
8
<PAGE>
EXHIBIT A
---------
INKTOMI CORPORATION
1996 EQUITY INCENTIVE PLAN
STOCK OPTION EXERCISE AGREEMENT
This Exercise Agreement is made and entered into as of ___________________,
19__ (the "Effective Date") by and between Inktomi Corporation, a California
--------------
corporation (the "Company"), and the purchaser named below (the "Purchaser").
------- ---------
Capitalized terms not defined herein shall have the meaning ascribed to them in
the Company's 1996 Equity Incentive Plan (the "Plan").
----
PARTICIPANT: ____________________________
SOCIAL SECURITY NUMBER: ____________________________
ADDRESS: ____________________________
TOTAL SHARES EXERCISED: ____________________________
EXERCISE PRICE PER SHARE: ____________________________
TOTAL PURCHASE PRICE: ____________________________
1. EXERCISE OF OPTION.
------------------
1.1 EXERCISE. Pursuant to exercise of that certain option ("Option")
-------- ------
granted to Purchaser under the Plan and subject to the terms and conditions of
this Agreement, Purchaser hereby purchases from the Company, and the Company
hereby sells to Purchaser, the total number of shares set forth above ("Shares")
------
of the Company's Common Stock at a purchase price per share set forth above for
a total purchase price set forth above (the "Purchase Price"). As used in this
--------------
Agreement, the term "Shares" refers to the Shares purchased under this Exercise
------
Agreement and includes all securities received (a) in replacement of the Shares,
(b) as a result of stock dividends or stock splits with respect to the Shares,
and (c) all securities received in replacement of the Shares in a merger,
recapitalization, reorganization or similar corporate transaction.
1.2 TITLE TO SHARES. The exact spelling of the name(s) under which
---------------
Purchaser will take title to the Shares is:___________________________________
____________________________________________________________.
1
<PAGE>
Purchaser desires to take title to the Shares as follows:
[ ] Individual, as separate property
[ ] Husband and wife, as community property
[ ] Joint Tenants
[ ] Alone or with spouse as trustee(s) of the following trust (including
date):_______________________________________________________________
[ ] Other; please specify:_______________________________________________
1.3 PAYMENT. Purchaser hereby delivers payment of the Purchase Price
-------
in the manner permitted in Purchaser's Stock Option Agreement as follows (check
and complete as appropriate):
[ ] in cash in the amount of $__________________ receipt of which is
acknowledged by the Company;
[ ] by cancellation of indebtedness of the Company to Purchaser in the
amount of $___________________;
[ ] at the discretion of the Committee, by delivery of fully-paid,
nonassessable and vested shares of the Common Stock of the Company
owned by Purchaser for at least six (6) months prior to the date
hereof which have been paid for within the meaning of SEC Rule 144, if
purchased by use of a promissory note, such note has been fully paid
with respect to such vested shares), or obtained by Purchaser in the
open public market, and owned free and clear of all liens, claims,
encumbrances or security interests, valued at the current Fair Market
Value of $______________ per share;
[ ] at the discretion of the Committee, by tender of a Full Recourse
Promissory Note in the principal amount of $_______________ secured by
a Pledge Agreement of even date herewith;
[ ] by the waiver hereby of compensation due or accrued for services
rendered in the amount of $__________________.
2. DELIVERY.
--------
2.1 DELIVERIES BY PURCHASER. Purchaser hereby delivers to the
-----------------------
Company (a) this Exercise Agreement, (b) an Investment Representation Statement
in the form of Exhibit B to Purchaser's Stock Option Agreement (the "Investment
--------- ----------
Representation Statement"), if applicable, and (c) a Restricted Stock Purchase
- ------------------------
Agreement (together with all required ancillary agreements and documents
pursuant thereto) in the form of Exhibit C to Purchaser's Stock Option Agreement
---------
(the "Restricted Stock Purchase Agreement"), if applicable.
-----------------------------------
2
<PAGE>
2.2 DELIVERIES BY THE COMPANY. Upon its receipt of the Purchase
-------------------------
Price and all the documents to be executed and delivered by Purchaser to the
Company under Section 2.1, the Company will issue a duly executed stock
certificate evidencing the Shares in the name of Purchaser, to be placed in
escrow as provided under the Restricted Stock Purchase Agreement and/or payment
in full to the Company of all sums due under a Note (both as applicable).
3. REPRESENTATIONS AND WARRANTIES OF PURCHASER. Purchaser acknowledges
-------------------------------------------
that Purchaser has received, read and understood the Plan, the Stock Option
Agreement, this Exercise Agreement, the Investment Representation Statement (if
applicable), the Restricted Stock Purchase Agreement and all documents required
in connection with the Restricted Stock Purchase Agreement (all as applicable),
and agrees to abide by all terms and conditions set forth in such agreements and
documents
4. COMPANY'S RIGHT OF FIRST REFUSAL. Before any Shares held by Purchaser
--------------------------------
or any transferee of such Shares (either being sometimes referred to herein as
the "Holder") may be sold or otherwise transferred (including without limitation
------
a transfer by gift or operation of law), the Company and/or its assignee(s)
shall have an assignable right of first refusal to purchase the Shares to be
sold or transferred (the "Offered Shares") on the terms and conditions set forth
--------------
in this Section (the "Right of First Refusal").
----------------------
4.1 NOTICE OF PROPOSED TRANSFER. The Holder of the Shares shall
---------------------------
deliver to the Company a written notice (the "Notice") stating: (i) the Holder's
------
bona fide intention to sell or otherwise transfer the Offered Shares; (ii) the
name of each proposed bona fide purchaser or other transferee ("Proposed
--------
Transferee"); (iii) the number of Offered Shares to be transferred to each
- ----------
Proposed Transferee; (iv) the bona fide cash price or other consideration for
which the Holder proposes to transfer the Offered Shares (the "Offered Price");
-------------
and (v) that the Holder will offer to sell the Offered Shares to the Company
and/or its assignee(s) at the Offered Price as provided in this Section.
4.2 EXERCISE OF RIGHT OF FIRST REFUSAL. At any time within thirty
----------------------------------
(30) days after the date of the Notice, the Company and/or its assignee(s) may,
by giving written notice to the Holder, elect to purchase all of the Offered
Shares proposed to be transferred to any one or more of the Proposed Transferees
named in the Notice, at the purchase price determined as specified below.
4.3 PURCHASE PRICE. The purchase price for the Offered Shares
--------------
purchased under this Section will be the Offered Price. If the Offered Price
includes consideration other than cash, then the cash equivalent value of the
non-cash consideration shall conclusively be deemed to be the value of such non-
cash consideration as determined in good faith by the Company's Board of
Directors.
4.4 PAYMENT. Payment of the purchase price for Offered Shares will
-------
be payable, at the option of the Company and/or its assignee(s) (as applicable),
by check or by cancellation of all
3
<PAGE>
or a portion of any outstanding indebtedness of the Holder to the Company (or to
such assignee, in the case of a purchase of Offered Shares by such assignee) or
by any combination thereof. The purchase price will be paid without interest
within sixty (60) days after the Company's receipt of the Notice, or, at the
option of the Company and/or its assignee(s), in the manner and at the time(s)
set forth in the Notice.
4.5 HOLDER'S RIGHT TO TRANSFER. If all of the Offered Shares
--------------------------
proposed in the Notice to be transferred to a given Proposed Transferee are not
purchased by the Company and/or its assignee(s) as provided in this Section,
then the Holder may sell or otherwise transfer such Offered Shares to that
Proposed Transferee at the Offered Price or at a higher price, provided that
--------
such sale or other transfer is consummated within 120 days after the date of the
Notice, and provided further, that (i) any such sale or other transfer is
-------- -------
effected in compliance with all applicable securities laws (and all other
restrictions set forth herein and in the Investment Representation Statement and
the Restricted Stock Purchase Agreement) and (ii) the Proposed Transferee agrees
in writing that the provisions of this Section will continue to apply to the
Offered Shares in the hands of such Proposed Transferee. If the Offered Shares
described in the Notice are not transferred to the Proposed Transferee within
such 120 day period, then a new Notice must be given to the Company, and the
Company will again be offered the Right of First Refusal before any Shares held
by the Holder may be sold or otherwise transferred.
4.6 EXEMPT TRANSFERS. Notwithstanding anything to the contrary in
----------------
this Section, the following transfers of Shares will be exempt from the Right of
First Refusal: (i) the transfer of any or all of the Shares during Purchaser's
lifetime by gift or on Purchaser's death by will or intestacy to Purchaser's
"immediate family" (as defined below) or to a trust for the benefit of Purchaser
or Purchaser's immediate family, provided that each transferee or other
recipient agrees in a writing satisfactory to the Company that the provisions of
this Section will continue to apply to the transferred Shares in the hands of
such transferee or other recipient; (ii) any transfer of Shares made pursuant to
a statutory merger or statutory consolidation of the Company with or into
another corporation or corporations (except that the Right of First Refusal will
continue to apply thereafter to such Shares, in which case the surviving
corporation of such merger or consolidation shall succeed to the rights of the
Company under this Section unless the agreement of merger or consolidation
expressly otherwise provides); or (iii) any transfer of Shares pursuant to the
winding up and dissolution of the Company. As used herein, the term "immediate
---------
family" will mean Purchaser's spouse, the lineal descendant or antecedent,
- ------
father, mother, brother or sister, adopted child or grandchild of the Purchaser
or the Purchaser's spouse, or the spouse of any child, adopted child, grandchild
or adopted grandchild of Purchaser or the Purchaser's spouse.
4.7 TERMINATION OF RIGHT OF FIRST REFUSAL. The Right of First
-------------------------------------
Refusal will terminate as to all Shares on the effective date of the first sale
of Common Stock of the Company to the general public pursuant to a registration
statement filed with and declared effective by the SEC under the Securities Act
(other than a registration statement relating solely to the issuance of Common
Stock pursuant to a business combination or an employee incentive or benefit
plan).
4
<PAGE>
5. RIGHTS AS SHAREHOLDER. Subject to the terms and conditions of this
---------------------
Exercise Agreement, the Investment Representation Statement and the Restricted
Stock Purchase Agreement, Purchaser will have all of the rights of a shareholder
of the Company with respect to the Shares from and after the date that Purchaser
delivers payment of the Purchase Price until such time as Purchaser disposes of
the Shares or the Company and/or its assignee(s) exercises its Right of First
Refusal and/or its repurchase right under the Restricted Stock Purchase
Agreement ("Repurchase Right"). Upon an exercise of the Right of First Refusal
----------------
and/or Repurchase Right, Purchaser will have no further rights as a holder of
the Shares so purchased upon such exercise, except the right to receive payment
for the Shares so purchased in accordance with the provisions of this Exercise
Agreement and/or the Restricted Stock Purchase Agreement, and Purchaser will
promptly surrender the stock certificate(s) evidencing the Shares so purchased
to the Company for transfer or cancellation.
6. RESTRICTIVE LEGENDS AND STOP TRANSFER ORDERS.
--------------------------------------------
6.1 LEGENDS. Purchaser understands and agrees that the Company will
-------
place the legends set forth below or similar legends on any stock certificates
evidencing the Shares, together with any other legends that may be required by
state or federal securities laws, the Company's Articles of Incorporation or
Bylaws, any other agreement between Purchaser and the Company or any agreement
between Purchaser and any third party:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR UNDER
--------------
THE SECURITIES LAWS OF CERTAIN STATES. THESE SECURITIES ARE SUBJECT
TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE
TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND APPLICABLE
STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION
THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR
THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF
TIME. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL
IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT
ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE SECURITIES
ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS ON PUBLIC RESALE, TRANSFER AND RIGHT OF FIRST REFUSAL
OPTIONS HELD BY THE ISSUER AND/OR ITS ASSIGNEE(S) AS SET FORTH IN A
STOCK OPTION EXERCISE AGREEMENT BETWEEN THE ISSUER AND THE ORIGINAL
HOLDER OF THESE SHARES, A COPY OF SUCH MAY BE OBTAINED AT THE
PRINCIPAL OFFICE OF THE ISSUER. SUCH PUBLIC SALE AND TRANSFER
RESTRICTIONS AND THE RIGHT OF FIRST REFUSAL ARE BINDING ON TRANSFEREES
OF THESE SHARES.
5
<PAGE>
The California Commissioner of Corporations may require that the following
legend also be placed upon the share certificates) evidencing ownership of the
Shares:
IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR
ANY INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR,
WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS
OF THE STATE OF CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S
RULES.
6.2 STOP-TRANSFER INSTRUCTIONS. Purchaser agrees that, to ensure
--------------------------
compliance with the restrictions imposed by this Agreement, the Company may
issue appropriate "stop-transfer" instructions to its transfer agent, if any,
and if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.
6.3 REFUSAL TO TRANSFER. The Company will not be required (i) to
-------------------
transfer on its books any Shares that have been sold or otherwise transferred in
violation of any of the provisions of this Agreement or (ii) to treat as owner
of such Shares, or to accord the right to vote or pay dividends to any purchaser
or other transferee to whom such Shares have been so transferred.
7. TAX MATTERS. Purchaser has reviewed with his own tax advisors the
-----------
federal, state, local and foreign tax consequences of this investment and the
transactions contemplated by this Agreement. Purchaser is relying solely on
such advisors and not on any statements or representations of the Company or any
of its agents. Purchaser understands that he (and not the Company) shall be
responsible for his own tax liability that may arise as a result of Purchaser's
investment or the transactions contemplated by this Agreement.
8. COMPLIANCE WITH LAWS AND REGULATIONS. The issuance and transfer of the
------------------------------------
Shares will be subject to and conditioned upon compliance by the Company and
Purchaser with all applicable state and federal laws and regulations and with
all applicable requirements of any stock exchange or automated quotation system
on which the Company's Common Stock may be listed or quoted at the time of such
issuance or transfer.
9. SUCCESSORS AND ASSIGNS. The Company may assign any of its rights under
----------------------
this Agreement, including its rights to repurchase Shares under the Right of
First Refusal. This Agreement shall be binding upon and inure to the benefit of
the successors and assigns of the Company. Subject to the restrictions on
transfer herein set forth, this Agreement will be binding upon Purchaser and
Purchaser's heirs, executors, administrators, legal representatives, successors
and assigns.
10. GOVERNING LAW; SEVERABILITY. This Agreement shall be governed by and
---------------------------
construed in accordance with the internal laws of the State of California as
such laws are applied to agreements between California residents entered into
and to be performed entirely within California, excluding
6
<PAGE>
that body of laws pertaining to conflict of laws. If any provision of this
Agreement is determined by a court of law to be illegal or unenforceable, then
such provision will be enforced to the maximum extent possible and the other
provisions will remain fully effective and enforceable.
11. NOTICES. Any notice required to be given or delivered to the Company
-------
shall be in writing and addressed to the Corporate Secretary of the Company at
its principal corporate offices. Any notice required to be given or delivered to
Purchaser shall be in writing and addressed to Purchaser at the address
indicated above or to such other address as Purchaser may designate in writing
from time to time to the Company. All notices shall be deemed effectively given
upon personal delivery, three (3) days after deposit in the United States mail
by certified or registered mail (return receipt requested), one (1) business day
after its deposit with any return receipt express courier (prepaid), or one (1)
business day after transmission by fax or telecopier.
12. FURTHER INSTRUMENTS. The parties agree to execute such further
-------------------
instruments and to take such further action as may be reasonably necessary to
carry out the purposes and intent of this Agreement.
13. HEADINGS. The captions and headings of this Agreement are included
--------
for ease of reference only and will be disregarded in interpreting or construing
this Agreement. All references herein to Sections will refer to Sections of
this Agreement.
14. ENTIRE AGREEMENT. The Plan, the Stock Option Agreement, this Exercise
----------------
Agreement, the Investment Representation Statement and the Restricted Stock
Purchase Agreement, together with all exhibits to all such documents, constitute
the entire agreement and understanding of the parties with respect to the
subject matter hereof, and supersede all prior understandings and agreements,
whether oral or written, between the parties hereto with respect to the specific
subject matter hereof. This Agreement may only be amended, modified or waived
in writing signed by both parties hereto.
IN WITNESS THEREOF, the Company has caused this Agreement to be executed in
duplicate by its duly authorized representative and Purchaser has executed this
Agreement in duplicate as of the Effective Date.
INKTOMI CORPORATION PARTICIPANT
By:_______________________________ _________________________________
(Signature)
__________________________________ _________________________________
(Please print name and title) (Please print name)
7
<PAGE>
EXHIBIT B
---------
INVESTMENT REPRESENTATION STATEMENT
PURCHASER :
COMPANY : INKTOMI CORPORATION
SECURITY : COMMON STOCK
AMOUNT :
DATE :
In connection with the purchase of the above-listed securities (the
"Shares"), the undersigned Purchaser represents to the Company the following:
1. PURCHASE FOR OWN ACCOUNT FOR INVESTMENT. Purchaser is purchasing the
---------------------------------------
Shares for Purchaser's own account for investment purposes only and not with a
view to, or for sale in connection with, a distribution of the Shares within the
meaning of the Securities Act of 1933, as amended (the "Securities Act").
--------------
Purchaser has no present intention of selling or otherwise disposing of all or
any portion of the Shares and no one other than Purchaser has any beneficial
ownership of any of the Shares. Purchaser acknowledges and understands that the
Shares constitute "restricted securities" under the Securities Act and have not
been registered under the Securities Act in reliance upon a specific exemption
therefrom, which exemption depends upon, among other things, the bona fide
nature of Purchaser's investment intent as set forth herein.
2. ACCESS TO INFORMATION. Purchaser has had access to all information
---------------------
regarding the Company and its present and prospective business, assets,
liabilities and financial condition that Purchaser reasonable considers
important in making the decision to purchase the Shares, and Purchaser has had
ample opportunity to ask questions of the Company's representatives concerning
such matters and this investment.
3. UNDERSTANDING OF RISKS. Purchaser is fully aware of (i) the highly
----------------------
speculative nature of the investment in the Shares; (ii) the financial hazards
involved; (iii) the lack of liquidity of the Shares and the restrictions on
transferability of the Shares (e.g., that Purchaser may not be able to sell or
dispose of the Shares or use them as collateral for loans); (iv) the
qualifications and backgrounds of the management of the Company; and (v) the tax
consequences of investment in the Shares. Purchaser is capable of evaluating
the merits and risks of this investment, has the ability to protect Purchaser's
own interests in this transaction and is financially capable of bearing a total
loss of this investment.
1
<PAGE>
4. NO GENERAL SOLICITATION. At no time was Purchaser presented with or
-----------------------
solicited by any publicly issued or circulated newspaper, mail, radio,
television or other form of general advertising or solicitation in connection
with the offer, sale and purchase of the Shares.
5. NO TRANSFER UNLESS REGISTERED OR EXEMPT. Purchaser understands that
---------------------------------------
Purchaser may not transfer any Shares unless such Shares are registered under
the Securities Act or qualified under applicable state securities laws or
unless, in the opinion of counsel to the Company, exemptions from such
registration and qualification requirements are available. Purchaser
understands that only the Company may file a registration statement with the SEC
and that the Company is under no obligation to do so with respect to the Shares.
Purchaser has also been advised that exemptions from registration and
qualification may not be available or may not permit Purchaser to transfer all
or any of the Shares in the amounts or at the times proposed by Purchaser.
6. SEC RULE 701 AND RULE 144. Purchaser is familiar with the provisions
-------------------------
of Rule 701 and Rule 144, each promulgated under the Securities Act, which, in
substance, permit limited public resale of "restricted securities" acquired,
directly or indirectly from the issuer thereof, in a non-public offering subject
to the satisfaction of certain conditions. Rule 701 provides that if the issuer
qualifies under Rule 701 at the time of the grant of the Option to the
Purchaser, the exercise will be exempt from registration under the Securities
Act. In the event the Company becomes subject to the reporting requirements of
Section 13 or 15(d) of the Securities Exchange Act of 1934, ninety (90) days
thereafter (or such longer period as any market stand-off agreement may require)
the Shares exempt under Rule 701 may be resold, subject to the satisfaction of
certain of the conditions specified by Rule 144, including: (1) the resale
being made through a broker in an unsolicited "broker's transaction" or in
transactions directly with a market maker (as said term is defined under the
Securities Exchange Act of 1934); and, in the case of an affiliate, (2) the
availability of certain public information about the Company, (3) the number of
Shares being sold during any three month period not exceeding the limitations
specified in Rule 144(e), and (4) the timely filing of a Form 144, if
applicable. In the event that the Company does not qualify under Rule 701 at
the time of grant of the Option, then the Shares may be resold in certain
limited circumstances subject to the provisions of Rule 144, which requires the
resale to occur not less than one year after the later of the date the Shares
were sold by the Company or the date the Shares were sold by an affiliate of the
Company, within the meaning of Rule 144; and, in the case of acquisition of the
Shares by an affiliate, or by a non-affiliate who subsequently holds the Shares
less than two years, the satisfaction of the conditions set forth in clauses
(1), (2), (3) and (4) immediately above.
7. OTHER EXEMPTIONS. Purchaser understands that in the event all of the
----------------
applicable requirements of Rule 701 or 144 are not satisfied, registration under
the Securities Act, compliance with Regulation A, or some other registration
exemption will be required; and that, notwithstanding the fact that Rules 144
and 701 are not exclusive, the Staff of the SEC has expressed its opinion that
persons proposing to sell private placement securities other than in a
registered offering and otherwise than pursuant to Rules 144 or 701 will have a
substantial burden of proof in establishing that an exemption from registration
is available for such offers or sales,
2
<PAGE>
and that such persons and their respective brokers who participate in such
transactions do so at their own risk. Purchaser understands that no assurances
can be given that any such other registration exemption will be available in
such event.
Signature of Purchaser:
____________________________________
Date: ___________________, 19__
3
<PAGE>
EXHIBIT C-1
-----------
1996 EQUITY INCENTIVE PLAN
RESTRICTED STOCK PURCHASE AGREEMENT
THIS AGREEMENT is made between ______________ (the "Purchaser") and Inktomi
---------
Corporation (the "Company") as of __________________, 199__.
-------
RECITALS
--------
A. Pursuant to the exercise of the stock option granted to Purchaser
under the Company's 1996 Equity Incentive Plan (the "Plan") and pursuant to the
----
Stock Option Agreement (the "Option Agreement") by and between the Company and
----------------
Purchaser with respect to such grant, which Option Agreement is hereby
incorporated by reference, Purchaser has elected by executing an Exercise
Agreement (the "Exercise Agreement") to purchase shares which have not become
------------------
vested under the vesting schedule set forth in the Option Agreement ("Unvested
--------
Shares"). The Unvested Shares and the shares subject to the Option Agreement
- ------
which have become vested are sometimes collectively referred to herein as the
"Shares."
------
B. As required by the Option Agreement, as a condition to Purchaser's
election to exercise the option, Purchaser must execute this Restricted Stock
Purchase Agreement, which sets forth the rights and obligations of the parties
with respect to Shares acquired upon exercise of the Option.
AGREEMENT
---------
1. REPURCHASE OPTION.
-----------------
(a) Repurchase Option. If Purchaser's employment or consulting
-----------------
relationship with the Company is terminated for any reason, including for cause,
death, and disability, the Company shall have the right and option to purchase
from Purchaser, or Purchaser's personal representative, as the case may be, all
or any portion of the Purchaser's then Unvested Shares as of the date of such
termination at the price paid by the Purchaser for such Shares (the "Repurchase
----------
Option").
- ------
(b) Exercise. Upon the occurrence of a termination, the Company may
--------
exercise its Repurchase Option by delivering personally or by registered mail,
to Purchaser (or his transferee or legal representative, as the case may be),
within ninety (90) days of the termination, a notice in writing indicating the
Company's intention to exercise the Repurchase Option and setting forth a date
for closing not later than thirty (30) days from the mailing of such notice.
The closing shall take place at the Company's office. At the closing, the
holder of the certificates for
1
<PAGE>
the then Unvested Shares being transferred shall deliver the stock certificate
or certificates evidencing the Unvested Shares, and the Company shall deliver
the purchase price therefor.
(c) Termination. If the Company does not elect to exercise the
-----------
Repurchase Option conferred above by giving the requisite notice within ninety
(90) days following the termination, the Repurchase Option shall terminate.
2. TRANSFERABILITY OF THE SHARES; ESCROW.
-------------------------------------
(a) Transfer. Purchaser hereby authorizes and directs the secretary
--------
of the Company, or such other person designated by the Company, to transfer the
Unvested Shares as to which the Repurchase Option has been exercised from
Purchaser to the Company.
(b) Escrow. To insure the availability for delivery of Purchaser's
------
Unvested Shares upon repurchase by the Company pursuant to the Repurchase Option
under Section 1, Purchaser hereby appoints the secretary, or any other person
designated by the Company as escrow agent, as its attorney-in-fact to sell,
assign and transfer unto the Company, such Unvested Shares, if any, repurchased
by the Company pursuant to the Repurchase Option and shall, upon execution of
this Agreement, deliver and deposit with the secretary of the Company, or such
other person designated by the Company, the share certificates representing the
initial Unvested Shares, together with the stock assignment duly endorsed in
blank, attached hereto as Exhibit C-2. The Unvested Shares and stock assignment
shall be held by the secretary in escrow, pursuant to the Joint Escrow
Instructions of the Company and Purchaser attached as Exhibit C-3 hereto, until
the Company exercises its Repurchase Option as provided in Section 1, until such
Unvested Shares are vested, or until such time as this Agreement no longer is in
effect. As a further condition to the Company's obligations under this
Agreement, the spouse of the Purchaser, if any, shall execute and deliver to the
Company the Consent of Spouse attached hereto as Exhibit C-4. Upon vesting of
the initial Unvested Shares, the escrow agent shall promptly deliver to the
Purchaser (upon request) the certificate or certificates representing such
Shares in the escrow agent's possession belonging to the Purchaser, and the
escrow agent shall be discharged of all further obligations hereunder; provided,
however, that the escrow agent shall nevertheless retain such certificate or
certificates as escrow agent if so required pursuant to other restrictions
imposed pursuant to this Agreement.
(c) No Liability. The Company, or its designee, shall not be liable
------------
for any act it may do or omit to do with respect to holding the Shares in escrow
and while acting in good faith and in the exercise of its judgment.
(d) Restrictions on Transfer. Transfer or sale of the Shares is
------------------------
subject to restrictions on transfer imposed by any applicable state and federal
securities laws. Any transferee shall hold such Shares subject to all the
provisions hereof and the Exercise Notice executed by the Purchaser with respect
to any Unvested Shares purchased by Purchaser and shall acknowledge the same by
signing a copy of this Agreement.
2
<PAGE>
3. OWNERSHIP, VOTING RIGHTS, DUTIES. This Agreement shall not affect in
--------------------------------
any way the ownership, voting rights or other rights or duties of Purchaser,
except as specifically provided herein.
4. LEGENDS. The share certificate evidencing the Shares shall be endorsed
-------
with the following legend (in addition to any other required legends):
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS UPON TRANSFER AND RIGHTS OF REPURCHASE AS SET FORTH IN AN
AGREEMENT BETWEEN THE COMPANY AND THE SHAREHOLDER, A COPY OF WHICH IS
ON FILE WITH THE SECRETARY OF THE COMPANY.
5. ADJUSTMENT FOR STOCK SPLIT. All references to the number of Shares and
--------------------------
the purchase price of the Shares in this Agreement shall be appropriately
adjusted to reflect any stock split, stock dividend or other change in the
Shares which may be made by the Company after the date of this Agreement.
6. NOTICES. Notices required hereunder shall be given in person or by
-------
registered mail to the address of Purchaser shown on the records of the Company,
and to the Company at its principal executive offices.
7. SURVIVAL OF TERMS. This Agreement shall apply to and bind Purchaser
-----------------
and the Company and their respective permitted assignees and transferees, heirs,
legatees, executors, administrators and legal successors.
8. SECTION 83(B) ELECTIONS.
-----------------------
(a) Election for Unvested Shares Purchased Pursuant to Nonqualified
---------------------------------------------------------------
Stock Options. Purchaser hereby acknowledges that he or she has been informed
- -------------
that, with respect to the exercise of a nonqualified stock option for Unvested
Shares, that unless an election is filed by the Purchaser with the Internal
Revenue Service and, if necessary, the proper state taxing authorities, within
------
30 days of the purchase of the Shares, electing pursuant to Section 83(b) of the
- -------
Code (and similar state tax provisions if applicable) to be taxed currently on
any difference between the purchase price of the Shares and their Fair Market
Value on the date of purchase, there will be a recognition of taxable income to
the Purchaser, measured by the excess, if any, of the fair market value of the
Shares, at the time the Company's Repurchase Option lapses over the purchase
price for the Shares. Purchaser represents that Purchaser has consulted any tax
consultant(s) Purchaser deems advisable in connection with the purchase of the
Shares or the filing of the Election under Section 83(b) and similar tax
provisions. A form of Election under Section 83(b) is attached hereto as
Exhibit C-5 for reference.
(b) Election for Unvested Shares Purchased Pursuant to Incentive
------------------------------------------------------------
Stock Options. Purchaser hereby acknowledges that he or she has been informed
- -------------
that, with respect to
3
<PAGE>
the exercise of an incentive stock option for Unvested Shares, that unless an
election is filed by the Purchaser with the Internal Revenue Service and, if
necessary, the proper state taxing authorities, within 30 days of the purchase
--------------
of the Shares, electing pursuant to Section 83(b) of the Code (and similar state
tax provisions if applicable) to be taxed currently on any difference between
the purchase price of the Shares and their Fair Market Value on the date of
purchase, there will be a recognition of income to the Purchaser, for
alternative minimum tax purposes, measured by the excess, if any, of the fair
market value of the Shares, at the time the Company's Repurchase Option lapses
over the purchase price for the Shares. Purchaser represents that Purchaser has
consulted any tax consultant(s) Purchaser deems advisable in connection with the
purchase of the Shares or the filing of the Election under Section 83(b) and
similar tax provisions. A form of Election under Section 83(b) for alternative
minimum tax purposes is attached hereto as Exhibit C-6 for reference.
PURCHASER ACKNOWLEDGES THAT IT IS PURCHASER'S SOLE RESPONSIBILITY AND NOT THE
COMPANY'S TO FILE TIMELY THE ELECTION UNDER SECTION 83(b), EVEN IF PURCHASER
REQUESTS THE COMPANY OR ITS REPRESENTATIVE TO MAKE THIS FILING ON PURCHASER'S
BEHALF.
9. TAX MATTERS. Purchaser has reviewed with his own tax advisors the
-----------
federal, state, local and foreign tax consequences of this investment and the
transactions contemplated by this Agreement. Purchaser is relying solely on
such advisors and not on any statements or representations of the Company or any
of its agents. Purchaser understands that he (and not the Company) shall be
responsible for his own tax liability that may arise as a result of Purchaser's
investment or the transactions contemplated by this Agreement.
10. FURTHER INSTRUMENTS. The parties agree to execute such further
-------------------
instruments and to take such further action as may be reasonably necessary to
carry out the purposes and intent of this Agreement.
11. HEADINGS. The captions and headings of this Agreement are included
--------
for ease of reference only and will be disregarded in interpreting or construing
this Agreement. All references herein to Sections will refer to Sections of
this Agreement.
12. ENTIRE AGREEMENT. The Plan, the Stock Option Agreement, the Exercise
----------------
Agreement, the Investment Representation Statement associated with the Exercise
Agreement and this Restricted Stock Purchase Agreement, together with all
exhibits to all such documents, constitute the entire agreement and
understanding of the parties with respect to the subject matter of this
Agreement, and supersede all prior understandings and agreements, whether oral
or written, between the parties hereto with respect to the specific subject
matter hereof. This Agreement may only be amended, modified or waived in
writing signed by both parties hereto.
13. GOVERNING LAW; SEVERABILITY. This Agreement shall be governed by and
---------------------------
construed in accordance with the internal laws of the State of California as
such laws are applied to agreements between California residents entered into
and to be performed entirely within California, excluding
4
<PAGE>
that body of laws pertaining to conflict of laws. If any provision of this
Agreement is determined by a court of law to be illegal or unenforceable, then
such provision will be enforced to the maximum extent possible and the other
provisions will remain fully effective and enforceable.
14. INTERPRETATIONS. Any dispute regarding the interpretation of this
---------------
Agreement shall be submitted by Purchaser or the Company to the Committee (as
defined in the Plan) for review. The resolution of such a dispute by the
Committee shall be final and binding on the Company and Participant.
IN WITNESS WHEREOF, this Agreement is deemed made as of the date first set
forth above.
INKTOMI CORPORATION PURCHASER
By:____________________________ _________________________________
(Signature)
_______________________________ _________________________________
(Please print name) (Please print name)
_______________________________
(Please print title
5
<PAGE>
EXHIBIT C-2
-----------
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED I, __________________________, hereby sell, assign and
transfer unto __________________________________________________________________
(_____________) shares of the Common Stock of Inktomi Corporation standing in my
name of the books of said corporation represented by Certificate No. _______
herewith and do hereby irrevocably constitute and appoint ______________________
_________________________________ to transfer the said stock on the books of the
within named corporation with full power of substitution in the premises.
This Stock Assignment may be used only in accordance with the Restricted
Stock Purchase Agreement between Inktomi Corporation and the undersigned dated
_____________, 19____.
Dated: _______________, 19_____
Signature:______________________________
INSTRUCTIONS: PLEASE DO NOT FILL IN ANY BLANKS OTHER THAN THE SIGNATURE LINE.
THE PURPOSE OF THIS ASSIGNMENT IS TO ENABLE THE COMPANY TO EXERCISE ITS
REPURCHASE OPTION AS SET FORTH IN THE AGREEMENT, WITHOUT REQUIRING ADDITIONAL
SIGNATURES ON THE PART OF THE PURCHASER.
<PAGE>
EXHIBIT C-3
-----------
JOINT ESCROW INSTRUCTIONS
-------------------------
_____________, 19______
Corporate Secretary
Inktomi Corporation
1900 South Norfolk Street, Suite 110
San Mateo, CA 94403
Dear _______________:
As Escrow Agent for both Inktomi Corporation (the "Company"), and the
-------
undersigned purchaser of stock of the Company (the "Purchaser"), you are hereby
---------
authorized and directed to hold the documents delivered to you pursuant to the
terms of that certain Restricted Stock Purchase Agreement ("Agreement") between
---------
the Company and the undersigned, in accordance with the following instructions:
1. In the event the Company and/or any assignee of the Company (referred
to collectively for convenience herein as the "Company") exercises the Company's
-------
repurchase option set forth in the Agreement, the Company shall give to
Purchaser and you a written notice specifying the number of shares of stock to
be purchased, the purchase price, and the time for a closing at the principal
office of the Company. Purchaser and the Company hereby irrevocably authorize
and direct you to close the transaction contemplated by such notice in
accordance with the terms of said notice.
2. At the closing, you are directed (a) to date the stock assignments
necessary for the transfer in question, (b) to fill in the number of shares
being transferred, and (c) to deliver same, together with the certificate
evidencing the shares of stock to be transferred, to the Company or its
assignee, against the simultaneous delivery to you of the purchase price (by
cash, a check, or some combination thereof) for the number of shares of stock
being purchased pursuant to the exercise of the Company's repurchase option.
3. Purchaser irrevocably authorizes the Company to deposit with you any
certificates evidencing shares of stock to be held by you hereunder and any
additions and substitutions to said shares as defined in the Agreement.
Purchaser does hereby irrevocably constitute and appoint you as Purchaser's
attorney-in-fact and agent for the term of this escrow to execute with respect
to such securities all documents necessary or appropriate to make such
securities negotiable and to complete any transaction herein contemplated,
including but not limited to the filing with any applicable state blue sky
authority of any required applications for consent to, or notice of transfer
<PAGE>
of, the securities. Subject to the provisions of this paragraph 3, Purchaser
shall exercise all rights and privileges of a shareholder of the Company while
the stock is held by you.
4. Upon written request of the Purchaser, but no more than once per
calendar year, unless the Company's repurchase option has been exercised, you
will deliver to Purchaser a certificate or certificates representing so many
shares of stock as are not then subject to the Company's repurchase option.
Within 120 days after cessation of Purchaser's continuous employment by or
services to the Company, or any parent or subsidiary of the Company, you will
deliver to Purchaser a certificate or certificates representing the aggregate
number of shares held or issued pursuant to the Agreement and not purchased by
the Company or its assignees pursuant to exercise of the Company's repurchase
option.
5. If at the time of termination of this escrow you should have in your
possession any documents, securities, or other property belonging to Purchaser,
you shall deliver all of the same to Purchaser and shall be discharged of all
further obligations hereunder.
6. Your duties hereunder may be altered, amended, modified or revoked
only by a writing signed by all of the parties hereto.
7. You shall be obligated only for the performance of such duties as are
specifically set forth herein and may rely and shall be protected in relying or
refraining from acting on any instrument reasonably believed by you to be
genuine and to have been signed or presented by the proper party or parties.
You shall not be personally liable for any act you may do or omit to do
hereunder as Escrow Agent or as attorney-in-fact for Purchaser while acting in
good faith, and any act done or omitted by you pursuant to the advice of your
own attorneys shall be conclusive evidence of such good faith.
8. You are hereby expressly authorized to disregard any and all warnings
given by any of the parties hereto or by any other person or corporation,
excepting only orders or process of courts of law and are hereby expressly
authorized to comply with and obey orders, judgments or decrees of any court.
In case you obey or comply with any such order, judgment or decree, you shall
not be liable to any of the parties hereto or to any other person, firm or
corporation by reason of such compliance, notwithstanding any such order,
judgment or decree being subsequently reversed, modified, annulled, set aside,
vacated or found to have been entered without jurisdiction.
9. You shall not be liable in any respect on account of the identity,
authorities or rights of the parties executing or delivering or purporting to
execute or deliver the Agreement or any documents or papers deposited or called
for hereunder.
10. You shall not be liable for the outlawing of any rights under the
Statute of Limitations with respect to these Joint Escrow Instructions or any
documents deposited with you.
2
<PAGE>
11. You shall be entitled to employ such legal counsel and other experts
as you may deem necessary properly to advise you in connection with your
obligations hereunder, may rely upon the advice of such counsel, and may pay
such counsel reasonable compensation therefor.
12. Your responsibilities as Escrow Agent hereunder shall terminate if you
shall cease to be an officer or agent of the Company or if you shall resign by
written notice to each party. In the event of any such termination, the Company
shall appoint a successor Escrow Agent.
13. If you reasonably require other or further instruments in connection
with these Joint Escrow Instructions or obligations in respect hereto, the
necessary parties hereto shall join in furnishing such instruments.
14. It is understood and agreed that should any dispute arise with respect
to the delivery and/or ownership or right of possession of the securities held
by you hereunder, you are authorized and directed to retain in your possession
without liability to anyone all or any part of said securities until such
disputes shall have been settled either by mutual written agreement of the
parties concerned or by a final order, decree or judgment of a court of
competent jurisdiction after the time for appeal has expired and no appeal has
been perfected, but you shall be under no duty whatsoever to institute or defend
any such proceedings.
15. Any notice required or permitted hereunder shall be given in writing
and shall be deemed effectively given upon personal delivery or upon deposit in
the United States Post Office, by registered or certified mail with postage and
fees prepaid, addressed to each of the other parties thereunto entitled at the
following addresses or at such other addresses as a party may designate by ten
days' advance written notice to each of the other parties hereto.
COMPANY: Inktomi Corporation
1900 South Norfolk Street, Suite 110
San Mateo, CA 94403
Attention: Secretary
PURCHASER: _______________________________________
_______________________________________
_______________________________________
ESCROW AGENT: Corporate Secretary
Inktomi Corporation
1900 South Norfolk Street, Suite 110
San Mateo, CA 94403
3
<PAGE>
16. By signing these Joint Escrow Instructions, you become a party hereto
only for the purpose of said Joint Escrow Instructions; you do not become a
party to the Agreement.
17. This instrument shall be binding upon and inure to the benefit of the
parties hereto, and their respective successors and permitted assigns.
18. These Joint Escrow Instructions shall be governed by, and construed
and enforced in accordance with, the laws of the State of California.
INKTOMI CORPORATION PURCHASER
By:_______________________________ __________________________________
(Signature)
__________________________________ __________________________________
(Please print name) (Please print name)
__________________________________
(Please print title)
ESCROW AGENT
__________________________________
(Signature)
__________________________________
(Please print name)
4
<PAGE>
EXHIBIT C-4
-----------
CONSENT OF SPOUSE
-----------------
I, ____________________, spouse of ____________, have read and approve the
foregoing Stock Option Agreement, Stock Option Exercise Agreement, Investment
Representation Statement, Restricted Stock Purchase Agreement and Escrow
Agreement (collectively the "Agreements"). In consideration of granting of the
----------
right to my spouse to purchase shares of Inktomi Corporation, as set forth in
the Agreements, I hereby appoint my spouse as my attorney-in-fact in respect to
the exercise of any rights under the Agreements and agree to be bound by the
provisions of the Agreements insofar as I may have any rights in said Agreements
or any shares issued pursuant thereto under the community property laws or
similar laws relating to marital property in effect in the state of our
residence as of the date of the signing of the foregoing Agreements.
Dated: __________________, 19 __
___________________________________
(Signature)
___________________________________
(Please print name)
<PAGE>
EXHIBIT C-5
-----------
ELECTION UNDER SECTION 83(b)
----------------------------
OF THE INTERNAL REVENUE CODE OF 1986
------------------------------------
The undersigned taxpayer hereby elects, pursuant to Section 83(b) of the
Internal Revenue Code of 1986, as amended, to include in taxpayer's gross income
for the current taxable year the amount of any compensation taxable to taxpayer
in connection with taxpayer's receipt of the property described below:
1. The name, address, taxpayer identification number and taxable year of the
undersigned are as follows:
NAME: TAXPAYER: SPOUSE:
ADDRESS:
IDENTIFICATION NO.: TAXPAYER: SPOUSE:
TAXABLE YEAR:
2. The property with respect to which the election is made is described as
follows: ___________ shares (the "Shares") of the Common Stock of Inktomi
Corporation (the "Company").
3. The date on which the property was transferred is: ____________, 19 ____.
4. The property is subject to the following restrictions:
The Shares may not be transferred and are subject to forfeiture under the
terms of an agreement between the taxpayer and the Company. These
restrictions lapse upon the satisfaction of certain conditions contained in
such agreement.
5. The fair market value at the time of transfer, determined without regard to
any restriction other than a restriction which by its terms will never
lapse, of such property is: $______________________.
6. The amount (if any) paid for such property is: $______________________.
The undersigned has submitted a copy of this statement to the person for whom
the services were performed in connection with the undersigned's receipt of the
above-described property. The transferee of such property is the person
performing the services in connection with the transfer of said property.
The undersigned understands that the foregoing election may not be revoked
- --------------------------------------------------------------------------
except with the consent of the Commissioner.
- -------------------------------------------
Dated: ________________, 19___ __________________________________
Taxpayer
The undersigned spouse of taxpayer joins in this election.
Dated: ________________, 19___ __________________________________
Spouse of Taxpayer
<PAGE>
EXHIBIT C-6
-----------
ELECTION UNDER SECTION 83(b)
----------------------------
OF THE INTERNAL REVENUE CODE OF 1986
------------------------------------
The undersigned taxpayer hereby elects, pursuant to the provisions of Sections
55-56 and 83(b) of the Internal Revenue Code of 1986, as amended, to include in
taxpayer's alternative minimum taxable income for the current taxable year, as
compensation for services, the excess, if any, of the fair market value of the
property described below at the time of transfer over the amount paid for such
property.
1. The name, address, taxpayer identification number and taxable year of the
undersigned are as follows:
NAME: TAXPAYER: SPOUSE:
ADDRESS:
IDENTIFICATION NO.: TAXPAYER: SPOUSE:
TAXABLE YEAR:
2. The property with respect to which the election is made is described as
follows: ________________ shares (the "Shares") of the Common Stock of
Inktomi Corporation (the "Company").
3. The date on which the property was transferred is: ______________, 199___.
4. The property is subject to the following restrictions:
The Shares may be repurchased by the Company, or its assignee, at its
original purchase price, on certain events. This right lapses with regard
to a portion of the Shares over time.
5. The fair market value at the time of transfer, determined without regard to
any restriction other than a restriction which by its terms will never
lapse, of such property is: $_______________
6. The amount paid for such property is: $_______________
The undersigned has submitted a copy of this statement to the person for whom
the services were performed in connection with the undersigned's receipt of the
above-described property. The transferee of such property is the person
performing the services in connection with the transfer of said property.
The undersigned understands that the foregoing election may not be revoked
- --------------------------------------------------------------------------
except with the consent of the Commissioner.
- -------------------------------------------
Dated: _________________, 19___ _________________________________
Taxpayer
The undersigned spouse of taxpayer joins in this election.
Dated: _________________, 19___ _________________________________
Spouse of Taxpayer
<PAGE>
EXHIBIT 10.5
INKTOMI CORPORATION
-------------------
FIFTH AMENDED AND RESTATED
--------------------------
INVESTORS' RIGHTS AGREEMENT
---------------------------
This Fifth Amended and Restated Investors' Rights Agreement (this
"Agreement") is made and entered into as of February 13, 1998 (the "Effective
Date") by and among Inktomi Corporation, a Delaware corporation (the "Company"),
the investors shown as owning Series A Preferred Stock on Exhibit A (the "Series
---------
A Investors"), the investors shown as owning Series B Preferred Stock on Exhibit
-------
A (the "Series B Investors"), the investors shown as owning Series C Preferred
- -
Stock on Exhibit A (the "Series C Investors"), the investors shown as owning
---------
Series D Preferred Stock on Exhibit A (the "Series D Investors"), the investors
---------
shown as owning Series E Preferred Stock on Exhibit A (the "Series E Investors")
---------
and certain other investors listed on Exhibit A (the "Stockholders"). The
---------
Series A Investors, Series B Investors, Series C Investors, Series D Investors
and Series E Investors are sometimes hereinafter collectively referred to as the
"Investors."
RECITALS
A. The Company has previously sold shares of its Series A Preferred Stock
("Series A Stock") to certain Series A Investors on the terms and conditions set
forth in that certain Series A Preferred Stock Purchase Agreement dated March 5,
1996 by and among the Company and such Series A Investors (the "Series A
Agreement"). Such Series A Investors subsequently transferred some of their
Series A Stock to certain other Series A Investors.
B. The Company has previously sold shares of its Series B Preferred Stock
("Series B Stock") to certain Series B Investors on the terms and conditions set
forth in (i) that certain Series B Preferred Stock Purchase Agreement dated
March 15, 1996, (ii) that certain Agreement and Plan of Voluntary Exchange dated
April 29, 1996, (iii) those certain Consulting Agreements dated September 13,
1996, and (iv) the Notice of Conversion of Convertible Promissory Note dated
October 23, 1996 (collectively, the "Series B Agreements"). Such Series B
Investors subsequently transferred some of their Series B Stock to certain other
Series B Investors.
C. The Company has previously sold shares of its Series C Preferred Stock
("Series C Stock") to certain investors (the "Subscription Investors") on the
terms and conditions set forth in those certain Subscription Agreements by and
among the Company and the Subscription Investors (the "Subscription
Agreements").
-1-
<PAGE>
D. The Company has previously sold shares of its Series D Preferred Stock
("Series D Preferred Stock") and warrants (the "Series D Warrants") to purchase
shares of its Series D1 Preferred Stock ("Series D1 Preferred Stock") to the
Series D Investors on the terms and conditions set forth in that certain Series
D Preferred Stock and Warrant Purchase Agreement dated April 21, 1997 and that
certain Series D Preferred Stock and Warrant Purchase Agreement dated September
8, 1997 (collectively the "Series D Agreements"). The Series D Preferred Stock
and Series D1 Preferred Stock are sometimes collectively referred to herein as
the "Series D Stock."
E. Stephanie C. and Bennie M. Bray (collectively, "Bray") and United
Capital Group LP, a Delaware limited partnership ("United") (Bray and United are
herein sometimes collectively called the "Purchasers"), have previously
purchased an aggregate total of 1,020,622 shares of the Company's Common Stock
and 200,000 shares of the Company's Series C Stock and certain Antidilution
Warrants (the "Antidilution Warrants") exercisable for as much as 779,378
additional shares of Common Stock pursuant to the Securities Purchase Agreement,
dated April 24, 1996 (the "Evergreen Agreement"), among Evergreen Southwest
Capital Corp., a Delaware corporation ("Evergreen"), Bray, United, the Company,
and its Founders (as defined in the Evergreen Agreement).
F. As of the date hereof, the Series E Investors are purchasing shares of
Series E Preferred Stock ("Series E Stock") from the Company pursuant to a
Series E Preferred Stock Purchase Agreement (the "Series E Agreement"). In
connection with and as a condition to the closing of this transaction, the
Company has agreed to grant to the Series E Investors the rights set forth
herein.
G. The Subscription Investors and the Purchasers will hereinafter be
referred to collectively as the "Series C Investors." The Subscription
Agreements and the Evergreen Agreement will hereinafter be referred to
collectively as the "Series C Agreements."
H. The Series A Stock, Series B Stock, Series C Stock, Series D Stock and
Series E Stock will hereinafter be referred to collectively as the "Preferred
Stock."
I. The Company and the undersigned parties hereto desire to enter into
this Agreement in order to amend, restate and replace their rights and
obligations under the Fourth Amended and Restated Investors' Rights Agreement by
and among the Company, the Series A Investors, the Series B Investors, the
Series C Investors, the Series D Investors, and the Stockholders, dated as of
September 8, 1997, as amended December 11, 1997 (the "Prior Rights Agreement"),
with the rights and obligations set forth in this Agreement. Section 4.2 of the
Prior Rights Agreement provides that the Prior Rights Agreement may be amended
by the written consent of the Company, the holders of a majority of all then
outstanding Series D Preferred Stock, and Investors and Stockholders holding a
majority of the "Stockholders' Shares" and "Investors Shares" (as defined in the
Prior Rights Agreement), and the undersigned parties to this Agreement hold a
majority of such shares.
-2-
<PAGE>
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
promises hereinafter set forth, the parties hereto agree as follows:
1. INFORMATION RIGHTS.
------------------
1.1 Financial Information. The Company covenants and agrees that,
---------------------
commencing on the date of this Agreement, for so long as any Investor holds at
least 600,000 shares of Series A Stock, 420,000 shares of Series B Stock,
112,000 shares of Series C Stock, 100,000 shares of Series D Stock, 20,000
shares of Series E Stock, and/or the equivalent number (on an as-converted
basis) of shares of Common Stock of the Company ("Common Stock") issued upon the
conversion of such shares of Series A Stock, Series B Stock, Series C Stock,
Series D Stock or Series E Stock ("Conversion Stock"), the Company will:
(a) Annual Reports. Furnish to such Investor, as soon as
--------------
practicable and in any event within ninety (90) days after the end of each
fiscal year of the Company, a consolidated Balance Sheet as of the end of such
fiscal year, a consolidated Statement of Income, a consolidated Statement of
Cash Flows and a Consolidated Statement of Stockholders Equity of the Company
and its subsidiaries for such year, setting forth in each case in comparative
form the figures from the Company's previous fiscal year (if any), all prepared
in accordance with United States generally accepted accounting principles and
practices consistently applied with prior practice for earlier periods and
audited by nationally recognized independent certified public accountants;
(b) Quarterly Reports. Furnish to such Investor as soon as
-----------------
practicable, and in any case within forty-five (45) days of the end of each
fiscal quarter of the Company (except the last quarter of the Company's fiscal
year), quarterly unaudited financial statements, including an unaudited Balance
Sheet, an unaudited Statement of Income and an unaudited Statement of Cash
Flows, all prepared in accordance with United States generally accepted
accounting principles and practices consistently applied with prior practice for
earlier periods (with the exception of footnotes that may be required by such
principles and practices); and
(c) Annual Budget. Furnish to such Investor as soon as
-------------
practicable and in any event no later than thirty (30) days after the close of
each fiscal year of the Company, an annual operating plan and budget, prepared
in reasonable detail and on a monthly basis, for the next immediate fiscal year.
The Company shall also furnish to such Investor, within a reasonable time of its
preparation, amendments to such annual operating plan and budget, if any.
(d) Confidentiality. Each Investor agrees to hold all
---------------
information received pursuant to this Section in confidence, and not to use or
disclose any of such information to any third party, except to the extent such
information may be made publicly available by the Company.
-3-
<PAGE>
1.2 Inspection Rights. The Company shall permit each Investor
-----------------
entitled to receive financial information as set forth in Section 1.1 above, at
such Investor's expense, to visit and inspect the Company's properties, to
examine its books of account and records and to discuss the Company's affairs,
finances and accounts with its officers, all at such reasonable times as may be
requested by such Investor. Each such Investor agrees to hold all information
received from such inspections in confidence, and not to use or disclose any of
such information to any third party, except to the extent such information may
be made publicly available by the Company.
1.3 Termination of Certain Rights. The Company's obligations under
-----------------------------
Sections 1.1 and 1.2 above will terminate upon the earliest of (i) the closing
of the Company's initial public offering of Common Stock pursuant to an
effective registration statement filed under the U.S. Securities Act of 1933, as
amended (the "Securities Act") or (ii) acquisition (by merger, consolidation or
otherwise) of the Company where the surviving entity is subject to the reporting
requirements of the Securities Exchange Act of 1934, as amended (the "1934
Act").
2. REGISTRATION RIGHTS.
-------------------
2.1 Definitions. For purposes of this Section 2:
(a) Registration. The terms "register," "registered," and
------------
"registration" refer to a registration effected by preparing and filing a
registration statement in compliance with the Securities Act, and the
declaration or ordering of effectiveness of such registration statement.
(b) Registrable Securities. The term "Registrable Securities"
----------------------
means: (1) all shares of Common Stock of the Company issued or issuable upon the
conversion of (i) any shares of Series A Stock issued under the Series A
Agreement, (ii) any shares of Series B Stock issued under the Series B
Agreements, (iii) any shares of Series C Stock issued under the Series C
Agreements, (iv) any shares of Series D Preferred Stock issued under the Series
D Agreements, (v) any shares of Series D1 Preferred Stock issued pursuant to
exercise of the Series D Warrants and (vi) any shares of Series E Stock issued
under the Series E Agreement, that are now owned or may hereafter be acquired by
any Investor or any Investor's permitted successors and assigns; (2) all shares
of Common Stock now held by the Stockholders and any shares of Common Stock
issuable upon exercise of the Antidilution Warrants (the "Stockholders'
Shares"); and (3) any shares of Common Stock of the Company issued as (or
issuable upon the conversion or exercise of any warrant, right or other security
which is issued as) a dividend or other distribution with respect to, or in
exchange for or in replacement of, all such shares of Common Stock described in
clauses (1) and (2) of this subsection (b); excluding in all cases, however, any
Registrable Securities sold by a person in a transaction in which rights under
this Section 2 are not assigned in accordance with this Agreement or any
Registrable Securities sold to the public or sold pursuant to Rule 144
promulgated under the Securities Act; provided, however, that notwithstanding
anything herein to the contrary, the shares of Common Stock of the Company
issued or issuable upon the conversion of any shares of Series A Stock issued
under the Series A
-4-
<PAGE>
Agreement or shares of Series B Stock issued under the Series B Agreements
("Common Stock Issuable Upon Conversion of Series A and Series B Stock"), and
any shares of Common Stock described in clause (3) of this Section 2.l(b) that
are issued in respect of any Common Stock Issuable Upon Conversion of Series A
and Series B Stock (collectively hereinafter referred to as the "Excluded
Shares"), shall not be Registrable Securities for the purposes of Section 2.2
(Demand Registration) or Section 2.4 (Short Form Registration) of this
Agreement.
(c) Registrable Securities Then Outstanding. The number of
---------------------------------------
shares of "Registrable Securities then Outstanding" shall mean the number of
shares of Common Stock which are Registrable Securities and (1) are then issued
and outstanding or (2) are then issuable pursuant to the exercise or conversion
of then outstanding and then exercisable options, warrants or convertible
securities.
(d) Holder. For purposes of this Section 2 and Sections 3 and 4
------
hereof, the term "Holder" means any person owning of record Registrable
Securities that have not been sold to the public or pursuant to Rule 144
promulgated under the Securities Act or any assignee of record of such
Registrable Securities to whom rights under this Section 2 have been duly
assigned in accordance with this Agreement; provided, however, that for purposes
of this Agreement, a record holder of shares of Preferred Stock (or securities
convertible into Preferred Stock) convertible into such Registrable Securities
shall be deemed to be the Holder of such Registrable Securities; provided,
further, that a holder of Excluded Shares (as defined in Section 2.l(b)) shall
not be a Holder with respect to such Excluded Shares for purposes of Section 2.2
or Section 2.4 of this Agreement; and provided, further, that the Company shall
in no event be obligated to register shares of Preferred Stock, and that Holders
of Registrable Securities will not be required to convert their shares of
Preferred Stock into Common Stock in order to exercise the registration rights
granted hereunder, until immediately before the closing of the offering to which
the registration relates.
(e) SEC. The term "SEC" or "Commission" means the U.S.
---
Securities and Exchange Commission.
2.2 Demand Registration.
-------------------
(a) Request by Holders. If the Company shall receive at any time
------------------
after August 31, 2000, or after 180 days after the effective date of the
Company's initial public offering of its securities pursuant to a registration
filed under the Securities Act, a written request from the Holders of at least a
majority of the Registrable Securities then outstanding that the Company file a
registration statement under the Securities Act covering the registration of
Registrable Securities pursuant to this Section 2.2, then the Company shall,
within ten (10) business days of the receipt of such written request, give
written notice of such request ("Request Notice") to all Holders, and effect, as
soon as practicable, and in any event within 60 days following delivery of the
Request Notice, the registration under the Securities Act of all Registrable
Securities which Holders request to be registered and included in such
registration by
-5-
<PAGE>
written notice given such Holders to the Company within twenty (20) days after
receipt of the Request Notice, subject only to the limitations of this Section
2.2; provided that the Registrable Securities requested by all Holders to be
registered pursuant to such request must either (i) be at least fifty percent
(50%) of all Registrable Securities then outstanding or (ii) have an anticipated
aggregate public offering price (before any underwriting discounts and
commissions) of not less than $2,000,000.
(b) Underwriting. If the Holders initiating the registration
------------
request under this Section 2.2 ("Initiating Holders") intend to distribute the
Registrable Securities covered by their request by means of an underwriting,
then they shall so advise the Company as a part of their request made pursuant
to this Section 2.2 and the Company shall include such information in the
written notice referred to in subsection 2.2(a). In such event, the right of any
Holder to include his Registrable Securities in such registration shall be
conditioned upon such Holder's participation in such underwriting and the
inclusion of such Holder's Registrable Securities in the underwriting (unless
otherwise mutually agreed by a majority in interest of the Initiating Holders
and such Holder) to the extent provided herein. All Holders proposing to
distribute their securities through such underwriting shall enter into an
underwriting agreement in customary form with the managing underwriter or
underwriters selected for such underwriting by the Company and reasonably
acceptable to a majority in interest of the Initiating Holders. Notwithstanding
any other provision of this Section 2.2, if the underwriter(s) advise(s) the
Company in writing that marketing factors require a limitation of the number of
securities to be underwritten then the Company shall so advise all Holders of
Registrable Securities which would otherwise be registered and underwritten
pursuant hereto, and the number of Registrable Securities that may be included
in the underwriting shall be reduced as required by the underwriter(s) and
allocated among the Holders of Registrable Securities on a pro rata basis
according to the number of Registrable Securities then outstanding held by each
Holder requesting registration (including the Initiating Holders); provided,
however, that the number of shares of Registrable Securities to be included in
such underwriting and registration shall not be reduced unless all other
securities of the Company are first entirely excluded from the underwriting and
registration. Any Registrable Securities excluded and withdrawn from such
underwriting shall be withdrawn from the registration.
(c) Maximum Number of Demand Registrations. The Company is
--------------------------------------
obligated to effect only one such registration pursuant to this Section 2.2.
(d) Deferral. Notwithstanding the foregoing, if the Company
--------
shall furnish to Holders requesting the filing of a registration statement
pursuant to this Section 2.2, a certificate signed by the President or Chief
Executive Officer of the Company stating that in the good faith judgment of the
Board of Directors of the Company, it would be seriously detrimental to the
Company and its stockholders for such registration statement to be filed and it
is therefore essential to defer the filing of such registration statement, then
the Company shall have the right to defer such filing for a period of not more
than 90 days after receipt of the request of the
-6-
<PAGE>
Initiating Holders; provided, however, that the Company may not utilize this
right more than once in any twelve (12) month period.
(e) Expenses. All expenses incurred in connection with a
--------
registration pursuant to this Section 2.2, including without limitation all
registration, filing and qualification fees, printers' and accounting fees, fees
and disbursements of counsel for the Company, and the reasonable fees and
disbursements of one counsel for the selling Holders (but excluding
underwriters' discounts and commissions), shall be borne by the Company. Each
Holder participating in a registration pursuant to this Section 2.2 shall bear
such Holder's proportionate share (based on the total number of shares sold in
such registration other than for the account of the Company) of all discounts,
commissions or other such amounts payable to underwriters or brokers in
connection with such offering. Notwithstanding the foregoing, the Company shall
not be required to pay for any expenses of any registration proceeding begun
pursuant to this Section 2.2 if the registration request is subsequently
withdrawn at the request of the Holders of a majority of the Registrable
Securities to be registered, unless the Holders of a majority of the Registrable
Securities then outstanding agree to forfeit their right to one (1) demand
registration pursuant to this Section 2.2 (in which case such right shall be
forfeited by all Holders of Registrable Securities); provided, further, however,
that if at the time of such withdrawal, the Holders have learned of a material
adverse change in the condition, business, or prospects of the Company not known
to the Holders at the time of their request for such registration and have
withdrawn their request for registration with reasonable promptness after
learning of such material adverse change, then the Holders shall not be required
to pay any of such expenses and shall retain their rights pursuant to this
Section 2.2.
2.3 Piggyback Registrations. The Company shall notify all Holders of
-----------------------
Registrable Securities in writing at least thirty (30) days prior to filing any
registration statement under the Securities Act for purposes of effecting a
public offering of securities of the Company (including, but not limited to,
registration statements relating to secondary offerings of securities of the
Company, but excluding registration statements relating to any employee benefit
plan or a corporate reorganization) and will afford each such Holder an
opportunity to include in such registration statement all or any part of the
Registrable Securities then held by such Holder. Each Holder desiring to
include in any such registration statement all or any part of the Registrable
Securities held by such Holder shall, within twenty (20) days after receipt of
the above-described notice from the Company, so notify the Company in writing,
and in such notice shall inform the Company of the number of Registrable
Securities such Holder wishes to include in such registration statement. If a
Holder decides not to include all of its Registrable Securities in any
registration statement thereafter filed by the Company, such Holder shall
nevertheless continue to have the right to include any Registrable Securities in
any subsequent registration statement or registration statements as may be filed
by the Company with respect to offerings of its securities, all upon the terms
and conditions set forth herein.
(a) Underwriting. If a registration statement under which the
------------
Company gives notice under this Section 2.3 is for an underwritten offering,
then the Company
-7-
<PAGE>
shall so advise the Holders of Registrable Securities. In such event, the right
of any such Holder's Registrable Securities to be included in a registration
pursuant to this Section 2.3 shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent provided herein. All
Holders proposing to distribute their Registrable Securities through such
underwriting shall enter into an underwriting agreement in customary form with
the managing underwriter or underwriter(s) selected for such underwriting.
Notwithstanding any other provision of this Agreement, if the managing
underwriter determines in good faith that marketing factors require a limitation
of the number of shares to be underwritten, then the managing underwriters may
limit the Registrable Securities and other securities to be distributed through
such underwriting. The Company shall so advise all Holders proposing to
distribute their securities through the underwriting of such limitation, and the
number of shares of Registrable Securities that may be included in the
registration and underwriting shall be allocated among all such Holders in
proportion, as nearly as practicable, to the respective amounts of Registrable
Securities held by such Holders at the time of filing the registration
statement. In no event shall the amount of securities of the selling Holdings
included in the registration be reduced below thirty percent (30%) of the total
amount of securities included in such registration, unless such offering is the
initial underwritten public offering of the Company's securities and such
registration does not include shares of any other selling stockholders, in which
event any or all of the Registrable Securities of the Holders may be excluded in
accordance with the preceding two sentences. If any Holder disapproves of the
terms of any such underwriting, such Holder may elect to withdraw therefrom by
giving written notice to the Company and the underwriter, delivered at least ten
(10) business days prior to the effective date of the registration statement.
Any Registrable Securities excluded or withdrawn from such underwriting shall be
excluded and withdrawn from the registration. For any Holder which is a
partnership, limited liability company or corporation, the partners, retired
partners, members, retired members and stockholders of such Holder, or the
estates and family members of any such partners, retired partners, members and
retired members and any trusts for the benefit of any of the foregoing persons
(to the extent and only to the extent that the partnership, limited liability
company or corporation transferred shares to such persons), shall be deemed to
be a single "Holder," and any pro rata reduction with respect to such "Holder"
shall be based upon the aggregate amount of shares carrying registration rights
owned by all entities and individuals included in such "Holder," as defined in
this sentence.
(b) Expenses. All expenses incurred in connection with a
--------
registration pursuant to this Section 2.3 (excluding underwriters' and brokers'
discounts and commissions), including, without limitation all federal and "blue
sky" registration, filing and qualification fees, printers' and accounting fees,
fees and disbursements of counsel for the Company and reasonable fees and
disbursements of one counsel for the selling Holders shall be borne by the
Company.
2.4 Short Form Registration. If any Holder or Holders of the
-----------------------
Registrable Securities request that the Company file a registration statement on
Form S-3 (or any successor form to Form S-3), or any similar short-form
registration statement, for a public offering of Registrable Securities, the
reasonably anticipated aggregate price to the public of which, net of
-8-
<PAGE>
underwriting discounts and commissions, would exceed $500,000 and the Company is
a registrant entitled to use Form S-3 to register the Registrable Securities for
such an offering, the Company shall use its best efforts to cause such
Registrable Securities to be registered on such form for the offering and to
cause such Registrable Securities to be qualified in such jurisdictions as the
Holder or Holders may reasonably request; provided however that the Company
shall not be required to effect more than one such registration in any twelve
(12) month period. The provisions of Section 2.2(b), 2.2(d) and 2.2(e) shall be
applicable to each registration initiated under this Section 2.4. The Company is
obligated to effect only five registrations pursuant to this Section 2.4.
Registrations effected pursuant to this Section 2.4 shall not be counted as
demands for registration or registrations effected pursuant Sections 2.2 or 2.3.
2.5 Obligations of the Company. Whenever required to effect the
--------------------------
registration of any Registrable Securities under this Agreement, the Company
shall, as expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its best efforts to cause such
registration statement to become effective, and, upon the request of the Holders
of a majority of the Registrable Securities registered thereunder, keep such
registration statement effective for up to one hundred twenty (120) days;
provided however that (i) such 120-day period shall be extended for a period of
time equal to the period the Holder refrains from selling any securities
included in such registration at the request of an underwriter of Common Stock
(or other securities) of the Company, and (ii) in the case of any registration
of Registrable Securities on Form S-3 which are intended to be offered on a
continuous or delayed basis, such 120-day period shall be extended, if
necessary, to keep the registration statement effective until all such
Registrable Securities are sold, provided that Rule 415, or any successor rule
under the Securities Act, permits an offering on a continuous or delayed basis,
and provided further that applicable rules under the Act governing the
obligation to file a post-effective amendment permit, in lieu of filing a post-
effective amendment which (A) includes any prospectus required by Section
10(a)(3) of the Securities Act or (B) reflects facts or events representing a
material or fundamental change in the information set forth in the registration
statement, the incorporation by reference of information required to be included
in (A) and (B) above to be contained in periodic reports filed pursuant to
Section 13 or 15(d) of the 1934 Act in the registration statement.
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement.
(c) Furnish to the Holders such number of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of the Registrable
Securities owned by them that are included in such registration.
-9-
<PAGE>
(d) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the Holders,
provided that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions.
(e) In the event of any underwritten public offering, enter into
and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter(s) of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(f) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto 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 a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing.
(g) Furnish, at the request of any Holder requesting
registration of Registrable Securities, on the date that such Registrable
Securities are delivered to the underwriters for sale, if such securities are
being sold through underwriters, or, if such securities are not being sold
through underwriters, on the date that the registration statement with respect
to such securities becomes effective, (i) an opinion, dated as of such date, of
the counsel representing the Company for the purposes of such registration, in
form and substance as is customarily given to underwriters in an underwritten
public offering and reasonably satisfactory to a majority in interest of the
Holders requesting registration, addressed to the underwriters, if any, and to
the Holders requesting registration of Registrable Securities and (ii) a
"comfort" letter dated as of such date, from the independent certified public
accountants of the Company, in form and substance as is customarily given by
independent certified public accountants to underwriters in an underwritten
public offering and reasonably satisfactory to a majority in interest of the
Holders requesting registration, addressed to the underwriters, if any, and to
the Holders requesting registration of Registrable Securities.
(h) Cause all such Registrable Securities to be listed on each
securities exchange on which similar securities issued by the Company are then
listed.
(i) Provide a transfer agent and registrar for all Registrable
Securities and a CUSIP number for all such Registrable Securities, in each case
not later than the effective date of such registration.
2.6 Furnish Information. It shall be a condition precedent to the
-------------------
obligations of the Company to take any action pursuant to Sections 2.2, 2.3 or
2.4 that the selling Holders shall
-10-
<PAGE>
furnish to the Company such information regarding themselves, the Registrable
Securities held by them, and the intended method of disposition of such
securities as shall be required to timely effect the registration of their
Registrable Securities.
2.7 Delay of Registration. No Holder shall have any right to obtain
---------------------
or seek an injunction restraining or otherwise delaying any such registration as
the result of any controversy that might arise with respect to the
interpretation or implementation of this Section 2.
2.8 Indemnification. In the event any Registrable Securities are
---------------
included in a registration statement under Sections 2.2, 2.3 or 2.4:
(a) By the Company. To the extent permitted by law, the Company
--------------
will indemnify and hold harmless each Holder, the partners, members, officers
and directors of each Holder, any underwriter (as defined in the Securities Act)
for such Holder and each person, if any, who controls such Holder or underwriter
within the of the meaning of the Securities Act or the 1934 Act, against any
losses, claims, damages, or liabilities (joint or several) to which they may
become subject under the Securities Act, the 1934 Act or other federal or state
law, insofar as such losses, claims, damages, or liabilities (or actions in
respect thereof) arise out of or are based upon any of the following statements,
omissions or violations (collectively a "Violation"):
(i) any untrue statement or alleged untrue statement of a
material fact contained in such registration statement, including any
preliminary prospectus or final prospectus contained therein or any amendments
or supplements thereto;
(ii) the omission or alleged omission to state therein a
material fact required to be stated therein, or necessary to make the statements
therein not misleading, or
(iii) any violation or alleged violation by the Company of
the Securities Act, the 1934 Act, any federal or state securities law or any
rule or regulation promulgated under the Securities Act, the 1934 Act or any
federal or state securities law or common law in connection with the offering
covered by such registration statement;
and the Company will reimburse each such Holder, partner, member, officer or
director, underwriter or controlling person for any legal or other expenses
reasonably incurred by them, as incurred, in connection with investigating or
defending any such loss, claim, damage, liability or action; provided however,
-------- -------
that the indemnity agreement contained in this subsection 2.8(a) shall not apply
to amounts paid in settlement of any such loss, claim, damage, liability or
action if such settlement is effected without the consent of the Company (which
consent shall not be unreasonably withheld), nor shall the Company be liable in
any such case for any such loss, claim, damage, liability or action to the
extent that it arises out of or is based upon a Violation which occurs in
reliance upon and in conformity with written information furnished expressly for
use in connection with such registration by such Holder, partner, member,
officer, director, underwriter or controlling person of such Holder.
-11-
<PAGE>
(b) By Selling Holders. To the extent permitted by law, each
------------------
selling Holder will indemnify and hold harmless the Company, each of its
directors, each of its officers who have signed the registration statement, each
person, if any who controls the Company within the meaning of the Securities
Act, any underwriter and any other Holder selling securities under the
registration statement or any of such other Holder's partners, directors or
officers or any person who controls such Holder within the meaning of the
Securities Act or the 1934 Act, against any losses, claims, damages or
liabilities (joint or several) to which the Company or any such director,
officer, controlling person, underwriter or other Holder, partner, officer,
director or controlling person of such other Holder may become subject under the
Securities Act, the 1934 Act or other federal or state law, insofar as such
losses, claims, damages or liabilities (or actions in respect thereto) arise out
of or are based upon any Violation, in each case to the extent (and only to the
extent) that such Violation occurs in reliance upon and in conformity with
written information furnished by such Holder expressly for use in connection
with such registration; and each such Holder will reimburse any legal or other
expenses reasonably incurred by the Company or any such director, officer,
controlling person, underwriter or other Holder, partner, officer, director or
controlling person of such other Holder in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
-------- -------
that the indemnity agreement contained in this subsection 2.8(b) shall not apply
to amounts paid in settlement of any such loss, claim, damage, liability or
action if such settlement is effected without the consent of the Holder, which
consent shall not be unreasonably withheld; and provided further, that the total
-------- -------
amounts payable in indemnity by a Holder under this Section 2.8(b) in respect of
any Violation shall not exceed the net proceeds received by such Holder in the
registered offering out of which such Violation arises.
(c) Notice. Promptly after receipt by an indemnified party under
------
this Section 2.8 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 2.8, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
-------- --------
have the right to retain its own counsel, with the fees and expenses to be paid
by the indemnifying party, if representation of such indemnified party by the
counsel retained by the indemnifying party would be inappropriate due to actual
or potential conflict of interests between such indemnified party and any other
party represented by such counsel in such proceeding. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action, if prejudicial to its ability to defend such
action, shall relieve such indemnifying party of any liability to the
indemnified party under this Section 2.8, but the omission so to deliver written
notice to the indemnifying party will not relieve it of any liability that it
may have to any indemnified party otherwise than under this Section 2.8.
-12-
<PAGE>
(d) Defect Eliminated in Final Prospectus. The foregoing
-------------------------------------
indemnity agreements of the Company and Holders are subject to the condition
that, insofar as they relate to any Violation made in a preliminary prospectus
but eliminated or remedied in the amended prospectus on file with the SEC at the
time the registration statement in question becomes effective or the amended
prospectus filed with the SEC pursuant to SEC Rule 424(b) (the "Final
-----
Prospectus"), such indemnity agreement shall not inure to the benefit of any
- ----------
person if a copy of the Final Prospectus was furnished to the indemnified party
and was not furnished to the person asserting the loss, liability, claim or
damage at or prior to the time such action is required by the Securities Act;
provided, however, that this condition shall only apply where the indemnified
- -------- -------
party had an obligation to provide the Final Prospectus to such person.
(e) Contribution. In order to provide for just and equitable
------------
contribution to joint liability under the Securities Act in any case in which
either (i) any Holder exercising rights under this Agreement, or any controlling
person of any such Holder, makes a claim for indemnification pursuant to this
Section 2.8 but it is judicially determined (by the entry of a final judgment or
decree by a court of competent jurisdiction and the expiration of time to appeal
or the denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that this Section 2.8 provides
for indemnification in such case, or (ii) contribution under the Securities Act
may be required on the part of any such selling Holder or any such controlling
person in circumstances for which indemnification is provided under this Section
2.8; then, and in each such case, the Company and such Holder will contribute to
the aggregate losses, claims, damages or liabilities to which they may be
subject (after contribution from others) in such proportion so that such Holder
is responsible for the portion represented by the percentage that the public
offering price of its Registrable Securities offered by and sold under the
registration statement bears to the public offering price of all securities
offered by and sold under such registration statement, and the Company and other
selling Holders are responsible for the remaining portion; provided, however,
that, in any such case, (A) no such Holder will be required to contribute any
amount in excess of the net public offering price of all such Registrable
Securities offered and sold by such Holder pursuant to such registration
statement; and (B) no person or entity guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) will be entitled to
contribution from any person or entity who was not guilty of such fraudulent
misrepresentation.
(f) Survival. The obligations of the Company and Holders under
--------
this Section 2.8 shall survive the completion of any offering of Registrable
Securities in a registration statement, and otherwise. Notwithstanding the
foregoing, to the extent the provisions on indemnification and contribution
contained in the underwriting agreement entered into in connection with the
underwritten public offering are in conflict with the foregoing provisions, the
provisions in the underwriting agreement shall control.
2.9 "Market Stand-Off" Agreement. Each Holder hereby agrees that it
---------------------------
shall not, to the extent requested by the Company or an underwriter of
securities of the Company, sell or otherwise transfer or dispose of any
Registrable Securities or other shares of stock of the
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<PAGE>
Company then owned by such Holder (other than to donees or partners of the
Holder who agree to be similarly bound) for up to one hundred eighty (180) days
following the effective date of a registration statement of the Company filed
under the Securities Act, provided, however, that:
(a) such agreement shall be applicable only to the first such
registration statement of the Company which covers securities to be sold on its
behalf to the public in an underwritten offering but not to Registrable
Securities sold pursuant to the registration statement; and
(b) all executive officers, directors, stockholders holding more
than 1% of the then outstanding shares of capital stock (on a fully diluted, as-
converted basis), and other persons or entities holding registration rights
enter into similar agreements.
In order to enforce the foregoing covenant, the Company shall have the right to
place restrictive legends on the certificates representing the shares subject to
this Section and to impose stop transfer instructions with respect to the
Registrable Securities and such other shares of stock of each Holder (and the
shares or securities of every other person subject to the foregoing restriction)
until the end of such period.
2.10 Rule 144 Reporting. With a view to making available the benefits
------------------
of certain rules and regulations of the Commission which may at any time permit
the sale of the Registrable Securities to the public without registration, after
such time as a public market exists for the Common Stock of the Company, the
Company agrees to:
(a) Make and keep public information available, as those terms
are understood and defined in Rule 144 under the Securities Act, at all times
after the effective date of the first registration under the Securities Act
filed by the Company for an offering of its securities to the general public;
(b) Take such action, including the voluntary registration of
its Common Stock under Section 12 of the 1934 Act, as is necessary to enable the
Holders to utilize Form S-3 for the sale of their Registrable Securities, such
action to be taken as soon as practicable after the end of the fiscal year in
which the first registration statement filed by the Company for the offering of
its securities to the general public is declared effective;
(c) Use its best efforts to file with the Commission in a timely
manner all reports and other documents required of the Company under the
Securities Act and the 1934 Act (at any time after it has become subject to such
reporting requirements); and
(d) So long as a Holder owns any Registrable Securities, to
furnish to the Holder upon request (i) a written statement by the Company as to
its compliance with the reporting requirements of Rule 144 (at any time after 90
days after the effective date of the first registration statement filed by the
Company for an offering of its securities to the general public),
-14-
<PAGE>
and of the Securities Act and the 1934 Act (at any time after it has become
subject to the reporting requirements of the 1934 Act), or that it qualifies as
a registrant whose securities may be resold pursuant to Form S-3 (at any time
after it so qualifies), (ii) a copy of the most recent annual or quarterly
report of the Company, and (iii) such other reports and documents of the Company
as a Holder may reasonably request in availing itself of any rule or regulation
of the Commission allowing a Holder to sell any such securities without
registration (at any time after the Company has become subject to the reporting
requirements of the 1934 Act).
2.11 Termination of the Company's Obligations. The Company shall have
----------------------------------------
no obligations pursuant to Sections 2.2, 2.3 or 2.4 with respect to (i) any
request or requests for registration made by any Holder on a date which is four
years following the date of closing of the Company's initial public offering of
Common Stock pursuant to an effective registration statement filed under the
Securities Act, or (ii) any Registrable Securities proposed to be sold by a
Holder in a registration pursuant to Sections 2.2, 2.3 or 2.4 if, in the opinion
of counsel to the Company, all such Registrable Securities proposed to be sold
by a Holder may be sold in a three-month period without registration under
Securities Act pursuant to Rule 144 under the Securities Act.
3. RIGHT OF FIRST REFUSAL.
----------------------
3.1 General. Each Holder (as defined in Section 2.1(d)) and any party
-------
to whom such Holder's rights under this Section 3 have been duly assigned in
accordance with Section 4.1(b) (each such Holder or assignee being hereinafter
referred to as a "Rights Holder") has the right of first refusal to purchase
such Rights Holder's Pro Rata Share (as defined below), of all (or any part) of
any "New Securities" (as defined in Section 3.2) that the Company may from time-
to-time issue after the date of this Agreement. A Rights Holder's "Pro Rata
Share" for purposes of this right of first refusal is the ratio of (a) the
number of Registrable Securities as to which such Rights Holder is the Holder
(and/or is deemed to be the Holder under Section 2.1(d)), to (b) a number of
shares of Common Stock of the Company equal to the sum of (i) the total number
of shares of Common Stock of the Company then outstanding plus (ii) the total
number of shares of Common Stock of the Company into which all then outstanding
shares of Preferred Stock of the Company are then convertible plus (iii) the
number of shares of Common Stock of the Company reserved for issuance under
stock purchase and stock option plans of the Company and outstanding warrants.
3.2 New Securities. "New Securities" shall mean any Common Stock or
--------------
Preferred Stock of the Company, whether now authorized or not, and rights,
options or warrants to purchase such Common Stock or Preferred Stock, and
securities of any type whatsoever that are, or may become, convertible or
exchangeable into such Common Stock or Preferred Stock; provided, however, that
-------- -------
the term "New Securities" does not include:
----------------
(a) up to a total of 7,802,791 shares of the Company's Common
Stock (or options, warrants or rights therefor) now or hereinafter issued to
employees, officers, or
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<PAGE>
directors of, or contractors, consultants or advisers to, or any entity
affiliated with any of the foregoing, the Company pursuant to stock purchase or
stock option plans, stock bonuses or awards, warrants, contracts, note
conversions, or other arrangements that are approved by the Board of Directors
of the Company;
(b) all shares of Series D Preferred Stock issued under the
Series D Agreements, and all shares of Series D1 Preferred Stock issued or
issuable upon exercise of the Series D Warrants issued under the Series D
Agreements;
(c) all shares of Common Stock issued or issuable upon
conversion of any series of Preferred Stock;
(d) up to a total of 10,000 shares of Common Stock issued or
issuable upon exercise of warrants granted to U.C. Berkeley, up to 256,000
shares of Common Stock issued or issuable upon exercise of warrants granted to
Hiroshi Mikatani, and all shares of Common Stock issued or issuable upon
exercise of the Antidilution Warrants;
(e) up to 50,000 shares of Common Stock now or hereafter issued
to academic institutions with which the officers and/or key employees have a
relationship pursuant to any plan or arrangement approved by the Board of
Directors (including the one director elected by the holders of Series D
Preferred Stock);
(f) shares of the Company's Common Stock or Preferred Stock
issued in connection with any stock split or stock dividend;
(g) securities offered by the Company to the public pursuant to
a registration statement filed under the Securities Act;
(h) all shares of Common Stock or other securities now or
hereafter issued to parties providing the Company with equipment leases, real
property leases, loans, credit lines, guaranties of indebtedness, cash price
reductions or similar financing, provided the transaction is approved by a
majority of the members of the Company's Board of Directors, and provided
further that, in the case the proposed transaction is with an affiliate of the
Company, the transaction is unanimously approved by all disinterested members of
the Company's Board of Directors;
(i) securities issued pursuant to the acquisition of another
corporation or entity by the Company, as approved by the Company's Board of
Directors, by consolidation, merger, purchase of all or substantially all of the
assets, or other reorganization in which the Company acquires, in a single
transaction or series of related transactions, all or substantially all of the
assets of such other corporation or entity or fifty percent (50%) or more of the
voting power of such other corporation or entity or fifty percent (50%) or more
of the equity ownership of such other entity; and
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<PAGE>
(j) all shares of Series E Stock issued by the Company under the
Series E Agreement.
