<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 22, 1998
REGISTRATION NO. 333-50247
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 2
TO
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
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE(2)
- --------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, $0.001 par value........... $36,386,000 $10,744
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) Estimated solely for the purpose of computing the amount of the
registration fee pursuant to Rule 457(o).
(2) Previously paid.
---------------
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 MAY 22, 1998
2,260,000 SHARES
[LOGO OF INKTOMI]
INKTOMI CORPORATION
COMMON STOCK
(PAR VALUE $0.001 PER SHARE)
-----------
Of the 2,260,000 shares of Common Stock offered hereby, 2,000,000 are being
sold by Inktomi Corporation ("Inktomi" or the "Company") and 260,000 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 339,000 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: NTT, Sun, CNET, Digital, Digex, Microsoft, AOL and
Yahoo.
Text:
- ----
"Inktomi develops 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 software
architecture and dataflow technology. 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 TWO
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 heading: "Search Engine Site Partners"
Short descriptions appear in the first column next to each screen graphic
- -------------------------------------------------------------------------
appearing in the second column:
- ------------------------------
"Snap!. CNET's network of Internet sites and television programming provides
authoritative information about computers, the Internet, and future technology.
CNET's search and navigation service, Snap!, provides users with fast access to
desired information on the Internet." [CNET LOGO]
"msn. The Microsoft Network. A comprehensive Internet start site from Microsoft
targeting consumers will be available toward the end of 1998." [MICROSOFT
LOGO]
"goo. The goo search engine, operated by Nippon Telegraph and Telephone, is one
of the most successful web sites in Japan." [GOO LOGO]
"Wired. Wired's HotBot service, recipient of numerous industry awards, provides
search access to over 110 million web pages." [WIRED LOGO]
"Yahoo!. Yahoo! has selected Inktomi as its default World Wide Web search engine
partner."
Second column
Graphics of Snap, msn, goo 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
TWO COLUMNS.
Centered heading: "Traffic Server Product Family"
- -----------------
Caption under centered heading:
- -------------------------------
"Inktomi's Traffic Server is the first 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.,
Knology Holdings, Inc., and Nippon Telegraph and Telephone."
Logos of America Online, Digex, Knology and NTT appear below caption.
Bar chart illustrating Traffic Server scalability.
Heading: "Traffic Server Scalability"
- --------
The three bars on the graph show the number of operations per second that can be
supported by one, four or sixteen nodes as indicated by the following table.
----------------------------------
Nodes Ops/Sec
----------------------------------
One 330
----------------------------------
Four 1,134
----------------------------------
Sixteen 3,488
----------------------------------
Caption to bar graph:
- ---------------------
"In an audited benchmark study jointly conducted by Inktomi and Sun
Microsystems, Inc., 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."
Second column
Heading: "Traffic Server Platform Partners"
- --------
Caption to graphic:
- ------------------
"Inktomi's Traffic Server currently operates on the Sun Solaris operating system
and on the Digital Equipment Corp. UNIX operating system. Inktomi is
collaborating with Intel Corp. to port Traffic Server to Intel-based servers
running on the Windows NT operating system."
Logos of Sun Microsystems and Digital appear below caption.
Graphic of Traffic Server CD, jewel case and user documentation
Caption to graphic appearing above the graphs:
- ---------------------------------------------
"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."
<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 CNET,
Inc., Goto.com, OzEmail, Ltd., Nippon Telegraph and Telephone Corporation,
Southam, Inc., Wired Digital, Inc., 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, N/2/H/2/, Inc., and Yahoo!, 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 Corporation.
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.
Inktomi(TM), Traffic Server(TM), Scaling the Internet(TM), and the Inktomi
logo are trademarks of the Company. This Prospectus also contains trademarks of
other companies. Information contained on the Company's Web site does not
constitute part of this Prospectus.
3
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company...... 2,000,000 shares
Common Stock offered by the Selling
Stockholders............................ 260,000 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. Subsequent to
March 31, 1998, warrants to purchase 1,528 shares of Common Stock have
expired, warrants to purchase 134,616 shares of Common Stock have been
issued, options to purchase 414,322 shares have been exercised, 8,533
shares of Common Stock have been repurchased, and options to purchase 3,334
shares of Common Stock have been granted. 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 14 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
7
<PAGE>
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
8
<PAGE>
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 89 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
9
<PAGE>
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, content
or copying of such materials. Such claims have been threatened against the
Company from time to time, and 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
10
<PAGE>
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. Lycos recently announced that it is the
exclusive licensee of a patent covering a method of crawling information on
the Internet, and that it plans to bring actions against companies that it
believes are infringing this patent in the near future. There can be no
assurance that Lycos or other 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 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. Federal and state
regulatory authorities have recently initiated broad antitrust actions against
Microsoft. The Company is unable to predict whether or to what extent such
antitrust actions may affect its relationship with Microsoft, although such
actions may delay initiation of the services to be provided by the Company to
Microsoft or narrow the scope of Internet sites and applications where
Microsoft may incorporate the Company's Internet search engine services. 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
11
<PAGE>
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 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.
12
<PAGE>
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 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
13
<PAGE>
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 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".
BENEFITS OF THE OFFERING TO EXISTING STOCKHOLDERS
This offering will provide substantial benefits to current stockholders of
the Company. Consummation of this offering is expected to create a public
market for the Common Stock held by current stockholders, including executive
officers and directors of the Company. In addition, several of the Company's
stockholders are selling shares in this offering. Existing stockholders paid
approximately $34 million for an aggregate of approximately 18,531,813 shares
of Common Stock as of March 31, 1998. Based upon an assumed initial public
offering price of $13.00 per share, the value of the shares held by such
existing stockholders would be approximately $241 million. Therefore, the
aggregate unrealized gain to existing stockholders of the Company resulting
from the offering would be approximately $207 million. See "Principal and
Selling Stockholders" and "Shares Eligible for Future Sale".
14
<PAGE>
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),
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 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
15
<PAGE>
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 2,260,000 shares of Common Stock offered
hereby (assuming no exercise of the Underwriters' over-allotment option and
assuming the exercise of options to purchase 43,334 shares of Common Stock by
a Selling Stockholder), as of April 30, 1998, there were 18,719,410 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 April 30,
1998, there were options outstanding to purchase 1,612,332 shares of Common
Stock (of which options for 43,334 shares are expected to be exercised on or
before the closing of this offering), and warrants outstanding to purchase
948,442 shares of Common Stock, 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
13,192,523 Restricted Shares and holders of warrants to purchase 222,124
shares of Common Stock 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 2,912,332 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".
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....................... 19 -- --
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.................... 32,724 33,002 56,479
Other......................................... 587 587 587
Accumulated deficit........................... (20,074) (20,074) (20,074)
-------- -------- --------
Total stockholders' equity.................... 13,261 13,534 37,013
-------- -------- --------
Total capitalization.......................... $ 18,452 $ 18,725 $ 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. Subsequent to March 31, 1998, warrants to purchase 1,528 shares
of Common Stock have expired, warrants to purchase 134,616 shares of
Common Stock have been issued, options to purchase 414,322 shares have
been exercised, 8,533 shares of Common Stock have been repurchased, and
options to purchase 3,334 shares of Common Stock have been granted. 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. Subsequent to
March 31, 1998, warrants to purchase 1,528 shares of Common Stock have
expired, warrants to purchase 134,616 shares of Common Stock have been
issued, options to purchase 414,322 shares have been exercised, 8,533
shares of Common Stock have been repurchased, and options to purchase
3,334 shares of Common Stock have been granted. 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 18,271,813 or
approximately 89.0% (approximately 87.5%, 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 2,260,000 or approximately
11.0% (2,599,000 shares, or approximately 12.5%, 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
26
<PAGE>
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.
The Company has made significant investments in equipment since its
inception. This equipment consists largely of computer servers, workstations
and networking equipment. In 1996, the Company invested $2.2 million in fixed
assets, primarily to establish and expand its Internet search engine service.
The Company spent $5.9 million in 1997 and $0.5 million in the six months
ended March 31, 1998 primarily to further expand its Internet search engine
service capacity. In the six months ended March 31, 1998, the Company sold
$0.9 million of fixed assets to two leasing companies as part of sale-
leaseback transactions.
The Company has raised approximately $32.7 million, net of issuance costs,
from equity sales since its inception through March 31, 1998. In 1996, $4.6
million were raised primarily from sales of preferred stock and warrants for
preferred and common stock. In 1997, $10.9 million was raised primarily from
preferred stock sales and to a lesser extent the exercise of common stock
options and warrants. In the six months ended March 31, 1998, the Company
raised $12.8 million from preferred stock sales, with an additional $4.3
million generated primarily from the exercise of preferred stock warrants.
The Company has used debt to partially finance its operations and capital
purchases. In 1996, $0.5 million of loans were obtained, with $0.3 million
repaid during the same period. In May 1997, the Company obtained a bank line
of credit and used a portion of the $3.7 million proceeds to pay down
27
<PAGE>
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 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. During the fiscal
year ended September 30, 1997 and for the six months ended March 31, 1998,
Microsoft provided loans of $4.0 million and $0.1 million, respectively. 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".
28
<PAGE>
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. CNET, Inc. ("CNET"), Goto.com,
OzEmail Ltd. ("OzEmail"), NTT, Southam, Inc. ("Southam"), Wired 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,
N/2/H/2/, Inc. ("N/2/H/2/") and Yahoo!, Inc. ("Yahoo"). 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 100
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.
29
<PAGE>
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.
30
<PAGE>
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.
31
<PAGE>
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.
32
<PAGE>
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.
33
<PAGE>
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
34
<PAGE>
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 CNET (Snap!), Goto.com
(GoTo), OzEmail (Anzwers), NTT (goo), Southam (canada.com) and UOL (Radar). In
addition, the Company has entered into contracts to provide services based on
its Internet search engine to Microsoft, N/2/H/2/ and Yahoo.
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
35
<PAGE>
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
36
<PAGE>
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
37
<PAGE>
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 14 individuals as
of March 31, 1998, nine 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
38
<PAGE>
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.
39
<PAGE>
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 46 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.
40
<PAGE>
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
41
<PAGE>
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, content
or copying of such materials. Such claims have been threatened against the
Company from time to time, and 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. Lycos recently announced that it is the
exclusive licensee of a patent covering a method of crawling information on
the Internet, and that it plans to bring actions against companies that it
believes are infringing this patent in the near future. There can be no
assurance that Lycos or other 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
42
<PAGE>
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.
EMPLOYEES
As of March 31, 1998, Inktomi had 89 full-time employees, 46 of whom were
engaged in research and development, 25 in sales and marketing, four in
customer support, and 14 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 and leases approximately 2,900 square feet of office space in
Virginia. The UK sublease expires in October 1999 and the Virginia lease
expires in June 2003.
43
<PAGE>
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
44
<PAGE>
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
45
<PAGE>
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. 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.
The Company's Board of Directors currently consists of five members. In
addition, both Intel and Microsoft have observation rights to attend Board
meetings. At each annual meeting of stockholders, the successors to directors
will be elected to serve from the time of election and qualification until the
next 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.
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 will 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 3,197,514 17.3% -- 3,197,514 15.6%
Oak Investment
Partners(3)............
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 50,000 906,871 4.4
941 West Moana Lane
Reno, NV 89509
David C. 856,867 4.5 -- 856,867 4.0
Peterschmidt(8)........
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 *
All directors and 9,821,294 49.6 -- 9,821,294 45.1
executive officers as a
group (11 persons)(14).
United Capital Group 848,294 4.6 100,000 748,294 3.6
L.P. ..................
c/o Mattei Motorsports
LLC
6007 Victory Lane
Harrisburg, NC 28075
Thomas Lamar............ 129,830 * 35,936 93,894 *
100 S. Ellsworth
Avenue, Suite 900
San Mateo, CA 94401
Adam Sah................ 55,468 * 5,000 50,468 *
2224 Grant Street, Apt.
B
Berkeley, CA 94704
Pittiglio Rabin Todd & 43,334 * 43,334 -- --
McGrath(15)............
1503 Grant Road, Suite
200
Mountain View, CA 94040
Templar Corporation..... 18,994 * 17,332 1,662 *
c/o Patriot Advisor,
Inc.
43 Deshon Avenue
Bronxville, NY 10708
Carl Lindell, Jr........ 5,065 * 5,065 -- --
3900 W. Kennedy Blvd.
Tampa, FL 33609
David Bernstein......... 4,459 * 1,333 3,126 *
129 Lauren Circle
Scotts Valley, CA 95066
Christopher R. Hoehn- 4,000 * 2,000 2,000 *
Saric..................
622 Magothy Road, Box
74
Gibson Island, MD 21056
</TABLE>
- -------
* Less than 1%
55
<PAGE>
(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.
(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. Also includes 123,333 shares of Common Stock transferred by
Dr. Brewer and his wife subsequent to March 31,1998 and 66,667 shares of
Common Stock subject to a right of purchase by certain other stockholders
of the Company at the initial price to public set forth on the cover page
of this Prospectus, which right expires 15 days following the date of
this Prospectus.
(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. Also
includes 45,333 shares of Common Stock transferred by Mr. Gauthier
subsequent to March 31, 1998 and 80,000 shares of Common Stock subject to
a right of purchase by certain other stockholders of the Company at the
initial price to public set forth on the cover page of this Prospectus,
which right expires 15 days following the date of this Prospectus.
(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. Also includes 40,000 shares of Common
Stock subject to a right of purchase by certain other stockholders of the
Company at the initial price to public set forth on the cover page of
this Prospectus, which right expires 15 days following the date of this
Prospectus.
(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.
56
<PAGE>
(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. Also includes 168,666 shares of Common Stock transferred
by officers and 3,334 shares of Common Stock acquired by an officer
subsequent to March 31, 1998, and 146,667 shares of Common Stock subject
to a right of purchase by certain other stockholders of the Company at
the initial price to public set forth on the cover page of this
Prospectus, which right expires 15 days following the date of this
Prospectus.
(15) Includes 43,334 shares of Common Stock issuable upon exercise of options.
These options are expected to be exercised prior to the closing of this
offering.
57
<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. Subsequent to March 31, 1998, the Company issued
warrants to purchase 38,462 shares of Common Stock at $12.675 per share and
warrants to purchase 96,154 shares of Common Stock at $25.35 per share. These
warrants expire in June 2002.
58
<PAGE>
REGISTRATION RIGHTS
The holders of 13,192,523 shares of Common Stock and the holders of warrants
to purchase 222,124 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
59
<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
20,979,410 shares of Common Stock (based upon shares outstanding as of April
30, 1998 and assuming the exercise of options to purchase 43,334 shares by a
certain Selling Stockholder), assuming no exercise of the Underwriters' over-
allotment option and no exercise of outstanding options or warrants that do
not expire prior to completion of this offering. Of these shares, the
2,260,000 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 18,719,410 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 14,684,676 Restricted Shares will be eligible for sale in the
public market, all of which are subject to volume limitations under Rule 144,
except 4,265,793 shares. Thereafter, approximately 3,417,312 Restricted Shares
will become eligible for sale between the end of the lock-up period and March
31, 1999 and the remaining 617,422 Restricted
60
<PAGE>
Shares will become eligible for sale one year from the date of this
Prospectus. In addition, as of April 30, 1998, there were outstanding
1,612,332 options (of which options for 43,334 shares are expected to be
exercised on or before the closing of this offering) and 948,442 warrants to
purchase Common Stock. 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 200,000 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 April 30, 1998 and currently
reserved for issuance under the Incentive Stock Plans, such registration
statement would cover approximately 2,912,332 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
13,192,523 Restricted Shares and holders of warrants to purchase 222,124
shares of Common Stock 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.
61
<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.
62
<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, 20,680,000
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....... 4,785,653 4,785 10,161,959 10,166,744
Issuance of Preferred
Stock upon conversion of
note payable............ 80,000 80 199,920 200,000
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.
IMPAIRMENT OF LONG-LIVED ASSETS:
The Company evaluates the recoverability of its long-lived assets in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of. SFAS No. 121 requires recognition of impairment of long-
lived assets in the event the net book value of such assets exceeds the future
undiscounted cash flows attributable to such assets. No such impairments have
been identified to date. The Company assesses the impairment of long-lived
assets when events or changes in circumstances indicate they the carrying
value of an asset may not be recoverable.
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.
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.
(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>
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
technology that was under development in exchange for a promissory note in
the amount of $3,132,759 to the Company which represented in-process
research and development costs with no basis at the date of transfer.
Because the item transferred held no basis, no value was assigned 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 technology under development. 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>
SHARES OF AGGREGATE
COMMON STOCK EXERCISE PRICE EXPIRATION DATES
------------ -------------- -----------------------
<C> <C> <C> <S>
Common Stock.............. 3,334 $ 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.. 21,652 $ 71,999 February 2007
Series D1 Preferred Stock. 42,860 $ 213,771 Upon the closing of an
initial public offering
or April 1998, if
earlier.
Series D1 Preferred Stock. 200,472 $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......................................................... 2,260,000
=========
</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 339,000
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 190,000
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.
BT Alex. Brown Incorporated acted as placement agent in connection with the
Company's Series E Preferred Stock private placement financing in February
1998. In this private placement, certain affiliates of Hambrecht & Quist LLC
purchased an aggregate of 117,647 shares of Series E Preferred Stock of the
Company which are convertible into 78,432 shares of Common Stock on the same
terms as other investors in the private placement, for a total purchase price
of $499,999.75.
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.............................................. 58
Shares Eligible for Future Sale........................................... 60
Additional Information.................................................... 62
Legal Matters............................................................. 62
Experts................................................................... 62
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.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
2,260,000 SHARES
INKTOMI CORPORATION
COMMON STOCK
(PAR VALUE $0.001 PER SHARE)
----------------
[LOGO OF INKTOMI]
----------------
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................................................ $10,744
NASD filing fee..................................................... 4,139
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.............................................. 30,117
-------
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 IX 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) In April 1998, the Registrant issued warrants to purchase 38,462
shares of Common Stock at $12.675 per share and warrants to purchase 96,154
shares of Common Stock at $25.35 per share to a customer in consideration
for publicity activities.
(u) As of April 30, 1998, an aggregate of 2,866,777 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 Amended and Restated Loan and Security Agreement dated as of May 12,
1998 between the Registrant and Silicon Valley Bank.
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.
10.18 Lease dated May 14, 1998 between the Registrant and B.F. Saul Real
Estate Investment Trust.
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>
- --------
** Previously filed.
+ 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 AMENDMENT TO 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 21ST DAY OF MAY, 1998.
Inktomi Corporation
By /s/ David C. Peterschmidt
_________________________________
DAVID C. PETERSCHMIDT,
PRESIDENTAND CHIEF EXECUTIVE
OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
AMENDMENT TO 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 May 21, 1998
- ------------------------------------- Executive Officer
(DAVID C. PETERSCHMIDT) and Director
(Principal
Executive Officer)
/s/ Jerry M. Kennelly Vice President of May 21, 1998
- ------------------------------------- Finance and Chief
(JERRY M. KENNELLY) Financial Officer
(Principal
Financial Officer)
* Director May 21, 1998
- -------------------------------------
(ERIC A. BREWER)
* Director May 21, 1998
- -------------------------------------
(FREDRIC W. HARMAN)
* Director May 21, 1998
- -------------------------------------
(JOHN A. PORTER)
* Director May 21, 1998
- -------------------------------------
(ALAN F. SHUGART)
*Power of Attorney
By: /s/ David C. Peterschmidt
_______________________________
DAVID C. PETERSCHMIDT
II-6
<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 Amended and Restated Loan and Security Agreement dated as of
May 12, 1998 between the Registrant and Silicon Valley Bank.
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.
10.18 Lease dated May 14, 1998 between the Registrant and B.F. Saul
Real Estate Investment Trust.
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>
- --------
** Previously filed.
+ Confidential treatment requested as to a portion of this exhibit.
<PAGE>
EXHIBIT 1.1
INKTOMI CORPORATION
COMMON STOCK
($.001 PAR VALUE)
_______________
UNDERWRITING AGREEMENT
----------------------
_____________, 1998
Goldman, Sachs & Co.,
BT Alex. Brown,
Hambrecht & Quist LLC
As representatives of the several Underwriters
named in Schedule I hereto,
c/o Goldman, Sachs & Co.,
85 Broad Street,
New York, New York 10004
Ladies and Gentlemen:
Inktomi Corporation, a Delaware corporation (the "Company"), proposes,
subject to the terms and conditions stated herein, to issue and sell to the
Underwriters named in Schedule I hereto (the "Underwriters") an aggregate of
2,000,000 shares and, at the election of the Underwriters, up to 339,000
additional shares of Common Stock, $0.001 par value ("Stock") of the Company and
the stockholders of the Company named in Schedule II hereto (the "Selling
Stockholders") propose, subject to the terms and conditions stated herein, to
sell to the Underwriters an aggregate of 260,000 shares. The aggregate of
2,260,000 shares to be sold by the Company and the Selling Stockholders is
herein called the "Firm Shares" and the aggregate of 339,000 additional shares
to be sold by the Company is herein called the "Optional Shares". The Firm
Shares and the Optional Shares that the Underwriters elect to purchase pursuant
to Section 2 hereof are herein collectively called the "Shares."
1. (a) The Company represents and warrants to, and agrees with, each of
the Underwriters that:
(i) A registration statement on Form S-1 (File No. 333-50247) (the
"Initial Registration Statement") in respect of the Shares has been filed
with the Securities and Exchange Commission (the "Commission"); the Initial
Registration Statement and any post-effective amendment thereto, each in
the form heretofore delivered to you for each of the other underwriters,
and excluding exhibits thereto, have been declared effective by the
Commission in such form; other than a registration statement, if any,
increasing the size of the offering (a "Rule 462(b) Registration
Statement"), filed pursuant to Rule 462(b) under the Securities Act of
1933, as amended (the "Act"), which became effective upon filing, no other
document with respect to the Initial Registration
-1-
<PAGE>
Statement has heretofore been filed with the Commission; and no stop order
suspending the effectiveness of the Initial Registration Statement, any
post-effective amendment thereto or the Rule 462(b) Registration Statement,
if any, has been issued and no proceeding for that purpose has been
initiated or threatened by the Commission (any preliminary prospectus
included in the Initial Registration Statement or filed with the Commission
pursuant to Rule 424(a) of the rules and regulations of the Commission
under the Act, is hereinafter called a "Preliminary Prospectus"; the
various parts of the Initial Registration Statement and the Rule 462(b)
Registration Statement, if any, including all exhibits thereto and
including the information contained in the form of final prospectus filed
with the Commission pursuant to Rule 424(b) under the Act in accordance
with Section 5(a) hereof and deemed by virtue of Rule 430A under the Act to
be part of the registration statement at the time it was declared effective
or such part of the Rule 462(b) Registration Statement, if any, became or
hereafter becomes effective, each as amended at the time such part of the
registration statement became effective, are hereinafter collectively
called the "Registration Statement"; and such final prospectus, in the form
first filed pursuant to Rule 424(b) under the Act, is hereinafter called
the "Prospectus").