3.3 Procedures. In the event that the Company proposes to undertake
----------
an issuance of New Securities, it shall give to each Rights Holder written
notice of its intention to issue New Securities (the "Notice"), describing the
type of New Securities and the price and the general terms upon which the
Company proposes to issue such New Securities. Each Rights Holder shall have ten
(10) days from the date of mailing of any such Notice to agree in writing to
purchase such Rights Holder's Pro Rata Share of such New Securities for the
price and upon the general terms specified in the Notice by giving written
notice to the Company and stating therein the quantity of New Securities to be
purchased (not to exceed such Rights Holder's Pro Rata Share). If any Rights
Holder fails to so agree in writing within such ten (10) day period to purchase
such Rights Holder's full Pro Rata Share of an offering of New Securities (a
"Nonpurchasing Holder"), then such Nonpurchasing Holder shall forfeit the right
hereunder to purchase that part of this Pro Rata Share of such New Securities
that he did not so agree to purchase.
3.4 Failure to Exercise. In the event that the Rights Holders fail to
-------------------
exercise in full the right of first refusal within such ten (10) day period,
then the Company shall have 60 days thereafter to sell the New Securities with
respect to which the Rights Holders' rights of first refusal hereunder were not
exercised, at a price not less than and upon terms no more favorable to the
purchasers thereof than specified in the Company's Notice to the Rights Holders.
In the event that the Company has not issued and sold the New Securities within
such 60 day period, then the Company shall not thereafter issue or sell any New
Securities without again first offering such New Securities to the Rights
Holders pursuant to this Section 3.
3.5 Termination. This right of first refusal shall terminate (i)
-----------
immediately before the closing of a firm commitment underwritten public
offering, pursuant to an effective registration statement filed under the
Securities Act that results in a conversion of all outstanding shares of Series
D Preferred Stock, Series D1 Preferred Stock and Series E Preferred Stock into
Common Stock under the Company's Certificate of Incorporation, or (ii) upon (a)
the acquisition of all or substantially all the assets of the Company or (b) an
acquisition of the Company by another corporation or entity by consolidation,
merger or other reorganization in which the holders of the Company's outstanding
voting stock immediately prior to such transaction own, immediately after such
transaction, securities representing less than fifty percent (50%) or more of
the voting power of the corporation or other entity surviving such transaction
pursuant to this Section 3.
-17-
<PAGE>
4. ASSIGNMENT AND AMENDMENT.
------------------------
4.1 Assignment. Notwithstanding anything herein to the contrary:
----------
(a) Information Rights. The rights of an Investor under Section
------------------
1.1 or 1.2 hereof may be assigned only to a party who acquires from an Investor
(or an Investor's permitted assigns) at least that number of shares of Series A
Stock, Series B Stock, Series C Stock, Series D Stock, Series E Stock and/or an
equivalent number (on an as-converted basis) of shares of Conversion Stock
described in Section 1.1 or 1.2 hereof, respectively.
(b) Registration Rights; Refusal Rights. The registration rights
-----------------------------------
of a Holder under Section 2 hereof and the rights of first refusal of a Rights
Holder under Section 3 hereof may be assigned only to a party who acquires at
least 600,000 shares of Series A Stock, 420,000 shares of Series B Stock,
112,000 shares of Series C Stock, 100,000 shares of Series D Stock or 20,000
shares of Series E Stock, and/or an equivalent number (on an as-converted basis)
of Registrable Securities issued upon conversion thereof, provided, however,
-------- -------
that no party may be assigned any of the foregoing rights unless the Company is
given written notice by the assigning party at the time of such assignment
stating the name and address of the assignee and identifying the securities of
the Company as to which the rights in question are being assigned; and provided,
further that any such assignee shall receive such assigned rights subject to all
the terms and conditions of this Agreement, including without limitation the
provisions of this Section 4.
(c) Oak Investment Partners. Notwithstanding anything to the
-----------------------
contrary herein, Oak Investment Partners VII, Limited Partnership ("Oak") shall
be entitled to assign any of its rights and benefits to any other entity
affiliated with Oak in connection with any transfer of shares of the Company's
capital stock (or securities convertible into or exercisable for capital stock)
to such affiliated fund, and upon any such transfer such affiliated transferee
shall be entitled to and shall have all of the rights and benefits hereunder as
if it were an initial "Investor" hereunder.
4.2 Amendment of Rights. Any provision of this Agreement may be
-------------------
amended and the observance thereof may be waived (either generally or in a
particular instance and either retroactively or prospectively) only with the
written consent of (i) the Company, (ii) the holders of a majority of all then
outstanding Series D Stock and Series E Stock, voting as a single class, and
(iii) Investors and Stockholders (and/or any of their permitted successors or
assigns) holding shares of Common Stock, Preferred Stock and/or Conversion Stock
representing and/or convertible into a majority of all the Stockholders' Shares
and Investors' Shares (as defined below). As used herein, the term "Investors'
Shares" shall mean the shares of Common Stock then issuable upon conversion of
all then outstanding shares of Series A Stock issued under the Series A
Agreement, Series B Stock issued under the Series B Agreements and Series C
Stock issued under the Series C Agreements, plus all then outstanding shares of
Conversion Stock that were issued upon the conversion of any shares of Series A
Stock issued under the Series A
-18-
<PAGE>
Agreement, shares of Series B Stock issued under the Series B Agreement or
shares of Series C Stock issued under the Series C Agreements. Any amendment or
waiver effected in accordance with this Section 4.2. shall be binding upon each
Investor, each Shareholder, each Holder, each permitted successor or assignee of
such Investor or Shareholder or Holder and the Company.
5. GENERAL PROVISIONS.
------------------
5.1 Notices. Any notice, request or other communication required or
-------
permitted hereunder shall be in writing and shall be deemed to have been duly
given if personally delivered or if deposited in the U.S. mail by registered or
certified mail, return receipt requested, postage prepaid, or if dispatched by a
recognized courier service, as follows:
(a) if to an Investor, at such Investor's respective address as
set forth on Exhibit A hereto.
(b) if to the Company, at:
Inktomi Corporation
1900 South Norfolk Street, Suite 110
San Mateo, CA 94403
Attn: General Counsel
Any party hereto (and such party's permitted assigns) may by notice so given
change its address for future notices hereunder. Notice shall conclusively be
deemed to have been given when personally delivered or when deposited in the
mail or dispatched with a courier in the manner set forth above.
5.2 Entire Agreement. This Agreement, together with all the Exhibits
----------------
hereto, constitutes and contains the entire agreement and understanding of the
parties with respect to the subject matter hereof and supersedes the Prior
Rights Agreement and any and all prior negotiations, correspondence, agreements,
understandings, duties or obligations between the parties respecting the subject
matter hereof. This Agreement will amend and restate the Prior Rights Agreement
to read as set forth herein, when it has been duly executed by parties having
the right to so amend and restate the Prior Rights Agreement.
5.3 Governing Law. This Agreement shall be governed by and construed
-------------
exclusively in accordance with the internal laws of the State of California as
applied to agreements among California residents entered into and to be
performed entirely within California, excluding that body of law relating to
conflict of laws and choice of law.
5.4 Severability. If one or more provisions of this Agreement are
------------
held to be unenforceable under applicable law, then such provision(s) shall be
excluded from this
-19-
<PAGE>
Agreement and the balance of this Agreement shall be interpreted as if such
provision(s) were so excluded and shall be enforceable in accordance with its
terms.
5.5 Third Parties. Nothing in this Agreement, express or implied, is
-------------
intended to confer upon any person, other than the parties hereto and their
successors and assigns, any rights or remedies under or by reason of this
Agreement.
5.6 Successors And Assigns. Subject to the provisions of Section 4.1,
----------------------
the provisions of this Agreement shall inure to the benefit of, and shall be
binding upon, the successors and permitted assigns of the parties hereto.
5.7 Captions. The captions to sections of this Agreement have been
--------
inserted for identification and reference purposes only and shall not be used to
construe or interpret this Agreement.
5.8 Counterparts. This Agreement may be executed in counterparts,
------------
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
5.9 Costs And Attorneys' Fees. In the event that any action, suit or
-------------------------
other proceeding is instituted concerning or arising out of this Agreement or
any transaction contemplated hereunder, the prevailing party shall recover all
of such party's costs and attorneys' fees incurred in each such action, suit or
other proceeding, including any and all appeals or petitions therefrom.
5.10 Adjustments for Stock Splits, Etc. Wherever in this Agreement
---------------------------------
there is a reference to a specific number of shares of Common Stock or Preferred
Stock of the Company of any class or series, then, upon the occurrence of any
subdivision, combination or stock dividend of such class or series of stock, the
specific number of shares so referenced in this Agreement shall automatically be
proportionally adjusted to reflect the effect on the outstanding shares of such
class or series of stock by such subdivision, combination or stock dividend.
5.11 Aggregation of Stock. All shares held or acquired by affiliated
--------------------
entities or persons shall be aggregated together for the purpose of determining
the availability of any rights under this Agreement.
5.12 Confidentiality. Neither the Company nor any Investor (other than
---------------
Intel Corporation ("Intel"), shall use Intel or its affiliates' names or refer
to Intel or its affiliates directly or indirectly in connection with Intel or
its affiliates' relationship with the Company in any advertisement, new release
or professional or trade publication, or in any other manner, unless otherwise
required by law or with the prior written consent of Intel, which consent will
generally not be granted. The parties agree that there will be no press release
or other public statement issued by any party relating to this Agreement or the
transactions contemplated hereby
-20-
<PAGE>
unless required by law or mutually agreed to, and further agree to keep the
terms and conditions of this Investors' Rights Agreement and any other
agreements related to or entered into in connection with this Agreement
(collectively, the "Transaction Agreements") in strictest confidence, it being
understood that this restriction shall not prohibit disclosure to the parties'
counsel, accountants and professional advisors. If the Company determines that
it is required by law to disclose the terms and conditions of any or all of the
Transaction Agreements, or to file any or all of the Transaction Agreements with
the SEC, it shall, a reasonable time before making any such disclosure or
filing, consult with Intel regarding such filing and seek confidential treatment
for such portions of those agreements as may be required by Intel.
-21-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date and year first above written.
THE COMPANY:
INKTOMI CORPORATION
By: /s/ David C. Peterschmidt
------------------------------------
David C. Peterschmidt, President
and Chief Executive Officer
<PAGE>
THE SERIES A INVESTORS:
/s/ David A. Brewer
-----------------------------------
David A. Brewer
/s/ Eric A. Brewer
-----------------------------------
Eric A. Brewer
/s/ Paul Gauthier
-----------------------------------
Paul Gauthier
/s/ Stephanie C. Bray
----------------------------------
Stephanie C. Bray and
/s/ Bennie M. Bray
----------------------------------
Bennie M. Bray
UNITED CAPITAL GROUP LP
By: JHM 94 Corporation, a Delaware
Corporation, General Partner
By:_______________________________
Title:____________________________
<PAGE>
THE SERIES B INVESTORS:
________________________________________
Albert R. Auger
/s/ Samuel Alexander Bander Boone GRAT
-----------------------------------------
Samuel A.B. Boone
/s/ Stephanie C. Bray
-----------------------------------------
Stephanie C. Bray and Grat
/s/ B. M. Bray
-----------------------------------------
Bennie M. Bray
BULLDOG CAPITAL PARTNERS, L.P.
By: [SIGNATURE ILLEGIBLE]
--------------------------------------
Title: President
-----------------------------------
/s/ K. Chandler
-----------------------------------------
Kevin Chandler
_________________________________________
J. Storey Charbonnet
_________________________________________
Joseph N. Ciaccio
/s/ RC Apostoleres
-----------------------------------------
Rosalie Ciaccio Apostoleres
<PAGE>
/s/ Carroll M. Edwards
-------------------------------------------------
Carroll M. Edwards
/s/ Donald C. Fee
-------------------------------------------------
Donald C. Fee
_________________________________________________
Milton Frank IV
[SIGNATURE ILLEGIBLE]
/s/ Loraine Garcia
-------------------------------------------------
Jay J. & Loraine Garcia Tenants by the Entireties
/s/ Robert P. Guyton, Jr.
-------------------------------------------------
Robert P. Guyton, Jr.
/s/ Robert P. Guyton, Sr.
-------------------------------------------------
Robert P. Guyton, Sr.
/s/ Randall T. Guyton
-------------------------------------------------
Randall T. Guyton
_________________________________________________
Alexander F. Hern
[SIGNATURE ILLEGIBLE]
/S/ Debra Haufman
-------------------------------------------------
Stuart J. & Debra Kaufman Tenants by the
Entireties
_________________________________________________
Isabelle C. Lamar
_________________________________________________
Thomas Lamar
<PAGE>
_________________________________________________
Keith Levy
/s/ Robert R. Lowe, II
-------------------------------------------------
Robert R. Lowe, II
/s/ Aaron J. Mandell
-------------------------------------------------
Trustees of the Aaron J. Mandell Trust
/s/ Esther A. Mandell
-------------------------------------------------
Trustees of the Esther A. Mandell First
Irrevocable Trust
/s/ Esther A. Mandell
-------------------------------------------------
Trustees of the Esther A. Mandell Second
Irrevocable Trust
/s/ Ryan D. Mandell
_________________________________________________
Trustees of the Ryan D. Mandell Trust
/s/ Robert C. Mandel & Marja Mandell
_________________________________________________
Robert C. & Marja Mandell Tenants by the
Entireties
/s/ Lawrence D. Mueller
/s/ Jeannette Mueller
-------------------------------------------------
Lawrence D. & Jeannette Mueller as Tenants by
the Entireties
/s/ Frank Musolino
-------------------------------------------------
Frank Musolino
/s/ Frank Musolino
-------------------------------------------------
Frank Musolino, as Custodian for Frank Musolino,
Jr. and Ashley Marie Musolino under the Florida
Uniform Transfers to Minors Act
<PAGE>
/s/ Ashley Marie Musolino, Trustee
-------------------------------------------------
Ashley Marie Musolino Irrevocable Trust of 1997
/s/ Frank Musolino, Jr., Trustee
-------------------------------------------------
Frank Musolino, Jr. Irrevocable Trust of 1997
_________________________________________________
Kevin O'Gara
/s/ Ronald A. Oxtal & Suzan C. Oxtal
-------------------------------------------------
Ronald A. & Suzan C. Oxtal Tenants by the
Entireties
_________________________________________________
Gerald C. Parker
/s/ A.G. Rappaport
-------------------------------------------------
A.G. Rappaport
RCT CAPITAL VENTURES, L.C.
By: [SIGNATURE ILLEGIBLE]
---------------------------------------------
Title: Managing Member
------------------------------------------
/s/ Roger Rodriguez & Deborah Rodriguez
-------------------------------------------------
Roger Rodriguez and Deborah Rodriguez
Tenacy by the Entirety
/s/ Kenneth B. Schuemann & Linda Schuemann
-------------------------------------------------
Kenneth B. & Linda Schuemann Tenants by the
Entireties
<PAGE>
_________________________________________________
Kerry R. & Marci Schwencke
/s/ Kerry R. Schwencke & Paula F. Todd
-------------------------------------------------
Kerry R. Schwencke and Paula F. Todd as trustees
of the Kim M. Schwencke 1989 Irrevocable Trust
/s/ Kim M. Schwencke
-------------------------------------------------
Kim M. Schwencke
/s/ Kim M. Schwencke, Trust
-------------------------------------------------
Kim M. Schwencke Family Trust of 1997
_________________________________________________
Jose E. & Cecilia Serra Tenants by the Entireties
/s/ Marion Smith III
-------------------------------------------------
Marion Smith III
/s/ Todd A. Sorrin
-------------------------------------------------
Todd A. Sorrin
/s/ Beverly L. Stacy
/s/ L. David Stacy
-------------------------------------------------
L. David Stacy M.D. and Beverly L. Stacy
JTWROS
/s/ Donald M. Stone
-------------------------------------------------
Donald M. Stone, as Trustee of the Donald M. Stone
Revocable Trust u/a April 8, 1991
<PAGE>
THE SERIES C INVESTORS:
_________________________________________________
Albert R. Auger
/s/ Stephaine C. Bray
-------------------------------------------------
Stephanie C. Bray and
/s/ Bennie M. Bray
-------------------------------------------------
Bennie M. Bray
BULLDOG CAPITAL PARTNERS, L.P.
By: [SIGNATURE ILLEGIBLE]
----------------------------------------------
Title:President
-------------------------------------------
/s/ Kevin Chandler
-------------------------------------------------
Kevin Chandler
_________________________________________________
J. Storey Charbonnet
/s/ Joseph Nick Ciacco
-------------------------------------------------
Joseph Nick Ciacco
/s/ Carrol M. Edwards
-------------------------------------------------
Carrol M. Edwards
/s/ Jay J. Garcia & Loraine Garica
-------------------------------------------------
Jay J. & Loraine Garcia Tenants by the Entireties
/s/ Stephen Guarino
-------------------------------------------------
Stephen Guarino
<PAGE>
/s/ Benjamin M. Hern
-----------------------------------------
Benjamin M. Hern
/s/ Francis D. Hussey, Jr.
-----------------------------------------
Francis D. Hussey, Jr., M.D.
/s/ Bruce F. Johnson
-----------------------------------------
Bruce F. Johnson
ERWIN I. KATZ REVOCABLE FAMILY TRUST
By: /s/ Erwin I. Katz
-------------------------------------
Title: Trustee
----------------------------------
WENDY C. KATZ REVOCABLE FAMILY TRUST
By: /s/ Wendy C. Katz
-------------------------------------
Title: Trustee
----------------------------------
/s/ Stuart J. Kaufmann & Debra Kaufmann
-----------------------------------------
Stuart J. & Debra Kaufman Tenants by the
Entireties
_________________________________________
Richard B. Kessler
KGB TRUST
By: [SIGNATURE ILLEGIBLE]
-------------------------------------
Title: Trustee
----------------------------------
<PAGE>
/s/ Carl Lindell, Jr.
--------------------------------------------------
Carl Lindell, Jr.
__________________________________________________
Ward L. Luther
/s/ Robert C. Mandell /s/ Marja Mandell
--------------------------------------------------
Robert C. & Marja Mandell, Tenants by the
Entireties
/s/ Lawrence D. Mueller
/s/ Jeannette Mueller
--------------------------------------------------
Lawrence D. & Jeannette Mueller as Tenants by the
Entireties
/s/ Marilyn S. Myers
--------------------------------------------------
Marilyn S. Myers
/s/ Steven G. Newcom
--------------------------------------------------
Steven G. Newcom
/s/ Joseph M. Nuccio and
--------------------------------------------------
Joseph M. Nuccio and
/s/ Rosalyn Nuccio
--------------------------------------------------
Rosalyn Nuccio
/s/ Ronald A. Oxtal
--------------------------------------------------
Ronald A. & Suzan C. Oxtal Tenants by the
Entireties
__________________________________________________
Brent A. Parker
/s/ Frank Musolino
--------------------------------------------------
Frank Musolino
Investors Rights Agreements.v4
<PAGE>
/s/ Robert J. Prosi
-------------------------------------------------
Robert J. Prosi
/s/ A. G. Rappaport
-------------------------------------------------
A. G. Rappaport
[SIGNATURE ILLEGIBLE]
-------------------------------------------------
RCT Capital Ventures, L.C.
/s/ Linda Schuemann
-------------------------------------------------
Kenneth B. & Linda Schuemann Tenants by the
Entireties
__________________________________________________
Kerry R. & Marci Schwencke
/s/ Kim M. Schwencke
--------------------------------------------------
Kim M. Schwencke
/s/ Kim M. Schwencke
--------------------------------------------------
Kim M. Schwencke Family Trust of 1997
__________________________________________________
Allen P. Sheppard
/s/ Todd A. Sorrin
-------------------------------------------------
Todd A. Sorrin
/s/ Donald R. Stevens
-------------------------------------------------
Donald R. Stevens
/s/ Lynn Marie Stumbers
-------------------------------------------------
Lynn Marie Stumbers
32
<PAGE>
TODD TAYLOR PROFIT SHARING TRUST
By: /s/ Todd Talylor
----------------------------------------
Title: Trustee
-------------------------------------
TEMPLAR CORPORATION
By: _______________________________________
Title: ____________________________________
___________________________________________
Bruce A. Ungerleider
UNITED CAPITAL GROUP LP
By: JHM94 Corporation, a Delaware
Corporation, General Partner
By: _______________________________________
Title: ____________________________________
___________________________________________
Thomas R. Walker
___________________________________________
Paul T. Westervelt, Jr.
<PAGE>
STOCKHOLDERS:
/s/ Stephanie C. Bray
---------------------------------------------
Stephanie C. Bray and
/s/ Bennie M. Bray
---------------------------------------------
Bennie M. Bray
_____________________________________________
Michael Denton
UNITED CAPITAL GROUP LP
By: JM 94 Corporation, a Delaware
Corporation, General Partner
By: ________________________________________
Name: ______________________________________
<PAGE>
SERIES D INVESTORS:
/s/ Samuel Alexander Barker Boone GRAT
--------------------------------------
Samuel Alexander Barker Boone GRAT
/s/ Joseph Nick Ciaccio
--------------------------------------
Joseph Nick Ciaccio
/s/ Robert P. Guyton, Sr.
--------------------------------------
Robert P. Guyton, Sr.
/s/ Randall T. Guyton
--------------------------------------
Randall T. Guyton
/s/ Francis D. Hussey, Jr., M.D.
--------------------------------------
Francis D. Hussey, Jr., M.D.
INTEL CORPORATION
By: [SIGNATURE ILLEGIBLE]
-----------------------------------
Title: ARVIND SODHANI
--------------------------------
Vice President and Treasurer
ERWIN I. KATZ TTEE U/A DTD. 9-6-83
AMENDED 4-1-96, ERWIN I KATZ
REVOCABLE TRUST
By: [SIGNATURE ILLEGIBLE]
-----------------------------------
Title: Trustee
--------------------------------
<PAGE>
WENDY C. KATZ TTEE U/A DTD. 11-4-85
AMENDED 4-1-96, WENDY C. KATZ
REVOCABLE TRUST
By: /s/ Wendy C. Katz
--------------------------------------
Title: Trustee
-----------------------------------
/s/ Robert R. Lowe II
-----------------------------------------
Robert R. Lowe, II
/s/ Frank Musolino
-----------------------------------------
Frank Musolino
OAK INVESTMENT PARTNERS VII,
LIMITED PARTNERSHIP
By: Oak Associates VII, LLC,
its General Partner
By: /s/ Fredric W. Harman
--------------------------------------
Fredric W. Harman, Managing Member
OAK VII AFFILIATES FUND,
LIMITED PARTNERSHIP
By: Oak VII Affiliates, L.L.C.,
its General Partner
By: /s/ Fredric W. Harman
--------------------------------------
Fredric W. Harman, Managing Member
_________________________________________
Brent A. Parker
_________________________________________
Gerald C. Parker
<PAGE>
/s/ A. G. Rappaport
--------------------------------------------
A. G. Rappaport
/s/ Kim M. Schwencke
--------------------------------------------
Kim M. Schwencke Family Trust of 1997
____________________________________________
Timothy John and Leigh Ellen Stevens, JTWROS
/s/ D. M. Stone
--------------------------------------------
Donald M. Stone, as Trustee of the Donald M.
Stone Revocable Trust U/A April 8, 1991
TODD TAYLOR PROFIT SHARING TRUST
By: /s/ Todd Taylor
----------------------------------------
Title: Trustee
-------------------------------------
____________________________________________
Paula F. Todd
____________________________________________
Bruce A. Ungerleider
WS INVESTMENT COMPANY 97A
By:_________________________________________
Title:______________________________________
37
<PAGE>
SERIES E INVESTORS:
ARTAL LUXEMBOURG S.A.
----------------------------------------------
Print name of investor exactly as it should
appear on stock certificate
[SIGNATURE ILLEGIBLE]
----------------------------------------------
Signature
PALIZ R. KOHLER
MANAGING DIRECTOR
----------------------------------------------
Title of signatory, if applicable
105, GRAND-RUE
L-1661 LUXEMBOURG
----------------------------------------------
Address of investor for communication purposes
PHONE 00352-2242591
----------------------------------------------
FAX 00352-22425922
INKTOMI CORPORATION
FIFTH AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
SERIES E INVESTOR SIGNATURE PAGE
Investors Rights Agreements.rv4
<PAGE>
SERIES E INVESTORS:
Comdisco, Inc.
----------------------------------------------
Print name of investor exactly as it should
appear on stock certificate
[SIGNATURE ILLEGIBLE]
----------------------------------------------
Signature
JAMES P. LABE, PRESIDENT,
COMDISCO VENTURES DIVISION
----------------------------------------------
Title of signatory, if applicable
3000 Sand Hill Road
Bldg 1, Suite 155
Menlo Park, CA 94025
----------------------------------------------
Address of investor for communication purposes
______________________________________________
INKTOMI CORPORATION
FIFTH AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
SERIES E INVESTOR SIGNATURE PAGE
Investors Rights Agreement.v4
<PAGE>
SERIES E INVESTORS:
Digital Century Capital L.P.
----------------------------------------------
Print name of investor exactly as it should
appear on stock certificate
[SIGNATURE ILLEGIBLE]
----------------------------------------------
Signature
President
----------------------------------------------
Title of signatory, if applicable
540 Madison Ave 30/th/ floor
----------------------------------------------
Address of investor for communication purposes
New York, NY 100LL
----------------------------------------------
INKTOMI CORPORATION
FIFTH AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
SERIES E INVESTOR SIGNATURE PAGE
Investors Rights Agreements.v4
<PAGE>
SERIES E INVESTORS:
DSJ INTERNATIONAL TRUST
----------------------------------------------
Print name of investor exactly as it should
appear on stock certificate
[SIGNATURE ILLEGIBLE]
----------------------------------------------
Signature
TRUSTEE
----------------------------------------------
Title of signatory, if applicable
1370 Avenue of the Americas, 26/th/ Floor
----------------------------------------------
Address of investor for communication purposes
New York, NY 10019
----------------------------------------------
INKTOMI CORPORATION
FIFTH AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
SERIES E INVESTOR SIGNATURE PAGE
Investors Rights Agreements.v4
<PAGE>
SERIES E INVESTORS:
Ensign Peak Abvisors, Inc.
----------------------------------------------
Print name of investor exactly as it should
appear on stock certificate
[SIGNATURE ILLEGIBLE]
----------------------------------------------
Signature
F. James Cowan
Senior Vice President
----------------------------------------------
Title of signatory, if applicable
50 E. North Temple Street - 15th Floor
----------------------------------------------
Address of investor for communication purposes
Salt Lake City, UT 84150-4600
----------------------------------------------
INKTOMI CORPORATION
FIFTH AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
SERIES E INVESTOR SIGNATURE PAGE
Investors Rights Agreements.v4
<PAGE>
SERIES E INVESTORS:
Essex High Technology Fund, L.P.
----------------------------------------------
Print name of investor exactly as it should
appear on stock certificate
[SIGNATURE ILLEGIBLE]
----------------------------------------------
Signature
Vice President
----------------------------------------------
Title of signatory, if applicable
c/o Essex Investment Mgnt. Co, Inc.
125 High Street, 29/th/ Floor
----------------------------------------------
Address of investor for communication purposes
Boston MA 02110
----------------------------------------------
7,000 Shares
INKTOMI CORPORATION
FIFTH AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
SERIES E INVESTOR SIGNATURE PAGE
Investors Rights Agreements.v4
<PAGE>
SERIES E INVESTORS:
Essex High Technology Fund (Bermuda) LP
-------------------------------------------
Print name of investor exactly as it should
appear on stock certificate
[SIGNATURE ILLEGIBLE]
-------------------------------------------
Signature
Vice President
-------------------------------------------
Title of signatory, if applicable
c/o Essex Investment Mgmt. Co., Inc.
125 High Street, 29th FL
-------------------------------------------
Address of investor for communication purposes
Boston MA 02110
-------------------------------------------
63,500 shares
INKTOMI CORPORATION
FIFTH AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
SERIES E INVESTOR SIGNATURE PAGE
Investors Rights Agreement.v4
<PAGE>
SERIES E INVESTORS:
HLM/CB Fund, LP
-----------------------------------------------
Print name of investor exactly as it should
appear on stock certificate
[SIGNATURE ILLEGIBLE]
-----------------------------------------------
Signature General Partner
HLM/CB Associates, LLC
the General Partner of
HLM/CB Fund, L.P.
_______________________________________________
Title of signatory, if applicable
222 Berkeley St
Boston, MA 02116
-----------------------------------------------
Address of investor for communication purposes
_______________________________________________
INKTOMI CORPORATION
FIFTH AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
SERIES E INVESTOR SIGNATURE PAGE
Investors Rights Agreement.v4
<PAGE>
SERIES E INVESTORS:
INK FUND
-------------------------------------------------
Print name of investor exactly as it should
appear on stock certificate
Ink Fund
[SIGNATURE ILLEGIBLE]
-------------------------------------------------
Signature
Chairman-William JOnes & Associates, Inc
-------------------------------------------------
Title of signatory, if applicable
Williams, Jones & Associates, Inc.
717 5th Avenue, Suite 2400
-------------------------------------------------
Address of investor for communication purposes
New York, N.Y 10021
-------------------------------------------------
INKTOMI CORPORATION
FIFTH AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
SERIES E INVESTOR SIGNATURE PAGE
Investors Rights Agreement.v4
<PAGE>
SERIES E INVESTORS:
Seligman Communications and Information Fund, Inc.
--------------------------------------------------
Print name of investor exactly as it should
appear on stock certificate
[SIGNATURE ILLEGIBLE]
--------------------------------------------------
Signature
Vice President
--------------------------------------------------
Title of signatory, if applicable
__________________________________________________
Address of investor for communication purposes
Mr. Paul H. Wick
J & W Seligman & Co., Inc.
100 Park Avenue - 7th Floor
New York, N.Y. 10017
Telephone # (212) 850-1882
Fax # (212) 922-5728
INKTOMI CORPORATION
FIFTH AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
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Investors Rights Agreement.v4
<PAGE>
SERIES E INVESTORS:
Kistler Associates
-------------------------------------------------
Print name of investor exactly as it should
appear on stock certificate
William Kistler
-------------------------------------------------
Signature
Managing Partner
-------------------------------------------------
Title of signatory, if applicable
c/o Bessemer Trust Co., N.A.
Attn: Dennis J. Bernat
-------------------------------------------------
Address of investor for communication purposes
630 Fifth Avenue, New York, N.Y. 10111
-------------------------------------------------
Copy to: Mr. William Kistler
101 West 79th Street (22C)
New York, New York 10024
INKTOMI CORPORATION
FIFTH AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
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<PAGE>
SERIES E INVESTORS:
CLOSEFIRE LTD
------------------------------------------------
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appear on stock certificate
Mai OnPogue For CloseFire LTD
------------------------------------------------
Signature
PRESIDENT POGUE CAPITAL MANAGEMENT INC
------------------------------------------------
Title of signatory, if applicable
c/o Pogue Capital Management
60 Patterson Avenue
Greenwich, CT 06830
Address of investor for communication purposes
________________________________________________
INKTOMI CORPORATION
FIFTH AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
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<PAGE>
SERIES E INVESTORS:
U.S.A. FUND LIMITED PARTNERSHIP
--------------------------------------------------------
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appear on stock certificate
/s/ Marc P. Blum
--------------------------------------------------------
Signature
PRESIDENT, WORLD TOTAL RETURN INC.
--------------------------------------------------------
Title of signatory, if applicable (Sole General Partner)
100 Garrett Building
233 East Redwood Street, Baltimore, MD 21202
--------------------------------------------------------
Address of investor for communication purposes
410-576-4240
410-685-8981 (FAX)
--------------------------------------------------------
INKTOMI CORPORATION
FIFTH AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
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Investors Rights Agreement.v4
<PAGE>
SERIES E INVESTORS:
Velocity Technology and Communications Trust B
------------------------------------------------
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appear on stock certificate
[SIGNATURE ILLEGIBLE]
------------------------------------------------
Signature
Investment Advisor
------------------------------------------------
Title of signatory, if applicable
261 Hamilton Ave Suite 212
------------------------------------------------
Address of investor for communication purposes
Palo Alto CA 94301
------------------------------------------------
INKTOMI CORPORATION
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<PAGE>
SERIES E INVESTORS:
ACHIEVER CORPORATION
------------------------------------------------
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appear on stock certificate
[SIGNATURE ILLEGIBLE]
------------------------------------------------
Signature
PRESIDENT
------------------------------------------------
Title of signatory, if applicable
N-1201, NASSAU, BAHAMAS
------------------------------------------------
Address of investor for communication purposes
________________________________________________
INKTOMI CORPORATION
FIFTH AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
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Investors Rights Agreement.v4
<PAGE>
SERIES E INVESTORS:
DAVID A. & MARY LYNN BANNING
TENANTS BY THE ENTIRETIES
------------------------------------------------
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appear on stock certificate
/s/ David A. Banning
/s/ Mary Lynn Banning
------------------------------------------------
Signature
________________________________________________
Title of signatory, if applicable
921 GUISANDO DE AVILA
TAMPA, FLORIDA 33613
________________________________________________
Address of investor for communication purposes
________________________________________________
INKTOMI CORPORATION
FIFTH AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
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Investors Rights Agreement.v4
<PAGE>
SERIES E INVESTORS:
Douglas L. Becker
------------------------------------------------
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appear on stock certificate
[SIGNATURE ILLEGIBLE]
------------------------------------------------
Signature
________________________________________________
Title of signatory, if applicable
100 Harborview Drive, #PH1C
------------------------------------------------
Address of investor for communication purposes
Baltimore, MD 21230
------------------------------------------------
INKTOMI CORPORATION
FIFTH AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
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Investors Rights Agreement.v4
<PAGE>
SERIES E INVESTORS:
BEJA INTERNATIONAL S.A.
----------------------------------------------
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appear on stock certificate
[SIGNATURE ILLEGIBLE]
----------------------------------------------
Signature
Andre WILWERT
Managing Director
----------------------------------------------
Title of signatory, if applicable
______________________________________________
Address of investor for communication purposes
121, avenue de la Faiencerie
L - 1511 LUXEMBOURG
----------------------------------------------
INKTOMI CORPORATION
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Investors Rights Agreement. v4
<PAGE>
SERIES E INVESTORS:
ABS Employees Venture Fund Limited Partnership
----------------------------------------------
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appear on stock certificate
Beverly L. Wright
----------------------------------------------
Signature
Beverly L. Wright
Treasurer of Alex. Brown Investments, Inc.
----------------------------------------------
Title of signatory, if applicable
GP of the partnership
375 W. Padonia Rd.
----------------------------------------------
Address of investor for communication purposes
Timmium, MD 21093
----------------------------------------------
Attn: Richard O'Connell
INKTOMI CORPORATION
FIFTH AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
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Investors Rights Agreement.v4
<PAGE>
SERIES E INVESTORS:
Bobby N. Butts
----------------------------------------------
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appear on stock certificate
[SIGNATURE ILLEGIBLE]
----------------------------------------------
Signature
______________________________________________
Title of signatory, if applicable
18244 CLEAR LAKE DR.
----------------------------------------------
Address of investor for communication purposes
LUTZ, FL 33549
----------------------------------------------
INKTOMI CORPORATION
FIFTH AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
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Investors Rights Agreements.v4
<PAGE>
SERIES E INVESTORS:
GEORGE AND MARIA ERDI
----------------------------------------------
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appear on stock certificate
[SIGNATURE ILLEGIBLE]
----------------------------------------------
Signature
______________________________________________
Title of signatory, if applicable
2 LONGSPUR
----------------------------------------------
Address of investor for communication purposes
PORTOLA VALLEY CA 94028
----------------------------------------------
INKTOMI CORPORATION
FIFTH AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
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Investors Rights Agreement.v4
<PAGE>
SERIES E INVESTORS:
ERIC HANN
----------------------------------------------
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appear on stock certificate
[SIGNATURE ILLEGIBLE]
----------------------------------------------
Signature
______________________________________________
Title of signatory, if applicable
465 MELVILLE AVE.
----------------------------------------------
Address of investor for communication purposes
PALO ALTO, CA 94301
----------------------------------------------
INKTOMI CORPORATION
FIFTH AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
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Investors Rights Agreement.v4
<PAGE>
SERIES E INVESTORS:
R. CHRISTOPHER HOEHN SARIC
----------------------------------------------
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appear on stock certificate
<PAGE>
[SIGNATURE ILLEGIBLE]
----------------------------------------------
Signature
______________________________________________
Title of signatory, if applicable
______________________________________________
Address of investor for communication purposes
______________________________________________
INKTOMI CORPORATION
FIFTH AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
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Investors Rights Agreement.v4
<PAGE>
SERIES E INVESTORS:
James W. Johnston
------------------------------------------------------
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stock certificate
/s/ James W. Johnston
------------------------------------------------------
Signature
______________________________________________________
Title of signatory, if applicable
______________________________________________________
Address of investor for communication purposes
380 [illegible]
------------------------------------------------------
Suite 572
Winston-Salem NY 27103
INKTOMI CORPORATION
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<PAGE>
SERIES E INVESTORS:
William A. Newsom
------------------------------------------------------
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stock certificate
/s/ William A. Newsom
------------------------------------------------------
Signature
______________________________________________________
Title of signatory, if applicable
______________________________________________________
Address of investor for communication purposes
WILLIAM A. NEWSOM
------------------------------------------------------
3717 BUCHANAN ST. 2ND FLOOR
SAN FRANCISCO, CA 94123
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<PAGE>
SERIES E INVESTORS:
ALFRED E OSBORNE JR
------------------------------------------------------
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stock certificate
/s/ Alfred E Osborne Jr
------------------------------------------------------
Signature
______________________________________________________
Title of signatory, if applicable
______________________________________________________
Address of investor for communication purposes
______________________________________________________
INKTOMI CORPORATION
FIFTH AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
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64
<PAGE>
SERIES E INVESTORS:
Prism III Investment Partnership
------------------------------------------------------
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stock certificate
[SIGNATURE ILLEGIBLE]
------------------------------------------------------
Signature
Managing General Partner
------------------------------------------------------
Title of signatory, if applicable
% Charles Freeland
1300 York Road, Suite 180
------------------------------------------------------
Address of investor for communication purposes
Lutherville, MD 21093
______________________________________________________
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<PAGE>
SERIES E INVESTORS:
Sointu Limited
------------------------------------------------------
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stock certificate
[SIGNATURE ILLEGIBLE]
------------------------------------------------------
Signature
PRESIDENT
------------------------------------------------------
Title of signatory, if applicable
N-1201, NASSAU, BAHAMAS
------------------------------------------------------
Address of investor for communication purposes
______________________________________________________
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<PAGE>
SERIES E INVESTORS:
SPIEGEL ENTERPRISES
-----------------------------------------------
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appear on stock certificate
[SIGNATURE ILLEGIBLE]
-----------------------------------------------
Signature
GENERAL PARTNER
-----------------------------------------------
Title of signatory, if applicable
2050 So. BUNDY DR #225
-----------------------------------------------
Address of investor for communication purposes
LOS ANGELES, CA 90025
-----------------------------------------------
INKTOMI CORPORATION
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<PAGE>
SERIES E INVESTORS:
STEPHEN F. STORY REVOCABLE TRUST
DATED AUGUST 9, 1995
-----------------------------------------------
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appear on stock certificate
/s/ S. F. Story
-----------------------------------------------
Signature
STEPHEN F STORY, TRUSTEE
-----------------------------------------------
Title of signatory, if applicable
16409 AVILA BOULEVARD
-----------------------------------------------
Address of investor for communication purposes
TAMPA, FL 33613
-----------------------------------------------
INKTOMI CORPORATION
FIFTH AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
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<PAGE>
SERIES E INVESTORS:
TENNYSON PRIVATE PLACEMENT OPPORTUNITY FUND, LLLP
-------------------------------------------------
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appear on stock certificate
[SIGNATURE ILLEGIBLE]
-------------------------------------------------
Signature
MANAGING MEMBER OF GENERAL PARTNER
-------------------------------------------------
Title of signatory, if applicable
29 W. SUSQUEHANNA AVE. 4th FL.
-------------------------------------------------
Address of investor for communication purposes
BALTI. MD 21204
-------------------------------------------------
INKTOMI CORPORATION
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<PAGE>
SERIES E INVESTORS:
Tuoc Vinh Luong
-----------------------------------------------
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appear on stock certificate
[SIGNATURE ILLEGIBLE]
-----------------------------------------------
Signature
-----------------------------------------------
Title of signatory, if applicable
5988 Starwood Drive
-----------------------------------------------
Address of investor for communication purposes
San Jose, Ca 95120
-----------------------------------------------
INKTOMI CORPORATION
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SERIES E INVESTORS:
Stuart Jon Kaufman
-----------------------------------------------
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appear on stock certificate
/s/ Stuart Jon Kaufman
-----------------------------------------------
Signature
-----------------------------------------------
Title of signatory, if applicable
804 Taray De Avila
-----------------------------------------------
Address of investor for communication purposes
Tampa, FL. 33613
-----------------------------------------------
INKTOMI CORPORATION
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SERIES E INVESTORS:
A. G. RAPPAPORT
-----------------------------------------------
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appear on stock certificate
/s/ A G Rappaport
-----------------------------------------------
Signature
-----------------------------------------------
Title of signatory, if applicable
P O Box 270847
-----------------------------------------------
Address of investor for communication purposes
TAMPA FL 33688
-----------------------------------------------
INKTOMI CORPORATION
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SERIES E INVESTORS:
TODD TAYLOR
------------------------------------------------
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appear on stock certificate
/s/ Todd Taylor
------------------------------------------------
Signature
________________________________________________
Title of signatory, if applicable
934 Guisando de Avila
------------------------------------------------
Address of investor for communication purposes
Tampa, Fl. 33613
------------------------------------------------
INKTOMI CORPORATION
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SERIES E INVESTORS:
DANIEL H. CASE
------------------------------------------------
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appear on stock certificate
/s/ Daniel H. Case
------------------------------------------------
Signature
________________________________________________
Title of signatory, if applicable
________________________________________________
Address of investor for communication purposes
________________________________________________
INKTOMI CORPORATION
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SERIES E INVESTORS:
James A. Davidson
------------------------------------------------
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appear on stock certificate
/s/ James a. Davidson
------------------------------------------------
Signature
________________________________________________
Title of signatory, if applicable
1 Bush Street
------------------------------------------------
Address of investor for communication purposes
San Francisco, CA 94104
------------------------------------------------
INKTOMI CORPORATION
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SERIES E INVESTORS:
Hambrecht & Quist California
------------------------------------------------
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appear on stock certificate
/s/ Lisa L. Lewis
------------------------------------------------
Signature
Lisa L. Lewis
Controller, Attorney-in-fact
------------------------------------------------
Title of signatory, if applicable
One Bush St. San Fran CA 94104
------------------------------------------------
Address of investor for communication purposes
________________________________________________
INKTOMI CORPORATION
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SERIES E INVESTORS:
FRANCIS D. HUSSEY JR. M.D.
------------------------------------------------
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appear on stock certificate
/s/ J. Hussey
------------------------------------------------
Signature
________________________________________________
Title of signatory, if applicable
________________________________________________
Address of investor for communication purposes
________________________________________________
INKTOMI CORPORATION
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SERIES E INVESTORS:
GREGORY J. INGRAM
------------------------------------------------
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appear on stock certificate
/s/ Gregory Ingram
------------------------------------------------
Signature
MANAGING DIRECTOR
------------------------------------------------
Title of signatory, if applicable
64 REED ?????? RD
------------------------------------------------
Address of investor for communication purposes
Tiburon CA 94920
------------------------------------------------
INKTOMI CORPORATION
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SERIES E INVESTORS:
PATRICK C. LEE
-----------------------------------------------
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appear on stock certificate
/s/ Patrick C. Lee
-----------------------------------------------
Signature
_______________________________________________
Title of signatory, if applicable
_______________________________________________
Address of investor for communication purposes
_______________________________________________
INKTOMI CORPORATION
FIFTH AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
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Investors Rights Agreement.v4
<PAGE>
SERIES E INVESTORS:
CRISTINA M. MOROAN
-----------------------------------------------
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appear on stock certificate
/s/ Cristina M. Moroan
-----------------------------------------------
Signature
_______________________________________________
Title of signatory, if applicable
_______________________________________________
Address of investor for communication purposes
_______________________________________________
INKTOMI CORPORATION
FIFTH AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
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Investors Rights Agreement v4
<PAGE>
SERIES E INVESTORS:
DANIEL H. RIMER
-----------------------------------------------
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appear on stock certificate
/s/ Daniel H. Rimer
-----------------------------------------------
Signature
_______________________________________________
Title of signatory, if applicable
One Bush Street
-----------------------------------------------
Address of investor for communication purposes
S F. CA 94104
-----------------------------------------------
INKTOMI CORPORATION
FIFTH AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
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Investors Rights Agreement.v4
<PAGE>
SERIES E INVESTORS:
WILLIAM R. TIMKEN
-----------------------------------------------
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appear on stock certificate
/s/ William R. Timken
-----------------------------------------------
Signature
_______________________________________________
Title of signatory, if applicable
c/o HAMBRECHT & QUIST
One Bush Street
San Francisco, CA 94104
-----------------------------------------------
Address of investor for communication purposes
_______________________________________________
INKTOMI CORPORATION
FIFTH AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
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Investors Rights Agreement.v4
<PAGE>
SERIES E INVESTORS:
INTEGRAL CAPITAL PARTNERS III.L.P
-----------------------------------------------
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appear on stock certificate
By Integral Capital Management III, L.P.
Its General Partner
By /s/ Pamela K. Hagenah
-----------------------------------------------
Signature
Pamela K. Hagenah
a General Partner
-----------------------------------------------
Title of signatory, if applicable
2750 Sand Hill Road
-----------------------------------------------
Address of investor for communication purposes
Menlo Park, CA 94025
-----------------------------------------------
Attn. Pamela Hagenah
INKTOMI CORPORATION
FIFTH AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
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Investors Rights Agreement.v4
<PAGE>
SERIES E INVESTORS:
INTEGRAL CAPITAL PARTNERS INTERNATIONAL III.L.P
-----------------------------------------------
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appear on stock certificate
By Integral Capital Management III, L.P.
Its Investment General Partner
By /s/ Pamela K. Hagenah
-----------------------------------------------
Signature
Pamela K. Hagenah
General Partner
-----------------------------------------------
Title of signatory, if applicable
2750 Sand Hill Road
-----------------------------------------------
Address of investor for communication purposes
Menlo Park, CA 94025
-----------------------------------------------
Attn. Pamela Hagenah
INKTOMI CORPORATION
FIFTH AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
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Investors Rights Agreement.v4
<PAGE>
EXHIBIT A
---------
HOLDERS OF REGISTRABLE SECURITIES
Name Registrable Securities
- ------------------------------ -------------------------------------
SERIES A INVESTORS
- ------------------
Stephanie C. and Bennie M. Bray
c/o Bray Investments
3003 Carlisle, Suite 107
Dallas, TX 75204 33,334 Series A
David A. Brewer
1442 Harker Avenue
Palo Alto, CA 94301 910,496 Series A
Eric A. Brewer
c/o Inktomi Corporation
1900 South Norfolk Street, Suite 110
San Mateo, CA 94403 2,283,599 Series A
Paul Gauthier
c/o Inktomi Corporation
1900 South Norfolk Street, Suite 110
San Mateo, CA 94403 2,263,599 Series A
United Capital Group LP
c/o Mattei Motorsports LLC
6007 Victory Lane
Harrisburg, NC 28075
Attn: Jim Mattei 66,666 Series A
SERIES B INVESTORS
- ------------------
Albert R. Auger
103 Countryside Drive
Longwood, FL 32779 7,119 Series B
Samuel A.B. Boone
1725 Walnut Hill Road
Lexington, KY 40515 120,000 Series B
<PAGE>
Name Registrable Securitiesrities
- ------------------------------ -------------------------------------
Stephanie C. and Bennie M. Bray
c/o Bray Investments
3003 Carlisle, Suite 107
Dallas, TX 75204 115,181 Series B
Bulldog Capital Partners, L.P.
33 North Garden Ave., Suite 750
Clearwater, FL 34616 137,500 Series B
Kevin Chandler
11015 N. Dale Mabry Hwy.
Tampa, FL 33618 1,780 Series B
J. Storey Charbonnet
639 Loyola Avenue, Suite 2775
New Orleans, LA 70113 15,000 Series B
Joseph N. Ciaccio
5303 East Busch Blvd.
Temple Terrace, FL 33617 2,250 Series B
Rosalie Ciaccio Apostoleres
5303 East Busch Blvd.
Temple Terrace, FL 33617 4,500 Series B
Carroll Edwards
P.O. Box 219
Marshville, NC 28103-0219 111,111 Series B
Donald C. Fee
2212 Sixth Street
Sarasota, FL 34237 6,000 Series B
Milton Frank IV
P.O. Box 7054
Boulder, CO 80306 133 Series B
Jay J. & Loraine Garcia
Tenants by the Entireties
2123 W. Martin Luther King Blvd.
Tampa, FL 33607 27,248 Series B
<PAGE>
Name Registrable Securitiesrities
- ------------------------------ -------------------------------------
Randall T. Guyton
3311 Chastain Drive
Atlanta, GA 30342 4,000 Series B
Robert P. Guyton, Jr.
Trilogy Capital Partners
2460 Sand Hill Road, Suite 200
Menlo Park, CA 94025 434,589 Series B
Robert P. Guyton, Sr.
77 East Andrews Drive N.W.
The Paces, #366
Atlanta, GA 30305 11,000 Series B
Alexander F. Hern
c/o Saint James Capital Group
101 Philippe Parkway, Suite 300
Safety Harbor, FL 34695 88,044 Series B
Stuart J. & Debra Kaufman
Tenants by the Entireties
804 Taray de Avila
Tampa, FL 33613 93,394 Series B
Isabelle C. Lamar
104 Westminster Drive
Atlanta, GA 30309 300 Series B
Thomas Lamar
c/o Isabelle C. Lamar
104 Westminster Drive
Atlanta, GA 30309 214,742 Series B
Keith Levy
6 White Water Trail
Atlanta, GA 30327 200 Series B
Robert R. Lowe, II
6412 112th Avenue
Temple Terrace, FL 33617 2,000 Series B
<PAGE>
Name Registrable Securitiesrities
- ------------------------------ -------------------------------------
Trustee of the Aaron J. Mandell Trust
5550 Homeland Road
Lake Worth, FL 33467 2,280 Series B
Trustees of the Ryan D. Mandell Trust
5550 Homeland Road
Lake Worth, FL 33467 2,280 Series B
Trustees of the Esther A. Mandell
First Irrevocable Trust
5550 Homeland Road
Lake Worth, FL 33467 1,140 Series B
Trustees of the Esther A. Mandell
Second Irrevocable Trust
5550 Homeland Road
Lake Worth, FL 33467 1,140 Series B
Robert C. & Marja Mandell,
Tenants by the Entireties
5550 Homeland Road
Lake Worth, FL 33467 280 Series B
Lawrence D. & Jeannette Mueller
as Tenants by the Entireties
2002 S.W. Racquet Club Drive
Palm City, FL 34990 10,679 Series B
Frank Musolino
c/o FM Investments
10630 North 56/th/ Street, Suite 200
Temple Terrace, FL 33617 495,825 Series B
Frank Musolino, as Custodian for
Frank Musolino, Jr. and Ashley Marie
Musolino under the Florida Uniform
Transfers to Minors Act
c/o FM Investments
10630 North 56/th/ Street, Suite 200
Temple Terrace, FL 33617 54,452 Series B
<PAGE>
Name Registrable Securitiesrities
- ------------------------------ -------------------------------------
Ashley Marie Musolino Irrevocable Trust of 1997
c/o FM Investments
10630 North 56/th/ Street, Suite 200
Temple Terrace, FL 33617 181,000 Series B
Frank Musolino, Jr. Irrevocable Trust of 1997
c/o FM Investments
10630 North 56/th/ Street, Suite 200
Temple Terrace, FL 33617 181,000 Series B
Kevin O'Gara
2957 Paces Lake Drive
Atlanta, GA 30339 2,000 Series B
Ronald A. & Suzan C. Oxtal
Tenants by the Entireties
203 N. Marion Street
Tampa, FL 33602 14,238 Series B
Gerald C. Parker
c/o Saint James Capital Group
101 Philippe Parkway, Suite 300
Safety Harbor, FL 34695 168,039 Series B
A.G. Rappaport
11015 North Dale Mabry Highway, Suite A
Tampa, FL 33618 238,954 Series B
RCT Capital Ventures, L.C.
2104 Magdalene Manor Drive
Tampa, FL 33613 18,067 Series B
Roger Rodriguez and Deborah Rodriguez
Tenancy by the Entirety
6504 East Fowler Avenue
Tampa, FL 33617 4,500 Series B
Kenneth B. & Linda Schuemann
Tenants by the Entireties
11015 N. Dale Mabry Hwy.
Tampa, FL 33618 11,899 Series B
<PAGE>
Name Registrable Securitiesrities
- ------------------------------ -------------------------------------
Kerry R. & Marci Schwencke
1645 Palm Beach Lakes Blvd., Suite 720
West Palm Beach, FL 33401 3,559 Series B
Kerry R. Schwencke and Paula F.
Todd as trustees of the Kim M. Schwencke
1989 Irrevocable Trust
1645 Palm Beach Lakes Blvd., Suite 720
West Palm Beach, FL 33401 45,000 Series B
Kim M. Schwencke
11015-A North Dale Mabry
Tampa, FL 33618 24,582 Series B
Kim M. Schwencke Family Trust of 1997
11015-A North Dale Mabry
Tampa, FL 33618 98,609 Series B
Jose E. & Cecilia Serra
Tenants by the Entireties
4732 Southwest Branch Terrace
Palm City, FL 34990 22,679 Series B
Marion Smith
c/o Inktomi Corporation
1900 South Norfolk Street, Suite 110
San Mateo, CA 94403 115,025 Series B
Todd A. Sorrin
21928 Pine Trace
Boca Raton, FL 33428 1,780 Series B
L. David Stacy M.D. and Beverly L.
Stacy JTWROS
28 Brighton Road
Atlanta, GA 30309-1549 2,000 Series B
Donald M. Stone, as Trustee of the Donald M.
Stone Revocable Trust u/a April 8, 1991
407 Belle Claire
Temple Terrace, FL 33617 4,000 Series B
<PAGE>
Name Registrable Securitiesrities
- ------------------------------ -------------------------------------
United Capital Group LP
c/o Mattei Motorsports LLC
6007 Victory Lane
Harrisburg, NC 28075
Attn: Jim Mattei 66,667 Series B
SERIES C INVESTORS
- ------------------
Albert R. Auger
103 Countryside Drive
Longwood, FL 32779 2,000 Series C
Stephanie C. and Bennie M. Bray
c/o Bray Investments
3003 Carlisle, Suite 107
Dallas, TX 75204 66,666 Series C
Bulldog Capital Partners, L.P.
33 North Garden Avenue, Suite 750
Clearwater, FL 34616 100,000 Series C
Kevin Chandler
11015 N. Dale Mabry Hwy.
Tampa, FL 33618 500 Series C
J. Storey Charbonnet
5303 East Busch Blvd.
Temple Terrace, FL 33617 16,000 Series C
Joseph Nick Ciacco
5303 East Busch Blvd.
Temple Terrace, FL 33617 2,000 Series C
Carrol M. Edwards
Post Office Box 219
Marshville, NC 28103 13,333 Series C
Jay J. & Loraine Garcia
Tenants by the Entireties
2123 W. Martin Luther King Blvd.
Tampa, FL 33607 6,250 Series C
<PAGE>
Name Registrable Securities
- -------------------------------- -----------------------------------
Steve Guarino
3 Downe Circle
Medford, NJ 08055 13,334 Series C
Benjamin M. Hern
163 Crawfords Corner Road
Holmdel, NJ 07733 6,667 Series C
Francis D. Hussey, Jr., M.D.
1350 Spyglass Lane
Naples, FL 33940 17,000 Series C
Bruce F. Johnson
30 S. Wacker Drive, Suite 1000
Chicago, IL 60606 5,000 Series C
Erwin I. Katz Revocable Family Trust
12412 Stillwater Terr.
Tampa, FL 33624-4739
Attn: Erwin I. Katz, Trustee 6,667 Series C
Wendy C. Katz Revocable Family Trust
12412 Stillwater Terr.
Tampa, FL 33624-4739
Attn: Wendy C. Katz, Trustee 6,667 Series C
Stuart J. & Debra Kaufman
Tenants by the Entireties
804 Taray de Avila
Tampa, FL 33613 15,000 Series C
Richard B. Kessler
4250 N. Marine Drive, Apt. 2932
Chicago, IL 60613 2,500 Series C
KGB Trust
1100 Poydras Street, Suite 1500
New Orleans, LA 90163
Attn: David R. Voelker, Trustee 14,000 Series C
<PAGE>
Name Registrable Securities
- -------------------------------- -----------------------------------
Carl Lindell, Jr.
3900 W. Kennedy Boulevard
Tampa, FL 33609 6,667 Series C
Ward L. Luther
1603 Barber Road
Sarasota, FL 34240 1,350 Series C
Robert C. & Marja Mandell,
Tenants by the Entireties
5550 Homeland Road
Lake Worth, FL 33467 2,000 Series C
Lawrence D. & Jeannette Mueller
as Tenants by the Entireties
2002 S.W. Racquet Club Drive
Palm City, FL 34990 3,000 Series C
Frank Musolino
c/o FM Investments
10630 North 36/th/ Street, Suite 200
Temple Terrace, FL 33617 64,725 Series C
Marilyn S. Myers
252 First Avenue South
Naples, FL 33940 33,000 Series C
Steven G. Newcom
30 S. Wacker Drive, Suite 1000
Chicago, IL 60606 5,000 Series C
Joseph and Rosalyn M. Nuccio
3612 Arlington Oaks Court
Tampa, FL 33618 4,000 Series C
Ronald A. & Suzan C. Oxtal
Tenants by the Entireties
203 N. Marion Street
Tampa, FL 33602 4,000 Series C
<PAGE>
Name Registrable Securities
- -------------------------------- -----------------------------------
Brent A. Parker
Parker Walter Group, Inc.
2 North Tamiami Trail, Suite 206
Sarasota, FL 34236 2,700 Series C
Robert J. Prosi
1708 S. Fernandez Avenue
Arlington Heights, IL 60005 500 Series C
A.G. Rappaport
11015 North Dale Mabry Highway, Suite A
Tampa, FL 33618 40,475 Series C
RCT Capital Ventures, L.C.
2104 Magdalene Manor Drive
Tampa, FL 33613 4,000 Series C
Kenneth B. & Linda Schuemann
Tenants by the Entireties
11015 N. Dale Mabry Hwy.
Tampa, FL 33618 2,500 Series C
Kerry R. & Marci Schwencke
1645 Palm Beach Lakes Blvd., Suite 720
West Palm Beach, FL 33401 1,000 Series C
Kim M. Schwencke
11015-A North Dale Mabry
Tampa, FL 33618 100 Series C
Kim M. Schwencke Family Trust of 1997
11015-A North Dale Mabry
Tampa, FL 33618 23,650 Series B
Allen P. Sheppard
2950 Captiva Drive
Sarasota, FL 34231 1,350 Series C
Todd A. Sorrin
21928 Pine Trace
Boca Raton, FL 33428 500 Series C
<PAGE>
Name Registrable Securities
- -------------------------------- -----------------------------------
Donald R. Stevens
237 E. Delaware
Chicago, IL 60611 700 Series C
Lynn Marie Stumbers
1102 Bayshore Blvd. S.
Safety Harbor, FL 34645 6,667 Series C
Templar Corporation
310 Madison Avenue
New York, NY 10017
Attn: Frank Kristan 25,000 Series C
Todd Taylor Profit Sharing Trust
934 Guisando de Avila
Tampa, FL 33613 2,000 Series C
Bruce A. Ungerleider
511 66th Street N
St. Petersburg, FL 33710 8,000 Series C
United Capital Group LP
c/o Mattei Motorsports LLC
6007 Victory Lane
Harrisburg, NC 28075
Attn: Jim Mattei 133,334 Series C
Thomas R. Walker
2 North Tamiami Trail, Suite 206
Sarasota, FL 2,700 Series C
Paul T. Westervelt, Jr.
639 Loyola Avenue, Suite 2775
New Orleans, LA 70113 6,800 Series C
<PAGE>
Name Registrable Securities
- -------------------------------- --------------------------------------
STOCKHOLDERS
- ------------
Stephanie C. and Bennie M. Bray
c/o Bray Investments
3003 Carlisle, Suite 107
Dallas, TX 75204 340,208 Common
33,334 Series A
115,181 Series B
66,666 Series C
259,793 Antidilution Warrant
United Capital Group LP
c/o Mattei Motorsports LLC
6007 Victory Lane
Harrisburg, NC 28075
Attn: Jim Mattei 495,581 Common
66,666 Series A
66,667 Series B
133,334 Series C
519,585 Antidilution Warrant
Michael Denton
3450 Westminster
Dallas, TX 75205 20,000 Common
SERIES D INVESTORS
- ------------------
Samuel A. B. Boone
1725 Walnut Hill Road
Lexington, KY 40515 48,537 Series D
16,179 Series D1 Warrants
Joseph N. Ciaccio
5303 East Busch Blvd.
Temple Terrace, FL 33617 2,255 Series D
751 Series D1 Warrant
Randall T. Guyton
3311 Chastain Drive
Atlanta, GA 30342 1,617 Series D
539 Series D1 Warrant
<PAGE>
Name Registrable Securities
- -------------------------------- -------------------------------------
Robert P. Guyton, Sr.
77 East Andrews Drive N.W.
The Paces, #366
Atlanta, GA 30305 4,449 Series D
1,483 Series D1 Warrant
Francis D. Hussey, Jr., M.D.
1350 Spyglass Lane
Naples, FL 33940 6,875 Series D
2,291 Series D1 Warrant
Intel Corporation
2200 Mission College Blvd.
Santa Clara, CA 95052
Attn: Guy Anthony 902,120 Series D
300,707 Series D1 Warrant
Erwin I. Katz TTEE U/A
Dtd. 9-6-83 Amended 4-1-96,
Erwin I. Katz Revocable Family Trust
12412 Stillwater Terrace
Tampa, FL 33624-4739 2,696 Series D
898 Series D1 Warrant
Wendy C. Katz TTEE U/A
Dtd. 911-4-85 Amended 4-1-96,
Wendy C. Katz Revocable Family Trust
12412 Stillwater Terrace
Tampa, FL 33624-4739 2,696 Series D
898 Series D1 Warrant
Robert R. Lowe, II
6412--12/th/ Avenue
Temple Terrace, FL 33617 2,255 Series D
751 Series D1 Warrant
Frank Musolino
c/o FM Investments
10630 North 56/th/ Street, Suite 200
Temple Terrace, FL 33617 45,050 Series D
15,017 Series D1 Warrant
<PAGE>
Name Registrable Securities
- -------------------------------- --------------------------------------
Oak Investment Partners VII,
Limited Partnership
525 University Avenue, Suite 1300
Palo Alto, CA 94301
Attn: Fredric Harman 3,520,071 Series D
1,173,357 Series D Warrant
Oak VII Affiliates Fund, Limited Partnership
525 University Avenue, Suite 1300
Palo Alto, CA 94301
Attn: Fredric Harman 88,408 Series D
29,469 Series D Warrant
Brent A. Parker
Parker Walter Group, Inc.
2 North Tamiami Trail, Suite 206
Sarasota, FL 34236 3,316 Series D
1,105 Series D Warrant
Gerald C. Parker
c/o Saint James Capital Group
101 Phillippe Parkway, Suite 300
Safety Harbor, FL 34695 67,967 Series D
22,655 Series D1 Warrant
A.G. Rappaport
11015 North Dale Mabry Highway, Suite A
Tampa, FL 33618 22,500 Series D
7,500 Series D Warrant
Kim M. Schwencke Family Trust of 1997
11015-A North Dale Mabry
Tampa, FL 33618 18,829 Series D
7,552 Series D Warrant
Timothy John and Leigh Ellen
Stevens, JTWROS
11013 Sweet Oak Street
Cupertino, CA 95014 3,609 Series D
1,203 Series D Warrant
<PAGE>
EXHIBIT 10.6
EXECUTIVE EMPLOYMENT AGREEMENT
This Agreement is made as of July 1, 1996 (the "Execution Date") by and
between Inktomi Corporation, a California corporation (the "Company"), and David
Peterschmidt (the "Executive").
1. Position and Duties. The Company hereby hires the Executive and the
-------------------
Executive hereby accepts employment as President and Chief Executive Officer of
the Company. The Executive will commence employment with the Company as soon as
practicable following the date of this Agreement, but in no event later than
July 15, 1996 (the "Employment Date"). The Executive will, to the best of his
ability during his employment, devote his full time and best efforts to the
performance of the duties and functions of the positions of President and Chief
Executive Officer of the Company, and in the performance of those duties, will
comply with the policies of the Company and the direction of the board of
directors. In addition to the foregoing, Executive shall be appointed as a
director of the Company and serve as Chairman of the Board of Directors.
2. Compensation
------------
(a) Salary. The Company agrees to pay the Executive and the Executive
------
agrees to accepts as compensation for his services, a monthly base salary of
$12,500.00 ($150,000.00 per annum) payable in accordance with the Company's
standard payroll policy and beginning as of the Employment Date. The first and
last payment by the Company to the Executive shall be prorated, if necessary, to
reflect a commencement or termination date other than the first or last working
day of a pay period. At least annually, the board of directors will consider
increases in Executive's annual rate of salary in light of the Executive's
individual performance and other relevant factors.
(b) Benefits. During his employment hereunder, the Executive will be
--------
entitled to participate in the employee benefit plans maintained by the Company
to the full extent provided for under those plans.
(c) Expenses. The Company will pay or reimburse Executive for
--------
reasonable travel, entertainment or other expenses incurred by Executive in the
furtherance of or in connection with the performance of Executive's duties
hereunder in accordance with the Company's established policies. Executive shall
furnish the Company with evidence of the incurrence of such expenses within a
reasonable period of time from the date that they were incurred.
(d) Stock Option. Subject to applicable securities laws and approval
------------
by the Company's board of directors, the Company will grant to the Executive an
option ("Option") to purchase 1,475,300 shares (equal to nine percent of all
shares of Common Stock and Preferred Stock outstanding on the Execution Date,
assumes consummation of the pending two for one forward stock split of the
Company's Common Stock and Preferred Stock) of the Company's Common Stock
pursuant to the Company's 1996 Equity Incentive Plan (the "Plan"). The exercise
price of the option shall be the fair market value of the Company's Common Stock
as determined by the Company's board of directors on the date of grant
(estimated to be $2.50 per share, post forward stock split). The Option will
become exercisable, subject
<PAGE>
to continued employment by the Company, in accordance with the following
schedule: 1/48 of the shares subject to the Option shall become vested and
exercisable one month following the Employment Date and an additional 1/48 of
the shares shall become vested and exercisable at the end of each full month
thereafter, until all shares are exercisable, provided however that all of such
shares shall become earlier vested and exercisable upon the earlier to occur of
(i) the closing of an initial public offering of the Company's securities that
results in conversion of all outstanding shares of the Company's Preferred Stock
into Common Stock and (ii) the closing of a reorganization or merger of the
Company with or into any other corporation or entity, or a sale of all or
substantially all of the assets of the Company, in which transaction the
Company's shareholders immediately prior to such transaction own immediately
after such transaction less than 50% of the voting securities of the surviving
corporation (or its parent).
3. Full Attention: Company Visibility.
----------------------------------
(a) Full Attention. The Executive agrees to devote his full working
--------------
time, attention and energies to the performance of his duties with the Company.
The Executive shall not, directly or indirectly, alone or as a member of any
partnership, or as an officer, director or employee of any other company,
partnership or organization, be actively engaged in or concerned with any other
duties or pursuits which interfere with the performance of his duties hereunder.
(b) Company Visibility. The Executive will, as part of his duties as
------------------
an employee of the Company, actively seek such opportunities and undertake such
activities so as to promote high visibility and a positive image of the Company.
Any fees, payments, stipends or other similar compensation paid to or on behalf
of the Executive for such activities shall be promptly paid by the Executive to
the Company.
4. Proprietary Information Agreement. Concurrent with the execution of
---------------------------------
this Agreement, the Executive will enter into the Company's standard Proprietary
Information Agreement attached as Exhibit A.
5. At-Will Employment. Executive and the Company understand and
------------------
acknowledge that Executive's employment with the Company constitutes "at-will"
employment. Executive and the Company acknowledge that this employment
relationship may be terminated at any time, with or without good cause or for
any or no cause, at the option of either the Company or the Executive.
6. Non-Compete.
-----------
(a) Non-Compete Obligations. Upon any termination of Executive's
-----------------------
employment with the Company, the Company may elect, but shall not be obligated,
to continue to pay to Executive his then current base salary in accordance with
the Company's standard payroll policy for a period of up to twelve months
following termination of employment. If the Company so elects, and for so long
as the Company continues to make such payments, the Executive will not, as an
employee, agent, consultant or advisor, or in any other capacity, directly or
indirectly:
-2-
<PAGE>
(1) participate in or engage in the design, development,
manufacture, production, marketing, licensing, sale or servicing of any product,
or the provision of any service, that is similar to or competitive with any
product manufactured, produced, marketed, licenses or sold by the Company or
that was under active development by the Company at the time of termination of
employment in the United States; or
(2) induce or attempt to induce any person who at the time of
such inducement is an employee of the Company to perform work or services for
any other person or entity.
(b) Limitations. If any restriction set forth in Section 6(a) is held
-----------
by a court of competent jurisdiction to be unenforceable with respect to one or
more geographic areas, lines of business and/or months of duration, then
Executive agrees, and hereby submits, to the reduction and limitation of such
restriction to the minimal effect necessary so that the provisions of Section
6(a) shall be enforceable.
7. Conflicting Agreements. The Executive represents and warrants that he
----------------------
is free to enter into this Agreement and that there are no employment contracts
or restrictive covenants preventing full performance of his duties hereunder.
8. Withholding. All amounts payable to the Executive under this Agreement
-----------
shall be subject to applicable withholding by the Company for taxes payable by
the Executive.
9. Miscellaneous.
-------------
(a) Assignment. This Agreement is predicated upon the unique
----------
abilities and personal relationship of the Executive and the Company.
Accordingly, neither the Company nor the Executive may assign this Agreement or
any rights hereunder without the express written consent of the other.
(b) Entire Agreement: Amendment. This Agreement contains the entire
---------------------------
agreement of the parties, and may not be changed orally, but only by a
subsequent writing signed by the party against whom enforcement of such change
is sought.
(c) Prior Agreements: Waiver. This Agreement supersedes any and all
------------------------
prior discussions or agreements between the parties, whether oral or in writing,
related to the subject matter hereof. It is agreed that a waiver by either party
of a breach of any provision of this Agreement shall not operate or be construed
as a waiver of any subsequent breach by the same party.
(d) Severability. Without in any way limiting the provisions of
------------
Section 6(b), in case one or more of the provisions contained in this Agreement
shall be held to be invalid, illegal or unenforceable in any respect for any
reason, such invalidity, illegality or unenforceability shall not affect any
other provision of this Agreement but such provisions shall be deemed deleted
and such deletion shall not affect the validity of any other provision of this
Agreement.
-3-
<PAGE>
(e) Governing Law. This Agreement shall governed by and construed
-------------
according to the internal laws of the State of California. The federal and state
courts of the state of California shall have exclusive jurisdiction to
adjudicate any dispute rising out of this Agreement.
(f) Counterparts. This Agreement may be signed in counterparts which
------------
together will constitute one instrument.
(g) Board of Directors. On or shortly following the Employment Date,
------------------
it is expected that the Company will have a board of directors consisting of
five members (one of which will be Executive as set forth above). Executive and
the current board of directors of the Company will work together in good faith
to arrange the composition of the board of directors in a mutually acceptable
manner. In this connection, it is expected that the board of directors will
consist of two inside directors (one of which will be Executive as set forth
above) and three outside directors.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
INKTOMI CORPORATION DAVID PETERSCHMDT
By: [SIGNATURE ILLEGIBLE] By: [SIGNATURE ILLEGIBLE]
------------------------------ ------------------------------------
Title: Chief Executive Officer Title: ________________________________
---------------------------
-4-
<PAGE>
EXHIBIT 10.7
================================================================================
INKTOMI CORPORATION
LOAN AND SECURITY AGREEMENT
================================================================================
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C>
1. DEFINITIONS AND CONSTRUCTION........................................... 1
1.1 Definitions....................................................... 1
1.2 Accounting Terms.................................................. 9
2. LOAN AND TERMS OF PAYMENT.............................................. 10
2.1 Revolving, Term and Equipment Loan Facilities..................... 10
2.2 Overadvances...................................................... 12
2.3 Interest Rates, Payments, and Calculations........................ 12
2.4 Crediting Payments................................................ 12
2.5 Fees.............................................................. 13
2.6 Additional Costs.................................................. 13
2.7 Term.............................................................. 14
3. CONDITIONS OF LOANS.................................................... 14
3.1 Conditions Precedent to Initial Advance........................... 14
3.2 Conditions Precedent to all Advances.............................. 14
4. CREATION OF SECURITY INTEREST.......................................... 15
4.1 Grant of Security Interest........................................ 15
4.2 Delivery of Additional Documentation Required..................... 15
4.3 Right to Inspect.................................................. 15
5. REPRESENTATIONS AND WARRANTIES......................................... 15
5.1 Due Organization and Qualification............................... 15
5.2 Due Authorization; No Conflict................................... 15
5.3 No Prior Encumbrances............................................ 16
5.4 Bona Fide Eligible Accounts...................................... 16
5.5 Merchantable Inventory........................................... 16
5.6 Intellectual Property............................................ 16
5.7 Name; Location of Chief Executive Office......................... 16
5.8 Litigation....................................................... 16
5.9 No Material Adverse Change in Financial Statements............... 16
5.10 Solvency......................................................... 16
5.11 Regulatory Compliance............................................ 16
5.12 Environmental Condition.......................................... 17
5.13 Taxes............................................................ 17
5.14 Subsidiaries..................................................... 17
5.15 Government Consents.............................................. 17
5.16 Full Disclosure.................................................. 17
6. AFFIRMATIVE COVENANTS.................................................. 17
6.1 Good Standing.................................................... 17
6.2 Government Compliance............................................ 18
6.3 Financial Statements, Reports, Certificates...................... 18
6.4 Inventory; Returns............................................... 18
6.5 Taxes............................................................ 18
6.6 Insurance........................................................ 19
6.7 Principal Depository............................................. 19
6.8 Quick Ratio...................................................... 19
6.9 Liquidity Coverage/Debt Service Coverage......................... 19
6.10 Tangible Net Worth............................................... 19
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
6.11 Debt-Net Worth Ratio............................................. 19
6.12 Profitability.................................................... 20
6.13 Registration of Intellectual Property Rights..................... 20
6.14 Further Assurances............................................... 20
7. NEGATIVE COVENANTS..................................................... 20
7.1 Dispositions..................................................... 20
7.2 Change in Business............................................... 21
7.3 Mergers or Acquisitions.......................................... 21
7.4 Indebtedness..................................................... 21
7.5 Encumbrances..................................................... 21
7.6 Distributions.................................................... 21
7.7 Investments...................................................... 21
7.8 Transactions with Affiliates..................................... 21
7.9 Intellectual Property Agreements................................. 21
7.10 Subordinated Debt................................................ 21
7.11 Inventory........................................................ 21
7.12 Compliance....................................................... 22
7.13 Prohibition on Transfer of Assets................................ 22
8. EVENTS OF DEFAULT...................................................... 22
8.1 Payment Default.................................................. 22
8.2 Covenant Default................................................. 22
8.3 Material Adverse Change.......................................... 22
8.4 Attachment....................................................... 22
8.5 Insolvency....................................................... 23
8.6 Other Agreements................................................. 23
8.7 Subordinated Debt................................................ 23
8.8 Judgments........................................................ 23
8.9 Misrepresentations............................................... 23
9. BANK'S RIGHTS AND REMEDIES............................................. 23
9.1 Rights and Remedies.............................................. 23
9.2 Power of Attorney................................................ 24
9.3 Accounts Collection.............................................. 25
9.4 Bank Expenses.................................................... 25
9.5 Bank's Liability for Collateral.................................. 25
9.6 Remedies Cumulative.............................................. 25
9.7 Demand; Protest.................................................. 25
10. NOTICES................................................................ 25
11. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER............................. 26
12. GENERAL PROVISIONS..................................................... 26
12.1 Successors and Assigns........................................... 26
12.2 Indemnification.................................................. 27
12.3 Time of Essence.................................................. 27
12.4 Severability of Provisions....................................... 27
12.5 Amendments in Writing, Integration............................... 27
12.6 Counterparts..................................................... 28
12.7 Survival......................................................... 28
12.8 Confidentiality.................................................. 28
</TABLE>
ii
<PAGE>
This LOAN AND SECURITY AGREEMENT is entered into as of May 2, 1997, by and
between SILICON VALLEY BANK ("Bank") and INKTOMI CORPORATION("Borrower").
RECITALS
--------
Borrower wishes to obtain credit from time to time from Bank, and Bank
desires to extend credit to Borrower. This Agreement sets forth the terms on
which Bank will advance credit to Borrower, and Borrower will repay the amounts
owing to Bank.
AGREEMENT
---------
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION
----------------------------
1.1 Definitions. As used in this Agreement, the following terms
-----------
shall have the following definitions:
"Accounts" means all presently existing and hereafter arising
accounts, contract rights, and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods (including, without limitation, the
licensing of software and other technology) or the rendering of services by
Borrower, whether or not earned by performance, and any and all credit
insurance, guaranties, and other security therefor, as well as all merchandise
returned to or reclaimed by Borrower and Borrower's Books relating to any of the
foregoing.
"Advance" or "Advances" means a Revolving Advance, a Term Advance
or an Equipment Advance.
"Affiliate" means, with respect to any Person, any Person that
owns or controls directly or indirectly such Person, any Person that controls or
is controlled by or is under common control with such Person, and each of such
Person's senior executive officers, directors, and partners.
"Bank Expenses" means all: reasonable costs or expenses
(including reasonable attorneys' fees and expenses) incurred in connection with
the preparation, negotiation, administration, and enforcement of the Loan
Documents; and Bank's reasonable attorneys' fees and expenses incurred in
amending, enforcing or defending the Loan Documents (including fees and expenses
of appeal), whether or not suit is brought.
"Borrower's Books" means all of Borrower's books and records
including: ledgers; records concerning Borrower's assets or liabilities, the
Collateral, business operations or financial condition; and all computer
programs, or tape files, and the equipment, containing such information.
"Borrowing Base" has the meaning set forth in Section 2.1.1
hereof.
"Business Day" means any day that is not a Saturday, Sunday, or
other day on which banks in the State of California are authorized or required
to close.
"Closing Date" means the date of this Agreement.
"Code" means the California Uniform Commercial Code.
1
<PAGE>
"Collateral" means the property described on Exhibit A attached
---------
hereto.
"Committed Line" means Two Million Five Hundred Thousand Dollars
($2,500,000).
"Contingent Obligation" means, as applied to any Person, any
direct or indirect liability, contingent or otherwise, of that Person with
respect to (i) any indebtedness, lease, dividend, letter of credit or other
obligation of another, including, without limitation, any such obligation
directly or indirectly guaranteed, endorsed, co-made or discounted or sold with
recourse by that Person, or in respect of which that Person is otherwise
directly or indirectly liable; (ii) any obligations with respect to undrawn
letters of credit issued for the account of that Person; and (iii) all
obligations arising under any interest rate, currency or commodity swap
agreement, interest rate cap agreement, interest rate collar agreement, or other
agreement or arrangement designated to protect a Person against fluctuation in
interest rates, currency exchange rates or commodity prices; provided, however,
that the term "Contingent Obligation" shall not include endorsements for
collection or deposit in the ordinary course of business. The amount of any
Contingent Obligation shall be deemed to be an amount equal to the stated or
determined amount of the primary obligation in respect of which such Contingent
Obligation is made or, if not stated or determinable, the maximum reasonably
anticipated liability in respect thereof as determined by such Person in good
faith; provided, however, that such amount shall not in any event exceed the
maximum amount of the obligations under the guarantee or other support
arrangement.
"Copyrights" means any and all copyright rights, copyright
applications, copyright registrations and like protections in each work or
authorship and derivative work thereof, whether published or unpublished and
whether or not the same also constitutes a trade secret, now or hereafter
existing, created, acquired or held.
"Current Liabilities" means, as of any applicable date, all
amounts that should, in accordance with GAAP, be included as current liabilities
on the consolidated balance sheet of Borrower and its Subsidiaries, as at such
date, plus, to the extent not already included therein, all outstanding Advances
made under this Agreement, including all Indebtedness that is payable upon
demand or within one year from the date of determination thereof unless such
Indebtedness is renewable or extendable at the option of Borrower or any
Subsidiary to a date more than one year from the date of determination, but
excluding Subordinated Debt.
"Daily Balance" means the amount of the Obligations owed at the
end of a given day.
"Debt Service Coverage" means, as measured quarterly as of the
last day of each fiscal quarter of Borrower, on a consolidated basis determined
in accordance with GAAP, the ratio of (a) an amount equal to the sum of (i)
quarterly net income, plus (ii) quarterly depreciation, amortization of
----
intangible assets and other non-cash charges to income plus (iii) quarterly
----
interest expense to (b) an amount equal to (i) the sum of all scheduled
repayments for such quarter and mandatory prepayments of principal on account of
long-term Debt, plus (ii) quarterly interest expense.
----
"Eligible Accounts" means those Accounts that arise in the
ordinary course of Borrower's business that comply with all of Borrower's
representations and warranties to Bank set forth in Section 5.4; provided, that
--------
standards of eligibility may be fixed and revised from time to time by Bank in
Bank's reasonable judgment and upon notification thereof to Borrower in
accordance with the provisions hereof. Unless otherwise agreed to by Bank,
Eligible Accounts shall not include the following:
(a) Accounts that the account debtor has failed to pay within
ninety (90) days of invoice date;
2
<PAGE>
(b) Accounts with respect to an account debtor, fifty percent
(50%) of whose Accounts the account debtor has failed to pay within ninety (90)
days of invoice date;
(c) Accounts with respect to which the account debtor is an
officer, employee, or agent of Borrower;
(d) Accounts with respect to which goods are placed on
consignment, guaranteed sale, sale or return, sale on approval, bill and hold,
or other terms by reason of which the payment by the account debtor may be
conditional;
(e) Accounts with respect to which the account debtor is an
Affiliate of Borrower;
(f) Accounts with respect to which the account debtor does not
have its principal place of business in the United States, except for Eligible
Foreign Accounts;
(g) Accounts with respect to which the account debtor is the
United States or any department, agency, or instrumentality of the United
States;
(h) Accounts with respect to which Borrower is liable to the
account debtor for goods sold or services rendered by the account debtor to
Borrower, but only to the extent of any amounts owing to the account debtor
against amounts owed to Borrower;
(i) Accounts with respect to an account debtor, including
Subsidiaries and Affiliates, whose total obligations to Borrower exceed twenty-
five percent (25%) of all Accounts, to the extent such obligations exceed the
aforementioned percentage, except as approved in writing by Bank, except that
with respect to the Eligible Foreign Accounts of NTT and OzEmail the applicable
percentage shall be thirty-five percent (35%);
(j) Accounts with respect to which the account debtor disputes
liability or makes any claim with respect thereto as to which Bank believes, in
its sole discretion, that there may be a basis for dispute (but only to the
extent of the amount subject to such dispute or claim), or is subject to any
Insolvency Proceeding, or becomes insolvent, or goes out of business; and,
(k) Accounts the collection of which Bank reasonably determines
to be doubtful.