(ii) No order preventing or suspending the use of any Preliminary
Prospectus has been issued by the Commission, and each Preliminary
Prospectus, at the time of filing thereof, conformed in all material
respects to the requirements of the Act and the rules and regulations of
the Commission thereunder, and did not contain an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided,
however, that this representation and warranty shall not apply to any
statements or omissions made in reliance upon and in conformity with
information furnished in writing to the Company by an Underwriter through
Goldman, Sachs & Co. expressly for use therein or by a Selling Stockholder
expressly for use in the preparation of the answers therein to Items 7 and
11(l) of Form S-1;
(iii) The Registration Statement conforms, and the Prospectus and any
further amendments or supplements to the Registration Statement or the
Prospectus will conform, in all material respects to the requirements of
the Act and the rules and regulations of the Commission thereunder and do
not and will not, as of the applicable effective date as to the
Registration Statement and any amendment thereto and as of the applicable
filing date as to the Prospectus and any amendment or supplement thereto,
contain an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading; provided, however, that this representation and
warranty shall not apply to any statements or omissions made in reliance
upon and in conformity with information furnished in writing to the Company
by an Underwriter through Goldman, Sachs & Co. expressly for use therein or
by a Selling Stockholder expressly for use in the preparation of the
answers therein to Items 7 and 11(l) of Form S-1;
(iv) Neither the Company nor any of its subsidiaries has sustained
since the date of the latest audited financial statements included in the
Prospectus any material loss or interference with its business from fire,
explosion, flood or other calamity, whether or not covered by insurance, or
from any labor dispute or court or governmental action, order or decree,
otherwise than as set forth or contemplated in the Prospectus; and, since
the respective dates as of which information is given in the Registration
Statement and the Prospectus, there has not been any change in the capital
stock or long-term debt of the Company or any of its subsidiaries or any
material adverse change, or any development involving a prospective
material adverse change, in or affecting the general affairs, management,
financial position, stockholders' equity or results of operations of the
Company and its subsidiaries, otherwise than as set forth or contemplated
in the Prospectus;
(v) The Company and its subsidiaries have good and marketable title
in fee simple to
-2-
<PAGE>
all real property and good and marketable title to all personal property
owned by them, in each case free and clear of all liens, encumbrances and
defects except such as are described in the Prospectus or such as do not
materially affect the value of such property and do not interfere with the
use made and proposed to be made of such property by the Company and its
subsidiaries; and any real property and buildings held under lease by the
Company and its subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as are not material and do not
interfere with the use made and proposed to be made of such property and
buildings by the Company and its subsidiaries;
(vi) The Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the State of Delaware,
with power and authority to own its properties and conduct its business as
described in the Prospectus, and has been duly qualified as a foreign
corporation for the transaction of business and is in good standing under
the laws of each other jurisdiction in which it owns or leases properties
or conducts any business so as to require such qualification, or is subject
to no material liability or disability by reason of the failure to be so
qualified in any such jurisdiction; and each subsidiary of the Company has
been duly incorporated and is validly existing as a corporation in good
standing under the laws of its jurisdiction of incorporation;
(vii) The Company has an authorized capitalization as set forth in
the Prospectus, and all of the issued shares of capital stock of the
Company have been duly and validly authorized and issued, are fully paid
and non-assessable and conform to the description of the Stock contained in
the Prospectus; and all of the issued shares of capital stock of each
subsidiary of the Company have been duly and validly authorized and issued,
are fully paid and non-assessable and (except for directors' qualifying
shares) are owned directly or indirectly by the Company, free and clear of
all liens, encumbrances, equities or claims;
(viii) The unissued Shares to be issued and sold by the Company to the
Underwriters hereunder have been duly and validly authorized and, when
issued and delivered against payment therefor as provided herein, will be
duly and validly issued and fully paid and non-assessable and will conform
to the description of the Stock contained in the Prospectus;
(ix) The issue and sale of the Shares to be sold by the Company and
the compliance by the Company with all of the provisions of this Agreement
and the consummation of the transactions herein contemplated will not
conflict with or result in a breach or violation of any of the terms or
provisions of, or constitute a default under, any indenture, mortgage, deed
of trust, loan agreement or other agreement or instrument to which the
Company or any of its subsidiaries is a party or by which the Company or
any of its subsidiaries is bound or to which any of the property or assets
of the Company or any of its subsidiaries is subject, nor will such action
result in any violation of the provisions of the Certificate of
Incorporation or By-laws of the Company or any statute or any order, rule
or regulation of any court or governmental agency or body having
jurisdiction over the Company or any of its subsidiaries or any of their
properties; and no consent, approval, authorization, order, registration or
qualification of or with any such court or governmental agency or body is
required for the issue and sale of the Shares or the consummation by the
Company of the transactions contemplated by this Agreement, except the
registration under the Act of the Shares and such consents, approvals,
authorizations, registrations or qualifications as may be required under
state securities or Blue Sky laws in connection with the purchase and
distribution of the Shares by the Underwriters;
(x) Neither the Company nor any of its subsidiaries is in violation
of its Certificate of Incorporation or By-laws or in default in the
performance or observance of any material obligation, agreement, covenant
or condition contained in any material indenture, mortgage, deed of trust,
loan agreement, lease or other agreement or instrument to which it is a
party or by
-3-
<PAGE>
which it or any of its properties may be bound;
(xi) The statements set forth in the Prospectus under the caption
"Description of Capital Stock", insofar as they purport to constitute a
summary of the terms of the Stock, and under the caption "Underwriting",
insofar as they purport to describe the provisions of the laws and
documents referred to therein, are accurate and complete;
(xii) Other than as set forth in the Prospectus, there are no legal
or governmental proceedings pending to which the Company or any of its
subsidiaries is a party or of which any property of the Company or any of
its subsidiaries is the subject which, if determined adversely to the
Company or any of its subsidiaries, would individually or in the aggregate
have a material adverse effect on the current or future consolidated
financial position, stockholders' equity or results of operations of the
Company and its subsidiaries; and, to the Company's knowledge, no such
proceedings are threatened or contemplated by governmental authorities or
threatened by others;
(xiii) The Company is not and, after giving effect to the offering
and sale of the Shares, will not be an "investment company" or an entity
"controlled" by an "investment company", as such terms are defined in the
Investment Company Act of 1940, as amended (the "Investment Company Act");
(xiv) Neither the Company nor any of its affiliates does business
with the government of Cuba or with any person or affiliate located in Cuba
within the meaning of Section 517.075, Florida Statutes;
(xv) To the Company's knowledge, Coopers & Lybrand , L.L.P., who
have certified certain financial statements of the Company and its
subsidiaries, are independent public accountants as required by the Act and
the rules and regulations of the Commission thereunder;
(xvi) The Company owns, or possesses adequate rights to use, all
material trademarks, service marks, trade names, trademark registrations,
service mark registrations, domain names and copyrights necessary for the
conduct of its business and, except as set forth in the Prospectus, has no
reason to believe that the conduct of its business will conflict with, and
has not received any notice of any claim of conflict with any such rights
or others except as would not have a material adverse effect on the
business, financial condition, results of operations or prospects of the
Company; and, to the Company's knowledge, neither the Company nor any of
its subsidiaries have infringed or are infringing any trademarks, services
marks, trade names, trademark registrations, service mark registrations,
domain names or copyrights, which infringement could reasonably be expected
to result in any material adverse change, or in any development involving a
prospective material adverse change, in or affecting the general affairs,
management, financial position, stockholders' equity or results of
operations of the Company and its subsidiaries;
(xvii) The Company owns, or possesses adequate rights to use, all
material patents necessary for the conduct of its business; to the
Company's knowledge, no valid Unites States patent is or would be infringed
by the activities of the Company, except as would not have a material
adverse effect on the business, financial condition, results of operations
or prospects of the Company; there are no actions, suits or judicial
proceedings pending relating to patents or proprietary information to which
the Company is a party or of which any property of the Company is subject,
and, to the knowledge of the Company, no actions, suits or judicial
proceedings are threatened by governmental authorities or, except as set
forth or incorporated by reference in the Prospectus, others, in each case
except as would not result in any material adverse change, or in any
development involving a prospective material adverse change, in or
affecting the general affairs, management, financial position,
stockholders' equity or results of
-4-
<PAGE>
operations of the Company and its subsidiaries; except as set forth or
incorporated by reference in the Prospectus or as would not result in any
material adverse change, or in any development involving a prospective
material adverse change, in or affecting the general affairs, management,
financial position, stockholders' equity or results of operations of the
Company and its subsidiaries, the Company is not aware of any claim by
others that the Company is infringing or otherwise violating the patents or
other intellectual property of others and is not aware of any rights of
third parties to any of the Company's patent applications, licensed patents
or licenses which could affect materially the use thereof by the Company;
(xviii) The Company carries, or is covered by, insurance as is
customary for companies similarly situated and engaged in similar
businesses in similar industries;
(xix) There are no contracts or other documents which are required
to be described in the Prospectus or to be filed or incorporated by
reference as exhibits to the Initial Registration Statement by the Act or
the Exchange Act which are not so filed or incorporated by reference;
(xx) No labor disturbance by the employees of the Company exists
or, to the knowledge of the Company, is imminent which might be expected to
have a material adverse effect on the business, financial condition,
results of operations or prospects of the Company; and
(xxi) The Company has no material subsidiaries.
(b) Each of the Selling Stockholders severally represents and
warrants to, and agrees with, each of the Underwriters and the Company that:
(i) All consents, approvals, authorizations and orders necessary
for the execution and delivery by such Selling Stockholder of this
Agreement and the Power of Attorney and the Custody Agreement hereinafter
referred to, and for the sale and delivery of the Shares to be sold by such
Selling Stockholder hereunder, have been obtained; and such Selling
Stockholder has full right, power and authority to enter into this
Agreement, the Power-of-Attorney and the Custody Agreement and to sell,
assign, transfer and deliver the Shares to be sold by such Selling
Stockholder hereunder;
(ii) The sale of the Shares to be sold by such Selling Stockholder
hereunder and the compliance by such Selling Stockholder with all of the
provisions of this Agreement, the Power of Attorney and the Custody
Agreement and the consummation of the transactions herein and therein
contemplated will not conflict with or result in a breach or violation of
any of the terms or provisions of, or constitute a default under, any
statute, indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument to which such Selling Stockholder is a party or by
which such Selling Stockholder is bound or to which any of the property or
assets of such Selling Stockholder is subject, nor will such action result
in any violation of the provisions of the Certificate of Incorporation or
By-laws of such Selling Stockholder if such Selling Stockholder is a
corporation, the Partnership Agreement of such Selling Stockholder if such
Selling Stockholder is a partnership or any statute or any order, rule or
regulation of any court or governmental agency or body having jurisdiction
over such Selling Stockholder or the property of such Selling Stockholder;
(iii) Such Selling Stockholder has, and immediately prior to each
Time of Delivery (as defined in Section 4 hereof) such Selling Stockholder
will have, good and valid title to the Shares to be sold by such Selling
Stockholder hereunder, free and clear of all liens, encumbrances, equities
or claims; and, upon delivery of such Shares and payment therefor pursuant
hereto, good and valid title to such Shares, free and clear of all liens,
encumbrances, equities or claims, will pass to the several Underwriters;
-5-
<PAGE>
(iv) During the period beginning from the date hereof and
continuing to and including the date 180 days after the date of the
Prospectus, not to offer, sell contract to sell or otherwise dispose of,
except as provided hereunder, any securities of the Company that are
substantially similar to the Shares, including but not limited to any
securities that are convertible into or exchangeable for, or that represent
the right to receive, 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 this Agreement), without your prior written
consent;
(v) Such Selling Stockholder has not taken and will not take,
directly or indirectly, any action which is designed to or which has
constituted or which might reasonably be expected to cause or result in
stabilization or manipulation of the price of any security of the Company
to facilitate the sale or resale of the Shares;
(vi) To the extent that any statements or omissions made in the
Registration Statement, any Preliminary Prospectus, the Prospectus or any
amendment or supplement thereto are made in reliance upon and in conformity
with written information furnished to the Company by such Selling
Stockholder expressly for use therein, such Preliminary Prospectus and the
Registration Statement did, and the Prospectus and any further amendments
or supplements to the Registration Statement and the Prospectus, when they
become effective or are filed with the Commission, as the case may be, will
conform in all material respects to the requirements of the Act and the
rules and regulations of the Commission thereunder and will not contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein
not misleading;
(vii) In order to document the Underwriters' compliance with the
reporting and withholding provisions of the Tax Equity and Fiscal
Responsibility Act of 1982 with respect to the transactions herein
contemplated, such Selling Stockholder will deliver to you prior to or at
the First Time of Delivery (as hereinafter defined) a properly completed
and executed United States Treasury Department Form W-9 (or other
applicable form or statement specified by Treasury Department regulations
in lieu thereof);
(viii) Certificates in negotiable form representing all of the Shares
to be sold by such Selling Stockholder hereunder have been placed in
custody under a Custody Agreement, in the form heretofore furnished to you
(the "Custody Agreement"), duly executed and delivered by such Selling
Stockholder to Norwest Shareowner Services, as custodian (the "Custodian"),
and such Selling Stockholder has duly executed and delivered a Power of
Attorney, in the form heretofore furnished to you (the "Power of
Attorney"), appointing the persons indicated in Schedule II hereto, and
each of them, as such Selling Stockholder's attorneys-in-fact (the
"Attorneys-in-Fact") with authority to execute and deliver this Agreement
on behalf of such Selling Stockholder, to determine the purchase price to
be paid by the Underwriters to the Selling Stockholders as provided in
Section 2 hereof, to authorize the delivery of the Shares to be sold by
such Selling Stockholder hereunder and otherwise to act on behalf of such
Selling Stockholder in connection with the transactions contemplated by
this Agreement and the Custody Agreement; and
(ix) The Shares represented by the certificates held in custody for
such Selling Stockholder under the Custody Agreement are subject to the
interests of the Underwriters hereunder; the arrangements made by such
Selling Stockholder for such custody, and the appointment by such Selling
Stockholder of the Attorneys-in-Fact by the Power of Attorney, are to that
extent irrevocable; the obligations of the Selling Stockholders hereunder
shall not be terminated by operation of law, whether by the death or
incapacity of any individual Selling Stockholder or, in the case of an
estate or trust, by the death or incapacity of any executor or
-6-
<PAGE>
trustee or the termination of such estate or trust, or in the case of a
partnership or corporation, by the dissolution of such partnership or
corporation, or by the occurrence of any other event; if any individual
Selling Stockholder or any such executor or trustee should die or become
incapacitated, or if any such estate or trust should be terminated, or if
any such partnership or corporation should be dissolved, or if any other
such event should occur, before the delivery of the Shares hereunder,
certificates representing the Shares shall be delivered by or on behalf of
the Selling Stockholders in accordance with the terms and conditions of
this Agreement and of the Custody Agreements; and actions taken by the
Attorneys-in-Fact pursuant to the Powers of Attorney shall be as valid as
if such death, incapacity, termination, dissolution or other event had not
occurred, regardless of whether or not the Custodian, the Attorneys-in-
Fact, or any of them, shall have received notice of such death, incapacity,
termination, dissolution or other event.
2. Subject to the terms and conditions herein set forth, (a) the Company
and each of the Selling Stockholders agree, severally and not jointly, to sell
to each of the Underwriters, and each of the Underwriters agrees, severally and
not jointly, to purchase from the Company and each of the Selling Stockholders,
at a purchase price per share of $.............., the number of Firm Shares (to
be adjusted by you so as to eliminate fractional shares) determined by
multiplying the aggregate number of Shares to be sold by the Company and each of
the Selling Stockholders as set forth opposite their respective names in
Schedule II hereto by a fraction, the numerator of which is the aggregate number
of Firm Shares to be purchased by such Underwriter as set forth opposite the
name of such Underwriter in Schedule I hereto and the denominator of which is
the aggregate number of Firm Shares to be purchased by all of the Underwriters
from the Company and all of the Selling Stockholders hereunder and (b) in the
event and to the extent that the Underwriters shall exercise the election to
purchase Optional Shares as provided below, the Company agrees to sell to each
of the Underwriters, and each of the Underwriters agrees, severally and not
jointly, to purchase from the Company, at the purchase price per share set forth
in clause (a) of this Section 2, that portion of the number of Optional Shares
as to which such election shall have been exercised (to be adjusted by you so as
to eliminate fractional shares) determined by multiplying such number of
Optional Shares by a fraction, the numerator of which is the maximum number of
Optional Shares which such Underwriter is entitled to purchase as set forth
opposite the name of such Underwriter in Schedule I hereto and the denominator
of which is the maximum number of Optional Shares that all of the Underwriters
are entitled to purchase hereunder.
The Company hereby grants to the Underwriters the right to purchase at
their election up to 341,400 Optional Shares, at the purchase price per share
set forth in the paragraph above, for the sole purpose of covering
overallotments in the sale of the Firm Shares. Any such election to purchase
Optional Shares may be exercised only by written notice from you to the Company,
given within a period of 30 calendar days after the date of this Agreement and
setting forth the aggregate number of Optional Shares to be purchased and the
date on which such Optional Shares are to be delivered, as determined by you but
in no event earlier than the First Time of Delivery (as defined in Section 4
hereof) or, unless you and the Company otherwise agree in writing, earlier than
two or later than ten business days after the date of such notice.
As compensation to the Underwriters for their commitments hereunder, the
Company and each of the Selling Stockholders at each Time of Delivery (as
defined in Section 4 hereof) will pay to Goldman, Sachs & Co., for the accounts
of the several Underwriters, an amount equal to $. . . . . . . . per share for
the Shares to be delivered by the Company and the Selling Stockholders hereunder
at such Time of Delivery.
3. Upon the authorization by you of the release of the Firm Shares, the
several Underwriters propose to offer the Firm Shares for sale upon the terms
and conditions set forth in the Prospectus.
4. (a) The Shares to be purchased by each Underwriter hereunder, in
-7-
<PAGE>
definitive form, and in such authorized denominations and registered in such
names as Goldman, Sachs & Co. may request upon at least forty-eight hours' prior
notice to the Company and the Selling Stockholders shall be delivered by or on
behalf of the Company and the Selling Stockholders to Goldman, Sachs & Co., for
the account of such Underwriter, against payment by or on behalf of such
Underwriter of the purchase price therefor by wire transfer, payable to the
order of the Company and the Custodian, as their interests may appear, in
federal (same day) funds. The Company will cause the certificates representing
the Shares to be made available for checking and packaging at least twenty-four
hours prior to the Time of Delivery (as defined below) with respect thereto at
the office of Goldman, Sachs & Co., 85 Broad Street, New York, New York 10004
(the "Designated Office"). The time and date of such delivery and payment shall
be, with respect to the Firm Shares, 9:30 a.m., New York time, on .............,
1998 or such other time and date as Goldman, Sachs & Co., the Company and the
Selling Stockholders may agree upon in writing, and, with respect to the
Optional Shares, 9:30 a.m., New York time, on the date specified by Goldman,
Sachs & Co. in the written notice given by Goldman, Sachs & Co. of the
Underwriters' election to purchase such Optional Shares, or such other time and
date as Goldman, Sachs & Co and the Company may agree upon in writing. Such time
and date for delivery of the Firm Shares is herein called the "First Time of
Delivery", such time and date for delivery of the Optional Shares, if not the
First Time of Delivery, is herein called the "Second Time of Delivery", and each
such time and date for delivery is herein called a "Time of Delivery."
(b) The documents to be delivered at each Time of Delivery by or on behalf
of the parties hereto pursuant to Section 7 hereof, including the cross receipt
for the Shares and any additional documents requested by the Underwriters
pursuant to Section 7(l) hereof, will be delivered at the offices of Wilson,
Sonsini, Goodrich & Rosati, 650 Page Mill Road, Palo Alto, California 94304 (the
"Closing Location"), and the Shares will be delivered at the Designated Office,
all at such Time of Delivery. A meeting will be held at the Closing Location at
.......p.m., New York City time, on the New York Business Day next preceding
such Time of Delivery, at which meeting the final drafts of the documents to be
delivered pursuant to the preceding sentence will be available for review by the
parties hereto. For the purposes of this Section 4, "New York Business Day"
shall mean each Monday, Tuesday, Wednesday, Thursday and Friday which is not a
day on which banking institutions in New York are generally authorized or
obligated by law or executive order to close.
5. The Company agrees with each of the Underwriters:
(a) To prepare the Prospectus in a form approved by you and to file
such Prospectus pursuant to Rule 424(b) under the Act not later than the
Commission's close of business on the second business day following the
execution and delivery of this Agreement, or, if applicable, such earlier
time as may be required by Rule 430A(a)(3) under the Act; to make no
further amendment or any supplement to the Registration Statement or
Prospectus which shall be disapproved by you promptly after reasonable
notice thereof; to advise you, promptly after it receives notice thereof,
of the time when any amendment to the Registration Statement has been filed
or becomes effective or any supplement to the Prospectus or any amended
Prospectus has been filed and to furnish you with copies thereof; to advise
you, promptly after it receives notice thereof, of the issuance by the
Commission of any stop order or of any order preventing or suspending the
use of any Preliminary Prospectus or prospectus, of the suspension of the
qualification of the Shares for offering or sale in any jurisdiction, of
the initiation or threatening of any proceeding for any such purpose, or of
any request by the Commission for the amending or supplementing of the
Registration Statement or Prospectus or for additional information; and, in
the event of the issuance of any stop order or of any order preventing or
suspending the use of any Preliminary Prospectus or prospectus or
suspending any such qualification, promptly to use its best efforts to
obtain the withdrawal of such order;
(b) Promptly from time to time to take such action as you may
reasonably request to qualify the Shares for offering and sale under the
securities laws of such jurisdictions as you may
-8-
<PAGE>
request and to comply with such laws so as to permit the continuance of
sales and dealings therein in such jurisdictions for as long as may be
necessary to complete the distribution of the Shares, provided that in
connection therewith the Company shall not be required to qualify as a
foreign corporation or to file a general consent to service of process in
any jurisdiction;
(c) Prior to 10:00 a.m., New York City time, on the New York Business
Day next succeeding the date of this Agreement and from time to time, to
furnish the Underwriters with copies of the Prospectus in New York City in
such quantities as you may reasonably request, and, if the delivery of a
prospectus is required at any time prior to the expiration of nine months
after the time of issue of the Prospectus in connection with the offering
or sale of the Shares and if at such time any events shall have occurred as
a result of which the Prospectus as then amended or supplemented would
include an untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made when such Prospectus
is delivered, not misleading, or, if for any other reason it shall be
necessary during such period to amend or supplement the Prospectus in order
to comply with the Act, to notify you and upon your request to prepare and
furnish without charge to each Underwriter and to any dealer in securities
as many copies as you may from time to time reasonably request of an
amended Prospectus or a supplement to the Prospectus which will correct
such statement or omission or effect such compliance, and in case any
Underwriter is required to deliver a prospectus in connection with sales of
any of the Shares at any time nine months or more after the time of issue
of the Prospectus, upon your request but at the expense of such
Underwriter, to prepare and deliver to such Underwriter as many copies as
you may request of an amended or supplemented Prospectus complying with
Section 10(a)(3) of the Act;
(d) To make generally available to its securityholders as soon as
practicable, but in any event not later than eighteen months after the
effective date of the Registration Statement (as defined in Rule 158(c)
under the Act), an earnings statement of the Company and its subsidiaries
(which need not be audited) complying with Section 11(a) of the Act and the
rules and regulations of the Commission thereunder (including, at the
option of the Company, Rule 158);
(e) During the period beginning from the date hereof and continuing
to and including the date 180 days after the date of the Prospectus, not to
offer, sell, contract to sell or otherwise dispose of, except as provided
hereunder, any securities of the Company that are substantially similar to
the Shares, including but not limited to any securities that are
convertible into or exchangeable for, or that represent the right to
receive, Stock or any such substantially similar securities (other than (i)
pursuant to employee stock option plans and employee stock purchase plans
existing on, or upon the conversion or exchange of convertible or
exchangeable securities, or the exercise of warrants, outstanding as of,
the date of this Agreement or (ii) pursuant to an acquisition transaction
accounted for under the "pooling of interests" method of accounting,
provided that any person or entity who acquires securities of the Company
in this manner agrees not to offer, sell, contract to sell or otherwise
dispose of such securities for the period of time beginning from the date
of the acquisition of such securities and continuing to and including the
date 180 days after the date of the Prospectus), without your prior written
consent;
(f) To furnish to its stockholders as soon as practicable after the
end of each fiscal year an annual report (including a balance sheet and
statements of income, stockholders' equity and cash flows of the Company
and its consolidated subsidiaries certified by independent public
accountants) and, as soon as practicable after the end of each of the first
three quarters of each fiscal year (beginning with the fiscal quarter
ending after the effective date of the Registration Statement),
consolidated summary financial information of the Company and its
subsidiaries for such quarter in accordance with applicable Commission
regulations;
-9-
<PAGE>
(g) During a period of three years from the effective date of the
Registration Statement, to furnish to you copies of all reports or other
communications (financial or other) furnished to stockholders, and to
deliver to you (i) as soon as they are available, copies of any reports and
financial statements furnished to or filed with the Commission or any
national securities exchange on which any class of securities of the
Company is listed; and (ii) such additional public information concerning
the business and financial condition of the Company as you may from time to
time reasonably request (such financial statements to be on a consolidated
basis to the extent the accounts of the Company and its subsidiaries are
consolidated in reports furnished to its stockholders generally or to the
Commission);
(h) To use the net proceeds received by it from the sale of the
Shares pursuant to this Agreement in the manner specified in the Prospectus
under the caption "Use of Proceeds";
(i) To use its best efforts to list for quotation the Shares on the
National Association of Securities Dealers Automated Quotations National
Market System ("NASDAQ");
(j) If the Company elects to rely upon Rule 462(b), the Company shall
file a Rule 462(b) Registration Statement with the Commission in compliance
with Rule 462(b) by 10:00 p.m. Washington, D.C. time, on the date of this
Agreement, and the Company shall at the time of filing either pay to the
Commission the filing fee for the Rule 462(b) Registration Statement or
give irrevocable instructions for the payment of such fee pursuant to Rule
111(b) under the Act; and
(k) To make such disclosure as may be required by Rule 463 under the
Act.
6. The Company and each of the Selling Stockholders covenant and agree
with one another and with the several Underwriters that (a) the Company will pay
or cause to be paid the following: (i) the fees, disbursements and expenses of
the Company's counsel and accountants in connection with the registration of the
Shares under the Act and all other expenses in connection with the preparation,
printing and filing of the Registration Statement, any Preliminary Prospectus
and the Prospectus and amendments and supplements thereto and the mailing and
delivering of copies thereof to the Underwriters and dealers; (ii) the cost of
printing or producing any Agreement among Underwriters, this Agreement, the Blue
Sky Memorandum, closing documents (including any compilations thereof) and any
other documents in connection with the offering, purchase, sale and delivery of
the Shares; (iii) all expenses in connection with the qualification of the
Shares for offering and sale under state securities laws as provided in Section
5(b) hereof, including the fees and disbursements of counsel for the
Underwriters in connection with such qualification and in connection with the
Blue Sky survey (iv) all fees and expenses in connection with listing the Shares
on NASDAQ; (v) the filing fees incident to, and the fees and disbursements of
counsel for the Underwriters in connection with, securing any required review by
the National Association of Securities Dealers, Inc. of the terms of the sale of
the Shares; (vi) the cost of preparing stock certificates; (vii) the cost and
charges of any transfer agent or registrar; and (viii) all other costs and
expenses incident to the performance of its obligations hereunder which are not
otherwise specifically provided for in this Section; and (b) such Selling
Stockholder will pay or cause to be paid all costs and expenses incident to the
performance of such Selling Stockholder's obligations hereunder which are not
otherwise specifically provided for in this Section, including (i) such Selling
Stockholder's pro rata share of the fees and expenses of the Attorneys-in-Fact
and the Custodian, if any, and (ii) all expenses and taxes incident to the sale
and delivery of the Shares to be sold by such Selling Stockholder to the
Underwriters hereunder. In connection with clause (b) of the preceding
sentence, Goldman, Sachs & Co. agrees to pay New York State stock transfer tax,
and the Selling Stockholder agrees to reimburse Goldman, Sachs & Co. for
associated carrying costs if such tax payment is not rebated on the day of
payment and for any portion of such tax payment not rebated. It is understood,
however, that the Company shall bear, and the Selling Stockholders shall not be
required to pay or to reimburse the Company for, the cost of any other
-10-
<PAGE>
matters not directly relating to the sale and purchase of the Shares pursuant to
this Agreement, and that, except as provided in this Section, and Sections 8 and
11 hereof, the Underwriters will pay all of their own costs and expenses,
including the fees of their counsel, stock transfer taxes on resale of any of
the Shares by them, and any advertising expenses connected with any offers they
may make.
7. The obligations of the Underwriters hereunder, as to the Shares to be
delivered at each Time of Delivery, shall be subject, in their discretion, to
the condition that all representations and warranties and other statements of
the Company and of the Selling Stockholders herein are, at and as of such Time
of Delivery, true and correct, the condition that the Company and the Selling
Stockholders shall have performed all of its and their obligations hereunder
theretofore to be performed, and the following additional conditions:
(a) The Prospectus shall have been filed with the Commission pursuant
to Rule 424(b) within the applicable time period prescribed for such filing
by the rules and regulations under the Act and in accordance with Section
5(a) hereof; if the Company has elected to rely upon Rule 462(b), the Rule
462(b) Registration Statement shall have become effective by 10:00 p.m.,
Washington, D.C. time, on the date of this Agreement; no stop order
suspending the effectiveness of the Registration Statement or any part
thereof shall have been issued and no proceeding for that purpose shall
have been initiated or threatened by the Commission; and all requests for
additional information on the part of the Commission shall have been
complied with to your reasonable satisfaction;
(b) Venture Law Group, A Professional Corporation, counsel for the
Underwriters, shall have furnished to you such opinion or opinions (a draft
of such opinion or opinions is attached as Annex II(a) hereto), dated such
Time of Delivery, with respect to the matters covered in paragraphs (i),
(ii), (vii), (xi) and (xiii) of subsection (c) below as well as such other
related matters as you may reasonably request, and such counsel shall have
received such papers and information as they may reasonably request to
enable them to pass upon such matters;
(c) Wilson Sonsini Goodrich & Rosati, Professional Corporation,
counsel for the Company, shall have furnished to you their written opinion,
dated such Time of Delivery, in form and substance satisfactory to you, to
the effect that:
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of Delaware, with power and authority (corporate and other) to own its
properties and conduct its business as described in the Prospectus;
(ii) The Company has an authorized capitalization as set forth
in the Prospectus, and all of the issued shares of capital stock of
the Company (including the Shares being delivered at such Time of
Delivery) have been duly and validly authorized and issued and are
fully paid and non-assessable; and the Shares conform to the
description of the Stock contained in the Prospectus;
(iii) The Company has been duly qualified as a foreign
corporation for the transaction of business and is in good standing
under the laws of each other jurisdiction in which it owns or leases
properties or conducts any business so as to require such
qualification, except where the failure to be so qualified would not
have a material adverse effect on the Company (such counsel being
entitled to rely in respect of the opinion in this clause upon
opinions of local counsel and in respect of matters of fact upon
certificates of officers of the Company, provided that such counsel
shall state that they believe that both you and they are justified in
relying upon such opinions and certificates);
-11-
<PAGE>
(iv) To such counsel's knowledge and other than as set forth in
the Prospectus, there are no legal or governmental proceedings pending
to which the Company is a party or of which any property of the
Company is the subject which, if determined adversely to the Company,
would individually or in the aggregate have a material adverse effect
on the current or future consolidated financial position,
stockholders' equity or results of operations of the Company; and, to
the best of such counsel's knowledge, no such proceedings are
threatened or contemplated by governmental authorities or threatened
by others;
(v) This Agreement has been duly authorized, executed and
delivered by the Company;
(vi) The issue and sale of the Shares being delivered at such
Time of Delivery and the compliance by the Company with all of the
provisions of this Agreement and the consummation of the transactions
herein contemplated will not conflict with or result in a breach or
violation of any of the terms or provisions of, or constitute a
default under, any agreement included as an exhibit to the
Registration Statement, nor will such action result in any violation
of the provisions of the Certificate of Incorporation or By-laws of
the Company or any statute or any order, rule or regulation known to
such counsel of any court or governmental agency or body having
jurisdiction over the Company or any of its subsidiaries or any of
their properties;
(vii) No consent, approval, authorization, order, registration
or qualification of or with any such court or governmental agency or
body is required for the issue and sale of the Shares or the
consummation by the Company of the transactions contemplated by this
Agreement, except the registration under the Act of the Shares, and
such consents, approvals, authorizations, registrations or
qualifications as may be required under state securities or Blue Sky
laws in connection with the purchase and distribution of the Shares by
the Underwriters;
(viii) To such counsel's knowledge, the Company is not in
violation of its Certificate of Incorporation or By-laws;
(ix) The statements set forth in the Prospectus under the
caption "Description of Capital Stock," insofar as they purport to
constitute a summary of the terms of the Stock, and under the caption
"Underwriting," insofar as they purport to describe the provisions of
the laws and documents referred to therein, are accurate, complete and
fair in all material respects;
(x) The Company is not an "investment company" or an entity
"controlled" by an "investment company", as such terms are defined in
the Investment Company Act, assuming that, pending their uses
identified in the Prospectus, the net proceeds of the offering
contemplated by the Prospectus will be invested in "government
securities" within the meaning of the Investment Company Act; and
(xi) The Registration Statement and the Prospectus and any
further amendments and supplements thereto made by the Company prior
to such Time of Delivery (other than the financial statements and
related schedules and financial data therein, as to which such counsel
need express no opinion) comply as to form in all material respects
with the requirements of the Act and the rules and regulations
thereunder; although they do not assume any responsibility for the
accuracy, completeness or fairness of the statements contained in the
Registration Statement or the Prospectus, except for those referred to
in the opinion in subsection (xi) of this Section 7(c), they have no
reason to believe that, as of its effective date, the Registration
Statement or any further
-12-
<PAGE>
amendment thereto made by the Company prior to such Time of Delivery
(other than the financial statements and related schedules and
financial data therein, as to which such counsel need express no
opinion) contained an untrue statement of a material fact or omitted
to state a material fact required to be stated therein or necessary to
make the statements therein not misleading or that, as of its date,
the Prospectus or any further amendment or supplement thereto made by
the Company prior to such Time of Delivery (other than the financial
statements and related schedules therein, as to which such counsel
need express no opinion) contained an untrue statement of a material
fact or omitted to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they
were made, not misleading or that, as of such Time of Delivery, either
the Registration Statement or the Prospectus or any further amendment
or supplement thereto made by the Company prior to such Time of
Delivery (other than the financial statements and related schedules
and financial data therein, as to which such counsel need express no
opinion) contains an untrue statement of a material fact or omits to
state a material fact necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading;
and they do not know of any amendment to the Registration Statement
required to be filed or of any contracts or other documents of a
character required to be filed as an exhibit to the Registration
Statement or required to be described in the Registration Statement or
the Prospectus which are not filed or described as required.
(d) Wilson Sonsini Goodrich & Rosati, Professional Corporation, shall
have furnished to you their written opinion with respect to each of the
Selling Stockholders, dated such Time of Delivery, in form and substance
satisfactory to you, to the effect that:
(i) A Power-of-Attorney and a Custody Agreement have been duly
executed and delivered by such Selling Stockholder and constitute
valid and binding agreements of such Selling Stockholder enforceable
in accordance with their terms;
(ii) This Agreement has been duly executed and delivered by or
on behalf of such Selling Stockholder; and the sale of the Shares to
be sold by such Selling Stockholder hereunder and the compliance by
such Selling Stockholder with all of the provisions of this Agreement,
the Power-of-Attorney and the Custody Agreement and the consummation
of the transactions herein and therein contemplated will not conflict
with or result in a breach or violation of any terms or provisions of,
or constitute a default under, any statute, indenture, mortgage, deed
of trust, loan agreement or other agreement or instrument known to
such counsel to which such Selling Stockholder is a party or by which
such Selling Stockholder is bound or to which any of the property or
assets of such Selling Stockholder is subject, nor will such action
result in any violation of the provisions of the Certificate of
Incorporation or By-laws of such Selling Stockholder if such Selling
Stockholder is a corporation, the Partnership Agreement of such
Selling Stockholder if such Selling Stockholder is a partnership or
any order, rule or regulation known to such counsel of any court or
governmental agency or body having jurisdiction over such Selling
Stockholder or the property of such Selling Stockholder;
(iii) To such counsel's knowledge, no consent, approval,
authorization or order of any court or governmental agency or body is
required for the consummation of the transactions contemplated by this
Agreement in connection with the Shares to be sold by such Selling
Stockholder hereunder, except [NAME ANY SUCH CONSENT, APPROVAL,
AUTHORIZATION OR ORDER] which [HAS] [HAVE] been duly obtained and [IS]
[ARE] in full force and effect, such as have been obtained under the
Act and such as may be required under state securities or Blue Sky
laws in connection with the purchase and distribution of such Shares
by the Underwriters;
-13-
<PAGE>
(iv) Immediately prior to such Time of Delivery, such Selling
Stockholder had good and valid title to the Shares to be sold at such
Time of Delivery by such Selling Stockholder under this Agreement,
free and clear of all liens, encumbrances, equities or claims, and
full right, power and authority to sell, assign, transfer and deliver
the Shares to be sold by such Selling Stockholder hereunder; and
(v) Good and valid title to such Shares, free and clear of all
liens, encumbrances, equities or claims, has been transferred to each
of the several Underwriters who have purchased such Shares in good
faith and without notice of any such lien, encumbrance, equity or
claim or any other adverse claim within the meaning of the Uniform
Commercial Code.
In rendering the opinion in paragraph (iv), such counsel may rely upon a
certificate of such Selling Stockholder in respect of matters of fact as to
ownership of, and liens, encumbrances, equities or claims on, the Shares sold by
such Selling Stockholder, provided that such counsel shall state that they
believe that both you and they are justified in relying upon such certificate;
(e) On the date of the Prospectus at a time prior to the execution
of this Agreement, at 9:30 a.m., New York City time, on the effective date
of any post-effective amendment to the Registration Statement filed
subsequent to the date of this Agreement and also at each Time of Delivery,
Coopers & Lybrand, L.L.P. shall have furnished to you a letter or letters,
dated the respective dates of delivery thereof, in form and substance
satisfactory to you, to the effect set forth in Annex I hereto (the
executed copy of the letter delivered prior to the execution of this
Agreement is attached as Annex I(a) hereto and a draft of the form of
letter to be delivered on the effective date of any post-effective
amendment to the Registration Statement and as of each Time of Delivery is
attached as Annex I(b) hereto);
(f)(i) Neither the Company nor any of its subsidiaries shall have
sustained since the date of the latest audited financial statements
included in the Prospectus any loss or interference with its business from
fire, explosion, flood or other calamity, whether or not covered by
insurance, or from any labor dispute or court or governmental action, order
or decree, otherwise than as set forth or contemplated in the Prospectus,
and (ii) since the respective dates as of which information is given in the
Prospectus there shall not have been any change in the capital stock or
long-term debt of the Company or any of its subsidiaries (except for
changes occurring as a result of the exercise of previously granted stock
options) or any change, or any development involving a prospective change,
in or affecting the general affairs, management, financial position,
stockholders' equity or results of operations of the Company and its
subsidiaries, otherwise than as set forth or contemplated in the
Prospectus, the effect of which, in any such case described in Clause (i)
or (ii), is in the judgment of the Representatives so material and adverse
as to make it impracticable or inadvisable to proceed with the public
offering or the delivery of the Shares being delivered at such Time of
Delivery on the terms and in the manner contemplated in the Prospectus;
(g) On or after the date hereof there shall not have occurred any
of the following: (i) a suspension or material limitation in trading in
securities generally on the New York Stock Exchange or on NASDAQ; (ii) a
suspension or material limitation in trading in the Company's securities on
NASDAQ; (iii) a general moratorium on commercial banking activities
declared by either Federal or New York State authorities; or (iv) the
outbreak or escalation of hostilities involving the United States or the
declaration by the United States of a national emergency or war, if the
effect of any such event specified in this Clause (iv) in the judgment of
the Representatives makes it impracticable or inadvisable to proceed with
the public offering or the delivery of the Shares being delivered at such
Time of Delivery on the terms and in the manner contemplated in the
Prospectus;
-14-
<PAGE>
(h) The Shares at such Time of Delivery shall have been duly
listed, subject to notice of issuance, for quotation on NASDAQ;
(i) The Company shall have obtained and delivered to the
Underwriters executed copies of an agreement from each officer, director,
stockholder and optionholder of the Company (except for those officers,
directors, stockholders or optionholders of the Company set forth on
Schedule III hereto and agreed to by you), substantially to the effect set
forth in Subsection 1(b)(iv) hereof in form and substance satisfactory to
you;
(j) The Company shall have complied with the provisions of Section
5(c) hereof with respect to the furnishing of prospectuses on the New York
Business Day next succeeding the date of this Agreement; and
(k) The Company and the Selling Stockholders shall have furnished
or caused to be furnished to you at such Time of Delivery certificates of
officers of the Company and of the Selling Stockholders, respectively,
satisfactory to you as to the accuracy of the representations and
warranties of the Company and the Selling Stockholders, respectively,
herein at and as of such Time of Delivery, as to the performance by the
Company and the Selling Stockholders of all of their respective obligations
hereunder to be performed at or prior to such Time of Delivery, and as to
such other matters as you may reasonably request, and the Company shall
have furnished or caused to be furnished certificates as to the matters set
forth in subsections (a) and (f) of this Section.
8. (a) The Company will indemnify and hold harmless each Underwriter
against any losses, claims, damages or liabilities, joint or several, to which
such Underwriter may become subject, under the Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon an untrue statement or alleged untrue statement of a
material fact contained in any Preliminary Prospectus, the Registration
Statement or the Prospectus, or any amendment or supplement thereto, or arise
out of or are based upon 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, and will reimburse each Underwriter for any legal or
other expenses reasonably incurred by such Underwriter in connection with
investigating or defending any such action or claim as such expenses are
incurred; provided, however, that the Company shall not be liable in any such
case to the extent that any such loss, claim, damage or liability arises out of
or is based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in any Preliminary Prospectus, the Registration Statement
or the Prospectus or any such amendment or supplement in reliance upon and in
conformity with written information furnished to the Company by any Underwriter
through Goldman, Sachs & Co. expressly for use therein.
(b) Each of the Selling Stockholders will indemnify and hold harmless
each Underwriter against any losses, claims, damages or liabilities, severally
and not jointly, to which such Underwriter may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon an untrue statement or alleged
untrue statement of a material fact contained in any Preliminary Prospectus, the
Registration Statement or the Prospectus, or any amendment or supplement
thereto, or arise out of or are based upon 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, in each case to the extent, but only to
the extent, that such untrue statement or alleged untrue statement or omission
or alleged omission was made in any Preliminary Prospectus, the Registration
Statement or the Prospectus or any such amendment or supplement in reliance upon
and in conformity with written information furnished to the Company by such
Selling Stockholder expressly for use therein; and will reimburse each
Underwriter for any legal or other expenses reasonably incurred by such
Underwriter in connection with investigating or defending any such action or
claim as such expenses are incurred; provided, however, that such Selling
Stockholder
-15-
<PAGE>
shall not be liable in any such case to the extent that any such loss, claim,
damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in any Preliminary
Prospectus, the Registration Statement or the Prospectus or any such amendment
or supplement in reliance upon and in conformity with written information
furnished to the Company by any Underwriter through Goldman, Sachs & Co.
expressly for use therein.
(c) Each Underwriter will indemnify and hold harmless the Company and
each Selling Stockholder against any losses, claims, damages or liabilities to
which the Company or such Selling Stockholder may become subject, under the Act
or otherwise, insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon an untrue statement or
alleged untrue statement of a material fact contained in any Preliminary
Prospectus, the Registration Statement or the Prospectus, or any amendment or
supplement thereto, or arise out of or are based upon 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, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in any Preliminary
Prospectus, the Registration Statement or the Prospectus or any such amendment
or supplement in reliance upon and in conformity with written information
furnished to the Company by such Underwriter through Goldman, Sachs & Co.
expressly for use therein; and will reimburse the Company and each Selling
Stockholder for any legal or other expenses reasonably incurred by the Company
or such Selling Stockholder in connection with investigating or defending any
such action or claim as such expenses are incurred.
(d) Promptly after receipt by an indemnified party under subsection
(a) or (b) above of notice of the commencement of any action, such indemnified
party shall, if a claim in respect thereof is to be made against the
indemnifying party under such subsection, notify the indemnifying party in
writing of the commencement thereof; but the omission so to notify the
indemnifying party shall not relieve it from any liability which it may have to
any indemnified party otherwise than under such subsection. In case any such
action shall be brought against any indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate therein and, to the extent that it shall wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, with counsel satisfactory to such indemnified party (who shall not,
except with the consent of the indemnified party, be counsel to the indemnifying
party), and, after notice from the indemnifying party to such indemnified party
of its election so to assume the defense thereof, the indemnifying party shall
not be liable to such indemnified party under such subsection for any legal
expenses of other counsel or any other expenses, in each case subsequently
incurred by such indemnified party, in connection with the defense thereof other
than reasonable costs of investigation. No indemnifying party shall, without the
written consent of the indemnified party, effect the settlement or compromise
of, or consent to the entry of any judgment with respect to, any pending or
threatened action or claim in respect of which indemnification or contribution
may be sought hereunder (whether or not the indemnified party is an actual or
potential party to such action or claim) unless such settlement, compromise or
judgment (i) includes an unconditional release of the indemnified party from all
liability arising out of such action or claim and (ii) does not include a
statement as to or an admission of fault, culpability or a failure to act, by or
on behalf of any indemnified party.
(e) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions in respect thereof) referred to therein, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or liabilities (or
actions in respect thereof) in such proportion as is appropriate to reflect the
relative benefits received by the Company and the Selling Stockholders on the
one hand and the Underwriters on the other from the offering of the Shares. If,
however, the allocation provided by the immediately preceding sentence is not
permitted by applicable law or if the indemnified party failed to
-16-
<PAGE>
give the notice required under subsection (c) above, then each indemnifying
party shall contribute to such amount paid or payable by such indemnified party
in such proportion as is appropriate to reflect not only such relative benefits
but also the relative fault of the Company and the Selling Stockholders on the
one hand and the Underwriters on the other in connection with the statements or
omissions which resulted in such losses, claims, damages or liabilities (or
actions in respect thereof), as well as any other relevant equitable
considerations. The relative benefits received by the Company and the Selling
Stockholders on the one hand and the Underwriters on the other shall be deemed
to be in the same proportion as the total net proceeds from the offering (before
deducting expenses) received by the Company and the Selling Stockholders bear to
the total underwriting discounts and commissions received by the Underwriters,
in each case as set forth in the table on the cover page of the Prospectus. The
relative fault shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by the
Company or the Selling Stockholders on the one hand or the Underwriters on the
other and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The Company, each
of the Selling Stockholders and the Underwriters agree that it would not be just
and equitable if contributions pursuant to this subsection (d) were determined
by pro rata allocation (even if the Underwriters were treated as one entity for
such purpose) or by any other method of allocation which does not take account
of the equitable considerations referred to above in this subsection (d). The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages or liabilities (or actions in respect thereof) referred to above
in this subsection (d) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
subsection (d), no Underwriter shall be required to contribute any amount in
excess of the amount by which the total price at which the Shares underwritten
by it and distributed to the public were offered to the public exceeds the
amount of any damages which such Underwriter has otherwise been required to pay
by reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. The Underwriters'
obligations in this subsection (d) to contribute are several in proportion to
their respective underwriting obligations and not joint.
(f) The obligations of the Company and the Selling Stockholders under
this Section 8 shall be in addition to any liability which the Company and the
respective Selling Stockholders may otherwise have and shall extend, upon the
same terms and conditions, to each person, if any, who controls any Underwriter
within the meaning of the Act; and the obligations of the Underwriters under
this Section 8 shall be in addition to any liability which the respective
Underwriters may otherwise have and shall extend, upon the same terms and
conditions, to each officer and director of the Company (including any person
who, with his or her consent, is named in the Registration Statement as about to
become a director of the Company) and to each person, if any, who controls the
Company or any Selling Stockholder within the meaning of the Act.