"Eligible Equipment" means general purpose scientific,
laboratory, manufacturing and test equipment, computer equipment, office
equipment and furnishings and other machines and office equipment as approved by
Bank in its sole discretion (i) in which the Bank has a valid perfected security
interest, and (ii) delivered to Borrower by the manufacturer or vendor after,
upon or not more than ninety (90) days prior to the date of the Closing Date,
which equipment is new and has not previously been used by any Person.
"Eligible Foreign Accounts" means Accounts with respect to which
the account debtor does not have its principal place of business in the United
States and that are not otherwise excluded under the exceptions to Eligible
Accounts set forth in subsections (a) through (k) of such defined term and are:
(1) covered by credit insurance in form and amount, and by an insurer
satisfactory to Bank less the amount of any deductible(s) which may be or become
owing thereon; or (2) supported by one or more letters of credit in favor of
Bank as beneficiary, in an amount and of a tenor, and issued by a financial
institution, acceptable to Bank; or (3) that Bank approves on a case-by-case
basis including the Accounts of NTT and OzEmail.
3
<PAGE>
"Equipment" means all present and future machinery, equipment,
tenant improvements, furniture, fixtures, vehicles, tools, parts and attachments
in which Borrower has any interest.
"Equipment Advance" or "Equipment Advances" means a cash advance
or cash advances under the Equipment Facility.
"Equipment Committed Line" means Three Million Dollars
($3,000,000).
"Equipment Facility" means the facility under which Borrower may
request Bank to issue cash advances, as specified in Section 2.1.3 hereof.
"Equipment Availability Date" means the date nine (9) calendar
months from the date of this Agreement.
"Equipment Maturity Date" means the date thirty-six (36) months
from the Equipment Availability Date.
"ERISA" means the Employment Retirement Income Security Act of
1974, as amended, and the regulations thereunder.
"GAAP" means generally accepted accounting principles as in
effect from time to time.
"Indebtedness" means (a) all indebtedness for borrowed money or
the deferred purchase price of property or services, including without
limitation reimbursement and other obligations with respect to surety bonds and
letters of credit, (b) all obligations evidenced by notes, bonds, debentures or
similar instruments, (c) all capital lease obligations and (d) all Contingent
Obligations.
"Insolvency Proceeding" means any proceeding commenced by or
against any person or entity under any provision of the United States Bankruptcy
Code, as amended, or under any other bankruptcy or insolvency law, including
assignments for the benefit of creditors, formal or informal moratoria,
compositions, extension generally with its creditors, or proceedings seeking
reorganization, arrangement, or other relief.
"Intellectual Property Collateral" means any and all right, title
and interest of Borrower in the following:
(a) Copyrights, Trademarks and Patents;
(b) Any and all trade secrets, and any and all intellectual
property rights in computer software and computer software products now or
hereafter existing, created, acquired or held;
(c) Any and all design rights which may be available to Borrower
now or hereafter existing, created, acquired or held;
(d) Any and all claims for damages by way of past, present and
future infringement of any of the rights included above, with the right, but not
the obligation, to sue for and collect such damages for said use or infringement
of the intellectual property rights identified above;
4
<PAGE>
(e) All licenses or other rights to use any of the Copyrights,
Patents or Trademarks, and all license fees and royalties arising from such use
to the extent permitted by such license or rights;
(f) All amendments, renewals and extensions of any of the
Copyrights, Trademarks or Patents; and
(g) All proceeds and products of the foregoing, including without
limitation all payments under insurance or any indemnity or warranty payable in
respect of any of the foregoing.
"Inventory" means all present and future inventory in which
Borrower has any interest, including merchandise, raw materials, parts,
supplies, packing and shipping materials, work in process and finished products
intended for sale or lease or to be furnished under a contract of service, of
every kind and description now or at any time hereafter owned by or in the
custody or possession, actual or constructive, of Borrower, including such
inventory as is temporarily out of its custody or possession or in transit and
including any returns upon any accounts or other proceeds, including insurance
proceeds, resulting from the sale or disposition of any of the foregoing and any
documents of title representing any of the above, and Borrower's Books relating
to any of the foregoing.
"Investment" means any beneficial ownership of (including stock,
partnership interest or other securities) any Person, or any loan, advance or
capital contribution to any Person.
"IRC" means the Internal Revenue Code of 1986, as amended, and
the regulations thereunder.
"Lien" means any mortgage, lien, deed of trust, charge, pledge,
security interest or other encumbrance.
"Loan Documents" means, collectively, this Agreement, any note or
notes executed by Borrower, and any other agreement entered into between
Borrower and Bank in connection with this Agreement, all as amended or extended
from time to time.
"Material Adverse Effect" means a material adverse effect on (i)
the business operations or condition (financial or otherwise) of Borrower and
its Subsidiaries taken as a whole or (ii) the ability of Borrower to repay the
Obligations or otherwise perform its obligations under the Loan Documents.
"Negotiable Collateral" means all of Borrower's present and
future letters of credit of which it is a beneficiary, notes, drafts,
instruments, securities, documents of title, and chattel paper, and Borrower's
Books relating to any of the foregoing.
"Obligations" means all debt, principal, interest, Bank Expenses
and other amounts owed to Bank by Borrower pursuant to this Agreement or any
other agreement, whether absolute or contingent, due or to become due, now
existing or hereafter arising, including any interest that accrues after the
commencement of an Insolvency Proceeding and including any debt, liability, or
obligation owing from Borrower to others that Bank may have obtained by
assignment or otherwise.
"Patents means all patents, patent applications and like
protections including without limitation improvements, divisions, continuations,
renewals, reissues, extensions and continuations-in-part of the same.
5
<PAGE>
"Periodic Payments" means all installments or similar recurring
payments that Borrower may now or hereafter become obligated to pay to Bank
pursuant to the terms and provisions of any instrument, or agreement now or
hereafter in existence between Borrower and Bank.
"Permitted Indebtedness" means:
(a) Indebtedness of Borrower in favor of Bank arising under this
Agreement or any other Loan Document;
(b) Indebtedness existing on the Closing Date and disclosed in
the Schedule;
(c) Indebtedness to trade creditors and with respect to surety
bonds and similar obligations incurred in the ordinary course of business;
(d) Subordinated Debt;
(e) Indebtedness of Borrower to any Subsidiary and Contingent
Obligations of any Subsidiary with respect to obligations of Borrower (provided
that the primary obligations are not prohibited hereby), and Indebtedness of any
Subsidiary to any other Subsidiary and Contingent Obligations of any Subsidiary
with respect to obligations of any other Subsidiary (provided that the primary
obligations are not prohibited hereby);
(f) Indebtedness secured by Permitted Liens;
(g) Capital leases or indebtedness incurred solely to purchase
equipment which is secured in accordance with clause (c) of "Permitted Liens"
below and is not in excess of the lesser of the purchase price of such equipment
or the fair market value of such equipment on the date of acquisition;
(h) Extensions, refinancings, modifications, amendments and
restatements of any of items of Permitted Indebtedness (a) through (g) above,
provided that the principal amount thereof is not increased or the terms thereof
are not modified to impose more burdensome terms upon Borrower or its
Subsidiary, as the case may be; and
(i) other Indebtedness not exceeding Two Hundred Fifty Thousand
Dollars ($250,000) in the aggregate.
"Permitted Investment" means:
(a) Investments existing on the Closing Date disclosed in the
Schedule; and
(b) (i) marketable direct obligations issued or unconditionally
guaranteed by the United States of America or any agency or any State thereof
maturing within one (1) year from the date of acquisition thereof, (ii)
commercial paper maturing no more than one (1) year from the date of creation
thereof and currently having the highest rating obtainable from either Standard
& Poor's Corporation or Moody's Investors Service, Inc., and (iii) certificates
of deposit maturing no more than one (1) year from the date of investment
therein issued by Bank;
(c) Investments consisting of the endorsement of negotiable
instruments for deposit or collection or similar transaction in the ordinary
course of business;
6
<PAGE>
(d) Investments accepted in connection with Transfers permitted
by Section 7.1;
(e) Investments consisting of (i) compensation of employees,
officers and directors of Borrower or its Subsidiaries so long as the Board of
Directors of Borrower determines that such compensation is in the best interests
of Borrower, (ii) travel advances, employee relocation loans and other employee
loans and advances in the ordinary course of business, and (iii) loans to
employees, officers or directors relating to the purchase of equity securities
of Borrower or its Subsidiaries pursuant to employee stock purchase plans or
agreements approved by Borrower's Board of Directors;
(f) Investments (including debt obligations) received in
connection with the bankruptcy or reorganization of customers or suppliers and
in settlement of delinquent obligations of, and other disputes with, customers
or suppliers arising in the ordinary course of business;
(g) Investments pursuant to or arising under currency agreements
or interest rate agreements entered into in the ordinary course of business;
(h) Investments consisting of notes receivable of, or prepaid
royalties and other credit extensions to, customers and suppliers who are not
Affiliates, in the ordinary course of business; provided that this paragraph (i)
shall not apply to Investments by Borrower in any Subsidiary;
(i) Investments constituting acquisitions permitted under Section
7.3;
(j) Deposit accounts of Borrower in which Bank has a Lien prior
to any other Lien; and
(k) Deposit accounts of any Subsidiaries maintained in the
ordinary course of business.
"Permitted Liens" means the following:
(a) Any Liens existing on the Closing Date and disclosed in the
Schedule or arising under this Agreement or the other Loan Documents;
(b) Liens for taxes, fees, assessments or other governmental
charges or levies, either not delinquent or being contested in good faith by
appropriate proceedings, provided the same have no priority over any of Bank's
--------
security interests;
(c) Liens (i) upon or in any Equipment other than Equipment
financed hereunder acquired or held by Borrower or any of its Subsidiaries to
secure the purchase price of such Equipment or indebtedness incurred solely for
the purpose of financing the acquisition of such Equipment, or (ii) existing on
such Equipment other than Equipment financed hereunder at the time of its
acquisition, provided that the Lien is confined solely to the property so
--------
acquired and improvements thereon, and the proceeds of such Equipment;
(d) Liens on Equipment other than Equipment financed hereunder
leased by Borrower or any Subsidiary pursuant to an operating or capital lease
in the ordinary course of business (including proceeds thereof and accessions
thereto) incurred solely for the purpose of financing the lease of such
Equipment (including Liens pursuant to leases permitted pursuant to Section 7.1
and Liens arising from UCC financing statements regarding leases permitted by
this Agreement);
7
<PAGE>
(e) Leases or subleases and licenses and sublicenses granted to
others in the ordinary course of Borrower's business not interfering in any
material respect with the business of Borrower and its Subsidiaries taken as a
whole, and any interest or title of a lessor, licensor or under any lease or
license;
(f) Liens on assets (including the proceeds thereof and
accessions thereto) that existed at the time such assets were acquired by
Borrower or any Subsidiary (including Liens on assets of any corporation that
existed at the time it became or becomes a Subsidiary); provided such Liens are
not granted in contemplation of or in connection with the acquisition of such
asset by Borrower or a Subsidiary;
(g) Liens arising from judgments, decrees or attachments in
circumstances not constituting an Event of Default under Section 8.8;
(h) Easements, reservations, rights-of-way, restrictions, minor
defects or irregularities in title and other similar charges or encumbrances
affecting real property not constituting a Material Adverse Effect;
(i) Liens in favor of customs and revenue authorities arising as
a matter of law to secure payments of customs duties in connection with the
importation of goods;
(j) Liens that are not prior to the Lien of Bank which constitute
rights of set-off of a customary nature or banker's Liens with respect to
amounts on deposit, whether arising by operation of law or by contract, in
connection with arrangement entered in to with banks in the ordinary course of
business;
(k) Earn-out and royalty obligations existing on the date hereof
or entered into in connection with an acquisition permitted by Section 7.3;
(l) Liens on insurance proceeds in favor of insurance companies
granted solely as security for financed premiums; and
(m) Liens incurred in connection with the extension, renewal or
refinancing of the indebtedness secured by Liens of the type described in
clauses (a) (c), (d), (e), (f) and (k) above, provided that any extension,
--------
renewal or replacement Lien shall be limited to the property encumbered by the
existing Lien and the principal amount of the indebtedness being extended,
renewed or refinanced does not increase.
"Person" means any individual, sole proprietorship, partnership,
limited liability company, joint venture, trust, unincorporated organization,
association, corporation, institution, public benefit corporation, firm, joint
stock company, estate, entity or governmental agency.
"Prime Rate" means the variable rate of interest, per annum, most
recently announced by Bank, as its "prime rate," whether or not such announced
rate is the lowest rate available from Bank.
"Quick Assets" means, as of any applicable date, the unrestricted
cash; unrestricted cash-equivalents; net, billed accounts receivable and
investments with maturities of fewer than one year of Borrower determined in
accordance with GAAP.
"Responsible Officer" means each of the Chief Executive Officer,
the Chief Financial Officer and the Controller of Borrower.
8
<PAGE>
"Revolving Advance" or "Revolving Advances" means a cash advance
or cash advances under the Revolving Facility.
"Revolving Facility" means the facility under which Borrower may
request Bank to issue Revolving Advances, as specified in Section 2.1.1 hereof.
"Revolving Maturity Date" means the date immediately preceding
the first anniversary of the date of this Agreement.
"Schedule" means the schedule of exceptions attached hereto, if
any.
"Subordinated Debt" means any debt incurred by Borrower that is
subordinated to the debt owing by Borrower to Bank on terms acceptable to Bank
(and identified as being such by Borrower and Bank).
"Subsidiary" means any corporation or partnership in which (i)
any general partnership interest or (ii) more than 50% of the stock of which by
the terms thereof ordinary voting power to elect the Board of Directors,
managers or trustees of the entity shall, at the time as of which any
determination is being made, be owned by Borrower, either directly or through an
Affiliate.
"Tangible Net Worth" means at any date as of which the amount
thereof shall be determined, the consolidated total assets of Borrower and its
Subsidiaries minus, without duplication, (i) the sum of any amounts attributable
-----
to (a) goodwill, (b) intangible items such as unamortized debt discount and
expense, patents, trade and service marks and names, copyrights and research and
development expenses except prepaid expenses, and (c) all reserves not already
deducted from assets, and (ii) Total Liabilities.
---
"Term Advance" means the cash advance under the Term Facility.
"Term Availability Date" means the date one (1) calendar month
from the Closing Date.
"Term Loan Amount" means Two Million Dollars ($2,000,000).
"Term Facility" means the facility under which Borrower may
request Bank to issue the Term Advance, as specified in Section 2.1.2 hereof.
"Term Maturity Date" means the date twenty-four (24) months from
the date of the Term Availability Date.
"Total Liabilities" means at any date as of which the amount
thereof shall be determined, all obligations that should, in accordance with
GAAP be classified as liabilities on the consolidated balance sheet of Borrower,
including in any event all Indebtedness, but specifically excluding Subordinated
Debt.
"Trademarks" means any trademark and servicemark rights, whether
registered or not, applications to register and registrations of the same and
like protections, and the entire goodwill of the business of Assignor connected
with and symbolized by such trademarks.
1.2 Accounting Terms. All accounting terms not specifically defined
----------------
herein shall be construed in accordance with GAAP and all calculations made
hereunder shall be made in accordance with GAAP. When used herein, the terms
"financial statements" shall include the notes and schedules thereto.
9
<PAGE>
2. LOAN AND TERMS OF PAYMENT
-------------------------
2.1 Revolving, Term and Equipment Loan Facilities.
---------------------------------------------
2.1.1 Revolving Facility.
------------------
(a) Revolving Advances. Subject to and upon the terms and
------------------
conditions of this Agreement, Bank agrees to make Revolving Advances to Borrower
in an aggregate amount not to exceed the lesser of the Committed Line or the
Borrowing Base. For purposes of this Agreement, "Borrowing Base" shall mean an
amount equal to seventy-five percent (75%) of Eligible Accounts. Subject to the
terms and conditions of this Agreement, amounts borrowed pursuant to this
Section 2.1.1 may be repaid and reborrowed at any time prior to the Revolving
Maturity Date.
(b) Procedures. Whenever Borrower desires a Revolving Advance,
----------
Borrower will notify Bank by facsimile transmission or telephone no later than
3:00 p.m. California time, on the Business Day that the Revolving Advance is to
be made. Each such notification shall be promptly confirmed by a
Payment/Advance Form in substantially the form of Exhibit B hereto. Bank is
---------
authorized to make Revolving Advances under this Agreement, based upon
instructions received from a Responsible Officer, or without instructions if in
Bank's discretion such Revolving Advances are necessary to meet Obligations
which have become due and remain unpaid. Bank shall be entitled to rely on any
telephonic notice given by a person who Bank reasonably believes to be a
Responsible Officer, and Borrower shall indemnify and hold Bank harmless for any
damages or loss suffered by Bank as a result of such reliance. Bank will credit
the amount of Revolving Advances made under this Section 2.1.1 to Borrower's
deposit account.
(c) Interest, Payments. Interest shall accrue from the date of
------------------
each Revolving Advance at the rate specified in Section 2.3(a) and shall be
payable on the first (1st) calendar day of each month during the term hereof.
Bank shall, at its option, charge such interest, all Bank Expenses, and all
Periodic Payments against any of Borrower's deposit accounts or against the
Committed Line, in which case those amounts shall thereafter accrue interest at
the rate then applicable hereunder. Any interest not paid when due shall be
compounded by becoming a part of the Obligations, and such interest shall
thereafter accrue interest at the rate then applicable hereunder.
(d) Maturity. The Revolving Facility shall terminate on the
--------
Revolving Maturity Date, at which time all Revolving Advances under this Section
2.1.1 shall be immediately due and payable.
2.1.2 Term Facility.
-------------
(a) Term Advance. Subject to and upon the terms and conditions
------------
of this Agreement, Bank agrees, at any time from the date of this Agreement
through the Term Availability Date, to make the Term Advance to Borrower in a
principal amount of up to the Term Loan Amount. Amounts borrowed pursuant to
this Section 2.1.2 may not be reborrowed once repaid.
(b) Procedures. Whenever Borrower desires the Term Advance,
----------
Borrower shall notify Bank by facsimile transmission or telephone no later than
3:00 p.m. California time, one (1) Business Day before the day on which the Term
Advance is requested to be made. Such notification shall be promptly confirmed
by a Payment/Advance Form in substantially the form of Exhibit B hereto. Bank is
---------
authorized to make the Term Advance under this Agreement based upon instructions
received from a Responsible Officer. Bank shall be entitled to rely on any
telephonic notice given by a person who Bank reasonably believes to be a
Responsible Officer, and Borrower shall indemnify and hold Bank harmless for any
damages or loss suffered by Bank as a result of such reliance. Bank will credit
the amount of the Term Advance made under this Section 2.1.2 to Borrower's
deposit account.
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<PAGE>
(c) Interest and Principal. Interest shall accrue from the date
----------------------
of the Term Advance at the rate specified in Section 2.3(a). Bank shall, at its
option, charge such interest, all Bank Expenses, and all Periodic Payments
against any of Borrower's deposit accounts or against the Term Facility, in
which case those amounts shall thereafter accrue interest at the rate then
applicable hereunder. Any interest not paid when due shall be compounded by
becoming a part of the Obligations, and such interest shall thereafter accrue
interest at the rate then applicable hereunder. On the Term Availability Date,
the Term Advance will be payable in twenty-four (24) equal monthly installments
of principal, plus accrued interest, on the first (1st) calendar day of the
month for each month through the Term Maturity Date.
(d) Maturity. The Term Facility shall terminate on the Term
--------
Maturity Date, at which time all Obligations owing under this Section 2.1.2
shall be immediately due and payable.
2.1.3 Equipment Facility.
------------------
(a) Equipment Advances. Subject to and upon the terms and
------------------
conditions of this Agreement, Bank agrees, at any time from the date of this
Agreement through the Equipment Availability Date, to make Equipment Advances to
Borrower in an aggregate principal amount of up to the Equipment Committed Line.
On the date of each Equipment Advance, Borrower shall provide invoices and other
documents as requested by Bank, in form and content satisfactory to Bank,
demonstrating that the Equipment Advances then outstanding (A) shall be used to
finance or refinance, as the case may be, Eligible Equipment, and (B) shall not
exceed one hundred percent (100%) of the cost of such Eligible Equipment,
excluding any and all installation, freight or warranty expenses or sales taxes,
and (C) that no more than twenty percent (20%) of the aggregate outstanding
Equipment Advances shall finance software licenses, leasehold improvements,
taxes, freight or installation costs, or other soft costs. Amounts borrowed
pursuant to this Section 2.1.3 may not be reborrowed once repaid.
(b) Procedures. Whenever Borrower desires an Equipment Advance,
----------
Borrower shall notify Bank by facsimile transmission or telephone no later than
3:00 p.m. California time, one (1) Business Day before the day on which the
Equipment Advance is requested to be made. Each such notification shall be
promptly confirmed by a Payment/Advance Form in substantially the form of
Exhibit B hereto. The notice shall be signed by a Responsible Officer and
- ---------
include a copy of the invoice for the Eligible Equipment to be financed. Bank
is authorized to make Equipment Advances under this Agreement, based upon
instructions received from a Responsible Officer, or without instructions if in
Bank's discretion such Equipment Advances are necessary to meet Obligations
which have become due and remain unpaid. Bank shall be entitled to rely on any
telephonic notice given by a person who Bank reasonably believes to be a
Responsible Officer, and Borrower shall indemnify and hold Bank harmless for any
damages or loss suffered by Bank as a result of such reliance. Bank will credit
the amount of Equipment Advances made under this Section 2.1.3 to Borrower's
deposit account.
(c) Interest and Principal. Interest shall accrue from the date
----------------------
of each Equipment Advance at the rate specified in Section 2.3(a), and shall be
payable monthly on the first (1st) calendar day of the month for each month
through the month in which the Equipment Availability Date falls. Bank shall, at
its option, charge such interest, all Bank Expenses, and all Periodic Payments
against any of Borrower's deposit accounts or against the Equipment Committed
Line, in which case those amounts shall thereafter accrue interest at the rate
then applicable hereunder. Any interest not paid when due shall be compounded by
becoming a part of the Obligations, and such interest shall thereafter accrue
interest at the rate then applicable hereunder. All Equipment Advances that are
outstanding on the Equipment Availability Date will be payable in thirty-six
(36) monthly installments of principal, plus accrued interest, on the first
(1st) calendar day of the month for each month through the Equipment Maturity
Date.
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<PAGE>
(d) Maturity. The Equipment Facility shall terminate on the
--------
Equipment Maturity Date, at which time all Obligations owing under this Section
2.1.3 and all other amounts under this Agreement shall be immediately due and
payable.
2.2 Overadvances. If, at any time or for any reason, the amount of
------------
Obligations owed by Borrower to Bank pursuant to Section 2.1.1 of this Agreement
is greater than the lesser of (i) the Committed Line or (ii) the Borrowing Base,
Borrower shall immediately pay to Bank, in cash, the amount of such excess. If,
at any time or for any reason, the amount of Obligations owed by Borrower to
Bank pursuant to Section 2.1.2(a) of this Agreement is greater than the Term
Loan Amount Borrower shall immediately pay to Bank, in cash, the amount of such
excess. If, at any time or for any reason, the amount of Obligations owed by
Borrower to Bank pursuant to Section 2.1.3(b) of this Agreement is greater than
the Equipment Committed Line Borrower shall immediately pay to Bank, in cash,
the amount of such excess.
2.3 Interest Rates, Payments, and Calculations.
------------------------------------------
(a) Interest Rate.
-------------
(i) Revolving Advances. Except as set forth in Section
-------------------
2.3(b), all Revolving Advances shall bear interest, on the average Daily Balance
thereof, at a rate equal to the Prime Rate.
(ii) Term Advance. Except as set forth in Section 2.3(b),
------------
the Term Advance shall bear interest, on the average Daily Balance thereof, at a
rate equal to one half of one percentage point (0.5%) above the Prime Rate;
provided, however, that Borrower shall have a one-time option to elect to have
the Term Advance bear interest, on the average Daily Balance thereof, at a rate
equal to three percentage points (3%) above the yield of the 36 month Treasury
Note as reported in the Western edition of The Wall Street Journal, which rate
-----------------------
shall be fixed at the time of Borrower's election. Borrower shall give written
notice to Bank of its interest rate election on the Term Availability Date. If
Borrower fails to give such notice, then the applicable rate shall be the Prime
Rate described herein.
(iii) Equipment Advance. Except as set forth in Section
-----------------
2.3(b), all Equipment Advances shall bear interest, on the average Daily Balance
thereof, at a rate equal to one half of one percentage point (0.5%) above the
Prime Rate; provided, however, that Borrower shall have a one-time option to
elect to have the Equipment Advances bear interest, on the average Daily Balance
thereof, at a rate equal to three percentage points (3%) above the yield of the
36 month Treasury Note as reported in the Western edition of The Wall Street
---------------
Journal, which rate shall be fixed at the time of Borrower's election. Borrower
- -------
shall give written notice to Bank of its interest rate election on the Equipment
Availability Date. If Borrower fails to give such notice, then the applicable
rate shall be the Prime Rate described herein.
(b) Default Rate. All Obligations shall bear interest, from and
------------
after the occurrence of an Event of Default, at a rate equal to five (5)
percentage points above the interest rate applicable immediately prior to the
occurrence of the Event of Default.
(c) Computation. In the event the Prime Rate is changed from
-----------
time to time hereafter, the applicable rate of interest hereunder shall be
increased or decreased effective as of 12:01 a.m. on the day the Prime Rate is
changed, by an amount equal to such change in the Prime Rate. All interest
chargeable under the Loan Documents shall be computed on the basis of a three
hundred sixty (360) day year for the actual number of days elapsed.
2.4 Crediting Payments. Prior to the occurrence of an Event of
------------------
Default, Bank shall credit a wire transfer of funds, check or other item of
payment to such deposit account or Obligation
12
<PAGE>
as Borrower specifies. After the occurrence of an Event of Default, the receipt
by Bank of any wire transfer of funds, check, or other item of payment shall be
immediately applied to conditionally reduce Obligations, but shall not be
considered a payment on account unless such payment is of immediately available
federal funds or unless and until such check or other item of payment is honored
when presented for payment. Notwithstanding anything to the contrary contained
herein, any wire transfer or payment received by Bank after 12:00 noon
California time shall be deemed to have been received by Bank as of the opening
of business on the immediately following Business Day. Whenever any payment to
Bank under the Loan Documents would otherwise be due (except by reason of
acceleration) on a date that is not a Business Day, such payment shall instead
be due on the next Business Day, and additional fees or interest, as the case
may be, shall accrue and be payable for the period of such extension.
2.5 Fees. Borrower shall pay to Bank the following:
----
(a) Facility Fees. A facility fee equal to Thirty-Seven
-------------
Thousand Five Hundred Dollars ($37,500), which shall be fully earned and
nonrefundable as of such date;
(b) Financial Examination and Appraisal Fees. Bank's customary
----------------------------------------
fees and out-of-pocket expenses for Bank's audits of Borrower's Accounts, and
for each appraisal of Collateral and financial analysis and examination of
Borrower performed from time to time by Bank or its agents; and,
(c) Bank Expenses. Upon the date hereof, all Bank Expenses
-------------
incurred through the Closing Date, including reasonable attorneys' fees and
expenses, and, after the date hereof, all Bank Expenses, including reasonable
attorneys' fees and expenses, as and when they become due.
2.6 Additional Costs. In case any change in any law, regulation,
----------------
treaty or official directive or the interpretation or application thereof by any
court or any governmental authority charged with the administration thereof or
the compliance with any guideline or request of any central bank or other
governmental authority (whether or not having the force of law), in each case
after the date of this Agreement:
(a) subjects Bank to any tax with respect to payments of
principal or interest or any other amounts payable hereunder by Borrower or
otherwise with respect to the transactions contemplated hereby (except for taxes
on the overall net income of Bank imposed by the United States of America or any
political subdivision thereof);
(b) imposes, modifies or deems applicable any deposit insurance,
reserve, special deposit or similar requirement against assets held by, or
deposits in or for the account of, or loans by, Bank; or
(c) imposes upon Bank any other condition with respect to its
performance under this Agreement,
and the result of any of the foregoing is to increase the cost to Bank, reduce
the income receivable by Bank or impose any expense upon Bank with respect to
any loans, Bank shall notify Borrower thereof. Borrower agrees to pay to Bank
the amount of such increase in cost, reduction in income or additional expense
as and when such cost, reduction or expense is incurred or determined, upon
presentation by Bank of a statement of the amount and setting forth Bank's
calculation thereof, all in reasonable detail, which statement shall be deemed
true and correct absent manifest error; provided, however, that Borrower shall
not be liable for any such amount attributable to any period prior to the date
of hundred eight (180) days prior to the date of such certificate.
13
<PAGE>
2.7 Term. This Agreement shall become effective on the Closing Date
----
and, subject to Section 12.7, shall continue in full force and effect for a term
ending on the Equipment Maturity Date. Notwithstanding the foregoing, Bank
shall have the right to terminate its obligation to make Advances under this
Agreement immediately and without notice upon the occurrence and during the
continuance of an Event of Default. Notwithstanding termination, Bank's Lien on
the Collateral shall remain in effect for so long as any Obligations (excluding
Obligations under Section 2.6 and 12.2 to the extent they remain inchoate at the
time outstanding payment obligations are paid in full) are outstanding.
3. CONDITIONS OF LOANS
-------------------
3.1 Conditions Precedent to Initial Advance. The obligation of Bank
---------------------------------------
to make the initial Advance is subject to the condition precedent that Bank
shall have received, in form and substance satisfactory to Bank, the following:
(a) this Agreement;
(b) a certificate of the Secretary of Borrower with respect to
incumbency and resolutions authorizing the execution and delivery of this
Agreement;
(c) an intellectual property security agreement;
(d) proof that Borrower has received gross proceeds from the
sale of its capital stock or Subordinated Debt in an amount of no less than
Eight Million Dollars ($8,000,000) from Oak Investment Partners;
(e) an audit of Borrower's Accounts (prior to initial Revolving
Advance);
(f) financing statements (Forms UCC-1);
(g) insurance certificate;
(h) payment of the fees and Bank Expenses then due specified in
Section 2.5 hereof; and
(i) such other documents, and completion of such other matters,
as Bank may reasonably deem necessary or appropriate.
3.2 Conditions Precedent to all Advances. The obligation of Bank to
------------------------------------
make each Advance, including the initial Advance, is further subject to the
following conditions:
(a) timely receipt by Bank of the Payment/Advance Form as
provided in Section 2.1;
(b) timely receipt by Bank of the documents, instruments and/or
invoices as provided in Section 2.1.3; and
(c) the representations and warranties contained in Section 5
shall be true and correct in all material respects on and as of the date of such
Payment/Advance Form and on the effective date of each Advance as though made at
and as of each such date, and no Event of Default shall have occurred and be
continuing, or would result from such Advance (except to the extent they relate
specifically to any earlier date, in which case such representations and
warranties shall continue to have been true and accurate as of such date). The
making of each Advance shall be deemed to be a
14
<PAGE>
representation and warranty by Borrower on the date of such Advance as to the
accuracy of the facts referred to in this Section 3.2(c).
4. CREATION OF SECURITY INTEREST
-----------------------------
4.1 Grant of Security Interest. Borrower grants and pledges to Bank
--------------------------
a continuing security interest in all presently existing and hereafter acquired
or arising Collateral in order to secure prompt repayment of any and all
Obligations and in order to secure prompt performance by Borrower of each of its
covenants and duties under the Loan Documents, provided, however, that
-------- -------
notwithstanding the foregoing, such grant of a security interest shall not
include, any intellectual property rights which are now or hereafter held by
Borrower as licensee, lessee or otherwise to the extent that such rights are not
assignable or capable of being encumbered as a matter of law or under written
terms of the license, lease or other agreement applicable thereto provided that
Borrower was or is required in its commercially reasonable judgment to enter
into such written terms restricting the grant hereunder. Except as set forth in
the Schedule, such security interest constitutes a valid, first priority
security interest in the presently existing Collateral, and will constitute a
valid, first priority security interest in Collateral acquired after the date
hereof, in each case, to the extent that a security interest in such Collateral
can be perfected by the filing of a financing statement or, in the case of
Collateral consisting of instruments, documents, chattel paper or certificated
securities, to the extent that Bank takes possession of such Collateral. Bank
agrees to execute and deliver to Borrower from time to time agreements to
subordinate its Lien as Borrower may request and as are necessary to give to
other lenders which finance new Equipment for Borrower a first priority security
interest in the new Equipment financed so long as the Liens and the Indebtedness
incurred with respect to such Equipment financing are permitted under this
Agreement.
4.2 Delivery of Additional Documentation Required. Borrower shall
---------------------------------------------
from time to time execute and deliver to Bank, at the request of Bank, all
Negotiable Collateral, all financing statements and other documents that Bank
may reasonably request, in form satisfactory to Bank, to perfect and continue
perfected Bank's security interests in the Collateral and in order to fully
consummate all of the transactions contemplated under the Loan Documents.
4.3 Right to Inspect. Bank (through any of its officers, employees,
----------------
or agents) shall have the right, upon reasonable prior notice, from time to time
during Borrower's usual business hours, to inspect Borrower's Books and to make
copies thereof and to check, test, and appraise the Collateral in order to
verify Borrower's financial condition or the amount, condition of, or any other
matter relating to, the Collateral.
5. REPRESENTATIONS AND WARRANTIES
------------------------------
Borrower represents and warrants as follows:
5.1 Due Organization and Qualification. Borrower and each Subsidiary
----------------------------------
is a corporation duly existing and in good standing under the laws of its state
of incorporation and qualified and licensed to do business in, and is in good
standing in, any state in which the conduct of its business or its ownership of
property requires that it be so qualified, except for states as to which any
failure to so qualify would not have a Material Adverse Effect.
5.2 Due Authorization; No Conflict. The execution, delivery, and
------------------------------
performance of the Loan Documents are within Borrower's powers, have been duly
authorized, and are not in conflict with nor constitute a breach of any
provision contained in Borrower's Articles of Incorporation or Bylaws, nor will
they constitute an event of default under any material agreement to which
Borrower is a party or by which Borrower is bound except to the extent that
certain intellectual property agreements prohibit the assignment of the rights
thereunder to a third party without the Borrower's or other party's consent and
the Loan Documents constitute an assignment. Borrower is not in default
15
<PAGE>
under any agreement to which it is a party or by which it is bound, which
default could reasonably be expected to have a Material Adverse Effect.
5.3 No Prior Encumbrances. Borrower has good and indefeasible title
---------------------
to the Collateral, free and clear of Liens, except for Permitted Liens.
5.4 Bona Fide Eligible Accounts. The Eligible Accounts are bona fide
---------------------------
existing obligations. The property giving rise to such Eligible Accounts has
been delivered to the account debtor or to the account debtor's agent for
immediate shipment to and unconditional acceptance by the account debtor.
Borrower has not received notice of actual or imminent Insolvency Proceeding of
any account debtor that is included in any Borrowing Base Certificate as an
Eligible Account.
5.5 Merchantable Inventory. All Inventory is in all material
----------------------
respects of good and marketable quality, free from all material defects.
5.6 Intellectual Property. Borrower is the sole owner of the
---------------------
Intellectual Property Collateral, except for non-exclusive licenses granted by
Borrower to its customers in the ordinary course of business. Each of the
Patents is valid and enforceable, and no part of the Intellectual Property
Collateral has been judged invalid or unenforceable, in whole or in part, and no
claim has been made that any part of the Intellectual Property Collateral
violates the rights of any third party. Except for and upon the filing with the
United States Patent and Trademark Office with respect to the Patents and
Trademarks and the Register of Copyrights with respect to the Copyrights
necessary to perfect the security interests created hereunder, and except as has
been already made or obtained, no authorization, approval or other action by,
and no notice to or filing with, any United States governmental authority or
United States regulatory body is required either (i) for the grant by Borrower
of the security interest granted hereby or for the execution, delivery or
performance of Loan Documents by Borrower in the United States or (ii) for the
perfection in the United States or the exercise by Bank of its rights and
remedies hereunder.
5.7 Name; Location of Chief Executive Office. Except as disclosed in
----------------------------------------
the Schedule, Borrower has not done business under any name other than that
specified on the signature page hereof. The chief executive office of Borrower
is located at the address indicated in Section 10 hereof.
5.8 Litigation. Except as set forth in the Schedule, there are no
----------
actions or proceedings pending by or against Borrower or any Subsidiary before
any court or administrative agency in which an adverse decision could reasonably
be expected to have a Material Adverse Effect or a material adverse effect on
Borrower's interest or Bank's security interest in the Collateral. Borrower
does not have knowledge of any such pending or threatened actions or
proceedings.
5.9 No Material Adverse Change in Financial Statements. All
--------------------------------------------------
consolidated financial statements related to Borrower and any Subsidiary that
have been delivered by Borrower to Bank fairly present in all material respects
Borrower's consolidated financial condition as of the date thereof and
Borrower's consolidated results of operations for the period then ended. There
has not been a material adverse change in the consolidated financial condition
of Borrower since the date of the most recent of such financial statements
submitted to Bank.
5.10 Solvency. The fair saleable value of Borrower's assets
--------
(including good will minus disposition costs) exceeds the fair value of its
liabilities; Borrower is not left with unreasonably small capital after the
transactions contemplated by this Agreement; and Borrower is able to pay its
debts (including trade debts) as they mature.
5.11 Regulatory Compliance. Borrower and each Subsidiary has met the
---------------------
minimum funding requirements of ERISA with respect to any employee benefit plans
subject to ERISA. No event has occurred resulting from Borrower's failure to
comply with ERISA that is reasonably likely to
16
<PAGE>
result in Borrower's incurring any liability that could reasonably be expected
to have a Material Adverse Effect. Borrower is not an "investment company" or a
company "controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940. Borrower is not engaged principally, or as one
of the important activities, in the business of extending credit for the purpose
of purchasing or carrying margin stock (within the meaning of Regulations G, T
and U of the Board of Governors of the Federal Reserve System). Borrower has
complied with all the provisions of the Federal Fair Labor Standards Act.
Borrower has not violated any statutes, laws, ordinances or rules applicable to
it, violation of which could have a Material Adverse Effect.
5.12 Environmental Condition. None of Borrower's or any Subsidiary's
-----------------------
properties or assets has ever been used by Borrower or any Subsidiary or, to the
best of Borrower's knowledge, by previous owners or operators, in the disposal
of, or to produce, store, handle, treat, release, or transport, any hazardous
waste or hazardous substance other than in accordance with applicable law; to
the best of Borrower's knowledge, none of Borrower's properties or assets has
ever been designated or identified in any manner pursuant to any environmental
protection statute as a hazardous waste or hazardous substance disposal site, or
a candidate for closure pursuant to any environmental protection statute; no
lien arising under any environmental protection statute has attached to any
revenues or to any real or personal property owned by Borrower or any
Subsidiary; and neither Borrower nor any Subsidiary has received a summons,
citation, notice, or directive from the Environmental Protection Agency or any
other federal, state or other governmental agency concerning any action or
omission by Borrower or any Subsidiary resulting in the releasing, or otherwise
disposing of hazardous waste or hazardous substances into the environment.
5.13 Taxes. Borrower and each Subsidiary has filed or caused to be
-----
filed all tax returns required to be filed, and has paid, or has made adequate
provision for the payment of, all taxes reflected therein.
5.14 Subsidiaries. Borrower does not own any stock, partnership
------------
interest or other equity securities of any Person, except for Permitted
Investments.
5.15 Government Consents. Borrower and each Subsidiary has obtained
-------------------
all consents, approvals and authorizations of, made all declarations or filings
with, and given all notices to, all governmental authorities that are necessary
for the continued operation of Borrower's business as currently conducted except
where the failure to obtain any such consent, approval or authorization, to make
any such declaration or filing, or to be given any such notice could not
reasonably be expected to have a Material Adverse Effect.
5.16 Full Disclosure. No representation, warranty or other statement
---------------
made by Borrower in any certificate or written statement furnished to Bank
contains any untrue statement of a material fact or omits to state a material
fact necessary in order to make the statements contained in such certificates
or statements not misleading (it being recognized by Bank that the projections
and forecasts provided by Borrower are not to be viewed as facts and that actual
results during the period or periods covered by any such projections and
forecasts may differ from the projected or forecasted results).
6. AFFIRMATIVE COVENANTS
---------------------
Borrower covenants and agrees that, until payment in full of all
outstanding Obligations, and for so long as Bank may have any commitment to make
an Advance hereunder, Borrower shall do all of the following:
6.1 Good Standing. Borrower shall maintain or cause to be maintained
-------------
its and each of its Subsidiaries' corporate existence and good standing in its
jurisdiction of incorporation and maintain qualification in each jurisdiction in
which the failure to so qualify could reasonably be
17
<PAGE>
expected to have a Material Adverse Effect. Borrower shall maintain, and shall
cause each of its Subsidiaries to maintain, to the extent consistent with
prudent management of Borrower's business, in force all licenses, approvals and
agreements, the loss of which could reasonably be expected to have a Material
Adverse Effect.
6.2 Government Compliance. Borrower shall meet, and shall cause each
---------------------
Subsidiary to meet, the minimum funding requirements of ERISA with respect to
any employee benefit plans subject to ERISA. Borrower shall comply, and shall
cause each Subsidiary to comply, with all statutes, laws, ordinances and
government rules and regulations to which it is subject, noncompliance with
which could reasonably be expected to have a Material Adverse Effect or a
material adverse effect on the Collateral or the priority of Bank's Lien on the
Collateral.
6.3 Financial Statements, Reports, Certificates. Borrower shall
-------------------------------------------
deliver to Bank: (a) as soon as available, but in any event within thirty (30)
days after the end of each month, a company prepared consolidated balance sheet
and income statement covering Borrower's consolidated operations during such
period, certified by a Responsible Officer; (b) as soon as available, but in any
event within one ninety (90) days after the end of Borrower's fiscal year,
audited consolidated financial statements of Borrower prepared in accordance
with GAAP, consistently applied, together with an unqualified opinion on such
financial statements of an independent certified public accounting firm
reasonably acceptable to Bank; (c) within five (5) days upon becoming available,
copies of all statements, reports and notices sent or made available generally
by Borrower to its security holders or to any holders of Subordinated Debt and
all reports on Form 10-K and 10-Q filed with the Securities and Exchange
Commission; (d) promptly upon receipt of notice thereof, a report of any legal
actions pending or threatened against Borrower or any Subsidiary that could
result in damages or costs to Borrower or any Subsidiary of One Hundred Thousand
Dollars ($100,000) or more; (e) prompt notice of any material change in the
composition of the Intellectual Property Collateral, including, but not limited
to, any subsequent ownership right of the Borrower in or to any Copyright,
Patent or Trademark not specified in any intellectual property security
agreement between Borrower and Bank or knowledge of an event that materially
adversely effects the value of the Intellectual Property Collateral; and (f)
such budgets, sales projections, operating plans or other financial information
as Bank may reasonably request from time to time.
Within twenty (20) days after the last day of each month, Borrower shall
deliver to Bank a Borrowing Base Certificate signed by a Responsible Officer in
substantially the form of Exhibit C hereto, together with aged listings of
---------
accounts receivable and accounts payable.
Borrower shall deliver to Bank with the monthly financial statements a
Compliance Certificate signed by a Responsible Officer in substantially the form
of Exhibit D hereto.
---------
Bank shall have a right from time to time hereafter to audit Borrower's
Accounts at Borrower's expense, provided that such audits will be conducted no
more often than every six (6) months unless an Event of Default has occurred and
is continuing.
6.4 Inventory; Returns. Borrower shall keep all Inventory in good
------------------
and marketable condition, free from all material defects. Returns and
allowances, if any, as between Borrower and its account debtors shall be on the
same basis and in accordance with the usual customary practices of Borrower, as
they exist at the time of the execution and delivery of this Agreement.
Borrower shall promptly notify Bank of all returns and recoveries and of all
disputes and claims, where the return, recovery, dispute or claim involves more
than Fifty Thousand Dollars ($50,000).
6.5 Taxes. Borrower shall make, and shall cause each Subsidiary to
-----
make, due and timely payment or deposit of all material federal, state, and
local taxes, assessments, or contributions required of it by law, and will
execute and deliver to Bank, on demand, appropriate certificates attesting to
the payment or deposit thereof; and Borrower will make, and will cause each
Subsidiary to
18
<PAGE>
make, timely payment or deposit of all material tax payments and withholding
taxes required of it by applicable laws, including, but not limited to, those
laws concerning F.I.C.A., F.U.T.A., state disability, and local, state, and
federal income taxes, and will, upon request, furnish Bank with proof
satisfactory to Bank indicating that Borrower or a Subsidiary has made such
payments or deposits; provided that Borrower or a Subsidiary need not make any
payment if the amount or validity of such payment is contested in good faith by
appropriate proceedings and is reserved against (to the extent required by GAAP)
by Borrower.
6.6 Insurance.
---------
(a) Borrower, at its expense, shall keep the Collateral insured
against loss or damage by fire, theft, explosion, sprinklers, and all other
hazards and risks, and in such amounts, as ordinarily insured against by other
owners in similar businesses conducted in the locations where Borrower's
business is conducted on the date hereof. Borrower shall also maintain
insurance relating to Borrower's ownership and use of the Collateral in amounts
and of a type that are customary to businesses similar to Borrower's.
(b) All such policies of insurance shall be in such form, with
such companies, and in such amounts as reasonably satisfactory to Bank. All such
policies of property insurance shall contain a lender's loss payable
endorsement, in a form satisfactory to Bank, showing Bank as an additional loss
payee thereof and all liability insurance policies shall show the Bank as an
additional insured, and shall specify that the insurer must give at least twenty
(20) days notice to Bank before canceling its policy for any reason. Upon Bank's
request, Borrower shall deliver to Bank certified copies of such policies of
insurance and evidence of the payments of all premiums therefor. So long as no
Event of Default has occurred and is continuing, Borrower shall have the option
of applying the proceeds of any casualty policy to the replacement or repair of
destroyed or damaged property; provided, that after the occurrence and during
--------
the continuance of an Event of Default, all proceeds payable under any such
policy shall, at the option of Bank, be payable to Bank for application to the
Obligations.
6.7 Principal Depository. Borrower shall maintain its principal
--------------------
depository and operating accounts with Bank.
6.8 Quick Ratio. Borrower shall maintain, as of the last day of each
-----------
calendar month, a ratio of Quick Assets to Current Liabilities (minus deferred
revenues) of at least 1.25 to 1.00.
6.9 Liquidity Coverage/Debt Service Coverage. Subject to the
----------------------------------------
remainder of this Section, Borrower shall maintain, as of the last day of each
calendar month, the sum of (i) cash and cash equivalents plus (ii) Eligible
----
Accounts minus (iii) the outstanding aggregate amount of Revolving Advances of
-----
at least two (2) times the outstanding amount of Equipment Advances and the Term
Advance. Notwithstanding the foregoing, from and after the time Borrower
achieves for two consecutive fiscal quarters a Debt Service Coverage of at least
1.50 to 1.00, Borrower shall not be subject to the minimum liquidity requirement
set forth above, but instead shall maintain, as of the last day of each fiscal
quarter, a Debt Service Coverage of at least 1.50 to 1.00.
6.10 Tangible Net Worth. Borrower shall maintain, as of the last day
------------------
of each calendar month, a Tangible Net Worth of not less than Three Million Five
Hundred Thousand Dollars ($3,500,000).
6.11 Debt-Net Worth Ratio. Borrower shall maintain, as of the last
--------------------
day of each calendar month, a ratio of Total Liabilities (minus deferred
revenue) less Subordinated Debt to Tangible Net Worth plus Subordinated Debt of
not more than 1.00 to 1.00.
19
<PAGE>
6.12 Profitability. Beginning with the fiscal quarter ending March
-------------
31, 1998, Borrower shall have a minimum net profit, measured as quarterly net
income minus the increase in capitalized software during such quarter plus the
----- ----
amortization expense of capitalized software during such quarter, of One Dollar
($1.00) for each fiscal quarter.
6.13 Registration of Intellectual Property Rights.
--------------------------------------------
(a) Borrower shall register or cause to be registered (to the
extent not already registered) with the United States Patent and Trademark
Office or the United States Copyright Office, as applicable, those intellectual
property rights listed on Exhibits A, B and C to the Intellectual Property
Security Agreement delivered to Bank by Borrower in connection with this
Agreement within thirty (30) days of the date of this Agreement. Borrower shall
register or cause to be registered with the United States Patent and Trademark
Office or the United States Copyright Office, as applicable, those additional
intellectual property rights developed or acquired by Borrower from time to time
in connection with any product prior to the sale or licensing of such product to
any third party, including without limitation revisions or additions to the
intellectual property rights listed on such Exhibits A, B and C.
(b) Borrower shall execute and deliver such additional
instruments and documents from time to time as Bank shall reasonably request to
perfect Bank's security interest in the Intellectual Property Collateral.
(c) Borrower shall (i) protect, defend and maintain the validity
and enforceability of the Trademarks, Patents and Copyrights, (ii) use its best
efforts to detect infringements of the Trademarks, Patents and Copyrights and
promptly advise Bank in writing of material infringements detected and (iii) not
allow any Trademarks, Patents or Copyrights to be abandoned, forfeited or
dedicated to the public without the written consent of Bank, which shall not be
unreasonably withheld, unless Bank determines that reasonable business practices
suggest that abandonment is appropriate.
(d) Bank shall have the right, but not the obligation, to take,
at Borrower's sole expense, any actions that Borrower is required under this
Section 6.13 to take but which Borrower fails to take, after fifteen (15) days'
notice to Borrower. Borrower shall reimburse and indemnify Bank for all
reasonable costs and reasonable expenses incurred in the reasonable exercise of
its rights under this Section 6.13.
6.14 Further Assurances. At any time and from time to time Borrower
------------------
shall execute and deliver such further instruments and take such further action
as may reasonably be requested by Bank to effect the purposes of this Agreement.
7. NEGATIVE COVENANTS
------------------
Borrower covenants and agrees that, so long as any credit hereunder
shall be available and until payment in full of the outstanding Obligations or
for so long as Bank may have any commitment to make any Advances, Borrower will
not do any of the following:
7.1 Dispositions. Convey, sell, lease, transfer or otherwise dispose
------------
of (collectively, a "Transfer"), or permit any of its Subsidiaries to Transfer,
all or any part of its business or property, other than: (i) Transfers of
Inventory in the ordinary course of business; (ii) Transfers of non-exclusive
licenses or exclusive licenses for particular geographic regions and similar
arrangements for the use of the property of Borrower or its Subsidiaries; or
(iii) Transfers of worn-out or obsolete Equipment or Equipment financed by other
vendors; (iv) Transfers which constitute liquidation of Investments permitted
under Section 7.7; and (v) other Transfers not otherwise permitted by this
Section 7.1 not exceeding One Hundred Thousand Dollars ($100,000) in the
aggregate in any fiscal year.
20
<PAGE>
7.2 Change in Business. Engage in any business, or permit any of its
------------------
Subsidiaries to engage in any business, other than the businesses currently
engaged in by Borrower and any business substantially similar or related thereto
(or incidental thereto), or suffer a material change in Borrower's ownership.
Borrower will not, without thirty (30) days prior written notification to Bank,
relocate its chief executive office.
7.3 Mergers or Acquisitions. Merge or consolidate, or permit any of
-----------------------
its Subsidiaries to merge or consolidate, with or into any other business
organization, or acquire, or permit any of its Subsidiaries to acquire, all or
substantially all of the capital stock or property of another Person; provided
--------
that this Section 7.3 shall not apply to (i) the purchase of inventory,
equipment or intellectual property rights in any transaction valued at less than
One Hundred Thousand Dollars ($100,000) in the ordinary course of business or
(ii) transactions among Subsidiaries or among Borrower and its Subsidiaries in
which Borrower is the surviving entity.
7.4 Indebtedness. Create, incur, assume or be or remain liable with
------------
respect to any Indebtedness, or permit any Subsidiary so to do, other than
Permitted Indebtedness.
7.5 Encumbrances. Create, incur, assume or suffer to exist any Lien
------------
with respect to any of its property, or assign or otherwise convey any right to
receive income, including the sale of any Accounts, or permit any of its
Subsidiaries so to do, except for Permitted Liens.
7.6 Distributions. Pay any dividends or make any other distribution
-------------
or payment on account of or in redemption, retirement or purchase of any capital
stock; provided, that (i) Borrower may declare and make any dividend payment or
other distribution payable in its equity securities, (ii) Borrower may convert
any of its convertible securities into other securities pursuant to the terms of
such convertible securities or otherwise in exchange therefor and (iii) for so
long as an Event of Default has not occurred, Borrower may repurchase stock from
former employees of Borrower in accordance with the terms of repurchase or
similar agreements between Borrower and such employees.
7.7 Investments. Directly or indirectly acquire or own, or make any
-----------
Investment in or to any Person, or permit any of its Subsidiaries so to do,
other than Permitted Investments.
7.8 Transactions with Affiliates. Directly or indirectly enter into
----------------------------
or permit to exist any material transaction with any Affiliate of Borrower
except for transactions that are in the ordinary course of Borrower's business,
upon fair and reasonable terms that are no less favorable to Borrower than would
be obtained in an arm's length transaction with a nonaffiliated Person and
except for transactions with a Subsidiary that are upon fair and reasonable
terms and transactions constituting Permitted Investments.
7.9 Intellectual Property Agreements. Borrower shall not permit the
--------------------------------
inclusion in any material contract to which it becomes a party of any provisions
that could or might in any way prevent the creation of a security interest in
Borrower's rights and interests in any property included within the definition
of the Intellectual Property Collateral acquired under such contracts, except to
the extent that such provisions are necessary in Borrower's exercise of its
reasonable business judgement.
7.10 Subordinated Debt. Make any payment in respect of any
-----------------
Subordinated Debt, or permit any of its Subsidiaries to make any such payment,
except in compliance with the terms of such Subordinated Debt, or amend any
provision contained in any documentation relating to the Subordinated Debt
without Bank's prior written consent.
7.11 Inventory. Store the Inventory with a bailee, warehouseman, or
---------
similar party unless Bank has received a pledge of the warehouse receipt
covering such Inventory. Except for Inventory sold in the ordinary course of
business and except for such other locations as Bank may
21
<PAGE>
approve in writing, Borrower shall keep the Inventory only at the location set
forth in Section 10 hereof and such other locations of which Borrower gives Bank
prior written notice and as to which Borrower signs and files a financing
statement where needed to perfect Bank's security interest.
7.12 Compliance. Become an "investment company" or become
----------
"controlled" by an "investment company," within the meaning of the Investment
Company Act of 1940, or become principally engaged in, or undertake as one of
its important activities, the business of extending credit for the purpose of
purchasing or carrying margin stock, or use the proceeds of any Advance for such
purpose. Fail to meet the minimum funding requirements of ERISA, permit a
Reportable Event or Prohibited Transaction, as defined in ERISA, to occur, fail
to comply with the Federal Fair Labor Standards Act or violate any law or
regulation, which violation could have a Material Adverse Effect or a material
adverse effect on the Collateral or the priority of Bank's Lien on the
Collateral, or permit any of its Subsidiaries to do any of the foregoing.
7.13 Prohibition on Transfer of Assets. Transfer any of its property
---------------------------------
or assign or otherwise convey any right to receive income, including the sale of
any Accounts, to its Subsidiary, Dot Net, Inc.
8. EVENTS OF DEFAULT
-----------------
Any one or more of the following events shall constitute an Event of
Default by Borrower under this Agreement:
8.1 Payment Default. If Borrower fails to pay the principal of, or
---------------
any interest on, any Advances when due and payable; or fails to pay any portion
of any other Obligations not constituting such principal or interest, including
without limitation Bank Expenses, within thirty (30) days of receipt by Borrower
of an invoice for such other Obligations;
8.2 Covenant Default. If Borrower fails to perform any obligation
----------------
under Sections 6.7, 6.8, 6.9, 6.10, 6.11, 6.12 or 6.13 or violates any of the
covenants contained in Article 7 of this Agreement, or fails or neglects to
perform, keep, or observe any other material term, provision, condition,
covenant, or agreement contained in this Agreement, in any of the Loan
Documents, or in any other present or future agreement between Borrower and Bank
and as to any default under such other term, provision, condition, covenant or
agreement that can be cured, has failed to cure such default within ten (10)
days after Borrower receives notice thereof or any Responsible Officer of
Borrower becomes aware thereof; provided, however, that if the default cannot by
its nature be cured within the ten (10) day period or cannot after diligent
attempts by Borrower be cured within such ten (10) day period, and such default
is likely to be cured within a reasonable time, then Borrower shall have an
additional reasonable period (which shall not in any case exceed thirty (30)
days) to attempt to cure such default, and within such reasonable time period
the failure to have cured such default shall not be deemed an Event of Default
(provided that no Advances will be required to be made during such cure period);
8.3 Material Adverse Change. If there occurs a material adverse
-----------------------
change in Borrower's business or financial condition or a material impairment of
the value or priority of Bank's security interests in the Collateral;
8.4 Attachment. If any material portion of Borrower's assets is
----------
attached, seized, subjected to a writ or distress warrant, or is levied upon, or
comes into the possession of any trustee, receiver or person acting in a similar
capacity and such attachment, seizure, writ or distress warrant or levy has not
been removed, discharged or rescinded within ten (10) days, or if Borrower is
enjoined, restrained, or in any way prevented by court order from continuing to
conduct all or any material part of its business affairs, or if a judgment or
other claim becomes a lien or encumbrance upon any material portion of
Borrower's assets, or if a notice of lien, levy, or assessment is filed of
record with
22
<PAGE>
respect to any of Borrower's assets by the United States Government, or any
department, agency, or instrumentality thereof, or by any state, county,
municipal, or governmental agency, and the same is not paid within ten (10) days
after Borrower receives notice thereof, provided that none of the foregoing
shall constitute an Event of Default where such action or event is stayed or an
adequate bond has been posted pending a good faith contest by Borrower (provided
that no Advances will be required to be made during such cure period);
8.5 Insolvency. If Borrower becomes insolvent, or if an Insolvency
----------
Proceeding is commenced by Borrower, or if an Insolvency Proceeding is commenced
against Borrower and is not dismissed or stayed within thirty (30) days
(provided that no Advances will be made prior to the dismissal of such
Insolvency Proceeding);
8.6 Other Agreements. If there is a default in any agreement to
----------------
which Borrower is a party with a third party or parties resulting in a right by
such third party or parties, whether or not exercised, to accelerate the
maturity of any Indebtedness in an amount in excess of Two Hundred Fifty
Thousand Dollars ($250,000) or that could reasonably be expected to have a
Material Adverse Effect;
8.7 Subordinated Debt. If Borrower makes any payment on account of
-----------------
Subordinated Debt, except to the extent such payment is allowed under any
subordination agreement entered into with Bank;
8.8 Judgments. If a judgment or judgments for the payment of money
---------
in an amount, individually or in the aggregate, of at least One Hundred Thousand
Dollars ($100,000) shall be rendered against Borrower and shall remain
unsatisfied and unstayed for a period of thirty (30) days (provided that no
Advances will be made prior to the satisfaction or stay of such judgment); or
8.9 Misrepresentations. If any material misrepresentation or
------------------
material misstatement exists now or hereafter in any warranty or representation
set forth herein or in any certificate delivered to Bank by any Responsible
Officer pursuant to this Agreement or to induce Bank to enter into this
Agreement or any other Loan Document.
9. BANK'S RIGHTS AND REMEDIES
--------------------------
9.1 Rights and Remedies. Upon the occurrence and during the
-------------------
continuance of an Event of Default, Bank may, at its election, without notice of
its election and without demand, do any one or more of the following, all of
which are authorized by Borrower:
(a) Declare all Obligations, whether evidenced by this
Agreement, by any of the other Loan Documents, or otherwise, immediately due and
payable (provided that upon the occurrence of an Event of Default described in
Section 8.5 all Obligations shall become immediately due and payable without any
action by Bank);
(b) Cease advancing money or extending credit to or for the
benefit of Borrower under this Agreement or under any other agreement between
Borrower and Bank;
(c) Settle or adjust disputes and claims directly with account
debtors for amounts, upon terms and in whatever order that Bank reasonably
considers advisable;
(d) Without notice to or demand upon Borrower, make such
payments and do such acts as Bank considers necessary or reasonable to protect
its security interest in the Collateral. Borrower agrees to assemble the
Collateral if Bank so requires, and to make the Collateral available to Bank as
Bank may designate. Borrower authorizes Bank to enter the premises where the
Collateral is located, to take and maintain possession of the Collateral, or any
part of it, and to pay, purchase, contest, or compromise any encumbrance,
charge, or lien which in Bank's determination
23
<PAGE>
appears to be prior or superior to its security interest and to pay all expenses
incurred in connection therewith. With respect to any of Borrower's owned
premises, Borrower hereby grants Bank a license to enter into possession of such
premises and to occupy the same, without charge, in order to exercise any of
Bank's rights or remedies provided herein, at law, in equity, or otherwise;
(e) Without notice to Borrower set off and apply to the
Obligations any and all (i) balances and deposits of Borrower held by Bank, or
(ii) indebtedness at any time owing to or for the credit or the account of
Borrower held by Bank;
(f) Ship, reclaim, recover, store, finish, maintain, repair,
prepare for sale, advertise for sale, and sell (in the manner provided for
herein) the Collateral. Bank is hereby granted a license or other right, solely
pursuant to the provisions of this Section 9.1, to use, without charge,
Borrower's labels, patents, copyrights, rights of use of any name, trade
secrets, trade names, trademarks, service marks, and advertising matter, or any
property of a similar nature, as it pertains to the Collateral, in completing
production of, advertising for sale, and selling any Collateral and, in
connection with Bank's exercise of its rights under this Section 9.1, Borrower's
rights under all licenses and all franchise agreements shall inure to Bank's
benefit;
(g) Sell the Collateral at either a public or private sale, or
both, by way of one or more contracts or transactions, for cash or on terms, in
such manner and at such places (including Borrower's premises) as Bank
determines is commercially reasonable, and apply any proceeds to the Obligations
in whatever manner or order Bank deems appropriate;
(h) Bank may credit bid and purchase at any public sale; and
(i) Any deficiency that exists after disposition of the
Collateral as provided above will be paid immediately by Borrower.
9.2 Power of Attorney. Effective only upon the occurrence and during
-----------------
the continuance of an Event of Default, Borrower hereby irrevocably appoints
Bank (and any of Bank's designated officers, or employees) as Borrower's true
and lawful attorney to: (a) send requests for verification of Accounts or
notify account debtors of Bank's security interest in the Accounts; (b) endorse
Borrower's name on any checks or other forms of payment or security that may
come into Bank's possession; (c) sign Borrower's name on any invoice or bill of
lading relating to any Account, drafts against account debtors, schedules and
assignments of Accounts, verifications of Accounts, and notices to account
debtors; (d) make, settle, and adjust all claims under and decisions with
respect to Borrower's policies of insurance; and (e) settle and adjust disputes
and claims respecting the accounts directly with account debtors, for amounts
and upon terms which Bank determines to be reasonable; (f) to modify, in its
sole discretion, any intellectual property security agreement entered into
between Borrower and Bank without first obtaining Borrower's approval of or
signature to such modification by amending Exhibit A, Exhibit B and Exhibit C,
thereof, as appropriate, to include reference to any right, title or interest in
any Copyrights, Patents or Trademarks acquired by Borrower after the execution
hereof or to delete any reference to any right, title or interest in any
Copyrights, Patents or Trademarks in which Borrower no longer has or claims any
right, title or interest; (g) to file, in its sole discretion, one or more
financing or continuation statements and amendments thereto, relative to any of
the Collateral without the signature of Borrower where permitted by law; and (h)
to transfer the Intellectual Property Collateral into the name of Bank or a
third party to the extent permitted under the California Uniform Commercial Code
provided Bank may exercise such power of attorney to sign the name of Borrower
on any of the documents described in Section 4.2 regardless of whether an Event
of Default has occurred. The appointment of Bank as Borrower's attorney in fact,
and each and every one of Bank's rights and powers, being coupled with an
interest, is irrevocable until all of the Obligations have been fully repaid and
performed and Bank's obligation to provide advances hereunder is terminated.
24
<PAGE>
9.3 Accounts Collection. At any time from the date of this
-------------------
Agreement, Bank may notify any Person owing funds to Borrower of Bank's security
interest in such funds and verify the amount of such Account. Upon the
occurrence and during the continuation of an Event of Default, Borrower shall
collect all amounts owing to Borrower for Bank, receive in trust all payments as
Bank's trustee, and immediately deliver such payments to Bank in their original
form as received from the account debtor, with proper endorsements for deposit.
9.4 Bank Expenses. If Borrower fails to pay any amounts or furnish
-------------
any required proof of payment due to third persons or entities, as required
under the terms of this Agreement, then Bank may do any or all of the following:
(a) make payment of the same or any part thereof; (b) set up such reserves under
the Revolving Facility as Bank deems necessary to protect Bank from the exposure
created by such failure; or (c) obtain and maintain insurance policies of the
type discussed in Section 6.6 of this Agreement, and take any action with
respect to such policies as Bank deems prudent. Any amounts so paid or
deposited by Bank shall constitute Bank Expenses, shall be immediately due and
payable, and shall bear interest at the then applicable rate hereinabove
provided, and shall be secured by the Collateral. Any payments made by Bank
shall not constitute an agreement by Bank to make similar payments in the future
or a waiver by Bank of any Event of Default under this Agreement. Bank shall
have a non-exclusive, royalty-free license to use the Intellectual Property
Collateral to the extent reasonably necessary to permit Bank to exercise its
rights and remedies upon the occurrence of an Event of Default.
9.5 Bank's Liability for Collateral. So long as Bank complies with
-------------------------------
its obligations under Section 9207 of the Code, Bank shall not in any way or
manner be liable or responsible for: (a) the safekeeping of the Collateral; (b)
any loss or damage thereto occurring or arising in any manner or fashion from
any cause; (c) any diminution in the value thereof; or (d) any act or default of
any carrier, warehouseman, bailee, forwarding agency, or other person
whomsoever. Subject to the foregoing, all risk of loss, damage or destruction
of the Collateral shall be borne by Borrower.
9.6 Remedies Cumulative. Bank's rights and remedies under this
-------------------
Agreement, the Loan Documents, and all other agreements shall be cumulative.
Bank shall have all other rights and remedies not inconsistent herewith as
provided under the Code, by law, or in equity. No exercise by Bank of one right
or remedy shall be deemed an election, and no waiver by Bank of any Event of
Default on Borrower's part shall be deemed a continuing waiver. No delay by
Bank shall constitute a waiver, election, or acquiescence by it. No waiver by
Bank shall be effective unless made in a written document signed on behalf of
Bank and then shall be effective only in the specific instance and for the
specific purpose for which it was given.
9.7 Demand; Protest. Borrower waives demand, protest, notice of
---------------
protest, notice of default or dishonor, notice of payment and nonpayment, notice
of any default, nonpayment at maturity, release, compromise, settlement,
extension, or renewal of accounts, documents, instruments, chattel paper, and
guarantees at any time held by Bank on which Borrower may in any way be liable.
10. NOTICES
-------
Unless otherwise provided in this Agreement, all notices or demands by
any party relating to this Agreement or any other agreement entered into in
connection herewith shall be in writing and (except for financial statements and
other informational documents which may be sent by first-class mail, postage
prepaid) shall be personally delivered or sent by a recognized overnight
delivery service, certified mail, postage prepaid, return receipt requested, or
by telefacsimile to Borrower or to Bank, as the case may be, at its addresses
set forth below:
25
<PAGE>
If to Borrower: Inktomi Corporation
2163 Shattuck Avenue, Suite 210
Berkeley, CA 94704
Attn: Mr. Jerry Kennelly
FAX: (510) 883-7399
If to Bank: Silicon Valley Bank
1731 Embarcadero Road, Suite 220
Palo Alto, CA 94303
Attn: Ms. Angela Hart
FAX: (415) 812-0640
The parties hereto may change the address at which they are to receive
notices hereunder, by notice in writing in the foregoing manner given to the
other.
11. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER
------------------------------------------
The Loan Documents shall be governed by, and construed in accordance
with, the internal laws of the State of California, without regard to principles
of conflicts of law. Each of Borrower and Bank hereby submits to the exclusive
jurisdiction of the state and Federal courts located in the County of Santa
Clara, State of California. BORROWER AND BANK EACH HEREBY WAIVE THEIR
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED
THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL
OTHER COMMON LAW OR STATUTORY CLAIMS. EACH PARTY RECOGNIZES AND AGREES THAT THE
FOREGOING WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR IT TO ENTER INTO THIS
AGREEMENT. EACH PARTY REPRESENTS AND WARRANTS THAT IT HAS REVIEWED THIS WAIVER
WITH ITS LEGAL COUNSEL AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY
TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL.
12. GENERAL PROVISIONS
------------------
12.1 Successors and Assigns.
----------------------
(a) This Agreement shall bind and inure to the benefit of the
respective successors and permitted assigns of each of the parties; provided,
--------
however, that neither this Agreement nor any rights hereunder may be assigned by
- -------
Borrower without Bank's prior written consent, which consent may be granted or
withheld in Bank's sole discretion. Bank shall have the right without the
consent of or notice to Borrower to sell, transfer, negotiate, or grant
participations in all or any part of, or any interest in, Bank's obligations,
rights and benefits hereunder, subject to the provisions of this Section 12.1.
(b) Bank may sell, negotiate or grant participations to other
financial institutions in all or part of the obligations of the Borrower
outstanding under the Loan Documents, without notice to or the approval of
Borrower; provided that any such sale, negotiation or participation shall be in
--------
compliance with the applicable federal and state securities laws and the other
requirements of this Section 12.1. Notwithstanding the sale, negotiation or
grant of participations, Bank shall remain solely responsible for the
performance of its obligations under this Agreement, and Borrower shall continue
to deal solely and directly with Bank in connection with this Agreement and the
other Loan Documents.
(c) The grant of a participation interest shall be on such terms
as Bank determines are appropriate, provided only that (1) the holder of such a
participation interest shall not
26
<PAGE>
have any of the rights of Bank under this Agreement except, if the participation
agreement so provides, rights to demand the payment of costs of the type
described in Section 2.6, provided that the aggregate amount that the Borrower
shall be required to pay under Section 2.6 with respect to any ratable share of
the Committed Line or any Advance (including amounts paid to participants) shall
not exceed the amount that Borrower would have had to pay if no participation
agreements had been entered into, and (2) the consent of the holder of such a
participation interest shall not be required for amendments or waivers of
provisions of the Loan Agreement other than those which (i) increase the amount
of the Committed Line, (ii) extend the term of this Agreement, (iii) decrease
the rate of interest or the amount of any fee or any other amount payable to
Bank under this Agreement, (iv) reduce the principal amount payable under this
Agreement, or (v) extend the date fixed for the payment of principal or interest
or any other amount payable under this Agreement.
(d) Bank may assign, from time to time, all or any portion of
the Committed Line to an Affiliate of Bank or to The Federal Reserve Bank or,
subject to the prior written approval of Borrower (which approval will not be
unreasonably withheld), to any other financial institution; provided, that (i)
the amount of the Committed Line being assigned pursuant to each such assignment
shall in no event be less than Five Hundred Thousand Dollars ($500,000) and
shall be an integral multiple of One Hundred Thousand Dollars ($100,000) and
(ii) the parties to each such assignment shall execute and deliver to Borrower
an assignment agreement in a form reasonably acceptable to each. Upon such
execution and delivery, from and after the effective date specified in such
assignment agreement (x) the assignee thereunder shall be a party hereto and, to
the extent that rights and obligations hereunder have been assigned to it
pursuant to such assignment agreement, have the rights and obligations of a Bank
hereunder and (y) Bank shall, to the extent that rights and obligations
hereunder have been assigned by it pursuant to such assignment agreement,
relinquish its rights and be released from its obligations under this Agreement
(other than pursuant to this Section 12.1(d)), and, in the case of an assignment
agreement covering all or the remaining portion of Bank's rights and obligations
under this Agreement, Bank shall cease to be a party hereto. In the event of an
assignment hereunder, the parties agree to amend this Agreement to the extent
necessary to reflect the mechanical changes which are necessary to document such
assignment. Each party shall bear its own expenses (including without
limitation attorneys' fees and costs) with respect to such an amendment.
12.2 Indemnification. Borrower shall defend, indemnify and hold
---------------
harmless Bank and its officers, employees, and agents against: (a) all
obligations, demands, claims, and liabilities claimed or asserted by any other
party in connection with the transactions contemplated by the Loan Documents and
(b) all losses or Bank Expenses in any way suffered, incurred, or paid by Bank
as a result of or in any way arising out of, following, or consequential to
transactions between Bank and Borrower whether under the Loan Documents or
otherwise (including without limitation reasonable attorneys fees and expenses),
except for losses caused by Bank's gross negligence or willful misconduct.
12.3 Time of Essence. Time is of the essence for the performance of
---------------
all obligations set forth in this Agreement.
12.4 Severability of Provisions. Each provision of this Agreement
--------------------------
shall be severable from every other provision of this Agreement for the purpose
of determining the legal enforceability of any specific provision.
12.5 Amendments in Writing, Integration. This Agreement cannot be
----------------------------------
amended or terminated orally. All prior agreements, understandings,
representations, warranties, and negotiations between the parties hereto with
respect to the subject matter of this Agreement, if any, are merged into this
Agreement and the Loan Documents.
27
<PAGE>
12.6 Counterparts. This Agreement may be executed in any number of
------------
counterparts and by different parties on separate counterparts, each of which,
when executed and delivered, shall be deemed to be an original, and all of
which, when taken together, shall constitute but one and the same Agreement.
12.7 Survival. All covenants, representations and warranties made in
--------
this Agreement shall continue in full force and effect so long as any
Obligations (excluding Obligations under Section 2.6 and 12.2 to the extent they
remain inchoate at the time the outstanding payment Obligations are paid in
full) remain outstanding. The obligations of Borrower to indemnify Bank with
respect to the expenses, damages, losses, costs and liabilities described in
Section 12.2 shall survive until all applicable statute of limitations periods
with respect to actions that may be brought against Bank have run.
12.8 Confidentiality. In handling any confidential information Bank
---------------
shall exercise the same degree of care that it exercises with respect to its own
proprietary information of the same types to maintain the confidentiality of any
non-public information thereby received or received pursuant to this Agreement
except that disclosure of such information may be made (i) to the subsidiaries
or affiliates of Bank in connection with their present or prospective business
relations with Borrower, (ii) to prospective transferees or purchasers of any
interest in the Loans, provided that they have entered into a comparable
confidentiality agreement in favor of Borrower and have delivered a copy to
Borrower, (iii) as required by law, regulations, rule or order, subpoena,
judicial order or similar order, (iv) as may be required in connection with the
examination, audit or similar investigation of Bank and (v) as Bank may
determine in connection with the enforcement of any remedies hereunder.
Confidential information hereunder shall not include information that either:
(a) is in the public domain or in the knowledge or possession of Bank when
disclosed to Bank, or becomes part of the public domain after disclosure to Bank
through no fault of Bank; or (b) is disclosed to Bank by a third party, provided
Bank does not have actual knowledge that such third party is prohibited from
disclosing such information.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
INKTOMI CORPORATION
By:______________________________
Title:___________________________
SILICON VALLEY BANK
By:_______________________________
Title:____________________________
28
<PAGE>
EXHIBIT A
---------
The Collateral shall consist of all right, title and interest of Borrower
in and to the following:
(a) All goods and equipment now owned or hereafter acquired, including,
without limitation, all machinery, fixtures, vehicles (including motor vehicles
and trailers), and any interest in any of the foregoing, and all attachments,
accessories, accessions, replacements, substitutions, additions, and
improvements to any of the foregoing, wherever located;
(b) All inventory, now owned or hereafter acquired, including, without
limitation, all merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products including such
inventory as is temporarily out of Borrower's custody or possession or in
transit and including any returns upon any accounts or other proceeds, including
insurance proceeds, resulting from the sale or disposition of any of the
foregoing and any documents of title representing any of the above, and
Borrower's Books relating to any of the foregoing;
(c) All contract rights and general intangibles now owned or hereafter
acquired, including, without limitation, goodwill, trademarks, servicemarks,
trade styles, trade names, patents, patent applications, leases, license
agreements, franchise agreements, blueprints, drawings, purchase orders,
customer lists, route lists, infringements, claims, computer programs, computer
discs, computer tapes, literature, reports, catalogs, design rights, income tax
refunds, payments of insurance and rights to payment of any kind;
(d) All now existing and hereafter arising accounts, contract rights,
royalties, license rights and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods, the licensing of technology or the
rendering of services by Borrower, whether or not earned by performance, and any
and all credit insurance, guaranties, and other security therefor, as well as
all merchandise returned to or reclaimed by Borrower and Borrower's Books
relating to any of the foregoing;
(e) All documents, cash, deposit accounts, securities, investment
property, securities accounts, securities entitlements, letters of credit,
certificates of deposit, instruments and chattel paper now owned or hereafter
acquired and Borrower's Books relating to the foregoing;
(f) All copyright rights, copyright applications, copyright registrations
and like protections in each work of authorship and derivative work thereof,
whether published or unpublished, now owned or hereafter acquired; all trade
secret rights, including all rights to unpatented inventions, know-how,
operating manuals, license rights and agreements and confidential information,
now owned or hereafter acquired; all mask work or similar rights available for
the protection of semiconductor chips, now owned or hereafter acquired; all
claims for damages by way of any past, present and future infringement of any of
the foregoing; and
(g) Any and all claims, rights and interests in any of the above and all
substitutions for, additions and accessions to and proceeds thereof.
29
<PAGE>
EXHIBIT B
---------
LOAN PAYMENT/ADVANCE TELEPHONE REQUEST FORM
DEADLINE FOR SAME DAY PROCESSING IS 3:00 P.M., P.S.T.
TO: CENTRAL CLIENT SERVICE DIVISION DATE:_________________________
FAX#: (408) 496-2426 TIME:_________________________
FROM: Inktomi Corporation
-----------------------------------------------------------------
CLIENT NAME (BORROWER)
REQUESTED BY:___________________________________________________________
AUTHORIZED SIGNER'S NAME
AUTHORIZED SIGNATURE:___________________________________________________
PHONE NUMBER:___________________________________________________________
FROM ACCOUNT # _____________________ TO ACCOUNT # ___________________
REQUESTED TRANSACTION TYPE REQUEST DOLLAR AMOUNT
- -------------------------- ---------------------
PRINCIPAL INCREASE (REVOLVING ADVANCE) $_______________________________
PRINCIPAL INCREASE (TERM ADVANCE) $_______________________________
PRINCIPAL INCREASE (EQUIPMENT ADVANCE) $_______________________________
PRINCIPAL PAYMENT (ONLY) $_______________________________
INTEREST PAYMENT (ONLY) $_______________________________
PRINCIPAL AND INTEREST (PAYMENT) $_______________________________
OTHER INSTRUCTIONS:_____________________________________________________
________________________________________________________________________
All representations and warranties of Borrower stated in the Loan and Security
Agreement are true, correct and complete in all material respects as of the date
of the telephone request for and Advance confirmed by this Borrowing
Certificate; provided, however, that those representations and warranties
expressly referring to another date shall be true, correct and complete in all
material respects as of such date.
BANK USE ONLY
TELEPHONE REQUEST:
- -----------------
The following person is authorized to request the loan payment transfer/loan
advance on the advance designated account and is known to me.
_______________________________________ ___________________________________
Authorized Requester Phone #
_______________________________________ ___________________________________
Received By (Bank) Phone #
Authorized Signature (Bank)
_____________________________________
30
<PAGE>
EXHIBIT C
BORROWING BASE CERTIFICATE
________________________________________________________________________________
Borrower: Inktomi Corporation Lender: Silicon Valley Bank
Commitment Amount: $2,500,000
________________________________________________________________________________
ACCOUNTS RECEIVABLE
1. Accounts Receivable Book Value as of___ $_________
2. Additions (please explain on reverse) $_________
3. TOTAL ACCOUNTS RECEIVABLE $_________
ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication)
4. Amounts over 90 days due $________
5. Balance of 50% over 90 day accounts $________
6. Concentration Limits* $________
7. Foreign Accounts** $________
8. Governmental Accounts $________
9. Contra Accounts $________
10. Promotion or Demo Accounts $________
11. Intercompany/Employee Accounts $________
12. Other (please explain on reverse) $________
13. TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS $_________
14. Eligible Accounts (#3 minus #13) $_________
15. LOAN VALUE OF ACCOUNTS (75% of #14) $_________
BALANCES
16. Maximum Loan Amount $_________
17. Total Funds Available [Lesser of #16 or #15] $_________
18. Present balance owing on Line of Credit $_________
19. RESERVE POSITION (#17 minus #18) $_________
* 35% Limit for NTT and OzEmail
**Eligible Foreign Accounts include NTT and OzEmail
The undersigned represents and warrants that the foregoing is true, complete and
correct, and that the information reflected in this Borrowing Base Certificate
complies with the representations and warranties set forth in the Loan and
Security Agreement between the undersigned and Silicon Valley Bank.
COMMENTS:
BANK USE ONLY
---- --- ----
Rec'd By: ___________________
Auth. Signer
Date: _______________________
Verified: ___________________
Auth. Signer
Date: _______________________
_____________________________
Inktomi Corporation
By:___________________________
Authorized Signer
31
<PAGE>
EXHIBIT D
COMPLIANCE CERTIFICATE
TO: SILICON VALLEY BANK
FROM: INKTOMI CORPORATION
The undersigned authorized officer of Inktomi Corporation hereby certifies
that in accordance with the terms and conditions of the Loan and Security
Agreement between Borrower and Bank (the "Agreement"), (i) Borrower is in
complete compliance for the period ending ______________ with all required
covenants except as noted below and (ii) all representations and warranties of
Borrower stated in the Agreement are true and correct in all material respects
as of the date hereof. Attached herewith are the required documents supporting
the above certification. The Officer further certifies that these are prepared
in accordance with Generally Accepted Accounting Principles (GAAP) and are
consistently applied from one period to the next except as explained in an
accompanying letter or footnotes.
PLEASE INDICATE COMPLIANCE STATUS BY CIRCLING YES/NO UNDER "COMPLIES" COLUMN.
<TABLE>
<CAPTION>
REPORTING COVENANT REQUIRED COMPLIES
------------------ -------- --------
<S> <C> <C>
Monthly financial statements Monthly within 30 days Yes No
Annual (CPA Audited) FYE within 90 days Yes No
A/R & A/P Agings Monthly within 20 days Yes No
A/R Audit Initial (prior to first draw) and Semi-Annual Yes No
FINANCIAL COVENANT REQUIRED ACTUAL COMPLIES
------------------ -------- ------ --------
Maintain on a Monthly Basis:
Minimum Quick Ratio/1/ 1.25:1.00 _____:1.0 Yes No
Tangible Net Worth $3,500,000 ________$ Yes No
Debt/TNW 1.00:1.00 _____:1.0 Yes No
Liquidity Coverage/2/ 2.00:1.00 _____:1.0 Yes No
Debt Service Coverage/3/ 1.50:1.00 _____:1.0 Yes No
Profitability: Quarterly/4/ $1.00 $________ $Yes No
</TABLE>
/1/Minus deferred revenues.
/2/Converts to Debt Service Coverage upon two consecutive quarters of DSC >
1.50:1.00.
/3/Tested after conversion of Liquidity Coverage.
/4/Begin testing 3/31/98. (Profit measured to exclude capitalized software and
include amortization expenses for the quarter.)
COMMENTS REGARDING EXCEPTIONS: See Attached.
Sincerely,
______________________________
Signature
Title
______________________________
______________________________
DATE
32
<PAGE>
BANK USE ONLY
Received by:__________________
AUTHORIZED SIGNER
Date:_________________________
Verified:_____________________
AUTHORIZED SIGNER
Date:_________________________
Compliance Status: Yes No
DISBURSEMENT REQUEST AND AUTHORIZATION
Borrower: Inktomi Corporation Bank: Silicon Valley Bank
================================================================================
LOAN TYPE. This is a variable rate, revolving line of credit of up to
$2,500,000, a term facility of up to $2,000,000 and an equipment facility of up
to $3,000,000.