9. (a) If any Underwriter shall default in its obligation to purchase
the Shares which it has agreed to purchase hereunder at a Time of Delivery, you
may in your discretion arrange for you or another party or other parties to
purchase such Shares on the terms contained herein. If within thirty-six hours
after such default by any Underwriter you do not arrange for the purchase of
such Shares, then the Company and the Selling Stockholders shall be entitled to
a further period of thirty-six hours within which to procure another party or
other parties satisfactory to you to purchase such Shares on such terms. In the
event that, within the respective prescribed periods, you notify the Company and
the Selling Stockholders that you have so arranged for the purchase of such
Shares, or the Company and the Selling Stockholders notify you that they have so
arranged for the purchase of such Shares, you or the Company and the Selling
Stockholders shall have the right to postpone a Time of Delivery for a period of
not more than seven days, in order to effect whatever changes may thereby be
made
-17-
<PAGE>
necessary in the Registration Statement or the Prospectus, or in any other
documents or arrangements, and the Company agrees to file promptly any
amendments to the Registration Statement or the Prospectus which in your opinion
may thereby be made necessary. The term "Underwriter" as used in this Agreement
shall include any person substituted under this Section with like effect as if
such person had originally been a party to this Agreement with respect to such
Shares.
(b) If, after giving effect to any arrangements for the purchase of
the Shares of a defaulting Underwriter or Underwriters by you and the Company
and the Selling Stockholders as provided in subsection (a) above, the aggregate
number of such Shares which remains unpurchased does not exceed one-eleventh of
the aggregate number of all the Shares to be purchased at such Time of Delivery,
then the Company and the Selling Stockholders shall have the right to require
each non-defaulting Underwriter to purchase the number of Shares which such
Underwriter agreed to purchase hereunder at such Time of Delivery and, in
addition, to require each non-defaulting Underwriter to purchase its pro rata
share (based on the number of Shares which such Underwriter agreed to purchase
hereunder) of the Shares of such defaulting Underwriter or Underwriters for
which such arrangements have not been made; but nothing herein shall relieve a
defaulting Underwriter from liability for its default.
(c) If, after giving effect to any arrangements for the purchase of
the Shares of a defaulting Underwriter or Underwriters by you and the Company
and the Selling Stockholders as provided in subsection (a) above, the aggregate
number of such Shares which remains unpurchased exceeds one-eleventh of the
aggregate number of all of the Shares to be purchased at such Time of Delivery,
or if the Company and the Selling Stockholders shall not exercise the right
described in subsection (b) above to require non-defaulting Underwriters to
purchase Shares of a defaulting Underwriter or Underwriters, then this Agreement
(or, with respect to the Second Time of Delivery, the obligations of the
Underwriters to purchase and of the Company and the Selling Stockholders to sell
the Optional Shares) shall thereupon terminate, without liability on the part of
any non-defaulting Underwriter or the Company or the Selling Stockholders,
except for the expenses to be borne by the Company and the Selling Stockholders
and the Underwriters as provided in Section 6 hereof and the indemnity and
contribution agreements in Section 8 hereof; but nothing herein shall relieve a
defaulting Underwriter from liability for its default.
10. The respective indemnities, agreements, representations, warranties
and other statements of the Company, the Selling Stockholders and the several
Underwriters, as set forth in this Agreement or made by or on behalf of them,
respectively, pursuant to this Agreement, shall remain in full force and effect,
regardless of any investigation (or any statement as to the results thereof)
made by or on behalf of any Underwriter or any controlling person of any
Underwriter, or the Company, or any of the Selling Stockholders, or any officer
or director or controlling person of the Company, or any controlling person of
any Selling Stockholder, and shall survive delivery of and payment for the
Shares.
11. If this Agreement shall be terminated pursuant to Section 9 hereof,
neither the Company nor the Selling Stockholders shall then be under any
liability to any Underwriter except as provided in Sections 6 and 8 hereof; but,
if for any other reason any Shares are not delivered by or on behalf of the
Company and the Selling Stockholders as provided herein, the Company will
reimburse the Underwriters through you for all out-of-pocket expenses approved
in writing by you, including fees and disbursements of counsel, reasonably
incurred by the Underwriters in making preparations for the purchase, sale and
delivery of the Shares not so delivered, but the Company and the Selling
Stockholders shall then be under no further liability to any Underwriter in
respect of the Shares not so delivered except as provided in Sections 6 and 8
hereof.
12. In all dealings hereunder, you shall act on behalf of each of the
Underwriters, and the parties hereto shall be entitled to act and rely upon any
statement, request, notice or agreement on behalf of any Underwriter made or
given by you jointly or by Goldman, Sachs & Co. on behalf of you as
-18-
<PAGE>
the representatives; and in all dealings with any Selling Stockholder hereunder,
you and the Company shall be entitled to act and rely upon any statement,
request, notice or agreement on behalf of such Selling Stockholder made or given
by any or all of the Attorneys-in-Fact for such Selling Stockholder.
All statements, requests, notices and agreements hereunder shall be in
writing, and if to the Underwriters shall be delivered or sent by mail, telex or
facsimile transmission to you as the representatives in care of Goldman, Sachs &
Co., 85 Broad Street, New York, New York 10004, Attention: Registration
Department; if to any Selling Stockholder shall be delivered or sent by mail,
telex or facsimile transmission to counsel for such Selling Stockholder at its
address set forth in Schedule II hereto; and if to the Company shall be
delivered or sent by mail, telex or facsimile transmission to the address of the
Company set forth in the Registration Statement, Attention: Secretary; provided,
however, that any notice to an Underwriter pursuant to Section 8(c) hereof shall
be delivered or sent by mail, telex or facsimile transmission to such
Underwriter at its address set forth in its Underwriters' Questionnaire or telex
constituting such Questionnaire, which address will be supplied to the Company
or the Selling Stockholders by you on request. Any such statements, requests,
notices or agreements shall take effect upon receipt thereof.
13. This Agreement shall be binding upon, and inure solely to the benefit
of, the Underwriters, the Company and the Selling Stockholders and, to the
extent provided in Sections 8 and 10 hereof, the officers and directors of the
Company and each person who controls the Company, any Selling Stockholder or any
Underwriter, and their respective heirs, executors, administrators, successors
and assigns, and no other person shall acquire or have any right under or by
virtue of this Agreement. No purchaser of any of the Shares from any
Underwriter shall be deemed a successor or assign by reason merely of such
purchase.
14. Time shall be of the essence of this Agreement. As used herein, the
term "business day" shall mean any day when the Commission's office in
Washington, D.C. is open for business.
15. This Agreement shall be governed by and construed in accordance with
the laws of the State of New York.
16. This Agreement may be executed by any one or more of the parties
hereto in any number of counterparts, each of which shall be deemed to be an
original, but all such counterparts shall together constitute one and the same
instrument.
If the foregoing is in accordance with your understanding, please sign and
return to us one for the Company and each of the Representatives plus one for
each counsel and the Custodian, if any counterparts hereof, and upon the
acceptance hereof by you, on behalf of each of the Underwriters, this letter and
such acceptance hereof shall constitute a binding agreement among each of the
Underwriters, the Company and each of the Selling Stockholders. It is
understood that your acceptance of this letter on behalf of each of the
Underwriters is pursuant to the authority set forth in a form of Agreement among
Underwriters, the form of which shall be submitted to the Company and the
Selling Stockholders for examination, upon request, but without warranty on your
part as to the authority of the signers thereof.
-19-
<PAGE>
Any person executing and delivering this Agreement as Attorney-in-Fact for
a Selling Stockholder represents by so doing that he has been duly appointed as
Attorney-in-Fact by such Selling Stockholder pursuant to a validly existing and
binding Power-of-Attorney which authorizes such Attorney-in-Fact to take such
action.
Very truly yours,
Inktomi Corporation
By:____________________________
Name:
Title:
[NAMES OF SELLING STOCKHOLDERS]
By:____________________________
Name:
Title:
As Attorney-in-Fact acting on behalf of
each of the Selling Stockholders named
in Schedule II to this Agreement.
Accepted as of the date hereof at ____,
_________________________:
Goldman, Sachs & Co.
BT Alex. Brown
Hambrecht & Quist LLC
By:_________________________________________
(Goldman, Sachs & Co.)
On behalf of each of the Underwriters
-20-
<PAGE>
SCHEDULE I
<TABLE>
<CAPTION>
NUMBER OF OPTIONAL
SHARES TO BE
TOTAL NUMBER OF PURCHASED IF
FIRM SHARES MAXIMUM OPTION
UNDERWRITER TO BE PURCHASED EXERCISED
----------- --------------- ---------
<S> <C> <C>
Goldman, Sachs & Co.....................
BT Alex. Brown..........................
Hambrecht & Quist LLC...................
Total......................... 2,260,000 339,000
</TABLE>
-21-
<PAGE>
SCHEDULE II
<TABLE>
<CAPTION>
NUMBER OF OPTIONAL
SHARES TO BE
TOTAL NUMBER OF SOLD IF
FIRM SHARES MAXIMUM OPTION
TO BE SOLD EXERCISED
------------------ -----------------------
<S> <C> <C>
The Company...........................................
The Selling Stockholder(s):.......................
[NAME OF SELLING STOCKHOLDER]..............
[NAME OF SELLING STOCKHOLDER]..............
[NAME OF SELLING STOCKHOLDER]..............
[NAME OF SELLING STOCKHOLDER]..............
[NAME OF SELLING STOCKHOLDER]..............
Total.............................................
</TABLE>
.........
-22-
<PAGE>
ANNEX I
Pursuant to Section 7(e) of the Underwriting Agreement, the accountants
shall furnish letters to the Underwriters to the effect that:
(i) They are independent certified public accountants with respect
to the Company and its subsidiaries within the meaning of the Act and the
applicable published rules and regulations thereunder;
(ii) In their opinion, the financial statements and any supplementary
financial information and schedules (and, if applicable, financial
forecasts and/or pro forma financial information) examined by them and
included in the Prospectus or the Registration Statement comply as to form
in all material respects with the applicable accounting requirements of the
Act and the related published rules and regulations thereunder; and, if
applicable, they have made a review in accordance with standards
established by the American Institute of Certified Public Accountants of
the unaudited consolidated interim financial statements, selected financial
data, pro forma financial information, financial forecasts and/or condensed
financial statements derived from audited financial statements of the
Company for the periods specified in such letter, as indicated in their
reports thereon, copies of which have been furnished to the representatives
of the Underwriters (the "Representatives");
(iii) They have made a review in accordance with standards established
by the American Institute of Certified Public Accountants of the unaudited
condensed consolidated statements of income, consolidated balance sheets
and consolidated statements of cash flows included in the Prospectus as
indicated in their reports thereon, copies of which have been furnished to
the Representatives, and on the basis of specified procedures including
inquiries of officials of the Company who have responsibility for financial
and accounting matters regarding whether the unaudited condensed
consolidated financial statements referred to in paragraph (vi)(A)(i) below
comply as to form in all material respects with the applicable accounting
requirements of the Act and the related published rules and regulations,
nothing came to their attention that caused them to believe that the
unaudited condensed consolidated financial statements do not comply as to
form in all material respects with the applicable accounting requirements
of the Act and the related published rules and regulations;
(iv) The unaudited selected financial information with respect to the
consolidated results of operations and financial position of the Company
for the five most recent fiscal years included in the Prospectus agrees
with the corresponding amounts (after restatements where applicable) in the
audited consolidated financial statements for such five fiscal years,
copies of which have been furnished to the Representatives;
(v) They have compared the information in the Prospectus under
selected captions with the disclosure requirements of Regulation S-K and on
the basis of limited procedures specified in such letter nothing came to
their attention as a result of the foregoing procedures that caused them to
believe that this information does not conform in all material respects
with the disclosure requirements of Items 301, 302, 402 and 503(d),
respectively, of Regulation S-K;
(vi) On the basis of limited procedures, not constituting an
examination in accordance with generally accepted auditing standards,
consisting of a reading of the unaudited financial statements and other
information referred to below, a reading of the latest available interim
financial statements of the Company and its subsidiaries, inspection of the
minute books of the Company and its subsidiaries since the date of the
latest audited financial statements included in
-23-
<PAGE>
the Prospectus, inquiries of officials of the Company and its subsidiaries
responsible for financial and accounting matters and such other inquiries
and procedures as may be specified in such letter, nothing came to their
attention that caused them to believe that:
(A) (i) the unaudited consolidated statements of income,
consolidated balance sheets and consolidated statements of cash flows
included in the Prospectus do not comply as to form in all material
respects with the applicable accounting requirements of the Act and
the related published rules and regulations, or (ii) any material
modifications should be made to the unaudited condensed consolidated
statements of income, consolidated balance sheets and consolidated
statements of cash flows included in the Prospectus for them to be in
conformity with generally accepted accounting principles;
(B) any other unaudited income statement data and balance sheet
items included in the Prospectus do not agree with the corresponding
items in the unaudited consolidated financial statements from which
such data and items were derived, and any such unaudited data and
items were not determined on a basis substantially consistent with the
basis for the corresponding amounts in the audited consolidated
financial statements included in the Prospectus;
(C) the unaudited financial statements which were not included
in the Prospectus but from which were derived any unaudited condensed
financial statements referred to in Clause (A) and any unaudited
income statement data and balance sheet items included in the
Prospectus and referred to in Clause (B) were not determined on a
basis substantially consistent with the basis for the audited
consolidated financial statements included in the Prospectus;
(D) any unaudited pro forma consolidated condensed financial
statements included in the Prospectus do not comply as to form in all
material respects with the applicable accounting requirements of the
Act and the published rules and regulations thereunder or the pro
forma adjustments have not been properly applied to the historical
amounts in the compilation of those statements;
(E) as of a specified date not more than five days prior to the
date of such letter, there have been any changes in the consolidated
capital stock (other than issuances of capital stock upon exercise of
options and stock appreciation rights, upon earn-outs of performance
shares and upon conversions of convertible securities, in each case
which were outstanding on the date of the latest financial statements
included in the Prospectus) or any increase in the consolidated long-
term debt of the Company and its subsidiaries, or any decreases in
consolidated net current assets or stockholders' equity or other items
specified by the Representatives, or any increases in any items
specified by the Representatives, in each case as compared with
amounts shown in the latest balance sheet included in the Prospectus,
except in each case for changes, increases or decreases which the
Prospectus discloses have occurred or may occur or which are described
in such letter; and
(F) for the period from the date of the latest financial
statements included in the Prospectus to the specified date referred
to in Clause (E) there were any decreases in consolidated net revenues
or operating profit or the total or per share amounts of consolidated
net income or other items specified by the Representatives, or any
increases in any items specified by the Representatives, in each case
as compared with
-24-
<PAGE>
the comparable period of the preceding year and with
any other period of corresponding length specified by the
Representatives, except in each case for decreases or increases which
the Prospectus discloses have occurred or may occur or which are
described in such letter; and
(vii) In addition to the examination referred to in their report(s)
included in the Prospectus and the limited procedures, inspection of minute
books, inquiries and other procedures referred to in paragraphs (iii) and
(vi) above, they have carried out certain specified procedures, not
constituting an examination in accordance with generally accepted auditing
standards, with respect to certain amounts, percentages and financial
information specified by the Representatives, which are derived from the
general accounting records of the Company and its subsidiaries, which
appear in the Prospectus, or in Part II of, or in exhibits and schedules
to, the Registration Statement specified by the Representatives, and have
compared certain of such amounts, percentages and financial information
with the accounting records of the Company and its subsidiaries and have
found them to be in agreement.
-25-
<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
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 VIII
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 IX
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 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 IX, nor the adoption
of any provision of the Company's Certificate of Incorporation inconsistent with
this Article IX, shall eliminate or reduce the effect of this Article IX, in
respect of any matter occurring, or any action
3
<PAGE>
or proceeding accruing or arising or that, but for this Article IX, would accrue
or arise, prior to such amendment, repeal or adoption of an inconsistent
provision.
ARTICLE X
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 XI
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 XII
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 XIII
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 XIV
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 XII, Article XIII and Article XIV
of this Restated Certificate of Incorporation, or Section 2.3 (Special Meeting),
Section 2.10 (Stockholder Action by Written Consent Without a Meeting), Section
2.14 (Advance Notice of Stockholder Nominees and Stockholder Business) 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 3.4
AMENDED AND RESTATED BYLAWS
OF
INKTOMI CORPORATION
<PAGE>
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 NOMINEES AND
STOCKHOLDER 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........................................ 6
3.4 RESIGNATION AND VACANCIES........................ 7
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE......... 7
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
<PAGE>
3.11 ADJOURNED MEETING; NOTICE........................ 9
3.12 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING 9
3.13 FEES AND COMPENSATION OF DIRECTORS............... 9
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......................................... 11
5.1 OFFICERS......................................... 11
5.2 ELECTION OF OFFICERS............................. 12
5.3 SUBORDINATE OFFICERS............................. 12
5.4 REMOVAL AND RESIGNATION OF OFFICERS.............. 12
5.5 VACANCIES IN OFFICES............................. 12
5.6 CHAIRMAN OF THE BOARD............................ 12
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................. 14
ARTICLE VI - INDEMNITY........................................ 15
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS........ 15
6.2 INDEMNIFICATION OF OTHERS........................ 15
6.3 INSURANCE........................................ 15
ARTICLE VII - RECORDS AND REPORTS.............................. 16
7.1 MAINTENANCE AND INSPECTION OF RECORDS............ 16
7.2 INSPECTION BY DIRECTORS.......................... 16
7.3 ANNUAL STATEMENT TO STOCKHOLDERS................. 17
<PAGE>
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. 17
8.3 STOCK CERTIFICATES; PARTLY PAID SHARES........... 17
8.4 SPECIAL DESIGNATION ON CERTIFICATES.............. 18
8.5 LOST CERTIFICATES................................ 18
8.6 CONSTRUCTION; DEFINITIONS........................ 19
8.7 DIVIDENDS........................................ 19
8.8 FISCAL YEAR...................................... 19
8.9 SEAL............................................. 19
8.10 TRANSFER OF STOCK................................ 19
8.11 STOCK TRANSFER AGREEMENTS........................ 20
8.12 REGISTERED STOCKHOLDERS.......................... 20
ARTICLE IX - AMENDMENTS....................................... 20
ARTICLE X - DISSOLUTION...................................... 20
ARTICLE XI - CUSTODIAN........................................ 21
11.1 APPOINTMENT OF A CUSTODIAN IN CERTAIN CASES..... 21
11.2 DUTIES OF CUSTODIAN............................. 21
<PAGE>
EXHIBIT 3.4
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
-2-
<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.
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.
-6-
<PAGE>
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.
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.
-7-
<PAGE>
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.
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.
-8-
<PAGE>
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.
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.
-9-
<PAGE>
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, 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 corpo-
-10-
<PAGE>
ration 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.
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.
-11-
<PAGE>
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.
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.
-12-
<PAGE>
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.
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.
-13-
<PAGE>
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 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.
-14-
<PAGE>
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.
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.
-15-
<PAGE>
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.
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.
-16-
<PAGE>
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.
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
-17-
<PAGE>
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 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
-18-
<PAGE>
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.
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.
-19-
<PAGE>
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.
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
-20-
<PAGE>
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:
(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.
-21-
<PAGE>
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.
-22-
<PAGE>
EXHIBIT 4.1
INCORPORATED UNDER THE LAWS OF SEE REVERSE FOR STATEMENTS RELATING
THE STATE OF DELAWARE TO RIGHTS, PREFERENCES,
PRIVILEGES AND RESTRICTIONS, IF ANY
This Certifies that
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK PAR VALUE
$0.001 PER SHARE, OF
-----INKTOMI CORPORATION-----
transferable only on the books of the Corporation by the holder hereof in person
or by duly authorized Attorney upon surrender of this certificate property
endorsed. This certificate is not valid until countersigned and and registered
by the Transfer Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated:
[SEAL OF INKTOMI CORPORATION]
/s/ JERRY M. KENNELLY /s/ DAVID C. PETERSCHMIDT
SECRETARY PRESIDENT
COUNTERSIGNED AND REGISTERED:
NORWEST BANK MINNESOTA, N.A.
TRANSFER AGENT AND REGISTRAR
BY
AUTHORIZED SIGNATURE
<PAGE>
series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights as established, from time to time, by the Certificate
of Incorporation of the Corporation and by any certificate of determination, the
number of shares constituting each class and series, and the designations
thereof, may be obtained by the holder hereof upon request and without charge at
the principal office of the Corporation.
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of
survivorship and not as tenants
in common
UNIF GIFT MIN ACT - ...............Custodian..............
(Cust) (Minor)
under Uniform Gifts to Minors
Act...................................
(State)
UNIF TRF MIN ACT - ........Custodian (until age.........)
(Cust)
...............under Uniform Transfers
to Minors Act.........................
(State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, hereby sell, assign and transfer unto
------------
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
- --------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares
- -------------------------------------------------------------------------
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
Attorney
- -----------------------------------------------------------------------
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated
------------------------------
X
---------------------------------------
X
---------------------------------------
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME(S) AS
WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR
ANY CHANGE WHATEVER.
Signature(s) Guaranteed:
By
----------------------------------
THE SIGNATURE(S) MUST BE GUARANTEED
BY AN ELIGIBLE GUARANTOR INSTITUION
(BANKS, STOCKBROKERS, SAVINGS AND
LOAN ASSOCIATIONS AND CREDIT UNIONS
WITH MEMBERSHIP IN AN APPROVED
SIGNATURE GUARANTEE MEDALLION
PROGRAM), PURSUANT TO S.E.C. RULE
17AG-15.