PRIMARY PURPOSE OF LOAN. The primary purpose of this loan is for business.
SPECIFIC PURPOSE. The specific purpose of this loan is: Short Term Working
Capital.
DISBURSEMENT INSTRUCTIONS. Borrower understands that no loan proceeds will be
disbursed until all of Bank's conditions for making the loan have been
satisfied. Please disburse the loan proceeds as follows:
<TABLE>
<CAPTION>
Revolving Line Term Line Equipment Line
-------------- --------- --------------
<S> <C> <C> <C>
Amount paid to Borrower directly: $___________ $________ $_________
Undisbursed Funds $___________ $________ $_________
Principal $___________ $________ $_________
</TABLE>
CHARGES PAID IN CASH. Borrower has paid or will pay in cash as agreed the
following charges:
Prepaid Finance Charges Paid in Cash: $________
$37,500 Loan Fees
________$Accounts Receivables Audit
Other Charges Paid in Cash: $________
$TBD UCC Search Fees
$TBD UCC Filing Fees
$TBD Patent Filing Fees
$TBD Trademark Filing Fees
$TBD Copyright Filing Fees
$TBD Outside Counsel Fees and Expenses (Estimate)
Total Charges Paid in Cash $________
AUTOMATIC PAYMENTS. Borrower hereby authorizes Bank automatically to deduct
from Borrower's account numbered ______________ the amount of any loan payment.
If the funds in the account are insufficient to cover any payment, Bank shall
not be obligated to advance funds to cover the payment.
FINANCIAL CONDITION. BY SIGNING THIS AUTHORIZATION, BORROWER REPRESENTS AND
WARRANTS TO BANK THAT THE INFORMATION PROVIDED ABOVE IS TRUE AND CORRECT AND
THAT THERE HAS BEEN NO ADVERSE CHANGE IN BORROWER'S FINANCIAL CONDITION AS
DISCLOSED IN BORROWER'S MOST RECENT FINANCIAL STATEMENT TO BANK. THIS
AUTHORIZATION IS DATED AS OF MAY 2, 1997.
BORROWER: INKTOMI CORPORATION
__________________________________
___________________________________
<PAGE>
Authorized Officer
================================================================================
34
<PAGE>
AGREEMENT TO PROVIDE INSURANCE
GRANTOR: Inktomi Corporation BANK: Silicon Valley Bank
================================================================================
INSURANCE REQUIREMENTS. Inktomi Corporation ("Grantor") understands that
insurance coverage is required in connection with the extending of a loan or the
providing of other financial accommodations to Grantor by Bank. These
requirements are set forth in the Loan Documents. The following minimum
insurance coverages must be provided on the following described collateral (the
"Collateral"):
Collateral: All Inventory, Equipment and Fixtures.
Type: All risks, including fire, theft and liability.
Amount: Full insurable value.
Basis: Replacement value.
Endorsements: Loss payable clause to Bank with stipulation that
coverage will not be canceled or diminished without a
minimum of twenty (20) days' prior written notice to
Bank.
INSURANCE COMPANY. Grantor may obtain insurance from any insurance company
Grantor may choose that is reasonably acceptable to Bank. Grantor understands
that credit may not be denied solely because insurance was not purchased through
Bank.
FAILURE TO PROVIDE INSURANCE. Grantor agrees to deliver to Bank, on or
before closing, evidence of the required insurance as provided above, with an
effective date of May 2, 1997, or earlier. Grantor acknowledges and agrees that
if Grantor fails to provide any required insurance or fails to continue such
insurance in force, Bank may do so at Grantor's expense as provided in the Loan
and Security Agreement. The cost of such insurance, at the option of Bank,
shall be payable on demand or shall be added to the indebtedness as provided in
the security document. GRANTOR ACKNOWLEDGES THAT IF BANK SO PURCHASES ANY SUCH
INSURANCE, THE INSURANCE WILL PROVIDE LIMITED PROTECTION AGAINST PHYSICAL DAMAGE
TO THE COLLATERAL, UP TO THE BALANCE OF THE LOAN; HOWEVER, GRANTOR'S EQUITY IN
THE COLLATERAL MAY NOT BE INSURED. IN ADDITION, THE INSURANCE MAY NOT PROVIDE
ANY PUBLIC LIABILITY OR PROPERTY DAMAGE INDEMNIFICATION AND MAY NOT MEET THE
REQUIREMENTS OF ANY FINANCIAL RESPONSIBILITY LAWS.
AUTHORIZATION. For purposes of insurance coverage on the Collateral,
Grantor authorizes Bank to provide to any person (including any insurance agent
or company) all information Bank deems appropriate, whether regarding the
Collateral, the loan or other financial accommodations, or both.
GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS AGREEMENT TO
PROVIDE INSURANCE AND AGREES TO ITS TERMS. THIS AGREEMENT IS DATED MAY 2, 1997.
GRANTOR: Inktomi Corporation
x________________________________
Authorized Officer
================================================================================
FOR BANK USE ONLY
INSURANCE VERIFICATION
DATE:__________________ PHONE:_____________
AGENT'S NAME:__________________________________________________________________
INSURANCE COMPANY:_____________________________________________________________
POLICY NUMBER:_________________________________________________________________
EFFECTIVE DATES:_______________________________________________________________
COMMENTS:______________________________________________________________________
================================================================================
<PAGE>
CORPORATE RESOLUTIONS TO BORROW
================================================================================
BORROWER: INKTOMI CORPORATION
================================================================================
I, the undersigned Secretary or Assistant Secretary of Inktomi Corporation
(the "Corporation"), HEREBY CERTIFY that the Corporation is organized and
existing under and by virtue of the laws of the State of California.
I FURTHER CERTIFY that attached hereto as Attachments 1 and 2 are true and
complete copies of the Articles of Incorporation and Bylaws of the Corporation,
each of which is in full force and effect on the date hereof.
I FURTHER CERTIFY that at a meeting of the Directors of the Corporation,
duly called and held, at which a quorum was present and voting (or by other duly
authorized corporate action in lieu of a meeting), the following resolutions
were adopted.
BE IT RESOLVED, that ANY ONE (1) of the following named officers,
employees, or agents of this Corporation, whose actual signatures are shown
below:
NAMES POSITIONS ACTUAL SIGNATURES
----- --------- -----------------
__________________ ____________________ _____________________________
__________________ ____________________ _____________________________
__________________ ____________________ _____________________________
__________________ ____________________ _____________________________
__________________ ____________________ _____________________________
acting for an on behalf of this Corporation and as its act and deed be, and they
hereby are, authorized and empowered:
BORROW MONEY. To borrow from time to time from Silicon Valley Bank
("Bank"), on such terms as may be agreed upon between the officers, employees,
or agents and Bank, such sum or sums of money as in their judgment should be
borrowed, without limitation, including such sums as are specified in that
certain Loan and Security Agreement dated as of May 2, 1997 (the "Loan
Agreement").
EXECUTE NOTES. To execute and deliver to Bank the promissory note or notes
of the Corporation, on Lender's forms, at such rates of interest and on such
terms as may be agreed upon, evidencing the sums of money so borrowed or any
indebtedness of the Corporation to Bank, and also to execute and deliver to
Lender one or more renewals, extensions, modifications, refinancings,
consolidations, or substitutions for one or more of the notes, or any portion of
the notes.
GRANT SECURITY. To grant a security interest to Bank in the Collateral
described in the Loan Agreement, which security interest shall secure all of the
Corporation's Obligations, as described in the Loan Agreement.
NEGOTIATE ITEMS. To draw, endorse, and discount with Bank all drafts,
trade acceptances, promissory notes, or other evidences of indebtedness payable
to or belonging to the Corporation or in which the Corporation may have an
interest, and either to receive cash for the same or to cause such proceeds to
be credited to the account of the
2
<PAGE>
Corporation with Bank, or to cause such other disposition of the proceeds
derived therefrom as they may deem advisable.
FURTHER ACTS. In the case of lines of credit, to designate additional or
alternate individuals as being authorized to request advances thereunder, and in
all cases, to do and perform such other acts and things, to pay any and all fees
and costs, and to execute and deliver such other documents and agreements as
they may in their discretion deem reasonably necessary or proper in order to
carry into effect the provisions of these Resolutions.
BE IT FURTHER RESOLVED, that any and all acts authorized pursuant to these
resolutions and performed prior to the passage of these resolutions are hereby
ratified and approved, that these Resolutions shall remain in full force and
effect and Bank may rely on these Resolutions until written notice of their
revocation shall have been delivered to and received by Bank. Any such notice
shall not affect any of the Corporation's agreements or commitments in effect at
the time notice is given.
I FURTHER CERTIFY that the officers, employees, and agents named above are
duly elected, appointed, or employed by or for the Corporation, as the case may
be, and occupy the positions set forth opposite their respective names; that the
foregoing Resolutions now stand of record on the books of the Corporation; and
that the Resolutions are in full force and effect and have not been modified or
revoked in any manner whatsoever.
IN WITNESS WHEREOF, I have hereunto set my hand on May 2, 1997 and attest
that the signatures set opposite the names listed above are their genuine
signatures.
CERTIFIED TO AND ATTESTED BY:
X_____________________________________
===============================================================================
Attachment 1 - Articles of Incorporation
Attachment 2 - Bylaws
3
<PAGE>
FIRST AMENDMENT
----------------
TO
--
LOAN AND SECURITY AGREEMENT
---------------------------
This First Amendment to Loan and Security Agreement (this "Amendment") is
entered into as of July 11, 1997, by and between Silicon Valley Bank ("Bank")
and Inktomi Corporation ("Borrower").
RECITALS
--------
Borrower and Bank are parties to that certain Loan and Security Agreement
dated as of May 2, 1997, as may have been or may be further amended from time to
time (the "Agreement"). Borrower and Bank desire to amend the Agreement in
accordance with the terms of this Amendment.
NOW, THEREFORE, the parties agree as follows:
1. Amendments
----------
(a) Section 1.1 of the Agreement is hereby amended by adding the
following defined terms in appropriate alphabetical order:
"'Cash Management Service' or 'Cash Management Services' has
the meaning set forth in Section 2.1.1.4 herein."
"'Foreign Exchange Reserve' has the meaning set forth in
Section 2.1.1.3 herein."
"'Letter of Credit' or 'Letters of Credit' has the meaning
set forth in Section 2.1.1.1 herein."
(b) Section 2.1.1(a) of the Agreement is hereby amended by replacing
it in its entirety with the following:
"(a) Advances. Subject to and upon the terms and conditions
--------
of this Agreement Bank agrees to make Revolving Advances to Borrower in an
aggregate amount not to exceed (i) the lesser of the Committed Line or the
Borrowing Base minus (ii) the sum of (A) the face amount of all outstanding
-----
Letters of Credit (including drawn but unreimbursed Letters of Credit), (B)
the Foreign Exchange Reserve, and (C) the aggregate amount outstanding for
Cash Management Services. For purposes of this Agreement, "Borrowing Base"
shall mean an amount equal to seventy-five percent (75%) of Eligible
Accounts. Subject to the terms and conditions of this Agreement, amounts
borrowed pursuant to this Section 2.1.1 may be repaid and reborrowed at any
time prior to the Revolving Maturity Date."
(c) The Agreement is hereby amended by adding the following Sections
2.1.1.1, 2.1.1.2, 2.1.1.3 and 2.1.1.4 in appropriate numerical order:
"2.1.1.1 Letters of Credit.
-----------------
(a) Subject to the terms and conditions of this
Agreement, Bank agrees to issue or cause to be issued letters of credit
(each a "Letter of Credit," collectively, the "Letters of Credit") for the
account of Borrower in an aggregate face amount not to exceed (i) the
lesser of the Committed Line or the Borrowing Base minus (ii) the sum of
-----
(A) the then outstanding principal balance of the Revolving Advances, (B)
the Foreign Exchange Reserve and (C) amounts outstanding
1
<PAGE>
for Cash Management Services. Each such Letter of Credit shall have an
expiry date no later than the Revolving Maturity Date. All such Letters of
Credit shall be, in form and substance, acceptable to Bank in its sole
discretion and shall be subject to the terms and conditions of Bank's form
of application and letter of credit agreement. All amounts actually paid
by Bank in respect of a Letter of Credit shall, when paid, constitute a
Revolving Advance under this Agreement.
(b) The Obligation of Borrower to immediately
reimburse Bank for drawings made under Letters of Credit shall be absolute,
unconditional and irrevocable, and shall be performed strictly in
accordance with the terms of this Agreement and such Letters of Credit,
under all circumstances whatsoever. Borrower shall indemnify, defend and
hold Bank harmless from any loss, cost, expense or liability, including,
without limitation, reasonable attorneys' fees, arising out of or in
connection with any Letters of Credit.
2.1.1.2 Letter of Credit Reimbursement; Reserve.
---------------------------------------
(a) Borrower may request that Bank issue a Letter
of Credit payable in a currency other than United States Dollars. If a
demand for payment is made under any such Letter of Credit, Bank shall
treat such demand as an advance to Borrower of the equivalent of the amount
thereof (plus cable charges) in United States currency at the then
prevailing rate of exchange in San Francisco, California, for sales of that
other currency for cable transfer to the country of which it is the
currency.
(b) Upon the issuance of any Letter of Credit
payable in a currency other than United States Dollars, Bank shall create a
reserve under the Committed Line for letters of credit against fluctuations
in currency exchange rates, in an amount equal to twenty percent (20%) of
the face amount of such Letter of Credit. The amount of such reserve may be
amended by Bank from time to time to account for fluctuations in the
exchange rate. The availability of funds under the Committed Line shall be
reduced by the amount of such reserve for so long as such Letter of Credit
remains outstanding.
2.1.1.3 Foreign Exchange Contract; Foreign Exchange
-------------------------------------------
Settlements.
- -----------
(a) Subject to the terms of this Agreement,
Borrower may enter into foreign exchange contracts (the "Exchange
Contracts") not to exceed (i) the lesser of the Committed Line or the
Borrowing Base minus (ii) the sum of (A) the then outstanding principal
-----
balance of the Revolving Advances, (B) the Foreign Exchange Reserve and (C)
amounts outstanding for Cash Management Services (the "Contract Limit"),
pursuant to which Bank shall sell to or purchase from Borrower foreign
currency on a spot or future basis. Borrower shall not request any Exchange
Contracts at any time it is out of compliance with any of the provisions of
this Agreement. All Exchange Contracts must provide for delivery of
settlement on or before the Revolving Maturity Date. The amount available
under the Committed Line at any time shall be reduced by the following
amounts (the "Foreign Exchange Reserve") on any given day (the
"Determination Date"): (i) on all outstanding Exchange Contracts on which
delivery is to be effected or settlement allowed more than two business
days after the Determination Date, ten percent (10%) of the gross amount of
the Exchange Contracts; plus (ii) on all outstanding Exchange Contracts on
which delivery is to be effected or settlement allowed within two (2)
business days after the Determination Date, one hundred percent (100%) of
the gross amount of the Exchange Contracts.
2
<PAGE>
(b) Bank may, in its discretion, terminate the
Exchange Contracts at any time (a) that an Event of Default occurs or (b)
that there is no sufficient availability under the Committed Line and
Borrower does not have available funds in its bank account to satisfy the
Foreign Exchange Reserve. If Bank terminates the Exchange Contracts, and
without limitation of any applicable indemnities, Borrower agrees to
reimburse Bank for any and all fees, costs and expenses relating thereto or
arising in connection therewith.
(c) Borrower shall not permit the total gross
amount of all Exchange Contracts on which delivery is to be effected and
settlement allowed in any two business day period to be more than Two
Million Five Hundred Thousand Dollars ($2,500,000) (the "Settlement
Limit"), nor shall Borrower permit the total gross amount of all Exchange
Contracts to which Borrower is a party, outstanding at any one time, to
exceed the Contract Limit. Notwithstanding the above, however, the amount
which may be settled in any two (2) business day period may be increased
above the Settlement Limit up to, but in no event to exceed, the amount of
the Contract Limit under either of the following circumstances:
(i) if there is sufficient availability
under the Committed Line in the amount of the Foreign Exchange Reserve as
of each Determination Date, provided that Bank in advance shall reserve the
full amount of the Foreign Exchange Reserve against the Committed Line; or
(ii) if there is insufficient availability
under the Committed Line, as to settlements within any two (2) business day
period, provided that Bank, in its sole discretion, may: (A) verify good
funds overseas prior to crediting Borrower's deposit account with Bank (in
the case of Borrower's sale of foreign currency); or (B) debit Borrower's
deposit account with Bank prior to delivering foreign currency overseas (in
the case of Borrower's purchase of foreign currency).
(d) In the case of Borrower's purchase of foreign
currency, Borrower in advance shall instruct Bank upon settlement either to
treat the settlement amount as a Revolving Advance under the Committed
Line, or to debit Borrower's account for the amount settled.
(e) Borrower shall execute all standard form
applications and agreements of Bank in connection with the Exchange
Contracts and, without limiting any of the terms of such applications and
agreements, Borrower will pay all standard fees and charges of Bank in
connection with the Exchange Contracts.
(f) Without limiting any of the other terms of this
Agreement or any such standard form applications and agreements of Bank,
Borrower agrees to indemnify Bank and hold it harmless from and against any
and all claims, debts, liabilities, demands, obligations, actions, costs
and expenses (including, without limitation, attorneys' fees of counsel of
Bank's choice), of every nature and description which it may sustain or
incur, based upon, arising out of, or in any way relating to any of the
Exchange Contracts or any transactions relating thereto or contemplated
thereby.
2.1.1.4 Cash Management Sublimit. Subject to the
------------------------
terms and conditions of this Agreement, Borrower may utilize up to an
aggregate amount not to exceed Two Million Five Hundred Thousand Dollars
($2,500,000) (the "Cash Management Sublimit") for cash management services
provided by Bank, which
3
<PAGE>
services may include merchant services, PC-ACH, direct deposit of payroll,
business credit card, Firstax, and other related check cashing services as
defined in that certain Cash Management Services Agreement provided to
Borrower in connection herewith (a "Cash Management Service", or the "Cash
Management Services"). Any amounts actually paid by Bank in respect of a
Cash Management Service or Cash Management Services shall, when paid,
constitute a Revolving Advance under this Agreement."
(d) Section 6.3 of the Agreement is hereby amended by replacing the second
paragraph contained therein in its entirety with the following:
"Within twenty (20) days after the last day of each month in which
either (i) Revolving Advances are outstanding or (ii) the aggregate amount
outstanding under Sections 2.1.1.1, 2.1.1.2, 2.1.1.3 or 2.1.1.4 is equal to
or greater than One Million Dollars ($1,000,000), Borrower shall deliver to
Bank a Borrowing Base Certificate signed by a Responsible Officer in
substantially the form of Exhibit C hereto, together with aged listings of
---------
accounts receivable and accounts payable."
(e) Section 6.9 of the Agreement is hereby amended in its entirety by
replacing it with the following:
"6.9 Liquidity Coverage/Debt Service Coverage.
----------------------------------------
(a) Subject to the remainder of this Section, Borrower
shall maintain:
(i) as of the last day of each calendar month in
which there are no outstanding Revolving Advances and the aggregate amount
outstanding under Sections 2.1.1.1, 2.1.1.2, 2.1.1.3 and 2.1.1.4 herein is
less than One Million Dollars ($1,000,000), the sum of (A) cash and cash
equivalents plus (B) fifty percent (50%) of Eligible Accounts of at least
----
two (2) times the sum of the outstanding aggregate amount of Equipment
Advances and the Term Advance;
(ii) as of the last day of each calendar month in
which either there are Revolving Advances outstanding hereunder or the
aggregate amount of outstandings under Sections 2.1.1.1, 2.1.1.2, 2.1.1.3
and 2.1.1.4 are greater than or equal to One Million Dollars ($1,000,000),
the sum of (A) cash and cash equivalents plus (B) Eligible Accounts minus
-----
(c) the outstanding aggregate amount of Revolving Advances of at least two
(2) times the sum of the outstanding aggregate amount of Equipment Advances
and the Term Advance.
(b) Notwithstanding the foregoing, from and after the time
Borrower achieves for two consecutive fiscal quarters a Debt Service
Coverage of at least 1.50 to 1.00, Borrower shall not be subject to the
minimum liquidity requirement set forth above, but instead shall maintain,
as of the last day of each fiscal quarter, a Debt Service Coverage of at
least 1.50 to 1.00."
(f) Exhibit D to the Agreement is hereby amended and replaced in its
---------
entirety with the Exhibit D attached hereto.
---------
4
<PAGE>
2. Conditions Precedent to Effectiveness. The effectiveness of this
-------------------------------------
Amendment is subject to the further conditions precedent that Bank shall have
received, in form and substance satisfactory to Bank:
(a) a certificate of the secretary of Borrower with respect to incumbency
and resolutions authorizing the execution, delivery and performance of this
Amendment, and confirming that the copies of the Articles of Incorporation
and By Laws previously delivered to Bank have not been amended and remain
in full force and effect;
(b) an audit of Borrower's Accounts; and
(c) a copy of this Amendment duly executed by Borrower.
3. No Defenses of Borrower. Borrower agrees, as of this date, that it
-----------------------
has no defenses against the obligations to pay any amounts under the
Indebtedness.
4. Interpretation. Unless otherwise defined, all capitalized terms in
--------------
this Amendment shall be as defined in the Agreement.
5. Representations. Borrower represents and warrants that the
---------------
Representations and Warranties contained in the Agreement are true and correct
as of the date of this Amendment, and that no Event of Default has occurred and
is continuing.
6. MISCELLANEOUS.
-------------
a. Successors and Assigns. This Amendment shall be binding upon and
----------------------
shall inure to the benefit of Borrower and Bank and their respective successors
and assigns; provided, however, that the foregoing shall not authorize any
assignment by Borrower of its rights or duties hereunder.
b. Entire Agreement. This Amendment and the Loan Documents contain
----------------
the entire agreement of the parties hereto and supersede any other oral or
written agreements or understandings.
c. Course of Dealing; Waivers. No course of dealing on the part of
--------------------------
Bank or its officers, nor any failure or delay in the exercise of any right by
Bank, shall operate as a waiver thereof, and any single or partial exercise of
any such right shall not preclude any later exercise of any such right. Bank's
failure at any time to require strict performance by Borrower of any provision
shall not affect any right of Bank thereafter to demand strict compliance and
performance. Any suspension or waiver of a right must be in writing signed by
an officer of Bank.
d. Legal Effect. Except as amended by this Amendment, the Loan
------------
Documents remain in full force and effect. If any provision of this Amendment
conflicts with applicable law, such provision shall be deemed severed from this
Amendment, and the balance of this Amendment shall remain in full force and
effect.
[Remainder of Page Intentionally Left Blank]
5
<PAGE>
e. Counterparts. This Amendment may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one instrument.
IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the
first date above written.
INKTOMI CORPORATION
By _____________________________
Title __________________________
SILICON VALLEY BANK
By _____________________________
Title __________________________
6
<PAGE>
EXHIBIT D
COMPLIANCE CERTIFICATE
TO: SILICON VALLEY BANK
FROM: INKTOMI CORPORATION
The undersigned authorized officer of Inktomi Corporation hereby certifies
that in accordance with the terms and conditions of the Loan and Security
Agreement between Borrower and Bank (the "Agreement"), (i) Borrower is in
complete compliance for the period ending ______________ with all required
covenants except as noted below and (ii) all representations and warranties of
Borrower stated in the Agreement are true and correct in all material respects
as of the date hereof. Attached herewith are the required documents supporting
the above certification. The Officer further certifies that these are prepared
in accordance with Generally Accepted Accounting Principles (GAAP) and are
consistently applied from one period to the next except as explained in an
accompanying letter or footnotes.
PLEASE INDICATE COMPLIANCE STATUS BY CIRCLING YES/NO UNDER "COMPLIES" COLUMN.
<TABLE>
<CAPTION>
REPORTING COVENANT REQUIRED COMPLIES
------------------ -------- --------
<S> <C> <C> <C>
Monthly financial statements Monthly within 30 days Yes No
Annual (CPA Audited) FYE within 90 days Yes No
A/R & A/P Agings Monthly within 20 days/1/ Yes No
A/R Audit Initial and Semi-Annual Yes No
/1/ Due when Revolving Advances outstanding or outstandings under subfacilities less than or equal
to $1,000,000
FINANCIAL COVENANT REQUIRED ACTUAL COMPLIES
------------------ -------- ------ --------
Maintain on a Monthly Basis:
Minimum Quick Ratio/1/ 1.25:1.00 _____:1.0 Yes No
Tangible Net Worth $3,500,000 $________ Yes No
Debt/TNW 1.00:1.00 _____:1.0 Yes No
Liquidity Coverage/2, 3/ 2.00:1.00 _____:1.0 Yes No
Debt Service Coverage/4/ 1.50:1.00 _____:1.0 Yes No
Profitability: Quarterly/5/ $ 1.00 $________ Yes No
</TABLE>
/1/Minus deferred revenues.
/2/Liquidity ratio calculations includes 50% Accounts if no Revolving Advances
outstanding and outstanding amounts under subfacilities less than $1,000,000
/3/Converts to Debt Service Coverage upon two consecutive quarters of DSC
greater than 1.50:1.00.
/4/Tested after conversion of Liquidity Coverage.
/5/Begin testing 3/31/98. (Profit measured to exclude capitalized software and
include amortization expenses for the quarter.)
COMMENTS REGARDING EXCEPTIONS: See Attached.
-----------------------------------
Sincerely, BANK USE ONLY
______________________________ Received by: ______________________
Signature AUTHORIZED SIGNER
Date: _____________________________
______________________________
Title Verified: _________________________
AUTHORIZED SIGNER
______________________________
Date Date: _____________________________
Compliance Status: Yes No
-----------------------------------
7
<PAGE>
CORPORATE RESOLUTIONS TO BORROW
______________________________________________________________________________
BORROWER: INKTOMI CORPORATION
______________________________________________________________________________
I, the undersigned Secretary or Assistant Secretary of Inktomi Corporation
(the "Corporation"), HEREBY CERTIFY that the Corporation is organized and
existing under and by virtue of the laws of the state of California.
I FURTHER CERTIFY that the Articles of Incorporation and By Laws previously
delivered to Silicon Valley Bank (the "Bank") remain in full force and effect
and have not been amended, restated or modified.
I FURTHER CERTIFY that at a meeting of the Directors of the Corporation
duly called and held, at which a quorum was present and voting (or by other duly
authorized corporate action in lieu of a meeting), the following resolutions
were adopted.
BE IT RESOLVED, that ANY ONE (1) of the following named officers,
employees, or agents of this Corporation, whose actual signatures are shown
below:
NAMES POSITIONS ACTUAL SIGNATURES
----- --------- -----------------
____________________ ______________________ __________________________
____________________ ______________________ __________________________
____________________ ______________________ __________________________
____________________ ______________________ __________________________
____________________ ______________________ __________________________
acting for an on behalf of this Corporation and as its act and deed be, and they
hereby are, authorized and empowered:
BORROW MONEY. To borrow from time to time from Bank, on such terms as may
be agreed upon between the officers, employees, or agents and Bank, such sum or
sums of money as in their judgment should be borrowed, without limitation,
including such sums as are specified in that certain First Amendment to Loan and
Security Agreement dated as of July 11, 1997 (the "Amendment").
EXECUTE NOTES. To execute and deliver to Bank the Amendment and also to
execute and deliver to Bank one or more renewals, extensions, modifications,
refinancings, consolidations, or substitutions for one or more of the notes, or
any portion of the notes.
GRANT SECURITY. To grant a security interest to Bank in the Collateral
described in the Loan Agreement, which security interest shall secure all of the
Corporation's Obligations, as described in the Loan Agreement.
NEGOTIATE ITEMS. To draw, endorse, and discount with Bank all drafts,
trade acceptances, promissory notes, or other evidences of indebtedness payable
to or belonging to the Corporation or in which the Corporation may have an
interest, and either to receive cash for the same or to cause such proceeds to
be credited to the account of the Corporation with Bank, or to cause such other
disposition of the proceeds derived therefrom as they may deem advisable.
1
<PAGE>
LETTERS OF CREDIT; FOREIGN EXCHANGE. To execute letters of credit
applications, foreign exchange agreements and other related documents pertaining
to Bank's issuance of letters of credit and foreign exchange contracts.
CASH MANAGEMENT SERVICES. To enter into that certain Cash Management
Services Agreement and any other related documents pertaining to cash management
services.
FURTHER ACTS. In the case of lines of credit, to designate additional or
alternate individuals as being authorized to request advances thereunder, and in
all cases, to do and perform such other acts and things, to pay any and all fees
and costs, and to execute and deliver such other documents and agreements as
they may in their discretion deem reasonably necessary or proper in order to
carry into effect the provisions of these Resolutions.
BE IT FURTHER RESOLVED, that any and all acts authorized pursuant to these
resolutions and performed prior to the passage of these resolutions are hereby
ratified and approved, that these Resolutions shall remain in full force and
effect and Bank may rely on these Resolutions until written notice of their
revocation shall have been delivered to and received by Bank. Any such notice
shall not affect any of the Corporation's agreements or commitments in effect at
the time notice is given.
I FURTHER CERTIFY that the officers, employees, and agents named above are
duly elected, appointed, or employed by or for the Corporation, as the case may
be, and occupy the positions set forth opposite their respective names; that the
foregoing Resolutions now stand of record on the books of the Corporation; and
that the Resolutions are in full force and effect and have not been modified or
revoked in any manner whatsoever.
IN WITNESS WHEREOF, I have hereunto set my hand on July 11, 1997 and attest
that the signatures set opposite the names listed above are their genuine
signatures.
CERTIFIED TO AND ATTESTED BY:
X ______________________________
- -------------------------------------------------------------------------------
2
<PAGE>
SECOND AMENDMENT
-----------------
TO
--
LOAN AND SECURITY AGREEMENT
---------------------------
This Second Amendment to Loan and Security Agreement (this "Amendment") is
entered into as of July 17, 1997, by and between Silicon Valley Bank ("Bank")
and Inktomi Corporation ("Borrower").
RECITALS
--------
Borrower and Bank are parties to that certain Loan and Security Agreement
dated as of May 2, 1997, as amended by that First Amendment to Loan and Security
Agreement dated as of July 11, 1997, and as may have been or may be further
amended from time to time (the "Agreement"). Borrower and Bank desire to amend
the Agreement in accordance with the terms of this Amendment.
NOW, THEREFORE, the parties agree as follows:
1. Amendments
----------
(a) Section 1.1 of the Agreement is hereby amended by adding the
following defined terms in appropriate alphabetical order:
"'Microsoft Accounts' means Accounts owed to Borrower by
Microsoft Corporation pursuant to the Microsoft Hosting Agreement."
'Microsoft Debt' means all amounts owed by Borrower to
Microsoft Corporation pursuant to the terms of the Microsoft Loan
Agreement.
'Microsoft Hosting Agreement' means that certain Software Hosting
Agreement dated as of ______________, 1997 by and between Borrower and
Microsoft Corporation.
'Microsoft Loan Agreement' means that certain Loan Agreement by
and between Borrower and Microsoft Corporation dated as of
______________, 1997 and all promissory notes executed thereunder, and
that certain Security Agreement dated as of ______________, 1997 by
and between Borrower and Microsoft Corporation related thereto and any
other documents executed in connection with any of them, pursuant to
which Borrower may borrow amounts for the acquisition of certain
Equipment as described therein."
(b) Section 1.1 of the Agreement is hereby amended by adding the
following subsection to the exclusions set forth in the definition of "Eligible
Accounts":
"(l) Microsoft Accounts."
(c) Section 1.1 of the Agreement is hereby amended by replacing
subsection (c) of the defined term "Permitted Liens" in its entirety with the
following:
"(c) Liens (i) upon or in any Equipment other than Equipment
financed hereunder acquired or held by Borrower or any of its
Subsidiaries to secure the purchase price of such Equipment or
indebtedness incurred solely for the purpose of financing the
acquisition of such Equipment, (ii) Liens on any deposit account into
<PAGE>
which funds borrowed pursuant to the Microsoft Loan Agreement are
deposited prior to the purchase of such Equipment, or (iii) Liens
existing on such Equipment other than Equipment financed hereunder at
the time of its acquisition, provided that the Lien is confined solely
--------
to the property so acquired and improvements thereon, and the proceeds
of such Equipment;"
(d) Section 4.1 of the Agreement is hereby amended by adding the
following sentence to the end of the Section:
"Bank agrees to execute and deliver to Borrower from time to time such
Lien releases as Borrower may request and as are necessary to give
Microsoft Corporation a first priority security interest in the (i)
Equipment financed under the Microsoft Loan Agreement; proceeds
thereof; increases, accessions, substitutions, additions thereto and
replacements therefor; and (ii) any deposit account into which amounts
borrowed under the Microsoft Loan Agreement are deposited prior to the
purchase of such Equipment."
(e) Section 6.8 is hereby amended by replacing it in its entirety
with the following:
"6.8 Quick Ratio. Borrower shall maintain, as of the last day
-----------
of each calendar month, a ratio of Quick Assets to Current Liabilities
(minus deferred revenues and Microsoft Debt) of at least 1.25 to 1.00.
For purposes of this Section 'Quick Assets' shall not include
Microsoft Accounts."
(f) Section 6.11 is hereby amended by replacing it in its entirety
with the following:
"6.11 Debt-Net Worth Ratio. Borrower shall maintain, as of the
--------------------
last day of each calendar month, a ratio of Total Liabilities (minus
deferred revenue and Microsoft Debt) less Subordinated Debt to
Tangible Net Worth (minus Microsoft Accounts) plus Subordinated Debt
of not more than 1.00 to 1.00."
2. Conditions Precedent to Effectiveness. The effectiveness of this
-------------------------------------
Amendment is subject to the further conditions precedent that Bank shall have
received, in form and substance satisfactory to Bank:
(a) a certificate of the secretary of Borrower with respect to incumbency
and resolutions authorizing the execution, delivery and performance of this
Amendment, and confirming that the copies of the Articles of Incorporation
and By Laws previously delivered to Bank have not been amended and remain
in full force and effect; and
(b) a copy of this Amendment duly executed by Borrower.
3. No Defenses of Borrower. Borrower agrees, as of this date, that it
-----------------------
has no defenses against the obligations to pay any amounts under the
Indebtedness.
4. Interpretation. Unless otherwise defined, all capitalized terms in
--------------
this Amendment shall have the meaning set forth in the Agreement.
<PAGE>
5. Representations. Borrower represents and warrants that the
---------------
Representations and Warranties contained in the Agreement are true and correct
as of the date of this Amendment, and that no Event of Default has occurred and
is continuing.
6. MISCELLANEOUS.
-------------
a. Successors and Assigns. This Amendment shall be binding upon and
----------------------
shall inure to the benefit of Borrower and Bank and their respective successors
and assigns; provided, however, that the foregoing shall not authorize any
assignment by Borrower of its rights or duties hereunder.
b. Entire Agreement. This Amendment and the Loan Documents contain
----------------
the entire agreement of the parties hereto and supersede any other oral or
written agreements or understandings.
c. Course of Dealing; Waivers. No course of dealing on the part of
--------------------------
Bank or its officers, nor any failure or delay in the exercise of any right by
Bank, shall operate as a waiver thereof, and any single or partial exercise of
any such right shall not preclude any later exercise of any such right. Bank's
failure at any time to require strict performance by Borrower of any provision
shall not affect any right of Bank thereafter to demand strict compliance and
performance. Any suspension or waiver of a right must be in writing signed by
an officer of Bank.
d. Legal Effect. Except as amended by this Amendment, the Loan
------------
Documents remain in full force and effect. If any provision of this Amendment
conflicts with applicable law, such provision shall be deemed severed from this
Amendment, and the balance of this Amendment shall remain in full force and
effect.
e. Counterparts. This Amendment may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one instrument.
IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the
first date above written.
INKTOMI CORPORATION
By________________________________________
Title_____________________________________
SILICON VALLEY BANK
By________________________________________
Title_____________________________________
<PAGE>
CORPORATE RESOLUTIONS TO BORROW
- --------------------------------------------------------------------------------
BORROWER: INKTOMI CORPORATION
- --------------------------------------------------------------------------------
I, the undersigned Secretary or Assistant Secretary of Inktomi Corporation
(the "Corporation"), HEREBY CERTIFY that the Corporation is organized and
existing under and by virtue of the laws of the state of California.
I FURTHER CERTIFY that the Articles of Incorporation and By Laws previously
delivered to Silicon Valley Bank (the "Bank") remain in full force and effect
and have not been amended, restated or modified.
I FURTHER CERTIFY that at a meeting of the Directors of the Corporation
duly called and held, at which a quorum was present and voting (or by other duly
authorized corporate action in lieu of a meeting), the following resolutions
were adopted.
BE IT RESOLVED, that ANY ONE (1) of the following named officers,
employees, or agents of this Corporation, whose actual signatures are shown
below:
NAMES POSITIONS ACTUAL SIGNATURES
----- --------- -----------------
- ---------------- --------------------- -------------------------------
- ---------------- --------------------- -------------------------------
- ---------------- --------------------- -------------------------------
- ---------------- --------------------- -------------------------------
- ---------------- --------------------- -------------------------------
acting for an on behalf of this Corporation and as its act and deed be, and they
hereby are, authorized and empowered:
BORROW MONEY. To borrow from time to time from Bank, on such terms as may
be agreed upon between the officers, employees, or agents and Bank, such sum or
sums of money as in their judgment should be borrowed, without limitation,
including such sums as are specified in that certain Second Amendment to Loan
and Security Agreement dated as of July 17, 1997 (the "Amendment").
EXECUTE NOTES. To execute and deliver to Bank the Amendment and also to
execute and deliver to Bank one or more renewals, extensions, modifications,
refinancings, consolidations, or substitutions for one or more of the notes, or
any portion of the notes.
GRANT SECURITY. To grant a security interest to Bank in the Collateral
described in the Loan Agreement, which security interest shall secure all of the
Corporation's Obligations, as described in the Loan Agreement.
NEGOTIATE ITEMS. To draw, endorse, and discount with Bank all drafts,
trade acceptances, promissory notes, or other evidences of indebtedness payable
to or belonging to the Corporation or in which the Corporation may have an
interest, and either to receive cash for the same or to cause such proceeds to
be credited to the account of the Corporation with Bank, or to cause such other
disposition of the proceeds derived therefrom as they may deem advisable.
<PAGE>
LETTERS OF CREDIT; FOREIGN EXCHANGE. To execute letters of credit
applications, foreign exchange agreements and other related documents pertaining
to Bank's issuance of letters of credit and foreign exchange contracts.
CASH MANAGEMENT SERVICES. To enter into that certain Cash Management
Services Agreement and any other related documents pertaining to cash management
services.
FURTHER ACTS. In the case of lines of credit, to designate additional or
alternate individuals as being authorized to request advances thereunder, and in
all cases, to do and perform such other acts and things, to pay any and all fees
and costs, and to execute and deliver such other documents and agreements as
they may in their discretion deem reasonably necessary or proper in order to
carry into effect the provisions of these Resolutions.
BE IT FURTHER RESOLVED, that any and all acts authorized pursuant to these
resolutions and performed prior to the passage of these resolutions are hereby
ratified and approved, that these Resolutions shall remain in full force and
effect and Bank may rely on these Resolutions until written notice of their
revocation shall have been delivered to and received by Bank. Any such notice
shall not affect any of the Corporation's agreements or commitments in effect at
the time notice is given.
I FURTHER CERTIFY that the officers, employees, and agents named above are
duly elected, appointed, or employed by or for the Corporation, as the case may
be, and occupy the positions set forth opposite their respective names; that the
foregoing Resolutions now stand of record on the books of the Corporation; and
that the Resolutions are in full force and effect and have not been modified or
revoked in any manner whatsoever.
IN WITNESS WHEREOF, I have hereunto set my hand on July 17, 1997 and attest
that the signatures set opposite the names listed above are their genuine
signatures.
CERTIFIED TO AND ATTESTED BY:
X______________________________________
<PAGE>
THIRD AMENDMENT
----------------
TO
--
LOAN AND SECURITY AGREEMENT
---------------------------
This Third Amendment to Loan and Security Agreement (this "Amendment") is
entered into as of November 6, 1997, by and between Silicon Valley Bank ("Bank")
and Inktomi Corporation ("Borrower").
RECITALS
--------
Borrower and Bank are parties to that certain Loan and Security Agreement
dated as of May 2, 1997, as amended by that First Amendment to Loan and Security
Agreement dated as of July 11, 1997, and by that Second Amendment to Loan and
Security Agreement dated as of July 17, 1997, and as may have been or may be
further amended from time to time (the "Agreement"). Borrower and Bank desire
to amend the Agreement in accordance with the terms of this Amendment.
NOW, THEREFORE, the parties agree as follows:
1. Waiver. Bank waives Borrower's obligations to comply with section 6.9
------
for the periods ended June 30, 1997 and July 31, 1997, and with section 6.11 for
the period ended July 31, 1997. Such waiver does not constitute a waiver (i) of
compliance with those sections as of any other date, (ii) of any other failure
by Borrower to comply with the Agreement or any other Events of Default, now
existing or hereafter arising, or (iii) Bank's right to require compliance at
all times with the terms and conditions of the Agreement. Bank reserves all
rights under the Agreement and under applicable law. Borrower agrees, as of
this date, that it has no defenses against the obligations to pay any amounts
under the Indebtedness.
2. Equity Financing. Borrower may not request any Advances under the
----------------
Agreement until the receipt by Borrower of at least Four Million Dollars
($4,000,000) in additional equity financing.
3. Amendments
----------
(a) Section 1.1 of the Agreement is hereby amended by replacing
subsection (l) to the exclusions set forth in the definition of "Eligible
Accounts" in its entirety as follows:
"(l) The Microsoft Accounts, to the extent they exceed forty
percent (40%) of all Accounts."
(b) Section 6.8, 6.9, 6.10, 6.11 and 6.12 are amended to read as
follows:
"6.8 Quick Ratio. Beginning August 31, 1997, Borrower shall
-----------
maintain (i) as of the last day of each calendar month, a
ratio of Quick Assets to Current Liabilities (minus
deferred revenues and Microsoft Debt) of at least 1.25 to
1.00 and (ii) as of the last day of each fiscal quarter, a
ratio of Quick Assets to Current Liabilities (minus
deferred revenues and Microsoft Debt) of at least 1.75 to
1.00. Beginning March 31, 1998, Borrower shall maintain (i)
as of the last day of each calendar month, a ratio of Quick
Assets to Current Liabilities (minus deferred revenues and
Microsoft Debt) of at least 1.50 to 1.00 and (ii) as of the
last day of each fiscal quarter, a ratio of Quick Assets to
Current Liabilities (minus deferred revenues and Microsoft
Debt) of at least 2.00 to 1.00. For purposes of this
Section 'Quick Assets' shall not include Microsoft Accounts
to the extent the proceeds of such Accounts service the
Microsoft Debt."
1
<PAGE>
"6.9 Liquidity Coverage. Beginning August 31, 1997, Borrower
------------------
shall maintain, as of the last day of each calendar month,
the sum of (i) cash and cash equivalents plus (ii) Eligible
----
Accounts minus (iii) the outstanding aggregate amount of
-----
Revolving Advances of at least one (1) times the
outstanding amount of Equipment Advances and the Term
Advance ("Liquidity Coverage Ratio"); provided that if
--------
Borrower has not provided agings of its accounts receivable
pursuant to or voluntarily in accordance with Section 6.3
of the Agreement, then Liquidity Coverage Ratio shall mean
the sum of (i) cash and cash equivalents plus (ii) fifty
----
percent (50%) of net accounts receivable of at least one
(1) times the outstanding amount of Equipment Advances and
the Term Advance. Beginning as of March 31, 1998, Borrower
shall maintain, as of the last day of each fiscal quarter,
a Liquidity Coverage Ratio of at least 2.00 to 1.00.
"6.10 Tangible Net Worth. Beginning as of August 31, 1997,
------------------
Borrower shall maintain, as of the last day of each fiscal
quarter, a Tangible Net Worth of not less than One Million
Seven Hundred Fifty Thousand Dollars ($1,750,000)
increasing to a Tangible Net Worth of not less than Three
Million Dollars ($3,000,000) beginning as of the quarter
ending March 31, 1998 and thereafter.
"6.11 [Intentionally Omitted.]"
-----
"6.12 Profitability. For the quarter ending March 31, 1998,
-------------
Borrower's loss shall not exceed Two Million Five Hundred
Thousand Dollars ($2,500,000). For the quarter ending June
30, 1998, Borrower's loss shall not exceed One Million
Dollars ($1,000,000). Thereafter, Borrower shall have a
minimum net profit, measured as quarterly net income minus
-----
the increase in capitalized software during such quarter
plus the amortization expense of capitalized software
----
during such quarter, of One Dollar ($1.00) as of the last
day of each fiscal quarter."
(c) Exhibit D to the Agreement is hereby amended and replaced in its
---------
entirety with the Exhibit D attached hereto.
---------
4. Conditions Precedent to Effectiveness. The effectiveness of this
-------------------------------------
Amendment is subject to the further conditions precedent that Bank shall have
received, in form and substance satisfactory to Bank:
(a) a certificate of the secretary of Borrower with respect to
incumbency and resolutions authorizing the execution, delivery and performance
of this Amendment, and confirming that the copies of the Articles of
Incorporation and By Laws previously delivered to Bank have not been amended and
remain in full force and effect; and
(b) a copy of this Amendment duly executed by Borrower.
5. Bank Balances. In connection with this amendment, beginning December
-------------
31, 1997, Borrower shall hold the lesser of (i) Fifty-One Percent (51%) of all
cash and cash equivalents, or (ii) Four Million Dollars ($4,000,000) at the Bank
in either a Certificate of Deposit, Money Market Account, and/or Checking
Account through the later of the Equipment Maturity Date, the Revolving Maturity
Date, or the Term Maturity Date. For each month that Borrower's average monthly
book balance falls below the deposit requirement described in the preceding
sentence, Bank shall charge Borrower a fee in the amount of Two Thousand Dollars
($2,000).
6. Reincorporation. Bank consents to Borrower's reincorporation as a
---------------
Delaware corporation, provided the successor to Borrower assumes all of the
obligations of Borrower on terms
2
<PAGE>
reasonably acceptable to Bank and executes a financing statement for the benefit
of Bank in a form reasonably acceptable to Bank.
7. Representation and Warranties. Borrower represents and warrants that
-----------------------------
the Representations and Warranties contained in the Agreement are true and
correct as of the date of this Amendment, and that no Event of Default has
occurred and is continuing.
8. MISCELLANEOUS.
-------------
(a) Successors and Assigns. This Amendment shall be binding upon and
----------------------
shall inure to the benefit of Borrower and Bank and their respective successors
and assigns; provided, however, that the foregoing shall not authorize any
assignment by Borrower of its rights or duties hereunder.
(b) Entire Agreement. This Amendment and the Loan Documents contain
----------------
the entire agreement of the parties hereto and supersede any other oral or
written agreements or understandings.
(c) Course of Dealing; Waivers. No course of dealing on the part of
--------------------------
Bank or its officers, nor any failure or delay in the exercise of any right by
Bank, shall operate as a waiver thereof, and any single or partial exercise of
any such right shall not preclude any later exercise of any such right. Bank's
failure at any time to require strict performance by Borrower of any provision
shall not affect any right of Bank thereafter to demand strict compliance and
performance. Any suspension or waiver of a right must be in writing signed by
an officer of Bank.
(d) Legal Effect. Except as amended by this Amendment, the Loan
------------
Documents remain in full force and effect. If any provision of this Amendment
conflicts with applicable law, such provision shall be deemed severed from this
Amendment, and the balance of this Amendment shall remain in full force and
effect. Unless otherwise defined, all capitalized terms in this Amendment shall
have the meaning set forth in the Agreement.
(e) Counterparts. This Amendment may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one instrument.
IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the
first date above written.
INKTOMI CORPORATION
By ______________________________________
Title ___________________________________
SILICON VALLEY BANK
By ______________________________________
Title ___________________________________
3
<PAGE>
EXHIBIT D
COMPLIANCE CERTIFICATE
TO: SILICON VALLEY BANK
FROM: INKTOMI CORPORATION
The undersigned authorized officer of Inktomi Corporation hereby certifies
that in accordance with the terms and conditions of the Loan and Security
Agreement between Borrower and Bank (the "Agreement"), (i) Borrower is in
complete compliance for the period ending ______________ with all required
covenants except as noted below and (ii) all representations and warranties of
Borrower stated in the Agreement are true and correct in all material respects
as of the date hereof. Attached herewith are the required documents supporting
the above certification. The Officer further certifies that these are prepared
in accordance with Generally Accepted Accounting Principles (GAAP) and are
consistently applied from one period to the next except as explained in an
accompanying letter or footnotes.
PLEASE INDICATE COMPLIANCE STATUS BY CIRCLING YES/NO UNDER "COMPLIES" COLUMN.
<TABLE>
<CAPTION>
REPORTING COVENANT REQUIRED COMPLIES
------------------ -------- --------
<S> <C> <C>
Monthly financial statements Monthly within 30 days Yes No
Annual (CPA Audited) FYE within 90 days Yes No
A/R & A/P Agings Monthly within 20 days* Yes No
A/R Audit Initial and Semi-Annual Yes No
</TABLE>
* Due when Revolving Advances outstanding or outstandings under subfacilities
greater than or equal to $1,000,000
<TABLE>
<CAPTION>
FINANCIAL COVENANT REQUIRED ACTUAL COMPLIES
----------------- -------- ------ --------
<S> <C> <C> <C>
Maintain on the Following Basis:
Minimum Quick Ratio /1/ _____:1.0 Yes No
Tangible Net Worth /2/ $________ Yes No
Liquidity Coverage Ratio /3/ _____:1.0 Yes No
Profitability /4/ $________ Yes No
</TABLE>
/1/Minus deferred revenues and Microsoft Debt. Monthly 1.25:1.00 and quarterly
1.75:1.00, increasing to monthly 1.50:1.00 and quarterly 2.00:1.00 at
3/31/98.
/2/Quarterly at $1,750,000, increasing to $3,000,000 at 3/31/98.
/3/Monthly at 1.00:1.00 increasing to 2.00:1.00 at 3/31/98.
/4/Quarterly loss not to exceed $2,500,000 for 3/31/98 or $1,000,000 for
6/30/98. Profitable thereafter.
COMMENTS REGARDING EXCEPTIONS: See Attached.
Sincerely,
------------------------------
BANK USE ONLY
____________________________________________ Received by:__________________
SIGNATURE AUTHORIZED SIGNER
____________________________________________ Date:_________________________
TITLE
Verified:_____________________
____________________________________________ AUTHORIZED SIGNER
DATE
DATE:_________________________
Compliance Status: Yes No
------------------------------
4
<PAGE>
CORPORATE RESOLUTIONS TO BORROW
________________________________________________________________________________
BORROWER: INKTOMI CORPORATION
________________________________________________________________________________
I, the undersigned Secretary or Assistant Secretary of Inktomi Corporation
(the "Corporation"), HEREBY CERTIFY that the Corporation is organized and
existing under and by virtue of the laws of the state of California.
I FURTHER CERTIFY that the Articles of Incorporation and By Laws previously
delivered to Silicon Valley Bank (the "Bank") remain in full force and effect
and have not been amended, restated or modified.
I FURTHER CERTIFY that at a meeting of the Directors of the Corporation
duly called and held, at which a quorum was present and voting (or by other duly
authorized corporate action in lieu of a meeting), the following resolutions
were adopted.
BE IT RESOLVED, that ANY ONE (1) of the following named officers,
employees, or agents of this Corporation, whose actual signatures are shown
below:
<TABLE>
<CAPTION>
NAMES POSITIONS ACTUAL SIGNATURES
----- --------- -----------------
<S> <C> <C>
___________________ _____________________ _______________________________
___________________ _____________________ _______________________________
___________________ _____________________ _______________________________
___________________ _____________________ _______________________________
___________________ _____________________ _______________________________
</TABLE>
acting for an on behalf of this Corporation and as its act and deed be, and they
hereby are, authorized and empowered:
BORROW MONEY. To borrow from time to time from Bank, on such terms as may
be agreed upon between the officers, employees, or agents and Bank, such sum or
sums of money as in their judgment should be borrowed, without limitation,
including such sums as are specified in that certain Third Amendment to Loan and
Security Agreement dated as of November 6, 1997 (the "Amendment").
EXECUTE NOTES. To execute and deliver to Bank the Amendment and also to
execute and deliver to Bank one or more renewals, extensions, modifications,
refinancings, consolidations, or substitutions for one or more of the notes, or
any portion of the notes.
GRANT SECURITY. To grant a security interest to Bank in the Collateral
described in the Loan Agreement, which security interest shall secure all of the
Corporation's Obligations, as described in the Loan Agreement.
NEGOTIATE ITEMS. To draw, endorse, and discount with Bank all drafts,
trade acceptances, promissory notes, or other evidences of indebtedness payable
to or belonging to the Corporation or in which the Corporation may have an
interest, and either to receive cash for the same or to cause such proceeds to
be credited to the account of the
1
<PAGE>
Corporation with Bank, or to cause such other disposition of the proceeds
derived therefrom as they may deem advisable.
LETTERS OF CREDIT; FOREIGN EXCHANGE. To execute letters of credit
applications, foreign exchange agreements and other related documents pertaining
to Bank's issuance of letters of credit and foreign exchange contracts.
CASH MANAGEMENT SERVICES. To enter into that certain Cash Management
Services Agreement and any other related documents pertaining to cash management
services.
FURTHER ACTS. In the case of lines of credit, to designate additional or
alternate individuals as being authorized to request advances thereunder, and in
all cases, to do and perform such other acts and things, to pay any and all fees
and costs, and to execute and deliver such other documents and agreements as
they may in their discretion deem reasonably necessary or proper in order to
carry into effect the provisions of these Resolutions.
BE IT FURTHER RESOLVED, that any and all acts authorized pursuant to these
resolutions and performed prior to the passage of these resolutions are hereby
ratified and approved, that these Resolutions shall remain in full force and
effect and Bank may rely on these Resolutions until written notice of their
revocation shall have been delivered to and received by Bank. Any such notice
shall not affect any of the Corporation's agreements or commitments in effect at
the time notice is given.
I FURTHER CERTIFY that the officers, employees, and agents named above are
duly elected, appointed, or employed by or for the Corporation, as the case may
be, and occupy the positions set forth opposite their respective names; that the
foregoing Resolutions now stand of record on the books of the Corporation; and
that the Resolutions are in full force and effect and have not been modified or
revoked in any manner whatsoever.
IN WITNESS WHEREOF, I have hereunto set my hand on November __, 1997 and
attest that the signatures set opposite the names listed above are their genuine
signatures.
CERTIFIED TO AND ATTESTED BY:
X _____________________________________
________________________________________________________________________________
2
<PAGE>
FOURTH AMENDMENT
-----------------
TO
--
LOAN AND SECURITY AGREEMENT
---------------------------
This Fourth Amendment to Loan and Security Agreement (this "Amendment") is
entered into as of February 2, 1998, by and between Silicon Valley Bank ("Bank")
and Inktomi Corporation ("Borrower").
RECITALS
--------
Borrower and Bank are parties to that certain Loan and Security Agreement
dated as of May 2, 1997, as amended from time to time (the "Agreement").
Borrower and Bank desire to amend the Agreement in accordance with the terms of
this Amendment.
NOW, THEREFORE, the parties agree as follows:
1. Equity Financing; Subsequent Advances. Borrower shall receive gross
-------------------------------------
proceeds from the sale or issuance of its capital stock in an amount not less
than Ten Million Dollars ($10,000,000) not later than March 1, 1998. Borrower
may not request any Advances or other extensions of credit under the Agreement
until Borrower complies with the provisions of Sections 6.8, 6.9, 6.10 and 6.12.
2. Amendments
----------
(a) Sections 6.8, 6.9, 6.10, and 6.12 are amended to read as follows:
"6.8 Quick Ratio. Beginning March 31, 1998, Borrower shall
-----------
maintain (i) as of the last day of each calendar month, a
ratio of Quick Assets to Current Liabilities (minus deferred
revenues and Microsoft Debt) of at least 1.50 to 1.00 and
(ii) as of the last day of each fiscal quarter, a ratio of
Quick Assets to Current Liabilities (minus deferred revenues
and Microsoft Debt) of at least 2.00 to 1.00. For purposes
of this Section, 'Quick Assets' shall not include Microsoft
Accounts to the extent the proceeds of such Accounts service
the Microsoft Debt."
"6.9 Liquidity Coverage. Beginning March 31, 1998, Borrower
------------------
shall maintain, as of the last day of each calendar month,
the sum of (i) cash and cash equivalents plus (ii) Eligible
----
Accounts minus (iii) the outstanding aggregate amount of
-----
Revolving Advances of at least two (2) times the outstanding
amount of Equipment Advances and the Term Advance
("Liquidity Coverage Ratio"); provided that if Borrower has
--------
not provided agings of its accounts receivable pursuant to
or voluntarily in accordance with Section 6.3 of the
Agreement, then Liquidity Coverage Ratio shall mean the sum
of (i) cash and cash equivalents plus (ii) fifty percent
----
(50%) of net accounts receivable of at least two (2) times
the outstanding amount of Equipment Advances and the Term
Advance.
"6.10 Tangible Net Worth. Beginning as of March 31, 1998,
------------------
Borrower shall maintain, as of the last day of each fiscal
quarter, a Tangible Net Worth of not less than Three Million
Dollars ($3,000,000).
"6.12 Profitability. For the quarter ending March 31, 1998,
-------------
Borrower's loss shall not exceed Four Million Six Hundred
Fifty Thousand Dollars ($4,650,000)."
1
<PAGE>
(c) Exhibit D to the Agreement is hereby amended and replaced in its
---------
entirety with the Exhibit D attached hereto.
---------
3. Condition Precedent to Effectiveness. The effectiveness of this
------------------------------------
Amendment is subject to the further condition precedent that Bank shall have
received an amount equal to the Bank Expenses incurred in connection with this
Amendment.
4. Representation and Warranties. Borrower represents and warrants that
-----------------------------
the Representations and Warranties contained in the Agreement are true and
correct as of the date of this Amendment, and that no Event of Default has
occurred and is continuing.
5. MISCELLANEOUS.
-------------
(a) Successors and Assigns. This Amendment shall be binding upon and
----------------------
shall inure to the benefit of Borrower and Bank and their respective successors
and assigns; provided, however, that the foregoing shall not authorize any
assignment by Borrower of its rights or duties hereunder.
(b) Entire Agreement. This Amendment and the Loan Documents contain
----------------
the entire agreement of the parties hereto and supersede any other oral or
written agreements or understandings.
(c) Course of Dealing; Waivers. No course of dealing on the part of
--------------------------
Bank or its officers, nor any failure or delay in the exercise of any right by
Bank, shall operate as a waiver thereof, and any single or partial exercise of
any such right shall not preclude any later exercise of any such right. Bank's
failure at any time to require strict performance by Borrower of any provision
shall not affect any right of Bank thereafter to demand strict compliance and
performance. Any suspension or waiver of a right must be in writing signed by
an officer of Bank.
(d) Legal Effect. Except as amended by this Amendment, the Loan
------------
Documents remain in full force and effect. If any provision of this Amendment
conflicts with applicable law, such provision shall be deemed severed from this
Amendment, and the balance of this Amendment shall remain in full force and
effect. Unless otherwise defined, all capitalized terms in this Amendment shall
have the meaning set forth in the Agreement.
(e) Counterparts. This Amendment may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one instrument.
IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the
first date above written.
INKTOMI CORPORATION
By ________________________________________
Title _____________________________________
SILICON VALLEY BANK
By ________________________________________
Title _____________________________________
2
<PAGE>
EXHIBIT D
COMPLIANCE CERTIFICATE
TO: SILICON VALLEY BANK
FROM: INKTOMI CORPORATION
The undersigned authorized officer of Inktomi Corporation hereby certifies
that in accordance with the terms and conditions of the Loan and Security
Agreement between Borrower and Bank (the "Agreement"), (i) Borrower is in
complete compliance for the period ending ______________ with all required
covenants except as noted below and (ii) all representations and warranties of
Borrower stated in the Agreement are true and correct in all material respects
as of the date hereof. Attached herewith are the required documents supporting
the above certification. The Officer further certifies that these are prepared
in accordance with Generally Accepted Accounting Principles (GAAP) and are
consistently applied from one period to the next except as explained in an
accompanying letter or footnotes.
PLEASE INDICATE COMPLIANCE STATUS BY CIRCLING YES/NO UNDER "COMPLIES" COLUMN.
<TABLE>
<CAPTION>
REPORTING COVENANT REQUIRED COMPLIES
------------------ -------- --------
<S> <C> <C>
Monthly financial statements Monthly within 30 days Yes No
Annual (CPA Audited) FYE within 90 days Yes No
A/R & A/P Agings Monthly within 20 days* Yes No
A/R Audit Initial and Semi-Annual Yes No
</TABLE>
* Due when Revolving Advances outstanding or outstandings under subfacilities
greater than or equal to $1,000,000
<TABLE>
<CAPTION>
FINANCIAL COVENANT REQUIRED ACTUAL COMPLIES
------------------ -------- ------ --------
<S> <C> <C> <C>
Maintain on the Following Basis:
Minimum Quick Ratio /1/ _____:1.0 Yes No
Tangible Net Worth /2/ $ _______ Yes No
Liquidity Coverage Ratio /3/ _____:1.0 Yes No
Profitability /4/ $ _______ Yes No
</TABLE>
/1/Minus deferred revenues and Microsoft Debt. Monthly 1.50:1.00 and quarterly
2.00:1.00.
/2/Quarterly at $3,000,000 at 3/31/98.
/3/Monthly at 2.00:1.00 at 3/31/98.
/4/Quarterly loss not to exceed $4,650,000 for 3/31/98.
COMMENTS REGARDING EXCEPTIONS: See Attached.
Sincerely,
------------------------------
BANK USE ONLY
____________________________________________ Received by:__________________
SIGNATURE AUTHORIZED SIGNER
____________________________________________ Date:_________________________
TITLE
____________________________________________ Verified:_____________________
DATE AUTHORIZED SIGNER
Date:_________________________
Compliance Status: Yes No
------------------------------
3
<PAGE>
CORPORATE RESOLUTIONS TO BORROW
- --------------------------------------------------------------------------------
BORROWER: INKTOMI CORPORATION
- --------------------------------------------------------------------------------
I, the undersigned Secretary or Assistant Secretary of Inktomi Corporation
(the "Corporation"), HEREBY CERTIFY that the Corporation is organized and
existing under and by virtue of the laws of the state of California.
I FURTHER CERTIFY that the Articles of Incorporation and By Laws previously
delivered to Silicon Valley Bank (the "Bank") remain in full force and effect
and have not been amended, restated or modified.
I FURTHER CERTIFY that at a meeting of the Directors of the Corporation
duly called and held, at which a quorum was present and voting (or by other duly
authorized corporate action in lieu of a meeting), the following resolutions
were adopted.
BE IT RESOLVED, that ANY ONE (1) of the following named officers,
employees, or agents of this Corporation, whose actual signatures are shown
below:
NAMES POSITIONS ACTUAL SIGNATURES
----- --------- -----------------
_____________________ _______________________ _____________________________
_____________________ _______________________ _____________________________
_____________________ _______________________ _____________________________
_____________________ _______________________ _____________________________
_____________________ _______________________ _____________________________
acting for an on behalf of this Corporation and as its act and deed be, and they
hereby are, authorized and empowered:
BORROW MONEY. To borrow from time to time from Bank, on such terms as may
be agreed upon between the officers, employees, or agents and Bank, such sum or
sums of money as in their judgment should be borrowed, without limitation,
including such sums as are specified in that certain Third Amendment to Loan and
Security Agreement dated as of February 2, 1998 (the "Amendment").
EXECUTE NOTES. To execute and deliver to Bank the Amendment and also to
execute and deliver to Bank one or more renewals, extensions, modifications,
refinancings, consolidations, or substitutions for one or more of the notes, or
any portion of the notes.
GRANT SECURITY. To grant a security interest to Bank in the Collateral
described in the Loan Agreement, which security interest shall secure all of the
Corporation's Obligations, as described in the Loan Agreement.
NEGOTIATE ITEMS. To draw, endorse, and discount with Bank all drafts,
trade acceptances, promissory notes, or other evidences of indebtedness payable
to or belonging to the Corporation or in which the Corporation may have an
interest, and either to receive cash for the same or to cause such proceeds to
be credited to the account of the
1
<PAGE>
Corporation with Bank, or to cause such other disposition of the proceeds
derived therefrom as they may deem advisable.
LETTERS OF CREDIT; FOREIGN EXCHANGE. To execute letters of credit
applications, foreign exchange agreements and other related documents pertaining
to Bank's issuance of letters of credit and foreign exchange contracts.
CASH MANAGEMENT SERVICES. To enter into that certain Cash Management
Services Agreement and any other related documents pertaining to cash management
services.
FURTHER ACTS. In the case of lines of credit, to designate additional or
alternate individuals as being authorized to request advances thereunder, and in
all cases, to do and perform such other acts and things, to pay any and all fees
and costs, and to execute and deliver such other documents and agreements as
they may in their discretion deem reasonably necessary or proper in order to
carry into effect the provisions of these Resolutions.
BE IT FURTHER RESOLVED, that any and all acts authorized pursuant to these
resolutions and performed prior to the passage of these resolutions are hereby
ratified and approved, that these Resolutions shall remain in full force and
effect and Bank may rely on these Resolutions until written notice of their
revocation shall have been delivered to and received by Bank. Any such notice
shall not affect any of the Corporation's agreements or commitments in effect at
the time notice is given.
I FURTHER CERTIFY that the officers, employees, and agents named above are
duly elected, appointed, or employed by or for the Corporation, as the case may
be, and occupy the positions set forth opposite their respective names; that the
foregoing Resolutions now stand of record on the books of the Corporation; and
that the Resolutions are in full force and effect and have not been modified or
revoked in any manner whatsoever.
IN WITNESS WHEREOF, I have hereunto set my hand on February __, 1998 and
attest that the signatures set opposite the names listed above are their genuine
signatures.
CERTIFIED TO AND ATTESTED BY:
X______________________________________
- --------------------------------------------------------------------------------
2
<PAGE>
EXHIBIT 10.8
SUBLEASE
--------
THIS SUBLEASE is made this 27 day of November, 1996, by and between
MACROMEDIA, INC., a Delaware corporation, as "Sublessor," and INKTOMI
CORPORATION, a Delaware corporation, as "Sublessee."
RECITALS:
--------
A. On February 6, 1996, Norfolk Atrium, a California limited partnership
("Master Lessor"), as Lessor, and Sublessor, as Lessee, entered into an Office
Lease (the "Master Lease") respecting certain premises (the "Premises")
consisting of approximately Sixteen Thousand Four Hundred and Two (16,402)
square feet of space commonly known as Suites 110 and 115 of the building
located at 1900 South Norfolk Street, San Mateo, California. A copy of the
Master Lease including those Addenda to Lease attached thereto is attached
hereto as Exhibit A and incorporated herein by reference. Any capitalized terms
---------
used in this Sublease but not defined herein shall have the meanings attributed
to them in the Master Lease.
B. Sublessor now desires to sublease the Premises to Sublessee and
Sublessee desires to hire the Premises from Sublessor on the terms and
conditions set forth hereinbelow.
NOW, THEREFORE, in furtherance of the foregoing, and in consideration of
the mutual covenants set forth hereinbelow, the parties agree as follows:
1. PREMISES. Sublessor hereby subleases to Sublessee and Sublessee hires
--------
from Sublessor the entire Premises subject to all of the terms and conditions
set forth in this Sublease.
2. TERM. The term of this Sublease shall commence on the date (the
----
"Commencement Date") on which Sublessor delivers possession of the Premises to
Sublessee in the condition required in Paragraph 5 of this Sublease, and shall
end on June 30, 2000 (the scheduled expiration date of the Master Lease), unless
sooner terminated pursuant to the provisions hereof. The parties shall confirm
in writing the Commencement Date upon its occurrence. It is anticipated by the
parties that the Commencement Date will occur on or about March 1, 1997, but
Sublessor's ability to vacate the Premises is dependant on the completion of its
building at 101 Redwood Shores Parkway, Redwood Shores. Following the execution
hereof, Sublessor shall keep Sublessee apprised as to any changes to the
expected Commencement Date and shall provide Sublessee with at least thirty (30)
days' prior written notice of the actual Commencement Date. If the
Commencement Date has not occurred for any reason whatsoever on or before June
1, 1997, then Sublessee, as its sole remedy, shall be entitled to terminate this
Sublease by written notice to Sublessor, whereupon any monies previously paid by
Sublessee to Sublessor shall be reimbursed to Sublessee. In the event the
Master Lease is terminated for any reason other than a termination resulting
from Sublessor's breach of the Master Lease, this Sublease shall terminate
concurrently therewith without any liability of Sublessor to Sublessee.
3. RENT. Commencing upon the Commencement Date, Sublessee shall pay to
----
Sublessor at the address set forth below in Paragraph 8 as monthly base rent
("Monthly Base Rent") for the Premises as follows:
<TABLE>
<CAPTION>
Months (Commencing
------------------
on Commencement Date) Monthly Base Rent
--------------------- -----------------
<S> <C>
1 - 12 $36,904.50
13 - 24 $38,544.70
25 - end of term $40,184.90
</TABLE>
<PAGE>
In addition to Monthly Base Rent, throughout the term hereof, Sublessee
shall pay to Sublessor all sums payable by Sublessor under the Master Lease
which accrue following the Commencement Date as "Rentals" (except for Base Rent
under the Master Lease). All sums of Monthly Base Rent payable hereunder and all
additional amounts payable by Sublessee as Rentals (including Excess Expenses)
under the Master Lease (collectively, "Rent") shall be paid without deduction,
offset, prior notice or demand in lawful money of the United States of America.
Notwithstanding the foregoing, Sublessee shall pay all sums due pursuant to
Addendum 6 of the Master Lease for after hours utility charges directly to
Master Lessor and Sublessee shall give any notices required by Addendum 6
directly to Master Lessor. Rent hereunder shall be payable in advance on the
first day of each and every calendar month of the term hereof, starting on the
Commencement Date. Rent for any period which is less than a full month shall be
prorated based upon a thirty (30) day month. The first month's installment of
Monthly Base Rent hereunder in the amount $36,904.50, shall be paid to Sublessor
upon execution of this Sublease.
4. SECURITY DEPOSIT. Upon the execution of this Sublease, Sublessee
----------------
shall deposit with Sublessor the sum of One Hundred Ten Thousand Seven Hundred
Thirteen Dollars and Fifty Cents ($110,713.50) (the "Initial Deposit") toward
the total sum of Two Hundred Twenty-One Thousand Four Hundred Twenty-Seven
Dollars ($221,427.00) (the "Security Deposit") which sum shall serve as security
for the full and faithful performance by Sublessee of every term and condition
of this Sublease. Sublessee shall deposit the remaining portion of the Security
Deposit in the amount of One Hundred Ten Thousand Seven Hundred Thirteen Dollars
and Fifty Cents ($110,713.50) on or prior to the tenth (10th) day prior to the
Commencement Date. If Sublessee defaults in the performance of any of its
obligations hereunder, Sublessor may use or apply all or a portion of the
Security Deposit to cure the default or to compensate Sublessor for its damages
and expenses resulting from the default, in which event Sublessee shall promptly
deposit with Sublessor the sum necessary to restore the Security Deposit to its
full amount. Upon termination of this Sublease and performance of all of
Sublessee's obligations hereunder, Sublessor shall return the Security Deposit
or any balance thereof less the amount of the Furniture Purchase Price (defined
in Paragraph 5 below) to Sublessee within fifteen (15) days after said
termination. Sublessee shall not be entitled to interest on the Security
Deposit, and Sublessor shall be entitled to commingle the Security Deposit with
its general funds.
5. CONDITION OF PREMISES. The Premises shall be delivered to Sublessee
---------------------
upon the Commencement Date in their then existing "AS IS" condition, broom clean
and, notwithstanding anything to the contrary in Paragraph 11.a of the Master
Lease, if necessary as determined by Sublessor in its reasonable judgment, with
the carpet cleaned and the walls touched up with paint. Sublessor shall leave on
the Premises and sell to Sublessee the existing Herman Miller Series 2 partition
furniture consisting of 57 cubicles, all as more particularly described on
Exhibit B attached hereto and incorporated herein (the "Furniture") and
- ---------
Sublessee shall purchase such Furniture for the sum of One Hundred Seventy-One
Thousand Dollars ($171,000.00) (the "Furniture Purchase Price") which sum shall
be retained by Sublessor from the Security Deposit at the expiration or sooner
termination of the term of this Sublease (the "Termination Date"), provided that
Sublessee has fully performed its obligations hereunder. Ownership of the
Furniture shall be transferred to Sublessee pursuant to the Bill of Sale
attached hereto as Exhibit C which Sublessor shall execute and deliver to
---------
Sublessee within ten (10) days following the Termination Date, provided that
Sublessee has fully performed its obligations hereunder. If Sublessee has not
fully performed its obligations hereunder as of the Termination Date, Sublessor
shall be entitled to use or apply the Security Deposit to cure any defaults or
to compensate Sublessor for any related damages or expenses and Sublessor shall
retain ownership of the Furniture until (i) all defaults under this Sublease are
cured, (ii) Sublessee has compensated Sublessor for all damages and expenses
incurred in connection with said defaults, and (iii) Sublessee has paid the
Furniture Purchase Price to Sublessor.
2
<PAGE>
On the Termination Date, Sublessee shall remove the Furniture from the
Premises and shall otherwise comply with the responsibilities of the Lessee
under the Master Lease regarding surrender of the Premises. By accepting
possession of the Premises, Sublessee acknowledges that the condition thereof is
acceptable in all respects. As of the Commencement Date, to Sublessor's actual
knowledge, the Premises shall comply with all applicable laws, ordinances,
codes, rules, orders, directives and regulations of lawful governmental
authorities having jurisdiction over the Premises. Sublessor has not received
any notices indicating that the Premises are in violation of any building code,
fire safety code or the Americans with Disabilities Act and, to the best of
Sublessor's knowledge, all of the Building's operating and mechanical systems
are in good working order, condition and repair.
6. USE. Sublessee shall use the Premises solely for general office
---
purposes in accordance with the terms and conditions of the Master Lease, and
for no other purpose whatsoever without the prior written consent of Sublessor
and Master Lessor.
7. SUBJECT TO MASTER LEASE. This Sublease is subject and subordinate to
-----------------------
all of the terms and conditions of the Master Lease. Sublessee shall not commit
or permit to be committed on the Premises any act or omission which shall
violate any of the terms or conditions of the Master Lease.
8. INCORPORATION OF MASTER LEASE. Except as otherwise provided herein,
-----------------------------
and except for (i) the following paragraphs or provisions of the Master Lease:
1.a, b, c, e through i and n, 3, 4.a and b, the first sentence of Paragraph 5,
5.b, 6, the sixth (6th) paragraph of Paragraph 7.b commencing with the word
"Notwithstanding", the phrase beginning with "that arises out of Lessor's sole"
and ends with "passive" in the third (3rd) sentence in the third (3rd) paragraph
of Paragraph 14 is hereby deleted and replaced with the following: "which Lessor
is obligated to indemnify Lessee in accordance with Addendum 5 of this Lease",
the second (2nd) sentence of Paragraph 29 and 53, (ii) the following Addenda to
the Master Lease: 1, 2, 3 and 8 and (iii) Exhibit C to the Master Lease, which
paragraphs and provisions are all expressly excluded from this Sublease and not
incorporated herein by reference, all the terms and conditions contained in the
Master Lease are hereby incorporated as terms and conditions of this Sublease
(with each reference in the Master Lease to "Lessor" and "Lessee" to be deemed
to refer to Sublessor and Sublessee, respectively, hereunder and all references
to the term "Lease" to be deemed to refer to this Sublease), and along with all
of the provisions set forth herein, shall be the complete terms and conditions
of this Sublease. Except as otherwise provided in this Sublease, Sublessee
assumes and agrees to perform for the benefit of Master Lessor and Sublessor all
obligations of Sublessor, as Lessee, under the Master Lease which accrue on or
after the Commencement Date to the extent the provisions of the Master Lease are
incorporated herein by reference.
Notwithstanding the foregoing, Sublessor shall not be responsible for
the performance or the furnishing of any maintenance, repair, replacement or
other obligations or services regarding the Building, the Premises, or the
Common Areas which are required to be performed or provided by Master Lessor
under the Master Lease (including Master Lessor's ADA related responsibilities
as described in Paragraph 9 of the Master Lease) and Sublessee agrees to look
solely to Master Lessor for the performance of such obligations or services.
Provided that Sublessor has performed all obligations required of Sublessor as
Lessee under the Master Lease (except to the extent such obligations have been
delegated to Sublessee in this Sublease), Sublessor shall have no liability to
Sublessee for any failure by Master Lessor to perform its obligations under the
Master Lease, nor shall such failure by Master Lessor excuse performance by
Sublessee of its obligations under this Sublease. Paragraph 1. m of the Master
Lease, incorporated by reference herein, is modified so that the addresses of
the parties for purposes of giving notice are as follows:
3
<PAGE>
Sublessor:
Macromedia, Inc.
600 Townsend Street, Suite 310W
San Francisco, CA 94103
Attention: Mr. David Yokell
Sublessee:
Inktomi Corporation
2168 Shattuck Ave.
-----------------------------
Berkely California
-----------------------------
_____________________________
Attn: Mr. Mervin Smith
------------------------
9. CONSENTS. Wherever the consent of Lessor is required under the Master
--------
Lease, Sublessee shall obtain both the consent of Sublessor and Master Lessor.
10. DEFAULTS UNDER MASTER LEASE.
---------------------------
(a) Sublessor shall perform or cause to be performed in a timely and
proper fashion all of its obligations as Lessee under the Master Lease, except
for obligations which have been expressly assumed by Sublessee hereunder.
Sublessor shall not terminate, amend or modify the Master Lease prior to
expiration of this Sublease unless Sublessee consents to such action in writing,
which consent may be withheld in Sublessee's sole discretion.
(b) If Sublessee defaults under this Sublease (including a default
under incorporated provisions of the Master Lease), then Sublessor shall have
the right to terminate Sublessee's interest under this Sublease upon the
expiration of any applicable cure periods. If Sublessee defaults under the
Master Lease, Sublessee shall defend, indemnify and hold Sublessor harmless from
all damages, costs (including attorneys' fees), liability, expenses or claims
relating to the default. If Sublessee fails to perform any of its obligations
under the Master Lease and Sublessor performs such obligations to prevent or
cure a default thereunder, Sublessee immediately shall reimburse Sublessor for
all of Sublessor's actual costs and expenses incurred by Sublessor in performing
Sublessee's obligations, together with interest on those sums at the maximum
rate permitted by law. The foregoing rights of Sublessor are in addition to
Sublessor's rights under Paragraph 23 of the Master Lease as incorporated
herein.
11. ASSIGNMENT AND SUBLETTING. Subject to all of the terms and conditions
-------------------------
of Paragraph 13 and Addendum 9 of the Master Lease, Sublessee shall be entitled
to further sublease and assign the Premises with the prior written consent of
Sublessor and Master Lessor. Bonus value (as defined in the Master Lease) from
such further subleases and assignments shall be evenly divided between Sublessor
and Sublessee as provided in Addendum 9, subject to Master's Lessor's rights to
one-half of any such bonus value.
12. ATTORNEYS' FEES. If either party commences an action against the
---------------
other party arising out of or in connection with this Sublease, the prevailing
party shall be entitled to recover from the losing party reasonable attorney's
fees and costs.
13. CORPORATE AUTHORITY. Each individual executing this Sublease on
-------------------
behalf of Sublessor and Sublessee represents and warrants to the other party
that all necessary actions have been taken to duly authorize him or her to
execute and deliver this Sublease on behalf of Sublessor or Sublessee in
accordance with the by-laws of Sublessor or Sublessee, as the case may be, and
that this Sublease is binding upon said party in accordance with its terms.
4
<PAGE>
14. CONSENT OF MASTER LESSOR. This Sublease shall not be effective unless
------------------------
and until the date on which this Sublease is executed by Sublessee and Sublessor
and consented to by Master Lessor. In the event Master Lessor does not consent
to this Sublease, all sums paid by Sublessee to Sublessor upon execution hereof
by Sublessee shall be promptly returned to Sublessee.
15. COUNTERPARTS. This Sublease may be executed in counterparts each of
------------
which shall be deemed an original, but all of which together shall constitute
one and the same document.
16. COMMISSION. Sublessor shall pay to BT Commercial ("Broker"), a
----------
brokerage commission pursuant to a separate written agreement. Sublessee
represents and warrants to Sublessor that it has not had any dealings with any
real estate brokers other than Broker in connection with this Sublease.
Sublessee and Sublessor shall indemnify, defend, protect and hold the other
harmless from any claims for brokerage commissions or fees in connection with
this Sublease or the Premises arising out of such indemnifying party's dealings
with any real estate broker (other than the Broker) in connection with this
Sublease.
17. SUBLESSOR'S OBLIGATIONS. Sublessor shall continue to perform all of
-----------------------
its obligations under the Master Lease and use Sublessor's diligent good faith
efforts to cause Master Lessor to perform its obligations under the Master Lease
for the benefit of Sublessee. Such diligent good faith efforts shall include,
without limitation, upon Sublessee's written request, immediately notifying
Master Lessor of its nonperformance under the Master Lease and requesting that
Master Lessor perform its obligations under the Master Lease.
18. ASSIGNMENT. Notwithstanding anything to the contrary in this Sublease
----------
or the Master Lease: Sublessee may, without Sublessor's prior written consent,
sublet any or all of the Premises or assign this Sublease on such terms and
conditions as Sublessee may elect to: (i) a subsidiary, affiliate, division or
corporation controlling, controlled by or under common control with Sublessee;
(ii) a successor corporation related to Sublessee by merger, consolidation,
nonbankruptcy reorganization, or government action; or (iii) a purchaser of
substantially all of Sublessee's assets located in the Premises.
19. CONFLICT. If any terms of the Master Lease contradict the terms of
--------
this Sublease, the terms of this Sublease shall control over the Master Lease,
as between Sublessor and Sublessee.
20. SURRENDER. Notwithstanding anything to the contrary contained in this
---------
Sublease or the Master Lease, Sublessee's obligation to surrender the Premises
shall be fulfilled if Sublessee surrenders possession of the Premises broom
clean, trash free, in the condition existing at the Commencement Date, ordinary
wear and tear and insured casualties to the extent of Net Insurance Proceeds
recovered by Master Lessor, alone excepted. Additionally, Sublessee shall not
be required to remove from the Premises Hazardous Materials released or emitted
on or about the Premises by Sublessor, its agents, employees, contractors or
invitees, alterations made by Sublessee which Master Lessor and Sublessor state
in writing may be surrendered at the termination of this Sublease and any
alterations made to the Premises by Sublessor prior to or after the Commencement
Date.
21. SUBLESSOR' REPRESENTATIONS AND WARRANTIES. As an inducement to
-----------------------------------------
Sublessee to enter this Sublease, to the best of Sublessor's knowledge,
Sublessor represents and warrants with respect to the Premises that: (a) The
Master Lease is in full force and effect, and there exists under the Master
Lease no default or event of default by either Master Lessor or Sublessor, nor
has there occurred any event which, with the giving of notice or passage of time
or both, could constitute such a default or event of default; (b) There are no
pending or threatened actions, suits or
5
<PAGE>
proceedings before any court or administrative agency against Sublessor which
could, in the aggregate, adversely affect the Premises or any part thereof or
the ability of Sublessor to perform its obligations under the Master Lease or of
Sublessor to perform its obligations under this Sublease, and Sublessor is not
aware of any facts which might resold in any such actions, suits or proceedings;
(c) There is no pending or threatened condemnation or similar proceeding
affecting the Premises or any portion thereof, and Sublessor has no knowledge
that any such action currently is contemplated; (d) Sublessor has not received
any notice from any insurance company of any defects or inadequacies in the
premises or any part thereof which could adversely affect the insurability of
the Premises or the premiums for the insurance thereof; (e) Sublessor has not
been late in the payment of any Rentals or Additional Rent to Master Lessor
under the terms of the Master Lease more than one (1) time during the Term of
the Master Lease.
22. AUTHORIZATION TO DIRECT SUBLEASE PAYMENTS. Sublessor hereby
-----------------------------------------
acknowledges that Sublessor's failure to pay the rent and other sums owing by
Sublessor to Master Lessor under the Master Lease will cause Sublessee to incur
damages, costs and expenses not contemplated by this Sublease, especially in
those cases where Sublessee has paid sums to Sublessor hereunder which
correspond in whole or in part to the amounts owing by Sublessor to Master
Lessor under the Master Lease. Accordingly, during any period in which Sublessor
is in default in its obligation to pay rent and other sums due under the Master
Lease, Sublessee shall have the right to pay all rent and other sums owing by
Sublessee to Sublessor hereunder for those items which are also owed by
Sublessor to Master Lessor under the Master Lease directly to Master Lessor. Any
sums paid directly to Master Lessor in accordance with this Paragraph shall be
credited toward the amounts payable by Sublessee to Sublessor under this
Sublease.
23. HAZARDOUS MATERIALS. Notwithstanding anything to the contrary
-------------------
contained in this Sublease or the Master Lease, to the best knowledge of
Sublessor, Sublessor has not received any notice of any action, proceeding or
claim pending or threatened regarding the Building and/or the Real Property
concerning any Hazardous Material or pursuant to any applicable environmental
laws.
24. ASSIGNMENT OF RIGHTS. Sublessor hereby assigns to Sublessee all
--------------------
warranties given and indemnities made by Master Lessor to Sublessor under the
Master Lease which would reduce Sublessee's obligations hereunder, and shall
cooperate with Sublessee to enforce all such warranties and indemnities.
6
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Sublease as of the date
first hereinabove set forth.
"SUBLESSOR"
MACROMEDIA, INC.,
a Delaware corporation
By /s/ Philip Johnson
-----------------------------------
Its V. P. Operational CFO
----------------------------------
"SUBLESSEE"
INKTOMI CORPORATION,
a Delaware corporation
By Jerry Kennelley
-----------------------------------
Its CFO
----------------------------------
7
<PAGE>
THE ATRIUM
OFFICE LEASE
For and in consideration of rentals, covenants, and conditions hereinafter set
forth, Lessor hereby leases to Lessee, and Lessee hereby leases from Lessor, the
herein described Premises for the term, at the rental rate specified herein and
subject to and upon all of the terms, covenants and agreements set forth in this
lease ("Lease"):
1. SUMMARY OF LEASE PROVISIONS.
---------------------------
a. Lessee: Macromedia, Inc., A California corporation
------ -------------------------------------------------------
_________________________________________ ("Lessee").
b. Lessor: NORFOLK ATRIUM, a California limited partnership ("Lessor").
------
c. Date of Lease (for reference purposes only): February 6, 1996.
------------------------------------------- -------------------
d. Premises: That certain office space commonly known as 1900 South
--------
Norfolk Street, Suite 110 & 115 San Mateo, California, and shown
---------------
cross-hatched on the reduced floor plan attached hereto as Exhibit
"A," consisting of approximately sixteen thousand four hundred two
---------------------------------
---------------------- (16,402) square feet of Rentable Area, subject
---------------------- ------
to expansion pursuant to the terms of this Lease if an option to
expand the leased Premises is expressly granted elsewhere in this
Lease ("the Premises"). (ARTICLE 2)
Three (3) years, nine (9) months
e. Term: __________________ years, subject to extension pursuant to
----
the terms of this Lease if an option to extend the Term is expressly
granted elsewhere in this Lease. (ARTICLE 3)
f. Commencement Date: See Addendum 1 ("Commencement Date"). (ARTICLE 3)
----------------- --------------
g. Lease Termination: See Addendum 1 ("Expiration Date"), unless sooner
----------------- --------------
terminated pursuant to the terms of this Lease. (ARTICLE 3)
h. Base Rent: Base rent shall be Thirty thousand six hundred seventy-one
--------- ----------------------------------------------------------
and 74/100ths---- Dollars ($30,671.74) per month ("Base Rent").
----------------- ----------
(ARTICLE 5)
i. Security Deposit: Thirty Thousand and 00/100ths --------------------
---------------- --------------------------------------------------
-------------------- Dollars ($30,000.00). (ARTICLE 6)
--------------------- ----------
j. Base Expenses: Six and 45/100ths dollars ($6.45) per square foot per
------------- ----------------- -----
year of Rentable Area within the Building. ("Base Expenses").
(ARTICLE 7)
k. Lessee's Percentage Share of Excess Expenses: Ten and thirteen one
-------------------------------------------- --------------------
hundredths ------------- percent (10.13%). (ARTICLE 7)
------------------------- -----
l. Parking. Right to use Fifty-seven (57) parking spaces within the
------- ----------- --
Common Area. (ARTICLE 26)
m. Addresses for Notices:
---------------------
Lessor: c/o Maxim Property Management
2600 Campus Drive, Suite 200
San Mateo, California 94403
with a concurrent copy to the
Project Management Office at:
1900 South Norfolk Street
Suite 300
-----
San Mateo, California 94403
Lessee: Macromedia, Inc.
----------------------------
1900 South Norfolk Street
----------------------------
Suite 115
----------------------------
San Mateo, California 94403
----------------------------
n. Broker: Cushman & Wakefield and BT Commercial. (ARTICLE 53)
------ -------------------------------------
<PAGE>
p. Geographic Area. San Mateo, California. (ARTICLE 16)
---------------
q. Summary Provisions in General. Parenthetical references in this
-----------------------------
Article 1 to other articles in this Lease are for convenience of reference, and
designate some of the other Lease articles where applicable provisions are set
forth. All of the terms and conditions of each such referenced article shall be
construed to be incorporated within and made a part of each of the above
referred to Summary of Lease Provisions. If any conflict exists between any
Summary of Lease Provisions as set forth above and the balance of the Lease, the
latter shall control.
2. PREMISES DEMISED. Lessor does hereby lease to Lessee and Lessee hereby
----------------
leases from Lessor the Premises described in Article 1.d., subject,
nevertheless, to all of the terms and conditions of this Lease. Calculation of
the actual Rentable Area of the Premises and Building shall be performed by
Lessor's architect, which calculation shall be conclusive and binding upon
Lessor and Lessee. The Premises is shown cross-hatched on the floor plan
attached hereto as Exhibit "A". As used herein, the term "Building" shall mean
the structure in which the Premises are located and the term "Parcel" shall mean
the parcel(s) of land shown on Exhibit "B" attached hereto. The Building and all
other improvements now or hereafter located on the Parcel, if any, are herein
sometimes referred to collectively as the "Project". "Common Area" is defined in
Article 55.
This Lease is subject to all of the terms, covenants and conditions set
forth in this Lease. Lessee covenants as a material part of the consideration
for this Lease to keep and perform each and all of said terms, covenants and
conditions to be kept by Lessee under the Lease.
3. TERM. The term of this Lease shall be for the period designated in Article
----
1.e., commencing on the Commencement Date and ending on the Expiration Date set
forth in Article 1.g., unless sooner terminated pursuant to this Lease ("Term").
The expiration or sooner termination of the Lease is hereinafter referred to as
"Lease Termination."
b. Option to Extend Term. See Addendum 2 attached hereto.
---------------------
c. Contingency. See Addendum 8 attached hereto.
-----------
4. POSSESSION.
----------
a. Construction of Improvements/Delay in Possession. Lessor and Lessee
------------------------------------------------
agree to the provisions set forth in the work letter annexed hereto as Exhibit
"C" ("Work Letter"). Lessor agrees to construct within the Premises the
improvements described in the Work Letter ("Tenant Improvements"), upon and
subject to the provisions thereof. If Lessor, for any reason whatsoever, cannot
deliver possession of the Premises to Lessee at the Commencement Date, this
Lease shall not be void or voidable, nor shall Lessor be liable to Lessee for
any loss or damage resulting therefrom, nor shall the Expiration Date be
extended. Notwithstanding Article 42, if delivery of possession of the Premises
is delayed beyond the Commencement Date, all Rentals (as described in Article
40.b.) shall be abated during the period between the Commencement Date and the
time when Lessor delivers possession, unless delay in possession of the Premises
was caused or contributed to, by Lessee or Lessee's agents, officers, employees,
contractors, servants, invitees, or guests (collectively "Lessee's Agents").
Lessor shall be deemed to have delivered possession to Lessee on the earlier of
(i) the date that Lessor gives notice to Lessee that the Tenant Improvements are
substantially completed as evidenced by a Certificate of Occupancy or other
governmental authorization to occupy the Premises, and that the Premises are
available for occupancy by Lessee, subject only to punch list items which do not
prevent Lessee from using the Premises for its intended use, or (ii) the date on
which the Tenant Improvements would have been substantially completed but for
delays caused by Lessee or Lessee's Agents, including without limitation, change
orders requested by Lessee or required because of any errors or omissions in
plans submitted by Lessee, or (iii) the date upon which Lessee actually occupies
or commences operation from the Premises.
b. Early Possession. If Lessor permits Lessee to occupy the Premises
----------------
prior to the Commencement Date, such occupancy shall be subject to all the
provisions of this Lease. Said early possession shall not advance the Expiration
Date.
c. Certificates and Licenses. Prior to occupancy, Lessee shall provide
-------------------------
to Lessor the certificate(s) of insurance required by Article 16 and a copy of
all licenses and authorizations that may be required for the lawful operation of
Lessee's business upon the Premises, including any City business licenses as may
be required.
d. Lessee to Physically Occupy. Lessee shall physically occupy the
---------------------------
Premises and open the Premises for business as soon as practical; provided,
however, that the date of Lessee's physical occupancy of the Premises shall in
no event extend the Commencement Date, the Expiration Date or the date the
payment of Rentals hereunder commences. Time is of the essence.
5. RENT. Lessee agrees to pay to Lessor as rental for the Premises, without
----
offset, deduction, prior notice or demand, the monthly Base Rent designated in
Article 1.h.,
Base Rent shall be payable in advance on or before the first day of the
first full calendar month of the Term hereof and a like sum, adjusted as
aforesaid, on or before the first day of each and every successive calendar
month thereafter during the Term, except that the first full month's Base Rent
shall be paid upon the execution hereof and the prorated Base Rent payable for
the period, if any, prior to the first full calendar month of the Term shall be
paid on the first day of said first full calendar month. Base Rent for any
period during the Term which is for less than one
<PAGE>
(1) month shall be prorated based upon a thirty (30) day month. Said Base Rent
shall be paid to Lessor in lawful money of the United States of America which
shall be legal tender at the time of payment, at the office of the Project, or
to such other person or at such other place as Lessor may from time to time
designate in writing.
b. Base Rent During extended Term. See Addendum 3 attached hereto.
6. SECURITY DEPOSIT. Lessee has deposited with Lessor the sum set forth in
----------------
Article 1.i. as the security deposit ("Security Deposit"). The Security Deposit
shall be held by Lessor as security for the faithful performance by Lessee of
all the terms, covenants and conditions of this Lease to be kept and performed
by Lessee during the Term. If Lessee defaults with respect to any provision of
this Lease, including, but not limited to the provisions relating to the
payment of Rentals or the condition of the Premises at Lease Termination, Lessor
may (but shall not be required to) use, apply or retain all or any part of the
Security Deposit for the payment of any Rental or any other sum in default, or
for the payment of any amount which Lessor may spend or become obligated to
spend by reason of Lessee's default, or to compensate Lessor for any other loss
or damage which Lessor may suffer by reason of Lessee's default. If any portion
of the Security Deposit is so used or applied, Lessee shall within five (5) days
after written demand therefore, deposit cash with Lessor in an amount sufficient
to restore the Security Deposit to its original amount and Lessee's failure to
do so shall be a material breach of this Lease. Lessor shall not be required
to keep the Security Deposit separate from its general funds, and Lessee shall
not be entitled to interest on the Security Deposit. Lessor is not a trustee of
the Security Deposit and may use it in ordinary business, transfer it or assign
it, or use it in any combination of such ways. If Lessee fully and faithfully
performs every provision of this Lease to be performed by it, the remaining
portion of the Security Deposit shall be returned to Lessee (or, at Lessor's
option, to the last assignee of Lessee's interest hereunder) within two (2)
weeks after Lease Termination and vacation of the Premises by Lessee or its last
assignee; provided, however if any portion of the Security Deposit is to be
applied to repair damages to the Premises caused by Lessee or Lessee's Agents or
to clean the Premises, then the balance of the Security Deposit shall be
returned to Lessee (or, at Lessor's option to the last assignee of Lessee's
interests hereunder) no later than thirty (30) days from the date Lessor
receives possession of the Premises with an accounting of expenses deducted.
Lessee shall not transfer or encumber the Security Deposit nor shall Lessor be
bound by Lessee's attempt to do so. If Lessor's interest in this Lease is
terminated, Lessor may transfer the Security Deposit to Lessor's successor in
interest, and upon such transfer Lessor shall be released from any liability to
Lessee with respect to the Security Deposit and Lessee shall look only to the
transferee for any return of the Security Deposit to which Lessee may be
entitled .
7. COST OF LIVING, PROJECT TAXES AND OPERATING EXPENSE ADJUSTMENTS.
---------------------------------------------------------------
b. Project Taxes and Operating Expenses. Subject to Addendum 4 hereto,
------------------------------------
Lessee shall pay to Lessor, as additional rent and without deduction or offset,
Lessee's percentage share set forth in Article 1.k. ("Lessee's Percentage
Share") of the amount by which annual Project Taxes and Operating Expenses
(defined below) allocable to the Building exceeds the Base Expenses set forth in
Article 1.j. The amount by which such annual Project Taxes and Operating
Expenses exceeds Base Expenses shall hereafter be referred to as "Excess
Expenses". Lessee acknowledges that the amount designated as Base Expenses is
not an estimate of what Lessor expects the annual Project Taxes and Operating
Expenses allocable to the Building to be, and no warranty or representation
whatsoever is being made that the actual Project Taxes and Operating Expenses
allocable to the Building will be the amount designed as Base Expenses. There
shall be no reimbursement or allowance to Lessee if annual Project Taxes and
Operating Expenses allocable to the Building are less than the amount designated
as Base Expenses. Lessee's Percentage Share shall be determined by dividing the
Rentable Area of the Premises by the total Rentable Area in the Building.
Lessee's Percentage Share shall be subject to an equitable adjustment upon a
condemnation, sale by Lessor of part of the Project, reconstruction after damage
or destruction or expansion or reduction of the areas within the Project.
Lessee's Percentage Share of Excess Expenses
<PAGE>
shall be payable during the Term in equal monthly installments on the first day
of each month in advance, without deduction, offset or prior demand.
At any time during the Term, Lessor may give Lessee notice of Lessor's
estimate of the Excess Expenses for the current calendar year. An amount equal
to one twelfth (1/12) of Lessee's Percentage Share of the estimated Excess
Expenses shall be payable monthly by Lessee as aforesaid, commencing on the
first day of the calendar month following thirty (30) days written notice and
continuing until receipt of any notice of adjustment from Lessor given pursuant
to this paragraph. Until notice of the estimated Operating Expenses and Project
Taxes for a subsequent calendar year is delivered to Lessee, Lessee shall
continue to pay its Percentage Share of Excess Expenses on the basis of the
prior year's estimate. Lessor may at any time during the Term adjust estimates
of the Operating Expenses and Project Taxes to reflect current expenditures and
following Lessor's written notice to Lessee of such revised estimate, subsequent
payments by Lessee shall be based upon such revised estimate.
If the Commencement Date is on a date other than the first day of a
calendar year, the amount of the Excess Expenses payable by Lessee in such
calendar year shall be prorated on the basis which the number of days from the
Commencement Date to the end of the calendar year in which the Commencement Date
falls bears to three hundred sixty (360).
Within ninety (90) days after the end of each calendar year during the Term
or as soon thereafter as practicable, Lessor will furnish to Lessee a statement
("Lessor's Statement") setting forth in reasonable detail the actual Project
Taxes and Operating Expenses paid or incurred by Lessor during the preceding
year, and thereupon within ten (10) days an adjustment will be made by Lessee's
payment to Lessor or credit to Lessee by Lessor against the Excess Expenses next
becoming due from Lessee, as the case may require, to the end that Lessor shall
receive the entire amount of Lessee's Percentage Share of Excess Expenses for
such calendar year and no more. If, based on Lessor's Statement a payment from
Lessee is required, Lessee shall not have the right to withhold or defer such
payment pending a review of Lessor's books and records pursuant to the following
paragraph or the resolution of any dispute relating to Project Taxes and
Operating Expenses. If the Expiration Date is on a day other than the last day
of a calendar year, the amount of Excess Expenses payable by Lessee for the
calendar year in which Lease Expiration falls shall be prorated on the basis
which the number of days from the commencement of such calendar year to and
including such Expiration Date bears to three hundred sixty (360). The
Termination of this Lease shall not affect the obligations of Lessor and Lessee
pursuant to this Article 7.
Within sixty (60) days after Lessee receives a statement of actual Project
Taxes and Operating Expenses paid or incurred for a calendar year, Lessee shall
have the right, upon written demand and reasonable notice, to inspect Lessor's
books and records relating to such Project Taxes and Operating Expenses for the
calendar year covered by Lessor's Statement for the purpose of verifying the
amount set forth in such statement. Such inspection shall be made during
Lessor's normal business hours, at the place where such books and records are
customarily maintained by Lessor. Unless Lessee asserts in writing a specific
error within ninety (90) days following Lessee's receipt of Lessor's Statement,
the amounts set forth in Lessor's Statement shall be conclusively deemed correct
and binding on Lessee.
Notwithstanding anything contained in this Article 7 to the contrary,
express or implied, Rentals payable by Lessee shall in no event be less than the
Base Rent specified in Article 5, as adjusted from time to time pursuant to this
Lease.
(i) Operating Expenses. "Operating Expenses" means all of the
------------------
Building Service Expenses and an allocable portion of the Exterior Common Area
Expenses as follows:
(A) Building Service Expenses. Operating Expenses shall
-------------------------
include all costs of operation, maintenance, repair and management of the
Building, including the Premises, and Building Common Area (defined in Article
55), hereinafter collectively referred to as "Building Service Expenses," as
determined by standard accounting practices. Building Service Expenses as used
herein shall include, but not be limited to, all sums expended in connection
with all general maintenance and repairs, painting, cleaning, sweeping and
janitorial services; maintenance and repair of signs, indoor plants, and
atriums; trash removal; sewage; electricity, gas, water and any other utilities
(including any temporary or permanent utility surcharge or other exaction
whether now or hereafter imposed); maintenance and repair of any fire protection
systems, elevator systems, lighting systems, storm drainage systems, HVAC, air
conditioning and heating and other utility systems; any governmental imposition
or surcharge imposed upon Lessor or assessed against the Building or the
Project; all costs and expenses pertaining to a security alarm system for the
tenants in the Building, if Lessor deems necessary in Lessor's reasonable
discretion; materials; supplies; tools; depreciation on maintenance and
operating machinery and equipment (if owned) and rental paid for such machinery
and equipment (if rented); service agreements on equipment; maintenance, and
repair of the roof (including repair of leaks and resurfacing) and the exterior
surfaces of all improvements (including painting); routine and minor repair of
structural parts (including repair of leaks and resurfacing) and the exterior
surfaces of all improvements (including painting); routine and minor repair of
structural parts (including foundation, floor slabs and load bearing walls);
window cleaning; elevator or escalator services; material handling; fees for
licenses and permits relating to the Building; the cost of complying with rules,
regulations and orders of governmental authorities; Building office rent or
rental value; accounting and legal fees; the cost of contesting the validity or
applicability of any governmental enactment which may affect Building Service
Expenses or Project Taxes attributable to the Project, including the Premises
and the Building; personnel to implement such services, including, if Lessor
deems necessary, the cost of security guards and valet attendants; public
liability, environmental impairment, property damage and fire and extended
coverage insurance on the Project and the Building thereon (in such amounts and
providing such coverage as determined in Lessor's sole discretion and which may
include, without limitation, liability, all risk
<PAGE>
property, lessor's risk liability, war risk, vandalism, malicious mischief,
boiler and machinery, rental income, earthquake, flood and worker's compensation
insurance); compensation and fringe benefits payable to all persons employed by
Lessor in connection with the operation, maintenance, repair and management of
the Project, including the Premises and the Building; and a management fee equal
to five percent (5%) of gross receipts from the Building, including all rentals
and parking receipts therefrom. Lessor may cause any or all of said services to
be provided by an independent contractor or contractors, or they may be rendered
by Lessor. In the event Lessor makes capital improvements which have the effect
of reducing Building Services Expense, Lessor may amortize its investment in
said improvements as a Building Service Expense in accordance with standard
accounting practices provided that such amortization is not at a rate greater
than the anticipated savings in the Building Service Expenses. It is the intent
of the parties hereto that Building Service Expenses shall include every cost
paid or incurred by Lessor in connection with the operation, maintenance, repair
and management of the Project, including the Premises and the Building, and the
specific examples of Building Service Expenses stated in this Article 7 are in
no way intended to, and shall not limit the costs comprising Building Service
Expenses, nor shall such examples be deemed to obligate Lessor to incur such
costs or to provide such services or to take such actions except as Lessor may
be expressly required in other portions of this Lease, or except as Lessor, in
its sole discretion, may elect. The maintenance of the Project, including the
Premises and the Building, shall be at the sole discretion of Lessor and all
costs incurred by Lessor in good faith shall be deemed conclusively binding on
Lessee. In the event that less than one hundred percent (100%) of the Building
is occupied during any calendar year, all Building Service Expenses on the
statements provided by Lessor shall be adjusted for each calendar year to equal
Lessor's reasonable estimate of Building Service Expenses had one hundred
percent (100%) of the total rentable area of the Building been occupied.
Statements of the Building Service Expenses provided by Lessor shall be final
and binding upon both Lessor and Lessee; plus
(B) Exterior Common Area Expenses. Operating Expenses shall
-----------------------------
include that portion of all direct costs of operation, maintenance, repair and
management of the Exterior Common Area (determined by standard accounting
practices) allocable to the Building containing the Premises (collectively,
"Exterior Common Area Expense"). Such costs shall be allocated by Lessor between
the Building containing the Premises and the other buildings located within the
Project from time to time and having the right to use the Exterior Common Area,
in such manner as Lessor reasonably determines in good faith. Exterior Common
Area Expenses as used herein shall include, but not be limited to, all sums
expended in connection with all general maintenance and repairs, resurfacing,
painting, restriping, cleaning, sweeping, and janitorial services; maintenance
and repair of sidewalks, curbs, signs and other Exterior Common Areas;
maintenance and repair of sprinkler systems, planting, and landscaping; trash
removal; sewage; electricity, gas, water and any other utilities (including any
temporary or permanent utility surcharge or other exaction whether now or
hereafter imposed); maintenance and repair of directional signs and other
markers and bumpers; maintenance and repair of any fire protection systems,
elevator systems, lighting systems, storm drainage systems and other utility
systems; any governmental imposition or surcharge imposed upon Lessor or
assessed against the Exterior Common Area; materials; supplies, tools;
depreciation on maintenance and operating machinery and equipment (if owned) and
rental paid for such machinery and equipment (if rented); service agreements on
equipment; maintenance and repair of parking areas and parking structures, if
any; maintenance and routine and minor repair of structural parts (including
foundation and floor slabs); elevator services, if applicable; material
handling; fees for licenses and permits relating to the Exterior Common Area;
the cost of complying with rules, regulation and orders of governmental
authorities; accounting and legal fees; the cost of contesting the validity or
applicability of any governmental enactment which may affect Project Taxes
attributable to the Exterior Common Area; personnel to implement such services,
including if Lessor deems necessary, the cost of security guards and valet
attendants; public liability, environmental impairments, property damage and
fire and extended coverage insurance on Exterior Common Area (in such amounts
and providing such coverage as determined in Lessor's sole discretion and which
may include, without limitation, liability, all risk property, lessor's risk
liability, war risk, vandalism, malicious mischief, sprinkler leakage, boiler
and machinery, parking income, earthquake, flood and worker's compensation
insurance); and compensation and fringe benefits payable to all persons employed
by Lessor in connection with the operation, maintenance, repair and management
of the Exterior Common Area. Lessor may cause any or all of said services to be
provided by an independent contractor or contractors, or they may be rendered by
Lessor. In the event Lessor makes capital improvements which have the effect of
reducing Exterior Common Area Expenses, Lessor may amortize its investment in
said improvements as an Exterior Common Area Expense in accordance with standard
accounting practices provided that such amortization is not at a rate greater
than the anticipated savings in the Exterior Common Area Expenses. It is the
intent of the parties hereto that Exterior Common Area Expenses shall include
every cost paid or incurred by Lessor in connection with the operation,
maintenance, repair and management of the Exterior Common Area, and the specific
examples of Exterior Common Area Expenses stated in this Article 7 are in no way
intended to, and shall not limit the costs comprising Exterior Common Area
Expenses, nor shall such examples be deemed to obligate Lessor to incur such
costs or to provide such services or to take such actions except as Lessor may
be expressly required in other portions of this Lease, or except as Lessor, in
its sole discretion, may elect. The maintenance of the Exterior Common Area
shall be at the sole discretion of Lessor and all costs incurred by Lessor in
good faith shall be deemed conclusively binding on Lessee. In the event that
less than one hundred percent (100%) of the Building is occupied during any
calendar year, all Exterior Common Area Expenses on the statements provided by
Lessor shall be adjusted for each calendar year to equal Lessor's reasonable
estimate of Exterior Common Area Expenses had one hundred percent (100%) of the
total rentable area of the Building been occupied. Statements of Exterior Common
Area Expenses provided by Lessor shall be final and binding upon both Lessor and
Lessee.
(ii) Project Taxes. The term "Project Taxes" as used in this Lease
-------------
shall collectively mean (to the extent any of the following are not paid by
Lessee pursuant to Article 7.c. below) all: real estate taxes and general or
assessments (including, but not limited to, assessments for public improvements
or benefits); personal property taxes; taxes based on vehicles utilizing parking
areas on the Parcel; taxes computed or based on rental income (including without
limitation any municipal business tax but excluding federal, state and municipal
net income
<PAGE>
taxes); Environmental Surcharges; excise taxes; gross receipts taxes; sales
and/or use taxes; employee taxes; water and sewer taxes, levies, assessments and
other charges in the nature of taxes or assessments (including, but not limited
to, assessments for public improvements or benefit); and all other governmental,
quasi-governmental or special district impositions of any kind and nature
whatsoever, regardless of whether now customary or within the contemplation of
the parties hereto and regardless of whether resulting from increased rate
and/or valuation, or whether extraordinary or ordinary, general or special,
unforeseen or foreseen, or similar or dissimilar to any of the foregoing which
during the Lease term are laid, levied, assessed or imposed upon Lessor and/or
become a lien upon or chargeable against the Project or the Premises, Building,
Common Area and/or Parcel under or by virtue of any present or future laws,
statutes, ordinances, regulations, or other requirements of any governmental
authority or quasi-governmental authority or special district having the direct
or indirect power to tax or levy assessments whatsoever. The term "Environmental
Surcharges" shall include any and all expenses, taxes, charges or penalties
imposed by the Federal Department of Energy, Federal Environmental Protection
Agency, the Federal Clean Air Act, or any regulations promulgated thereunder, or
imposed by any other local, state or federal governmental agency or entity now
or hereafter vested with the power to impose taxes, assessments or other types
of surcharges as a means of controlling or abating environmental pollution or
the use of energy in regard to the use, operation or occupancy of the Project
including the Premises, Building, Common Area and/or Parcel. The term "Project
Taxes" shall include (to the extent the same are not paid by Lessee pursuant to
Article 7.c. below), without limitation: the cost to Lessor of contesting the
amount or validity or applicability of any Project Taxes described above; and
all taxes, assessments, levies, fees, impositions or charges levied, imposed,
assessed, measured, or based in any manner whatsoever upon or with respect to
the use, possession, occupancy, leasing, operation or management of the Project
including the Premises, Building, Common Area and/or Parcel or in lieu of or
equivalent to any Project Taxes set forth in this Article 7.b.(ii). The portion
of Project Taxes allocable to the Building shall be such Project Taxes as are
attributable to the Project, including the Premises and the Building in which
the Premises are located, together with a portion of the Project Taxes
attributable to the Exterior Common Area, all as reasonably and in good faith
determined by Lessor from time to time. Lessor shall reasonably and in good
faith allocate the Project Taxes as between the Building and the Exterior Common
Area; provided, however, that if the Parcel is assessed by the taxing
authorities such that the Building and the Exterior Common Area are assessed
separately, then Lessor shall allocate the Project Taxes in accordance with such
separate assessments. The Project Taxes attributable to the Exterior Common Area
shall be allocated in such manner as is reasonably and in good faith determined
by Lessor from time to time.
If at any time during the Term, Project Taxes are under-assessed by the
taxing authorities so that they are not computed on a fully-completed and
occupied basis in accordance with the then applicable taxing authority of the
governmental entities having jurisdiction, Lessor shall have the right, but not
the obligation, to adjust Project Taxes to reflect the amount that Project Taxes
would be if the Project were assessed on a fully-completed and occupied basis,
as determined in Lessor's reasonable discretion, and such adjusted amount shall
be allocated to the Project in accordance with the terms of this Lease.
c. Other Taxes. Lessee shall pay the following:
-----------
(i) Lessee shall pay (or reimburse Lessor as additional rent if
Lessor is assessed), before delinquency, any and all taxes levied or assessed,
and which become payable for or in connection with any period during the Term,
upon all of the following (collectively, "Leasehold Improvements and Personal
Property"): Lessee's Leasehold Improvements, the Tenant Improvements, equipment,
furniture, furnishings, fixtures, merchandise, inventory, machinery, appliances
and other personal property located in the Premises; except only that which has
been paid for by Lessor and is the standard of the Building. Lessee hereby
acknowledges receipt of a copy of a schedule setting forth the improvements
comprising the standard of the Building. If any or all of the Leasehold
Improvements and Personal Property are assessed and taxed with the Project,
Lessee shall pay to Lessor such taxes within ten (10) days after delivery to
Lessee by Lessor of a statement in writing setting forth the amount applicable
to the Leasehold Improvements and Personal Property. If the Leasehold
Improvements and Personal Property are not separately assessed on the tax
statement or bill, Lessor's good faith determination of the amount of such taxes
applicable to the Leasehold Improvements and Personal Property shall be a
conclusive determination of Lessee's obligation to pay such amount as so
determined by Lessor.
(ii) Lessee shall pay (or reimburse Lessor if Lessor is assessed, as
additional rent), prior to delinquency or within ten days after receipt of a
statement thereof, any and all other taxes, levies, assessments, or surcharges
payable by Lessor or Lessee and relating to this Lease, the Premises or Lessee's
activities in the Premises (other than Lessor's net income, succession,
transfer, gift, franchise, estate, or inheritance taxes), whether or not now
customary or within the contemplation of the parties hereto, now in force or
which may hereafter become effective, including but not limited to taxes: (i)
upon, allocable to, or measured by the area of the Premises or on the Rentals
payable hereunder, including without limitation any gross income, gross
receipts, excise, or other tax levied by the state, any political subdivision
thereof, city or federal government with respect to the receipt of such Rentals;
(ii) upon or with respect to the use, possession, occupancy, leasing, operation
and management of the Premises or any portion thereof; (iii) upon this
transaction or any document to which Lessee is a party creating or transferring
an interest or an estate in the Premises; or (iv) imposed as a means of
controlling or abating environmental pollution or the use of energy, including,
without limitation, any parking taxes, levies or charges or vehicular
regulations imposed by any governmental agency. Lessee shall also pay, prior to
delinquency, all privilege, sales, excise, use, business, occupation, or other
taxes, assessments, license fees, or charges levied, assessed, or imposed upon
Lessee's business operations conducted at the Premises. If any such taxes are
payable by Lessor and it shall not be lawful for Lessee to reimburse Lessor for
such taxes, then the Rentals payable hereunder shall be increased to net Lessor
the net Rental after imposition of any such tax upon Lessor as would have been
payable to Lessor prior to the imposition of any such tax.
<PAGE>
8. CONDUCT OF BUSINESS (USE).
-------------------------
a. In no event shall Lessee use or permit the use of the Premises for any
purpose other than general office use. Lessor and Lessee hereby acknowledge and
agree that the foregoing use restriction is an absolute prohibition against a
change in use of the Premises as contemplated under California Civil Code
section 1997.230. Lessee shall not do or permit to be done in or about the
Premises nor bring or keep anything therein which will in any way increase the
existing rate of or affect any fire or other insurance upon the Building or the
Project or any of its contents, or cause cancellation of any insurance policy
covering the Building or the Project or any part thereof or any of its contents.
Lessee shall not, without prior consent of Lessor, bring into the Building or
the Premises or use or incorporate in the Premises any apparatus, equipment or
supplies that may cause substantial noise, odor, or vibration or overload the
Premises or the Building or any of its utility or elevator systems or jeopardize
the structural integrity of the Building or any part thereof. Lessee and
Lessee's Agents shall not use, store, or dispose of any Hazardous Materials
(defined below) on any portion of the Project. Lessee shall indemnify, defend
with counsel acceptable to Lessor, and hold Lessor and Lessor's employees,
agents, partners, officers, directors and shareholders harmless from and against
any and all claims, actions, suits, proceedings, orders, judgment, losses,
costs, damages, liabilities, penalties, or expenses (including, without
limitation, attorneys' fees) arising in connection with the breach of the
obligations described in the previous sentence. As used in this paragraph,
Hazardous Materials means any chemical, substance or material which has been
determined or is hereafter determined by any federal, state, or local
governmental authority to be capable of posing risk of injury to health or
safety, including, without limitation, petroleum, asbestos, polychlorinated
biphenyls, radioactive materials and radon gas. Lessee shall not do or permit
anything to be done in or about the Premises which will in any way obstruct or
interfere with the rights of other tenants or occupants of the Building or the
Project or injure or annoy them or use or allow the Premises to be used for any
improper, immoral, unlawful or objectionable purpose, nor shall Lessee cause,
maintain or permit any nuisance in, on or about the Premises. Lessee shall not
commit or suffer to be committed any waste in or upon the Premises.
b. Effect of Use Restriction. Lessor and Lessee hereby acknowledge and
-------------------------
agree that the use restriction set forth in subsection 8.a. above shall be
deemed reasonable in all respects and under all circumstances. Lessor and Lessee
further acknowledge and agree that, notwithstanding any provision of this Lease
to the contrary, (i) in the event Lessee requests Lessor's consent to a proposed
assignment of this Lease or subletting of the Premises, Lessor shall be deemed
reasonable in withholding its consent to such assignment or subletting if the
proposed assignee or subtenant desires to use the Premises for any purpose other
than as expressly provided in subsection 8.a. above, and (ii) in the event of a
default by Lessee under the Lease, the enforcement of the use restriction set
forth in subsection 8.a. above shall be deemed reasonable for purposes of
computing the rental loss that could be or could have been reasonably avoided by
Lessor pursuant to California Civil Code section 1951.2 and in connection with
the exercise of Lessor's remedies under California Civil Code section 1951.4.
Notwithstanding the preceding to the contrary, if Lessor withholds its
consent to an assignment of the Lease or subletting of the premises based upon
the desire of the proposed assignee or subtenant to use the Premises for any
purpose other than as expressly provided in subsection 8.a. above, or if Lessee
is in default under this Lease, then, prior to commencing or pursuing any claim
or defense against Lessor based upon the unreasonableness of the use restriction
set forth in subsection 8.a. above, Lessee shall provide Lessor with written
notice (by certified mail, postage prepaid and return receipt requested) setting
forth Lessee's objections to the enforcement of the use restriction in such
instance, the basis upon which Lessee intends to demonstrate that the
enforcement of such use restriction would be unreasonable in such instance, and
the use(s) which Lessee believes Lessor should allow Lessee or its proposed
assignee or subtenant, as the case may be, to make of the Premises. Within
thirty (30) days of Lessor's receipt of Lessee's written notice of objection,
Lessor shall provide Lessee with written notice of Lessor's election to either
(A) enforce the use restriction set forth in subsection 8.a. above, or (B)
permit a change in the use of the Premises, provided that such proposed use
shall in no event (1) require the use, storage or disposal of Hazardous
Materials on or about the Premises or the Project, (2) increase or affect any
fire or other insurance covering the Building or the Project, (3) interfere with
the rights of other tenants of the Building or Project, including, without
limitation, any exclusive use rights of such tenants, (4) be in violation of
applicable federal, state or local laws, rules, regulations, codes or
ordinances, or (5) require Lessor to construct or install, or to provide any
allowance for the construction or installation of, any tenant improvements in
the Premises. Notwithstanding the preceding to the contrary, in no event shall
Lessor have any obligation to allow a change in the use of the premises, it
being expressly understood by the parties that the use restriction set forth in
subsection 8.a. above is an absolute prohibition against a change in use of the
Premises. In the event Lessor fails to provide Lessee with written notice of its
election to either enforce the use restriction or allow a change in use of the
Premises within said thirty (30) day period, Lessor shall be deemed to have
elected to enforce the use restriction. In the event Lessor elects or is deemed
to have elected to enforce the use restriction as provided hereinabove, Lessee
shall have the right to pursue such valid claims or defenses against Lessor as
may be permitted under California Civil Code section 1997.040 and which Lessee
is able to prove.
9. COMPLIANCE WITH LAWS. Lessee shall not use the Premises or permit anything
--------------------
to be done in or about the Premises which will in any way conflict with or
violate any law, statute, ordinance, order or governmental rule or regulation or
requirement of duly constituted public authorities or quasi-public authorities
now in force or which may hereafter be enacted or promulgated. Lessee shall, at
its sole cost and expense, promptly comply with all laws, statutes, ordinances,
orders and governmental or quasi-governmental rules, regulations or requirements
now in force or which may hereafter be in force and with all recorded documents
which relate to or affect the condition, use or occupancy of the Premises, and
with the requirements of any board of fire insurance underwriters or other
similar bodies now or hereafter constituted, relating to, or affecting the
condition, use or occupancy of the Premises, excluding structural changes not
related to or affected by Lessee's improvements, acts or use or occupancy of the
<PAGE>
Premises. The judgment of any court of competent jurisdiction or the admission
of Lessee in any action against Lessee, whether Lessor be a party thereto or
not, that Lessee has violated any law, statute, ordinance, or governmental or
quasi-governmental rule, regulation or requirement, shall be conclusive of that
fact as between the Lessor and Lessee. Lessee shall obtain, prior to taking
possession of the Premises, all permits, licenses, or other authorizations for
the lawful operation of its business at the Premises. Lessee shall indemnify,
defend with counsel acceptable to Lessor and hold Lessor and Lessor's employees,
agents, partners, officers, directors and shareholders harmless from and against
any claim, action, suit, proceeding, order, judgment, liability, penalty or
expense (including, without limitation, attorneys' fees) arising out of the
failure of Lessee to comply with any applicable law, statute, ordinance, order,
rule, regulation, requirement or recorded document. Lessee acknowledges that
Lessee has independently investigated and is satisfied that the Premises are
suitable for Lessee's intended use and that the Building and Premises meet all
governmental and quasi-governmental requirements for such intended use.
Lessor and Lessee acknowledge that, in accordance with the provisions of
the Americans with Disabilities Act (the "ADA"), responsibility for compliance
with the terms and conditions of Title III of the ADA may be allocated as
between Lessor and Lessee. In this regard and notwithstanding anything to the
contrary contained in the Lease, Lessor and Lessee agree that the responsibility
for compliance with the ADA (including, without limitation, the removal of
architectural and communications barriers and the provision of auxiliary aids
and services to the extent required) shall be allocated as follows: (i) Lessee
shall be responsible for compliance with the provisions of Title I of the ADA,
and of Title II and Title III of the ADA as Titles II and III relate to any
construction, renovations, alterations and repairs made within the Premises if
such construction, renovations, alterations and repairs are made by Lessee, at
its expense without the assistance of Lessor; (ii) Lessor shall be responsible
for compliance with the provisions of Title II and III of the ADA for all
construction, renovations, alterations and repairs which Lessor is required,
under this Lease, to make within the Premises, whether (pursuant to the relevant
provisions of the Lease) at Lessor's or Lessee's expense; and (iii) Lessor shall
be responsible for compliance with the provisions of Title III of the ADA for
all exterior and interior areas of the Building not included within the
Premises. Lessor agrees to indemnify and hold Lessee harmless from and against
any claims, damages, costs and liabilities arising out of Lessor's failure, or
alleged failure, as the case may be, to comply with the ADA, to the extent such
compliance has been allocated to Lessor herein, which indemnification obligation
shall survive the expiration or termination of this Lease if the Lease has not
been terminated by reason of a default by Lessee. Lessee agrees to indemnify and
hold Lessor harmless from and against any claims, damages, costs and liabilities
arising out of Lessee's failure, or alleged failure, as the case may be, to
comply with the ADA to the extent such compliance has been allocated to Lessee
herein, which indemnification obligation shall survive the expiration or
termination of this Lease. Lessor and Lessee each agree that the allocation of
responsibility for ADA compliance shall not require Lessor or Lessee to
supervise, monitor or otherwise review the compliance activities of the other
with respect to its assumed responsibilities for ADA compliance as set forth in
this Article 9. Lessor shall, in complying with the ADA (to the extent such
compliance has been allocated to Lessor herein), be entitled to rely upon
representations made to, or information given to Lessor by Lessee in regard to
Lessee's use of the Premises, Lessee's employees, and other matters pertinent to
compliance with the ADA. The indemnity of Lessee set forth above shall apply as
to any liability arising against Lessor by reason of any misrepresentations or
misinformation given by Lessee to Lessor. The allocation of responsibility for
ADA compliance between Lessor and Lessee, and the obligations of Lessor and
Lessee established by such allocations, shall supersede any other provisions of
the Lease that may contradict or otherwise differ from the requirements of this
Article 9.
10. ALTERATIONS AND ADDITIONS.
-------------------------
a. Lessee's Alterations. Lessee shall not make or suffer to be made any
--------------------
alterations, additions, changes or improvements (collectively, "Alterations") to
or of the Premises, or any part thereof without Lessor's prior written consent,
which consent shall not, except as otherwise expressly provided in the Lease, be
unreasonably withheld. Lessee shall not make or suffer to be made any
alterations, additions, changes of improvements (collectively "Alterations") to
or of the Premises or any part thereof if the aggregate cost of any such
Alteration is reasonably anticipated to exceed Ten Thousand and 00/100ths
Dollars ($10,000,00) without the prior written consent of Lessor first had and
obtained, which consent shall not be unreasonably withheld or delayed.
Notwithstanding the foregoing, Lessee shall not make any Alternation without
Lessor's prior written consent and regardless of the cost thereof, which (i)
results in a change to the exterior of the Building, (ii) will be visible from
the exterior of the Building, (iii) effects any changes in the structural
components of the Building, or (iv) effects any of the Building systems. Lessor
may impose, as a condition to the aforesaid consent, such requirements as Lessor
may deem necessary in its sole discretion, including without limitation: the
manner in which the work is done; a right of approval of the contractor by whom
the work is to be performed; the times during which such work is to be
accomplished; the requirement that Lessee post a completion bond in an amount
and form satisfactory to Lessor; the requirement that Lessee reimburse Lessor,
as additional rent, for Lessor's reasonable costs incurred in reviewing any
proposed Alterations, whether or not Lessor's consent is granted; and the
requirement that at Lease Termination, either (i) Lessee, at its expense, will
remove any and all such Alterations installed by Lessee and shall, at its cost,
promptly repair all damages to the Project caused by such removal, or (ii) the
Alterations made by Lessee shall remain with the Premises, be a part of the
realty, and belong to Lessor. In the event Lessee makes any Alternations without
Landlords's prior consent then at the expiration or sooner termination of the
Lease, Lessor can require that they remove any or all of the Alternations and
repair any damage to the Premises caused by such removal. If Lessor consents to
any Alterations to the Premises by Lessee, the same shall be made by Lessee at
Lessee's sole cost and expense in accordance with plans and specifications
approved by Lessor. Any such Alterations made by Lessee shall be performed in
accordance with all applicable laws, ordinances and codes and in a first class
workmanlike manner, and shall not weaken or impair the structural strength or
lessen the value of the Building, shall not invalidate, diminish, or adversely
affect any warranty applicable to the Building or any other improvements located
within the Project, including any equipment therein, and shall be performed in a
manner causing Lessor and Lessor's agents and other tenants of the Building the
least interference and inconvenience practicable under the circumstances. In
making any such Alterations, Lessee shall, at Lessee's sole cost and expense:
(i) File for and secure any necessary permits or approvals from all
governmental departments or authorities having jurisdiction, and any utility
company having an interest therein, and
(ii) Notify Lessor in writing at least fifteen (15) days prior to
the commencement of work on any Alteration, so that Lessor can post and record
appropriate notices of non-responsibility.
<PAGE>
(iii) Provide copies of all drawings and specifications prior to
commencement of construction of any Alterations.
In no event shall Lessee make or suffer to be made any Alteration to the
mechanical or utility systems of the Building, to the Common Area or the
structural portions of the Building or any part thereof without Lessor's prior
written consent, which consent may be withheld in Lessor's sole discretion.
b. Removal. Upon Lease Termination, Lessee shall, upon written demand by
-------
Lessor at Lessee's sole cost and expense, forthwith and with all due diligence
remove any Alterations made by Lessee made without Lessor's prior approval,
which is then designated by Lessor to be removed and Lessee shall, forthwith and
with all due diligence at its sole cost and expense, repair any damage to the
Project caused by such removal. Lessee may also, upon Lease Termination and
provided that Lessee is not then in default hereunder, remove Lessee's movable
equipment, furnishings, trade fixtures and other personal property (excluding
any Alterations made by Lessee not specifically designated by Lessor to be
removed), provided that Lessee shall, forthwith and with all due diligence at
its sole cost and expense, repair any damages to the Project caused by such
removal. Unless Lessor elects to have Lessee remove any such Alterations, all
such Alterations except for movable furniture and trade fixtures of Lessee not
affixed to the Premises, shall become the property of Lessor upon Lease
Termination (without any payment therefor) and remain upon and be surrendered
with the Premises.
c. Alterations Required by Law. Lessee shall pay to Lessor as additional
---------------------------
rent, the cost of any structural or non-structural alteration, addition or
change to the Building and/or at Lessor's election, shall promptly make, at
Lessee's sole expense and in accordance with the provisions of subsection 10.a.
above, any structural or non-structural alteration, addition or change to the
Premises required to comply with laws, regulations, ordinances or orders of any
public agencies, whether now existing or hereinafter promulgated, where such
alterations, additions or changes are required by reason of: Lessee's or
Lessee's Agents' acts; Lessee's use or change of use to the Premises;
alterations or improvements to the Premises made by or for Lessee; or Lessee's
application for any permit or governmental approval.
d. Lessor's Improvements. All fixtures, improvements or equipment which
---------------------
are installed, constructed on or attached to the Premises, or any part of the
Project by Lessor at its expense shall be a part of the realty and belong to
Lessor.
11. REPAIRS.
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a. By Lessee. Within ten (10) working days of occupying the Premises,
---------
Lessee shall be deemed to have accepted the Premises as being in good and
sanitary order, condition and repair and to have accepted the Premises in their
condition existing as of the date of such possession, subject to all applicable
laws, covenants, conditions, restrictions, easements, and other matters of
public record and the Rules and Regulations from time to time promulgated by
Lessor governing the use of any portion of the Project. Lessee shall further be
deemed to have accepted Lessee Improvements constructed by Lessor, if any, as
being completed in accordance with the plans and specifications for such
improvements, excluding only the punch list items referred to in Article 4.a.
above. Lessee shall at Lessee's sole cost and expense, keep every part of the
Premises in good condition and repair, damage thereto from causes beyond the
control of Lessee (and not caused by any act or omission of Lessee or Lessee's
Agents) and ordinary wear and tear excepted. If Lessee fails to maintain the
Premises as required by this Lease, Lessor may give Lessee notice to do such
acts as are reasonably required to so maintain the Premises and if Lessee fails
to commence such work immediately in an emergency or where immediate action is
required to protect the Premises or any portion of the Project, or within ten
(10) days after such notice is given under other circumstances, and diligently
prosecute it to completion, then Lessor or Lessor's agents, in addition to all
of the rights and remedies available hereunder or by law and without waiving any
alternative remedies, shall have the right to enter the Premises and to do such
acts and expend such funds at the expense of Lessee as are reasonably required
to perform such work. Any amount so expended by Lessor shall be paid by Lessee
to Lessor as additional rent, upon demand. With respect to any work performed by
Lessor pursuant to this Article 11.a., Lessor shall be liable to Lessee only for
physical damage caused to Lessee's personal property located within the Premises
to the extent such damage is caused by Lessor's or Lessor's agents active
negligence or willful misconduct. In no event shall Lessor have any liability to
Lessee for any other damages, or for any inconvenience or interference with the
use of the Premises by Lessee, or for any consequential damages, including lost
profits, as a result of performing any such work. Except as specifically
provided in an addendum, if any, to this Lease, Lessor shall have no obligation
whatsoever to alter, remodel, improve, repair, decorate or paint the Premises or
any part thereof and the parties hereto affirm that Lessor has made no
representations or warranty to Lessee respecting the condition of the Premises
or any part of the Project except as specifically set forth in this Lease.
b. By Lessor. The costs of repairs and maintenance which are the
---------
obligation of Lessor hereunder or which Lessor elects to perform hereunder
except such repairs and maintenance which are the responsibility of Lessee
hereunder, shall be an Operating Expense and Lessee shall pay, as additional
rent, Lessee's Percentage Share of such costs to Lessor as provided in Article
7. Lessor shall repair and maintain the structural portions of the Building,
including the basic plumbing, air conditioning, heating and electrical systems
installed or furnished by Lessor, unless such maintenance or repairs are caused
in part or in whole by the act, neglect, fault or omission of any duty by Lessee
or Lessee's Agents, in which case Lessee shall pay to Lessor the reasonable cost
of such maintenance or repairs as additional rent. Lessor shall not be liable
for any failure to make any such repairs or to perform any maintenance for which
Lessor is responsible as provided above unless Lessor fails to commence such
work for a period of more than thirty (30) days after written notice of the need
of such repairs or maintenance is given to Lessor by Lessee and the failure is
due solely to causes within Lessor's reasonable control. Except as provided in
Article 21 of this Lease, there shall be no abatement of Rentals, and in any
event there shall be no liability of Lessor by reason
-9-
<PAGE>
of any injury to or interference with Lessee's business arising from the making
of any repairs, alterations or improvements in or to any portion of the Project
or in or to fixtures, appurtenances and equipment therein. Lessee waives the
benefits of any statute now or hereafter in effect (including, without
limitation, the provisions of subsection l of Section 1932, Section 1941 and
Section 1942 of the California Civil Code and any similar or dissimilar law,
statute or ordinance now or hereafter in effect) which would otherwise afford
Lessee the right to make repairs at Lessor's expense (or to deduct the cost of
such repairs from Rentals due hereunder) or to terminate this Lease because of
Lessor's failure to keep the Premises in good and sanitary order.
12. LIENS. Lessee shall keep the Premises and every portion of the Project
-----
free from any and all mechanics', materialmen's and other liens, and claims
thereof, arising out of any work performed, materials furnished or obligations
incurred by or for Lessee. Lessor may require, at Lessor's sole option, that
Lessee provide to Lessor at Lessee's sole cost and expense a lien and completion
bond, or its equivalent, in an amount equal to one and one half (1-1/2) times
any and all estimated costs of any Alterations to the Premises, to insure Lessor
against any liability for mechanics' and materialmen's liens and to insure
completion of the work. Lessee shall indemnify and defend with counsel
acceptable to Lessor and hold Lessor harmless from and against any liens,
demands, claims, actions, suits, proceedings, orders, losses, costs, damages,
liabilities, penalties, expenses, judgments or encumbrances (including without
limitation, attorneys' fees) arising out of any work or services performed or
materials furnished by or at the direction of Lessee or Lessee's Agents or any
contractor employed by Lessee with respect to the Premises. Lessor shall have
the right, at all times, to post and keep posted on the Premises, any notices
permitted or required by law, or which Lessor shall deem proper, for the
protection of Lessor, the Project, and any other party having an interest
therein, from mechanics' and materialmen's liens, including without limitation a
notice of non-responsibility. Lessee shall give written notice to Lessor
fifteen (15) days prior to employing any laborer or contractor to perform
services related to, or receiving materials for use upon the Premises, and
prior to the commencement of any work of improvement on the Premises. Should
any claims of lien relating to work performed, materials furnished or
obligations incurred by Lessee be filed against, or any action be commenced
affecting the Premises, any part of the Project, and/or Lessee's interest
therein, Lessee shall give Lessor notice of such lien or action within three (3)
days after Lessee receives notice of the filing of the lien or the commencement
of the action. If Lessee does not, within twenty (20) days following the
imposition of any such lien, cause such lien to be released of record by payment
or posting of a proper bond, Lessor shall have, in addition to all other
remedies provided herein and by law, the right, but not the obligation, to cause
the same to be released by such means as it shall deem proper, including by
payment of the claim giving rise to such lien or by posting a proper bond, or by
requiring Lessee to post for Lessor's benefit a bond, surety, or cash amount
equal to one and one-half (l-1/2) times the amount of lien and sufficient to
release the Premises and Project from the lien. All sums paid by Lessor
pursuant to this Article 12 and all expenses incurred by it in connection
therewith including attorneys' fees and costs shall be payable to Lessor by
Lessee as additional rent on demand.
13. ASSIGNMENT AND SUBLETTING.
-------------------------
a. Prohibitions in General. Lessee shall not (whether voluntarily,
-----------------------
involuntarily, or by operation of law) assign this Lease or allow all or any
part of the Premises to be sublet, without Lessor's prior written consent in
each instance, which consent shall not be unreasonably withheld, subject,
nevertheless, to the provisions of this Article 13. Except for an allowed
assignment or subletting pursuant to the previous sentence, Lessee shall not
(whether voluntarily, involuntarily, or by operation of law) (i) allow all or
any part of the Premises to be occupied or used by any person or entity other
than Lessee, (ii) transfer any right appurtenant to this Lease or the Premises,
(iii) mortgage, hypothecate or encumber the Lease or Lessee's interest in the
Lease or Premises (or otherwise use the Lease as a security device) in any
manner, or (iv) permit any person to assume or succeed to any interest
whatsoever in this Lease, without Lessor's prior written consent in each
instance, which consent may be withheld in Lessor's sole and absolute
discretion.
Any assignment, sublease, hypothecation, encumbrance, or transfer
(collectively "Transfer") without Lessor's consent shall constitute a default by
Lessee and shall be voidable. Lessor's consent to any one Transfer shall not
constitute a waiver of the provisions of this Article 13 as to any subsequent
Transfer nor a consent to any subsequent Transfer. The provisions of this
subsection 13.a. expressly apply to all heirs, successors, sublessees, assigns
and transferees of Lessee. If Lessor consents to a proposed Transfer, such
Transfer shall be valid and the transferee shall have the right to take
possession of the Premises only if the Assumption Agreement described in
subsection 13.c. below is executed and delivered to Lessor, Lessee has paid the
costs and fees described in subsection 13.h. below, and an executed counterpart
of the assignment, sublease or other document evidencing the Transfer is
delivered to Lessor and such transfer document contains the same terms and
conditions as stated in Lessee's notice given to Lessor pursuant to subsection
13.d. below, except for any such modifications Lessor has consented to in
writing. The acceptance of Rentals by Lessor from any person or entity other
than Lessee shall not be deemed to be a waiver by Lessor of any provision of
this Lease or to be a consent to any Transfer. Notwithstanding the foregoing, no
Landlord consent shall be required for any affiliate or subsidiary of the Tenant
hereinafter referred to as "Exempt Transfer".
b. Collection of Rent. Lessee irrevocably assigns to Lessor, as
------------------
security for Lessee's obligations under this Lease, all rent not otherwise
payable to Lessor by reason of any Transfer of all or any part of the Premises
or this Lease. Lessor, as assignee of Lessee, or a receiver for Lessee appointed
on Lessor's application, may collect such rent and apply it toward Lessee's
obligations under this Lease; provided, however, that until the occurrence of
any default by Lessee or except as provided by the provisions of subsection
13.f. below, Lessee shall have the right to collect such rent.
c. Assumption Agreement. As a condition to Lessor's consent to any
--------------------
Transfer of Lessee's interest in this Lease or the Premises, Lessee and Lessee's
assignee, sublessee, encumbrancer, hypothecate, or transferee (collectively
"Transferee"), shall execute a written Assumption Agreement, in a form approved
by Lessor, which
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<PAGE>
Agreement shall include a provision that Lessee's Transferee shall expressly
assume all obligations of Lessee under this Lease, and shall be and remain
jointly and severally liable with Lessee for the performance of all conditions,
covenants, and obligations under this Lease from the effective date of the
Transfer of Lessee's interest in this Lease. In no event shall Lessor have any
obligation to materially amend or modify this Lease in connection with any
proposed Transfer, including, without limitation, amending or modifying the use
restriction set forth in subsection 8.a. above.
d. Request for Transfer. Lessee shall give Lessor at least thirty (30)
--------------------
days prior written notice of any desired Transfer and of the proposed terms of
such Transfer, including but not limited to: the name and legal composition of
the proposed Transferee; a current financial statement of the proposed
Transferee in accordance with generally accepted accounting principal prepared
and reviewed by a Big 6 CPA firm; the nature of the proposed Transferee's
business to be carried on in the Premises; the payment to be made or other
consideration to be given on account of the Transfer; and other such pertinent
information as may be requested by Lessor, all in sufficient detail to enable
Lessor to evaluate the proposed Transfer and the prospective Transferee.
Lessee's notice shall not be deemed to have been served or given until such time
as Lessee has provided Lessor with all information specified above and all
additional information requested by Lessor pursuant to this subsection 13.d.
Lessee shall immediately notify Lessor of any modification to the proposed terms
of such Transfer.
e. No Bonus Value. It is the intent of the parties hereto that this
--------------
Lease shall confer upon Lessee only the right to use and occupy the Premises,
and to exercise such other rights as are conferred upon Lessee by this Lease.
The parties agree that this Lease is not intended to have a bonus value, nor to
serve as a vehicle whereby Lessee may profit by a future Transfer of this Lease
or the right to use or occupy the Premises as a result of any favorable terms
contained herein or any future changes in the market for leased space. It is the
intent of the parties that any such bonus value that may attach to this Lease
shall be and remain the exclusive property of Lessor.
f. Conditional Consent. Without otherwise limiting the criteria upon
-------------------
which Lessor may withhold its consent to any proposed Transfer, if Lessor
withholds its consent where the proposed Transferee's net worth (according to
generally accepted accounting principles) is less than the greater of: (A) the
net worth of Lessee immediately prior to the Transfer; or (B) the net worth of
Lessee at the time this Lease is executed, such withholding of consent shall be
presumptively reasonable. It shall also be presumptively reasonable for Lessor
to require, as a condition to its consent that:
(i) Any and all rent to be paid by a Transferee, including, but not
limited to, any rent in excess of the Rentals to be paid under this Lease
(prorated in the event that a sublease is of less than the entire Premises),
shall be paid by Lessee directly to Lessor at the time and place specified in
this Lease. For the purposes of this Article 13, the term "rent" shall include
any consideration of any kind received, or to be received, by Lessee from a
Transferee, if such sums are related to Lessee's interest in this Lease or in
the Premises, including, but not limited to, key money, bonus money, and
payments (in excess of the fair market value thereof) for Lessee's assets,
fixtures, trade fixtures, inventory, accounts, goodwill, equipment, furniture,
general intangibles, and any capital stock or other equity ownership interest of
Lessee; and/or
(ii) Either Lessee or the proposed Transferee cure, on or before the
proposed effective date of such Transfer, any and all uncured defaults
hereunder; provided, however, in no event shall Lessor's failure to condition
its consent upon such cure be deemed to be a waiver of any such default or
Lessor's rights and remedies under this Lease, at law, or in equity in regard
thereto. If Lessor has elected to impose such cure as a condition to its consent
and such condition is not satisfied by the effective date of the Transfer, the
Transfer shall be voidable at Lessor's option.
g. Corporations and Partnerships. If Lessee is a partnership, a
-----------------------------
withdrawal or substitution (whether voluntary, involuntary, or by operation of
law and whether occurring at one time or over a period of time) of any
partner(s) owning twenty-five percent (25%) or more of the partnership, any
assignment(s) of twenty-five percent (25%) or more (cumulatively) of any
interest in the capital or profits of the partnership, or the dissolution of the
partnership shall be deemed a Transfer of this Lease. If Lessee is a
corporation, any dissolution, merger, consolidation or other reorganization of
Lessee, any sale or transfer (or cumulative sales or transfers) of the capital
stock of Lessee in excess of twenty-five percent (25%) or any sale (or
cumulative sales) of more than fifty percent (50%) of the value of the assets of
Lessee shall be deemed a Transfer of this Lease. This subsection 13.g. shall not
apply to corporations the capital stock of which is publicly traded.
h. Attorneys' Fees and Costs. Lessee shall pay, as additional rent,
-------------------------
Lessor's actual costs and attorneys' fees incurred for reviewing, investigating,
processing and/or documenting any requested Transfer, whether or not Lessor's
consent is granted, which shall not exceed two hundred and fifty dollars
($250.00) without prior notice to Lessee. Landlord should use due dilligence to
pursue quick resolution with an attorney.
i. Miscellaneous. Regardless of Lessor's consent, no Transfer shall
-------------
release Lessee of Lessee's obligations under this Lease or alter the primary
liability of Lessee to pay the Rentals and to perform all other obligations to
be performed by Lessee hereunder. The acceptance of Rentals by Lessor from any
other person shall not be deemed to be a waiver by Lessor of any provision
hereof. Upon default by any assignee of Lessee or any successor of Lessee in the
performance of any of the terms hereof, Lessor may proceed directly against
Lessee without the necessity of exhausting remedies against said assignee or
successor. Lessor may consent to subsequent assignments or subletting of this
Lease or amendments or modifications to this Lease with any assignee of Lessee,
without notifying Lessee, or any successor of Lessee, and without obtaining its
or their consent thereto and such action shall not relieve Lessee of liability
under this Lease.
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<PAGE>
j. Reasonable Provisions. Lessee acknowledges that, but for Lessee's
---------------------
identity, financial condition and ability to perform the obligations of Lessee
under the Lease, Lessor would not have entered into this Lease nor demised the
Premises to specifically on Lessee's identity, financial condition,
responsibility and capability of performing the obligations of Lessee under the
Lease. Lessee acknowledges that Lessor's rights under this Article 13,
including the right to withhold consent to certain Transfers in Lessor's sole
and absolute discretion, are reasonable, agreed upon and bargained for rights of
Lessor and that the Rentals set forth in the Lease have taken into consideration
such rights. Lessee expressly agrees that the provisions of this Article 13 are
not unreasonable standards or conditions for purposes of Section 1951.4(b)(2) of
the California Civil Code, as amended from time to time under the Federal
Bankruptcy Code or for any other purpose.
14. HOLD HARMLESS. Lessee shall to the fullest extent permitted by law,
-------------
indemnify, defend with counsel acceptable to Lessor, and hold Lessor and
Lessor's employees, agents, partners, officers, directors and shareholders
harmless from and against any and all claims, damages, losses, liabilities,
penalties, judgments, and costs and expenses (including, without limitation,
attorneys' fees) and any suit, action or proceeding brought pursuant thereto
(collectively, "Claims"), including Claims for property damage, or personal
injury including death, arising out of (i) Lessee's use of the Premises or any
part thereof, or any activity, work or other thing done in or about the
Premises, (ii) any activity, work or other thing done, permitted in or about the
Project, or any part thereof, (iii) any breach or default in the performance of
any obligation on Lessee's part to be performed under the terms of this Lease,
(including, without limitation, a failure to maintain insurance as provided in
Article 16, or (iv) any act or negligence of the Lessee or Lessee's Agents. See
Addendum 5 attached hereto.
The indemnity herein shall extend to the costs and expenses incurred by
Lessor for administrative expenses, consultant fees, expert costs, investigation
expenses and costs incurred in settling indemnified claims, whether such costs
occurred before or after any litigation is commenced. The indemnity herein shall
survive the termination of this Lease and shall continue in effect until any and
all claims, actions or causes of action with respect to any of the matters
indemnified against are fully and finally barred by the applicable statute of
limitations. In no event shall any of insurance provisions set forth in Article
16 of this Lease be construed as any limitation on the scope of indemnification
set forth herein.
Lessee as a material part of the consideration to Lessor hereby assumes all
risk of damage or loss to property or injury or death to person in, upon or
about all portions of the Project from any cause except as hereinafter stated.
Lessor or its agents shall not be liable for any damage or loss to property
entrusted to employees of any part of the Project nor for loss or damage to any
property by theft or otherwise, nor for any injury or death or damage or loss to
persons or property resulting from any accident, casualty or condition occurring
in or about any portion of the Project, or to any equipment, appliances or
fixtures therein, or from any other cause whatsoever. This indemnity obligation
is unqualified with the single exception that it shall not apply to the portion
of any claim, damage or loss that arises out of Lessor's sole negligence or
willful misconduct but it shall apply without limitation to all other claims,
damages or losses including those that arise out of Lessor or Lessor's agents'
contributory negligence, whether active or passive. Lessor or its agents shall
not be liable for interference with the light or other incorporeal
hereditaments, nor shall Lessor be liable for any latent defect in the Premises
or in the Building. Notwithstanding any other provision of this Lease, in no
event shall Lessor have any liability for loss of business (including, without
limitation, lost profits) by Lessee. Lessee shall give prompt written notice to
Lessor in case of fire or accidents in the Premises or in the Building or of
defects therein or in the fixtures or equipment.
If, by reason of any act or omission of Lessee or Lessee's Agents, Lessor
is made a party defendant to any litigation concerning this Lease or any part of
the Project, Lessee shall indemnify, defend with counsel acceptable to Lessor,
and hold Lessor harmless from any liability and damages incurred by (or
threatened against) Lessor as a party defendant, including without limitation
all damages, costs and expenses, including attorneys' fees.
15. SUBROGATION. Lessor releases Lessee and Lessee's officers, directors,
-----------
agents, employees, partners and shareholders from any and all claims or demands
for damages, loss, expense or injury arising out of any perils to the extent
covered by insurance carried by Lessor, or that are due to the negligence of
Lessee or Lessee's officers, directors, agents, employees, partners and
shareholders and regardless of cost or origin, to the extent such waiver is
permitted by Lessor's insurers and does not prejudice the insurance required to
be carried by Lessor under this Lease. Lessee releases Lessor and Lessor's
officers, directors, agents, employees, partners and shareholders from any and
all claims or demands for damages, loss, expense or injury arising out of any
perils which are insured against under any insurance carried by Lessee, whether
due to the negligence of Lessor or its officers, directors, agents, employees,
partners and shareholders and regardless of cost or origin, to the extent such
waiver is permitted by Lessee's insurers and does not prejudice the insurance
required to be carried by Lessee under this Lease.
16. LESSEE'S INSURANCE.
------------------
a. Lessee shall, at Lessee's expense, obtain and keep in force during the
Term a policy of comprehensive general liability insurance, including the broad
form endorsement, insuring Lessor and Lessee against any liability arising out
of the ownership, use, occupancy, maintenance, repair or improvement of the
Premises and all areas appurtenant thereto. Such insurance shall provide single
limit liability coverage of not less than four million dollars ($4,000,000.00)
per occurrence for bodily injury or death and property damage. Such insurance
shall include Lessor as an additional insured, shall provide that Lessor,
although an additional insured, may recover for any loss suffered by Lessor or
Lessor's agents by reason of Lessee's or Lessee's Agent's negligence. All such
insurance shall specifically insure Lessee's performance of the indemnity and
hold harmless agreements contained in Article 14 above although Lessee's
obligations pursuant to Article 14 shall not be limited to the amount of any
insurance
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<PAGE>
required of or carried by Lessee under this Article 16 and Lessee is responsible
for ensuring that the amount of liability insurance carried by Lessee is
sufficient for Lessee's purposes. Lessee may carry said insurance under a
blanket policy, providing however, said insurance by Lessee shall name Lessor as
an additional insured.
b. Lessee acknowledges and agrees that insurance coverage carried by
Lessor will not cover Lessee's property within the Premises or within the
Building. Lessee shall, at Lessee's expense, obtain and keep in force during the
Term a policy of "All Risk" property insurance, including without limitation,
coverage, for earthquake and flood; boiler and machinery (if applicable);
sprinkler damage; vandalism; malicious mischief; and demolition, increased cost
of construction and contingent liability from changes in building laws on all
leasehold improvements installed in the Premises by Lessee at its expense (if
any), and on all equipment, trade fixtures, inventory, fixtures and personal
property located on or in the Premises, including improvements or fixtures
hereinafter constructed or installed on the Premises. Such insurance shall be in
an amount equal to the full replacement cost of the aggregate of the foregoing
and shall provide coverage comparable to the coverage in the Standard ISO All
Risk form, when such form is supplemented with the coverage required above.
c. If Lessee fails to procure and maintain any insurance required to be
procured and maintained by Lessee pursuant to this Lease, Lessor may, but shall
not be required to, procure and maintain all or any portion of the same, at the
expense of Lessee. Lessor's election pursuant to this subsection 16.c. procure
and maintain all or any portion of the insurance which Lessee fails to procure
and maintain is acknowledged by Lessee to be for Lessor's sole benefit. Lessee
acknowledges that any insurance procured and maintained by Lessor pursuant to
this subsection 16.c. may not be sufficient to adequately protect Lessee. Any
personal property insurance procured and maintained by Lessor for Lessee's
equipment, trade fixtures, inventory, fixtures and personal property located on
or in the Premises, including improvements or fixtures hereinafter constructed
or installed on the Premises, may not sufficiently cover the replacement cost
thereof. Any insurance procured and maintained by Lessor pursuant to this
subsection 16.c. may provide for less coverage than is required to be maintained
by Lessee pursuant to this Lease. Lessee acknowledges and agrees that Lessee is
and shall remain solely responsible for procuring insurance sufficient for
Lessee's purposes, not withstanding the fact that Lessor has procured or
maintained any insurance pursuant to this subsection 16.c. Any insurance
required to be maintained by Lessee hereunder shall be in companies rated A X or
better in "Best's Insurance Guide". Prior to occupancy of the Premises, Lessee
shall deliver to Lessor copies of the policies of insurance required to be kept
by Lessee hereunder, or certificates evidencing the existence and amount of such
insurance, with evidence satisfactory to Lessor of payment of premiums. No
policy shall be cancelable or subject to reduction of coverage except after
thirty (30) days prior written notice to Lessor.
17. SERVICES AND UTILITIES. Provided that Lessee is not in default
----------------------
hereunder, Lessor agrees to furnish to the Premises during reasonable hours of
generally recognized business days, to be determined by Lessor in its reasonable
discretion, and subject to the rules and regulations of the Building of which
the Premises are a part, electricity for normal lighting, water, heat, air-
conditioning and elevator service which are required in Lessor's good faith
judgment for the comfortable use and occupation of the Premises. See Addendum 6
attached hereto. During recognized business days for the Building, and subject
to the reasonable rules and regulations of the Building and Project, Lessor
shall furnish to the Premises and the Common Areas, janitorial service, window
washing, fluorescent tube replacement and toilet supplies; provided, however,
Lessor shall not be required to provide janitorial services for any portion of
the Premises to the extent required as a result of the preparation or
consumption of food or beverages (provided that nothing in this paragraph shall
be construed as a consent by Lessor to the preparation or consumption of such
food or beverages unless otherwise expressly provided elsewhere in this Lease).
Lessor shall also maintain and keep lighted during such hours the common stairs,
common entries and toilet rooms in the Building. Lessor shall not be liable for,
and Lessee shall not be entitled to, any reduction of Rentals by reason of
Lessor's failure to furnish any of the foregoing when such failure is caused by
casualty, Act of God, accident, breakage except to the extent caused by Lessor's
active negligence or willful misconduct, repairs, strikes, lockouts or other
labor disturbances or labor disputes of any character, or by any other cause,
similar or dissimilar, beyond the reasonable control of Lessor. See Addendum 7
attached hereto. Lessor shall not be liable under any circumstances for injury
to or death of or loss or damage to persons or property or damage to Lessee's
business, however occurring, through or in connection with or incidental to
failure to furnish any of the foregoing. Wherever heat generating machines or
equipment are used in the Premises which affect the temperature otherwise
maintained by the air conditioning system, Lessor reserves the right to install
supplementary air conditioning units in the Premises and the cost thereof,
including the cost of installation and the cost of operation and maintenance
thereof, shall be paid by Lessee to Lessor upon demand by Lessor as additional
rent.
Lessee will not, without the prior written consent of Lessor, use or permit
the use of any apparatus or device in or upon the Premises, including, but
without limitation thereto, machines using in excess of 120 volts, which will in
any way increase the amount of gas, electricity or water usually furnished or
supplied for the use of the Premises as general office space; nor will Lessee
connect or permit connection with electric current, gas or water supply lines,
except (in the case of electric current) through existing gas lines or
electrical outlets in the Premises, any apparatus or device for the purpose of
using gas, electric current or water. If Lessee requires water or electric
current in excess of that usually furnished or supplied for the use of the
Premises as general office space, Lessee shall first procure the written
consent of Lessor, which Lessor may refuse, to the use thereof and Lessor may
cause a water or gas meter or electric current meter to be installed in the
Premises so as to measure the amount of water, gas and electric current consumed
for any such use. The cost of any such meters and of installation, maintenance
and repair thereof shall be
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paid for by the Lessee and Lessee agrees to pay to Lessor, as additional rent,
promptly upon demand therefor by Lessor for all such water, gas and electric
current consumed as shown by said meters, at the rates charged for such services
by the local public utility furnishing the same, plus any additional expense
incurred in keeping account of the water, gas and electric current so consumed.
If a separate meter is not installed, such excess cost for such water, gas and
electric current will be conclusively established by an estimate made by a
utility company or electrical engineer selected by Lessor.
18. RULES AND REGULATIONS. Lessee shall faithfully observe and comply with the
---------------------
rules and regulations that Lessor shall from time to time promulgate for the
Building and the Project. Lessor reserves the right from time to time to make
all reasonable modifications to said rules and regulations. The additions and
modifications to these rules and regulations shall be binding upon Lessee upon
delivery of a copy of them to Lessee. Lessor shall not be responsible to Lessee
for the non-performance of any said rules by any other tenants or occupants. The
current "Rules & Regulations" are attached hereto as Exhibit "D".
19. HOLDING OVER. If Lessee remains in possession of the Premises or any part
------------
thereof after the expiration of the Term, with the express written consent of
Lessor, such occupancy shall be a tenancy from month to month at a Base Rent in
the amount of one hundred fifty percent (150%) of the Base Rent in effect
immediately preceding such expiration, plus all other rental charges payable
hereunder, and upon all the terms hereof applicable to a month to month tenancy.
In such case, either party may thereafter terminate this Lease at any time upon
giving not less than thirty (30) days written notice to the other party. For any
possession of the Premises after the Lease Expiration without Lessor's consent,
Lessee shall be liable for all detriment proximately caused by Lessee's
possession, including without limitation, attorneys' fees, costs and expenses,
claims of any succeeding tenant founded on Lessee's failure to vacate and for
payment to Lessor of the fair market rental value for the Base Rent for the
Premises, together with such other Rentals provided in this Lease to the date
Lessee actually vacates the Premises, and such other remedies as are provided by
law, in equity or under this Lease, including without limitation punitive
damages recoverable under California Code of Civil Procedure Section 1174.
20. ENTRY BY LESSOR. Lessor reserves and shall at any and all reasonable times
---------------
have the right to enter the Premises, inspect the same, supply janitorial
service and any other service to be provided by Lessor to Lessee hereunder, to
submit said Premises to prospective purchasers, mortgagees, lenders or tenants,
to post notices of non-responsibility, and to alter, improve or repair the
Premises and any portion of the Building that Lessor may deem necessary or
desirable, without any abatement of Rentals, and may for such purposes erect
scaffolding and other necessary structures where reasonably required by the
character of the work to be performed, providing that the entrance to the
Premises shall not be unreasonably blocked thereby, and further providing that
the business of the Lessee shall not be interfered with unreasonably due to
negligent act or omission of Lessor. Lessee hereby waives any claim for damages
or for any injury or inconvenience to or interference with Lessee's business,
any loss of occupancy or quiet enjoyment of the Premises, and any other damage
or loss occasioned thereby. For each of the aforesaid purposes, Lessor shall at
all times have and retain a key with which to unlock all of the doors in, upon
and about the Premises, excluding Lessee's vaults, safes and files, and Lessor
shall have the right to use any and all means which Lessor may deem proper to
open said doors in an emergency in order to obtain entry to the Premises,
without liability to Lessee except for any failure to exercise due care for
Lessee's property under the circumstances of each entry. Any entry to the
Premises obtained by Lessor by any of said means or otherwise shall not under
any circumstances be construed or deemed to be a forcible or unlawful entry
into, or a detainer of, the Premises, or an eviction of Lessee from the Premises
or any portion thereof. If Lessee has removed substantially all of Lessee's
property from the Premises, Lessor may, without abatement of Rentals, enter the
Premises for alteration, renovation or decoration during the last thirty (30)
days of the Term. With respect to any entry by Lessor into the Premises, Lessor
shall be liable to Lessee solely for physical damage caused to Lessee's personal
property located within the Premises to the extent such damage is caused by
Lessor's active negligence or willful misconduct, and only with respect to an
entry in an non-emergency situation. In no event shall Lessor have any liability
to Lessee for any injury or inconvenience to or interference with Lessee's
business, any loss of occupancy or quiet enjoyment of the Premises, and any
other damage or loss occasioned hereby.
21. RECONSTRUCTION. If the Premises are damaged and rendered substantially
--------------
untenantable, or if the Building is damaged (regardless of damage to the
Premises) or destroyed, Lessor may, within ninety (90) days after the casualty,
notify Lessee of Lessor's election not to repair, in which event this Lease
shall terminate at the expiration of the sixtieth (60th) day. If Lessor elects
to repair the damage or destruction, this Lease shall remain in effect and the
then current Base Rent and Lessee's Percentage Share of Excess Expenses shall be
proportionately reduced during the period of repair. The reduction shall be
based upon the extent to which the making of repairs interferes with Lessee's
business conducted in the Premises, as reasonably determined by Lessor. All
other Rentals due hereunder shall continue unaffected, and Lessee shall have no
claim against Lessor for compensation for inconvenience or loss of business
during any period of repair or reconstruction. Lessee shall continue the
operation of its business on the Premises during any period of reconstruction or
repair to the extent reasonably practicable from the standpoint of prudent
business management. Upon Lessor's election to repair, Lessor shall diligently
repair the damage to the extent of insurance proceeds available to Lessor.
Lessor shall not be required to repair or replace, whether injured or damaged by
fire or other cause, any items required to be insured by Lessee under this Lease
including Lessee's fixtures, equipment, merchandise, personal property,
inventory, panels, decoration, furniture, railings, floor covering, partitions
or any other improvements, alterations, additions, or property made or installed
by Lessee to the Premises, and Lessee shall be obligated to promptly rebuild or
restore the same to the same condition as they were in immediately before the
casualty. Lessee hereby waives all claims for loss or damage to the foregoing.
Lessee waives any rights to terminate this Lease if the Premises are damaged or
destroyed, including without limitation any rights pursuant to the provisions of
Subdivision 2 of Section 1932 and Subdivision 4 of Section 1933 of the Civil
Code of California, as amended from time to time, and the provisions of any
similar law hereinafter enacted. If the Lease is terminated by Lessor pursuant
to this Article 2l, the unused balance of the Security Deposit
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and any Rentals unearned as of the effective date of termination shall be
refunded to Lessee. Lessee shall pay to Lessor any Rentals or other charges due
Lessor under the Lease, prorated as of the effective date of termination.
Notwithstanding anything to the contrary in the foregoing, if the damage is due
to the fault or neglect of Lessee, or Lessee's Agents, there shall be no
abatement of Base Rent or any other Rentals.
Notwithstanding the foregoing, if less than thirty-three percent (33%) of
the Rentable Area of the Building is damaged from an insured casualty and the
insurance proceeds actually available to Lessor for reconstruction (net of costs
to recover such proceeds and after all claimants thereto including lienholders
have been satisfied or waive their respective claims) ("Net Insurance Proceeds")
are sufficient to completely restore the Building, Lessor agrees to make such
reparations and continue this Lease in effect. If, upon damage of less than
thirty-three percent (33%) of the Rentable Area of the Building there are not
sufficient insurance proceeds actually available to allow Lessor to completely
restore the Building, Lessor shall not be obligated to repair the Building and
the provisions of the first paragraph of this Article shall control.
Lessee shall not be entitled to any compensation or damages from Lessor for
loss of the use of the whole or any part of the Premises, or for any damage to
Lessee's business, or any inconvenience or annoyance occasioned by such damage,
or by any repair, reconstruction or restoration by Lessor, or by any failure of
Lessor to make any repairs, reconstruction or restoration under this Article or
any other provision of this Lease.
22. DEFAULT. The occurrence of any one or more of the following events shall
-------
constitute a material default and breach of this Lease by Lessee:
a. Lessee's failure to pay when due Base Rent or any other Rentals or
other sums payable hereunder;
b. Lessee's failure to occupy and use the Premises for thirty (30)
consecutive days, which failure shall deem an abandonment of the Premises by
Lessee.
c. Commencement, and continuation for at least thirty (30) days, of any
case, action, or proceeding by, against, or concerning Lessee, or any guarantor
of Lessee's obligations under this Lease ("Guarantor"), under any federal or
state bankruptcy, insolvency, or other debtor's relief law, including without
limitation, (i) a case under Title II of the United States Code concerning
Lessee, or a Guarantor, whether under Chapter 7, 11, or 13 of such Title or
under any other Chapter, or (ii) a case, action, or proceeding seeking Lessee's
or a Guarantor's financial reorganization or an arrangement with any of Lessee's
or a Guarantor's creditors;
d. Voluntary or involuntary appointment of a receiver, trustee, keeper,
or other person who takes possession for more than thirty (30) days of
substantially all of Lessee's or a Guarantor's assets, or of any asset used in
Lessee's business on the Premises, regardless of whether such appointment is as
a result of insolvency or any other cause;
e. Execution of an assignment for the benefit of creditors of
substantially all assets of Lessee or a Guarantor available by law for the
satisfaction of judgment creditors;
f. Commencement of proceedings for winding up or dissolving (whether
voluntary or involuntary) the entity of Lessee or a Guarantor, if Lessee or such
Guarantor is a corporation or a partnership;
g. Levy of a writ of attachment or execution on Lessee's interest under
this Lease, if such writ continues for a period of ten (10) days;
h. Any Transfer or attempted Transfer of this Lease by Lessee contrary to
the provisions of Article 13 above; or
i. With respect to any report that Lessee is required to submit
hereunder, the submission by Lessee of any false report;
j. The use or occupancy of the Premises for any use or purpose not
specifically allowed by the terms of this Lease; or
k. Breach by Lessee of any material term, covenant, condition, warranty,
or provision contained in this Lease or of any other obligation owing or due to
Lessor other than as described in subsections 22.a., b., c., d., e., f., g., or
h. of this Article 22, where such failure shall continue for the period
specified in this Lease or if no such period is specified, for a period of
thirty (30) days after written notice thereof by Lessor to Lessee; provided,
however, that if the nature of Lessee's default is such that more than thirty
(30) days are reasonably required for its cure, Lessee shall not be deemed to be
in default if Lessee commences such cure within said thirty (30) day period and
thereafter diligently prosecutes such cure to completion, and if Lessee provides
Lessor with such security as Lessor may require to fully compensate Lessor for
any loss or liability to which Lessor might be exposed.