<PAGE>
EXHIBIT 10.7
================================================================================
INKTOMI CORPORATION
AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. DEFINITIONS AND CONSTRUCTION.............................. 1
1.1 Definitions......................................... 1
1.2 Accounting Terms.................................... 10
2. LOAN AND TERMS OF PAYMENT................................. 10
2.1 Revolving, Term and Equipment Loan Facilities....... 10
2.2 Overadvances........................................ 14
2.3 Interest Rates, Payments, and Calculations.......... 14
2.4 Crediting Payments.................................. 15
2.5 Fees................................................ 15
2.6 Additional Costs.................................... 15
2.7 Term................................................ 16
3. CONDITIONS OF LOANS....................................... 16
3.1 Conditions Precedent to Initial Advance............. 16
3.2 Conditions Precedent to all Advances................ 17
4. CREATION OF SECURITY INTEREST............................. 17
4.1 Grant of Security Interest.......................... 17
4.2 Delivery of Additional Documentation Required....... 17
4.3 Right to Inspect.................................... 18
5. REPRESENTATIONS AND WARRANTIES............................ 18
5.1 Due Organization and Qualification.................. 18
5.2 Due Authorization; No Conflict...................... 18
5.3 No Prior Encumbrances............................... 18
5.4 Bona Fide Eligible Accounts......................... 18
5.5 Merchantable Inventory.............................. 18
5.6 Intellectual Property............................... 18
5.7 Name; Location of Chief Executive Office............ 19
5.8 Litigation.......................................... 19
5.9 No Material Adverse Change in Financial Statements.. 19
5.10 Solvency............................................ 19
5.11 Regulatory Compliance............................... 19
5.12 Environmental Condition............................. 19
5.13 Taxes............................................... 19
5.14 Subsidiaries........................................ 19
5.15 Government Consents................................. 20
5.16 Full Disclosure..................................... 20
6. AFFIRMATIVE COVENANTS..................................... 20
6.1 Good Standing....................................... 20
6.2 Government Compliance............................... 20
6.3 Financial Statements, Reports, Certificates......... 20
6.4 Inventory; Returns.................................. 21
6.5 Taxes............................................... 21
6.6 Insurance........................................... 21
6.7 Bank Balances....................................... 22
6.8 Quick Ratio......................................... 22
6.9 Liquidity Coverage/Debt Service Coverage............ 22
6.10 Profitability....................................... 22
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
6.11 Registration of Intellectual Property Rights........ 22
.................................................... 23
6.12 Further Assurances.................................. 23
7. NEGATIVE COVENANTS....................................... 23
7.1 Dispositions........................................ 23
7.2 Change in Business.................................. 23
7.3 Mergers or Acquisitions............................. 23
7.4 Indebtedness........................................ 24
7.5 Encumbrances........................................ 24
7.6 Distributions....................................... 24
7.7 Investments......................................... 24
7.8 Transactions with Affiliates........................ 24
7.9 Intellectual Property Agreements.................... 24
7.10 Subordinated Debt................................... 24
7.11 Inventory........................................... 24
7.12 Compliance.......................................... 24
7.13 Prohibition on Transfer of Assets................... 25
8. EVENTS OF DEFAULT........................................ 25
8.1 Payment Default..................................... 25
8.2 Covenant Default.................................... 25
8.3 Material Adverse Change............................. 25
8.4 Attachment.......................................... 25
8.5 Insolvency.......................................... 25
8.6 Other Agreements.................................... 25
8.7 Subordinated Debt................................... 26
8.8 Judgments........................................... 26
8.9 Misrepresentations.................................. 26
9. BANK'S RIGHTS AND REMEDIES............................... 26
9.1 Rights and Remedies................................. 26
9.2 Power of Attorney................................... 27
9.3 Accounts Collection................................. 27
9.4 Bank Expenses....................................... 27
9.5 Bank's Liability for Collateral..................... 28
9.6 Remedies Cumulative................................. 28
9.7 Demand; Protest..................................... 28
10. NOTICES................................................... 28
11. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER................ 29
12. GENERAL PROVISIONS........................................ 29
12.1 Successors and Assigns.............................. 29
12.2 Indemnification..................................... 30
12.3 Time of Essence..................................... 30
12.4 Severability of Provisions.......................... 30
12.5 Amendments in Writing, Integration.................. 30
12.6 Counterparts........................................ 30
12.7 Survival............................................ 30
12.8 Confidentiality..................................... 30
</TABLE>
ii
<PAGE>
This AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT (this "Agreement") is
entered into as of May 12, 1998, by and between SILICON VALLEY BANK ("Bank") and
INKTOMI CORPORATION ("Borrower").
RECITALS
--------
A. Borrower and Bank are parties to that certain Loan and Security
Agreement dated as of May 2, 1997, as amended (collectively, the "Original
Agreement").
B. Borrower and Bank desire to amend and restate the Original Agreement
on the terms stated herein. This Agreement amends and restates in its entirety
the Original Agreement, and 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, an Equipment Facility A Advance or an Equipment Facility B 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" means an amount equal to seventy-five percent
(75%) of Eligible Accounts, as determined by Bank with reference to the most
recent Borrowing Base Certificate delivered by Borrower.
1
<PAGE>
"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.
"Cash Management Service" or "Cash Management Services" has the
meaning set forth in Section 2.1.1.4 herein.
"Closing Date" means the date of this Agreement.
"Code" means the California Uniform Commercial Code.
"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.
"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 and mandatory prepayments of principal on account of long-term Debt
for such quarter, plus (ii) quarterly interest expense.
----
2
<PAGE>
"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 thirty (30) days prior written 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;
(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 (i) with respect to America Online, the
applicable percentage shall be thirty-five percent (35%); (ii) with respect to
the Eligible Foreign Accounts of NTT and OzEmail the applicable percentage shall
be thirty-five percent (35%); (iii) with respect to Microsoft Accounts, the
applicable percentage shall be forty percent (40%) (provided, however, that
-------- -------
Microsoft Accounts shall be excluded to the extent the proceeds of such Accounts
are used to service the Microsoft Debt); and (iv) except as otherwise approved
in writing by Bank;
(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,
3
<PAGE>
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.
"Equipment" means all present and future machinery, equipment,
tenant improvements, furniture, fixtures, vehicles, tools, parts and attachments
in which Borrower has any interest.
"Equipment Facility A Advance" or "Equipment Facility A Advances"
has the meaning set forth in Section 2.1.3.
"Equipment Facility B Advance" or "Equipment Facility B Advances"
has the meaning set forth in Section 2.1.4.
"Equipment Facility A Committed Line" means One Million Seven
Hundred Fifty Thousand Dollars ($1,750,000).
"Equipment Facility B Committed Line" means Two Million Dollars
($2,000,000).
"Equipment Facility A Maturity Date" means May 2, 2001.
"Equipment Facility B Availability End Date" means the date one
(1) calendar month from the date of this Agreement.
"Equipment Facility B Maturity Date" means the date thirty-six
(36) months from the Equipment Facility B Availability End Date.
"ERISA" means the Employment Retirement Income Security Act of
1974, as amended, and the regulations thereunder.
"Foreign Exchange Reserve" has the meaning set forth in Section
2.1.1.3 herein.
"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
4
<PAGE>
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;
(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.
"Letter of Credit" or "Letters of Credit" has the meaning set
forth in Section 2.1.1.1 herein.
"Lien" means any mortgage, lien, deed of trust, charge, pledge,
security interest or other encumbrance.
5
<PAGE>
"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 financial condition 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.
"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 July 27, 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 July 27, 1997 and all
promissory notes executed thereunder, and that certain Security Agreement 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.
"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.
"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;
6
<PAGE>
(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
(l) Other Indebtedness not to exceed $500,000 in the aggregate
at any time.
"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;
(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;
7
<PAGE>
(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;
(k) Deposit accounts of any Subsidiaries maintained in the
ordinary course of business;
(m) Investments in Subsidiaries not to exceed $1,000,000 in any
fiscal year; and
(n) other Investments not to exceed $250,000.
"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, (ii) Liens on any
deposit account into 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) 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);
(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
8
<PAGE>
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.
"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.
9
<PAGE>
"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 reasonably
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 June 2, 1997.
"Term Loan Amount" means Two Million Dollars ($2,000,000).
"Term Maturity Date" means the date thirty-six (36) 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.
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 (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. 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.
10
<PAGE>
(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.
2.1.1.1 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 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.
11
<PAGE>
(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.
(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).
12
<PAGE>
(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
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.
2.1.2 Term Advance.
------------
(a) Borrower and Bank acknowledge that Bank has made the Term
Advance under the Original Agreement on or prior to the Term Availability Date
in an amount equal to the Term Loan Amount. As of the date hereof, the
outstanding principal amount of the Term Advance is $1,444,444.40. Amounts
borrowed under this Section 2.1.2 may not be reborrowed once repaid.
(b) 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 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. The Term Advance shall be payable in thirty-six (36) equal
monthly installments of principal, plus accrued interest, beginning on the first
(1st) calendar day of the month following the date of the Term Advance, and
continuing on the same day of each month thereafter through 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 Advances.
-----------------------------
(a) Borrower and Bank acknowledge that from time to time from
the date of the Original Agreement through the date hereof, Bank has made
advances to Borrower under the Original Agreement for the purchase of Equipment
(each, an "Equipment Facility A Advance" and, collectively, the "Equipment
Facility A Advances") in an aggregate amount equal to the Equipment Facility A
Committed Line. Borrower may not request or receive additional Equipment
Facility A Advances. Equipment Facility A Advances may not be reborrowed once
repaid.
13
<PAGE>
(b) Interest shall accrue from the date of each Equipment
Facility A 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 May
2, 1998. 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. All Equipment
Facility A Advances that are outstanding on May 2, 1998 will be payable in
thirty-six (36) equal monthly installments of principal, plus accrued interest,
beginning on June 1, 1998, and continuing on the same day of each month
thereafter through the Equipment Facility A Maturity Date, at which time all
amounts owing under this Section 2.1.3 shall be immediately due and payable.
2.1.4 Equipment Facility B Advances.
-----------------------------
(a) Subject to and upon the terms and conditions of this
Agreement, at any time from the date hereof through the Equipment Facility B
Availability End Date, Bank agrees to make advances (each an "Equipment Facility
B Advance" and, collectively, the "Equipment Facility B Advances") to Borrower
in an aggregate outstanding amount not to exceed the Equipment Facility B
Committed Line. To evidence the Equipment Facility B Advance or Equipment
Facility B Advances, Borrower shall deliver to Bank, at the time of each
Equipment Facility B Advance request, an invoice for the equipment to be
purchased. The Equipment Facility B Advances shall be used only to purchase or
refinance Equipment purchased on or after ninety (90) days prior to the date
hereof and shall not exceed one hundred percent (100%) of the invoice amount of
such equipment approved from time to time by Bank, excluding taxes, shipping,
warranty charges, freight discounts and installation expense. Software,
leasehold improvements, installation costs and other "soft costs" may, however,
constitute up to thirty-five percent (35%) of aggregate Equipment Facility B
Advances.
(b) Interest shall accrue from the date of each Equipment
Facility B Advance at the rate specified in Section 2.3(a), and shall be payable
monthly for each month through the month in which the Equipment Facility B
Availability End Date falls. Any Equipment Facility B Advances that are
outstanding on the Equipment Facility B Availability End Date will be payable in
thirty-six (36) equal monthly installments of principal, plus all accrued
interest, beginning on the first (1st) calendar day of the month following the
Equipment Facility B Availability End Date, and continuing on the same day of
each month thereafter through the Equipment Facility B Maturity Date, at which
time all amounts owing under this Section 2.1.4, and any other amounts due under
this Agreement, shall be immediately due and payable. Equipment Facility B
Advances, once repaid, may not be reborrowed.
(c) When Borrower desires to obtain an Equipment Facility B
Advance, Borrower shall notify Bank (which notice shall be irrevocable) by
facsimile transmission to be received no later than 3:00 p.m. Pacific time one
(1) Business Day before the day on which the Equipment Facility B Advance is to
be made. Such notice shall be substantially in the form of Exhibit B. The notice
---------
shall be signed by a Responsible Officer or its designee and include a copy of
the invoice for the Equipment to be financed.
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.
2.3 Interest Rates, Payments, and Calculations.
------------------------------------------
14
<PAGE>
(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 per annum 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 per annum rate equal to one-half of one percentage point (0.5%)
above the Prime Rate.
(iii) Equipment Facility A Advances. Except as set forth in
-----------------------------
Section 2.3(b), all Equipment Facility A 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 Prim e Rate.
(iv) Equipment Facility B Advances. Except as set forth in
-----------------------------
Section 2.3(b), all Equipment Facility B Advances shall bear interest, on the
average daily balance thereof, at a per annum rate equal to one-quarter of one
percentage point (0.25%) above the Prime Rate.
(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 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 Ten Thousand Dollars
-------------
($10,000), which shall be fully earned and nonrefundable;
(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,
15
<PAGE>
(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 eighty (180) days prior to the date of such certificate.
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 Facility B 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) financing statements (Forms UCC-1);
16
<PAGE>
(e) insurance certificate;
(f) payment of the fees and Bank Expenses then due specified in
Section 2.5 hereof; and
(g) 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 2.1.4; 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 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. 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.
17
<PAGE>
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 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 to
Borrower's knowledge 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
18
<PAGE>
(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 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.
19
<PAGE>
5.13 Taxes. Borrower and each Subsidiary has filed or caused to be
-----
filed all material 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 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
20
<PAGE>
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 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) (or, if no Revolving Advances are outstanding,
as a condition to Borrower requesting a Revolving Advance), 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 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
21
<PAGE>
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 Bank Balances. 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 Bank in either a Certificate of Deposit, Money Market Account,
and/or Checking Account through the later of the Equipment Facility A Maturity
Date, the Equipment Facility B 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).
6.8 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 1.00 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/Debt Service Coverage. Subject to the
----------------------------------------
remainder of this section, Borrower shall maintain, as of the last day of each
calendar month, a Liquidity Ratio of at least 2.00 to 1.00. Notwithstanding the
foregoing, if Borrower attains two consecutive quarters of Debt Service Coverage
of not less than 1.50 to 1.00, then Liquidity Ratio will no longer be tested and
instead Borrower shall maintain, as of the last day of each of Borrower's fiscal
quarters, a Debt Service Coverage of at least 1.50 to 1.00. For purposes of this
Section, "Liquidity Ratio" means as of any date for which it is tested, the
ratio of (a) the sum of (i) cash and cash equivalents plus (ii) the amount
----
available to be drawn but not drawn under the Revolving Facility, to (b) the
aggregate outstanding amount of the Term Advance, Equipment Facility A Advances
and Equipment Facility B Advances; provided that if Borrower has not provided
--------
agings of its accounts receivable pursuant to or voluntarily in accordance with
Section 6.3, then "Liquidity Ratio" shall mean, as of any date for which it is
tested, the ratio of (a) the sum of (i) cash and cash equivalents plus (ii)
----
fifty percent (50%) of Borrower's net accounts receivable minus (iii) any
-----
outstanding amounts under Sections 2.1.1.1, 2.1.1.2, 2.1.1.3, or 2.1.1.4, to (b)
the aggregate outstanding amount of the Term Advance, Equipment Facility A
Advances and Equipment Facility B Advances.
6.10 Profitability. Borrower may incur losses not to exceed: (i)
-------------
$4,650,000 for the fiscal quarter ending March 31, 1998; (ii) $5,200,000 for the
fiscal quarter ending June 30, 1998; (iii) $4,800,000 for the fiscal quarter
ending September 30, 1998; (iv) $4,800,000 for the fiscal quarter ending
December 31, 1998; (v) $3,000,000 for the fiscal quarter ending March 31, 1999;
and (vi) $1,500,000 for the fiscal quarter ending June 30, 1999. Borrower shall
have a minimum net profit of $1 for the fiscal quarter ending September 30,
1999, and for each fiscal quarter thereafter. For purposes of this Section,
Borrower's net profit (or loss) shall measured as quarterly net income minus the
-----
increase in capitalized software during such quarter plus the amortization
----
expense of capitalized software during such quarter.
6.11 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
22
<PAGE>
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 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.
6.12 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; (v) Transfers that constitute payment of normal and usual
operating expenses in the ordinary course of business; or (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.
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). 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
23
<PAGE>
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 judgment.
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 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
24
<PAGE>
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 or 6.12 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 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);
25
<PAGE>
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 One Million Dollars
($1,000,000) 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 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;
26
<PAGE>
(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.
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
27
<PAGE>
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:
If to Borrower: Inktomi Corporation
1900 South Norfolk St., Ste. 310
San Mateo, CA 94403
Attn: Mr. Randy Gottfried
FAX: (650) 653-2891
28
<PAGE>
If to Bank: Silicon Valley Bank
1731 Embarcadero Road, Suite 220
Palo Alto, CA 94303
Attn: Mr. Scott Wiebe
FAX: (650) 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 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
29
<PAGE>
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.
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
30
<PAGE>
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:[SIGNATURE ILLEGIBLE
------------------------------
Title:___________________________
SILICON VALLEY BANK
By: /s/ Scott M. Wieler
------------------------------
Title: Assistant Vice President;
---------------------------
31
<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.
Subject to the next sentence, the Collateral shall not include Equipment
that Borrower leases from a third party or Equipment that is financed by a third
party to the extent that contracts evidencing such lease or financing prohibit
the granting of a security interest therein to Bank. The term "Collateral" shall
not include any general intangibles or contract rights of Borrower (whether
owned or held as licensee or lessee, or otherwise) to the extent that (i) such
general intangibles or contract rights are not assignable or capable of being
encumbered as a matter of law or under the terms of the license, lease or other
agreement applicable thereto (but solely to the extent that such restriction
shall be enforceable under applicable law) without the consent of the licensor
or lessor
32
<PAGE>
thereof or other applicable party thereto and (ii) such consent has not been
obtained: provided, however, that "Collateral" shall include, (A) any general
-------- -------
intangible or contract right which is an Account or a proceed of, or otherwise
related to the enforcement or collection of, any Account or goods which are the
subject of any Account, and (B) any and all proceeds of any general intangibles
or contract rights which are otherwise excluded to the extent that the
assignment or encumbrance of such proceeds is not so restricted, and (C) upon
obtaining the consent of any such licensor, lessor, or other applicable party
with respect to any such otherwise excluded general intangibles, contract rights
and Equipment, such general intangibles, contract rights and Equipment as well
as any and all proceeds thereof that might theretofore have been excluded from
the term "Collateral."
33
<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)
- --------------------------------------------------------------------------------
34
<PAGE>
EXHIBIT C
BORROWING BASE CERTIFICATE
- --------------------------------------------------------------------------------
Borrower: Inktomi Corporation Lender: Silicon Valley Bank
Commitment Amount: $2,500,000
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ACCOUNTS RECEIVABLE
<S> <C> <C>
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) $_________
</TABLE>
* 35% Limit for NTT, OzEmail and America Online; 40% for Microsoft (excluding
Microsoft Accounts that are used to service Microsoft Debt)
**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 Amended and
Restated Loan and Security Agreement between the undersigned and Silicon Valley
Bank.
COMMENTS:
----------------------------
BANK USE ONLY
---- --- ----
Rec'd By: ______________
Inktomi Corporation Auth. Signer
Date: __________________
By:_________________________________ Verified: ______________
Authorized Signer Auth. Signer
Date: __________________
________________________
----------------------------
35
<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 Amended and Restated
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 > $1,000,000
<TABLE>
<CAPTION>
FINANCIAL COVENANT REQUIRED ACTUAL COMPLIES
------------------ -------- ------ --------
<S> <C> <C> <C>
Maintain on the Following Basis:
Minimum Quick Ratio (Monthly) 1.0:1.0/1/ _____:1.0 Yes No
Liquidity Ratio (Monthly)/2/ 2.0:1.0 _____:1.0 Yes No
Debt Service Coverage (Quarterly)/3/ 1.5:1.0 _____:1.0 Yes No
Profitability (Quarterly) $______/4/ $________ Yes No
</TABLE>
/1/ Quick Assets excludes Microsoft Accounts that service Microsoft Debt;
Current Liabilities excludes deferred revenues and Microsoft Debt.
/2/ Converts to Debt Service Coverage upon two consecutive quarters of DSC of at
least 1.50:1.0.
/3/ Tested after conversion of Liquidity Ratio.
/4/ Quarterly losses not to exceed: $4,650,000 for quarter ended 3/31/98;
$5,200,000 for quarters ended 6/30/98; $4,800,000 for quarters ended 9/30/98
and 12/31/98; $3,000,000 for quarter ended 3/31/99; and $1,500,000 for
quarter ended 6/30/99. 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
----------------------------------
36
<PAGE>
EXHIBIT 10.18
8201 Greensboro Drive
Lease
Between
Inktomi Corporation
and
B.F. Saul Real Estate Investment Trust
<PAGE>
8201 GREENSBORO DRIVE OFFICE LEASE
THIS LEASE, made this 14th day of May, 1998, by and between (i) B.F. Saul
Real Estate Investment Trust (hereinafter "Landlord") and (ii) Inktomi
Corporation, a Delaware corporation (hereinafter "Tenant").
WITNESSETH:
1. Premises.
For and in consideration of the rent hereinafter reserved and the mutual
covenants hereinafter contained, Landlord does hereby lease and demise unto
Tenant, and Tenant does hereby hire, lease and accept, from Landlord, certain
space and improvements comprising approximately 2,935 gross rentable square feet
of office space (the "Gross Area") on the 6th floor of the building known as
8201 Greensboro Drive (the "Building") located at 8201 Greensboro Drive, McLean,
Fairfax County, Virginia, all upon the terms and conditions hereinafter set
forth. That portion of the Gross Area which Tenant shall be entitled to occupy
is hereinafter referred to as the "Premises", and is outlined in red on the
floor plan attached hereto as Exhibit A and by this reference made a part
hereof. It is specifically understood that for purposes of calculating any
payments or pro-rations hereunder, the number of gross rentable square feet set
forth above shall control.
2. Term. The term of this lease shall commence on the date hereof (the "Lease
Date") and shall end
sixty (60) months after the "Rent Commencement Date", as hereinafter defined.
3. The "Rent Commencement Date" shall be the later of (i) the 1st day of June,
1998, or (ii) the date Landlord delivers the Premises to Tenant with Landlord's
Work substantially complete (as defined in Exhibit B attached hereto and made a
part hereof). In the event the Rent Commencement Date is a date other than the
first day of a calendar month, the term of the lease shall run for the number of
months set forth above from the first day of the calendar month following the
Rent Commencement Date. Landlord and Tenant hereby agree to execute an
agreement (the "Commencement and Estoppel Agreement" attached hereto as Exhibit
F) specifying the Rent Commencement Date hereof.
Rent.
a. Commencing with the Rent Commencement Date, Tenant shall pay as annual
rent for the Premises the sum of Eighty-two Thousand One Hundred Seventy-nine
and 96/100 Dollars ($82,179.96) per annum, payable in equal monthly installments
of Six Thousand Eight Hundred Forty-eight and 33/100 Dollars ($6,848.33) each
(the "Initial Base Rent"). All monthly installments of rent shall be payable to
Landlord or its designated agent, in advance, without previous notice or demand
therefor, and without recoupment, deduction or setoff, with the first monthly
installment to be due and payable no later than the Rent Commencement Date and
each subsequent monthly installment to be due and payable on the first day of
each and every month following the Rent Commencement Date during the term
hereof. If the Rent Commencement Date is a date other than the first day of a
month, rent for the period commencing with and including the Rent Commencement
Date until the first day of the following month shall be pro-rated at the rate
of one-thirtieth (1/30th) of the fixed monthly rental per day.
b. Landlord hereby acknowledges receipt of Six Thousand Eight Hundred
Forty-eight and 33/100 Dollars ($6,848.33) to be held as security for the
performance by Tenant or Tenant's covenants and obligations under this Lease, it
being expressly understood that the deposit shall not bear interest to Tenant,
and shall not be considered an advance payment of rental or a measure of
Landlord's damage in case of default by Tenant. Upon the occurrence of any
event of default by Tenant or breach by Tenant of Tenant's covenants under this
Lease, Landlord may, from time to time, without prejudice to any other remedy,
use the security deposit to the extent necessary to make good any arrearage of
rent and/or to correct or repair any damage, injury, expense or liability caused
to Landlord by the event of default or breach of covenant. Any balance of the
security deposit remaining after the full and complete satisfaction of Tenant's
obligations to Landlord shall be returned by Landlord to Tenant upon termination
of this Lease; provided, however, that Landlord may retain all or a portion of
the security until Landlord makes the final annual adjustments of Annual
Operating Costs and Real Estate Taxes and ascertains Tenant's share of such
amounts which accrued prior to the expiration of the term.
4. Rent Adjustment.
a. On the first day of the second Lease Year (as hereinafter defined) and
on the first day of each Lease Year thereafter, the Base Rent shall be increased
to equal one hundred three percent (103%) of the Base Rent (as previously
adjusted hereunder) in effect during the immediately-preceding Lease Year.
b. For the purposes of this Lease, the term "Lease Year" shall be defined
to mean a period of twelve (12) full calendar months. The first Lease Year
shall commence on the Rent Commencement Date (or on the first
1
<PAGE>
day of the first calendar month following the Rent Commencement Date if said
date is other than the first day of a calendar month), and each succeeding Lease
Year shall commence on the anniversary date of the beginning of the first Lease
Year.