23. REMEDIES UPON DEFAULT. Upon any default or breach by Lessee, at any time
---------------------
thereafter, with or without notice or demand, and without limiting Lessor in the
exercise of any right or remedy which Lessor may have hereunder or otherwise at
law or in equity by reason of such default or breach Lessor may do the
following:
a. Termination of Lease. Lessor may terminate this Lease or Lessee's
--------------------
right to possession of the Premises by notice to Lessee or any other lawful
means, in which case this Lease shall terminate and Lessee shall
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immediately surrender possession of the Premises to Lessor. In such event Lessor
shall be entitled to recover from Lessee:
(i) The worth at the time of award of the unpaid Rentals which had
been earned at the time of termination;
(ii) The worth at the time of award of the amount by which the
unpaid Rentals which would have been earned after termination until the time of
award exceeds the amount of such rental loss that Lessee proves could have been
reasonably avoided;
(iii) The worth at the time of award (computed by discounting at the
discount rate of the Federal Reserve Bank of San Francisco at the time of award
plus one percent) of the amount by which the unpaid Rentals for the balance of
the Term after the time of award exceeds the amount of such rental loss that
Lessee proves could be reasonably avoided; and
(iv) Any other amounts necessary to compensate Lessor for detriment
proximately caused by the default by Lessee or which in the ordinary course of
events would likely result, including without limitation the reasonable costs
and expenses incurred by Lessor for:
(A) Retaking possession of the Premises;
(B) Cleaning and making repairs and alterations (including
installation of leasehold improvements, whether or not the same shall be funded
by a reduction of rent, direct payment or otherwise) necessary to return the
Premises to good condition and preparing the Premises for reletting;
(C) Removing, transporting, and storing any of Lessee's
property left at the Premises (although Lessor shall have no obligation to
remove, transport, or store any of the property);
(D) Reletting the Premises, including without limitation,
brokerage commissions, advertising costs, and attorneys' fees;
(E) Attorneys' fees, expert witness fees and court costs;
(F) Any unamortized real estate brokerage commissions paid in
connection with this Lease; and
(G) Costs of carrying the Premises, such as repairs,
maintenance, taxes and insurance premiums, utilities and security precautions,
if any.
The "worth at the time of award" of the amounts referred to in Articles
23.a.(i) and 23.a.(ii) is computed by allowing interest at an annual rate equal
to the greater of: ten percent (10%); or five percent (5%) plus the rate
established by the Federal Reserve Bank of San Francisco, as of the 25th day of
the month immediately preceding the default by Lessee, on advances to member
banks under Section 13 and 13(a) of the Federal Reserve Act, as not in effect or
hereafter from time to time amended (the "Stipulated Rate"). The computation of
the amount of rental loss that could be or could have been reasonably avoided by
Lessor pursuant to California Civil Code section 1951.2 shall take into account
the use restrictions set forth in Article 8.a. above except to the extent that
Lessee proves that under all circumstances the enforcement of the use
restriction would be unreasonable.
b. Continuation of Lease. Lessor may continue this Lease in full force
---------------------
and effect, and the Lease shall continue in effect as long as Lessor does not
terminate Lessee's right to possession, and Lessor shall have the right to
enforce all rights and remedies under this Lease including the right to collect
all Rentals when due. During the period Lessee is in default, Lessor can enter
the Premises and relet them, or any part of them, to third parties for Lessee's
account. Lessee shall be liable immediately to Lessor for all costs Lessor
incurs in reletting the Premises, including without limitation, those items
outlined in subsections a.(i) through a.(iv) of this Article 23, and other like
costs. Reletting can be for a period shorter or longer than the remaining Term.
Lessee shall pay to Lessor all Rentals due under this Lease on the date the
Rentals are due, less the rent Lessor receives from any reletting. No act by
Lessor allowed by this paragraph shall terminate this Lease unless Lessor
notifies Lessee that Lessor elects to terminate this Lease. The use restriction
provided in Article 8.a. above shall apply to Lessor's remedies under California
Civil Code section 1951.4 except to the extent that Lessee proves that under all
circumstances enforcement of the use restriction would be unreasonable.
c. Other Remedies. Lessor may pursue any other remedy now or hereafter
--------------
available to Lessor under the laws or judicial decisions of the State in which
the Premises are located.
d. General. The following shall apply to Lessor's remedies:
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(i) No entry upon or taking of possession of the Premises or any
part thereof by Lessor, nor any letting or subletting thereof by Lessor for
Lessee, nor any appointment of a receiver, nor any other act of Lessor, whether
acceptance of keys to the Premises or otherwise, shall constitute or be
construed as an election by Lessor to terminate this Lease or Lessee's right to
possession of the Premises unless a written notice of such election be given to
Lessee by Lessor.
(ii) If Lessor elects to terminate this Lease or Lessee's right to
possession hereunder, Lessee shall surrender and vacate the Premises in broom-
clean condition, and Lessor may re-enter and take possession of the
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<PAGE>
Premises and may eject all parties in possession or eject some and not others or
???? none. Any personal property of or under the control of Lessee remaining on
the Premises at the time of such re-entry may be considered and treated by
Lessor as abandoned.
(iii) Termination of this Lease or Lessee's right to possession by
Lessor shall not relieve Lessee from any liability to Lessor under any provision
of this Lease providing for any indemnification of Lessor by Lessee. Lessee
shall indemnify Lessor for all personal injuries and property damage arising out
of Lessee's use or occupancy of the Premises or any acts or omissions of Lessee
or Lessee's Agents.
24. EMINENT DOMAIN. If more than twenty-five percent (25%) of the area of the
--------------
Premises is taken or appropriated for any public or quasi-public use under the
power of eminent domain, or conveyed in lieu thereof, either party hereto shall
have the right, at its option, to terminate this Lease by written notice to the
other party given within ten (10) days of the date of such taking, appropriation
or conveyance, and Lessor shall be entitled to any and all income, rent, award,
or any interest therein whatsoever which may be paid or made (the "Award") in
connection with such public or quasi-public use or purpose, and Lessee shall
have no claim against Lessor for the value of any unexpired term of this Lease.
If any part of the Building or the Project other than the Premises may be so
taken, appropriated or conveyed, Lessor shall have the right at its option to
terminate this Lease, and in any such event Lessor shall be entitled to the
entire Award whether or not this Lease is terminated. If this Lease is
terminated as provided above: (i) the termination shall be effective as of the
date upon which title to the Premises, the Building, the Project, or a portion
thereof, passes to and vests in the condemnor or the effective date of any order
for possession if issued prior to the date title vests in the condemnor; (ii)
Lessor shall refund to Lessee any prepaid but unearned Rentals and the unused
balance of the Security Deposit; and (iii) Lessee shall pay to Lessor any
Rentals or other charges due Lessor under the Lease, prorated as of the date of
taking.
If less than twenty-five percent (25%) of the Premises is so taken,
appropriated or conveyed, or more than twenty-five percent (25%) thereof is so
taken, appropriated or conveyed and neither party elects to terminate as herein
provided, (i) Lessee shall receive from the Award that portion of the Award
attributable to trade fixtures of Lessee to the extent the Award is not payable
to the beneficiary or mortgagee of a deed of trust or mortgage affecting the
Building containing the Premises and Lessor shall receive the balance of the
Award; and (ii) the Rental thereafter to be paid hereunder for the Premises
shall be reduced in the same ratio that the percentage of the area of the
Premises so taken, appropriated or conveyed bears to the total area of the
Premises immediately prior to the taking, appropriation or conveyance. In
addition, if any rentable area in the Building containing the Premises is so
taken, appropriated or conveyed and this Lease is not terminated by Lessor,
Lessee's Percentage Share of Excess Expenses shall be adjusted pursuant to
Article 7.
Notwithstanding this Article 24 above, upon a temporary taking of all or
any portion of the Premises, the Lease shall remain in effect and Lessee shall
continue to pay and be liable for all Rentals under this Lease. Upon such
temporary taking, Lessee shall be entitled to any Award for the temporary use of
the portion of the Premises taken which is attributable to the period prior to
the date of Lease Termination, and Lessor shall be entitled to any portion of
the Award for such use attributable to the period after Lease Termination. As
used in this paragraph, a temporary taking shall mean a taking for a period of
one year or less and does not include a taking which is to last for an
indefinite period and/or which will terminate only upon the happening of a
specified event unless it can be determined at the time of the taking when such
event will occur.
25. OFFSET STATEMENT. Lessee shall at any time and from time to time within
----------------
ten (10) days following request from Lessor execute, acknowledge and deliver to
Lessor a statement in writing, (i) certifying that this Lease is unmodified and
in full force and effect (or, if modified, stating the nature of such
modification and certifying that this Lease as so modified is in full force and
effect), (ii) acknowledging that there are not, to Lessee's knowledge, any
uncured defaults on the part of the Lessor hereunder, or specifying such
defaults if any are claimed, (iii) certifying the date Lessee entered into
occupancy of the Premises and that Lessee is open and conducting business at the
Premises, (iv) certifying the date to which Rentals and other charges are paid
in advance, if any, (v) evidencing the status of this Lease as may be required
either by a lender making a loan affecting or a purchaser of the Premises, or
part of the Project from Lessor, (vi) warranting that if any beneficiary of any
security instrument encumbering the Premises forecloses on the security
instrument, such beneficiary shall not be liable for the Security Deposit, (vii)
certifying that all improvements to be constructed on the Premises by Lessor are
substantially completed, except for any punch list items which do not prevent
Lessee from using the Premises for its intended use, and (viii) certifying such
other matters relating to this Lease and/or the Premises as may be requested by
a lender making a loan to Lessor or a purchaser of the Premises, or any part of
the Project from Lessor. Any such statement may be relied upon by any
prospective purchaser or encumbrancer of all or any portion of the Project, or
any interest therein. Lessee shall, within ten (10) days following request of
Lessor, deliver such other documents including Lessee's financial statements as
are reasonably requested in connection with the sale of, or loan to be secured
by, any portion of the Project, or any interest therein.
26. PARKING. Lessee shall have the right to use the number of non-exclusive
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parking spaces located within the Project as designated in Article 1.l., subject
to Lessor's right to relocate such parking area from time to time. Use of all
parking spaces shall be subject to rules and regulations established by Lessor
which may be altered at any time and from time to time during the Term. The
location of all parking spaces may be designated from time to time by Lessor.
Neither Lessee nor Lessee's Agents shall at any time use more parking spaces
than the number so allocated to Lessee or park or permit the parking of their
vehicles in any portion of the Parcel not designated by Lessor as a non-
exclusive parking area. Lessee and Lessee's Agents shall not have the exclusive
right to use any specific parking space, except as expressly stated in this
Article 26.
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<PAGE>
Notwithstanding the number of parking spaces designated for Lessee's non-
exclusive use, in the event by reason of any rule, regulation, order, law,
statute or ordinance of any governmental or quasi-governmental authority
relating to or affecting parking on the Parcel, or any cause beyond Lessor's
reasonable control, Lessor is required to reduce the number of parking spaces on
the Parcel, Lessor shall have the right to proportionately reduce the number of
Lessee's parking spaces and the non-exclusive parking spaces of other tenants of
the Building. Lessor reserves the right in its absolute discretion: to determine
whether parking facilities are becoming overcrowded and in such event to re-
allocate parking spaces among Lessee and other tenants of the Project; to have
any vehicles owned by Lessee or Lessee's Agents which are parked in violation of
the provisions of this Article 26 or Lessor's rules and regulations relating to
parking, towed away at Lessee's cost, after having given Lessee reasonable
notice. In the event Lessor elects or is required by any law to limit or control
parking on the Parcel, by validation of parking tickets or any other method,
Lessee agrees to participate in such validation or other program under such
reasonable rules and regulations as are from time to time established by Lessor.
Lessor shall have the right to close all or any portion of the parking areas at
reasonable times for any purpose, including, without limitation, the prevention
of a dedication thereof, or the accrual of rights in any person or the public
therein. Employees of Lessee shall be required to park in areas designated for
employee parking, if any. The parking areas shall not be used by Lessee or
Lessee's Agents for any purpose other than the parking of motor vehicles and the
ingress and egress of pedestrians and motor vehicles.
27. AUTHORITY. If Lessee is a corporation (or partnership), each individual
---------
executing this Lease on behalf of said corporation (or partnership) represents
and warrants that he is duly authorized to execute and deliver this Lease on
behalf of said corporation in accordance with a duly adopted resolution of the
Board of Directors of said corporation or in accordance with the by-laws of said
corporation (or on behalf of said partnership in accordance with the partnership
agreement of such partnership) and that this Lease is binding upon said
corporation (or partnership) in accordance with its terms. If Lessee is a
corporation, Lessee shall, upon execution of this Lease, deliver to Lessor a
certified copy of a resolution of the Board of Directors of said corporation
authorizing or ratifying the execution of this Lease. If Lessee fails to deliver
such resolution to Lessor upon execution of this Lease, Lessor shall not be
deemed to have waived its right to require delivery of such resolution, and at
any time during the Term Lessor may request Lessee to deliver the same, and
Lessee agrees it shall thereafter promptly deliver such resolution to Lessor. If
Lessee is a corporation, Lessee hereby represents, warrants, and covenants that
(i) Lessee is a valid and existing corporation; (ii) Lessee is qualified to do
business in California; (iii) all fees and all franchise and corporate taxes of
Lessee are paid to date, and will be paid when due; (iv) all required forms and
reports will be filed when due; and (v) the signers of this Lease are properly
authorized to execute this Lease on behalf of Lessee and to bind Lessee hereto.
28. SURRENDER OF PREMISES.
---------------------
a. Condition of Premises. Lessee shall, upon Lease Termination,
---------------------
surrender the Premises broom clean, trash free, and in good condition,
reasonable wear and tear, and insured casualties to the extent of Net Insurance
Proceeds recovered by Lessor, alone excepted. By written notice to Lessee,
Lessor may elect to cause Lessee to remove from the Premises or cause to be
removed, at Lessee's expense, any logos, signs, notices, advertisements or
displays placed on the Premises by Lessee. If the Premises are not so
surrendered as required by this Article 28, Lessee shall indemnify Lessor from
any loss or liability resulting from Lessee's failure to comply with the
provisions of this Article 28, including, without limitation, any claims made by
any succeeding tenant or losses to Lessor due to lost opportunities to lease to
succeeding tenants.
b. Removal of Personal Property. Lessee shall remove all its personal
----------------------------
property from the Premises upon Lease Expiration or sooner termination, and
shall immediately repair all damage to the Premises, Building and Common Area
caused by such removal. Any personal property remaining on the Premises after
Lease expiration or sooner termination may be packed, transported, and stored at
a public warehouse at Lessee's expense. If after Lease Expiration or sooner
termination and, within ten (10) days after written demand by Lessor, Lessee
fails to remove Lessee's personal property or, if removed by Lessor, fails to
pay the removal expenses, the personal property may be deemed abandoned property
by Lessor and may be disposed of as Lessor deems appropriate. Lessee shall
repair any damage to the Premises caused by or in connection with the removal of
any personal property, including without limitation, the floor and patch and
paint the walls, when required by Lessor, to Lessor's reasonable satisfaction,
all at Lessee's sole cost and expense. The provisions of this Article 28 shall
survive Lease Termination.
29. LESSOR DEFAULT AND MORTGAGEE PROTECTION. Lessor shall not be in default
---------------------------------------
under this Lease unless Lessee shall have given Lessor written notice of the
breach, and, within thirty (30) days after notice, Lessor has not cured the
breach or, if the breach is such that it cannot reasonably be cured under the
circumstances within thirty (30) days, has not commenced diligently to prosecute
the cure to completion. Any money judgment obtained by Lessee based upon
Lessor's breach of this Lease shall be satisfied only out of the proceeds of the
sale or disposition of Lessor's interest in the Building in which the premises
are located (whether by Lessor or by execution of judgment). Upon any default
by Lessor under this Lease, Lessee shall give notice by registered mail to any
beneficiary or mortgagee of a deed of trust or mortgage encumbering the
Premises, and/or any portion of the Project, whose address shall have been
furnished to it, and shall offer such beneficiary or mortgagee a reasonable
opportunity to cure the default, including time to obtain possession of the
Premises, and/or Project, or any portion thereof, by power of sale or judicial
foreclosure, if such should prove necessary to effect a cure.
30. RIGHTS RESERVED BY LESSOR. Lessor shall have the exclusive right in its
-------------------------
sole discretion, without abatement of Rentals and without limiting Lessor's
other rights under this Lease, to (i) designate the name, address, or other
designation of the Building and/or Project, without notice or liability to
Lessee; (ii) close entrances, doors, corridors, elevators, escalators or other
Building facilities or temporarily abate their operation; (iii) change or revise
the business hours of the Building in effect at the time of the commencement
date of the lease unless mandated by governmental authority; (iv) expand,
suspend, close, eliminate, adjust, or replace any portion of any
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<PAGE>
Project, or any services within any portion of the Project; (v) grant the use of
the Exterior Common Area to other improvements located on the Parcel; and/or
(vi) place limitations on the parking rights of Lessee pursuant to Article 26.
31. PLATS AND RIDERS. Clauses, plats and riders, if any, signed by the Lessor
----------------
and the Lessee and endorsed on or affixed to this Lease are a part hereof.
32. WAIVER. No covenant, term or condition in this Lease or the breach thereof
------
shall be deemed waived, except by written consent of the party against whom the
waiver is claimed. Any waiver of the breach of any covenant, term or condition
herein shall not be deemed to be a waiver of any preceding or succeeding breach
of the same or any other covenant, term or condition. Acceptance by Lessor of
any performance by Lessee after the time the same shall have become due shall
not constitute a waiver by Lessor of the breach or default of any covenant, term
or condition unless otherwise expressly agreed to by Lessor in writing. The
acceptance by Lessor of any sum less than that which is required to be paid by
Lessee shall be deemed to have been received only on account of the obligation
for which it is paid (or for which it is allocated by Lessor, in Lessor's
absolute discretion, if Lessee does not designate the obligation as to which the
payment should be credited), and shall not be deemed an accord and satisfaction
notwithstanding any provisions to the contrary written on any check or contained
in a letter of transmittal. Lessor's efforts to mitigate damages caused by any
default by Lessee shall not constitute a waiver of Lessor's right to recover
damages for any default by Lessee. No custom or practice which may arise between
the parties hereto in the administration of the terms hereof shall be construed
as a waiver or diminution of Lessor's right to demand performance by Lessee in
strict accordance with the terms of this Lease.
33. NOTICES. All notices, consents and demands which may or are to be
-------
required or permitted to be given by either party to the other hereunder shall
be in writing. All notices, consents and demands by Lessor to Lessee shall be
personally delivered or sent by United States Mail, postage prepaid, addressed
to Lessee as designated in Article 1.m., or to such other place as Lessee may
from time to time designate in a notice to Lessor pursuant to this Article 33.
All notices and demands by Lessee to Lessor shall be personally delivered or
sent by United States Mail, postage prepaid, addressed to Lessor as designated
in Article 1.m., or to such other person or place as Lessor may from time to
time designate in a notice to Lessee pursuant to this Article 33. Mailed notices
shall be deemed delivered twenty-four (24) hours after deposit in the United
States mail as required by this Article 33. Notwithstanding the foregoing, any
legal notices required to be sent by one party to the other (including, without
limitation, a notice pursuant to California Code of Civil Procedure Section
1161) shall be delivered in the manner required by law.
34. JOINT OBLIGATIONS. If Lessee consists of more than one person or entity,
-----------------
the obligations of each Lessee under this Lease shall be joint and several.
35. MARGINAL HEADINGS. The captions of paragraphs and articles of this Lease
-----------------
are not a part of this Lease and shall have no effect upon the construction or
interpretation of any part hereof.
36. TIME. Time is of the essence of this Lease and each and all of its
----
provisions in which performance is a factor except as to the delivery of
possession of the Premises to Lessee.
37. SUCCESSORS AND ASSIGNS. The covenants and conditions herein contained,
----------------------
subject to the provisions of Article 13, apply to and bind the heirs,
successors, executors, administrators, legal representatives and assigns of the
parties hereto.
38. RECORDATION. Upon request by Lessor, Lessee shall execute and acknowledge
-----------
a short form of this Lease in form for recording which may be recorded at
Lessor's election. Lessee shall not record this Lease or a short form or
memorandum hereof without the prior written consent of Lessor.
39. QUIET POSSESSION. Upon Lessee paying the Rentals reserved hereunder and
----------------
observing and performing all of the covenants, conditions and provisions on
Lessee's part to be observed and performed hereunder, Lessee shall have quiet
possession of the Premises for the entire Term, subject to all the provisions of
this Lease and subject to any ground or underlying leases, mortgages or deeds of
trust now or hereafter affecting the Premises or the Building and the rights
reserved by Lessor hereunder.
40. LATE CHARGES; ADDITIONAL RENT AND INTEREST.
------------------------------------------
a. Late Charges. Lessee acknowledges that late payment by Lessee to
------------
Lessor of Rentals or other sums due hereunder will cause Lessor to incur costs
not contemplated by this Lease, the exact amount of which are impracticable or
extremely difficult to ascertain. Such costs include, but are not limited to,
processing and accounting charges, and late charges which may be imposed upon
Lessor by the terms of any mortgage or trust deed covering the Premises or any
part of the Project. Accordingly, if any installment of Rentals or any other sum
due from Lessee is not received by Lessor or Lessor's designee within five (5)
business days after the due date, then Lessee shall pay to Lessor, in each case,
a late charge equal to ten percent (10%) of such overdue amount provided,
however, that on the first two (2) occasions during any calendar year of the
Term. Landlord shall give Tenant written notice of such late payment and Tenant
shall have a period of five (5) business days thereafter in which to make such
payment to Landlord before such late charge is assessed. The parties
agree that such late charge represents a fair and reasonable estimate of the
cost that Lessor will incur by reason of late payment by Lessee. Acceptance of
any late charges by Lessor shall in no event constitute a waiver of Lessee's
default with respect to such overdue amount, nor prevent Lessor from exercising
any of its other rights and remedies under this Lease.
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b. Rentals, Additional Rent and Interest. All taxes, charges, costs,
-------------------------------------
expenses, and other amounts which Lessee is required to pay hereunder, including
without limitation Lessee's Percentage Share of Excess Expenses, and all
interest and charges (including late charges) that may accrue thereon upon
Lessee's failure to pay the same and all damages, costs and expenses which
Lessor may incur by reason of any default by Lessee shall be deemed to be
additional rent hereunder. Upon nonpayment by Lessee of any additional rent,
Lessor shall have all the rights and remedies with respect thereto as Lessor has
for the nonpayment of Base Rent. The term "Rentals" as used in this Lease is
Base Rent and all additional rent. Any payment due from Lessee to Lessor,
including but not limited to Base Rent and all additional rent shall bear
interest from the thirtieth (30th) day after the same is due until paid, at an
annual rate equal to the maximum rate that Lessor is allowed to contract for by
law. Payment of such interest shall not excuse or cure any default by Lessee. In
addition, Lessee shall pay all costs and attorneys' fees incurred by Lessor in
collection of such amounts. All Rentals and other moneys due under this Lease
shall survive the Lease Termination. Interest on Rentals past due as provided
herein shall be in addition to the late charges levied pursuant to 40.a. above.
All Rentals shall be paid to Lessor, in lawful money of the United States of
America which shall be legal tender at the time of payment, at the address of
Lessor a provided herein, or to such other person or at such other place as
Lessor may from time to time designate in writing. If at any time during the
Term Lessee pays any Rentals for insufficient funds, Lessor shall have the
right, in addition to any other rights or remedies Lessor may have hereunder, to
require that Rentals thereafter be paid in cash or by cashier's or certified
check.
41. PRIOR AGREEMENTS. This Lease contains all of the agreements of the parties
----------------
hereto with respect to the Premises, this Lease or any matter covered or
mentioned in this Lease, and no prior agreements or understanding pertaining to
any such matters shall be effective for any purpose. No provision of this Lease
may be amended or added to except by an agreement in writing signed by the
parties hereto or their respective successors in interest. This Lease shall not
be effective or binding on Lessor until fully executed by Lessor.
42. INABILITY TO PERFORM. This Lease and the obligations of the Lessee
--------------------
hereunder shall not be affected or impaired because the Lessor is unable to
fulfill any of its obligations hereunder or is delayed in doing so, if such
inability or delay is caused by reason of strike, labor troubles, Acts of God,
or any other cause, similar or dissimilar, beyond the reasonable control of the
Lessor.
43. ATTORNEYS' FEES. If either party to this agreement shall bring an action
---------------
to interpret or enforce this agreement or for any relief against the other,
including, but not limited to, declaratory relief or a proceeding in
arbitration, the losing party shall pay to the prevailing party a reasonable sum
for attorney's fees, expert witness fees and other costs incurred in such action
or proceeding. Additionally, the prevailing party shall be entitled to all
additional attorney's fees and costs incurred in enforcing and collecting any
such judgment or award. Any judgment or order entered in such action shall
contain a specific provision providing for the recovery of attorney's fees and
costs incurred in enforcing such award or judgment.
44. SALE OF PREMISES BY LESSOR/ LIMITATION OF LIABILITY. Upon a sale or
---------------------------------------------------
conveyance by the Lessor herein named (and in case of any subsequent transfers
or conveyances, the then grantor) of Lessor's interest in the Building other
than a transfer for security purposes only, the Lessor herein named (and in case
of any subsequent transfers or conveyances, the then grantor) shall be relieved,
from and after the date of such transfer, of all obligations and liabilities
accruing thereafter on the part of Lessor, provided that any funds in the hands
of Lessor or the then grantor at the time of transfer and in which Lessee has an
interest, less any deductions permitted by law or this Lease, shall be delivered
to Lessor's successor. Following such sale or conveyance by Lessor or the then
grantor, Lessee agrees to look solely to the responsibility of the successor-in-
interest of Lessor in and to this Lease. This Lease shall not be affected by any
such sale or conveyance and Lessee agrees to attorn to the purchaser or
assignee. If the Lessor herein is a limited partnership, it is understood and
agreed that any claim by Lessee on Lessor shall be limited to the assets of the
limited partnership, and furthermore, Lessee expressly waives any and all rights
to proceed against the individual partners or the officers, directors or
shareholders of any corporate partner.
45. SUBORDINATION/ATTORNMENT. This Lease, at Lessor's option, shall be
------------------------
subject and subordinate to all ground or underlying leases which now exist or
may hereafter be executed affecting any portion of the Project and to the lien
of any mortgages or deeds of trust (including all advances thereunder, renewals,
replacements, modifications, supplements, consolidations, and extensions
thereof) in any amount or amounts whatsoever now or hereafter placed on or
against any portion of the Project, or on or against Lessor's interest or estate
therein, or on or against any ground or underlying lease, without the necessity
of the execution and delivery of any further instruments on the part of Lessee
to effectuate such subordination. Lessee covenants and agrees to execute and
deliver upon demand and without charge therefor, such further instruments
evidencing the subordination of this Lease to such ground or underlying leases
and/or to the lien of any such mortgages or deeds of trusts as may be required
by Lessor or a lender making a loan affecting the Project; provided that such
mortgagee or beneficiary under such mortgage or deed of trust or lessor under
such ground or underlying lease agrees in writing that so long as Lessee is not
in default under this Lease, this Lease shall not be terminated in the event of
any foreclosure or Lease Termination. Failure of Lessee to execute such
instruments evidencing subordination of this Lease shall constitute a default by
Lessee under this Lease. If any mortgagee, beneficiary or lessor elects to have
this Lease prior to the lien of its mortgage, deed of trust or lease, and shall
give written notice thereof to Lessee, this Lease shall be deemed prior to such
mortgage, deed of trust or lease, whether this Lease is dated prior or
subsequent to the date of said mortgage, deed of trust, or lease or the date of
the recording thereof.
If any proceedings are brought to terminate any ground or underlying leases
or for foreclosure, or upon the exercise of the power of sale, under any
mortgage or deed of trust covering any portion of the Project, Lessee shall
attorn to the lessor or purchaser upon any such termination, foreclosure or sale
and recognize such lessor or
-20-
<PAGE>
purchaser as the Lessor under this Lease. So long as Lessee is not in default
hereunder and attorns as required above, this Lease shall remain in full force
and effect for the full term hereof after any such termination, foreclosure or
sale.
46. NAME. Lessee shall not use any name, picture or representation of the
----
Building or Project for any purpose other than as an address of the business to
be conducted by the Lessee in the Premises.
47. SEVERABILITY. Any provision of this Lease which proves to be invalid,
------------
void or illegal shall in no way affect, impair or invalidate any other provision
of this Lease and all such other provisions shall remain in full force and
effect; however, if Lessee's obligation to pay the Rentals is determined to be
invalid or unenforceable, this Lease shall terminate at the option of Lessor.
48. CUMULATIVE REMEDIES. Except has otherwise expressly provided in this
-------------------
Lease, no remedy or election hereunder shall be deemed exclusive but shall,
wherever possible, be cumulative with all other remedies at law or in equity.
49. CHOICE OF LAW. This Lease shall be governed by the laws of the State of
-------------
California.
50. SIGNS. Lessee shall not inscribe, paint, affix or place any sign, awning,
-----
canopy, advertising matter, decoration or lettering upon any portion of the
Premises, including, without limitation, any exterior door, window or wall,
without Lessor's prior written consent. At no additional expense to Lessee,
Lessor shall provide Building standard suite signs and directory strips.
51. GENDER AND NUMBER. Wherever the context so requires, each gender shall
-----------------
include any other gender, and the singular number shall include the plural and
vice-versa.
52. CONSENTS. Whenever the consent of Lessor is required herein, the giving or
--------
withholding of such consent in any one or any number of instances shall not
limit or waive the need for such consent in any other or future instances. Any
consent given by Lessor shall not be binding upon Lessor unless in writing and
signed by Lessor or Lessor's agents. Notwithstanding any other provision of this
Lease, where Lessee is required to obtain the consent of Lessor to do any act,
or to refrain from the performance of any act, Lessee agrees that if Lessee is
in default with respect to any term, condition, covenant or provision of this
Lease, then Lessor shall be deemed to have acted reasonably in withholding its
consent if said consent is, in fact, withheld.
53. BROKERS. Lessee warrants that it has had no dealing with any real estate
-------
broker or agents in connection with the negotiation of this lease excepting only
the broker or agent designated in Article 1.n., and that it knows of no other
real estate broker or agent who is entitled to or can claim a commission in
connection with this Lease. Lessee agrees to indemnify and hold Lessor harmless
from and against any and all claims, demands, losses, liabilities, lawsuits,
judgments, and costs and expenses (including without limitation reasonable
attorneys' fees) with respect to any alleged leasing commission or equivalent
compensation alleged to be owing on account of Lessee's dealings with any real
estate broker or agent.
54. SUBSURFACE AND AIRSPACE. This Lease confers on Lessee no rights either
-----------------------
with respect to the subsurface of the Parcel or with regard to airspace above
the top of the Building or above any paved or landscaped areas on the Parcel or
Common Area and Lessor expressly reserves the right to use such subsurface and
airspace areas, including without limitation the right to perform construction
work thereon and in regard thereto. Any diminution or shutting off of light,
air or view by any structure which may be erected by Lessor on those portions of
the Parcel, Common Area and/or Building reserved by Lessor shall in no way
affect this Lease or impose any liability on Lessor. Lessor shall have the
exclusive right to use all or any portion of the roof, side and rear walls of
the Premises and Building for any purpose. Lessee shall have no right
whatsoever to the exterior of the exterior walls or the roof of the Premises or
any portion of the Project outside the Premises except as provided in Article 55
of this Lease.
55. COMMON AREA. For purposes of the Lease, "Common Area" shall collectively
-----------
mean the following:
a. Exterior Common Area. That portion of the Parcel other than the land
--------------------
comprising the property, and all facilities and improvements on such portion for
the non-exclusive use of Lessee in common with other authorized users,
including, but not limited to, vehicle parking areas, driveways, sidewalks,
landscaped areas, and the facilities and improvements necessary for the
operation thereof (the "Exterior Common Area"); and
b. Building Common Area. That portion of the Building in which the
--------------------
Premises are located, and all of the facilities therein, set aside by Lessor for
the non-exclusive use of Lessee in common with other authorized users,
including, but not limited to, entrances, lobbies, halls, atriums, corridors,
toilets and lavatories, passenger elevators and service areas (the "Building
Common Area").
Subject to the limitations and restrictions contained in this Lease, and
the Rules and Regulations, Lessor grants to Lessee and Lessee's Agents the
nonexclusive right to use the Common Area in common with Lessor, Lessor's agent,
tenants of the Building, other authorized users and their agents, subject to the
provisions of this Lease. The right to use the Common Area shall terminate upon
Lease Termination.
56. LABOR DISPUTES. If Lessee becomes involved in or is the object of a labor
--------------
dispute which subjects the Premises or any part of the Project to any picketing,
work stoppage, or other concerted activity which in the reasonable opinion of
Lessor is in any manner detrimental to the operation of any part of the Project,
or its tenants,
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<PAGE>
Lessor shall have the right to require Lessee, at Lessee's own expense and
within a reasonable period of time specified by Lessor, to use Lessee's best
efforts to either resolve such labor dispute or terminate or control any such
picketing, work stoppage or other concerted activity to the extent necessary to
eliminate any interference with the operation of the Projector its tenants. To
the extent such labor dispute interferes with the performance of Lessor's duties
hereunder, Lessor shall be excused from the performance of such duties and
Lessee hereby waives any and all claims against Lessor for damages or losses in
regard to such duties. If Lessee fails to use its best efforts to so resolve
such dispute or terminate or control such picketing, work stoppage or other
concerted activity within the period of time specified by Lessor, Lessor shall
have the right to terminate this Lease. Nothing contained in this Article 56
shall be construed as placing Lessor in an employer-employee relationship with
any of Lessee's employees or with any other employees who may be involved in
such labor dispute. Lessee shall hold Lessor harmless and indemnify Lessor from
any liability (including attorneys' fees) arising from any labor dispute in
which Lessee is involved and which affects any part of the Project.
57. CONDITIONS. All agreements by Lessee contained in this Lease, whether
----------
expressed as covenants or conditions, shall be construed to be both covenants
and conditions, conferring upon Lessor, upon breach thereof, the right to
terminate this Lease.
58. LESSEE'S FINANCIAL STATEMENTS. Lessee hereby warrants that all financial
-----------------------------
statements delivered by Lessee to Lessor prior to the execution of this Lease by
Lessee, or that shall be delivered in accordance with the terms hereof, are or
shall be at the time delivered true, correct, and complete, and prepared in
accordance with generally accepted accounting principles. Lessee acknowledges
and agrees that Lessor is relying on such financial statements in accepting this
Lease, and that a breach of Lessee's warranty as to such financial statements
shall constitute a default by Lessee.
59. LESSOR NOT A TRUSTEE. Lessor shall not be deemed to be a trustee of any
--------------------
funds paid to Lessor by Lessee (or held by Lessor for Lessee) pursuant to this
Lease. Lessor shall not be required to keep any such funds separate from
Lessor's general funds or segregated from any funds paid to Lessor by (or held
by Lessor for) other tenants of the Building. Any funds held by Lessor pursuant
to this Lease shall not bear interest.
60. MERGER. The voluntary or other surrender of this Lease by Lessee, or a
------
mutual cancellation thereof, shall not work a merger, and shall, at the option
of the Lessor, terminate all or any existing subleases or subtenancies, or may,
at the option of Lessor, operate as an assignment to it of any or all such
subleases or subtenancies.
61. NO PARTNERSHIP OR JOINT VENTURE. Nothing in this Lease shall be construed
-------------------------------
as creating a partnership or joint venture between Lessor, Lessee, or any other
party, or cause Lessor to be responsible for the debts or obligations of Lessee
or any other party.
62. LESSOR'S RIGHT TO PERFORM LESSEE'S COVENANTS. Except as otherwise
--------------------------------------------
expressly provided herein, if Lessee fails at any time to make any payment or
perform any other act on its part to be made or performed under this Lease,
Lessor may upon ten (10) days written notice to Lessee, but shall not be
obligated to, and without waiving or releasing Lessee from any obligation under
this Lease, make such payment or perform such other act to the extent that
Lessor may deem desirable, and in connection therewith, pay expenses and employ
counsel. All sums so paid by Lessor and all penalties, interest and costs in
connection therewith shall be due and payable by Lessee to Lessor as additional
rent upon demand.
63. PLANS. Lessee acknowledges that any plan of the Project which may have
-----
been displayed or furnished to Lessee or which may be a part of Exhibit "A" or
Exhibit "B" is tentative; Lessor may from time to time change the shape, size,
location, number, and extent of the improvements shown on any such plan and
eliminate or add any improvements to the Project, in Lessor's sole discretion.
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<PAGE>
65. WAIVER OF JURY. LESSOR AND LESSEE HEREBY WAIVE THEIR RESPECTIVE RIGHT TO
--------------
TRIAL BY JURY ON ANY CAUSE OF ACTION, CLAIM, COUNTER-CLAIM OR CROSS-COMPLAINT IN
ANY ACTION, PROCEEDING AND/OR HEARING BROUGHT BY EITHER LESSOR AGAINST LESSEE OR
LESSEE AGAINST LESSOR ON ANY MATTER WHATSOEVER ARISING OUT OF OR IN ANY WAY
CONNECTED WITH THIS AGREEMENT.
66. JOINT PARTICIPATION. Lessor and Lessee hereby acknowledge that both
-------------------
parties have been represented by counsel in connection with this Lease and that
both parties have participated in the negotiation and
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<PAGE>
drafting of all of the terms and provisions hereof. By reason of this joint
participation no term or provision of this Lease will be construed against
either party as the "drafter" thereof, which terms and provisions shall include,
without limitation, Article 14 hereof.
IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR SUBMISSION TO YOUR
ATTORNEY FOR APPROVAL. NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE LESSOR
BY THE REAL ESTATE BROKER OR ITS AGENTS OR EMPLOYEES AS TO THE LEGAL
SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTIONS
RELATING THERETO.
"LESSOR": NORFOLK ATRIUM, a California limited partnership
By: NAPA RIVER DEVCO, INC.,
a California corporation, its General Partner
By: PROM MANAGEMENT GROUP, INC.,
a California corporation
D.B.A. Maxim Property Management
as Agent for Owner
By: /s/ John H. Pringle
-------------------------------
John H. Pringle
Title: Senior Vice President
---------------------------
Address: Dated: 2-14-96
---------------------------
2600 Campus Drive, Suite 200
San Mateo, California 94430
"LESSEE": MACROMEDIA, INC.,
a California corporation
By: /s/ Philip Johnson
-------------------------
Title: V.P. Operations & CFO
-----------------------
Address: Dated: 2/12/96
----------------------
Macromedia, Inc.,
- ---------------------------
1900 South Norfolk Street
- ---------------------------
Suite 115
- ---------------------------
San Mateo, CA 94403
- ---------------------------
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<PAGE>
ALL-PURPOSE CERTIFICATE
State of California
County of San Francisco
On Feb. 12, 1996 before me, Stella M. Uyeno (here insert name and title of the
officer), personally appeared Richard B. Wood, personally known to me (or proved
to me on the basis of satisfactory evidence) to be the person(s) whose name(s)
is/are subscribed to the within instrument and acknowledged to me that
he/she/they executed the same in his/her/their authorized capacity(ies), and
that by his/her/their signature(s) on the instrument the person(s), or the
entity upon behalf of which the person(s) acted, executed the instrument.
WITNESS my hand and official seal.
Signature /s/ Stella M. Uyeno (Seal)
----------------------
[SEAL APPEARS HERE]
<PAGE>
ADDENDA TO LEASE
----------------
These Addenda to Lease are made by and between NORFOLK ATRIUM, a California
limited partnership (hereinafter referred to as "Lessor"), and Macromedia, Inc.,
a California corporation (hereinafter referred to as "Lessee"), who agree as set
forth herein.
ADDENDUM 1:
- ----------
Lease Commencement Date. The Commencement Date of this Lease shall be the
-----------------------
date that Lessor delivers possession of the Premises to Lessee. The anticipated
Commencement Date (the "Anticipated Commencement Date") is June 1, 1996.
The obligation of Lessee to pay rent, including Base Rent and all other
sums due hereunder, will commence on the date which is the earlier of: (i) sixty
(60) days following the Commencement Date, or (ii) the date upon which Lessee
commences to do business in the Premises (the "Rent Start Date").
Lease Expiration Date. The Expiration Date of the Lease shall be the last
---------------------
day of the forty-fifth (45th) month following the first day of the first
calendar month following the Rent Start Date, unless extended or sooner
terminated pursuant to this Lease.
The parties hereto shall execute a commencement memorandum confirming the
Commencement Date, the Expiration Date, and the Rent State Date.
ADDENDUM 2:
- ----------
3.b. Option to Extend Term. Lessee is given the option to extend the Term
---------------------
on all provisions contained in this Lease (except for Base Rent and such other
terms and conditions as are specifically or by their operation limited to the
initial Term only), for a period of three (3) years immediately following the
expiration of the Term (the "Extended Term"), by giving notice of exercise of
the option to Lessor at least nine (9) months but not more than one (1) year
before the expiration of the Term (the "Option Notice").
Accordingly, Lessee acknowledges that Lessee's strict compliance with the
notification provisions contained herein, and Lessee's strict compliance with
the time period for such notification contained herein, are material elements of
the bargained-for exchange between Lessor and Lessee and are material elements
of Lessee's consideration paid to Lessor in exchange for the grant of option.
Therefore, Lessee's failure to adhere strictly and completely to the provisions
and time frame contained in this option shall render the option automatically
null, void, and of no further force or effect, without notice acknowledgement,
or any action of any nature of sort, required of Lessor. Lessee acknowledges
that no other act or notice, other than the express written notice set forth
hereinabove, shall act to put Lessor on notice of Lessee's intent to extend, and
Lessee hereby waives any claims to the contrary, notwithstanding any other
actions of Lessee during the terms of this Lease or any statements, written or
oral, of Lessee to Lessor to the contrary during the term of this Lease.
Notwithstanding the foregoing, if Lessee is in default on the date of giving the
Option Notice, the Option.
Notice shall be totally ineffective, or if Lessee is in default on the date the
Extended Term is to commence, in addition to any and all other remedies
available to Lessor under the Lease, at Lessor's election the exercise of the
option shall be deemed null and void, the Extended Term shall not commence, and
this Lease shall expire at the end of the Term.
This Option to Extend is personal to Lessee and cannot be assigned,
transferred or conveyed to any other person or entity (voluntarily,
involuntarily, by operation of law or otherwise) including any assignee or
sublessee permitted under Article 13. All of Lessee's rights under this Addendum
2 shall terminate upon the expiration or sooner termination of this Lease.
If Lessee exercises its right to extend the Term as set forth above and
subsequently hires a real estate broker to represent Lessee, Lessee hereby
acknowledges that under no circumstances will Lessor be responsible for the
payment of a brokerage commission to Lessee's broker.
-1-
<PAGE>
ADDENDUM 3:
- ----------
5.b. Rent During Extended Term. The parties shall have thirty (30) days
-------------------------
after Lessor receives the Option Notice (as defined in Addendum 2 above) in
which to agree upon the Base Rent to be payable during the Extended Term. The
Base Rent payable during the Extended Term shall be an amount equal to the then
current "Fair Market Rental Value" (defined below) of the Premises at the time
of the commencement of the proposed Extended Term. In no event, however, shall
the Base Rent during the Extended Term be less than the Base Rent payable at the
expiration of the initial Term.
The term "Fair Market Rental Value" of the Premises as used in this Lease
shall mean the then prevailing fair market rent for the Premises at the
expiration of the Term. In determining such rate, Lessor may consider first
class office space comparable in size and quality to the Premises, if any,
located in the vicinity of the Project and located in buildings comparable in
size and quality to the Building in which the Premises are located, and taking
into consideration all other factors normally considered when determining Fair
Market Rental Value.
If the parties so agree on the fair market rental value for the Premises
within said thirty (30) day period, they shall immediately execute an amendment
to this Lease stating the Base Rent to be paid during the Extended Term. If the
parties are unable to agree, in their sole and absolute discretion, on the Fair
Market Rental Value within such time, then this option to extend shall be
ineffective and the Term will expire as of the Expiration Date. No court
arbitrator or third party shall have the right to challenge the exercise of this
discretion.
ADDENDUM 4:
- ----------
Notwithstanding the requirements contained in Article 7 of this Lease, Lessee
shall not be obligated to pay in any years their Percentage Share of Management
Controllable Expenses (defined below) which are in excess of any amount equal to
the actual Management Controllable Expenses incurred during 1996 increased by
six percent (6%) per annum on a cumulative, compounded basis for the initial
Term hereof. Management Controllable Expenses are defined as (i) any Project
Operating Expenses (as defined in Article 7) which is incurred in the ongoing
management and operation of the Building or the Project, and in connection with
the routine function, repair and maintenance thereof, and which are
discretionary on the part of Lessor. For example, Management Controllable
Expenses shall not include Project Taxes, utilities, and insurance premiums.
ADDENDUM 5:
- ----------
14. Hold Harmless. Lessor shall indemnify, defend with counsel reasonably
-------------
acceptable to Lessee, and hold Lessee and Lessee's employees, agents, partners,
officers, directors and shareholders harmless from and against any and all
claims, damages, losses, liabilities, penalties, judgments, and costs and
expenses (including, without limitation, attorneys' fees) and any suit, action
or proceeding brought pursuant thereto (collectively, "Claims"), including
Claims for property damage, or personal injury including death, arising out of
(i) any activity, work or other thing done by Lessor in or about the Premises or
the Project, (ii) any breach or default in the performance of any obligation on
Lessor's part to be performed under the terms of this Lease, (including, without
limitation, a failure to maintain insurance as provided in Article 16, or (iii)
any act of willful misconduct or negligence of the Lessor or Lessor's Agents.
ADDENDUM 6:
- ----------
(*)
17. Services and Utilities. As requested by Lessee, Lessor shall furnish
----------------------
Lessee with HVAC services at times other than normal Business Hours for the
Building provided Lessee pays to Lessor, as Additional Rent, the standard charge
for such additional services. The current rate for additional HVAC service is
twenty-five dollars ($25.00) per hour, per zone. Such hourly charge shall be
subject to increase as Lessor's actual costs to provide such additional service
increase from time to time. For the purposes of this Lease, normal Business
Hours for the Building are Monday through Friday, 7:00 a.m. to 6:00 p.m.,
weekends and recognized holidays excepted. (*) Lessee shall provide Lessor with
advance reasonable notice of the need for such after-hours HVAC services; for
the purposes of this Lease, Lessee will endeavor to provide twenty-four hours
prior notice to Lessor of the need for such after-hours service.
-2-
<PAGE>
ADDENDUM 7:
- ----------
17. Services and Utilities. Notwithstanding the foregoing, if any such
----------------------
utility interruption, which is within Lessor's control continues for more than
five (5) consecutive days and materially and adversely impairs Lessee's use of
the Premises for its intended purpose, Lessee's obligation to pay Base Rent and
its Percentage Share of Excess Expenses and Taxes shall proportionately abate as
of the sixth (6th) day until such utility service is restored.
ADDENDUM 8:
- ----------
3.F. Contingency. Lessee acknowledges and accepts that this Lease is
-----------
specifically and expressly contingent upon Lessor's receipt of a fully executed
Termination of Lease Agreement from Domark Software, Inc.
LESSOR: NORFOLK ATRIUM, a California Limited Partnership
By: NAPA RIVER DEVCO, INC.,
a California corporation, its general partner
By: Prom Management Group, Inc.,
a California corporation, dba Maxim Property Management
as Agent for Owner
By: /s/ John H. Pringle
--------------------------------------
Type Name: John H. Pringle
---------------------------------
Title: Senior Vice President
-------------------------------------
Address:
c/o Maxim Property Management
2600 Campus Drive, Suite 200
San Mateo, California 94403
LESSEE: MACROMEDIA, INC.,
a California corporation
By: /s/ Richard B. Wood
-------------------------------------
Typed Name: Richard B. Wood
--------------------------------
Title: V.P. Operations & CFO
-------------------------------------
Address:
Macromedia, Inc.
1900 South Norfolk Street
Suite 115
San Mateo, California 94403
ADDENDUM 9:
- ----------
BONUS VALUE
Upon Transfer of all or part of the Premises to any person other than an
affiliate of Lessee, Lessee shall pay over to Lessor as received, the following
amount ("bonus value") one half of the difference between all amounts received
by Lessee from its sublessee for rental or use of the Premises (including key
money and bonus money), less the sum of (i) all amounts payable as Rent and
otherwise under this Lease to Lessor (ii) the unamortized portion of all
reasonable costs to Lessee of all of Lessee's existing leasehold improvements in
the portion of the Premises transferred and (iii) any reasonable brokerage
commissions in connection with said Transfer. The monthly amortization of such
nonbuilding standard improvements shall be calculated by dividing the cost of
such improvements attributable to the sublet space without interest, by the
aggregate number of months within the initial term of this Lease Lessee's right
to share in any bonus value during any Extended term shall be subject to
negotiation at the time the Base Rent for such Extended Term is determined
Lessee irrevocably assigns to Lessor as security for Lessee's obligation under
this Lease the bonus value payable to Lessor by reason of assignee of Lessee, or
a receiver for Lessee appointed on Lessor's application, may collect such rent
and apply it toward Lessee's obligations under this Lease; provided however,
that until the occurrence of any default by lessee, Lessee shall have the right
to collect such rent.
-3-
<PAGE>
[PICTURE OF THE ATRIUM APPEARS HERE]
THE ATRIUM
WATERS OFFICE PARK, PHASE II
SAN MATEO, CALIFORNIA
<PAGE>
EXHIBIT "A-1"
DEFINITIONS
1. BUILDING RENTABLE AREA. Defined as the gross building area of the Building
(measured from the glass line of the exterior building wall to the glass
line of the exterior building wall) minus the Building Common Area.
2. BUILDING COMMON AREA. Defined as the area in the building shared in common
with all other tenants in the building. It includes the following first
floor space; atrium space, locker rooms, mail room, exit corridors, loading
dock corridor, elevator machine room, main electrical and telephone rooms,
and security guard station.
3. FLOOR COMMON AREA. The Floor Common Area is defined as the area on a
Multiple-Tenancy floor shared with other tenants on that floor. Floor
Common Area includes lobbies, stairs, shafts and elevator shafts, flues,
pipeshafts, vertical ducts, HVAC rooms, telephone and electrical rooms, fan
rooms, janitors closets, toilet rooms, and storage rooms, available for use
by all tenants on that floor. Floor Common Area shall be measured from the
office side of corridors and/or permanent partitions, to the office of
corridors and/or other permanent partitions.
4. FLOOR USEABLE AREA. That area on a Multiple-Tenancy Floor for the
exclusive use of a particular tenant. Floor Usable Area is computed by
measuring from the glass line of the exterior building wall to the office
side of corridors and/or other permanent partitions and to the center line
of partitions that separate the premises from adjoining rentable areas. No
deductions shall be made for stairs, shafts, flues, pipeshafts, or vertical
ducts within the space. No deductions shall be made for HVAC rooms,
telephone storage, electric or fan rooms, or janitors closets when such
rooms are not available to other tenants on the floor. No deductions shall
be made for columns.
5. FLOOR RENTABLE AREA. Single Tenant Floor: Floor Rentable Area shall be
defined as follows: On a floor where a tenant is the sole occupant of the
floor (Single-Tenancy Floor) the Floor Rentable Area is computed by
measuring from the glass line of the exterior building walls to the glass
line of the exterior building walls. Floor Rentable Area shall include all
areas with the outside walls with no deduction for stairs, elevator shafts,
flues, pipe shafts, vertical ducts, HVAC rooms, telephone storage electric
or fan rooms, janitors closets, lobbies, or toilet rooms. No deductions
shall be made for columns.
6. FLOOR RENTABLE AREA. Multiple Tenancy Floor: On a floor where the tenant
is not the sole occupant (Multiple-Tenancy Floor) the Floor Rentable Area
is the sum of the Floor Useable Area plus a pro rata portion of the Floor
Common Area. The pro rata portion of the Floor Common Area shall be a
fraction in which the numerator is the Floor Useable Area of that specific
tenant on that particular floor. The denominator shall be the Floor
Rentable Area of the total floor if the floor had been measured as a
Single-Tenancy Floor minus Floor Common Area .
7. TENANT'S RENTABLE AREA ("Rentable Area"). Single Tenancy Floor: The
Rentable Area on a Single Tenant Floor is defined as the Floor Rentable
Area plus a pro rata portion of the Building Common Area. The pro rata
portion of the Building Common Area shall be a fraction in which the
numerator is the Floor Rentable Area (Single-Tenancy Floor) and the
denominator is the Building Rentable Area.
8. TENANT'S RENTABLE AREA ("Rentable Area"). Multiple Tenancy Floor: The
Rentable Area on a Multiple Tenancy Floor is defined as the sum of the
Floor Rentable Area plus a pro rate share of the Building Common Area. The
pro rata share of the Building Common Area shall be a fraction in which the
numerator is the Floor Rentable Area (Multiple-Tenancy Floor) and the
denominator is the Building Rentable Area.
9. IMPROVABLE AREA. Improvable Area on a Single-Tenancy Floor is defined as
the Floor Rentable Area minus all vertical penetrations and areas finished
with the building shell. Improvable Area on a Multiple-Tenancy Floor equals
the usable area minus all vertical penetrations and area finished with the
building shell.
<PAGE>
EXHIBIT B
[PICTURE OF BUILDING APPEARS HERE]
<PAGE>
a. Within thirty (30) days after Lessor's receipt of unconditional
lien waivers and evidence of subcontractor, general contractor and materialmen
invoices regarding Tenant's construction improvements to the demised premises,
Lessor shall pay to Lessee the agreed upon sum of eight dollars ($8.00) per
useable square foot or one hundred nineteen thousand two hundred eighty-eight
and no/100ths ($119,288.00).
IN WITNESS WHEREOF, the parties have executed this Work Letter intending to
be bound as of the date set forth above.
LESSOR: NORFOLK ATRIUM, a California Limited Partnership
By: NAPA RIVER DEVCO, INC.,
a California corporation, its general partner
By: Prom Management Group, Inc.,
a California corporation, dba Maxim Property Management
as Agent for Owner
By: /s/ John H. Pringle
-------------------------------
Typed Name: John H. Pringle
----------------------
Title: Senior Vice President
----------------------------
Address:
c/o Maxim Property Management
2600 Campus Drive, Suite 200
San Mateo, California 94403
LESSEE: MACROMEDIA, INC.,
a California corporation
By: /s/ Richard B. Wood
------------------------------
Typed Name: Richard B. Wood
----------------------
Title: V.P. Operations & CFO
----------------------------
Address:
Macromedia, Inc.
1900 South Norfolk Street
Suite 115
San Mateo, California 94403
-3-
<PAGE>
EXHIBIT "C"
-----------
WORK LETTER
-----------
THIS WORK LETTER AGREEMENT ("Agreement") supplements the Lease dated
concurrent herewith, by and between NORFOLK ATRIUM, a California limited
partnership ("Lessor") and MACROMEDIA, INC., a California ("Lessee") with
respect to those certain premises described in the Lease ("Premises"). The
purpose of this Work Letter is to set forth our mutual obligations with regard
to the alteration and improvement of the Premises. All terms not defined herein
shall have the same meaning as set forth in the Lease.
1. Lessor's Work. Upon the Commencement Date, Lessor shall deliver
-------------
possession of the Premises in its "as is" condition to Lessee for the purposes
of constructing the necessary improvements within the Premises to render the
Premises suitable for Lessee's use.
To the extent Lessor is successful in obtaining a monetary
contribution from USL Capital for the cost of removing any or all specialized
improvements within the Premises, Lessor shall increase the Tenant Improvement
Allowance by the Monetary contribution received less any of Lessors cost in
obtaining said contribution from USL Capital.
2. Construction of Tenant Improvements.
-----------------------------------
a. Tenant Improvements. Lessee shall engage the General Contractor
-------------------
identified below to construct in the Premises the improvements shown on the
plans and specifications approved by Lessor and Lessee pursuant to Paragraph 3
below (the "Tenant Improvements").
b. Construction Representatives. Lessor hereby appoints the
----------------------------
following person as Lessor's representative ("Lessor's Representative") to act
for Lessor in all matters covered by this Agreement: Robert E. Phipps . Lessee
------------------
hereby appoints the following person as Lessee's representative ("Lessee's
Representative") to act for Lessee in all matters covered by this Agreement:
Roger Beck. All communications with respect to the matters covered by this
- ----------
Agreement shall be made to Lessor's Representative or Lessee's Representative,
as the case may be. Either party may change its representative under this
Agreement at any time upon twenty-four (24) hours written notice to the other
party.
3. Construction Plan for Leased Premises.
-------------------------------------
a. Preparation of Space Plans. Lessor hereby approves the use by
--------------------------
Lessee of Don L. Beck Associates (the "Architect") to be retained by Lessee in
----------------------
connection with the construction of the Tenant Improvements. Promptly following
the date hereof, Lessee shall cause the Architect to prepare preliminary space
plans for the Premises and layout of the Tenant Improvements therein (the "Space
Plans"). Two sets of the Space Plans shall be submitted to Lessor for Lessor's
approval, which approval shall be unreasonably withheld. Within no more than
five (5) business days of receipt of the Space Plans: (i) Lessor shall notify
Lessee in writing of Lessor's approval of the Space Plans, or (ii) if Lessor
disapproves of any portion of the Space Plans, Lessor shall notify Lessee in
writing of such disapproval and the specific reasons therefore. Promptly
following Lessor's response, Lessee shall submit to Lessor, for Lessor's
reasonable approval, a re-design of the Space Plans, incorporating the revisions
required by Lessor.
b. Preparation of Final Plans. Based on the approved Space Plans,
--------------------------
Lessee shall cause the Architect, in consultation with Lessor's engineers, if
necessary, to prepare complete architectural plans, drawings and specification
and complete engineering, mechanical, structural, and electrical working
drawings for the Tenant Improvements, as necessary in light of standard industry
practice ('the "Final Plans"). The Final Plans shall be approved in the same
manner as provided in Paragraph 3a. above for approval of the Final Plans.
-1-
<PAGE>
c. Approvals. Lessee and Lessee's Architect shall be solely
---------
responsible for obtaining required approval of the Final Plans by all
governmental agencies having jurisdiction, including all necessary permits and
any certificates of occupancy (or other required, equivalent approval from the
local governmental authority permitting occupancy of the Premises). Lessor shall
reasonably cooperate with Lessee in obtaining such approvals.
d. Changes. Lessee shall not make changes to the Space Plans and
-------
Final Plans without the prior written consent of Lessor. In any instance
in which Lessor's approval for a change is requested, Lessor shall not
unreasonably withhold consent to such change and shall respond to a request for
approval of such change as soon as reasonably possible.
e. Lessee's Restoration Responsibilities. As a condition of
-------------------------------------
Lessor's approval of Lessee's Space Plan and Final Plans, Lessor reserves the
right to require Lessee to remove any or all of its overstandard tenant
improvements and restore the Premises and the Building to "shell condition",
Lessor shall notify Lessee in writing of any restoration obligations at the
time the Final Plans are approved.
4. Construction.
------------
a. General Contractor. The parties hereby approve Rudolph &
------------------
Sletten, Inc. or Southbay Construction as the general contractor for
construction of the Tenant Improvements (the "General Contractor"). Lessee shall
not appoint a substitute general contractor without the prior written consent of
Lessor.
b. Construction of Tenant Improvements. All Tenant Improvements
-----------------------------------
shall be performed diligently, in a first-class, workmanlike manner and in
accordance with all applicable laws. Prior to commencing such work, Lessee shall
furnish Lessor with sufficient evidence that Lessee and the General Contractor
are carrying worker's compensation insurance in statutorily-required amounts,
comprehensive general liability insurance and all other insurance in compliance
with the Lease. Lessee shall use all reasonable efforts to ensure that the work
performed by the General Contractor and all subcontractors will not compromise
the integrity of any Building systems. Lessor shall have the right to enter the
Premises at all times to inspect the progress of the construction of the Tenant
Improvements and to post notices of non-responsibility. Lessee shall comply with
all Lessor's reasonable safety policies and procedures while performing work at
the Project. Lessor hall not unreasonably withhold access or impede the
construction schedule.
5. Construction Costs.
------------------
a. Tenant Improvement Allowance. Lessor shall provide to Lessee an
----------------------------
allowance of one hundred nineteen thousand two hundred eighty-eight and
no/100ths dollars ($119,288.00), such sum being the equivalent of eight dollars
($8.00) per useable square foot (the "Tenant Improvement Allowance"). The Tenant
Improvement Allowance shall be used to construct the tenant improvements within
the Premises in accordance with the plans and specifications described in
Paragraph 3 above. Said allowance shall include the cost of applicable
construction permits and the costs of space planning and architectural fees. The
cost of any improvements, permit fees, architectural fees, and related costs
exceeding the Tenant Improvement Allowance shall be paid directly by Lessee.
b. Changes. Lessee shall not authorize changes to the Space Plans
-------
and Final Plans without the prior written consent of Lessor. In any instance in
which Lessor's approval for a change is required, Lessor shall not unreasonably
withhold consent to such change, and shall respond to a request for approval of
such change as soon as reasonably possible.
6. Completion of the Tenant Improvements. Upon completion of the Tenant
-------------------------------------
Improvements, Lessee shall execute and deliver to Lessor a written
acknowledgment that the Tenant Improvements have been accepted and are approved
by Lessee, together with (i) copies of all final conditional lien releases and
conditional waivers of all lien rights from the General Contractor and all
subcontractors, (ii) copies of occupancy permits or similar documentation
evidencing the completion of the improvements within the Premises, and (iii) "as
built" plans depicting the Tenant Improvements. All items of Tenant Improvements
constructed within the Premises shall be the property of Lessor and shall remain
on the Premises at all times during the Term of the Lease, except as otherwise
provided in the Lease.
-2-
<PAGE>
a. Within thirty (30) days after Lessor's receipt of unconditional
lien waivers and evidence of subcontractor, general contractor and materialmen
invoices regarding Tenant's construction improvements to the demised premises,
Lessor shall pay to Lessee the agreed upon sum of eight dollars ($8.00) per
useable square foot or one hundred nineteen thousand two hundred eighty-eight
and no/100ths ($119,288.00).
IN WITNESS WHEREOF, the parties have executed this Work Letter intending to
be bound as of the date set forth above.
LESSOR: NORFOLK ATRIUM, a California Limited Partnership
By: NAPA RIVER DEVCO, INC.,
a California corporation, its general partner
By: Prom Management Group, Inc.,
a California corporation, dbn Maxim Property Management
as Agent for Owner
By: /s/ John II, Pringle
---------------------------------
Typed Name: John II, Pringle
-------------------------
Title: Senior Vice President
------------------------------
Address:
c/o Maxim Property Management
2600 Campus Drive, Suite 200
San Mateo, California 94403
LESSEE: MACROMEDIA, INC.,
a California corporation
By: /s/ Richard B. Wood
---------------------------------
Typed Name: Richard B. Wood
-------------------------
Title: V.P. Operations & CFO
------------------------------
Address:
Macromedia, Inc.
1900 South Norfolk Street
Suite 115
San Mateo, California 94403
-3-
<PAGE>
EXHIBIT "D"
RULES AND REGULATIONS
1. No sign, placard, picture, advertisement, name or notice shall be
inscribed, displayed or printed or affixed on or to any part of the outside
or inside of the Building without prior written consent of Landlord.
Landlord shall have the right to remove any such sign, placard, picture,
advertisement, name or notice without notice to and at the expense of the
Tenant.
All approved signs or lettering on doors shall be printed, painted, affixed
or inscribed at the expense of Tenant by a person approved of by Landlord.
Tenant shall not place anything or allow anything to be placed near the
glass of any exterior window, door, partition or wall which may appear
unsightly from outside the Premises, Tenant shall not, without prior
written consent of Landlord cover or otherwise sunscreen any window.
2. The sidewalks, halls, passages, exits, entrances, elevators and stairways
shall not be obstructed by any of the tenants or used by them for any
purpose other than for ingress or egress from their respective Premises.
3. Tenant shall return all keys issued for the Premises. Tenant shall pay to
Landlord the cost of rekeying the Premise if all keys are not returned.
Tenant shall not alter any lock or install any new or additional locks or
any bolts on any doors or windows of the Premises.
4. The common area toilet rooms, urinals, wash bowls and other apparatus shall
not be used for any purpose other than that for which they were constructed
and no foreign substance of any kind whatsoever shall be thrown therein and
the expense of any breakage, stoppage or damage resulting from the
violation of this rule shall be borne by the Tenant who, or whose agents,
officers, employees, contractors, servants, invitees or guests shall have
caused it.
5. Tenant shall not overload the floor of the Premises or in any way deface
the Premises or any part thereof.
6. No furniture, freight or equipment of any kind shall be brought into the
Building without prior notice to Landlord and all moving of the same into
or out of the Building shall be done at such time and in such manner as
Landlord shall designate, Landlord shall have the right to prescribe the
weight, size and position of all safes and other heavy equipment brought
into the Building and also the time and manner of moving the same in and
out of the Building. Safes and other heavy objects shall, if considered
necessary by Landlord, stand on supports of such thickness as is necessary
to properly distribute the weight. Landlord will not be responsible for
loss of or damage to any such safe or property from any cause and all
damage done to the Building by moving or maintaining any such safe or other
property shall be repaired at the expense of Tenant.
7. Tenant shall not use, keep or permit to be used or kept, any foul or
noxious gas or substance in the Premises, or permit of suffer the Premises
to be occupied or used in a manner offensive or objectionable to the
Landlord or other occupants of the Building by reason of noise, odors
and/or vibrations, or interfere in any way with other tenants or those
having business therein, nor shall any animals or birds be brought in or
kept in or about the Premises or Building.
8. No cooking shall be done or permitted, except with a microwave oven, by any
tenant on the Premises, nor shall the Premises be used for the storage of
merchandise, for washing clothes, for lodging, or for any improper,
objectionable or immoral purpose.
9. Tenant shall not use or keep in the Premises or the Building any kerosene,
gasoline or inflammable or combustible fluid or material, or any method of
heating or air conditioning other than supplied by Landlord.
<PAGE>
10. Landlord will direct electricians as to where and how telephone and
telegraph wires are to be introduced. No boring or cutting for the wires
will be allowed without the consent of the Landlord. The location of
telephones, call boxes and other office equipment affixed to the Premises
shall be subject to the approval of Landlord.
11. Tenant shall not install any wiring above the ceiling tiles that does not
comply with the fire codes. Any such wiring shall be removed immediately at
the expense of Tenant.
12. On Saturdays, Sundays and legal holidays, and on other days between the
hours of 6:00 p.m. and 8:00 a.m. the following day, access to the Building,
or to the halls, corridors, elevators or stairways in the Building, or to
the Premises may be refused unless the person seeking access is known to
the person or employee of the Building in charge and has a pass or is
properly identified. The Landlord shall in no case be liable for damages
for any error with regard to the admission to or exclusion from the
Building of any person. In case of invasion, mob, riot, public excitement
or other commotion, the Landlord reserves the right to prevent access to
the Building during the continuance of the same by closing the doors or
otherwise, for the safety of the tenants and protection of the Building and
of property in the Building.
13. Landlord reserves the right to exclude or expel from the Building any
person who, in the judgement of the Landlord, is intoxicated or under the
influence of liquor or drugs, or who shall in any manner do any act in
violation of any of the rules and regulations of the Building.
14. No vending machine or machines of any description shall be installed,
maintained or operated upon the Premises without the written consent of the
Landlord.
15. Landlord shall have the right, exercisable without notice and without
liability to Tenant, to change the name and street address of the Building
of which the Premises are a part.
16. Tenant shall not disturb, solicit or canvass any occupant of the Building
and shall cooperate to prevent the same.
17. Landlord shall have the right to control and operate the public portions of
the Building, and the public facilities, and heating and air conditioning,
as well as facilities furnished for the common use of the tenants, in such
manner as it deems best for the benefit of the tenants generally.
18. All entrance doors in the Premises shall be left locked when the Premises
are not in use, and all doors opening to public corridors shall be kept
closed except for normal ingress or egress from the Premises.
19. Without the written consent of Landlord, Tenant shall not use the name of
the Building in connection with or in promoting or advertising the business
of Tenant except at Tenant's address.
20. Tenant shall place pads under all desk chairs, or have carpet coasters to
protect chairs.
21. Tenant shall not leave corridor doors open.
22. Landlord shall approve in writing the method of attachment of any objects
affixed to walls, ceilings or doors.
23. Tenant shall have the right to use in common with the other tenants, the
loading facilities, Landlord does not guarantee the suitability of the
loading dock for any and all types of delivery vehicles.
24. All tenant deliveries of bulk items shall be through loading facilities.
Landlord shall have the right at his sole discretion to prohibit tenant's
delivery through the main lobbies.
25. The current business hours are between 8:00 a.m. to 6:00 p.m. ("Business
Hours") on weekdays, Monday through Friday, except generally recognized
holidays.
<PAGE>
EXHIBIT "B"
-----------
DESCRIPTION OF FURNITURE
The Furniture to be sold and transferred to Sublessee shall consist of the
following:
All of Sublessor's right, title and interest in and to all of that
personal property owned by Sublessor consisting of 57 cubicles, described as
Herman Miller Series 2 Partition furniture.
<PAGE>
EXHIBIT "C"
-----------
BILL OF SALE
------------
For valuable consideration, receipt of which is hereby acknowledged, the
undersigned hereby sells and conveys to INKTOMI CORPORATION its entire right,
title and interest in and to all of that personal property owned by the
undersigned consisting of 57 cubicles, all as more particularly described in
Exhibit 1 attached hereto and incorporated herein described as Herman Miller
- ---------
Series 2 partition furniture, which personal property is located as of the date
hereof in or on the real property commonly known as ________________________
__________________________________. Said personal property is transferred "AS
IS" in its present physical condition, without any representations or warranties
by the undersigned, express or implied, respecting the condition thereof.
Notwithstanding the foregoing, the undersigned covenants that it is the
lawful owner of the referenced personal property, free from all liens, claims or
encumbrances, and agrees to warrant and defend the title to the personal
property hereby conveyed against the just and lawful claims and demands of all
persons claiming by or through the undersigned.
DATED: ______________ MACROMEDIA, INC., a
Delaware corporation
By: ______________________________________
Its: _____________________________________
<PAGE>
CONSENT TO SUBLEASE AND AGREEMENT
---------------------------------
This Consent to Sublease and Agreement ("Agreement") is made this 27th
(___) day of November, 1996, by and among Norfolk Atrium, a California limited
partnership ("Master Landlord"), Macromedia, Inc., a Delaware corporation
("Master Tenant"), and Inktomi Corporation, a California corporation
("Subtenant").
WHEREAS, Master Tenant and Master Landlord entered into a lease agreement
("Master Lease") dated February 6, 1996 for certain premises located in the City
of San Mateo, County of San Mateo, California ("Premises"), which Premises are
more particularly described in the Lease;
WHEREAS, Master Tenant and Subtenant have entered into a sublease agreement
("Sublease") dated this 27th day of November, 1996, for the entire Premises
("Sublet Space"), which Sublet Space is more particularly described in the
Sublease; and
WHEREAS, Master Tenant has requested, pursuant to Paragraph 13 of the
Master Lease, that Master Landlord give its written consent to the subletting by
Master Tenant to Subtenant;
NOW, THEREFORE, Master Landlord hereby consents to said subletting, subject
to and upon the following terms and conditions, to each of which Master Tenant
and Subtenant expressly agree:
1. Nothing herein contained shall either:
(a) be construed to modify, waive or affect any of the provisions,
covenants or conditions in the Master Lease, or to waive any breach thereof or
any rights of Master Landlord thereunder, or to enlarge or increase Master
Landlord's obligations thereunder or to waive or reduce any of Master Tenant's
obligations thereunder; or
(b) operate as a consent to or approval by Master Landlord of any
provisions, covenants or conditions of the Sublease. Master Landlord shall not
be bound to or by any of the provisions of the Sublease.
2. This consent is not assignable.
3. The Sublease shall be subject and subordinate at all times to the
Master Lease and all of the provisions, covenants and conditions thereof and all
matters affecting Master Landlord's estate or interest in the land and building
of which the Premises form a part.
4. Subtenant hereby expressly assumes and agrees to perform and comply
with for the benefit of Master Landlord and Master Tenant, each and every
obligation of Master Tenant under the Master Lease which arises during the term
of the Sublease, pertaining to the Sublet Space. Neither the assumption by
Subtenant, nor the Sublease, nor this Agreement, shall release or discharge
Master Tenant from any liability under the Master Lease, and Master Tenant shall
remain liable and responsible for the full performance and observance of all of
the provisions, covenants and conditions set forth in the Master Lease to be
performed and observed by Master Tenant. Any breach or violation of any
provision of the Master Lease by Subtenant shall be deemed to be and shall
constitute a default by Master Tenant in fulfilling such provision, and Master
Landlord may proceed directly against Master Tenant without first exhausting
Master Landlord's remedies against Subtenant.
5. This consent by Master Landlord shall not construed as a consent by
Master Landlord to any further subletting either by Master Tenant or Subtenant
all of which is expressly prohibited. The Sublease may not be assigned, amended,
modified, renewed or extended nor shall the Premises or Sublet Space, or any
part thereof, be further sublet without the prior written consent of Master
Landlord in each instance.
6. (a) Upon the expiration or any earlier termination of the term of the
Master Lease, or upon Master Tenant's surrender of the Master Lease to Master
Landlord, the Sublease and its term shall expire and come to an end as of the
effective date of such expiration, termination or surrender, and Subtenant shall
vacate the Sublet Space on or before such date. Master Landlord shall be
entitled to all of the rights and remedies available
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the day and year first above written.
"MASTER LANDLORD": Norfolk Atrium, a California limited partnership
By: Napa River Devco, Inc.,
California corporation, its general partner
By: Prom Management Group, Inc., a California corporation
d.b.a. Maxim Property Management
as Agent for Owner
By: /s/ John H. Pringle
----------------------------------
John H. Pringle
Its: Senior Vice President
"MASTER TENANT": Macromedia, Inc.,
a Delaware corporation
By: [SIGNATURE ILLEGIBLE]
-----------------------------------
Its: V.P. Operations & CFO
-----------------------------------
"SUBTENANT": Inktomi Corporation
a California corporation
By: [SIGNATURE ILLEGIBLE]
-----------------------------------
Its: CFO
-----------------------------------
-4-
<PAGE>
EXHIBIT 10.9
THE ATRIUM
OFFICE LEASE
For and in consideration of rentals, covenants, and conditions hereinafter set
forth, Lessor hereby leases to Lessee, and Lessee hereby leases from Lessor, the
herein described Premises for the term, at the rental rate specified herein and
subject to and upon all of the terms, covenants and agreements set forth in this
lease ("Lease"):
1. SUMMARY OF LEASE PROVISIONS.
---------------------------
a. Lessee: INKTOMI CORPORATION, A CALIFORNIA CORPORATION
------ -------------------------------------------------------------
________________________________________("Lessee").
b. Lessor: NORFOLK ATRIUM, a California limited partnership ("Lessor").
------
c. Date of Lease (for reference purposes only): JULY 31, 1997 .
------------------------------------------- ----------------------
d. Premises: That certain office space commonly known as 1900 South
--------
Norfolk Street, SUITE 310, San Mateo, California, and shown cross-
---------
hatched on the reduced floor plan attached hereto as Exhibit "A,"
consisting of approximately fifteen thousand six hundred fifty-four__
-----------------------------------------
___________________ ( 15,654 ) square feet of Rentable Area, subject
-------------------
to expansion pursuant to the terms of this Lease if an option to
expand the leased Premises is expressly granted elsewhere in this
Lease AND ADDENDUM 1 ATTACHED HERETO ("the Premises"). (ARTICLE 2)
------------------------------
e. Term: APPROXIMATELY FIVE ( -5- ) years, subject to extension pursuant
---- ------------------ ------
to the terms of this Lease if an option to extend the Term is
expressly granted elsewhere in this Lease. (ARTICLE 3)
f. Commencement Date: SEE ADDENDUM 2 ATTACHED HERETO ("Commencement
----------------- ------------------------------
Date"). (ARTICLE 3)
g. Lease Termination: SEE ADDENDUM 2 ATTACHED HERETO ("Expiration
----------------- ------------------------------
Date"), unless sooner terminated pursuant to the terms of this Lease.
(ARTICLE 3)
h. Base Rent: MONTHLY BASE RENT SHALL BE AS SET FORTH IN ADDENDUM 3
--------- -----------------------------------------------------
("Base Rent"). (ARTICLE 5)
i. Security Deposit: SEE ADDENDUM 4 ATTACHED HERETO______________________
---------------- ------------------------------
(ARTICLE 6)
j. Base Expenses: SEVEN AND 10/100THS DOLLARS ($7.10) per square foot per
------------- -----------------------------------
year of Rentable Area within the Building. ("Base Expenses"). (ARTICLE
7)
k. Lessee's Percentage Share of Excess Expenses: NINE AND SIXTY-SEVEN
-------------------------------------------- --------------------
ONE-HUNDREDTHS PERCENT (9.67%), SUBJECT TO INCREASE AS SET FORTH IN
-------------------------------------------------------------------
ADDENDUM 5 ATTACHED HERETO. (ARTICLE 7)
--------------------------
l. Parking. Right to use FIFTY-FOUR (54) parking spaces within the
------- ---------------
Common Area, SUBJECT TO INCREASE AS SET FORTH IN ADDENDUM 6 ATTACHED
-------------------------------------------------------
HERETO. (ARTICLE 26)
------
m. Addresses for Notices:
---------------------
Lessor: c/o Maxim Property Management
350 Bridge Parkway
Redwood City, California 94065
with a concurrent copy to the
Project Management Office at:
1900 South Norfolk Street
Suite 230
San Mateo, California 94403
Lessee: Inktomi Corporation
-----------------------------------
1900 South Norfolk Street
-----------------------------------
Suite 110
-----------------------------------
San Mateo, California 94403
-----------------------------------
n. Broker: Cushman & Wakefield and BT Commercial . (ARTICLE 53)
-----------------------------------------------------
o _____________________________________________________ (ARTICLE 64)
<PAGE>
p. Geographic Area. San Mateo, California. (ARTICLE 16)
---------------
q. Summary Provisions in General. Parenthetical references in this
-----------------------------
Article 1 to other articles in this Lease are for convenience of reference, and
designate some of the other Lease articles where applicable provisions are set
forth. All of the terms and conditions of each such referenced article shall be
construed to be incorporated within and made a part of each of the above
referred to Summary of Lease Provisions. If any conflict exists between any
Summary of Lease Provisions as set forth above and the balance of the Lease, the
latter shall control.
2. a. PREMISES DEMISED. Lessor does hereby lease to Lessee and Lessee hereby
----------------
leases from Lessor the Premises described in Article 1.d., subject,
nevertheless, to all of the terms and conditions of this Lease. Calculation of
the actual Rentable Area of the Premises and Building shall be performed by
Lessor's architect, which calculation shall be conclusive and binding upon
Lessor and Lessee. The Premises is shown cross-hatched on the floor plan
attached hereto as Exhibit "A". As used herein, the term "Building" shall mean
the structure in which the Premises are located and the term "Parcel" shall mean
the parcel(s) of land shown on Exhibit "B" attached hereto. The Building and all
other improvements now or hereafter located on the Parcel, if any, are herein
sometimes referred to collectively as the "Project". "Common Area" is defined in
Article 55.
This Lease is subject to all of the terms, covenants and conditions set
forth in this Lease. Lessee covenants as a material part of the consideration
for this Lease to keep and perform each and all of said terms, covenants and
conditions to be kept by Lessee under the Lease.
3. TERM. The term of this Lease shall be for the period designated in Article
----
1.e., commencing on the Commencement Date and ending on the Expiration Date set
forth in Article 1.g., unless sooner terminated pursuant to this Lease ("Term").
The expiration or sooner termination of the Lease is hereinafter referred to as
"Lease Termination."
4. POSSESSION.
----------
a. Construction of Improvements/Delay in Possession. Lessor and Lessee
------------------------------------------------
agree to the provisions set forth in the work letter annexed hereto as Exhibit
"C" ("Work Letter"). If Lessor, for any reason whatsoever, cannot deliver
possession of the Premises to Lessee at the Commencement Date, this Lease shall
not be void or voidable, except as provided in Addendum 9 attached hereto, nor
shall Lessor be liable to Lessee for any loss or damage resulting therefrom, nor
shall the Expiration Date be extended. Notwithstanding Article 42, if delivery
of possession of the Premises is delayed beyond the Commencement Date, all
Rentals (as described in Article 40.b.) shall be abated during the period
between the Commencement Date and the time when Lessor delivers possession,
unless delay in possession of the Premises was caused or contributed to, by
Lessee or Lessee's agents, officers, employees, contractors, servants, invitees,
or guests (collectively "Lessee's Agents"). Lessor shall be deemed to have
delivered possession to Lessee upon the date that Lessor gives notice to Lessee
that the Premises are available for possession by Lessee.
b. Early Possession. If Lessor permits Lessee to occupy the Premises
----------------
prior to the Commencement Date, such occupancy shall be subject to all the
provisions of this Lease. Said early possession shall not advance the
Expiration Date.
c. Certificates and Licenses. Prior to occupancy, Lessee shall provide
-------------------------
to Lessor the certificate(s) of insurance required by Article 16 and a copy of
all licenses and authorizations that may be required for the lawful operation of
Lessee's business upon the Premises, including any City business licenses as may
be required.
5. RENT. Lessee agrees to pay to Lessor as rental for the Premises, without
----
offset, deduction, prior notice or demand, the monthly Base Rent designated in
Article 1.h., as the same may be adjusted from time to time pursuant to Article
7.a. below.
Base Rent shall be payable in advance on or before the first day of the
first full calendar month of the Term hereof and a like sum, adjusted as
aforesaid, on or before the first day of each and every successive calendar
month thereafter during the Term, except that the first full month's Base Rent
shall be paid upon the execution hereof and the prorated Base Rent payable for
the period, if any, prior to the first full calendar month of the Term shall be
paid on the first day of said first full calendar month. Base Rent for any
period during the Term which is for less than one (1) month shall be prorated
based upon a thirty (30) day month. Said Base Rent shall be paid to Lessor in
lawful money of the United States of America which shall be legal tender at the
time of payment, at the office of the Project, or to such other person or at
such other place as Lessor may from time to time designate in writing.
b. Rent During Extended Term. See addendum 10 attached hereto.
----------------------------------------------------------
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(See Addendum 4 attached hereto)
--------------------------------
6. SECURITY DEPOSIT.
----------------
7. COST OF LIVING, PROJECT TAXES AND OPERATING EXPENSE ADJUSTMENTS.
---------------------------------------------------------------
b. Project Taxes and Operating Expenses. Lessee shall pay to Lessor, as
------------------------------------
additional rent and without deduction or offset, Lessee's percentage share set
forth in Article 1.k. ("Lessee's Percentage Share") of the amount by which
annual Project Taxes and Operating Expenses (defined below) allocable to the
Building exceeds the Base Expenses set forth in Article 1.j. The amount by
which such annual Project Taxes and Operating Expenses exceeds Base Expenses
shall hereafter be referred to as "Excess Expenses". Lessee acknowledges that
the amount designated as Base Expenses is not an estimate of what Lessor expects
the annual Project Taxes and Operating Expenses allocable to the Building to be,
and no warranty or representation whatsoever is being made that the actual
Project Taxes and Operating Expenses allocable to the Building will be the
amount designed as Base Expenses. There shall be no reimbursement or allowance
to Lessee if annual Project Taxes and Operating Expenses allocable to the
Building are less than the amount designated as Base Expenses. Lessee's
Percentage Share shall be determined by dividing the Rentable Area of the
Premises by the total Rentable Area in the Building. Lessee's Percentage Share
shall be subject to an equitable adjustment upon a condemnation, sale by Lessor
of part of the Project, reconstruction after damage or destruction or expansion
or reduction of the areas within the Project. Lessee's Percentage Share of
Excess Expenses shall be payable during the Term in equal monthly installments
on the first day of each month in advance, without deduction, offset or prior
demand.
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<PAGE>
At any time during the Term, Lessor may give Lessee notice of Lessor's
estimate of the Excess Expenses for the current calendar year. An amount equal
to one twelfth (1/12) of Lessee's Percentage Share of the estimated Excess
Expenses shall be payable monthly by Lessee as aforesaid, commencing on the
first day of the calendar month following thirty (30) days written notice and
continuing until receipt of any notice of adjustment from Lessor given pursuant
to this paragraph. Until notice of the estimated Operating Expenses and Project
Taxes for a subsequent calendar year is delivered to Lessee, Lessee shall
continue to pay its Percentage Share of Excess Expenses on the basis of the
prior year's estimate. Lessor may at any time during the Term adjust estimates
of the Operating Expenses and Project Taxes to reflect current expenditures and
following Lessor's written notice to Lessee of such revised estimate, subsequent
payments by Lessee shall be based upon such revised estimate.
If the Commencement Date is on a date other than the first day of a
calendar year, the amount of the Excess Expenses payable by Lessee in such
calendar year shall be prorated on the basis which the number of days from the
Commencement Date to the end of the calendar year in which the Commencement Date
falls bears to three hundred sixty (360).
Within ninety (90) days after the end of each calendar year during the Term
or as soon thereafter as practicable, Lessor will furnish to Lessee a statement
("Lessor's Statement") setting forth in reasonable detail the actual Project
Taxes and Operating Expenses paid or incurred by Lessor during the preceding
year, and thereupon within ten (10) days an adjustment will be made by Lessee's
payment to Lessor or credit to Lessee by Lessor against the Excess Expenses next
becoming due from Lessee, as the case may require, to the end that Lessor shall
receive the entire amount of Lessee's Percentage Share of Excess Expenses for
such calendar year and no more. If, based on Lessor's Statement a payment from
Lessee is required, Lessee shall not have the right to withhold or defer such
payment pending a review of Lessor's books and records pursuant to the following
paragraph or the resolution of any dispute relating to Project Taxes and
Operating Expenses. If the Expiration Date is on a day other than the last day
of a calendar year, the amount of Excess Expenses payable by Lessee for the
calendar year in which Lease Expiration falls shall be prorated on the basis
which the number of days from the commencement of such calendar year to and
including such Expiration Date bears to three hundred sixty (360). The
Termination of this Lease shall not affect the obligations of Lessor and Lessee
pursuant to this Article 7.
Within sixty (60) days after Lessee receives a statement of actual Project
Taxes and Operating Expenses paid or incurred for a calendar year, Lessee shall
have the right, upon written demand and reasonable notice, to inspect Lessor's
books and records relating to such Project Taxes and Operating Expenses for the
calendar year covered by Lessor's Statement for the purpose of verifying the
amount set forth in such statement. Such inspection shall be made during
Lessor's normal business hours, at the place where such books and records are
customarily maintained by Lessor. Unless Lessee asserts in writing a specific
error within ninety (90) days following Lessee's receipt of Lessor's Statement,
the amounts set forth in Lessor's Statement shall be conclusively deemed correct
and binding on Lessee.
Notwithstanding anything contained in this Article 7 to the contrary,
express or implied, Rentals payable by Lessee shall in no event be less than the
Base Rent specified in Article 5, as adjusted from time to time pursuant to this
Lease.
(i) Operating Expenses. "Operating Expenses" means all of the
------------------
Building Service Expenses and an allocable portion of the Exterior Common Area
Expenses as follows:
(A) Building Service Expenses. Operating Expenses shall include
-------------------------
all costs of operation, maintenance, repair and management of the Building,
including the Premises, and Building Common Area (defined in Article 55),
hereinafter collectively referred to as "Building Service Expenses," as
determined by standard accounting practices. Building Service Expenses as used
herein shall include, but not be limited to, all sums expended in connection
with all general maintenance and repairs, painting, cleaning, sweeping and
janitorial services; maintenance and repair of signs, indoor plants, and
atriums; trash removal; sewage; electricity, gas, water and any other utilities
(including any temporary or permanent utility surcharge or other exaction
whether now or hereafter imposed); maintenance and repair of any fire protection
systems, elevator systems, lighting systems, storm drainage systems, HVAC, air
conditioning and heating and other utility systems; any governmental imposition
or surcharge imposed upon Lessor or assessed against the Building or the
Project; all costs and expenses pertaining to a security alarm system for the
tenants in the Building, if Lessor deems necessary in Lessor's reasonable
discretion; materials; supplies; tools; depreciation on maintenance and
operating machinery and equipment (if owned) and rental paid for such machinery
and equipment (if rented); service agreements on equipment; maintenance, and
repair of the roof (including repair of leaks and resurfacing) and the exterior
surfaces of all improvements (including painting); maintenance and repair of
structural parts (including repair of leaks and resurfacing) and the exterior
surfaces of all improvements (including painting); maintenance and repair of
structural parts (including foundation, floor slabs and load bearing walls);
window cleaning; elevator or escalator services; material handling; fees for
licenses and permits relating to the Building; the cost of complying with rules,
regulations and orders of governmental authorities; Building office rent or
rental value; accounting and legal fees; the cost of contesting the validity or
applicability of any governmental enactment which may affect Building Service
Expenses or Project Taxes attributable to the Project, including the Premises
and the Building; personnel to implement such services, including, if Lessor
deems necessary, the cost of security guards and valet attendants; public
liability, environmental impairment, property damage and fire and extended
coverage insurance on the Project and the Building thereon (in such amounts and
providing such coverage as determined in Lessor's sole discretion and which may
include, without limitation, liability, all risk property, lessor's risk
liability, war risk, vandalism, malicious mischief, boiler and machinery, rental
income, earthquake, flood and worker's compensation insurance); compensation and
fringe benefits payable to all persons employed by Lessor in connection with the
operation, maintenance, repair and management of the Project, including
-4-
<PAGE>
the Premises and the Building; and a management fee equal to five percent (5%)
of gross receipts from the Building, including all rentals and parking receipts
therefrom. Lessor may cause any or all of said services to be provided by an
independent contractor or contractors, or they may be rendered by Lessor. In the
event Lessor makes capital improvements which have the effect of reducing
Building Services Expense, Lessor may amortize its investment in said
improvements as a Building Service Expense in accordance with standard
accounting practices provided that such amortization is not at a rate greater
than the anticipated savings in the Building Service Expenses. It is the intent
of the parties hereto that Building Service Expenses shall include every cost
paid or incurred by Lessor in connection with the operation, maintenance, repair
and management of the Project, including the Premises and the Building, and the
specific examples of Building Service Expenses stated in this Article 7 are in
no way intended to, and shall not limit the costs comprising Building Service
Expenses, nor shall such examples be deemed to obligate Lessor to incur such
costs or to provide such services or to take such actions except as Lessor may
be expressly required in other portions of this Lease, or except as Lessor, in
its sole discretion, may elect. The maintenance of the Project, including the
Premises and the Building, shall be at the sole discretion of Lessor and all
costs incurred by Lessor in good faith shall be deemed conclusively binding on
Lessee. In the event that less than one hundred percent (100%) of the Building
is occupied during any calendar year, all Building Service Expenses on the
statements provided by Lessor shall be adjusted for each calendar year to equal
Lessor's reasonable estimate of Building Service Expenses had one hundred
percent (100%) of the total rentable area of the Building been occupied.
Statements of the Building Service Expenses provided by Lessor shall be final
and binding upon both Lessor and Lessee; plus
(B) Exterior Common Area Expenses. Operating Expenses shall
-----------------------------
include that portion of all direct costs of operation, maintenance, repair and
management of the Exterior Common Area (determined by standard accounting
practices) allocable to the Building containing the Premises (collectively,
"Exterior Common Area Expense"). Such costs shall be allocated by Lessor between
the Building containing the Premises and the other buildings located within the
Project from time to time and having the right to use the Exterior Common Area,
in such manner as Lessor reasonably determines in good faith. Exterior Common
Area Expenses as used herein shall include, but not be limited to, all sums
expended in connection with all general maintenance and repairs, resurfacing,
painting, restriping, cleaning, sweeping, and janitorial services; maintenance
and repair of sidewalks, curbs, signs and other Exterior Common Areas;
maintenance and repair of sprinkler systems, planting, and landscaping; trash
removal; sewage; electricity, gas, water and any other utilities (including any
temporary or permanent utility surcharge or other exaction whether now or
hereafter imposed); maintenance and repair of directional signs and other
markers and bumpers; maintenance and repair of any fire protection systems,
elevator systems, lighting systems, storm drainage systems and other utility
systems; any governmental imposition or surcharge imposed upon Lessor or
assessed against the Exterior Common Area; materials; supplies, tools;
depreciation on maintenance and operating machinery and equipment (if owned) and
rental paid for such machinery and equipment (if rented); service agreements on
equipment; maintenance and repair of parking areas and parking structures, if
any; maintenance and repair of structural parts (including foundation and floor
slabs); elevator services, if applicable; material handling; fees for licenses
and permits relating to the Exterior Common Area; the cost of complying with
rules, regulation and orders of governmental authorities; accounting and legal
fees; the cost of contesting the validity or applicability of any governmental
enactment which may affect Project Taxes attributable to the Exterior Common
Area; personnel to implement such services, including if Lessor deems necessary,
the cost of security guards and valet attendants; public liability,
environmental impairments, property damage and fire and extended coverage
insurance on Exterior Common Area (in such amounts and providing such coverage
as determined in Lessor's sole discretion and which may include, without
limitation, liability, all risk property, lessor's risk liability, war risk,
vandalism, malicious mischief, sprinkler leakage, boiler and machinery, parking
income, earthquake, flood and worker's compensation insurance); and compensation
and fringe benefits payable to all persons employed by Lessor in connection with
the operation, maintenance, repair and management of the Exterior Common Area.
Lessor may cause any or all of said services to be provided by an independent
contractor or contractors, or they may be rendered by Lessor. In the event
Lessor makes capital improvements which have the effect of reducing Exterior
Common Area Expenses, Lessor may amortize its investment in said improvements as
an Exterior Common Area Expense in accordance with standard accounting practices
provided that such amortization is not at a rate greater than the anticipated
savings in the Exterior Common Area Expenses. It is the intent of the parties
hereto that Exterior Common Area Expenses shall include every cost paid or
incurred by Lessor in connection with the operation, maintenance, repair and
management of the Exterior Common Area, and the specific examples of Exterior
Common Area Expenses stated in this Article 7 are in no way intended to, and
shall not limit the costs comprising Exterior Common Area Expenses, nor shall
such examples be deemed to obligate Lessor to incur such costs or to provide
such services or to take such actions except as Lessor may be expressly required
in other portions of this Lease, or except as Lessor, in its sole discretion,
may elect. The maintenance of the Exterior Common Area shall be at the sole
discretion of Lessor and all costs incurred by Lessor in good faith shall be
deemed conclusively binding on Lessee. In the event that less than one hundred
percent (100%) of the Building is occupied during any calendar year, all
Exterior Common Area Expenses on the statements provided by Lessor shall be
adjusted for each calendar year to equal Lessor's reasonable estimate of
Exterior Common Area Expenses had one hundred percent (100%) of the total
rentable area of the Building been occupied. Statements of Exterior Common Area
Expenses provided by Lessor shall be final and binding upon both Lessor and
Lessee.
(ii) Project Taxes. The term "Project Taxes" as used in this Lease
-------------
shall collectively mean (to the extent any of the following are not paid by
Lessee pursuant to Article 7.c. below) all: real estate taxes and general or
assessments (including, but not limited to, assessments for public improvements
or benefits); personal property taxes; taxes based on vehicles utilizing parking
areas on the Parcel; taxes computed or based on rental income (including without
limitation any municipal business tax but excluding federal, state and municipal
net income taxes); Environmental Surcharges; excise taxes; gross receipts taxes;
sales and/or use taxes; employee taxes; water and sewer taxes, levies,
assessments and other charges in the nature of taxes or assessments (including,
but not limited to, assessments for public improvements or benefit); and all
other governmental, quasi-governmental or
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<PAGE>
special district impositions of any kind and nature whatsoever, regardless of
whether now customary or within the contemplation of the parties hereto and
regardless of whether resulting from increased rate and/or valuation, or whether
extraordinary or ordinary, general or special, unforeseen or foreseen, or
similar or dissimilar to any of the foregoing which during the Lease term are
laid, levied, assessed or imposed upon Lessor and/or become a lien upon or
chargeable against the Project or the Premises, Building, Common Area and/or
Parcel under or by virtue of any present or future laws, statutes, ordinances,
regulations, or other requirements of any governmental authority or quasi-
governmental authority or special district having the direct or indirect power
to tax or levy assessments whatsoever. The term "Environmental Surcharges" shall
include any and all expenses, taxes, charges or penalties imposed by the Federal
Department of Energy, Federal Environmental Protection Agency, the Federal Clean
Air Act, or any regulations promulgated thereunder, or imposed by any other
local, state or federal governmental agency or entity now or hereafter vested
with the power to impose taxes, assessments or other types of surcharges as a
means of controlling or abating environmental pollution or the use of energy in
regard to the use, operation or occupancy of the Project including the Premises,
Building, Common Area and/or Parcel. The term "Project Taxes" shall include (to
the extent the same are not paid by Lessee pursuant to Article 7.c. below),
without limitation: the cost to Lessor of contesting the amount or validity or
applicability of any Project Taxes described above; and all taxes, assessments,
levies, fees, impositions or charges levied, imposed, assessed, measured, or
based in any manner whatsoever upon or with respect to the use, possession,
occupancy, leasing, operation or management of the Project including the
Premises, Building, Common Area and/or Parcel or in lieu of or equivalent to any
Project Taxes set forth in this Article 7.b.(ii). The portion of Project Taxes
allocable to the Building shall be such Project Taxes as are attributable to the
Project, including the Premises and the Building in which the Premises are
located, together with a portion of the Project Taxes attributable to the
Exterior Common Area, all as reasonably and in good faith determined by Lessor
from time to time. Lessor shall reasonably and in good faith allocate the
Project Taxes as between the Building and the Exterior Common Area; provided,
however, that if the Parcel is assessed by the taxing authorities such that the
Building and the Exterior Common Area are assessed separately, then Lessor shall
allocate the Project Taxes in accordance with such separate assessments. The
Project Taxes attributable to the Exterior Common Area shall be allocated in
such manner as is reasonably and in good faith determined by Lessor from time to
time.
If at any time during the Term, Project Taxes are under-assessed by the
taxing authorities so that they are not computed on a fully-completed and
occupied basis in accordance with the then applicable taxing authority of the
governmental entities having jurisdiction, Lessor shall have the right, but not
the obligation, to adjust Project Taxes to reflect the amount that Project Taxes
would be if the Project were assessed on a fully-completed and occupied basis,
as determined in Lessor's reasonable discretion, and such adjusted amount shall
be allocated to the Project in accordance with the terms of this Lease.
c. Other Taxes. Lessee shall pay the following:
-----------
(i) Lessee shall pay (or reimburse Lessor as additional rent if
Lessor is assessed), before delinquency, any and all taxes levied or assessed,
and which become payable for or in connection with any period during the Term,
upon all of the following (collectively, "Leasehold Improvements and Personal
Property"): Lessee's Leasehold Improvements, the Tenant Improvements, equipment,
furniture, furnishings, fixtures, merchandise, inventory, machinery, appliances
and other personal property located in the Premises; except only that which has
been paid for by Lessor and is the standard of the Building. Lessee hereby
acknowledges receipt of a copy of a schedule setting forth the improvements
comprising the standard of the Building. If any or all of the Leasehold
Improvements and Personal Property are assessed and taxed with the Project,
Lessee shall pay to Lessor such taxes within ten (10) days after delivery to
Lessee by Lessor of a statement in writing setting forth the amount applicable
to the Leasehold Improvements and Personal Property. If the Leasehold
Improvements and Personal Property are not separately assessed on the tax
statement or bill, Lessor's good faith determination of the amount of such taxes
applicable to the Leasehold Improvements and Personal Property shall be a
conclusive determination of Lessee's obligation to pay such amount as so
determined by Lessor.
(ii) Lessee shall pay (or reimburse Lessor if Lessor is assessed, as
additional rent), prior to delinquency or within ten days after receipt of a
statement thereof, any and all other taxes, levies, assessments, or surcharges
payable by Lessor or Lessee and relating to this Lease, the Premises or Lessee's
activities in the Premises (other than Lessor's net income, succession,
transfer, gift, franchise, estate, or inheritance taxes), whether or not now
customary or within the contemplation of the parties hereto, now in force or
which may hereafter become effective, including but not limited to taxes: (i)
upon, allocable to, or measured by the area of the Premises or on the Rentals
payable hereunder, including without limitation any gross income, gross
receipts, excise, or other tax levied by the state, any political subdivision
thereof, city or federal government with respect to the receipt of such Rentals;
(ii) upon or with respect to the use, possession, occupancy, leasing, operation
and management of the Premises or any portion thereof; (iii) upon this
transaction or any document to which Lessee is a party creating or transferring
an interest or an estate in the Premises; or (iv) imposed as a means of
controlling or abating environmental pollution or the use of energy, including,
without limitation, any parking taxes, levies or charges or vehicular
regulations imposed by any governmental agency. Lessee shall also pay, prior to
delinquency, all privilege, sales, excise, use, business, occupation, or other
taxes, assessments, license fees, or charges levied, assessed, or imposed upon
Lessee's business operations conducted at the Premises. If any such taxes are
payable by Lessor and it shall not be lawful for Lessee to reimburse Lessor for
such taxes, then the Rentals payable hereunder shall be increased to net Lessor
the net Rental after imposition of any such tax upon Lessor as would have been
payable to Lessor prior to the imposition of any such tax.
d. Exclusions to Project Operating Expenses and Taxes.
--------------------------------------------------
See Addendum 11 attached hereto.
-------------------------------
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<PAGE>
8. CONDUCT OF BUSINESS (USE).
-------------------------
a. In no event shall Lessee use or permit the use of the Premises for any
purpose other than general office use. Lessor and Lessee hereby acknowledge and
agree that the foregoing use restriction is an absolute prohibition against a
change in use of the Premises as contemplated under California Civil Code
section 1997.230. Lessee shall not do or permit to be done in or about the
Premises nor bring or keep anything therein which will in any way increase the
existing rate of or affect any fire or other insurance upon the Building or the
Project or any of its contents, or cause cancellation of any insurance policy
covering the Building or the Project or any part thereof or any of its contents.
Lessee shall not, without prior consent of Lessor, bring into the Building or
the Premises or use or incorporate in the Premises any apparatus, equipment or
supplies that may cause substantial noise, odor, or vibration or overload the
Premises or the Building or any of its utility or elevator systems or jeopardize
the structural integrity of the Building or any part thereof. Lessee and
Lessee's Agents shall not use, store, or dispose of any Hazardous Materials
(defined below) on any portion of the Project. Lessee shall indemnify, defend
with counsel acceptable to Lessor, and hold Lessor and Lessor's employees,
agents, partners, officers, directors and shareholders harmless from and against
any and all claims, actions, suits, proceedings, orders, judgment, losses,
costs, damages, liabilities, penalties, or expenses (including, without
limitation, attorneys' fees) arising in connection with the breach of the
obligations described in the previous sentence. As used in this paragraph,
Hazardous Materials means any chemical, substance or material which has been
determined or is hereafter determined by any federal, state, or local
governmental authority to be capable of posing risk of injury to health or
safety, including, without limitation, petroleum, asbestos, polychlorinated
biphenyls, radioactive materials and radon gas. Lessee shall not do or permit
anything to be done in or about the Premises which will in any way obstruct or
interfere with the rights of other tenants or occupants of the Building or the
Project or injure or annoy them or use or allow the Premises to be used for any
improper, immoral, unlawful or objectionable purpose, nor shall Lessee cause,
maintain or permit any nuisance in, on or about the Premises. Lessee shall not
commit or suffer to be committed any waste in or upon the Premises.
b. Effect of Use Restriction. Lessor and Lessee hereby acknowledge and
-------------------------
agree that the use restriction set forth in subsection 8.a. above shall be
deemed reasonable in all respects and under all circumstances. Lessor and Lessee
further acknowledge and agree that, notwithstanding any provision of this Lease
to the contrary, (i) in the event Lessee requests Lessor's consent to a proposed
assignment of this Lease or subletting of the Premises, Lessor shall be deemed
reasonable in withholding its consent to such assignment or subletting if the
proposed assignee or subtenant desires to use the Premises for any purpose other
than as expressly provided in subsection 8.a. above, and (ii) in the event of a
default by Lessee under the Lease, the enforcement of the use restriction set
forth in subsection 8.a. above shall be deemed reasonable for purposes of
computing the rental loss that could be or could have been reasonably avoided by
Lessor pursuant to California Civil Code section 1951.2 and in connection with
the exercise of Lessor's remedies under California Civil Code section 1951.4.
Notwithstanding the preceding to the contrary, if Lessor withholds its
consent to an assignment of the Lease or subletting of the premises based upon
the desire of the proposed assignee or subtenant to use the Premises for any
purpose other than as expressly provided in subsection 8.a. above, or if Lessee
is in default under this Lease, then, prior to commencing or pursuing any claim
or defense against Lessor based upon the unreasonableness of the use restriction
set forth in subsection 8.a. above, Lessee shall provide Lessor with written
notice (by certified mail, postage prepaid and return receipt requested) setting
forth Lessee's objections to the enforcement of the use restriction in such
instance, the basis upon which Lessee intends to demonstrate that the
enforcement of such use restriction would be unreasonable in such instance, and
the use(s) which Lessee believes Lessor should allow Lessee or its proposed
assignee or subtenant, as the case may be, to make of the Premises. Within
thirty (30) days of Lessor's receipt of Lessee's written notice of objection,
Lessor shall provide Lessee with written notice of Lessor's election to either
(A) enforce the use restriction set forth in subsection 8.a. above, or (B)
permit a change in the use of the Premises, provided that such proposed use
shall in no event (1) require the use, storage or disposal of Hazardous
Materials on or about the Premises or the Project, (2) increase or affect any
fire or other insurance covering the Building or the Project, (3) interfere with
the rights of other tenants of the Building or Project, including, without
limitation, any exclusive use rights of such tenants, (4) be in violation of
applicable federal, state or local laws, rules, regulations, codes or
ordinances, or (5) require Lessor to construct or install, or to provide any
allowance for the construction or installation of, any tenant improvements in
the Premises. Notwithstanding the preceding to the contrary, in no event shall
Lessor have any obligation to allow a change in the use of the premises, it
being expressly understood by the parties that the use restriction set forth in
subsection 8.a. above is an absolute prohibition against a change in use of the
Premises. In the event Lessor fails to provide Lessee with written notice of its
election to either enforce the use restriction or allow a change in use of the
Premises within said thirty (30) day period, Lessor shall be deemed to have
elected to enforce the use restriction. In the event Lessor elects or is deemed
to have elected to enforce the use restriction as provided hereinabove, Lessee
shall have the right to pursue such valid claims or defenses against Lessor as
may be permitted under California Civil Code section 1997.040 and which Lessee
is able to prove.
9. COMPLIANCE WITH LAWS. Lessee shall not use the Premises or permit anything
--------------------
to be done in or about the Premises which will in any way conflict with or
violate any law, statute, ordinance, order or governmental rule or regulation or
requirement of duly constituted public authorities or quasi-public authorities
now in force or which may hereafter be enacted or promulgated. Lessee shall, at
its sole cost and expense, promptly comply with all laws, statutes, ordinances,
orders and governmental or quasi-governmental rules, regulations or requirements
now in force or which may hereafter be in force and with all recorded documents
which relate to or affect the condition, use or occupancy of the Premises, and
with the requirements of any board of fire insurance underwriters or other
similar bodies now or hereafter constituted, relating to, or affecting the
condition, use or occupancy of the Premises, excluding structural changes not
related to or affected by Lessee's improvements, acts or use or occupancy of the
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Premises. The judgment of any court of competent jurisdiction or the admission
of Lessee in any action against Lessee, whether Lessor be a party thereto or
not, that Lessee has violated any law, statute, ordinance, or governmental or
quasi-governmental rule, regulation or requirement, shall be conclusive of that
fact as between the Lessor and Lessee. Lessee shall obtain, prior to taking
possession of the Premises, all permits, licenses, or other authorizations for
the lawful operation of its business at the Premises. Lessee shall indemnify,
defend with counsel acceptable to Lessor and hold Lessor and Lessor's employees,
agents, partners, officers, directors and shareholders harmless from and against
any claim, action, suit, proceeding, order, judgment, liability, penalty or
expense (including, without limitation, attorneys' fees) arising out of the
failure of Lessee to comply with any applicable law, statute, ordinance, order,
rule, regulation, requirement or recorded document. Lessee acknowledges that
Lessee has independently investigated and is satisfied that the Premises are
suitable for Lessee's intended use and that the Premises meet all
governmental and quasi-governmental requirements for such intended use.
Lessor and Lessee acknowledge that, in accordance with the provisions of
the Americans with Disabilities Act (the "ADA"), responsibility for compliance
with the terms and conditions of Title III of the ADA may be allocated as
between Lessor and Lessee. In this regard and notwithstanding anything to the
contrary contained in the Lease, Lessor and Lessee agree that the responsibility
for compliance with the ADA (including, without limitation, the removal of
architectural and communications barriers and the provision of auxiliary aids
and services to the extent required) shall be allocated as follows: (i) Lessee
shall be responsible for compliance with the provisions of Title I of the ADA,
and of Title II and Title III of the ADA as Titles II and III relate to any
construction, renovations, alterations and repairs made within the Premises if
such construction, renovations, alterations and repairs are made by Lessee, at
its expense without the assistance of Lessor; (ii) Lessor shall be responsible
for compliance with the provisions of Title II and III of the ADA for all
construction, renovations, alterations and repairs which Lessor is required,
under this Lease, to make within the Premises, whether (pursuant to the relevant
provisions of the Lease) at Lessor's or Lessee's expense; and (iii) Lessor shall
be responsible for compliance with the provisions of Title III of the ADA for
all exterior and interior areas of the Building not included within the
Premises. Lessor agrees to indemnify and hold Lessee harmless from and against
any claims, damages, costs and liabilities arising out of Lessor's failure, or
alleged failure, as the case may be, to comply with the ADA, to the extent such
compliance has been allocated to Lessor herein, which indemnification obligation
shall survive the expiration or termination of this Lease if the Lease has not
been terminated by reason of a default by Lessee. Lessee agrees to indemnify and
hold Lessor harmless from and against any claims, damages, costs and liabilities
arising out of Lessee's failure, or alleged failure, as the case may be, to
comply with the ADA to the extent such compliance has been allocated to Lessee
herein, which indemnification obligation shall survive the expiration or
termination of this Lease. Lessor and Lessee each agree that the allocation of
responsibility for ADA compliance shall not require Lessor or Lessee to
supervise, monitor or otherwise review the compliance activities of the other
with respect to its assumed responsibilities for ADA compliance as set forth in
this Article 9. Lessor shall, in complying with the ADA (to the extent such
compliance has been allocated to Lessor herein), be entitled to rely upon
representations made to, or information given to Lessor by Lessee in regard to
Lessee's use of the Premises, Lessee's employees, and other matters pertinent to
compliance with the ADA. The indemnity of Lessee set forth above shall apply as
to any liability arising against Lessor by reason of any misrepresentations or
misinformation given by Lessee to Lessor. The allocation of responsibility for
ADA compliance between Lessor and Lessee, and the obligations of Lessor and
Lessee established by such allocations, shall supersede any other provisions of
the Lease that may contradict or otherwise differ from the requirements of this
Article 9.
10. ALTERATIONS AND ADDITIONS.
-------------------------
a. Lessee's Alterations. Lessee shall not make or suffer to be made any
--------------------
alterations, additions, changes or improvements (collectively, "Alterations") to
or of the Premises, or any part thereof without Lessor's prior written consent,
which consent shall not, except as otherwise expressly provided in the Lease, be
unreasonably withheld subject, however, to Addendum 12 attched hereto. Lessor
may impose, as a condition to the aforesaid consent, such requirements as Lessor
may deem necessary in its sole and reasonable discretion, including without
limitation: the manner in which the work is done; a right of approval of the
contractor by whom the work is to be performed; the times during which such work
is to be accomplished; the requirement that Lessee post a completion bond in an
amount and form satisfactory to Lessor; the requirement that Lessee reimburse
Lessor, as additional rent, for Lessor's reasonable costs incurred in reviewing
any proposed Alterations, whether or not Lessor's consent is granted; and the
requirement that at Lease Termination, either (i) Lessee, at its expense, will
remove any and all such Alterations installed by Lessee and shall, at its cost,
promptly repair all damages to the Project caused by such removal, or (ii) the
Alterations made by Lessee shall remain with the Premises, be a part of the
realty, and belong to Lessor, subject, however, to Addendum 13 attached hereto.
If Lessor consents to any Alterations to the Premises by Lessee, the same shall
be made by Lessee at Lessee's sole cost and expense in accordance with plans and
specifications approved by Lessor. Any such Alterations made by Lessee shall be
performed in accordance with all applicable laws, ordinances and codes and in a
first class workmanlike manner, and shall not weaken or impair the structural
strength or lessen the value of the Building, shall not invalidate, diminish, or
adversely affect any warranty applicable to the Building or any other
improvements located within the Project, including any equipment therein, and
shall be performed in a manner causing Lessor and Lessor's agents and other
tenants of the Building the least interference and inconvenience practicable
under the circumstances. In making any such Alterations, Lessee shall, at
Lessee's sole cost and expense:
(i) File for and secure any necessary permits or approvals from all
governmental departments or authorities having jurisdiction, and any utility
company having an interest therein, and
(ii) Notify Lessor in writing at least fifteen (15) days prior to
the commencement of work on any Alteration, so that Lessor can post and record
appropriate notices of non-responsibility.
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(iii) Provide copies of all drawings and specifications prior to
commencement of construction of any Alterations.
In no event shall Lessee make or suffer to be made any Alteration to the
mechanical or utility systems of the Building, to the Common Area or the
structural portions of the Building or any part thereof without Lessor's prior
written consent, which consent may be withheld in Lessor's sole discretion.
b. Removal. Upon Lease Termination, (subject, however, to Addendum
-------
13 attached hereto) Lessee shall, upon written demand by Lessor at Lessee's sole
cost and expense, forthwith and with all due diligence remove any Alterations
made by Lessee, which is then designated by Lessor to be removed and Lessee
shall, forthwith and with all due diligence at its sole cost and expense, repair
any damage to the Project caused by such removal. Lessee may also, upon Lease
Termination and provided that Lessee is not then in default hereunder, remove
Lessee's movable equipment, furnishings, trade fixtures and other personal
property (excluding any Alterations made by Lessee not specifically designated
by Lessor to be removed), provided that Lessee shall, forthwith and with all due
diligence at its sole cost and expense, repair any damages to the Project caused
by such removal. Unless Lessor elects to have Lessee remove any such
Alterations, all such Alterations except for movable furniture and trade
fixtures of Lessee not affixed to the Premises, shall become the property of
Lessor upon Lease Termination (without any payment therefor) and remain upon and
be surrendered with the Premises.
c. Alterations Required by Law. Lessee shall pay to Lessor as additional
---------------------------
rent, the cost of any structural or non-structural alteration, addition or
change to the Building and/or at Lessor's election, shall promptly make, at
Lessee's sole expense and in accordance with the provisions of subsection 10.a.
above, any structural or non-structural alteration, addition or change to the
Premises required to comply with laws, regulations, ordinances or orders of any
public agencies, whether now existing or hereinafter promulgated, where such
alterations, additions or changes are required by reason of: Lessee's or
Lessee's Agents' acts; Lessee's particular use or change of use to the Premises;
alterations or improvements to the Premises made by or for Lessee; or Lessee's
application for any permit or governmental approval.
d. Lessor's Improvements. All fixtures, improvements or equipment which
---------------------
are installed, constructed on or attached to the Premises, or any part of the
Project by Lessor at its expense shall be a part of the realty and belong to
Lessor.
11. REPAIRS.
-------
a. By Lessee. By taking possession of the Premises, Lessee shall be
---------
deemed to have accepted the Premises as being in good and sanitary order,
condition and repair and to have accepted the Premises in their condition
existing as of the date of such possession, subject to all applicable laws,
covenants, conditions, restrictions, easements, and other matters of public
record and the Rules and Regulations from time to time promulgated by Lessor
governing the use of any portion of the Project. Lessee shall further be deemed
to have accepted Lessee Improvements constructed by Lessor, if any, as being
completed in accordance with the plans and specifications for such improvements,
excluding only the punch list items referred to in Article 4.a. above. Lessee
shall at Lessee's sole cost and expense, keep every part of the Premises in good
condition and repair, damage thereto from causes beyond the control of Lessee
(and not caused by any act or omission of Lessee or Lessee's Agents) and
ordinary wear and tear excepted. If Lessee fails to maintain the Premises as
required by this Lease, Lessor may give Lessee notice to do such acts as are
reasonably required to so maintain the Premises and if Lessee fails to commence
such work immediately in an emergency or where immediate action is required to
protect the Premises or any portion of the Project, or within ten (10) days
after such notice is given under other circumstances, and diligently prosecute
it to completion, then Lessor or Lessor's agents, in addition to all of the
rights and remedies available hereunder or by law and without waiving any
alternative remedies, shall have the right to enter the Premises and to do such
acts and expend such funds at the expense of Lessee as are reasonably required
to perform such work. Any amount so expended by Lessor shall be paid by Lessee
to Lessor as additional rent, upon demand. With respect to any work performed by
Lessor pursuant to this Article 11.a., Lessor shall be liable to Lessee only for
physical damage caused to Lessee's personal property located within the Premises
to the extent such damage is caused by Lessor's active negligence or willful
misconduct. In no event shall Lessor have any liability to Lessee for any other
damages, or for any inconvenience or interference with the use of the Premises
by Lessee, or for any consequential damages, including lost profits, as a result
of performing any such work. Except as specifically provided in an addendum, if
any, to this Lease, Lessor shall have no obligation whatsoever to alter,
remodel, improve, repair, decorate or paint the Premises or any part thereof and
the parties hereto affirm that Lessor has made no representations or warranty to
Lessee respecting the condition of the Premises or any part of the Project
except as specifically set forth in this Lease.
b. By Lessor. The costs of repairs and maintenance which are the
---------
obligation of Lessor hereunder or which Lessor elects to perform hereunder
except such repairs and maintenance which are the responsibility of Lessee
hereunder, shall be an Operating Expense and Lessee shall pay, as additional
rent, Lessee's Percentage Share of such costs to Lessor as provided in Article
7. Lessor shall repair and maintain the structural portions of the Building,
including the basic plumbing, air conditioning, heating and electrical systems
installed or furnished by Lessor, unless such maintenance or repairs are caused
in part or in whole by the act, neglect, fault or omission of any duty by Lessee
or Lessee's Agents, in which case Lessee shall pay to Lessor the reasonable cost
of such maintenance or repairs as additional rent. Lessor shall not be liable
for any failure to make any such repairs or to perform any maintenance for which
Lessor is responsible as provided above unless Lessor fails to commence such
work for a period of more than thirty (30) days after written notice of the need
of such repairs or maintenance is given to Lessor by Lessee and the failure is
due solely to causes within Lessor's reasonable control. Except as provided in
Article 21 of this Lease, there shall be no abatement of Rentals, and in any
event there shall be no liability of Lessor by reason
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<PAGE>
of any injury to or interference with Lessee's business arising from the making
of any repairs, alterations or improvements in or to any portion of the Project
or in or to fixtures, appurtenances and equipment therein. Lessee waives the
benefits of any statute now or hereafter in effect (including, without
limitation, the provisions of subsection 1 of Section 1932, Section 1941 and
Section 1942 of the California Civil Code and any similar or dissimilar law,
statute or ordinance now or hereafter in effect) which would otherwise afford
Lessee the right to make repairs at Lessor's expense (or to deduct the cost of
such repairs from Rentals due hereunder) or to terminate this Lease because of
Lessor's failure to keep the Premises in good and sanitary order.
12. LIENS. Lessee shall keep the Premises and every portion of the Project
-----
free from any and all mechanics', materialmen's and other liens, and claims
thereof, arising out of any work performed, materials furnished or obligations
incurred by or for Lessee. Lessor may require, at Lessor's sole option, that
Lessee provide to Lessor at Lessee's sole cost and expense a lien and completion
bond, or its equivalent, in an amount equal to one and one half (1-1/2) times
any and all estimated costs of any Alterations to the Premises, to insure Lessor
against any liability for mechanics' and materialmen's liens and to insure
completion of the work. Lessee shall indemnify and defend with counsel
acceptable to Lessor and hold Lessor harmless from and against any liens,
demands, claims, actions, suits, proceedings, orders, losses, costs, damages,
liabilities, penalties, expenses, judgments or encumbrances (including without
limitation, attorneys' fees) arising out of any work or services performed or
materials furnished by or at the direction of Lessee or Lessee's Agents or any
contractor employed by Lessee with respect to the Premises. Lessor shall have
the right, at all times, to post and keep posted on the Premises, any notices
permitted or required by law, or which Lessor shall deem proper, for the
protection of Lessor, the Project, and any other party having an interest
therein, from mechanics' and materialmen's liens, including without limitation a
notice of non-responsibility. Lessee shall give written notice to Lessor
fifteen (15) days prior to employing any laborer or contractor to perform
services related to, or receiving materials for use upon the Premises, and
prior to the commencement of any work of improvement on the Premises. Should
any claims of lien relating to work performed, materials furnished or
obligations incurred by Lessee be filed against, or any action be commenced
affecting the Premises, any part of the Project, and/or Lessee's interest
therein, Lessee shall give Lessor notice of such lien or action within three (3)
days after Lessee receives notice of the filing of the lien or the commencement
of the action. If Lessee does not, within twenty (20) days following the
imposition of any such lien, cause such lien to be released of record by payment
or posting of a proper bond, Lessor shall have, in addition to all other
remedies provided herein and by law, the right, but not the obligation, to cause
the same to be released by such means as it shall deem proper, including by
payment of the claim giving rise to such lien or by posting a proper bond, or by
requiring Lessee to post for Lessor's benefit a bond, surety, or cash amount
equal to one and one-half (l-1/2) times the amount of lien and sufficient to
release the Premises and Project from the lien. All sums paid by Lessor
pursuant to this Article 12 and all expenses incurred by it in connection
therewith including attorneys' fees and costs shall be payable to Lessor by
Lessee as additional rent on demand.
13. ASSIGNMENT AND SUBLETTING.
-------------------------
a. Prohibitions in General. Lessee shall not (whether voluntarily,
-----------------------
involuntarily, or by operation of law) assign this Lease or allow all or any
part of the Premises to be sublet, without Lessor's prior written consent in
each instance, which consent shall not be unreasonably withheld, subject,
nevertheless, to the provisions of this Article 13. Except for an allowed
assignment or subletting pursuant to the previous sentence, and Addendum 14
attached hereto, Lessee shall not (whether voluntarily, involuntarily, or by
operation of law) (i) allow all or any part of the Premises to be occupied or
used by any person or entity other than Lessee, (ii) transfer any right
appurtenant to this Lease or the Premises, (iii) mortgage, hypothecate or
encumber the Lease or Lessee's interest in the Lease or Premises (or otherwise
use the Lease as a security device) in any manner, or (iv) permit any person to
assume or succeed to any interest whatsoever in this Lease, without Lessor's
prior written consent in each instance, which consent may be withheld in
Lessor's sole and absolute discretion.
Any assignment, sublease, hypothecation, encumbrance, or transfer
(collectively "Transfer") without Lessor's consent shall constitute a default by
Lessee and shall be voidable. Lessor's consent to any one Transfer shall not
constitute a waiver of the provisions of this Article 13 as to any subsequent
Transfer nor a consent to any subsequent Transfer. The provisions of this
subsection 13.a. expressly apply to all heirs, successors, sublessees, assigns
and transferees of Lessee. If Lessor consents to a proposed Transfer, such
Transfer shall be valid and the transferee shall have the right to take
possession of the Premises only if the Assumption Agreement described in
subsection 13.c. below is executed and delivered to Lessor, Lessee has paid the
costs and fees described in subsection 13.h. below, and an executed counterpart
of the assignment, sublease or other document evidencing the Transfer is
delivered to Lessor and such transfer document contains the same terms and
conditions as stated in Lessee's notice given to Lessor pursuant to subsection
13.d. below, except for any such modifications Lessor has consented to in
writing. The acceptance of Rentals by Lessor from any person or entity other
than Lessee shall not be deemed to be a waiver by Lessor of any provision of
this Lease or to be a consent to any Transfer.
b. Collection of Rent. Lessee irrevocably assigns to Lessor, as security
------------------
for Lessee's obligations under this Lease, all rent not otherwise payable to
Lessor by reason of any Transfer of all or any part of the Premises or this
Lease. Lessor, as assignee of Lessee, or a receiver for Lessee appointed on
Lessor's application, may collect such rent and apply it toward Lessee's
obligations under this Lease; provided, however, that until the occurrence of
any default by Lessee or except as provided by the provisions of subsection
13.f. below, Lessee shall have the right to collect such rent.
c. Assumption Agreement. As a condition to Lessor's consent to any
--------------------
Transfer of Lessee's interest in this Lease or the Premises, Lessee and Lessee's
assignee, sublessee, encumbrancer, hypothecate, or transferee (collectively
"Transferee"), shall execute a written Assumption Agreement, in a form approved
by Lessor, which
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<PAGE>
Agreement shall include a provision that Lessee's Transferee shall expressly
assume all obligations of Lessee under this Lease, and shall be and remain
jointly and severally liable with Lessee for the performance of all conditions,
covenants, and obligations under this Lease from the effective date of the
Transfer of Lessee's interest in this Lease. In no event shall Lessor have any
obligation to materially amend or modify this Lease in connection with any
proposed Transfer, including, without limitation, amending or modifying the use
restriction set forth in subsection 8.a. above.
d. Request for Transfer. Lessee shall give Lessor at least forty-five
--------------------
(45) days prior written notice of any desired Transfer and of the proposed terms
of such Transfer, including but not limited to: the name and legal composition
of the proposed Transferee; an audited financial statement of the proposed
Transferee prepared in accordance with generally accepted accounting principles
within one year prior to the proposed effective date of the Transfer; the nature
of the proposed Transferee's business to be carried on in the Premises; the
payment to be made or other consideration to be given on account of the
Transfer; and other such pertinent information as may be requested by Lessor,
all in sufficient detail to enable Lessor to evaluate the proposed Transfer and
the prospective Transferee. Lessee's notice shall not be deemed to have been
served or given until such time as Lessee has provided Lessor with all
information specified above and all additional information requested by Lessor
pursuant to this subsection 13.d. Lessee shall immediately notify Lessor of any
modification to the proposed terms of such Transfer.
e. No Bonus Value. It is the intent of the parties hereto that this Lease
--------------
shall confer upon Lessee only the right to use and occupy the Premises, and to
exercise such other rights as are conferred upon Lessee by this Lease. The
parties agree that this Lease is not intended to have a bonus value, nor to
serve as a vehicle whereby Lessee may profit by a future Transfer of this Lease
or the right to use or occupy the Premises as a result of any favorable terms
contained herein or any future changes in the market for leased space. It is
the intent of the parties that any such bonus value that may attach to this
Lease shall be and remain the exclusive property of Lessor, subject, however, to
Addendum 15 attached hereto.
f. Conditional Consent. Without otherwise limiting the criteria upon
-------------------
which Lessor may withhold its consent to any proposed Transfer, if Lessor
withholds its consent where the proposed Transferee's net worth (according to
generally accepted accounting principles) is less than the greater of: (A) the
net worth of Lessee immediately prior to the Transfer; or (B) the net worth of
Lessee at the time this Lease is executed, such withholding of consent shall be
presumptively reasonable. It shall also be presumptively reasonable for Lessor
to require, as a condition to its consent that:
(i) Any and all rent to be paid by a Transferee, including, but not
limited to, any rent in excess of the Rentals to be paid under this Lease
(prorated in the event that a sublease is of less than the entire Premises),
shall be paid by Lessee directly to Lessor at the time and place specified in
this Lease. For the purposes of this Article 13, the term "rent" shall include
any consideration of any kind received, or to be received, by Lessee from a
Transferee, if such sums are related to Lessee's interest in this Lease or in
the Premises, including, but not limited to, key money, bonus money, and
payments (in excess of the fair market value thereof) for Lessee's assets,
fixtures, trade fixtures, inventory, accounts, goodwill, equipment, furniture,
general intangibles, and any capital stock or other equity ownership interest of
Lessee; and/or
(ii) Either Lessee or the proposed Transferee cure, on or before the
proposed effective date of such Transfer, any and all uncured defaults
hereunder; provided, however, in no event shall Lessor's failure to condition
its consent upon such cure be deemed to be a waiver of any such default or
Lessor's rights and remedies under this Lease, at law, or in equity in regard
thereto. If Lessor has elected to impose such cure as a condition to its consent
and such condition is not satisfied by the effective date of the Transfer, the
Transfer shall be voidable at Lessor's option.
g. Corporations and Partnerships. If Lessee is a partnership, a
-----------------------------
withdrawal or substitution (whether voluntary, involuntary, or by operation of
law and whether occurring at one time or over a period of time) of any
partner(s) owning twenty-five percent (25%) or more of the partnership, any
assignment(s) of twenty-five percent (25%) or more (cumulatively) of any
interest in the capital or profits of the partnership, or the dissolution of the
partnership shall be deemed a Transfer of this Lease. If Lessee is a
corporation, any dissolution, merger, consolidation or other reorganization of
Lessee, any sale or transfer (or cumulative sales or transfers) of the capital
stock of Lessee in excess of twenty-five percent (25%) or any sale (or
cumulative sales) of more than fifty percent (50%) of the value of the assets of
Lessee shall be deemed a Transfer of this Lease. This subsection 13.g. shall not
apply to corporations the capital stock of which is publicly traded.
h. Attorneys' Fees and Costs. Lessee shall pay, as additional rent,
-------------------------
Lessor's actual costs and attorneys' fees incurred for reviewing, investigating,
processing and/or documenting any requested Transfer, whether or not Lessor's
consent is granted.
i. Miscellaneous. Regardless of Lessor's consent, no Transfer shall
-------------
release Lessee of Lessee's obligations under this Lease or alter the primary
liability of Lessee to pay the Rentals and to perform all other obligations to
be performed by Lessee hereunder. The acceptance of Rentals by Lessor from any
other person shall not be deemed to be a waiver by Lessor of any provision
hereof. Upon default by any assignee of Lessee or any successor of Lessee in the
performance of any of the terms hereof, Lessor may proceed directly against
Lessee without the necessity of exhausting remedies against said assignee or
successor. Lessor may consent to subsequent assignments or subletting of this
Lease or amendments or modifications to this Lease with any assignee of Lessee,
without notifying Lessee, or any successor of Lessee, and without obtaining its
or their consent thereto and such action shall not relieve Lessee of liability
under this Lease.
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<PAGE>
j. Reasonable Provisions. Lessee acknowledges that, but for Lessee's
---------------------
identity, financial condition and ability to perform the obligations of Lessee
under the Lease, Lessor would not have entered into this Lease nor demised the
Premises to specifically on Lessee's identity, financial condition,
responsibility and capability of performing the obligations of Lessee under the
Lease. Lessee acknowledges that Lessor's rights under this Article 13, including
the right to withhold consent to certain Transfers in Lessor's sole and absolute
discretion, are reasonable, agreed upon and bargained for rights of Lessor and
that the Rentals set forth in the Lease have taken into consideration such
rights. Lessee expressly agrees that the provisions of this Article 13 are not
unreasonable standards or conditions for purposes of Section 1951.4(b)(2) of the
California Civil Code, as amended from time to time under the Federal Bankruptcy
Code or for any other purpose.
14. HOLD HARMLESS. Lessee shall to the fullest extent permitted by law,
-------------
indemnify, defend with counsel acceptable to Lessor, and hold Lessor and
Lessor's employees, agents, partners, officers, directors and shareholders
harmless from and against any and all claims, damages, losses, liabilities,
penalties, judgments, and costs and expenses (including, without limitation,
attorneys' fees) and any suit, action or proceeding brought pursuant thereto
(collectively, "Claims"), including Claims for property damage, or personal
injury including death, arising out of (i) Lessee's use of the Premises or any
part thereof, or any activity, work or other thing done in or about the
Premises, (ii) any activity, work or other thing done, permitted by Lessee or at
the direction of Lessee or Lessee's employees or agents, in or about the
Project, or any part thereof, (iii) any breach or default in the performance of
any obligation on Lessee's part to be performed under the terms of this Lease,
(including, without limitation, a failure to maintain insurance as provided in
Article 16, or (iv) any act or negligence of the Lessee or Lessee's Agents.
The indemnity herein shall extend to the costs and expenses incurred by
Lessor for administrative expenses, consultant fees, expert costs, investigation
expenses and costs incurred in settling indemnified claims, whether such costs
occurred before or after any litigation is commenced. The indemnity herein shall
survive the termination of this Lease and shall continue in effect until any and
all claims, actions or causes of action with respect to any of the matters
indemnified against are fully and finally barred by the applicable statute of
limitations. In no event shall any of insurance provisions set forth in Article
16 of this Lease be construed as any limitation on the scope of indemnification
set forth herein.
Lessee as a material part of the consideration to Lessor hereby assumes all
risk of damage or loss to property or injury or death to person in, upon or
about all portions of the Project from any cause except as hereinafter stated.
Lessor or its agents shall not be liable for any damage or loss to property
entrusted to employees of any part of the Project nor for loss or damage to any
property by theft or otherwise, nor for any injury or death or damage or loss to
persons or property resulting from any accident, casualty or condition occurring
in or about any portion of the Project, or to any equipment, appliances or
fixtures therein, or from any other cause whatsoever. This indemnity obligation
is unqualified with the single exception that it shall not apply to the portion
of any claim, damage or loss that arises out of Lessor's active negligence or
willful misconduct but it shall apply without limitation to all other claims,
damages or losses including those that arise out of Lessor or Lessor's agents'
contributory negligence, whether active or passive. Lessor or its agents shall
not be liable for interference with the light or other incorporeal
hereditaments, nor shall Lessor be liable for any latent defect in the Premises
or in the Building. Notwithstanding any other provision of this Lease, in no
event shall Lessor have any liability for loss of business (including, without
limitation, lost profits) by Lessee. Lessee shall give prompt written notice to
Lessor in case of fire or accidents in the Premises or in the Building or of
defects therein or in the fixtures or equipment.
If, by reason of any act or omission of Lessee or Lessee's Agents, Lessor
is made a party defendant to any litigation concerning this Lease or any part of
the Project, Lessee shall indemnify, defend with counsel acceptable to Lessor,
and hold Lessor harmless from any liability and damages incurred by (or
threatened against) Lessor as a party defendant, including without limitation
all damages, costs and expenses, including attorneys' fees.
15. SUBROGATION. Notwithstanding anything contained to the contrary in this
Lease. Lessor releases Lessee and Lessee's officers, directors, agents,
employees, partners and shareholders from any and all claims or demands for
damages, loss, expense or injury arising out of any perils to the extent covered
by insurance carried by Lessor, or that are due to the negligence of Lessee or
Lessee's officers, directors, agents, employees, partners and shareholders and
regardless of cost or origin, to the extent such waiver is permitted by Lessor's
insurers and does not prejudice the insurance required to be carried by Lessor
under this Lease. Lessee releases Lessor and Lessor's officers, directors,
agents, employees, partners and shareholders from any and all claims or demands
for damages, loss, expense or injury arising out of any perils which are insured
against under any insurance carried by Lessee, whether due to the negligence of
Lessor or its officers, directors, agents, employees, partners and shareholders
and regardless of cost or origin, to the extent such waiver is permitted by
Lessee's insurers and does not prejudice the insurance required to be carried by
Lessee under this Lease. Each party shall obtain any special endorsements, if
required by its insurer, to evidence compliance with the aforementioned waiver.
16. LESSEE'S INSURANCE.
------------------
a. Lessee shall, at Lessee's expense, obtain and keep in force during the
Term a policy of comprehensive general liability insurance, including the broad
form endorsement, insuring Lessor and Lessee against any liability arising out
of the use, occupancy, maintenance, repair or improvement of the Premises and
the project. Such insurance shall provide single limit liability coverage of not
less than five million two million dollars ($2,000,000.00) per occurrence for
bodily injury or death and property damage. Such insurance shall include Lessor
as an additional insured, shall provide that Lessor, although an additional
insured, may recover for any loss suffered by Lessor or Lessor's agents by
reason of Lessee's or Lessee's Agent's negligence. All such insurance shall
specifically insure Lessee's performance of the indemnity and hold harmless
agreements contained in Article 14 above although Lessee's obligations pursuant
to Article 14 shall not be limited to the amount of any insurance
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<PAGE>
required of or carried by Lessee under this Article 16 and Lessee is
responsible for ensuring that the amount of liability insurance carried by
Lessee is sufficient for Lessee's purposes. Lessee may carry said insurance
under a blanket policy, providing however, said insurance by Lessee shall name
Lessor as an additional insured.
b. Lessee acknowledges and agrees that insurance coverage carried by
Lessor will not cover Lessee's property within the Premises or within the
Building. Lessee shall, at Lessee's expense, obtain and keep in force during the
Term a policy of "All Risk" property insurance, including without limitation,
coverage for earthquake and flood; boiler and machinery (if applicable);
sprinkler damage; vandalism; malicious mischief; and demolition, increased cost
of construction and contingent liability from changes in building laws on all
leasehold improvements installed in the Premises by Lessee at its expense (if
any), and on all equipment, trade fixtures, inventory, fixtures and personal
property located on or in the Premises, including improvements or fixtures
hereinafter constructed or installed on the Premises. Such insurance shall be in
an amount equal to the full replacement cost of the aggregate of the foregoing
and shall provide coverage comparable to the coverage in the Standard ISO All
Risk form, when such form is supplemented with the coverage required above.
c. If Lessee fails to procure and maintain any insurance required to be
procured and maintained by Lessee pursuant to this Lease, Lessor may, but shall
not be required to, procure and maintain all or any portion of the same, at the
expense of Lessee. Lessor's election pursuant to this subsection 16.c. procure
and maintain all or any portion of the insurance which Lessee fails to procure
and maintain is acknowledged by Lessee to be for Lessor's sole benefit. Lessee
acknowledges that any insurance procured and maintained by Lessor pursuant to
this subsection 16.c. may not be sufficient to adequately protect Lessee. Any
personal property insurance procured and maintained by Lessor for Lessee's
equipment, trade fixtures, inventory, fixtures and personal property located on
or in the Premises, including improvements or fixtures hereinafter constructed
or installed on the Premises, may not sufficiently cover the replacement cost
thereof. Any insurance procured and maintained by Lessor pursuant to this
subsection 16.c. may provide for less coverage than is required to be maintained
by Lessee pursuant to this Lease. Lessee acknowledges and agrees that Lessee is
and shall remain solely responsible for procuring insurance sufficient for
Lessee's purposes, not withstanding the fact that Lessor has procured or
maintained any insurance pursuant to this subsection 16.c. Any insurance
required to be maintained by Lessee hereunder shall be in companies rated A X or
better in "Best's Insurance Guide". Prior to occupancy of the Premises, Lessee
shall deliver to Lessor copies of the policies of insurance required to be kept
by Lessee hereunder, or certificates evidencing the existence and amount of such
insurance, with evidence satisfactory to Lessor of payment of premiums. No
policy shall be cancelable or subject to reduction of coverage except after
thirty (30) days prior written notice to Lessor.
d. Not more frequently than once every year, Lessee shall increase the
amounts of insurance as follows: (i) as recommended by Lessor's insurance
broker provided that the amount of insurance recommended by such broker shall
not exceed the amount customarily required of tenants in comparable projects
located within San Mateo, California, or (ii) as required by Lessor's lender.
Any limits set forth in this Lease on the amount or type of coverage required by
Lessee's insurance shall not limit the liability of Lessee under this Lease.
e. Lessor's Insurance. See Addendum 16 attached hereto.
17. SERVICES AND UTILITIES. Provided that Lessee is not in default
----------------------
hereunder, Lessor agrees to furnish to the Premises during reasonable hours of
generally recognized business days, to be determined by Lessor in its reasonable
discretion, and subject to the rules and regulations of the Building of which
the Premises are a part, electricity for normal lighting, water, heat, air-
conditioning and elevator service which are required in Lessor's good faith
judgment for the comfortable use and occupation of the Premises. See Addendum 17
attached hereto. During recognized business days for the Building, and subject
to the reasonable rules and regulations of the Building and Project, Lessor
shall furnish to the Premises and the Common Areas, janitorial service, window
washing, fluorescent tube replacement and toilet supplies; provided, however,
Lessor shall not be required to provide janitorial services for any portion of
the Premises to the extent required as a result of the preparation or
consumption of food or beverages (provided that nothing in this paragraph shall
be construed as a consent by Lessor to the preparation or consumption of such
food or beverages unless otherwise expressly provided elsewhere in this Lease).
Lessor shall also maintain and keep lighted during such hours the common stairs,
common entries and toilet rooms in the Building. Lessor shall not be liable for,
and Lessee shall not be entitled to, any reduction of Rentals by reason of
Lessor's failure to furnish any of the foregoing when such failure is caused by
casualty, Act of God, accident, breakage, repairs, strikes, lockouts or other
labor disturbances or labor disputes of any character, or by any other cause,
similar or dissimilar, beyond the reasonable control of Lessor. Lessor shall not
be liable under any circumstances for injury to or death of or loss or damage to
persons or property or damage to Lessee's business, however occurring, through
or in connection with or incidental to failure to furnish any of the foregoing.
Wherever heat generating machines or equipment are used in the Premises which
affect the temperature otherwise maintained by the air conditioning system,
Lessor reserves the right to install supplementary air conditioning units in the
Premises and the cost thereof, including the cost of installation and the cost
of operation and maintenance thereof, shall be paid by Lessee to Lessor upon
demand by Lessor as additional rent.
Lessee will not, without the prior written consent of Lessor, use or permit
the use of any apparatus or device in or upon the Premises, including, but
without limitation thereto, machines using in excess of 120 volts, which will in
any way increase the amount of gas, electricity or water usually furnished or
supplied for the use of the Premises as general office space; nor will Lessee
connect or permit connection with electric current, gas or water supply lines,
except (in the case of electric current) through existing gas lines or
electrical outlets in the Premises, any apparatus or device for the purpose of
using gas, electric current or water. If Lessee requires water or electric
current in excess of that usually furnished or supplied for the use of the
Premises as general office space, Lessee shall first procure the written
consent of Lessor, which Lessor may refuse, to the use thereof and Lessor may
cause a water or gas meter or electric current meter to be installed in the
Premises so as to measure the amount of water, gas and electric current consumed
for any such use. The cost of any such meters and of installation, maintenance
and repair thereof shall be
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<PAGE>
paid for by the Lessee and Lessee agrees to pay to Lessor, as additional rent,
promptly upon demand therefor by Lessor for all such water, gas and electric
current consumed as shown by said meters, at the rates charged for such services
by the local public utility furnishing the same, plus any additional expense
incurred in keeping account of the water, gas and electric current so consumed.
If a separate meter is not installed, such excess cost for such water, gas and
electric current will be conclusively established by an estimate made by a
utility company or electrical engineer selected by Lessor.
18. RULES AND REGULATIONS. Lessee shall faithfully observe and comply with the
---------------------
rules and regulations that Lessor shall from time to time promulgate for the
Building and the Project. Lessor reserves the right from time to time to make
all reasonable modifications to said rules and regulations. The additions and
modifications to these rules and regulations shall be binding upon Lessee upon
delivery of a copy of them to Lessee. Lessor shall not be responsible to Lessee
for the non-performance of any said rules by any other tenants or occupants.
The current "Rules & Regulations" are attached hereto as Exhibit "D".
19. HOLDING OVER. If Lessee remains in possession of the Premises or any part
------------
thereof after the expiration of the Term, with the express written consent of
Lessor, such occupancy shall be a tenancy from month to month at a Base Rent in
the amount of one hundred fifty percent (150%) of the Base Rent in effect
immediately preceding such expiration, plus all other rental charges payable
hereunder, and upon all the terms hereof applicable to a month to month tenancy.
In such case, either party may thereafter terminate this Lease at any time upon
giving not less than thirty (30) days written notice to the other party. For
any possession of the Premises after the Lease Expiration without Lessor's
consent, Lessee shall be liable for all detriment proximately caused by Lessee's
possession, including without limitation, attorneys' fees, costs and expenses,
claims of any succeeding tenant founded on Lessee's failure to vacate and for
payment to Lessor of the fair market rental value for the Base Rent for the
Premises, together with such other Rentals provided in this Lease to the date
Lessee actually vacates the Premises, and such other remedies as are provided by
law, in equity or under this Lease, including without limitation punitive
damages recoverable under California Code of Civil Procedure Section 1174.
20. ENTRY BY LESSOR. Lessor reserves and shall at any and all reasonable times
---------------
have the right to enter the Premises, inspect the same, supply janitorial
service and any other service to be provided by Lessor to Lessee hereunder, to
submit said Premises to prospective purchasers, mortgagees, lenders or tenants,
to post notices of non-responsibility, and to alter, improve or repair the
Premises and any portion of the Building that Lessor may deem necessary or
desirable, without any abatement of Rentals, and may for such purposes erect
scaffolding and other necessary structures where reasonably required by the
character of the work to be performed, providing that the entrance to the
Premises shall not be unreasonably blocked thereby, and further providing that
the business of the Lessee shall not be interfered with unreasonably. Lessee
hereby waives any claim for damages or for any injury or inconvenience to or
interference with Lessee's business, any loss of occupancy or quiet enjoyment of
the Premises, and any other damage or loss occasioned thereby. For each of the
aforesaid purposes, Lessor shall at all times have and retain a key with which
to unlock all of the doors in, upon and about the Premises, excluding Lessee's
vaults, safes and files, and Lessor shall have the right to use any and all
means which Lessor may deem proper to open said doors in an emergency in order
to obtain entry to the Premises, without liability to Lessee except for any
failure to exercise due care for Lessee's property under the circumstances of
each entry. Any entry to the Premises obtained by Lessor by any of said means
or otherwise shall not under any circumstances be construed or deemed to be a
forcible or unlawful entry into, or a detainer of, the Premises, or an eviction
of Lessee from the Premises or any portion thereof. If Lessee has removed
substantially all of Lessee's property from the Premises, Lessor may, without
abatement of Rentals, enter the Premises for alteration, renovation or
decoration during the last thirty (30) days of the Term. With respect to any
entry by Lessor into the Premises, Lessor shall be liable to Lessee solely for
physical damage caused to Lessee's personal property located within the Premises
to the extent such damage is caused by Lessor's active negligence or willful
misconduct, and only with respect to an entry in an non-emergency situation. In
no event shall Lessor have any liability to Lessee for any injury or
inconvenience to or interference with Lessee's business, any loss of occupancy
or quiet enjoyment of the Premises, and any other damage or loss occasioned
hereby.
21. RECONSTRUCTION. If the Premises are damaged and rendered substantially
--------------
untenantable, or if the Building is damaged (regardless of damage to the
Premises) or destroyed, Lessor may, within ninety (90) days after the casualty,
notify Lessee of Lessor's election not to repair, in which event this Lease
shall terminate at the expiration of the ninetieth (90th) day. If Lessor elects
to repair the damage or destruction, this Lease shall remain in effect and the
then current Base Rent and Lessee's Percentage Share of Excess Expenses shall be
proportionately reduced during the period of repair. The reduction shall be
based upon the extent to which the making of repairs interferes with Lessee's
business conducted in the Premises, as reasonably determined by Lessor. All
other Rentals due hereunder shall continue unaffected, and Lessee shall have no
claim against Lessor for compensation for inconvenience or loss of business
during any period of repair or reconstruction. Lessee shall continue the
operation of its business on the Premises during any period of reconstruction or
repair to the extent reasonably practicable from the standpoint of prudent
business management. Upon Lessor's election to repair, Lessor shall diligently
repair the damage to the extent of insurance proceeds available to Lessor.
Lessor shall not be required to repair or replace, whether injured or damaged by
fire or other cause, any items required to be insured by Lessee under this Lease
including Lessee's fixtures, equipment, merchandise, personal property,
inventory, panels, decoration, furniture, railings, floor covering, partitions
or any other improvements, alterations, additions, or property made or
installed by Lessee to the Premises, and Lessee shall be obligated to promptly
rebuild or restore the same to the same condition as they were in immediately
before the casualty. Lessee hereby waives all claims for loss or damage to the
foregoing. Lessee waives any rights to terminate this Lease if the Premises
are damaged or destroyed, including without limitation any rights pursuant to
the provisions of Subdivision 2 of Section 1932 and Subdivision 4 of Section
1933 of the Civil Code of California, as amended from time to time, and the
provisions of any similar law hereinafter enacted. If the Lease is terminated
by Lessor pursuant to this Article 2l, the unused balance of the Security
Deposit
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<PAGE>
and any Rentals unearned as of the effective date of termination shall be
refunded to Lessee. Lessee shall pay to Lessor any Rentals or other charges due
Lessor under the Lease, prorated as of the effective date of termination.
Notwithstanding anything to the contrary in the foregoing, if the damage is due
to the fault or neglect of Lessee, or Lessee's Agents, there shall be no
abatement of Base Rent or any other Rentals.
Notwithstanding the foregoing, if less than thirty-three percent (33%) of
the Rentable Area of the Building is damaged from an insured casualty and the
insurance proceeds actually available to Lessor for reconstruction (net of costs
to recover such proceeds and after all claimants thereto including lienholders
have been satisfied or waive their respective claims) ("Net Insurance Proceeds")
are sufficient to completely restore the Building, Lessor agrees to make such
reparations and continue this Lease in effect. If, upon damage of less than
thirty-three percent (33%) of the Rentable Area of the Building there are not
sufficient insurance proceeds actually available to allow Lessor to completely
restore the Building, Lessor shall not be obligated to repair the Building and
the provisions of the first paragraph of this Article shall control.
Lessee shall not be entitled to any compensation or damages from Lessor for
loss of the use of the whole or any part of the Premises, or for any damage to
Lessee's business, or any inconvenience or annoyance occasioned by such damage,
or by any repair, reconstruction or restoration by Lessor, or by any failure of
Lessor to make any repairs, reconstruction or restoration under this Article or
any other provision of this Lease.
Termination of Lease. See addendum 18 attached hereto.
22. DEFAULT. The occurrence of any one or more of the following events shall
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constitute a material default and breach of this Lease by Lessee:
a. Lessee's failure to pay when due Base Rent or any other Rentals or
other sums payable hereunder; subject, however, to Addendum 19 attached hereto;
b. Lessee's abandonment of the Premises.
c. Commencement, and continuation for at least thirty (30) days, of any
case, action, or proceeding by, against, or concerning Lessee, or any guarantor
of Lessee's obligations under this Lease ("Guarantor"), under any federal or
state bankruptcy, insolvency, or other debtor's relief law, including without
limitation, (i) a case under Title ll of the United States Code concerning
Lessee, or a Guarantor, whether under Chapter 7, 11, or 13 of such Title or
under any other Chapter, or (ii) a case, action, or proceeding seeking Lessee's
or a Guarantor's financial reorganization or an arrangement with any of Lessee's
or a Guarantor's creditors;
d. Voluntary or involuntary appointment of a receiver, trustee, keeper,
or other person who takes possession for more than thirty (30) days of
substantially all of Lessee's or a Guarantor's assets, or of any asset used in
Lessee's business on the Premises, regardless of whether such appointment is as
a result of insolvency or any other cause;
e. Execution of an assignment for the benefit of creditors of
substantially all assets of Lessee or a Guarantor available by law for the
satisfaction of judgment creditors;
f. Commencement of proceedings for winding up or dissolving (whether
voluntary or involuntary) the entity of Lessee or a Guarantor, if Lessee or such
Guarantor is a corporation or a partnership;
g. Levy of a writ of attachment or execution on Lessee's interest under
this Lease, if such writ continues for a period of ten (10) days;
h. Any Transfer or attempted Transfer of this Lease by Lessee contrary to
the provisions of Article 13 above; or
i. With respect to any report that Lessee is required to submit
hereunder, the intentional submission by Lessee of any false report;
j. The use or occupancy of the Premises for any use or purpose not
specifically allowed by the terms of this Lease; or
k. Breach by Lessee of any term, covenant, condition, warranty, or
provision contained in this Lease or of any other obligation owing or due to
Lessor other than as described in subsections 22.a., b., c., d., e., f., g., or
h. of this Article 22, where such failure shall continue for the period
specified in this Lease or if no such period is specified, for a period of
thirty (30) days after written notice thereof by Lessor to Lessee; provided,
however, that if the nature of Lessee's default is such that more than thirty
(30) days are reasonably required for its cure, Lessee shall not be deemed to be
in default if Lessee commences such cure within said thirty (30) day period and
thereafter diligently prosecutes such cure to completion, and if Lessee provides
Lessor with such security as Lessor may require to fully compensate Lessor for
any loss or liability to which Lessor might be exposed.
23. REMEDIES UPON DEFAULT. Upon any default or breach by Lessee, at any time
---------------------
thereafter, with or without notice or demand, and without limiting Lessor in the
exercise of any right or remedy which Lessor may have hereunder or otherwise at
law or in equity by reason of such default or breach Lessor may do the
following:
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<PAGE>
a. Termination of Lease. Lessor may terminate this Lease or Lessee's
--------------------
right to possession of the Premises by notice to Lessee or any other lawful
means, in which case this Lease shall terminate and Lessee shall immediately
surrender possession of the Premises to Lessor. In such event Lessor shall be
entitled to recover from Lessee:
(i) The worth at the time of award of the unpaid Rentals which had
been earned at the time of termination;
(ii) The worth at the time of award of the amount by which the
unpaid Rentals which would have been earned after termination until the time of
award exceeds the amount of such rental loss that Lessee proves could have been
reasonably avoided;
(iii) The worth at the time of award (computed by discounting at the
discount rate of the Federal Reserve Bank of San Francisco at the time of award
plus one percent) of the amount by which the unpaid Rentals for the balance of
the Term after the time of award exceeds the amount of such rental loss that
Lessee proves could be reasonably avoided; and
(iv) Any other amounts necessary to compensate Lessor for detriment
proximately caused by the default by Lessee or which in the ordinary course of
events would likely result, including without limitation the reasonable costs
and expenses incurred by Lessor for:
(A) Retaking possession of the Premises;
(B) Cleaning and making repairs and alterations (including
installation of leasehold improvements, whether or not the same shall be funded
by a reduction of rent, direct payment or otherwise) necessary to return the
Premises to good condition and preparing the Premises for reletting;
(C) Removing, transporting, and storing any of Lessee's
property left at the Premises (although Lessor shall have no obligation to
remove, transport, or store any of the property);
(D) Reletting the Premises, including without limitation,
brokerage commissions, advertising costs, and attorneys' fees;
(E) Attorneys' fees, expert witness fees and court costs;
(F) Any unamortized real estate brokerage commissions paid in
connection with this Lease; and
(G) Costs of carrying the Premises, such as repairs,
maintenance, taxes and insurance premiums, utilities and security precautions,
if any.
The "worth at the time of award" of the amounts referred to in Articles
23.a.(i) and 23.a.(ii) is computed by allowing interest at an annual rate equal
to the greater of: ten percent (10%); or five percent (5%) plus the rate
established by the Federal Reserve Bank of San Francisco, as of the 25th day of
the month immediately preceding the default by Lessee, on advances to member
banks under Section 13 and 13(a) of the Federal Reserve Act, as not in effect or
hereafter from time to time amended (the "Stipulated Rate"). The computation of
the amount of rental loss that could be or could have been reasonably avoided by
Lessor pursuant to California Civil Code section 1951.2 shall take into account
the use restrictions set forth in Article 8.a. above except to the extent that
Lessee proves that under all circumstances the enforcement of the use
restriction would be unreasonable.
b. Continuation of Lease. Lessor may continue this Lease in full force
---------------------
and effect, and the Lease shall continue in effect as long as Lessor does not
terminate Lessee's right to possession, and Lessor shall have the right to
enforce all rights and remedies under this Lease including the right to collect
all Rentals when due. During the period Lessee is in default, Lessor can enter
the Premises and relet them, or any part of them, to third parties for Lessee's
account. Lessee shall be liable immediately to Lessor for all costs Lessor
incurs in reletting the Premises, including without limitation, those items
outlined in subsections a.(i) through a.(iv) of this Article 23, and other like
costs. Reletting can be for a period shorter or longer than the remaining Term.
Lessee shall pay to Lessor all Rentals due under this Lease on the date the
Rentals are due, less the rent Lessor receives from any reletting. No act by
Lessor allowed by this paragraph shall terminate this Lease unless Lessor
notifies Lessee that Lessor elects to terminate this Lease. The use restriction
provided in Article 8.a. above shall apply to Lessor's remedies under California
Civil Code section 1951.4 except to the extent that Lessee proves that under all
circumstances enforcement of the use restriction would be unreasonable.
c. Other Remedies. Lessor may pursue any other remedy now or hereafter
--------------
available to Lessor under the laws or judicial decisions of the State in which
the Premises are located.
d. General. The following shall apply to Lessor's remedies:
-------
(i) No entry upon or taking of possession of the Premises or any part
thereof by Lessor, nor any letting or subletting thereof by Lessor for Lessee,
nor any appointment of a receiver, nor any other act of Lessor, whether
acceptance of keys to the Premises or otherwise, shall constitute or be
construed as an election by Lessor to terminate this Lease or Lessee's right to
possession of the Premises unless a written notice of such election be given to
Lessee by Lessor.
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<PAGE>
(ii) If Lessor elects to terminate this Lease or Lessee's right to
possession hereunder, Lessee shall surrender and vacate the Premises in broom-
clean condition, and Lessor may re-enter and take possession of the Premises and
may eject all parties in possession or eject some and not others or eject none.
Any personal property of or under the control of Lessee remaining on the
Premises at the time of such re-entry may be considered and treated by Lessor as
abandoned.
(iii) Termination of this Lease or Lessee's right to possession by
Lessor shall not relieve Lessee from any liability to Lessor under any provision
of this Lease providing for any indemnification of Lessor by Lessee. Lessee
shall indemnify Lessor for all personal injuries and property damage arising out
of Lessee's use or occupancy of the Premises or any acts or omissions of Lessee
or Lessee's Agents.
24. EMINENT DOMAIN. If more than twenty-five percent (25%) of the area of the
--------------
Premises is taken or appropriated for any public or quasi-public use under the
power of eminent domain, or conveyed in lieu thereof, either party hereto shall
have the right, at its option, to terminate this Lease by written notice to the
other party given within ten (10) days of the date of such taking, appropriation
or conveyance, and Lessor shall be entitled to any and all income, rent, award,
or any interest therein whatsoever which may be paid or made (the "Award") in
connection with such public or quasi-public use or purpose, and Lessee shall
have no claim against Lessor for the value of any unexpired term of this Lease.
If any part of the Building or the Project other than the Premises may be so
taken, appropriated or conveyed, Lessor shall have the right at its option to
terminate this Lease, and in any such event Lessor shall be entitled to the
entire Award whether or not this Lease is terminated. If this Lease is
terminated as provided above: (i) the termination shall be effective as of the
date upon which title to the Premises, the Building, the Project, or a portion
thereof, passes to and vests in the condemnor or the effective date of any order
for possession if issued prior to the date title vests in the condemnor; (ii)
Lessor shall refund to Lessee any prepaid but unearned Rentals and the unused
balance of the Security Deposit; and (iii) Lessee shall pay to Lessor any
Rentals or other charges due Lessor under the Lease, prorated as of the date of
taking.
If less than twenty-five percent (25%) of the Premises is so taken,
appropriated or conveyed, or more than twenty-five percent (25%) thereof is so
taken, appropriated or conveyed and neither party elects to terminate as herein
provided, (i) Lessee shall receive from the Award that portion of the Award
attributable to trade fixtures of Lessee to the extent the Award is not payable
to the beneficiary or mortgagee of a deed of trust or mortgage affecting the
Building containing the Premises and Lessor shall receive the balance of the
Award; and (ii) the Rental thereafter to be paid hereunder for the Premises
shall be reduced in the same ratio that the percentage of the area of the
Premises so taken, appropriated or conveyed bears to the total area of the
Premises immediately prior to the taking, appropriation or conveyance. In
addition, if any rentable area in the Building containing the Premises is so
taken, appropriated or conveyed and this Lease is not terminated by Lessor,
Lessee's Percentage Share of Excess Expenses shall be adjusted pursuant to
Article 7.
Notwithstanding this Article 24 above, upon a temporary taking of all or
any portion of the Premises, the Lease shall remain in effect and Lessee shall
continue to pay and be liable for all Rentals under this Lease. Upon such
temporary taking, Lessee shall be entitled to any Award for the temporary use of
the portion of the Premises taken which is attributable to the period prior to
the date of Lease Termination, and Lessor shall be entitled to any portion of
the Award for such use attributable to the period after Lease Termination. As
used in this paragraph, a temporary taking shall mean a taking for a period of
one year or less and does not include a taking which is to last for an
indefinite period and/or which will terminate only upon the happening of a
specified event unless it can be determined at the time of the taking when such
event will occur.
25. OFFSET STATEMENT. Lessee shall at any time and from time to time within
----------------
ten (10) days following request from Lessor execute, acknowledge and deliver to
Lessor a statement in writing, (i) certifying that this Lease is unmodified and
in full force and effect (or, if modified, stating the nature of such
modification and certifying that this Lease as so modified is in full force and
effect), (ii) acknowledging that there are not, to Lessee's knowledge, any
uncured defaults on the part of the Lessor hereunder, or specifying such
defaults if any are claimed, (iii) certifying the date Lessee entered into
occupancy of the Premises and that Lessee is open and conducting business at the
Premises, (iv) certifying the date to which Rentals and other charges are paid
in advance, if any, (v) evidencing the status of this Lease as may be required
either by a lender making a loan affecting or a purchaser of the Premises, or
part of the Project from Lessor, (vi) warranting that if any beneficiary of any
security instrument encumbering the Premises forecloses on the security
instrument, such beneficiary shall not be liable for the Security Deposit, (vii)
certifying that all improvements to be constructed on the Premises by Lessor are
substantially completed, except for any punch list items which do not prevent
Lessee from using the Premises for its intended use, and (viii) certifying such
other matters relating to this Lease and/or the Premises as may be requested by
a lender making a loan to Lessor or a purchaser of the Premises, or any part of
the Project from Lessor. Any such statement may be relied upon by any
prospective purchaser or encumbrancer of all or any portion of the Project, or
any interest therein. Lessee shall, within ten (10) days following request of
Lessor, deliver such other documents including Lessee's financial statements as
are reasonably requested in connection with the sale of, or loan to be secured
by, any portion of the Project, or any interest therein.
26. PARKING. Lessee shall have the right to use the number of non-exclusive
-------
parking spaces located within the Project as designated in Article 1.l., subject
to Lessor's right to relocate such parking area from time to time. Use of all
parking spaces shall be subject to rules and regulations established by Lessor
which may be altered at any time and from time to time during the Term. The
location of all parking spaces may be designated from time to time by Lessor.
Neither Lessee nor Lessee's Agents shall at any time use more parking spaces
than the number so allocated
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to Lessee or park or permit the parking of their vehicles in any portion of the
Parcel not designated by Lessor as a non-exclusive parking area. Lessee and
Lessee's Agents shall not have the exclusive right to use any specific parking
space, except as expressly stated in this Article 26.
Notwithstanding the number of parking spaces designated for Lessee's non-
exclusive use, in the event by reason of any rule, regulation, order, law,
statute or ordinance of any governmental or quasi-governmental authority
relating to or affecting parking on the Parcel, or any cause beyond Lessor's
reasonable control, Lessor is required to reduce the number of parking spaces on
the Parcel, Lessor shall have the right to proportionately reduce the number of
Lessee's parking spaces and the non-exclusive parking spaces of other tenants of
the Building. Lessor reserves the right in its absolute discretion: to determine
whether parking facilities are becoming overcrowded and in such event to re-
allocate parking spaces among Lessee and other tenants of the Project; to have
any vehicles owned by Lessee or Lessee's Agents which are parked in violation of
the provisions of this Article 26 or Lessor's rules and regulations relating to
parking, towed away at Lessee's cost, after having given Lessee reasonable
notice. In the event Lessor elects or is required by any law to limit or control
parking on the Parcel, by validation of parking tickets or any other method,
Lessee agrees to participate in such validation or other program under such
reasonable rules and regulations as are from time to time established by Lessor.
Lessor shall have the right to close all or any portion of the parking areas at
reasonable times for any purpose, including, without limitation, the prevention
of a dedication thereof, or the accrual of rights in any person or the public
therein. Employees of Lessee shall be required to park in areas designated for
employee parking, if any. The parking areas shall not be used by Lessee or
Lessee's Agents for any purpose other than the parking of motor vehicles and the
ingress and egress of pedestrians and motor vehicles.
27. AUTHORITY. If Lessee is a corporation (or partnership), each individual
---------
executing this Lease on behalf of said corporation (or partnership) represents
and warrants that he is duly authorized to execute and deliver this Lease on
behalf of said corporation in accordance with a duly adopted resolution of the
Board of Directors of said corporation or in accordance with the by-laws of said
corporation (or on behalf of said partnership in accordance with the partnership
agreement of such partnership) and that this Lease is binding upon said
corporation (or partnership) in accordance with its terms. If Lessee is a
corporation, Lessee shall, upon execution of this Lease, deliver to Lessor a
certified copy of a resolution of the Board of Directors of said corporation
authorizing or ratifying the execution of this Lease. If Lessee fails to deliver
such resolution to Lessor upon execution of this Lease, Lessor shall not be
deemed to have waived its right to require delivery of such resolution, and at
any time during the Term Lessor may request Lessee to deliver the same, and
Lessee agrees it shall thereafter promptly deliver such resolution to Lessor. If
Lessee is a corporation, Lessee hereby represents, warrants, and covenants that
(i) Lessee is a valid and existing corporation; (ii) Lessee is qualified to do
business in California; (iii) all fees and all franchise and corporate taxes of
Lessee are paid to date, and will be paid when due; (iv) all required forms and
reports will be filed when due; and (v) the signers of this Lease are properly
authorized to execute this Lease on behalf of Lessee and to bind Lessee hereto.
28. SURRENDER OF PREMISES.
---------------------
a. Condition of Premises. Lessee shall, upon Lease Termination, surrender
---------------------
the Premises broom clean, trash free, and in good condition, reasonable wear and
tear, and insured casualties to the extent of Net Insurance Proceeds recovered
by Lessor, alone excepted. By written notice to Lessee, Lessor may elect to
cause Lessee to remove from the Premises or cause to be removed, at Lessee's
expense, any logos, signs, notices, advertisements or displays placed on the
Premises by Lessee. If the Premises are not so surrendered as required by this
Article 28, Lessee shall indemnify Lessor from any loss or liability resulting
from Lessee's failure to comply with the provisions of this Article 28,
including, without limitation, any claims made by any succeeding tenant or
losses to Lessor due to lost opportunities to lease to succeeding tenants.
b. Removal of Personal Property. Lessee shall remove all its personal
----------------------------
property from the Premises upon Lease Expiration or sooner termination, and
shall immediately repair all damage to the Premises, Building and Common Area
caused by such removal. Any personal property remaining on the Premises after
Lease expiration or sooner termination may be packed, transported, and stored at
a public warehouse at Lessee's expense. If after Lease Expiration or sooner
termination and, within ten (10) days after written demand by Lessor, Lessee
fails to remove Lessee's personal property or, if removed by Lessor, fails to
pay the removal expenses, the personal property may be deemed abandoned property
by Lessor and may be disposed of as Lessor deems appropriate. Lessee shall
repair any damage to the Premises caused by or in connection with the removal of
any personal property, including without limitation, the floor and patch and
paint the walls, when required by Lessor, to Lessor's reasonable satisfaction,
all at Lessee's sole cost and expense. The provisions of this Article 28 shall
survive Lease Termination.