5. Increases in Annual Operating Costs. Commencing with the second lease
year, Tenant agrees to pay to Landlord, as additional rent, its Pro-Rata Share
(as hereinafter defined) of any amount by which the total Annual Operating Costs
(as hereinafter defined), for each Adjustment Year (as hereinafter defined),
exceeds an amount equal to the Annual Operating Costs for the Premises incurred
in fiscal year October 1, 1997 - September 30, 1998 (the "Base Annual Operating
Cost"). For the purposes of this lease, the Adjustment Year shall mean the
twelve month period ending on each September 30, the first such Adjustment Year
being the twelve month period ending on the first September 30 occurring after
the Rent Commencement Date.
a. Annually during the term hereof, Landlord shall furnish to Tenant a
statement (the "Annual Statement") of the actual Annual Operating Costs for each
Adjustment Year. Tenant shall, within thirty (30) days of its receipt of said
Annual Statement, pay to Landlord its Pro-Rata Share of the difference between
the actual Annual Operating Cost reflected on said Statement and the Base Annual
Operating Cost set forth above (which difference is hereinafter referred to as
the "Increase"). Thereafter, commencing on the first day of October immediately
following the Adjustment Year covered by said Annual Statement, Tenant shall pay
to Landlord monthly during the term hereof, as additional rent, without notice
or demand therefor and without any deduction or setoff whatsoever, an amount
equal to one-twelfth (1/12th) of its Pro-Rata Share of such Increase. Tenant's
monthly payment set forth above shall be adjusted as of the end of each
succeeding Adjustment Year to the actual increase set forth in each successive
Annual Statement, and such adjustment shall be paid within thirty (30) days of
the date of said Annual Statement. The amount of any Increase calculated from
time to time pursuant to any Annual Statement shall be used as the basis for
calculating Tenant's monthly payment for the next succeeding twelve (12) month
period.
b. At any time or times prior to or during the first Adjustment Year,
Landlord may submit to Tenant a statement of Landlord's estimate of Tenant's
Increase for such Adjustment Year. If such estimate is submitted prior to the
first Adjustment Year, Tenant shall pay to Landlord one-twelfth (1/12th) of the
amount so estimated on the first day of each month in advance, commencing on
October 1 of the Adjustment Year. In case such estimate is submitted during the
first Adjustment Year, Tenant shall, (i) within thirty (30) days after the
delivery of such statement, make a lump sum payment to Landlord equal to 1/12th
of Tenant's estimated Increase for such Adjustment Year multiplied by the number
of months in such Adjustment Year that will have elapsed prior to the first
monthly payment required by clause (ii) hereof, and (ii) begin paying to
Landlord, as additional monthly rent, due and payable on the first day of each
month, an amount equal to 1/12th of Tenant's Increase as so estimated.
c. For the purposes of this paragraph 5, the following provisions shall
control:
i. All monthly payments as may be required hereunder for the period from
the first day of each Adjustment Year through the date of receipt of the Annual
Statement for the preceding Adjustment Year, shall be payable without demand in
full on the first day of the calendar month next following the date of receipt
of said Annual Statement. Failure by the Landlord to timely provide any Annual
Statement shall not constitute a waiver by Landlord of its rights to payments
due pursuant to this paragraph, and the obligations hereunder shall survive the
expiration or other termination of this Lease.
ii. For any applicable Adjustment Year that begins prior to the Rent
Commencement Date or ends after the expiration date of this Lease, the Increase
for that Adjustment Year shall be apportioned on a per diem basis so that only
that portion of such Increase as is attributable to the portion of such
Adjustment Year that occurs during the term of this Lease, shall be payable by
Tenant.
d. The Tenant's Pro-Rata Share as used herein shall mean .83 percent.
Annual Operating Costs as used herein shall include all costs of operation,
maintenance and repair of the Building and its appurtenances as a first-class
office building, and shall include the following by way of illustration but not
limitation: Real Estate Taxes (as hereinafter defined), personal property taxes,
insurance, and the cost of labor, materials and services for the operation,
maintenance and repair of the Building, its appurtenances and parking areas
(including painting and papering of common areas and replacement of carpet and
flooring in common areas), including but not limited to, water and sewer
charges, garbage and waste disposal, license, permit and inspection fees, heat,
light, power and other utilities, chillers, air conditioning and ventilation,
elevator service, plumbing service, window cleaning service, janitorial and
cleaning service, maintenance and service contracts, landscaping (including
upgrades and replacements thereto), security service, watchmen, guards, and any
other personnel engaged in the operation, maintenance or repair of the Building
and its appurtenances together with payroll taxes, insurance and employee
benefits applicable thereto. Also included are management expenses and fees,
legal and accounting fees, the Landlord's general and administrative expenses
and a reserve for parking facilities and roof repairs of two cents ($.02) per
square foot of rentable area. In addition, Annual Operating Costs shall include
(i) depreciation for capital expenditures made by Landlord to reduce operating
expenses if Landlord shall have reasonably determined that the annual reduction
in operating expenses shall exceed depreciation therefor; depreciation shall be
determined by dividing the original cost of such capital expenditure by the
number of years of useful life of the capital item acquired and the useful life
shall be reasonably determined by Landlord in accordance with generally accepted
accounting principles and practices in effect at the time of acquisition of the
capital item, and (ii) the cost of capital improvements made in order to comply
with statutes, rules, regulation or directives hereafter promulgated by any
governmental authority after the Rent Commencement Date, relating to energy
2
<PAGE>
conservation, public safety or other reason. Any of the services, supplies or
materials which may be included in the computation of Annual Operating Expenses
for the Property may be performed by subsidiaries or affiliates of Landlord, so
long as such subsidiaries or affiliates do not charge more than the prevailing
market rate for such services.
e. The term "Real Estate Taxes" means all taxes rates and assessments,
general and special, levied or imposed with respect to the land, buildings and
improvements of which the Premises are a part, including all taxes, rates and
assessments, general and special, levied or imposed for schools, public
betterment, general or local improvements and operations and taxes imposed in
connection with any special taxing district. If the system of real estate
taxation shall be altered or varied and any new tax or levy shall be levied or
imposed on said land, buildings and improvements, and/or Landlord in
substitution for real estate taxes presently levied or imposed on fixtures in
Fairfax County, Virginia, then any such new tax or levy shall be included within
the term "Real Estate Taxes". Should any governmental taxing authority acting
under any law or regulation, levy, assess, or impose a tax, excise and/or
assessment however described (other than an income or franchise tax) upon,
against, on account of, or measured by, in whole or in part, the rent expressly
reserved hereunder, or upon the rent expressly reserved under any other leases
or leasehold interests in the Premises, the Building or the land upon which the
Building is located, as a substitute (in whole or in part) or in addition to any
existing real estate taxes on land and buildings or otherwise, such tax or
excise on rents shall be included within the term "Real Estate Taxes". Expenses
(consisting of attorneys' fees, consulting fees, expert witness fees and similar
costs) incurred by Landlord to monitor the Real Estate Taxes or in obtaining or
attempting to obtain a reduction of any Real Estate Taxes shall be added to and
included in the amount of any such Real Estate Taxes. Real Estate Taxes which
are being contested by Landlord shall nevertheless be included for purposes of
the computation of the liability of Tenant under this paragraph, provided,
however, that in the event that Tenant shall have paid any amount of increased
rent pursuant to this paragraph 5 and the Landlord shall thereafter receive a
refund of any portion of any Real Estate Taxes on which such payments shall have
been based, Landlord shall pay to Tenant the Tenant's Pro-Rata Share of such
refund. Landlord shall have no obligation to contest, object to or litigate the
levying or imposition of any Real Estate Taxes and may settle, compromise,
consent to, waive or otherwise determine in its discretion, to abandon any
contest with respect to the amount of any Real Estate Taxes without consent or
approval of the Tenant. If under Fairfax County or Virginia law or regulations,
the Tax Assessor is required to include leasehold (real property) improvements
in determining the assessed value of the Building, then to the extent that
Tenant makes leasehold improvements (including Tenant's original installation
and Tenant's subsequent alterations, additions, substitutions and improvements)
which are in excess of the building standards, whether done prior to or after
the commencement of the term of this Lease, Tenant shall pay the Real Estate
Taxes attributable to the value of such excess leasehold improvements throughout
the term of this Lease within thirty (30) days after being billed therefor by
Landlord.
f. Tenant, upon not less than ten (10) days written notice to Landlord,
shall have reasonable access during normal business hours to inspect the books
and records of Landlord relating to Operating Costs and/or to have such books
and records audited or reviewed, at Tenant's expense, for the purpose of
verifying the Operating Costs statement. Tenant shall bear all costs relating
to such inspection, including, but not limited to, costs of photocopies. Any
discrepancy in Tenant's Proportionate Share shall be promptly corrected by a
payment of any shortfall to Landlord by Tenant within thirty (30) days after the
applicable audit, or by a credit against the next payment(s) of Annual Operating
Costs due under this Lease. Tenant shall keep the results of any audit of
Operating Costs confidential.
6. Additional Rent. Any amounts required to be paid by Tenant hereunder and
any charges or expenses incurred by Landlord on behalf of Tenant under the terms
of this Lease shall be considered additional rental payable in the same manner
and upon the same terms and conditions as the rent reserved hereunder. Any
failure on the part of Tenant to pay such additional rental when and as the same
shall become due shall entitle Landlord to the remedies available to it for non-
payment of rent.
7. Laws and Ordinances. Tenant will, at its own cost, promptly comply with
and carry out all orders, requirements or conditions now or hereafter imposed
upon it by the ordinances, laws and/or regulations of the Commonwealth of
Virginia, whether required of Landlord or otherwise, in the conduct of Tenant's
business. Tenant will indemnify and save Landlord harmless from all penalties,
claims, and demands resulting from Tenant's failure or negligence in this
respect.
8. Furniture; Fixtures; Electrical Equipment.
a. Tenant shall not place a load upon the floor of the Premises exceeding
one hundred (100) pounds per square foot without Landlord's prior written
consent. Business machines, mechanical equipment and materials belonging to
Tenant which cause vibration, noise, cold, heat or fumes that may be transmitted
to the Building or to any other leased space therein to such a degree as to be
objectionable to Landlord or to any other tenant in the Building shall be
placed, maintained, isolated, stored and/or vented by Tenant at its sole expense
so as to absorb and prevent such vibration, noise, cold, heat or fumes. Tenant
shall not keep within or about the Premises any dangerous, inflammable, toxic or
explosive material. Tenant shall indemnify Landlord and hold it harmless
against any and all damage, injury, or claims resulting from the moving of
Tenant's equipment, furnishings and/or materials into or out of the Premises or
from the storage or operation of the same. Any and all damage or injury to the
Premises or the Building caused by such moving, storage or operation shall be
repaired by Tenant at Tenant's sole cost. If Tenant fails to make any such
repairs, Landlord may do so and Tenant agrees to immediately reimburse Landlord
for any expenses so incurred.
3
<PAGE>
b. Tenant will not install or operate in the Premises any electrically
operated equipment, mainframe computers or other machinery, other than electric
typewriters, personal computers, standard network infrastructure, adding
machines, standard office duplicating machines and such other small electrically
operated office equipment as is used in modern offices without first obtaining
the prior consent in writing of Landlord, who may condition such consent upon
the installation, at Tenant's expense, of separate metering devices and the
payment by Tenant of additional rent as compensation for such excess consumption
of water and/or electricity or wiring as may be occasioned by the operation of
said equipment or machinery or the installation of additional metering devices;
nor shall Tenant install any other equipment whatsoever which will or may
necessitate any changes, replacements or additions to the water system, plumbing
system, heating system, air conditioning system or the electrical system of the
Premises without the prior written consent of Landlord.
9. Alterations.
a. Tenant shall make no alterations or changes, structural or otherwise,
to any part of the Premises, either exterior or interior, other than those which
are cosmetic in nature, without Landlord's written consent. In the event of any
such approved changes, Tenant shall have all work done at its own expense.
Request for such consent shall be accompanied by plans stating in detail
precisely what is to be done. Tenant shall comply with the building codes,
regulations and laws now in force or hereafter enacted in Fairfax County and the
Commonwealth of Virginia which pertain to such work. Any additions,
improvements, alterations and/or installations made by Tenant (except only
office furniture and business equipment) shall become and remain a part of the
Building and be and remain Landlord's property upon the termination of Tenant's
occupancy of the Premises; provided, however, that if Landlord gives written
notice to Tenant at the expiration or other termination of this Lease to such
effect then, except for ordinary wear and tear, it may require Tenant to restore
said Premises to the same condition which existed on the date Tenant occupied
the Premises for the conduct of business at Tenant's sole cost and expense.
Tenant shall save Landlord harmless from and against all expenses, liens, claims
or damages to either property or person which may or might arise by reason of
the making of any such additions, improvements, alterations and/or
installations. If any alteration is made without the prior written consent of
Landlord, Landlord may correct or remove the same, and Tenant shall be liable
for any and all expenses incurred by Landlord in the performance of this work.
It is further understood and agreed by Landlord and Tenant that any alterations
shall be conducted on behalf of Tenant and not on behalf of Landlord. It is
further understood and agreed that in the event Landlord shall give its written
consent to Tenant's making any alterations, such written consent shall not be
deemed to be an agreement or consent by Landlord to subject Landlord's interest
in the Premises or the Building to any mechanic's liens which may be filed in
respect of any alterations made by or on behalf of Tenant. If any mechanic's or
materialman's lien (or a petition to establish such lien) is filed in connection
with any Alteration, then such lien (or petition) shall be discharged by Tenant
at Tenant's expense within ten (10) days after Tenant has notice thereof by the
payment thereof or the filing of a bond acceptable to Landlord. If Tenant shall
fail to discharge any such mechanic's or materialman's lien, Landlord may, at
its option, discharge such lien and treat the cost thereof (including attorneys'
fees incurred in connection therewith) as additional rent payable with the next
monthly installment of Base Rent falling due; it being expressly agreed that
such discharge by Landlord shall not be deemed to waive or release the default
of Tenant in not discharging such lien. Landlord reserves the right to change,
increase or reduce, from time to time, the number, composition, dimensions or
location of any parking areas, signs, the Building name, service areas,
walkways, roadways or other common areas or make alterations or additions to the
Building, in its sole discretion.
b. Notice of Non-Liability. Notice is hereby given that Landlord shall
not be liable for any labor or materials furnished or to be furnished to Tenant
upon credit, and that no mechanics' or other lien for any such labor or
materials shall attach to or affect the estate or interest of Landlord in and to
the Premises. Whenever and as often as any lien arising out of or in connection
with any work performed, materials furnished or obligations incurred by or on
behalf of Tenant shall have been filed against the Premises, or if any
conditional bill of sale shall have been filed for or affecting any materials,
machinery or fixtures used in the construction, repair or operation thereof, or
annexed thereto by Tenant, Tenant shall forthwith take such action by bonding,
deposit or payment as will remove or satisfy the lien or conditional bill of
sale within ten (10) days of Landlord's written request therefor.
c. No approval of plans by Landlord shall be deemed to be a representation
or warranty by Landlord that such plans or the work provided for therein will
comply with applicable codes, laws or regulations or be in conformance with any
insurance or other requirements which affect the Premises, and Tenant shall have
the sole responsibility of complying with all such requirements notwithstanding
Landlord's approval of Tenant's plans.
10. Damage. (a) If the Premises are damaged by fire or other cause covered by
Landlord's policy of fire insurance with extended coverage or other property
damage insurance carried by Landlord, the damage shall be repaired by and at the
expense of Landlord and the Base Rent and Additional Rent until such repairs
shall have been made shall abate pro-rata according to the part of the Premises
which is unusable by Tenant. However, if such damage was caused by the
negligence of Tenant, its employees, agents, contractors, visitors or licensees,
then all rentals shall be payable by Tenant during such period. Due allowance
shall be made for reasonable delay which may arise by reason of adjustment of
fire insurance by Landlord, and for personnel delay on account of "labor
troubles" or any other cause beyond Landlord's control. If, however, the
Premises are rendered wholly untenantable by fire or other cause and Landlord
shall decide not to rebuild the same, or if the entire Building be so damaged
that Landlord shall decide to demolish it or not to rebuild it, then or in any
of such events, Landlord may, at its option, cancel and terminate this Lease by
giving Tenant notice in writing of its intention to cancel this lease, whereupon
the term of this Lease shall terminate upon the thirtieth (30th) day after such
notice is given, and Tenant shall vacate the Premises and surrender the same to
Landlord. In neither of the certain contingencies in this paragraph mentioned
shall there be any liability on the part of Landlord to Tenant covering or in
respect of any
4
<PAGE>
period during which the occupation of said Premises by Tenant may
not be possible because of the matters hereinabove stated, nor shall Landlord be
liable for any damage incurred by Tenant other than Landlord's obligation to
repair the Premises as aforesaid. Without limiting the foregoing, Landlord
shall not be responsible for consequential damages, lost profits or any damage
to Tenant's personal property.
(b) Notwithstanding anything to the contrary contained in this Lease, if
the Premises are damaged or destroyed by fire, accident, the elements or other
casualty (a "Casualty") during the term, Landlord shall notify Tenant within
thirty (30) days after such Casualty of Landlord's good faith estimate of the
time needed to undertake reconstruction of the Premises. If the estimated time
for repairs to the Premises exceeds one hundred eighty (180) days from the date
of Casualty, Tenant shall have the right to terminate this Lease by giving to
Landlord notice of such termination within fifteen (15) days after Landlord
provides notice of such good faith estimate. In the event that Landlord or
Tenant do not exercise a right of termination as provided in this Lease,
Landlord shall commence to repair the damage caused by such Casualty and,
thereafter, shall diligently and continuously pursue completion of such repairs,
within the estimated completion date as set forth in Landlord's notice. If
Landlord fails to so complete the repairs within the estimated completion date,
Tenant shall have the right and option, as its sole and exclusive remedy upon no
less than thirty (30) days prior notice to Landlord to terminate this Lease;
provided, however, that any termination of this Lease by Tenant shall be null
and void if Landlord substantially completes repairs within thirty (30) days
after receipt of Tenant's notice of termination.
11. Condemnation.
a. If the Premises or any part thereof shall be taken by any governmental
or quasi-governmental authority pursuant to the power of eminent domain, or by
deed in lieu thereof, Tenant agrees to make no claim for compensation in the
proceedings, and hereby assigns to Landlord any rights which Tenant may have to
any portion of any award made as a result of such taking, and this Lease shall
terminate as to the portion of the Premises taken by the condemning authority
and rental shall be adjusted to the date of such taking. The foregoing
notwithstanding, Tenant shall be entitled to claim, prove and receive in the
condemnation proceedings such awards as may be allowed for relocation expenses
and for fixtures and other equipment installed by it which shall not, under the
terms of this Lease, be or become the property of Landlord at the termination
hereof, but only if such awards shall be made by the condemnation court in
addition to and stated separately from the award made by it for the land and the
building or part thereof so taken.
b. If the nature, location or extent of any condemnation affecting the
Building is such that Landlord elects in good faith to demolish the Building,
then Landlord may terminate this Lease by giving at least sixty (60) days'
written notice of termination to Tenant at any time after such condemnation and
this Lease shall terminate on the date specified in such notice.
12. Use of Premises. The Premises shall be used and occupied by Tenant solely
for the purpose of general office use, and for no other purpose whatsoever.
Tenant shall permit Landlord to transmit heat, air conditioning and electric
current through the Premises at all times at Landlord's discretion. The
Premises shall not be used for any illegal purpose or in violation of any valid
regulation of any governmental body, or in any manner to (i) create any nuisance
or trespass; (ii) annoy or embarrass Landlord or any other Tenant of the
Property; (iii) vitiate any insurance; or (iv) alter the classification or
increase the rate of insurance on the Building.
13. Repairs by Tenant. Tenant agrees to maintain the Premises and the fixtures
therein in good order and in a condition commensurate with a first-class office
building during the term of this Lease at its sole cost and expense, and will,
at the expiration or other termination of the term hereof, surrender and deliver
up the same and all keys, locks and other fixtures connected therewith (except
only office furniture and business equipment) in like good order and condition
ordinary wear and tear excepted.
14. Repairs by Landlord. Landlord shall have no duty to Tenant to make any
repairs or improvements to the Premises except structural repairs necessary for
safety and tenantability, and then only if not brought about by any act or
neglect of Tenant, its agents, employees or invitees. Landlord shall not be
liable for any damage (including any consequential damages or lost profits)
caused to the person or property of Tenant, its agents, employees or invitees,
due to the Building or any part of appurtenances thereof being improperly
constructed or being or becoming out of repair, or arising from the leaking of
gas, water, sewer or steam pipes, or from electricity, or from any other cause
whatsoever. Tenant agrees to report immediately in writing to Landlord any
defective condition in or about the Premises known to Tenant which Landlord is
required to repair, and a failure to so report shall make Tenant liable to
Landlord for any expense, damage or liability resulting from such defects.
15. Roof Rights. Landlord shall have the exclusive right to use all or any
portion of the roof of the Building for any purposes.
16. Landlord's Remedies Upon Default. Tenant shall be in default under this
Lease if Tenant (i) fails to pay any installment of Minimum Rent, Additional
Rent or other charges or money obligation to be paid by Tenant hereunder within
five (5) days after the same shall become due (all of which monetary obligations
of Tenant shall bear interest at the highest rate allowable by law, not to
exceed 18% per annum from the date due until paid); provided, however, that
Tenant shall not be in default with respect to the first two (2) monetary
payments received after such five (5) day period in any Lease Year until five
(5) days after Tenant's receipt of written notice of such late payment: or (ii)
if Tenant shall default in performing any of the covenants, terms or provisions
of this Lease (other than the payment, when due, of any of Tenant's monetary
obligations hereunder) or any of the Rules and Regulations now or hereafter
established by Landlord to govern the operation of the building and fails to
cure such
5
<PAGE>
default within thirty (30) calendar days after written notice thereof from
Landlord; or if Tenant shall abandon the Premises; or if Tenant is adjudicated a
bankrupt; or if a permanent receiver is appointed for Tenant's property; or if,
whether voluntarily or involuntarily, Tenant takes advantage of any debtor
relief proceedings under any present or future law, whereby the rent or any part
thereof, is or is proposed to be, reduced or payment thereof deferred; or if
Tenant makes an assignment for the benefit of creditors or if Tenant's property
or effects should be levied upon or attached under process against Tenant, not
satisfied or dissolved within 10 calendar days after written notice from
Landlord to Tenant to obtain satisfaction thereof; then, and in any of said
events, Landlord, at its option may pursue any one or more of the following
remedies without any notice or demand whatsoever:
a. Landlord, at its option, may at once, or at any time thereafter
terminate this Lease by written notice to Tenant, whereupon this Lease shall end
concurrently with the receipt by Tenant of such notice. Upon such termination
by Landlord, Tenant will at once surrender possession of the Premises to
Landlord and remove all of Tenant's effects therefrom, and Landlord may
forthwith re-enter the Premises and repossess himself thereof, and remove all
persons and effects therefrom, using such force as may be necessary, without
being guilty of trespass, forcible entry, detainer or other tort.
b. Landlord may, without terminating this Lease, enter upon and take
possession of the Premises and expel or remove Tenant and any other person who
may be occupying the Premises or any part thereof, without being liable for
prosecution or any claim for damages therefor, and, if Landlord so elects, make
such alterations and repairs as, in Landlord's judgment, may be necessary to
relet the Premises, and relet such space or any part thereof for such rent and
for such period of time and subject to such terms and conditions as Landlord may
deem advisable and receive the rent therefor. Upon each such reletting, all
rent received by Landlord from such reletting shall be applied first to the
payment of any indebtedness other than rent due hereunder from Tenant to
Landlord, including interest thereon; second, to the payment of any loss or
expense of such reletting, including brokerage fees, attorneys' fees,
advertising and promotion expenses and the cost of such alterations and repairs;
third, to the payment of rent due and unpaid hereunder, together with interest
thereon as herein provided; and the residue, if any, shall be held by Landlord
and applied in payment of future rent as the same may become due and payable
hereunder. Tenant agrees to pay to Landlord, on demand, any deficiency that may
arise by reason of such reletting. Notwithstanding any such reletting without
termination, Landlord may at any time thereafter elect to terminate this Lease
for such prior default.
c. In the event Landlord terminates this Lease in accordance with the
provisions of this paragraph 16, Landlord may, in addition to any other remedy
it may have, recover from Tenant all damages and expenses Landlord may suffer or
incur by reason of Tenant's default hereunder, including, without limitation,
the cost of recovering the Premises, reasonable attorneys' fees and the worth at
the time of such termination of the excess, if any, of the amount of rent and
charges equivalent to the rent reserved in this Lease for the remainder of the
stated term over the then reasonable rental value of the Premises for the
remainder of the stated term, all of which sums shall become immediately due and
payable by Tenant to Landlord upon demand of Landlord.
d. That if the rent agreed to be paid, including all other sums of money
which under the provisions hereof are declared to be rent, shall be in arrears
in whole or in part for five or more calendar days, Landlord may, at its option
(if such arrearage remains unpaid after ten calendar days written notice to
Tenant), declare the tenancy hereunder converted into a tenancy from month to
month, and upon giving written notice to Tenant of the exercise of such option,
Landlord shall forthwith be entitled to all provisions of law relating to the
summary eviction of monthly tenants in default.
e. Anything in this Lease to the contrary notwithstanding, in order to
cover the extra expense involved in handling delinquent payments, Tenant shall
pay a "late charge" of Two Hundred Fifty and No/100 Dollars ($250.00) when any
installment of rent (basic or otherwise, as may be considered additional rental
under this Lease) is paid more than five (5) calendar days after the due date
thereof. It is hereby understood that this charge is for extra expenses
incurred by the Landlord in processing the delinquency and shall not be
considered interest.
f. Pursuit of any of the foregoing remedies shall not preclude Landlord
from pursuing any other remedies herein or at law or in equity provided, nor
shall pursuit of any remedy by Landlord constitute a forfeiture or waiver of any
rent due to Landlord hereunder or of any damages accruing to Landlord by reason
of Tenant's violation of any of the covenants and provisions of this Lease.
g. Tenant hereby appoints the person in charge of the Premises at the time
as its agent to receive service of all dispossessory or restraint proceedings
and notices thereunder and under this Lease, and if no person is then in charge
of the Premises, such service or notice may be made by attaching the same to the
main entrance of the Premises, provided that a copy of any such proceedings or
notices shall be mailed to Tenant in the manner set forth in paragraph 16
hereof.
17. Services of Landlord. Landlord shall furnish reasonably adequate electric
current, elevator service, water and lavatory supplies during normal business
hours, and normal and usual cleaning and janitorial service for the Building
Common Areas only after business hours. Landlord further agrees to furnish heat
and air conditioning in its judgment sufficient to reasonably cool or heat the
Premises from 8:00 a.m. to 6:00 p.m., Mondays through Fridays, inclusive; and
from 9:00 a.m. to 1:00 p.m., Saturdays (said services not being furnished on
Sundays or legal holidays), provided, however, that Landlord shall not be liable
for failure to furnish or for suspension or delay in furnishing such services
due to breakdown, maintenance, or repair work, strike, riot, civil commotion,
governmental action or any other cause beyond the reasonable control of
Landlord, or for interruptions of service
6
<PAGE>
for reasonable periods in connection with construction work being performed in
the Building. Landlord shall, upon at least twenty-four (24) hours notice from
Tenant, provide after hours HVAC for a charge of no more than $35.00 per hour,
payable by Tenant as Additional Rent.
18. Insurance.
a. Tenant agrees that it will indemnify and save Landlord harmless from
any and all liabilities, damages, causes of action, suits, claims, judgments,
costs and expenses of any kind (including attorneys' fees) (i) relating to or
arising from or in connection with the possession, use, occupation, management,
repair, maintenance or control of the Premises or any portion thereof, or (ii)
arising from or in connection with any act or omission of Tenant or Tenant's
agents, employees or invitees, or (iii) resulting from any injury to person or
property or loss of life sustained in or about the Premises. To assure such
indemnity, Tenant shall carry and keep in full force and effect at all times
during the term of this Lease for the protection of Landlord and Tenant herein,
commercial general liability insurance with limits of at least Two Million
Dollars ($2,000,000.00) combined single limit for each occurrence, with an
approved insurance company, and Tenant shall deliver to Landlord a copy of said
policy or a certificate showing the same to be in full force and effect prior to
the Rent Commencement Date and at least annually thereafter.
b. Throughout the Lease Term, Tenant shall insure, for their full
insurable value, the contents of the Premises, including furnishings, fixtures
and equipment used or installed in the Premises by or on behalf of Tenant, and
the other personal property of Tenant in the Premises, against loss due to fire
and other casualties included in broad form property insurance policies, with an
agreed amount endorsement and replacement cost coverage.
c. Said public liability and property damage insurance policies and any
other insurance policies carried by Tenant with respect to the Premises, shall
(i) be issued in form acceptable to Landlord by good and solvent insurance
companies qualified to do business in the Commonwealth of Virginia reasonably
satisfactory to Landlord; (ii) be written as primary policy coverage and not
contributing with or in excess of any coverage which Landlord may carry; (iii)
provide for at least 30 days' prior written notice to Landlord of any
cancellation or other expiration of such policy or any defaults thereunder,
Tenant's liability insurance policy shall name Landlord and Landlord's managing
agent (and, if so requested, Landlord's mortgagee) as additional insureds.
Neither the issuance of any insurance policy required hereunder, nor the minimum
limits specified herein with respect to the Tenant's insurance coverage, shall
be deemed to limit or restrict in any way Tenant's liability arising under or
out of this Lease.
d. (1) To the extent permitted by law, each of Landlord and Tenant hereby
releases the other , to the extent of all insurance carried (or required to be
carried) by each party under the terms of this Lease, from liability for any
loss or damage caused by fire or other of the extended casualties insured
against; provided, however, that this release shall be in force and effect
only with respect to loss or damage occurring during such time as the releasing
party's insurance policy contain a clause or clauses which provides that: (i)
the insurance company waives subrogation or consents to a waiver of right of
recovery, and (ii) such waiver of subrogation or consent to a waiver of a right
of recovery does not adversely affect or prejudice said policy or the releasing
party's right of full recovery thereunder. Landlord's release of Tenant under
this subparagraph 18(d) is expressly conditioned upon Tenant's full cooperation
with Landlord's insurance carrier in inspections of the Premises and Tenant's
compliance with all requirements imposed by Landlord's insurance carrier with
respect to any activities in or use of the Premises which increases the risk of
loss to the Building or the Premises.
(2) If a party advises the other party that a clause of the type described
in paragraph (1) above is (i) not obtainable, or (ii) only obtainable at
additional cost, then such party shall not be obligated to obtain a waiver;
provided, however, that with respect to an inability to obtain a waiver due to
the imposition of additional cost, the party shall promptly notify the other
party of the amount of such additional cost and, if the party desiring that the
other party obtain a waiver agrees in writing to pay the additional cost of
obtaining the waiver, then, upon receipt of such payment, that party shall
obtain a waiver of subrogation for the benefit of the other party, as described
in paragraph (a) above To the extent that Tenant is permitted to self insure
as to its personal property located in the Premises, Tenant will nevertheless be
deemed to be insured for such personal property for the purposes of this
paragraph (d).
19. Property at Tenant's Risk. It is understood and agreed that all personal
property in the Premises, of whatever nature, whether owned by Tenant or any
other person, shall be and remain at Tenant's sole risk and Landlord shall not
assume any liability or be liable for any damage to or loss of such personal
property, arising from the bursting, overflowing, or leaking of the roof or of
water, sewer, or steam pipes, or from heating or plumbing fixtures, or from the
handling of electric wires or fixtures, or from theft or vandalism or from any
other cause whatsoever.
20. Assignment; Subletting.
a. Neither Tenant, nor any of its permitted successors or assigns, shall
transfer, assign, mortgage, encumber, or, by operation of law or otherwise,
pledge, hypothecate, or assign all or any of its interest in this Lease, or
sublet or permit the Premises, or any part thereof, to be used by others,
including, but not by way of limitation, concessionaires or licensees of Tenant,
without the prior written consent of Landlord, in each instance, which consent
Landlord may withhold in its reasonable discretion. Any such subletting or
assignment shall be referred to as a "Transfer", and the person to whom Tenant's
interest is transferred shall be referred to as a "Transferee".
7
<PAGE>
b. The prohibition against any Transfer without the prior written consent
of Landlord shall apply, without limitation, to the following circumstances,
each of which shall be deemed a Transfer; (i) if Tenant or any guarantor of this
Lease is a corporation (other than a corporation, the outstanding voting stock
of which is listed on a "national securities exchange," as defined in the
Securities Exchange Act of 1934), and if shares of such corporation are
transferred by sale, assignment, bequest, inheritance, operation of law or
otherwise (including, without limitation, a transfer to or by a receiver or
trustee in federal or state bankruptcy, insolvency or other proceeding), so as
to result in or make possible a change in the present control of such
corporation; (ii) if Tenant or any guarantor of this Lease is a partnership, any
change in control or ownership of such partnership; (iii) any transfer by sale,
assignment, bequest, inheritance, operation of law or other disposition of all
or substantially all of the assets of Tenant or any guarantor which results in
or makes possible a change in the present control of the business of Tenant or
any such guarantor; (iv) any other change in ownership of Tenant, any guarantor
of this Lease or the business operated by Tenant, or (v) any subletting or
assignment which occurs by operation of law, merger, consolidation, or
reorganization or any change of Tenant's corporate or proprietary structure. In
no event may Tenant assign this Lease, or sublease the Premises, if Tenant is in
default under this Lease.
c. In the event that Tenant desires to effect a Transfer hereunder, Tenant
shall give Landlord written notice (the Transfer Notice") thereof. To be
effective, the Transfer Notice shall be accompanied by Tenant's check, payable
to the order of Landlord, or Landlord's Agent, in an amount equal to the greater
of (i) $500.00 or (ii) one percent (1%) of the Minimum Rent to compensate
Landlord for the cost of reviewing the proposed Transfer and specify the
proposed Transferee, and the proposed terms of the Transfer, and contain such
information about the proposed Transferee, its experience, its financial
situation, its methods of operation, and its impact on the Building, as a
prudent businessman would require in making the Transfer decision. Tenant
specifically agrees to apprise Landlord of any adverse or negative information
in its possession concerning the proposed Transfer and the proposed Transferee.
The Transfer Notice shall also contain a certificate by Tenant (or an officer or
general partner of Tenant if Tenant is a corporation or partnership) of all
"Transfer Consideration" (as defined below) or payable in connection with the
proposed Transfer. Within forty-five (45) days of the receipt of the Transfer
Notice Landlord shall, by written notice to Tenant, elect: (i) to permit the
proposed Transfer; (ii) to terminate this Lease, (iii) to sublet with the right
to further sublet from Tenant for the balance of the term of this Lease (a) all
of the Premises, or (b) only so much of the Lease Premises as Tenant proposed to
Transfer, at the same rental as Tenant is obligated to pay to Landlord
hereunder; or (iv) to deny consent to the proposed Transfer, in which event
Tenant shall continue to occupy the Lease Premises and comply with all of the
terms and conditions hereof.
If Landlord consents to a Transfer, the permitted Transferee shall assume by
written instrument all of Tenant's obligations under this Lease and such
Transferee, at least thirty (30) days prior to the effective date of the
permitted Transfer, shall deliver to Landlord the proposed sublease, assignment
and assumption agreement or other instrument evidencing the Transfer and the
Transferee's undertaking to perform Tenant's obligations under this Lease. All
of such documents shall be subject to Landlord's prior written approval. In the
event of a permitted Transfer, Tenant shall continue to be liable hereunder, and
shall not be released from performance hereunder. In addition to the Rent
reserved hereunder, Tenant shall pay to Landlord all monies, property and other
consideration of every kind whatsoever paid or payable to Tenant in
consideration of or related to such Transfer and for all property transferred to
the Transferee, as all or part of the consideration including, without
limitation, fixtures, other Leasehold Improvements, furniture, equipment and
furnishings (collectively, all of the foregoing monies, property and other
consideration shall be referred to as the "Transfer Consideration"), but
excluding bona fide consideration paid for transfer of Tenant's property.
Following a permitted Transfer of this Lease, Landlord shall not be required to
send the named Tenant any notice of default by the approved Transferee.
e. Any Transfer without Landlord's consent, whether as a result of any act
or omission of Tenant, or by operation of law or otherwise, shall not be binding
upon Landlord, and shall confer no rights upon any third person. Each such
unpermitted Transfer shall, without notice or grace period of any kind,
constitute a default by Tenant under this Lease. The acceptance by Landlord of
the payment of Rent following any Transfer prohibited by this Article 20 shall
not be deemed to be a consent by Landlord to any such Transfer, an acceptance of
the Transferee as a tenant, a release of Tenant from the performance of any
covenants herein contained, or a waiver by Landlord of any remedy of Landlord
under this Lease, although amounts actually received shall be credited by
Landlord against Tenant's rent obligations. Consent by Landlord to any one
Transfer shall not constitute a waiver of the requirement for consent to any
other Transfer. No reference in this Lease to assignees, concessionaires,
subtenants or licensees shall be deemed to be a consent by Landlord to the
occupancy of the Lease Premises by any such assignee, concessionaire, subtenant
or licensee.
f. If Tenant is a corporation, limited liability company or partnership,
Tenant represents that the ownership and power to vote its entire outstanding
capital stock or partnership interests belongs to and is vested in the persons
listed on Exhibit "E". The foregoing provisions of this paragraph (f) shall not
apply to a publicly held entity described in clause (i) of paragraph (b) of this
Article 20, or if Tenant has filed Form S-1 with the SEC, submission of such
Form S-1, by Tenant, at Tenant's discretion, will satisfy this section.
g. If any sublease or assignment provides that the subtenant or assignee
is to pay any amount in excess of the rent and other charges due under this
Lease, Tenant shall pay to Landlord any such excess as additional rent no later
than ten (10) days after Tenant's receipt thereof, after deducting actual costs
associated with assigning or subletting the space.
21. Signs.
a. No sign, advertisement or notice shall be inscribed, painted, affixed
or displayed on the windows or exterior walls of the Premises or on any public
area of the Building, except the directories and the office doors,
8
<PAGE>
and then only in such places, numbers, sizes, colors and style as are approved
by Landlord and which conform to all applicable laws and/or ordinances.
22. Rules and Regulations. Tenant shall at all times comply with the rules and
regulations set forth on Exhibit C attached hereto, and with any reasonable
additions thereto and modifications thereof adopted from time to time by
Landlord, and each such rule or regulation shall be deemed to be a covenant of
this Lease to be performed and observed by Tenant. Landlord agrees that it will
use diligent, commercially reasonable efforts to enforce the rules and
regulations in a non-discriminatory manner.
23. Lien on Personal Property. Intentionally Deleted.
24. Parking. Tenant hereby leases from Landlord, during the term of this
Lease, eleven (11) parking spaces in the parking garage adjacent to the
Building. All parking spaces are leased on a non-exclusive basis, provided,
however, Landlord reserves the right to designate or assign specific parking
spaces for Tenant's use or for the use of other Building tenants, and the
further right to redesignate or relocate, from time-to-time, any such designated
or assigned spaces. During the first Lease Year the monthly rental for each
parking space leased to Tenant is Forty Dollars ($40.00). The aforesaid parking
space rental shall escalate annually by the same percentage, in the same manner
and at the same time as the Initial Base Rent escalates pursuant to paragraph 4
above. Monthly rental for parking spaces shall be payable, in advance, at the
same time that the Initial Base Rent is payable. Tenant hereby acknowledges and
agrees that only compact cars will be parked in spaces designated for compact
cars and that all other automobiles parked in such spaces will be towed at the
automobile owner's risk and expense. Tenant will not assign or sublease its
parking rights hereunder, except in connection with an approved assignment or
subleasing of the Premises and any attempted assignment or sublease shall be
deemed a prohibited assignment or sublease pursuant to the terms of paragraph 20
above. Landlord reserves the right to transfer the management and operation of
the parking garage to a third party. Tenant agrees to comply with, and abide
by, any and all traffic and/or parking rules and regulations imposed by Landlord
from time-to-time.
25. Landlord Access. Landlord may enter the Premises at all reasonable hours,
upon twenty-four (24) hours notice, except for emergencies, to exhibit the same
to prospective purchasers, mortgagees or tenants, to inspect the premises to see
that Tenant is complying with all its obligations hereunder, to make repairs
required of Landlord under the terms hereof or to make repairs to Landlord's
adjoining property.
26. Subordination.
a. This Lease is subject and subordinate to all ground or underlying
leases and to all mortgages or deeds of trust, which may now or hereafter affect
or encumber the Building or the real property of which the Premises form a part
and to all renewals, modifications, consolidations, replacements or extensions
thereof. This paragraph shall be self-operative and no further instrument of
subordination shall be required. In confirmation of any such subordination,
Tenant shall execute within five (5) calendar days after receipt, any
certificate or agreement that Landlord may reasonably so request. Tenant
covenants and agrees to attorn to Landlord or to any successors to Landlord's
interest in the Premises, whether by sale, foreclosure or otherwise.
b. Notwithstanding the foregoing, in the event any such ground lessor or
mortgagee shall elect to make the lien of this Lease prior to the lien of its
ground lease, mortgage or deed of trust, then, upon such party giving Tenant
written notice to such effect, this Lease shall be deemed to be prior in lien to
the lien of such ground lease, mortgage or deed of trust, whether dated prior or
subsequent thereto.
27. Mortgagee Protection. Tenant agrees to give any Mortgagees and/or Trust
Deed Holders, by registered mail, a copy of any Notice of Default served upon
Landlord, provided that prior to such notice Tenant has been notified, in
writing (by way of Notice of Assignment of Rents and Leases, or otherwise) of
the address of such Mortgagees and/or Trust Deed Holders. Tenant further agrees
that if Landlord shall have failed to cure such default within the time provided
for in this Lease, then the Mortgagees and/or Trust Deed Holders shall have an
additional thirty (30) calendar days within which to cure such default or if
such default cannot be cured within that time, then such additional time as may
be necessary if within such thirty (30) calendar days, any such Mortgagee and/or
Trust Deed Holder has commenced and is diligently pursuing the remedies
necessary to cure such default (including but not limited to commencement of
foreclosure proceedings, if necessary to effect such cure), in which event this
Lease shall not be terminated while such remedies are being so diligently
pursued. Tenant agrees that in the event of the sale of the property, by
foreclosure or deed in lieu thereof, the purchaser at such sale shall only be
responsible for the return of any security deposits paid by Tenant to Landlord
in connection with this Lease to the extent that such purchaser actually
receives such security deposit.
28. Landlord shall finish the Premises in accordance with the terms and
provisions of the Building Standards and Allowances and the Work Agreement (if
any) attached hereto as Exhibits B and D, respectively, and by this reference
made a part hereof. It is understood and agreed that Landlord will not make,
and is under no obligation to make, any structural or other alterations,
decorations, additions or improvements in or to the Premises except as set forth
in said Exhibits B and D.
29. Hold-Over. Hold-Over. If Tenant shall not immediately surrender the
Premises the day after the end of the term hereby created, then Tenant shall, by
virtue of this agreement, become, at Landlord's option, either (a) a tenant at
sufferance, or (b) a tenant from month-to-month. In either of such events, rent
shall be payable at a monthly or daily rate, as the case may be, of one and one-
half the Minimum Rent and Additional Rental payable by Tenant immediately prior
to the expiration or termination of the term, with said tenancy to commence on
the first
9
<PAGE>
day after the end of the term above demised; and said tenancy shall be subject
to all of the conditions and covenants of this Lease insofar as such covenants
and conditions are applicable thereto. Nothing contained in this Lease shall be
construed as a consent by Landlord to the occupancy or possession of the
Premises after the expiration of the term of this Lease. If Landlord fails to
make an election under clause (a) or (b) within ten (10) days after the
expiration or termination of the term, the hold-over tenancy shall be deemed to
be a tenancy from month-to-month. If Tenant holds over as a month-to-month
tenant, each party hereto shall give to the other at least thirty (30) days'
written notice to quit the Premises (any right to a longer notice period being
hereby expressly waived), except in the event of non-payment of rent in advance
or of the other Additional Rents provided for herein when due, or of the breach
of any other covenant by the said Tenant, in which event Tenant shall not be
entitled to any notice to quit, the usual thirty (30) days' notice to quit being
expressly waived; provided, however, that in the event Tenant shall hold over
after expiration of the term hereby created, and if Landlord shall desire to
regain possession of said Premises promptly at the expiration of the term
aforesaid, then at any time prior to the date Landlord makes (or is deemed to
have made) its election under clause (b) of this Article 29, Landlord at its
option, may re-enter and take possession of the Premises forthwith, without
process, or by any legal action or process in force in the state in which the
Premises is located; provided, however, that if Landlord has accepted rent for
any period beyond the expiration of the term and Tenant is not then in default
under any of the provisions of this Lease, Landlord shall promptly refund to
Tenant an amount equal to any excess rental received by Landlord with respect to
any period after Landlord exercises its right to re-enter the Premises under
this Article 29.
30. Estoppel Certificates. Tenant agrees, at any time and from time to time,
upon not less than twenty (20) calendar days' prior written notice from
Landlord, to execute, acknowledge and deliver to Landlord or to such person(s)
as may be designated by Landlord, a statement in writing (i) certifying that
Tenant is in possession of the Premises, has unconditionally accepted the same
and is currently paying the rents reserved hereunder, (ii) certifying that this
Lease is unmodified and in full force and effect (or if there have been
modifications, that the Lease is in full force and effect as modified and
stating the modifications), (iii) stating the dates to which the rent and other
charge hereunder have been paid by Tenant, and (iv) stating whether or not, to
the best of Tenant's knowledge, Landlord is in default in the performance of any
covenant, agreement or condition contained in this Lease, and, if so, specifying
each such default in detail. If Tenant fails to execute and return any such
agreement to Landlord within such twenty (20) day period, then Landlord shall be
entitled to collect from Tenant, as liquidated damages with respect to such
default of Tenant in addition to Base Rent and other amounts payable hereunder,
as Additional Rent, an amount equal to one-half of one percent (1/2%) of the
then amount of Base Rent then payable under this Lease, for each day Tenant
delays in returning the requested agreement to Landlord. Any such statement,
delivered pursuant hereto may be relied upon by any owner, prospective
purchaser, mortgagee or prospective mortgagee of the Building or of Landlord's
interest therein.
31. Quiet Enjoyment. Landlord warrants that it has the right to make this
Lease for the term aforesaid and that it will put Tenant into complete and
exclusive possession of the Premises. Landlord covenants that if Tenant pays
the rent and all other charges provided for herein, performs all of its
obligations provided for hereunder and observes all of the other provisions
hereof, Tenant shall at all times during the term hereof peaceably and quietly
have, hold and enjoy the Premises, without any interruption or disturbance from
Landlord, or anyone claiming through or under Landlord, subject to the terms
hereof.
32. Delay. In the event Landlord for any reason is unable to deliver
possession of the Premises to Tenant on or before the Rent Commencement Date, at
Landlord's option, (i) this Lease shall remain in full force and effect and
Tenant shall have no claim against Landlord by reason of any such delay but no
rent shall be payable during the pendency of any such delay (except as provided
in Exhibit B), or (ii) upon written notice to Tenant, Landlord may terminate
this Lease and, except for the return of any security deposit or prepaid rent,
Landlord shall have no further obligation or liability to Tenant. In the event
that Landlord does not so terminate this Lease, at such time as Landlord tenders
possession of the Premises to Tenant in writing, Tenant shall commence payment
of rent pursuant to paragraph 3 hereof, and the expiration date of the term of
this Lease shall be extended for a period equal to the period of such delay. In
the event of any such delay, Landlord and Tenant shall execute a Commencement
and Estoppel Agreement as provided in Article 2, specifying the date on which
possession of the Premises was tendered by Landlord. Notwithstanding the
foregoing to the contrary, subject to events of Force Majeure and any Tenant
Delay (as defined in Exhibit B), if Landlord fails to deliver the Premises to
Tenant on or before August 1, 1998, Tenant may, as its sole and exclusive
remedy, with fifteen (15) days prior written notice, terminate this Lease. In
the event Landlord delivers the Premises to Tenant within said fifteen (15) day
period as aforesaid, Tenant's notice to terminate shall be null and void and the
Lease shall continue in full force and effect.