29. LESSOR DEFAULT AND MORTGAGEE PROTECTION. Lessor shall not be in default
---------------------------------------
under this Lease unless Lessee shall have given Lessor written notice of the
breach, and, within thirty (30) days after notice, Lessor has not cured the
breach or, if the breach is such that it cannot reasonably be cured under the
circumstances within thirty (30) days, has not commenced diligently to prosecute
the cure to completion. Any money judgment obtained by Lessee based upon
Lessor's breach of this Lease shall be satisfied only out of the proceeds of the
sale or disposition of Lessor's interest in the Building in which the premises
are located (whether by Lessor or by execution of judgment). Upon any default
by Lessor under this Lease, Lessee shall give notice by registered mail to any
beneficiary or mortgagee of a deed of trust or mortgage encumbering the
Premises, and/or any portion of the Project, whose address shall have been
furnished to it, and shall offer such beneficiary or mortgagee a reasonable
opportunity to cure the default, including time to obtain possession of the
Premises, and/or Project, or any portion thereof, by power of sale or judicial
foreclosure, if such should prove necessary to effect a cure.
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<PAGE>
30. RIGHTS RESERVED BY LESSOR. Subject to the provisions of Addendum 20
-------------------------
attached hereto, Lessor shall have the exclusive right in its sole discretion,
without abatement of Rentals and without limiting Lessor's other rights under
this Lease, to (i) designate the name, address, or other designation of the
Building and/or Project, without notice or liability to Lessee; (ii) close
entrances, doors, corridors, elevators, escalators or other Building facilities
or temporarily abate their operation; (iii) change or revise the business hours
of the Building; (iv) expand, suspend, close, eliminate, adjust, or replace any
portion of any Project, or any services within any portion of the Project; (v)
grant the use of the Exterior Common Area to other improvements located on the
Parcel; and/or (vi) place limitations on the parking rights of Lessee pursuant
to Article 26.
31. PLATS AND RIDERS. Clauses, plats and riders, if any, signed by the Lessor
----------------
and the Lessee and endorsed on or affixed to this Lease are a part hereof.
32. WAIVER. No covenant, term or condition in this Lease or the breach thereof
------
shall be deemed waived, except by written consent of the party against whom the
waiver is claimed. Any waiver of the breach of any covenant, term or condition
herein shall not be deemed to be a waiver of any preceding or succeeding breach
of the same or any other covenant, term or condition. Acceptance by Lessor of
any performance by Lessee after the time the same shall have become due shall
not constitute a waiver by Lessor of the breach or default of any covenant, term
or condition unless otherwise expressly agreed to by Lessor in writing. The
acceptance by Lessor of any sum less than that which is required to be paid by
Lessee shall be deemed to have been received only on account of the obligation
for which it is paid (or for which it is allocated by Lessor, in Lessor's
absolute discretion, if Lessee does not designate the obligation as to which the
payment should be credited), and shall not be deemed an accord and satisfaction
notwithstanding any provisions to the contrary written on any check or contained
in a letter of transmittal. Lessor's efforts to mitigate damages caused by any
default by Lessee shall not constitute a waiver of Lessor's right to recover
damages for any default by Lessee. No custom or practice which may arise
between the parties hereto in the administration of the terms hereof shall be
construed as a waiver or diminution of Lessor's right to demand performance by
Lessee in strict accordance with the terms of this Lease.
33. NOTICES. All notices, consents and demands which may or are to be
-------
required or permitted to be given by either party to the other hereunder shall
be in writing. All notices, consents and demands by Lessor to Lessee shall be
personally delivered or sent by United States Mail, postage prepaid, and a copy
thereof sent by facsimile, addressed to Lessee as designated in Article 1.m., or
to such other place as Lessee may from time to time designate in a notice to
Lessor pursuant to this Article 33. All notices and demands by Lessee to Lessor
shall be personally delivered or sent by United States Mail, postage prepaid,
and a copy thereof sent by facsimile, addressed to Lessor as designated in
Article 1.m., or to such other person or place as Lessor may from time to time
designate in a notice to Lessee pursuant to this Article 33. Mailed notices
shall be deemed delivered twenty-four (24) hours after deposit in the United
States mail as required by this Article 33. Notwithstanding the foregoing, any
legal notices required to be sent by one party to the other (including, without
limitation, a notice pursuant to California Code of Civil Procedure Section
1161) shall be delivered in the manner required by law. All notices sent by
either party through U.S. mail shall be sent by certified mail, return receipt
---------------------------------
requested.
- ---------
34. JOINT OBLIGATIONS. If Lessee consists of more than one person or entity,
-----------------
the obligations of each Lessee under this Lease shall be joint and several.
35. MARGINAL HEADINGS. The captions of paragraphs and articles of this Lease
-----------------
are not a part of this Lease and shall have no effect upon the construction or
interpretation of any part hereof.
36. TIME. Time is of the essence of this Lease and each and all of its
----
provisions in which performance is a factor except as to the delivery of
possession of the Premises to Lessee.
37. SUCCESSORS AND ASSIGNS. The covenants and conditions herein contained,
----------------------
subject to the provisions of Article 13, apply to and bind the heirs,
successors, executors, administrators, legal representatives and assigns of the
parties hereto.
38. RECORDATION. Upon request by Lessor, Lessee shall execute and acknowledge
-----------
a short form of this Lease in form for recording which may be recorded at
Lessor's election. Lessee shall not record this Lease or a short form or
memorandum hereof without the prior written consent of Lessor.
39. QUIET POSSESSION. Upon Lessee paying the Rentals reserved hereunder and
----------------
observing and performing all of the covenants, conditions and provisions on
Lessee's part to be observed and performed hereunder, Lessee shall have quiet
possession of the Premises for the entire Term, subject to all the provisions of
this Lease and subject to any ground or underlying leases, mortgages or deeds of
trust now or hereafter affecting the Premises or the Building and the rights
reserved by Lessor hereunder.
40. LATE CHARGES; ADDITIONAL RENT AND INTEREST.
------------------------------------------
a. Late Charges. Lessee acknowledges that late payment by Lessee to
------------
Lessor of Rentals or other sums due hereunder will cause Lessor to incur costs
not contemplated by this Lease, the exact amount of which are impracticable or
extremely difficult to ascertain. Such costs include, but are not limited to,
processing and accounting charges, and late charges which may be imposed upon
Lessor by the terms of any mortgage or trust deed covering the Premises or any
part of the Project. Accordingly, if any installment of Rentals or any other sum
due from Lessee is not received by Lessor or Lessor's designee within three (3)
business days after the due date, then Lessee shall pay to Lessor, in each case,
a late charge equal to ten percent (10%) of such overdue amount. The
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<PAGE>
parties agree that such late charge represents a fair and reasonable estimate of
the cost that Lessor will incur by reason of late payment by Lessee. Acceptance
of any late charges by Lessor shall in no event constitute a waiver of Lessee's
default with respect to such overdue amount, nor prevent Lessor from exercising
any of its other rights and remedies under this Lease.
b. Rentals, Additional Rent and Interest. All taxes, charges, costs,
-------------------------------------
expenses, and other amounts which Lessee is required to pay hereunder, including
without limitation Lessee's Percentage Share of Excess Expenses, and all
interest and charges (including late charges) that may accrue thereon upon
Lessee's failure to pay the same and all damages, costs and expenses which
Lessor may incur by reason of any default by Lessee shall be deemed to be
additional rent hereunder. Upon nonpayment by Lessee of any additional rent,
Lessor shall have all the rights and remedies with respect thereto as Lessor has
for the nonpayment of Base Rent. The term "Rentals" as used in this Lease is
Base Rent and all additional rent. Any payment due from Lessee to Lessor,
including but not limited to Base Rent and all additional rent shall bear
interest from the thirtieth (30th) day after the same is due until paid, at an
annual rate equal to the maximum rate that Lessor is allowed to contract for by
law. Payment of such interest shall not excuse or cure any default by Lessee.
In addition, Lessee shall pay all costs and attorneys' fees incurred by Lessor
in collection of such amounts. All Rentals and other moneys due under this
Lease shall survive the Lease Termination. Interest on Rentals past due as
provided herein shall be in addition to the late charges levied pursuant to
40.a. above. All Rentals shall be paid to Lessor, in lawful money of the United
States of America which shall be legal tender at the time of payment, at the
address of Lessor a provided herein, or to such other person or at such other
place as Lessor may from time to time designate in writing. If at any time
during the Term Lessee pays any Rentals for insufficient funds, Lessor shall
have the right, in addition to any other rights or remedies Lessor may have
hereunder, to require that Rentals thereafter be paid in cash or by cashier's or
certified check.
41. PRIOR AGREEMENTS. This Lease contains all of the agreements of the parties
----------------
hereto with respect to the Premises, this Lease or any matter covered or
mentioned in this Lease, and no prior agreements or understanding pertaining to
any such matters shall be effective for any purpose. No provision of this Lease
may be amended or added to except by an agreement in writing signed by the
parties hereto or their respective successors in interest. This Lease shall not
be effective or binding on Lessor until fully executed by Lessor.
42. INABILITY TO PERFORM. This Lease and the obligations of the Lessee
--------------------
hereunder shall not be affected or impaired because the Lessor is unable to
fulfill any of its obligations hereunder or is delayed in doing so, if such
inability or delay is caused by reason of strike, labor troubles, Acts of God,
or any other cause, similar or dissimilar, beyond the reasonable control of the
Lessor.
43. ATTORNEYS' FEES. If either party to this agreement shall bring an action
---------------
to interpret or enforce this agreement or for any relief against the other,
including, but not limited to, declaratory relief or a proceeding in
arbitration, the losing party shall pay to the prevailing party a reasonable sum
for attorney's fees, expert witness fees and other costs incurred in such action
or proceeding. Additionally, the prevailing party shall be entitled to all
additional attorney's fees and costs incurred in enforcing and collecting any
such judgment or award. Any judgment or order entered in such action shall
contain a specific provision providing for the recovery of attorney's fees and
costs incurred in enforcing such award or judgment.
44. SALE OF PREMISES BY LESSOR/ LIMITATION OF LIABILITY. Upon a sale or
---------------------------------------------------
conveyance by the Lessor herein named (and in case of any subsequent transfers
or conveyances, the then grantor) of Lessor's interest in the Building other
than a transfer for security purposes only, the Lessor herein named (and in
case of any subsequent transfers or conveyances, the then grantor) shall be
relieved, from and after the date of such transfer, of all obligations and
liabilities accruing thereafter on the part of Lessor, provided that any funds
in the hands of Lessor or the then grantor at the time of transfer and in which
Lessee has an interest, less any deductions permitted by law or this Lease,
shall be delivered to Lessor's successor. Following such sale or conveyance by
Lessor or the then grantor, Lessee agrees to look solely to the responsibility
of the successor-in-interest of Lessor in and to this Lease. This Lease shall
not be affected by any such sale or conveyance and Lessee agrees to attorn to
the purchaser or assignee. If the Lessor herein is a limited partnership, it is
understood and agreed that any claim by Lessee on Lessor shall be limited to the
assets of the limited partnership, and furthermore, Lessee expressly waives any
and all rights to proceed against the individual partners or the officers,
directors or shareholders of any corporate partner.
45. SUBORDINATION/ATTORNMENT. This Lease, at Lessor's option, shall be
------------------------
subject and subordinate to all ground or underlying leases which now exist or
may hereafter be executed affecting any portion of the Project and to the lien
of any mortgages or deeds of trust (including all advances thereunder,
renewals, replacements, modifications, supplements, consolidations, and
extensions thereof) in any amount or amounts whatsoever now or hereafter placed
on or against any portion of the Project, or on or against Lessor's interest or
estate therein, or on or against any ground or underlying lease, without the
necessity of the execution and delivery of any further instruments on the part
of Lessee to effectuate such subordination. Lessee covenants and agrees to
execute and deliver upon demand and without charge therefor, such further
instruments evidencing the subordination of this Lease to such ground or
underlying leases and/or to the lien of any such mortgages or deeds of trusts
as may be required by Lessor or a lender making a loan affecting the Project;
provided that such mortgagee or beneficiary under such mortgage or deed of trust
or lessor under such ground or underlying lease agrees in writing that so long
as Lessee is not in default under this Lease, this Lease shall not be terminated
in the event of any foreclosure or Lease Termination. Failure of Lessee to
execute such instruments evidencing subordination of this Lease shall constitute
a default by Lessee under this Lease. If any mortgagee, beneficiary or lessor
elects to have this Lease prior to the lien of its mortgage, deed of trust or
lease, and shall give written notice thereof to Lessee, this Lease shall be
deemed prior to such mortgage, deed of trust or lease, whether this Lease is
dated prior or subsequent to the date of said mortgage, deed of trust, or lease
or the date of the recording thereof.
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<PAGE>
If any proceedings are brought to terminate any ground or underlying leases
or for foreclosure, or upon the exercise of the power of sale, under any
mortgage or deed of trust covering any portion of the Project, Lessee shall
attorn to the lessor or purchaser upon any such termination, foreclosure or sale
and recognize such lessor or purchaser as the Lessor under this Lease. So long
as Lessee is not in default hereunder and attorns as required above, this Lease
shall remain in full force and effect for the full term hereof after any such
termination, foreclosure or sale.
46. NAME. Lessee shall not use any name, picture or representation of the
----
Building or Project for any purpose other than as an address of the business to
be conducted by the Lessee in the Premises.
47. SEVERABILITY. Any provision of this Lease which proves to be invalid,
------------
void or illegal shall in no way affect, impair or invalidate any other provision
of this Lease and all such other provisions shall remain in full force and
effect; however, if Lessee's obligation to pay the Rentals is determined to be
invalid or unenforceable, this Lease shall terminate at the option of Lessor.
48. CUMULATIVE REMEDIES. Except has otherwise expressly provided in this
-------------------
Lease, no remedy or election hereunder shall be deemed exclusive but shall,
wherever possible, be cumulative with all other remedies at law or in equity.
49. CHOICE OF LAW. This Lease shall be governed by the laws of the State of
-------------
California.
50. SIGNS. Lessee shall not inscribe, paint, affix or place any sign, awning,
-----
canopy, advertising matter, decoration or lettering upon any portion of the
Premises, including, without limitation, any exterior door, window or wall,
without Lessor's prior written consent.
51. GENDER AND NUMBER. Wherever the context so requires, each gender shall
-----------------
include any other gender, and the singular number shall include the plural and
vice-versa.
52. CONSENTS. Whenever the consent of Lessor is required herein, the giving or
--------
withholding of such consent in any one or any number of instances shall not
limit or waive the need for such consent in any other or future instances. Any
consent given by Lessor shall not be binding upon Lessor unless in writing and
signed by Lessor or Lessor's agents. Notwithstanding any other provision of
this Lease, where Lessee is required to obtain the consent of Lessor to do any
act, or to refrain from the performance of any act, Lessee agrees that if
Lessee is in default with respect to any term, condition, covenant or provision
of this Lease, then Lessor shall be deemed to have acted reasonably in
withholding its consent if said consent is, in fact, withheld.
53. BROKERS. Lessee warrants that it has had no dealing with any real estate
-------
broker or agents in connection with the negotiation of this lease excepting only
the broker or agent designated in Article 1.n., and that it knows of no other
real estate broker or agent who is entitled to or can claim a commission in
connection with this Lease. Lessee agrees to indemnify and hold Lessor
harmless from and against any and all claims, demands, losses, liabilities,
lawsuits, judgments, and costs and expenses (including without limitation
reasonable attorneys' fees) with respect to any alleged leasing commission or
equivalent compensation alleged to be owing on account of Lessee's dealings with
any real estate broker or agent other than the broker(s) identified in Article
1.n. Lessor shall be reponsible for the payment of a leasing commission to such
broker(s) in accordance with a separate agreement between Lessor and Lessor's
agent, Cushman & Wakefield of California.
54. SUBSURFACE AND AIRSPACE. This Lease confers on Lessee no rights either
-----------------------
with respect to the subsurface of the Parcel or with regard to airspace above
the top of the Building or above any paved or landscaped areas on the Parcel or
Common Area and Lessor expressly reserves the right to use such subsurface and
airspace areas, including without limitation the right to perform construction
work thereon and in regard thereto. Any diminution or shutting off of light,
air or view by any structure which may be erected by Lessor on those portions of
the Parcel, Common Area and/or Building reserved by Lessor shall in no way
affect this Lease or impose any liability on Lessor. Lessor shall have the
exclusive right to use all or any portion of the roof, side and rear walls of
the Premises and Building for any purpose. Lessee shall have no right
whatsoever to the exterior of the exterior walls or the roof of the Premises or
any portion of the Project outside the Premises except as provided in Article 55
of this Lease.
55. COMMON AREA. For purposes of the Lease, "Common Area" shall collectively
-----------
mean the following:
a. Exterior Common Area. That portion of the Parcel other than the land
--------------------
comprising the property, and all facilities and improvements on such portion for
the non-exclusive use of Lessee in common with other authorized users,
including, but not limited to, vehicle parking areas, driveways, sidewalks,
landscaped areas, and the facilities and improvements necessary for the
operation thereof (the "Exterior Common Area"); and
b. Building Common Area. That portion of the Building in which the
--------------------
Premises are located, and all of the facilities therein, set aside by Lessor for
the non-exclusive use of Lessee in common with other authorized users,
including, but not limited to, entrances, lobbies, halls, atriums, corridors,
toilets and lavatories, passenger elevators and service areas (the "Building
Common Area").
Subject to the limitations and restrictions contained in this Lease, and
the Rules and Regulations, Lessor grants to Lessee and Lessee's Agents the
nonexclusive right to use the Common Area in common with Lessor, Lessor's agent,
tenants of the Building, other authorized users and their agents, subject to the
provisions of this Lease. The right to use the Common Area shall terminate upon
Lease Termination.
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<PAGE>
56. LABOR DISPUTES. If Lessee becomes involved in or is the object of a labor
--------------
dispute which subjects the Premises or any part of the Project to any picketing,
work stoppage, or other concerted activity which in the reasonable opinion of
Lessor is in any manner detrimental to the operation of any part of the Project,
or its tenants, Lessor shall have the right to require Lessee, at Lessee's own
expense and within a reasonable period of time specified by Lessor, to use
Lessee's best efforts to either resolve such labor dispute or terminate or
control any such picketing, work stoppage or other concerted activity to the
extent necessary to eliminate any interference with the operation of the
Projector its tenants. To the extent such labor dispute interferes with the
performance of Lessor's duties hereunder, Lessor shall be excused from the
performance of such duties and Lessee hereby waives any and all claims against
Lessor for damages or losses in regard to such duties. If Lessee fails to use
its best efforts to so resolve such dispute or terminate or control such
picketing, work stoppage or other concerted activity within the period of time
specified by Lessor, Lessor shall have the right to terminate this Lease.
Nothing contained in this Article 56 shall be construed as placing Lessor in an
employer-employee relationship with any of Lessee's employees or with any other
employees who may be involved in such labor dispute. Lessee shall hold Lessor
harmless and indemnify Lessor from any liability (including attorneys' fees)
arising from any labor dispute in which Lessee is involved and which affects any
part of the Project.
57. CONDITIONS. Subject to Articles 22 and 23 of this Lease, all agreements by
----------
Lessee contained in this Lease, whether expressed as covenants or conditions,
shall be construed to be both covenants and conditions, conferring upon Lessor,
upon breach thereof, the right to terminate this Lease.
58. LESSEE'S FINANCIAL STATEMENTS. Lessee hereby warrants that all financial
-----------------------------
statements delivered by Lessee to Lessor prior to the execution of this Lease by
Lessee, or that shall be delivered in accordance with the terms hereof, are or
shall be at the time delivered true, correct, and complete, and prepared in
accordance with generally accepted accounting principles. Lessee acknowledges
and agrees that Lessor is relying on such financial statements in accepting this
Lease, and that a breach of Lessee's warranty as to such financial statements
shall constitute a default by Lessee.
59. LESSOR NOT A TRUSTEE. Lessor shall not be deemed to be a trustee of any
--------------------
funds paid to Lessor by Lessee (or held by Lessor for Lessee) pursuant to this
Lease. Lessor shall not be required to keep any such funds separate from
Lessor's general funds or segregated from any funds paid to Lessor by (or held
by Lessor for) other tenants of the Building. Any funds held by Lessor pursuant
to this Lease shall not bear interest.
60. MERGER. The voluntary or other surrender of this Lease by Lessee, or a
------
mutual cancellation thereof, shall not work a merger, and shall, at the option
of the Lessor, terminate all or any existing subleases or subtenancies, or may,
at the option of Lessor, operate as an assignment to it of any or all such
subleases or subtenancies.
61. NO PARTNERSHIP OR JOINT VENTURE. Nothing in this Lease shall be construed
-------------------------------
as creating a partnership or joint venture between Lessor, Lessee, or any other
party, or cause Lessor to be responsible for the debts or obligations of Lessee
or any other party.
62. LESSOR'S RIGHT TO PERFORM LESSEE'S COVENANTS. Except as otherwise
--------------------------------------------
expressly provided herein, if Lessee fails at any time to make any payment or
perform any other act on its part to be made or performed under this Lease,
Lessor may upon ten (10) days written notice to Lessee, but shall not be
obligated to, and without waiving or releasing Lessee from any obligation under
this Lease, make such payment or perform such other act to the extent that
Lessor may deem desirable, and in connection therewith, pay expenses and employ
counsel. All sums so paid by Lessor and all penalties, interest and costs in
connection therewith shall be due and payable by Lessee to Lessor as additional
rent upon demand.
63. PLANS. Lessee acknowledges that any plan of the Project which may have
-----
been displayed or furnished to Lessee or which may be a part of Exhibit "A" or
Exhibit "B" is tentative; Lessor may from time to time change the shape, size,
location, number, and extent of the improvements shown on any such plan and
eliminate or add any improvements to the Project, in Lessor's sole discretion.
-22-
<PAGE>
65. WAIVER OF JURY. LESSOR AND LESSEE HEREBY WAIVE THEIR RESPECTIVE RIGHT TO
--------------
TRIAL BY JURY ON ANY CAUSE OF ACTION, CLAIM, COUNTER-CLAIM OR CROSS-COMPLAINT IN
ANY ACTION, PROCEEDING AND/OR HEARING BROUGHT BY EITHER LESSOR AGAINST LESSEE OR
LESSEE AGAINST LESSOR ON ANY MATTER WHATSOEVER ARISING OUT OF OR IN ANY WAY
CONNECTED WITH THIS AGREEMENT.
66. JOINT PARTICIPATION. Lessor and Lessee hereby acknowledge that both
-------------------
parties have been represented by counsel in connection with this Lease and that
both parties have participated in the negotiation and
-23-
<PAGE>
drafting of all of the terms and provisions hereof. By reason of this joint
participation, no term or provision of this Lease will be construed against
either party as the "drafter" thereof, which terms and provisions shall include,
without limitation, Article 14 hereof.
IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR SUBMISSION TO YOUR
ATTORNEY FOR APPROVAL. NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE
LESSOR BY THE REAL ESTATE BROKER OR ITS AGENTS OR EMPLOYEES AS TO THE LEGAL
SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTIONS
RELATING THERETO.
"LESSOR": NORFOLK ATRIUM, a California limited partnership
By: NAPA RIVER DEVCO, INC.,
a California corporation, its General Partner
By: PROM MANAGEMENT GROUP, INC.,
a California corporation dba Maxim Property Management
as Agent for Owner
By: /s/ Vicki R. Mullins
---------------------------------------------------------
Name: Vicki R. Mullins
---------------------------------------------------------
Title: Executive Vice President and Chief Financial Officer
---------------------------------------------------------
Dated: 8/12/97
---------------------------------------------------------
Address:
350 Bridge Parkway
Redwood City, California 94065
"LESSEE": INKTOMI CORPORATION
A CALIFORNIA CORPORATION
By: /s/ Jerry M. Kennelly
---------------------------------------------------------
Name: Jerry M. Kennelly
---------------------------------------------------------
Title: Vice President of Finance and Chief Financial Officer
---------------------------------------------------------
Dated: 8/8/97
---------------------------------------------------------
Address:
Inktomi Corporation
1900 South Norfolk Street, Suite 110
San Mateo, California 94403
-24-
<PAGE>
ADDENDA TO LEASE
----------------
These Addenda to Lease are made by and between NORFOLK ATRIUM, a California
limited partnership ("Lessor"), and INKTOMI CORPORATION, a California
corporation ("Lessee"), who agree as set forth herein.
ADDENDUM 1:
- ----------
The Initial Premises. Upon the Commencement Date the Premises shall
--------------------
consist of fifteen thousand six hundred fifty-four (15,654) rentable square feet
of third floor office space (the "Initial Premises").
The Additional Space. Effective March 1, 2000, the Premises shall be
--------------------
increased by adding approximately sixteen thousand four hundred two (16,402)
rentable square feet of ground floor space more commonly known as Suite 115 (the
"Additional Space"). Lessor shall deliver said Additional Space to Lessee in its
"as is" condition, without warranty express or implied. Notwithstanding the
preceding sentence, acceptance of the Premises by Lessee in its "as is"
condition shall not be deemed to alter or otherwise limit Lessor's obligations
set forth in Section 11.b. of the Lease.
ADDENDUM 2:
- ----------
a. Lease Commencement Date. The Commencement Date of this Lease shall be
-----------------------
that date which is fourteen (14) days following the date upon which Lessor
delivers possession of the Initial Premises to Lessee. The anticipated
Commencement Date is October 15, 1997 (the "Anticipated Commencement Date").
b. Lease Expiration Date. The Expiration Date of the Lease for the
---------------------
Initial Premises shall be the last day of the sixtieth (60th) full calendar
month following the Commencement Date, unless extended or sooner terminated
pursuant to this Lease. By way of example, provided the Commencement Date of
this Lease is one and the same as the Anticipated Commencement Date, the
Expiration Date for the Initial Premises would be October 31, 2002.
c. Expiration Date/Additional Space. The Expiration Date for the
--------------------------------
Additional Space is October 31, 2001.
d. Commencement Memorandum. Following the occurrence of the actual
-----------------------
Commencement Date, the parties hereto shall execute a Commencement Memorandum
confirming the Commencement Date and the Expiration Dates for the Premises and
the Additional Space.
ADDENDUM 3:
- ----------
Based on the Anticipated Commencement Date of October 15, 1997, the Monthly Base
Rent for the Initial Premises and the Additional Space shall be payable in the
amounts as set forth below:
<TABLE>
<CAPTION>
Per Rentable Total Rentable Monthly
From and Including* Square Foot Square Feet Base Rent
- ------------------ ------------ -------------- -----------
<S> <C> <C> <C>
10/15/97 through 09/30/98 $ 2.75 15,654 $ 43,048.50
10/01/98 through 09/30/99 $ 2.90 15,654 $ 45,396.60
10/01/99 through 02/29/00 $ 3.05 15,654 $ 47,744.70
03/01/00 through 09/30/00 $ 3.05 32,056 $ 97,770.80
10/01/00 through 10/31/01 $ 3.20 32,056 $102,579.20
11/01/01 through 10/31/02 $3.35** 15,654 $ 52,440.90
</TABLE>
* Note: The specific increase dates referenced above shall be established upon
the determination of the actual Commencement Date of this Lease and such dates
shall be confirmed in the commencement memorandum referenced in Addendum 2
above.
** In the event the initial Term is extended pursuant to Addendum 8 below, then
the Base Rent payable for the period of November 1, 2001 through and including
October 31, 2002 shall be (i) at a rate of $3.35 per rentable square foot per
month; (ii) based on the total rentable area of 32,056 rentable square feet; and
(iii) in the aggregate amount of $107,387.60.
<PAGE>
ADDENDUM 4:
- ----------
Security Deposit.
- ----------------
(a) Concurrent with the execution of this Lease, Lessee has deposited with
Lessor an unconditional, irrevocable letter of credit (the "Letter of Credit")
in favor of Lessor in the amount of Five Hundred Thousand Dollars ($500,000.00)
from Silicon Valley Bank or an issuer of equal or greater current credit and in
form and content acceptable to Lessor, as security for the full and faithful
performance of every provision of this Lease to be performed by Lessee (such
Letter of Credit is referred to herein as the "Security Deposit"). Such Letter
of Credit shall be such that it may be drawn upon in part or in full,
periodically, or at one time, upon presentation of only the Letter of Credit and
a draft from Lessor in the amount to be drawn. All costs of obtaining,
maintaining, replacing, renewing and/or restoring the Letter of Credit in
accordance with this Addendum 4 shall be borne by Lessee.
(b) Such Letter of Credit (or replacement or renewal thereof meeting the
requirements of this Addendum 4) shall be maintained in effect throughout the
Term of this Lease, subject to the following:
(i) Such Letter of Credit shall initially have an expiration date
not sooner than two (2) years following the date hereof and shall thereafter be
renewed for periods of one (1) year each (or, if the remaining Term of this
Lease is less than one (1) year, such lesser period as is then remaining in the
Term of this Lease); provided that, as to each Letter of Credit (as replaced
from time to time pursuant hereto), (1) Lessee shall deliver to Lessor written
notice of the applicable expiration date of the then existing Letter of Credit
at least thirty (30) days prior to such expiration date, and (2) Lessee shall
deliver a replacement Letter of Credit meeting the terms of this Addendum 4 at
least fifteen (15) days prior to the expiration of the then existing Letter of
Credit; and
(ii) If at any time following the initial twenty-four (24) months of
the Term of this Lease, (1) Lessee possesses cash and marketable securities in
an aggregate amount equal to at least Ten Million Dollars ($10,000,000.00) and
(2) Lessee's net worth is at least Ten Million Dollars ($10,000,000.00), all as
evidenced by Lessee's then most recent 10Q quarterly statement filed with the
SEC, then, upon Lessee's request and Lessee's deposit with Lessor of cash in the
amount of Fifty-Two Thousand Four Hundred Forty-One Dollars ($52,441.00) (the
"Cash Security Deposit"), to be thereafter held by Lessor as Lessee's Security
Deposit in lieu of a Letter of Credit pursuant hereto, Lessor shall return to
Lessee the Letter of Credit then held by Lessor; provided that during such time
as Lessor holds the Cash Security Deposit pursuant hereto, Lessee shall deliver
its quarterly 10Q filing with the SEC for each quarter within ten (10) days
after making such quarterly SEC filing, and if Lessee fails to continue to
satisfy each of the requirements specified in clauses (1) and (2) of this
subsection (b) above (as evidenced by such quarterly SEC filing), Lessee shall
immediately deposit with Lessor a new Letter of Credit meeting the requirements
of this Addendum 4 and within thirty (30) days of Lessor's receipt of such
Letter of Credit, Lessor shall refund to Lessee any then remaining balance of
the Cash Security Deposit.
(c) If Lessor shall at any time draw upon such Letter of Credit in
accordance with this Section and apply the funds so drawn to the obligations of
Lessee pursuant hereto, Lessee shall immediately restore such Letter of Credit
to its original amount. Lessee agrees that the Letter of Credit may be
presented by Lessor for payment (1) upon the occurrence of a default by Lessee
under this Lease (not cured within any applicable period for cure provided under
this Lease), (2) in the event Lessee has not, prior to the date which is fifteen
(15) days prior to the expiration of the then term of the Letter of Credit,
delivered to Lessor a renewed or replacement Letter of Credit complying with all
of the requirements of this Addendum, and/or (3) in the event Lessor draws upon
the Letter of Credit in the event of Lessee's default pursuant to clause (1)
above, and Lessee does not immediately restore the Letter of Credit to its
original amount. Lessee shall not in any manner interfere with the payment to
Lessor of the proceeds of the Letter of Credit either prior to or following
presentment by Lessor pursuant hereto, and Lessee shall be liable to Lessor for
any loss suffered by Lessor as a result of such interference, including, without
limitation, any attorneys' fees and costs. Lessee agrees that it may be
enjoined from interfering or attempting to interfere, directly or indirectly,
with Lessor's negotiation of the Letter of Credit. The proceeds of the Letter
of Credit paid to Lessor upon presentment thereof shall be the Security Deposit
for use in the manner set forth in this Addendum 4.
(d) The Security Deposit (whether in the form of the Letter of Credit, cash
proceeds of the Letter of Credit and/or Cash Security Deposit) shall be held by
Lessor as security for the faithful performance by Lessee of all of the terms,
covenants, and conditions of this Lease to be kept and performed by Lessee
during the Term. If Lessee defaults with respect to any provisions of this
Lease, including but not limited to the provisions relating to the payment of
Rent, which default is not cured within any applicable period for cure following
Lessee's receipt of written notice thereof from Lessor pursuant to this Lease,
Lessor may (but shall not be required to) use, apply or retain all or any part
of the Security Deposit for the payment of any Rent or any other sum in default,
or for the payment of any other amount which Lessor may spend or become
obligated to spend by reason of Lessee's default or to
<PAGE>
compensate Lessor for any loss or damage which Lessor may suffer by reason of
Lessee's default (at Lessor's option, by application of any cash then held as
the Security Deposit and/or by drawing upon the Letter of Credit in accordance
herewith). If any portion of the Security Deposit is so used or applied, Lessee
shall, within ten (10) days after demand therefor, deposit cash with Lessor
and/or deliver to Lessor a replacement Letter of Credit in accordance herewith,
as applicable, in an amount sufficient to restore the Security Deposit to the
then required amount and Lessee's failure to do so shall be a default under this
lease. Lessor shall not be required to keep the Security Deposit separate from
its general funds, and Lessee shall not be entitled to interest on such Security
Deposit. Provided Lessee is not then in default under this Lease, within thirty
(30) days following the expiration of the Lease Term or sooner termination of
this Lease and Lessee's vacating of the Premises, any balance of the Security
Deposit then remaining with Lessor (in cash and/or in the form of the Letter of
Credit) shall be returned to Lessee.
(e) The Letter of Credit shall inure to the benefit of Lessor and its
successors and assigns. Should Lessor convey or assign its interest in the
Premises during the Term hereof and if Lessor deposits with the assignee the
then unappropriated funds then constituting the Security Deposit (if any of the
Security Deposit is then held in cash) and, to the extent the Letter of Credit
has not previously been presented for payment and is then held by Lessor,
assigns its interest in the Letter of Credit (Lessee hereby agreeing that if
Lessor is unable to transfer the Letter of Credit to a successor assign due to
restrictions on transferability, Lessee shall provide a replacement Letter of
Credit meeting all of the requirements of this Paragraph in favor of such
successor or assign if necessary to permit drawing upon such Letter of Credit by
such successor or assign and Lessor shall return the Letter of Credit to Lessee
that is so replaced), thereupon Lessor shall be discharged from any further
liability with respect to such Security Deposit and, if applicable, Letter of
Credit.
ADDENDUM 5:
- ----------
Adjustment of Percentage Share. For the purposes of this Lease, Lessee's
------------------------------
Percentage Share is nine and sixty-seven one-hundredths percent (9.67%) when the
Premises consists of only the Initial Premises and nineteen and eighty-one one-
hundredths percent (19.81%) when the Premises consists of both the Initial
Premises and the Additional Space.
ADDENDUM 6:
- ----------
Parking. Effective March 1, 2000, Lessee shall have the right to the non-
-------
exclusive use of fifty-seven (57) additional parking spaces for a total of one
hundred eleven (111) parking spaces. Upon expiration or sooner termination of
the term for the Initial Premises, such parking allocation shall be reduced to
fifty-four (54) parking spaces.
ADDENDUM 7:
- ----------
2.b. First Right of Opportunity. Throughout the initial Term only, Lessor
--------------------------
shall notify Lessee of any space becoming available to lease on the third floor
of the Building. Such notice shall be given to Lessee prior to such space being
made available to the existing tenants of the space (subject, to any prior
rights said tenant(s) may have to such space), or to the outside rental market.
Lessee is granted the right of first opportunity to lease such space at the then
current market rent as outlined in Lessor's notice to Lessee. No court
arbitrator or third party shall have the right to challenge the terms and
conditions set forth in Lessor's notice to Lessee. Lessee shall have two (2)
business days following receipt of said written notice from Lessor within which
to indicate in writing its desire to lease the space under the terms and
conditions stated in Lessor's notice. If Lessee rejects or fails to accept
Lessor's offer within the two (2) day period stated above, Lessor shall have the
right to lease the available space (which was the subject of the offer made to
Lessee) to third parties upon any terms, covenants and conditions desired by
Lessor, and Lessee shall have no further right to lease such space.
ADDENDUM 8:
- ----------
3.b. Option to Extend Term. Lessee is given the option to extend the Term
---------------------
on all provisions contained in this Lease (except for Base Rent and such other
terms and conditions as are specifically or by their operation limited to the
initial Term only), for a period of three (3) years immediately following the
expiration of the Term for the Additional Space (the "Extended Term"), by giving
notice of exercise of the option to Lessor no later than October 1, 2000 (the
"Option Notice"). Such extension option shall apply concurrently to the Initial
Premises and Additional Space. Lessee shall not have the right under this Option
to Extend Term to independently extend the term for the Initial Premises or the
Additional Space. If the Lease is extended pursuant to the terms herein
contained, the expiration date of the Extended Term for the entire Premises
consisting of both the Initial Premises and the Additional Space will be October
31, 2004.
Lessor's ability to plan for the orderly transaction of its rental
business, to accommodate the needs of other existing and potential tenants, and
to enjoy the benefits of increasing rentals at such times as Lessor is able to
do so in its sole and absolute discretion, are fundamental elements of Lessor's
willingness to provide
<PAGE>
Lessee with the option to extend contained herein. Accordingly, Lessee
acknowledges that Lessee's strict compliance with the notification provisions
contained herein, and Lessee's strict compliance with the time period for such
notification contained herein, are material elements of the bargained-for
exchange between Lessor and Lessee and are material elements of Lessee's
consideration paid to Lessor in exchange for the grant of option. Therefore,
Lessee's failure to adhere strictly and completely to the provisions and time
frame contained in this option shall render the option automatically null, void,
and of no further force or effect, without notice, acknowledgment, or any action
of any nature of sort, required of Lessor. Lessee acknowledges that no other act
or notice, other than the express written notice set forth hereinabove, shall
act to put Lessor on notice of Lessee's intent to extend, and Lessee hereby
waives any claims to the contrary, notwithstanding any other actions of Lessee
during the terms of this Lease or any statements, written or oral, of Lessee to
Lessor to the contrary during the term of this Lease. Notwithstanding the
foregoing, if Lessee is in default on the date of giving the Option Notice, the
Option Notice shall be totally ineffective, or if Lessee is in default on the
date the Extended Term is to commence, in addition to any and all other remedies
available to Lessor under the Lease, at Lessor's election the exercise of the
option shall be deemed null and void, the Extended Term shall not commence, and
this Lease shall expire at the end of the Term.
This Option to Extend is personal to Lessee and cannot be assigned,
transferred or conveyed to any other person or entity (voluntarily,
involuntarily, by operation of law or otherwise) including any assignee or
subtenant permitted under Article 13. All of Lessee's rights under this
Addendum 8 shall terminate upon the expiration or sooner termination of this
Lease.
ADDENDUM 9:
- ----------
Delay in Commencement; Right to Terminate: Notwithstanding any contrary
-----------------------------------------
provisions of the Lease, in the event Lessor cannot deliver possession of the
Premises to Lessee by December 31, 1997, then to the extent such delay is not
caused by Lessee, Lessee, within ten (10) days following such date, shall have
the right to give Lessor written notice terminating the Lease. In the event
Lessee exercises its right to terminate the Lease as provided herein, then upon
such termination, all rights and obligations of Lessor and Lessee hereunder
shall no longer be of any force and effect, except that Lessor shall promptly
return to Lessee any monies previously paid by Lessee to Lessor.
ADDENDUM 10:
- -----------
5.b. Rent During Extended Term. The parties shall have thirty (30) days
-------------------------
after Lessor receives the Option Notice (as defined in Addendum 8 above) in
which to agree upon the Base Rent to be payable during the Extended Term. The
Base Rent payable during the Extended Term shall be an amount equal to the then
current "Fair Market Rental Value" (defined below) of the Premises at the time
of the commencement of the proposed Extended Term. In no event, however, shall
the Base Rent during the Extended Term be less than the Base Rent payable at the
expiration of the initial Term.
The term "Fair Market Rental Value" of the Premises as used in this Lease
shall mean the then prevailing fair market rent for the Premises at the
expiration of the Term. In determining such rate, Lessor may consider first
class office space comparable in size and quality to the Premises, if any,
located in the geographic area identified in Article 1.p. and located in the
Building and other buildings comparable in size and quality to the Building in
which the Premises are located, and taking into consideration all other factors
normally considered when determining Fair Market Rental Value.
If the parties so agree on the fair market rental value for the Premises
within said thirty (30) day period, they shall immediately execute an amendment
to this Lease stating the Base Rent to be paid during the Extended Term. In the
event Lessee has retained the services of a real estate broker to represent
Lessee during the negotiations of the Extended Term, it is expressly understood
that Lessor shall have no obligation for the payment of all or any part of a
real estate commission or other brokerage fee to Lessee's real estate broker in
connection with the Extended Term. Lessee shall be solely responsible for the
payment of fees for services rendered to Lessee by such broker in connection
with the Extended Term.
If the parties are unable to agree, in their sole and absolute discretion,
on the Fair Market Rental Value within such time, then this option to extend
shall be ineffective and the Term will expire as of the Expiration Date. No
court arbitrator or third party shall have the right to challenge the exercise
of this discretion.
ADDENDUM 11:
- -----------
7.d. Exclusions to Project Operating Expenses and Taxes. Notwithstanding
--------------------------------------------------
anything hereinabove contained to the contrary, Operating Expenses and Taxes
will not include the following: (i) any cost for which Lessor has a right of
reimbursement from others, (ii) leasing fees, commissions, or other costs
relating to the marketing of the Project to other tenants; (iii) interest,
charges and fees incurred on debt or
<PAGE>
payments on mortgages; (iv) advertising or promotional costs; (v) penalties or
fines incurred for the delinquent payment of taxes; and (vi) taxes and
assessments resulting from the construction of specialized improvements for
other tenants in the Project.
ADDENDUM 12:
- -----------
Lessee's Alterations. Lessee shall have the right to make Alterations
--------------------
within the Premises, without the prior written consent of Lessor (but upon ten
(10) days prior written notice to Lessor), if the aggregate cost of any such
Alteration is reasonably anticipated to be less than five thousand dollars
($5,000.00). Notwithstanding the foregoing, Lessee shall not make any
Alteration without Lessor's prior written consent and regardless of the cost
thereof, which (i) results in a change to the exterior of the Building; (ii)
will be visible from the exterior of the Building; (iii) effects any change in
the structural components of the Building; or (iv) affects any of the Building
systems.
ADDENDUM 13:
- -----------
Removal of Alterations. Notwithstanding the foregoing, Lessee shall not be
----------------------
required to remove such Alterations, improvements or additions approved by
Lessor pursuant to this Article 10, unless Lessor, at the time of its consent,
advised Lessee in writing that Lessor would require removal of such work upon
the expiration or sooner termination of this Lease. For any Alterations made
during the Term for which no prior written approval was required by Lessor (as
set forth in Addendum 12 above), Lessor shall retain the right to designate upon
Lease termination whether such improvements are to be removed by Lessee.
ADDENDUM 14:
- -----------
Exempt Transfer. Lessee shall have the right, without Lessor's prior written
- ---------------
consent (but upon ten (10) days prior written notice to Lessor) to sublet or
assign this Lease as set forth below (and such Transfer shall be deemed an
"Exempt Transfer"):
a. Lessee may sublet all or a portion of the Premises, or to assign this
Lease to Lessee's parent, subsidiary or affiliated company, so long as such
parent, subsidiary, or affiliated company has a net worth equal to or greater
than that of Lessee. The parties shall thereafter execute a written Assumption
Agreement as set forth in Section 13.c. hereof.
b. Lessee may assign this Lease to: (i) a successor entity into which or
with which Lessee is merged or consolidated, or (ii) an entity to which Lessee
shall sell all or a substantial portion of its assets, so long as such entities
described in (i) or (ii) substantially succeeds to and continues the business of
Lessee by operation of law or by effective provisions contained in the
instruments of merger, consolidation or sale, as the case may be, the
liabilities and assets of the entities participating in such merger or
consolidation, or of the transferor in a sale, are assumed by the entity
surviving such merger or created by such consolidation, or by the transferees in
a sale, and such surviving entity has a net worth equal to or greater than the
net worth of Lessee, as of the execution of this Lease, or as of the time of
such Transfer, whichever is greater. The parties shall thereafter execute a
written Assumption Agreement as set forth in Section 13.c. hereof.
ADDENDUM 15:
- -----------
Subletting Costs. Notwithstanding anything herein contained to the
----------------
contrary, including section 13.f.(i), prior to the disbursement to Lessor of any
excess Rentals resulting from an approved sublease, Lessee shall have the right
to recover their reasonable costs directly attributable to such Transfer,
including reasonable real estate brokerage commissions and advertising costs.
ADDENDUM 16:
- -----------
e. Lessor's Insurance. During the term of this Lease, Lessor shall
------------------
maintain comprehensive general liability insurance, and an "all risk" property
insurance policy with respect to the Building in an amount equal to one hundred
percent (100%) of the replacement cost thereof, excluding foundations, footings
and underground installations, if any, and commercially reasonable deductible
amounts. Lessor may carry all of its insurance under a blanket policy.
ADDENDUM 17:
- -----------
Services and Utilities. As reasonably requested by Lessee, Lessor shall
----------------------
furnish Lessee with HVAC services at times other than normal Business Hours for
the Building provided Lessee pays to Lessor, as Additional Rent, the standard
charge for such additional services. The current rate for additional HVAC
service is twenty-five dollars ($25.00) per hour, per zone. Such hourly charge
shall be subject to increase in the same proportion as Lessor's actual costs to
provide such additional service increase from time to time. For the purposes of
this Lease, normal Business Hours for the Building are Monday through Friday,
7:00 a.m. to 6:00 p.m., weekends and recognized Building holidays excepted.
<PAGE>
ADDENDUM 18:
- -----------
Termination of Lease. Notwithstanding anything to the contrary contained
---------------------
in this Article 21, in the event Lessor is unable to repair, reconstruct, or
restore the Premises or fails to complete the same within one hundred eighty
(180) days following such damage, Lessee shall have the right at any time
thereafter, by giving written notice to Lessor, to terminate this Lease, except
that Lessor shall not have any obligation whatsoever to repair, reconstruct or
restore the Premises when any damage thereto or to the Building occurs during
the last twelve (12) months of the Term, as the same may be extended by the
Extended Term.
ADDENDUM 19:
- -----------
Grace Period. Lessor shall grant Lessee two (2) grace periods during the
------------
Term hereof; each such grace period shall consist of five (5) calendar days
after receipt of written notice from Lessor to Lessee that such payment has not
been received.
ADDENDUM 20:
- -----------
Rights Reserved by Lessor. Notwithstanding anything contrary contained in
-------------------------
this Lease, Lessor shall not make any modification to the Project to the extent
the same materially interferes with Lessee's use of, or access to, the Premises,
the Exterior Common Area, or the Building Common Area.
<PAGE>
EXHIBIT "A"
THE PREMISES
------------
(The Initial Premises and the Additional Spaces)
[FLOOR PLAN APPEARS HERE]
<PAGE>
EXHIBIT "A-1"
Definitions
-----------
1. BUILDING RENTABLE AREA. Defined as the gross building area of the
Building (measured from the glass line of the exterior building wall to the
glass line of the exterior building wall) minus the Building Common Area.
2. BUILDING COMMON AREA. Defined as the area in the building shared in
common with all other tenants in the building. It includes the following first
floor space; atrium space, locker rooms, mail room, exit corridors, loading dock
corridor, elevator machine room, main electrical and telephone rooms, and
security guard station.
3. FLOOR COMMON AREA. The Floor Common Area is defined as the area on a
Multiple-Tenancy floor shared with other tenants on that floor. Floor Common
Area includes lobbies, stairs, shafts and elevator shafts, flues, pipe shafts,
vertical ducts, HVAC rooms, telephone and electrical rooms, fan rooms, janitors
closets, toilet rooms, and storage rooms, available for use by all tenants on
that floor. Floor Common Area shall be measured from the office side of
corridors and/or permanent partitions, to the office of corridors and/or other
permanent partitions.
4. FLOOR USEABLE AREA. That area on a Multiple-Tenancy Floor for the
exclusive use of a particular tenant. Floor Usable Area is computed by measuring
from the glass line of the exterior building wall to the office side of
corridors and/or other permanent partitions and to the center line of
partitions that separate the premises from adjoining rentable area. No
deductions shall be made for stairs, shafts, flues, pipe shafts, or vertical
ducts with the space. No deductions shall be made for HVAC rooms, telephone
storage, electric or fan rooms, or janitors closets when such rooms are not
available to other tenants on the floor. No deductions shall be made for
columns.
5. FLOOR RENTABLE AREA. Single Tenant Floor: Floor Rentable Area shall
be defined as follows: On a floor where a tenant is the sole occupancy of the
floor (Single-Tenancy Floor) the Floor Rentable Area is computed by measuring
from the glass line of the exterior building walls to the glass line of the
exterior building walls. Floor Rentable Area shall include all areas with the
outside walls with no deduction for stsirs, elevator shafts, flues, pipe shafts,
vertical ducts, HVAC rooms, telephone storage electric or fan rooms, janitors
closets, lobbies, or toilet rooms. No deductions shall be made for columns.
6. FLOOR RENTABLE AREA. Multiple Tenancy Floor: On a floor where the
tenant is not the sole occupancy (Multiple-Tenancy Floor) the Floor Rentable
Area is the sum of the Floor Useable Area plus a pro rata portion of the Floor
Common Area. The pro rata portion of the Floor Common Area shall be a fraction
in which the numerator is the Floor Useable Area of that specific tenant on that
particular floor. The denominator shall be the Floor Rentable Area of the total
floor if the floor had been measured as a Single-Tenancy Floor minus Floor
Common Area.
7. TENANT'S RENTABLE AREA ("RENTABLE AREA"). Single Tenancy Floor: The
Rentable Area on a Single Tenant Floor is defined as the Floor Rentable Area
plus a pro rata portion of the Building Common Area. The pro rata share of the
Building Common Area shall be a fraction in which the numerator is the Floor
Rentable Area (Multiple-Tenancy Floor) and the denominator is the Building
Rentable Area.
8. TENANT'S RENTABLE AREA ("RENTABLE AREA"). Multiple Tenancy Floor:
The Rentable Area on a Multiple Tenancy Floor is defined as the sum of the Floor
Rentable Area plus a pro rate share of the Building Common Area. The pro
rata share of the Building Common Area shall be a fraction in which the
numerator is the Floor Rentable Area (Multiple-Tenancy Floor) and the
denominator is the Building Rentable Area.
9. IMPROVABLE AREA. Improvable Area on a Single Tenancy Floor is
defined as the Floor Rentable Area minus all vertical penetrations and areas
finished with the building shell. Improvable Area on a Multiple-Tenancy Floor
equals the useable area minus all vertical penetrations and area finished with
the building shell.
<PAGE>
EXHIBIT "B"
THE PARCEL
----------
[MAP OF THE PARCEL APPEARS HERE]
<PAGE>
EXHIBIT "C"
----------
WORK LETTER
-----------
THIS WORK LETTER AGREEMENT ("Agreement") supplements the Lease concurrent
herewith, by and between NORFOLK ATRIUM, a California limited partnership
("Lessor") and INKTOMI CORPORATION, a California corporation ("Lessee") with
respect to those certain premises described in the Lease ("Premises"). The
purpose of this Work Letter is to set forth our mutual obligations with regard
to the alteration and improvement of the Premises. All terms not defined herein
shall have the same meaning as set forth in the Lease.
1. Existing Tenant Improvements. Lessee accepts possession of the
----------------------------
Premises in "as is" condition, without warranty express or implied.
Notwithstanding the preceding sentence, acceptance of the Premises by Lessee in
its "as is" condition shall not be deemed to alter or otherwise limit Lessor's
obligations set forth in section 11.b. of the Lease.
2. Construction of Tenant Improvements.
-----------------------------------
a. Tenant Improvements. Lessee shall engage the General Contractor
-------------------
identified below to construct in the Premises the improvements shown on the
plans and specifications approved by Lessor and Lessee pursuant to Paragraph 3
below (the "Tenant Improvements").
b. Construction Representatives. Lessor hereby appoints the
----------------------------
following person as Lessor's representative ("Lessor's Representative") to act
for Lessor in all matters covered by this Agreement: Paul Radich, Lessee hereby
-----------
appoints the following person as Lessee's representative ("Lessee's
Representative") to act for Lessee in all matter covered by this Agreement:
Marion Smith. All communications with respect to the matters covered by this
Agreement shall be made to Lessor's Representative or Lessee's Representative,
as the case may be. Either party may change its representative under this
Agreement at any time upon twenty-four (24) hours written notice to the other
party.
3. Construction Plans for Leased Premises.
--------------------------------------
a. Preparation of Space Plans. Lessor hereby approves the use by
--------------------------
Lessee of Don L. Beck & Assoc. ( the "Architect") to be retained by Lessee in
connection with the construction of the Tenant Improvements. Promptly following
the date hereof, Lessee shall cause the Architect to prepare preliminary space
plans for the Premises and layout of the Tenant Improvements therein )the "Space
Plans"). The Space Plans shall be submitted to Lessor for Lessor's approval,
which approval shall not be unreasonably withheld. Within no more than five (5)
business days of receipt of the Space Plans; (i) Lessor shall notify Lessee in
writing of Lessor's approval of the Space Plans, or (ii) if Lessor disapproves
of any portion of the Space Plans, Lessor shall notify Lessee in writing of such
disapproval and the specific reasons therefore. Promptly following Lessor's
response, Lessee shall submit to Lessor, for Lessor's reasonable approval, a re-
design of the Space Plans, incorporating the revisions required by Lessor.
b. Preparation of Final Plans. Based on the approved Space Plans,
--------------------------
Lessee shall cause the Architect, in consultation with Lessor's engineers, if
necessary, to prepare complete architectural plans, drawings and specification
and complete engineering, mechanical, structural, and electrical working
drawings for the Tenant Improvements, as necessary in light of standard industry
practice ("the Final Plans"). The Final Plans shall be approved in the same
manner as provided in Paragraph 3.a, above for approval of the Final Plans.
c. Approvals. Lessee and Lessee's Architect shall be solely
---------
responsible for obtaining required approval of the Final Plans by all
governmental agencies having jurisdiction, including all necessary permits and
any certificates of occupancy (or other required, equivalent approval form the
local governmental authority permitting occupancy of the Premises). Lessor shall
reasonably cooperate with Lessee in obtaining such approvals.
<PAGE>
d. Changes. Lessee shall not make changes to the Space Plans and
-------
Final Plans without the prior written consent of Lessor. In any instance in
which Lessor's approval for a change is requested, Lessor shall not unreasonably
withhold consent to such change and shall respond to a request for approval of
such change as soon as reasonably possible.
4. Construction.
------------
a. General Contractor. The parties hereby approve South Bay Const.
------------------
as the general contractor for construction of the Tenant Improvements (the
"General Contractor"). Lessee shall not appoint a substitute general contractor
without the prior written consent of Lessor.
b. Construction of Tenant Improvements. All Tenant Improvements
-----------------------------------
shall be performed diligently, in a first-class, workmanlike manner and in
accordance with all applicable laws. Prior to commencing such work, Lessee shall
furnish Lessor with sufficient evidence that Lessee and the General Contractor
are carrying worker's compensation insurance in statutorily-required amounts,
comprehensive general liability insurance and all other insurance in compliance
with the Lease. Lessee shall use all reasonable efforts to ensure that the work
performed by the General Contractor and all subcontractors will not compromise
the integrity of any Building systems. Lessor shall have the right to enter the
Premises at all times to inspect the progress of the construction of the Tenant
Improvements and to post notices of non-responsibility. Lessee shall comply with
all Lessor's reasonable safety policies and procedures while performing work at
the Project.
5. Construction Costs.
------------------
a. Tenant Improvements Allowance. Lessor shall provide to Lessee an
-----------------------------
allowance of fifty-four thousand four forty-nine dollars ($54,449.00) such sum
being the equivalent of approximately four dollars ($4.00) per useable square
foot (the "Tenant Improvement Allowance"). The Tenant Improvement Allowance
shall be used to construct the tenant improvements within the Premises in
accordance with the plans and specifications described in Paragraph 3 above.
Said allowance may also be used by Lessee for the cost of applicable
construction permits and the costs of space planning and architectural fees. The
cost of any improvements, permit fees, architectural fees, and related costs
exceeding the Tenant Improvement Allowance shall be paid directly by Lessee.
b. Changes. Lessee shall not authorize changes to the Space Plans
-------
and Final Plans without the prior written consent of Lessor. In any instance in
which Lessor's approval for a change is required, Lessor shall not unreasonably
withhold consent to such change, and shall respond to a request for approval of
such change as soon as reasonably possible.
6. Completion of the Tenant Improvements. Upon completion of the Tenant
-------------------------------------
Improvements, Lessee shall execute and deliver to Lessor a written
acknowledgment that the Tenant Improvements have been accepted and are approved
by Lessee, together with (i) copies of all final conditional lien releases and
conditional waivers of all lien rights from the General Contractor and all
subcontractors, (ii) copies of occupancy permits or similar documentation
evidencing the completion of the improvements within the Premises, and (iii) "as
built" plans depicting the Tenant Improvements. All
-2-
<PAGE>
items of Tenant Improvements constructed within the Premises shall be the
property of Lessor and shall remain on the Premises at all times during the Term
of the Lease, except as otherwise provided in the Lease.
IN WITNESS WHEREOF, the parties have executed this Work Letter intending to
be bound as of the date set forth above.
LESSOR: NORFOLK ATRIUM, A CALIFORNIA LIMITED PARTNERSHIP
BY: NAPA RIVER DEVCO, INC.,
A CALIFORNIA CORPORATION, ITS GENERAL PARTNER
BY: PROM MANAGEMENT GROUP, INC.,
A CALIFORNIA CORPORATION, DBA MAXIM PROPERTY MANAGEMENT
AS AGENT FOR OWNER
By: /s/ Vicki R. Mullins
--------------------------
Typed Name: Vicki R. Mullins
Title: Executive Vice President and Chief Financial Officer
Address:
c/o Maxim Property Management
350 Bridge Parkway
Redwood City, California 94065
LESSEE: INKTOMI CORPORATION,
A CALIFORNIA CORPORATION
By: /s/ Jerry M. Kennelly
----------------------------
Typed Name: Jerry M. Kennelly
Title: Vice President of Finance and Chief Financial Officer
Address:
Inktomi Corporation
1900 South Norfolk Street
Suite 110
San Mateo, California 94430
-3-
<PAGE>
EXHIBIT "D"
RULES AND REGULATIONS
---------------------
1. No sign, placard, picture, advertisement, name or notice shall be
inscribed, displayed or printed or affixed on or to any part of the outside or
inside of the Building without prior written consent of Landlord. Landlord shall
have the right to remove any such sign, placard, picture, advertisement, name or
notice without notice to and at the expense of the tenant.
All approved signs or lettering on doors shall be printed, painted,
affixed or inscribed at the expense of the Tenant by a person approved of by
Landlord.
Tenant shall not place anything or allow anything to be placed near
the glass of any exterior window, door, partition or wall which may unsightly
from outside the Premises. Tenant shall not, without prior written consent of
Landlord cover or otherwise sunscreen any window.
2. The sidewalks, halls, passages, exists, entrances, elevators and
stairways shall not be obstructed by any of the tenants or used by them for any
purpose other than for ingress or egress from their respective Premises.
3. Tenant shall return all keys issued for the Premises. Tenant shall pay
to Landlord the costs of re-keying the Premises if all keys are not returned.
Tenant shall not alter any lock or install any new or additional locks or any
bolts on any doors or windows of the Premises.
4. The common area toilet rooms, urinals, wash bowls and other apparatus
shall not be used for any purpose other than for which they were constructed and
no foreign substance of any kind whatsoever shall be thrown therein and the
expense of any breakage, stoppage or damage resulting from the violation of this
rule shall be borne by the Tenant who, or whose agents, officers, employees,
contractors, servants, invitees or guests shall have caused it.
5. Tenant shall not overload the floor of the Premises or in any way
deface the Premises or any part thereof.
6. No furniture, freight or equipment of any kind shall be brought into
the Building without prior notice to Landlord and all moving of the same into or
out of the Building shall be done at such time and in such manner as Landlord
shall designate. Unless otherwise agreed to in writing by Landlord, any such
movement of furniture, freight, or equipment shall be made during non-business
hours for the Building. Landlord shall have the right to prescribe the weight,
size and position of all safes and other heavy equipment brought into the
Building and also the time and manner of moving the same in and out of the
Building. Safes and other heavy objects shall, if considered necessary by
Landlord, stand on supports of such thickness as is necessary to property
distribute the weight. Landlord will not be responsible for loss of or damage to
any such safe or property from any cause and all damage done to the Building by
moving or maintaining any such safe or other property shall be repaired at the
expense of Tenant.
7. Tenant shall not use, keep or permit to be used or kept, any foul or
noxious gas or substance in the Premises, or permit or suffer the Premises to be
occupied or used in a manner offensive of objectionable to the Landlord or other
occupants of the Building by reason of noise, odors and/or vibrations, or
interfere in any way with other tenants or those having business therin, nor
shall any animals or birds be brought in or kept in or about the Premises or
building.
8. No cooking shall be done or permitted, except with a microwave oven,
or by any tenant on the Premises, nor shall the Premises be used for the storage
of merchandise, or washing clothes, for lodging or for any improper,
objectionable or immoral purpose.
9. Tenant shall not use or keep in the Premises or the Building any
kerosene, gasoline or inflammable or combustible fluid or material, or any
method of heating or air conditioning other than supplied by Landlord.
10. Landlord will direct electricians as to where and how telephone and
telegraph wires are to be introduced. No boring or cutting for the wires will be
allowed without the consent of the Landlord. The location of telephones, call
boxes and other office equipment affixed to the Premises shall be subject to the
approval of Landlord.
-1-
<PAGE>
11. Tenant shall not install any wiring above the ceiling tiles that does
not comply with the fire codes. Any such wiring shall be removed immediately at
the expense of Tenant.
12. On Saturdays, Sundays and legal holidays, and on other days between
the hours of 6:00 p.m. and 7:00 a.m. the following day, access to the Building,
or to the halls, corridors, elevators or stairways in the Building, or to the
Premises may be refused unless the person seeking access is known to the person
or employee of the Building in charge and has a pass or is properly identified.
The Landlord shall in no case be liable for damages for any error with regard to
the admission to or exclusion from the Building of any person. In case of
invasion, mob, riot, public excitement or other commotion, the Landlord reserves
the right to prevent access to the Building during the continuance of the same
by closing the doors or otherwise, for the safety of the tenants and protection
of the Building and of property in the Building.
13. Landlord reserves the right to exclude or expel from the Building any
person who, in the judgment of the Landlord, is intoxicated or under the
influence of liquor of drugs, or who shall in any manner do any act in violation
of any of the rules and regulations of the Building.
14. No vending machine or machines of any description shall be installed,
maintained or operated upon the Premises without the written consent of the
Landlord.
15. Landlord shall have the right, exercisable without notice and without
liability to Tenant, to change the name and street address of the Building of
which the Premises are a part.
16. Tenant shall not disturb, solicit or canvass any occupant of the
Building and shall cooperate to prevent the same.
17. Landlord shall have the right to control and operate the public
portions of the Buildings, and the public facilities, and heating and air
conditioning, as well as facilities furnished for the common use of the tenants,
in such manner as it deems best for the benefit of the tenants generally.
18. All entrance doors in the Premises shall be left locked when the
Premises are not in use, and all doors opening to public corridors shall be kept
closed except for normal ingress or egress from the Premises.
19. Without the written consent of Landlord, Tenant shall not use the name
of the Building in connection with or in promoting or advertising the business
of Tenant except at Tenant's address.
20. Tenant shall place pads under all desk chairs, or have carpet coasters
to protect chairs.
21. Tenant shall not leave corridor doors open.
22. Landlord shall approve in writing the method of attachment of any
objects affixed to walls, ceilings or doors.
23. Tenant shall have the right to use the loading facilities provided at
the Building, if any, in common with the other tenants.
24. All tenant deliveries of bulk items shall be through the Building
loading facilities, if any. Landlord shall have the right at his sole discretion
to prohibit tenants' delivery through the main lobbies.
25. The current business hours are between 7:00 a.m. to 6:00 p.m.
("Business Hours") on weekdays, Monday through Friday, except generally
recognized Building holidays.
-2-
<PAGE>
[FLOOR PLAN OF WORK STATIONS APPEARS HERE]
WORK STATION WAYOUTS
--------------------
DON L. BECK ASSOCIATION
6.20.97
<PAGE>
[FLOOR PLAN OF WORK STATIONS APPEARS HERE]
PICTURE OF
24, WORK STATIONS
12 8x10
10 8x8
2 10x10
<PAGE>
[FLOOR PLAN OF WORK STATIONS APPEARS HERE]
PICTURE OF
25 WORK STATIONS
4 8x10
2 8x12
19 8x8s
<PAGE>
[FLOOR PLAN OF WORK STATIONS APPEARS HERE]
PICTURE OF
24 WORK STATIONS
15 8x8s
9 8x9's +/-
<PAGE>
[FLOOR PLAN OF WORK STATIONS APPEARS HERE]
PICTURE OF
18 WORK STATIONS
12 8x10
6 8x8
<PAGE>
[FLOOR PLAN OF WORK STATIONS APPEARS HERE]
PICTURE OF
23 WORK STATIONS
15 8x10 (1 SLIGHTLY SMALLER)
8 8x8
<PAGE>
[FLOOR PLAN OF WORK STATIONS APPEARS HERE]
PICTURE OF
25 WORK STATIONS
10 8x10s
15 8x8s
<PAGE>
EXHIBIT 10.10
DATED 1997
- --------------------------------------------------------------------------------
TECHNOMIC RESEARCH ASSOCIATES LIMITED
-and-
INKTOMI LIMITED
______________________________________
UNDERLEASE
- of -
PART FIRST FLOOR
RENAISSANCE HOUSE
32 UPPER HIGH STREET
EPSOM
SURREY.
______________________________________
Coley & Tilley
Neville House
Waterloo Street
BIRMINGHAM
B2 5UF,
NP.
<PAGE>
THIS UNDERLEASE made the day of One thousand nine hundred and
- ---------------
ninety seven BETWEEN TECHNOMIC RESEARCH ASSOCIATES LIMITED whose registered
---------------------------------------------
office is at 119/121 High Street Epson Surrey KT19 8DT (hereinafter called "the
Landlord" which expression shall where the context so admits include the person
for the time being entitled to the reversion immediately expectant on the term
hereby created) of the first part INKTOMI LIMITED whose registered office is at
---------------
10 Christchurch Mount Epson Surrey KT19 8LU hereinafter called "the Tenant"
which expression shall include the person or persons for the time being entitled
to the term hereby granted) of the second part and INKTOMI CORPORATION of 1900
-------------------
South Norfolk Street Suite 110 San Mateo CA 94403 United States of America
(hereinafter called "the Guarantor") of the third part
WITNESSETH as follow:-
1. IN this Underlease save where the context otherwise requires the following
words and expressions shall have the following meanings.
(a) "the Headlease" shall mean a Lease dated the Seventeenth day of
December One thousand nine hundred three and made between Fairbriar Homes
Limited of the one part and the Landlord of the other part whereby premises on
the First Floor, of Renaissance House 32 Upper High Street Epson Surrey KT17 4QS
shown for the purposes of identification edged with a red line on the plan
numbered 4 annexed thereto ("the Demised Premises") were demised to the Landlord
(b) "the Superior Landlord" means Fairbriar Homes Limited or its
successors in title from time to time entitled to the reversion immediately
expectant upon determination of the Headlease
(c) "the 1954 Act" means the Landlord & Tenant Act 1954 (as amended up to
the date hereof)
(d) "the 1995 Act" means the Landlord & Tenant Act (Covenants) Act 1995 as
from time to time amended (or any statute reinacting or replacing the relevant
provisions of the same)
1
<PAGE>
2. THE Landlord hereby demises unto the Tenant ALL THAT the demised premises
together with the rights but subject to the exceptions and reservations and
other matters referred to in the Headlease TO HOLD the same unto the Tenant from
the day of One thousand nine hundred and ninety seven for a term expiring
on the 30th October 1999.
YIELDING ANY PAYING therefor unto the Landlord
- -------------------
(1) Yearly and proportionately for any fraction of a year the rents hereunder
set out which shall be exclusive of any Value Added Tax:-
(a) For the period from the date hereof until the Twenty-fourth day of
December One thousand nine hundred and ninety seven the yearly rent of one
peppercorn (if demanded)
(b) For the period from the Twenty-fifth day of December One thousand nine
hundred and ninety seven until the end of the said term the yearly rent of
EIGHTEEN THOUSAND TWO HUNDRED POUNDS (POUNDS 18,200)
- ------------------------------------
AND the said rents shall be paid quarterly in advance on the usual quarter days
- ---
(as defined in the Headlease) in every year without any deduction whatsoever the
first such payment being due on the date hereof and to be apportioned (if
necessary) in respect of the period from the date hereof until the next quarter
day hereafter
(2) By way of additional rent a sum or sums of money equal to the amount which
the Landlord is obliged to pay to the Superior Landlord under the terms of
clauses 3.2 and 3.7 of the Headlease relating to any period after the date of
commencement of the term hereby granted such sum or sums to be paid on demand.
3. EXCEPT as to the provisions contained in the Headlease which are specified
in the First Schedule hereto this Underlease is made upon the same terms and
subject to the same reservations and to the same covenants (including as to
yielding up) on the parts of the Lessor and Lessee respectively and to the same
provisos stipulations and conditions (including the provision or re-entry) as
are expressed and contained or referred to in the Headlease as if the same were
herein set forth at length with such modifications only as are
2
<PAGE>
necessary to make the same applicable to the demised premises and this
Underlease provided that covenants or obligations of the Superior Landlord
contained or referred to in the Headlease shall be read and construed as if the
Landlord covenanted to procure the observance and performance of such covenants
by the Superior Landlord (and references to "the term" shall be construed as
references to the term hereby granted and where applicable shall include the
period of any holding over or any extension or continuance whether by statute or
by common law).
4. THE Tenant hereby covenants with the Landlord as follows:-
(1) To pay the reserved rent at the times and in manner aforesaid
(2) To observe and perform such of the covenants subject to which this
Underlease is made as aforesaid as ought on its part to be observed and
performed
(3) To observe and perform the covenants and obligations specified in the
Second Schedule hereto
5. THE Landlord hereby covenants with Tenant:-
(a) To observe and perform such of the covenants subject to which this demise
is made as aforesaid as ought on its part to be observed and performed and
(b) During the said term to pay the rents reserved by the Headlease
6. PROVIDED ALWAYS and IT IS HEREBY AGREED THAT:-
(1) For the avoidance of doubt any easement right power exception reservation
right of entry or privilege exercisable by the Landlord or by the Landlord in
common with the Tenant shall also be exercisable by the Superior Landlord and
all person authorised by it and in common with all other persons having a like
right and any reference to any consent or approval required from the Landlord
includes the like consent of the Superior Landlord where required under the
terms of the Headlease in accordance with such terms.
(2) In every case where there is provision for repayment to the Landlord by the
Tenant of any expenses incurred by the Landlord then in the event of any
expenses being incurred by the Superior Landlord there shall be deemed to be
included a covenant by the Tenant to repay any expenses incurred by the Superior
Landlord.
(3) Any indemnities in favour of the Landlord which are deemed to be
incorporated herein shall be deemed to incorporate indemnities in favor of the
Superior Landlord.
3
<PAGE>
(4) Having been authorised to do so by an order of the Birmingham County Court
No [___________] made on [____________________] under the 1954 Act section 39(4)
the parties agree that the provisions of the 1954 Act sections 24-28 (inclusive
are excluded from the Lease
7. THE Guarantor in consideration of the demise hereinbefore contained having
- --------
been made at its request hereby covenants with the Landlord that the Tenant
shall pay the rents hereby reserved on the days and in manner aforesaid and
shall duly perform and observe all the covenants hereinbefore on the Tenant's
part contained and that in case of default in such payment of rent or
performance or observance of any of the covenants as aforesaid during the
currency of the said term and also thereafter during such period as the Tenant
remains in occupation of the demised premises the Guarantor will pay and make
good to the Landlord on demand all loss damages costs and expenses thereby
arising or incurred by the Landlord PROVIDED ALWAYS and it is hereby agreed that
---------------
any neglect or forbearance of the Landlord in endeavouring to obtain payment of
the said rents when the same become payable or to enforce performance or
observance of the several stipulations herein on the Tenant's part contained or
any time which may be given by the Landlord to the Tenant shall not release or
exonerate or in any way affect the liability of the Guarantor under this
covenant AND PROVIDED FURTHER and it is hereby further agreed that in the event
--------------------
of this Lease being disclaimed by the Tenant or on behalf of the Tenant under
any statutory or other power or if the Tenant (being a company) is struck off
the register or ceases for any reason to exist the Guarantor will take from the
Landlord but only if so required by the Landlord by written notice to the
Guarantor within three months after such disclaimer or within three months after
the Landlord has received actual notice of such striking off or ceasing to exist
a grant of another Lease of the demised premises for the residue of the said
term unexpired at the date of such disclaimer striking off or ceasing to exist
at the same rents hereinbefore reserved subject to the like covenants conditions
and provisos as are herein contained and at the expense of the Guarantor the
Guarantor on the
4
<PAGE>
execution of such further Lease to execute and deliver to a counterpart thereof
AND PROVIDED FURTHER THAT if the Landlord shall not so require the Guarantor to
- -------------------------
take another lease of the demised premises as aforesaid the Guarantor shall
nevertheless upon demand pay to the Landlord a sum equal to the rent that would
have been payable under this Lease but for the disclaimer striking off or
ceasing to exist until the expiration of three months therefrom or until the
demised premises shall have been relet by the Landlord whichever shall first
occur
THE FIRST SCHEDULE HERETO
PART I
(HEADLEASE PROVISIONS WHICH DO NOT APPLY TO THIS UNDERLEASE)
(1) The term of years granted (part of clause 2.13)
(2) The Rent and further or additional rent reserved (part of Clause 2.13)
(3) The Rent Review provisions (part of clause 2.13)
(4) Alienation (Clause 3.26)
(5) Service Charge provisions (clause 3.2 and the Schedule)
(6) Contribution to communal items (clause 3.7)
(7) The Break Clause (clause 7)
PART II
(HEADLEASE PROVISIONS TO BE VARIED)
(A) Clause 3.9 of the Headlease shall be read as if "In the fifth year and"
were omitted.
(B) Clauses 3.18 shall be read as if there appeared at the end (after the
existing wording) the words "within Class B1 of the Town & Country Planning
(Use Classes) Order 1987".
5
<PAGE>
(C) Clause 3.30 shall be incorporated into this Lease in such a way that the
terms "Lessor" and "Lessee" refer to the Superior Landlord and the Landlord
as respectively defined in this Underlease
THE SECOND SCHEDULE BEFORE REFERRED TO
(TENANT'S FURTHER COVENANTS)
(1) Not to assign transfer underlet or part with or share the possession of the
demised premises or any part thereof or suffer and person deriving title under
the Tenant (whether directly or indirectly) to do any of such things EXCEPT by
way of an assignment of the whole of the demised premises complying with
paragraph (2) of this Schedule or an underletting of the whole of the whole of
the premises complying with paragraph (3) of this Schedule
(2) (a) Not to assign the whole of the demised premises without the licence
in writing of the Landlord which shall not be unreasonably withheld PROVIDED
--------
THAT the parties hereto agree that the specific circumstances in which the
- ----
Landlord may withold such Licence and the specific conditions subject to which
such Licence may be subject as hereinafter set out shall not be regarded as
unreasonable
(b) The Landlord shall be entitled to grant such a Licence subject to
the condition that before the Tenant assigns the term herby granted it shall
enter into an authorised guarantee agreement with the Landlord pursuant to
Section 16 of the 1995 Act under which:-
(i) the Tenant guarantees the performance by the intended assignee of
all the covenants and conditions on the part of the Tenant hereunder to be
performed
(ii) the Tenant is liable to the Landlord as principal debtor
(iii) the Tenant will in the event of this Lease being disclaimed but only
if so required by the Landlord by written notice to it within three months
after such disclaimer take a grant of another Lease of the demised premises
for the residue of the said term unexpired at the date of such disclaimer
at the same rents
6
<PAGE>
hereinbefore reserved subject to the like covenants, conditions and
provisos as are herein contained the Tenant on the execution of such
further Lease to execute and deliver to the Landlord a Counterpart thereof.
(iv) incidental or supplementary provisions made pursuant to Section
16(5)(d) of the 1995 Act
(c) If the proposed Assignee is a limited liability company then the
Landlord may withhold its consent to an Assignment unless (if reasonable so
to require) at least two of its directors shall enter into a deed with the
Landlord as sureties for such Company in order jointly and severally to
covenant with the Landlord as Sureties that such company will pay the said
rents and perform and observe the said covenants and conditions and to
indemnify and save harmless the Landlord against all loss damages costs and
expenses arising by reason of any default by the Company and such covenants
shall further provide that any neglect or forbearance of the Landlord shall
not release or exonerate the Sureties and shall further provide for the
Sureties to accept a new Lease of the demised premises upon disclaimer of
these presents by the Company or on its behalf if so required by the
Landlord within three months of such disclaimer such new Lease to be for
the residue then unexpired of the term hereby granted and as the rents
payable and subject to the same tenants covenants and to the same provisos
and conditions as those in force immediately before such disclaimer and to
be granted at the cost of the Sureties in exchange for a counterpart duly
executed by the Sureties
(3) (a) Not to demise or underlet the whole of the demised premises for all or
any part of the said term without the licence in writing of the Landlord
which shall not be unreasonably withheld PROVIDED however that should the
--------
Tenant desire to demise or underlet as aforesaid the Tenant shall also
before so doing and before giving possession to the intended underlessee
execute and deliver to the Landlord a Deed to be prepared by the Solicitors
of the Landlord at the cost of the Tenant containing a covenant by the
intended underlessee directly with the Landlord to perform and observe
during the term granted to the underlessee of (if earlier) until
7
<PAGE>
the Underlessee is released from his liabilities to the Tenant pursuant to the
provisions of the 1995 Act the covenants (other than the covenant to pay the
rent hereby reserved but including this present covenant) by the Tenant and
conditions contained in the Lease in the same manner as if such covenants and
conditions were repeated in extenso in such deed with the subsitution of the
name of the intended underlessee for the name of the Tenant and with such other
alterations as the deaths of parties or as other circumstances shall render
necessary
(b) On the grant of any permitted underlease to obtain therein and at all times
thereafter to enforce performance and observance of covenants on the part of the
underlessee as follows:
(i) an absolute covenant not to assign demise underlet or otherwise part
with possession of any part of the sub-demised premises (here meaning a
portion only and not the whole thereof) or to share occupation of the whole
or any part thereof for all or any part of the sub-term
(ii) a qualified covenant not to assign demise underlet or otherwise part
with possession of the whole of the sub-demised premises without the
Licence in writing of the Landlord (the grant of which shall be subject to
the same provisions as contained in this clause including a requirement for
the underlessee on any assignment to enter into an authorised guarantee
agreement in favour of the Landlord and the Tenant in like form to that
referred to in sub-clause 2(b) hereof)
(iii) a covenant that the Underlessee will cause to be inserted in every
sub-Lease whether immediate or derivative covenants on the part of the
relevant sub-Underlessee corresponding to the covenants numbered (i) and
(ii) above and that the Underlessee will at all times thereafter enforce
the same
8
<PAGE>
(c) Notwithstanding anything herein contained the Tenant shall not create
or permit the creation of any interest derived out of the term hereby
granted howsoever remote or inferior upon the payment of a fine or premium
or at a rent less than the full market rent (obtainable without taking a
fine or premium) of the demised premises and shall not create or permit the
creation of any such derivative interest as aforesaid save by instrument in
writing containing such absolute prohibition as aforesaid on the part of
the Underlessee and those that may derive title under such Underlessee
(d) That neither the Tenant nor any person deriving title under the Tenant
(including any undertenant whether immediate or not) will (but without
prejudice to the foregoing) underlet the demised premises for a term which
shall extend beyond any date on which the rent hereby reserved is to be
varied as hereinbefore provided unless such underletting shall include
provisions approved by the Landlord (such approval not to be unreasonably
withheld) to the effect that the rent thereby reserved shall be subject to
upwards only review on the dates on which the rent hereby reserved is to be
varied to the intent that the rent reserved on and after any of the dates
on which the rent thereby reserved is to be varied shall not be less than
the full market rent obtainable (without taking a fine or premium or other
valuable consideration) in respect of the demised premises calculated as at
the dates on which the rent thereby reserved is to be varied
IN WITNESS whereof this Deed has been executed by the Landlord and the Tenant
causing their respective Common Seals to be affixed hereto the day and year
first before written
9
<PAGE>
EXECUTED AS A DEED BY )
INKTOMI LIMITED )
ACTING BY )
Director [SIGNATURE ILLEGIBLE]
Secretary [SIGNATURE ILLEGIBLE]
THE COMMON SEAL of )
INKTOMI CORPORATION LIMITED )
was hereunto affixed in the presence of:- )
Director [SIGNATURE ILLEGIBLE]
Secretary
10
<PAGE>
EXHIBIT 21.1
Inktomi Corporation
Subsidiaries
Inktomi Limited, a corporation organized under the laws of the United Kingdom,
doing business under the name "Inktomi Limited."
<PAGE>
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 November 3, 1997, on our audits of the
financial statements of Inktomi Corporation. We also consent to the references
to our firm under the captions "Experts" and "Selected Financial Data."
COOPERS & LYBRAND L.L.P.
San Jose, California
April 15, 1998
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<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> YEAR 6-MOS
<FISCAL-YEAR-END> SEP-30-1997 SEP-30-1998
<PERIOD-START> OCT-01-1996 OCT-01-1997
<PERIOD-END> SEP-30-1997 MAR-31-1998
<CASH> 6,324 17,133
<SECURITIES> 0 0
<RECEIVABLES> 910 1,360
<ALLOWANCES> (81) (174)
<INVENTORY> 0 0
<CURRENT-ASSETS> 20 25
<PP&E> 8,449 9,442
<DEPRECIATION> (1,640) (3,028)
<TOTAL-ASSETS> 14,317 25,294
<CURRENT-LIABILITIES> 5,239 6,842
<BONDS> 0 0
0 0
9,959 12,974
<COMMON> 4,632 4,931
<OTHER-SE> (319) (323)
<TOTAL-LIABILITY-AND-EQUITY> 4,049 13,261
<SALES> 5,785 5,876
<TOTAL-REVENUES> 5,785 5,876
<CGS> 4,273 4,181
<TOTAL-COSTS> 12,739 11,973
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 194 83
<INCOME-PRETAX> (8,660) (7,876)
<INCOME-TAX> (2) (1)
<INCOME-CONTINUING> (8,662) (7,877)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (8,662) (7,877)
<EPS-PRIMARY> (2.96) (1.10)
<EPS-DILUTED> (0.65) (0.30)
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