33. Relocation of Tenant. It is understood and agreed that Landlord shall have
the right, one time, at its sole cost and expense, to relocate Tenant to other
premises within the Building of equal or greater kind and quality, provided (i)
the Premises is less than 3,000 gross rentable square feet, or (ii) such
relocation is necessary in order for Landlord to accommodate a tenant whose
space requirements equal or exceed fifty percent (50%) of the total gross
rentable square feet contained within the full floor upon which the Premises is
located. In no event shall any relocation accomplished pursuant to this
paragraph result in a change in the rent payable under this Lease.
34. Financial Statements. Tenant, upon Lease execution, and thereafter upon
written request by Landlord, will provide Landlord with a copy of its current
financial statements, consisting of a balance sheet, an earnings statement,
statement of changes in financial position, statement of changes in tenant's
equity, and related footnotes, prepared in accordance with generally accepted
accounting principles. Such financial statements must be either certified by a
CPA or sworn to as to their accuracy by Tenant's most senior official and its
chief financial officer. The financial statements provided must be as of a date
not more than 12 months prior to the date of request. Landlord shall retain
such statements in confidence, but may provide copies to lenders and potential
lenders.
10
<PAGE>
35. Modifications Due to Financing. If, in connection with obtaining temporary
or permanent financing for the Building or the land upon which the Building is
located, any such lender shall request reasonable modifications of this Lease as
a condition to such financing, Tenant agrees that Tenant will not unreasonably
withhold, delay or defer the execution of an agreement of modification of this
Lease, provided such modifications do not increase the financial obligations of
Tenant hereunder or materially adversely affect the leasehold interest hereby
created or Tenant's reasonable use and enjoyment of the Premises.
36. Attorneys' Fees. The non-prevailing party shall reimburse the prevailing
party upon demand for any costs or expenses, including attorney fees, incurred
in connection with the enforcement of obligations hereunder. Any and all costs
or expenses incurred by Landlord pursuant to the provisions hereof shall be
considered as Additional Rent hereunder. Tenant acknowledges that it has
engaged counsel in connection with the negotiation of this Lease, or that Tenant
has freely decided to enter into this Lease without engaging the services of
counsel.
37. Notices. All notices required or desired to be given hereunder by either
party to the other shall be sent, postage prepaid, by certified or registered
mail or by national overnight delivery service (with receipt therefor). All
rents and other monetary obligations arising hereunder, and all notices to the
respective parties shall be addressed and sent as follows:
If to Landlord: Rent Checks Payable to:
B.F. Saul Real Estate Investment Trust Travelers Insurance Co.
c/o Franklin Property Company RE: 501998
8401 Connecticut Avenue P.O. Box 64205
Chevy Chase, Maryland 20815 Baltimore, Maryland 21264-4205
Attn: Philip D. Caraci,
Senior Vice President and Secretary
If Tenant:
Inktomi Corporation
1900 S. Norfolk Street
San Mateo, CA 94403
Attn: Marion Smith, III
38. Remedies Cumulative; No Waiver. All rights and remedies given herein
and/or by law or in equity to Landlord are separate, distinct and cumulative,
and no one of them, whether exercised by Landlord or not, shall be deemed to be
in exclusion of any of the others. No failure of Landlord to exercise any power
given Landlord hereunder, or to insist upon strict compliance by Tenant with his
obligations hereunder, and no custom or practice of the parties at variance with
the terms hereof shall constitute a waiver of Landlord's right to demand exact
compliance with the terms hereof.
39. Modification. This writing is intended by the parties as the final
expression of their agreement and as a complete and exclusive statement of the
terms thereof, all negotiations, discussions and representations between the
parties having been incorporated herein. No course of prior dealings between
the parties or their affiliates shall be relevant or admissible to supplement,
explain or vary any of the terms of this Lease. Acceptance of, or acquiescence
in, a course of performance rendered under this or any prior agreement between
the parties or their affiliates shall not be relevant or admissible to determine
the meaning of any of the terms of this Lease. No representations,
understandings or agreements have been made or relied upon in the making of this
Lease other than those specifically set forth herein. This Lease can only be
modified by a writing signed by all of the parties hereto or their duly
authorized agents.
40. Waiver of Jury Trial. Landlord and Tenant each hereby waive all right to
trial by jury in any claim, action, proceeding or counterclaim by either party
against the other on any matters arising out of or in any way connected with
this Lease, the relationship of Landlord and Tenant and/or Tenant's use of
occupancy of the Premises.
41. Headings. The captions and headings contained herein are for convenience
and reference only.
42. Applicable Law. This Lease shall be construed under the laws of the
Commonwealth of Virginia.
43. Rent Tax. Tenant shall pay any rental, sales, use, business and/or similar
taxes levied or imposed by the Commonwealth of Virginia, the County of Fairfax,
or other governmental authority, whether imposed on Tenant or Landlord, such
payments to be in addition to all other payments required under the terms of
this Lease.
44. Gender; Assigns and Successors. Feminine or neuter pronouns shall be
substituted for those of the masculine form, and the plural may be substituted
for the singular number, in any place or places herein in which the context may
require such substitution or substitutions. The term "Landlord" as used in this
Lease, means only the owner for the time being of the Landlord's interest in
this Lease. This Lease shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns, except
that only the original Landlord named herein shall be liable for obligations
accruing before the beginning of the term hereof, and thereafter the original
Landlord named herein and each successive owner of the Premises shall be liable
only for obligations accruing during the period of its ownership. Whenever
Landlord conveys its interest in the Building,
11
<PAGE>
Landlord shall be automatically released from the further performance of
covenants on the part of Landlord herein contained, and from any and all further
liability, obligations, costs and expenses, demands, causes of action, claims or
judgments arising from or growing out of, or connected with this Lease after the
effective date of said release. The effective date of said release shall be the
date the assignee of Landlord executes an assumption of such an assignment
whereby the assignee expressly agrees to assume all of Landlord's obligations,
duties, responsibilities and liabilities with respect to this Lease. If
requested, Tenant shall execute a form of release and such other documentation
as may be required to further effect the foregoing provision.
45. Severability. If any term, covenant or condition of this Lease or the
application thereof to any person or circumstance shall to any extent be held
invalid or unenforceable, the remainder of this Lease or the application of such
term, covenant or condition to persons or circumstances other than those as to
which it is held invalid or unenforceable, shall not be affected thereby and
each term, covenant and condition of this Lease shall be valid and enforced to
the fullest extent permitted by law.
46. Interpretation. Whenever in this Lease any printed portion, or any part
thereof, has been stricken out, whether or not any replacement provision has
been added, this Lease shall be read and construed as if the material so
stricken out were never included herein, and no implication shall be drawn from
the text of the material so stricken out which would be inconsistent in any way
with the construction or interpretation which would be appropriate if such
material had never been contained herein. The Exhibits referred to in this
Lease and attached hereto are a substantive part of this Lease and are
incorporated herein by reference. In any legal proceeding respecting this
Lease, this Lease will be construed with equal weight for the rights of both
parties, the terms hereof having been determined by free and fair negotiation,
with due consideration for the rights and requirements of both parties. Both
parties agree that they have had equal input into the wording and phraseology of
the provisions of this Lease, and that, therefore, no provision will be
construed as drafted by one party or the other, without respect to whose draft
of this Lease the wording or phraseology arises. If any of the typewritten
portions of this Lease conflict with any of the printed provisions of this
Lease, the provisions set forth in the typewritten portions shall control;
provided, however, that to the extent the printed portions of this Lease may be
read in a manner which will not conflict with the provisions of the typewritten
portions, then such interpretation shall be deemed to be the correct
interpretation of the provisions of this Lease.
47. Landlord's Liability. Any agreement, obligation or liability made, entered
into or incurred by or on behalf of B.F. Saul Real Estate Investment Trust binds
only its trust property and no shareholder, trustee, officer, agent or employee
of the Trust assumes or shall be held to any liability therefor. Tenant agrees
that Landlord shall have no personal liability with respect to any of the
provisions of this Lease and Tenant shall look solely to the estate and property
of Landlord in the land and buildings comprising the Building including, without
limitation, the collection of any judgement or the enforcement of any other
judicial process requiring the payment or expenditure of money by Landlord,
subject, however, to the prior rights of any holder of any mortgage or deed of
trust covering all or part of the Building, and no other assets of Landlord
shall be subject to levy, execution or other judicial process for the
satisfaction of Tenant's claim and, in the event Tenant obtains a judgement
against Landlord, the judgement docket shall be so noted. This Section shall
inure to the benefit of Landlord's successors and assigns and their respective
principals.
48. Survival of Obligations. Landlord and Tenant's liabilities existing as of
the expiration or earlier termination of the Lease Term shall survive such
expiration or earlier termination.
49. Entity Tenants. If Tenant is a corporation, partnership or limited
liability company, the persons executing this Lease on behalf of Tenant hereby
covenant and warrant that: Tenant is duly constituted as such entity and is
qualified to do business in the state where the Premises are located; all
Tenant's franchise and corporate taxes have been paid to date; all future forms,
reports, fees and other documents necessary for Tenant to comply with applicable
laws will be filed by Tenant when due; and such persons are duly authorized by
the board of directors, partnership agreement or other applicable authority of
such entity to execute and deliver this Lease and certificate of good standing,
dated within sixty (60) days prior to the Lease Date, issued by the jurisdiction
in which Tenant is organized, and one or more of the following confirming the
authorization and due execution of this Lease by Tenant: (i) a certificate of
Tenant's Secretary if Tenant is a corporation; or (ii) a consent of the general
partners if Tenant is a partnership, or (iii) a certified copy of the Articles
of Organization, operating agreement or other evidence satisfactory to Landlord
evidencing the authority of the members of a limited liability company executing
this Lease on behalf thereof.
50. The Building is a "No Smoking" building. No smoking is permitted in any
tenant premises or any public or common areas within the Building. Landlord
reserves the right to designate areas adjacent to the Building where smoking is
permitted or prohibited. Persons smoking in areas adjacent to the Building
shall deposit all ashes and other trash in appropriate ashtrays or trash
receptacles, and shall not leave any litter in such areas.
51. No Option. The submission of this Lease for examination does not
constitute a reservation of or option for the Premises, and this Lease becomes
effective only upon execution and delivery thereof by Landlord. Neither party
shall have any legal obligation to the other in the event that the lease
contemplated herein is not consummated for any reason. Discussions between the
parties respecting the proposed lease described herein, shall not serve as a
basis for a claim against either party or any officer, director or agent of
either party.
52. Special Stipulations. The terms, covenants and conditions set forth in any
Articles of this Lease numbered higher than this Article 52 ("Special
Stipulations") are intended to supplement and, in certain events, modify or
vary, the other provisions set forth in the foregoing provisions of this Lease.
If any of the Special Stipulations
12
<PAGE>
conflict with any of the foregoing provisions of this Lease, the provisions set
forth in the Special Stipulations shall control; provided, however, that to the
extent the preceding portions of this Lease may be read in a manner which will
not conflict with the provisions of the Special Stipulations, then such
interpretation shall be deemed to be the correct interpretation of the
provisions of this Lease and the Special Stipulations.
53. Landlord Contribution. Landlord agrees to contribute up to Seven and
00/100 Dollars ($7.00) per square foot of Premises ("Landlord's Contribution)
towards the actual amount expensed to construct and improve the Premises in
accordance with plans approved by Landlord. Such costs will include all
architectural or engineering design costs, the costs of obtaining permits and
approvals for the work, plan review and similar charges, and, in the event
Landlord, as General Contractor, supervises the construction of Tenant's
improvements to the Premises, a Contribution will be payable in accordance with
the previsions of Paragraph 4 & 5 of Exhibit B, the Work Agreement of this
Lease.
IN WITNESS WHEREOF, the parties hereto have executed this Lease under seal
on the day and year first above written.
WITNESS/ATTEST: TENANT:
INKTOMI CORPORATION
/s/ [SIGNATURE ILLEGIBLE] BY: /s/ Jerry Kennelly
- ------------------------------- -------------------------------
PRINTED NAME: Jerry Kennelly
TITLE: CFO
TAX IDENTIFICATION OR SOCIAL SECURITY
NUMBER: 94-32381 30
ATTEST: LANDLORD:
B.F. SAUL REAL ESTATE INVESTMENT TRUST
/s/ [SIGNATURE ILLEGIBLE] BY: /s/ Philip D. Caraci
- ------------------------------- -------------------------------
Philip D. Caraci, President
13
<PAGE>
SECRETARY'S CERTIFICATE
I, Jerry Kennelly, Secretary of Inktomi Corporation, a Delaware corporation, do
hereby certify (i) that the foregoing and annexed Lease was executed and
delivered pursuant to, and in strict conformity with the provisions of
resolutions of the Board of Directors of said Corporation validly adopted at a
regularly called meeting of said Board of Directors, and that a quorum was
present at said meeting (or validly adopted by unanimous written consent of said
Board of Directors in lieu of a meeting), in conformity with the laws of the
state of incorporation of said Corporation; and (ii) that the following is a
true, correct and complete reproduction of such resolutions:
RESOLVED: That Jerry Kennelly CEO
--------------------------- --------------------------
(Name) (Title)
of the Corporation, shall be and is hereby authorized and empowered, for
and on behalf of the Corporation, to execute, acknowledge and deliver the
foregoing and annexed Lease between B. F. Saul Real Estate Investment
Trust, as Landlord, and Inktomi Corporation as Tenant, for those certain
Premises, containing approximately two thousand nine hundred thirty-five
(2,935), gross rentable square feet of space, located in the Building at
8201 Greensboro Drive, McLean, Fairfax County, Virginia, at an annual
Initial Base Rental of approximately Eighty-two Thousand One Hundred
Seventy-nine and 96/100 ($82,179.96), as well as any and all related
documents, in order to expeditiously provide for the leasing of such
Premises, and in so doing, to make any and all related changes therein or
modifications thereof as he, in his sole discretion, acting for and on
behalf of the Corporation, shall deem necessary or advisable, and all of
the officers of the Corporation are hereby authorized, directed and
empowered to do any and all acts or things as shall be necessary or
advisable in order to effectuate the foregoing resolution.
Secretary: /s/ Jerry Kennelly
-----------------------------
Printed Name: Jerry Kennelly
Date: 5-12-98
14
<PAGE>
EXHIBIT A
8201
----------------
GREENSBORO DRIVE
INTERNATIONAL DRIVE
[ARTWORK]
6th Floor
2935 Square feet
15
<PAGE>
EXHIBIT B
WORK AGREEMENT
1. Tenant agrees to accept the Premises in its "as is" condition as defined in
Paragraph 9 of this Work Agreement.
2. Tenant agrees to designate two persons ("Tenant's Agent") either of whom
shall have the authority to approve plans and specifications, to accept cost
estimates for non-standard improvements, and to authorize changes or additions
to work during construction. These designees are:________________________ and
________________. Landlord shall not be authorized to proceed with any work
without authorization by Tenant's Agent and payment of amounts due pursuant to
paragraphs 4, 5 and 6 below, and such authorization by Tenant's Agent shall be
deemed to be authorization by Tenant. Neither Tenant nor Tenant's Agent shall be
authorized to direct Landlord's contractors on the performance of work in the
Premises, and in the event that Landlord's contractors perform any such work
under the direction of Tenant or Tenant's Agent, then Landlord shall have no
liability for the cost of such work, for the cost of correction work required as
a result of such work or for any delay that may result from such work.
3. It is agreed that Tenant will develop plans and necessary specifications
for completion of work to be performed in the Premises, whether by Landlord or
Tenant, in accordance with the following schedule. All such plans and
specifications are expressly subject to Landlord's written approval; however,
Tenant shall be solely responsible for the content of the plans and
specifications and coordination of the plans and specifications with base
building design.
(i) Tenant will furnish to Landlord Tenant's approved preliminary plans
for the entire Premises prepared by Landlord's or Tenant's space designer not
later than the date of this Lease. Such plans shall set forth, among other
things, the proposed location and size of offices, conference rooms, reception
areas and workrooms. Design of work must be in accordance with the building
standards Schedule 1 or outlined in this Work Agreement.
(ii) Within three (3) days after such delivery, Landlord shall deliver to
Tenant in writing its approval of such preliminary plans or revisions to such
plans that will be required to obtain Landlord's approval of said preliminary
drawings. At such time, at Landlord's sole option, Landlord may deliver its
suggestions for ways in which Tenant may reduce the cost of partitioning and
common area improvements.
(iii) Within five (5) days after delivery of Landlord's report containing
required and/or suggested revisions to Tenant's preliminary plans, if any, or
approval of preliminary plans, Tenant will furnish to Landlord Tenant's design
development plans for the entire Premises prepared by Landlord's or Tenant's
space designer. Such design development plans shall include the preliminary
plans and any required revisions to the preliminary plans and the following:
(a) the location of all partitions as well as the location of all
office equipment;
(b) the location and specification of telephone and other
communications outlets;
(c) the location and specification of electrical outlets, especially
those required to accommodate items such as computers and 220 volt
equipment;
(d) the location of copier machines larger than table top size,
computer equipment, telex machines, and other unusual office
equipment or heat-producing machines, and specification of heat
output (BTU/hour) and required operating conditions
(maximum/minimum temperature, power and ventilation requirements,
occupancy load, hours of operation);
(e) the location of conference rooms and other rooms subject to
occupancy by more than six (6) persons at a time and the
specification of maximum expected occupancy;
(f) a reflected ceiling plan for all lighting desired by Tenant, and
specification of any non-standard lighting required;
(g) selection of paint and carpet; and complete finish schedule;
(h) any above-standard architectural, plumbing, fire sprinkler, HVAC
and electrical tenant improvements.
(iv) Within three (3) days after such delivery, Landlord shall deliver to
Tenant in writing its approval of such plans or changes to such plans that will
required to obtain Landlord's approval.
4. (i) Immediately following Landlord's final approval of Tenant's plans,
revised or otherwise, Landlord shall direct the project architects and engineers
to prepare working drawings based on the approved plan. Within three (3) days
after the working drawings are submitted to Tenant, Tenant shall approve the
same in writing.
(ii) Landlord shall pay the fees of the project architects and engineers
to prepare the working drawings and shall pay the cost of any fees incurred due
to:
1
<PAGE>
(a) structural revisions to the Building required by Tenant's design
requirements;
(b) revisions to the working drawings after approval by Tenant except
revisions due to errors or omissions of the project architects and
engineer's;
(c) special requirements of Tenant's design, including, but not
limited to:
(i) special heating, ventilating and air conditioning equipment;
(ii) stairs, skylights and other special elements;
(iii) electrical race-ways, raised flooring, etc.;
(iv) special casework, millwork, etc.;
(v) alterations to Building systems or base building design;
(vi) special plumbing.
(vii) bid documents, plans and specifications.
(iii) Within ten (10) business days after approval by Tenant of working
drawings, Landlord shall submit to Tenant written estimates of the cost of the
work. Such estimates shall specify the work to be performed, all work not
specifically mentioned shall be excluded. The cost of such work shall be
specified on a categorical basis. Landlord's estimates shall not include any
additional costs (which shall be payable by Tenant and determined and billed
later) due to:
(a) error and omissions in the drawings;
(b) Requirements for building and occupancy permits;
(c) changes made in the field at the request of Tenant's Agent on
Tenant's behalf;
(d) changes made due to field conditions (except that Landlord shall
bill Tenant for costs incurred due to conflicts with Building
design not due to requirements of Tenant).
(iv) Within three (3) days after Landlord's submission of such estimates
to Tenant, Tenant shall deliver to Landlord its written acceptance of such
estimates.
(v) If Tenant shall desire to make revisions to the working drawings and
obtain rebids for the work, Tenant shall be responsible for directing the
project architects and engineers in revising the working drawings and shall pay
all fees incurred in making such revisions. Upon delivery of any approved
revised working drawings, Landlord shall attempt to obtain rebids within a
reasonable time period and resubmit them for Tenant's acceptance. The time
required to make such revisions and obtain rebids shall constitute a tenant-
caused delay for purposes of determining Rent Commencement Date. Landlord shall
not be responsible for escalations in the original cost estimates due to delays
in acceptance caused by Tenant's desire for rebids.
(vi) Upon Tenant's written acceptance of cost estimates, and payment of a
portion of the cost as set forth in subparagraph 4 (vii) below, Landlord shall
authorize its contractors to proceed with construction of the work.
(vii) The cost of all such work that exceeds Landlord's contribution as
defined in Paragraph 53 of this Lease shall be payable as additional rent, as
follows:
(a) fifty percent (50%) of said costs upon approval of estimates;
(b) the remaining balance due upon substantial completion and prior to
Tenant taking occupancy of the Premises.
5. If Tenant shall request changes or additions to the work being performed by
Landlord after approval of final plans and acceptance of cost estimates (other
than due to errors or omissions of construction crews from the approved working
drawings), Landlord shall have no obligation to perform such additional changes
or additions except insofar as, in Landlord's sole opinion, such changes can be
accommodated in Landlord's construction schedule for completion of work in all
tenant spaces in the Building. Landlord shall be authorized to perform any such
changes or additions only upon written authorization by Tenant and payment of
50% of Landlord's estimate of the cost of the work; it being expressly
understood that, due to time requirements, Landlord may not deliver to Tenant a
final price for work until after it has been performed, and that Tenant shall be
required to make final payment of the difference between the 50% of Landlord's
estimate paid on account and the actual price, as additional rent hereunder,
within five (5) days after being invoiced therefor, subject to reasonable
verification that such price is based on actual charges but not subject to
dispute as to the reasonableness of such charges.
6. Tenant agrees to pay to Landlord, promptly upon being billed therefor, the
cost of all work pursuant to paragraphs 4 and 5 above, to include general
contractor conditions, overhead and profit.
7. Subject to the provisions of paragraphs 7 & 8 of the Lease, upon written
request, Landlord, in its sole discretion, may grant to Tenant the right to
provide its own contractors to perform any of the finish work in the Premises
over and above the work provided by Landlord, provided that: (i) Tenant or
Tenant's contractor shall be required to utilize the subcontractors specified by
Landlord for all electrical, rough-in plumbing, structural and heating,
ventilation and air conditioning work; (ii) the contractors, subcontractors or
laborers employed in connection with such work comply with any applicable law
and reasonable work rules and regulations established by Landlord from time to
time for all work in the Building; (iii) Tenant, or its contractors and their
subcontractors, provide such insurance, bonding and/or indemnification as
Landlord may reasonably require for its protection from negligence or
malfeasance on the part of such contractors and subcontractors; (iv) in
Landlord's judgment such work or the identities or presence of such contractors
or their subcontractors will not result in delays, stoppages or
2
<PAGE>
other action or the threat thereof which may interfere with construction
progress of Landlord's work on Tenant's Premises, or delay in completion of
other work in the Building, or in any manner impair any guarantee or warranty
from Landlord's contractor or its subcontractors, or conflict with any labor
agreements applicable to the construction of the Building; (v) each such
contractor and subcontractor, and the nature and extent of the work to be
performed by it shall be approved by Landlord (but such approval shall not
relieve Tenant of its responsibility to comply with the applicable provisions of
this Exhibit B nor constitute a waiver by Landlord of any of its rights under
the Lease); (vi) Landlord shall have no obligation to allow Tenant's contractor
or subcontractor into the Premises until such time as Landlord's work has been
completed and accepted by Tenant; (vii) the time required by Tenant's
contractors or subcontractors to perform their work shall not delay the Rent
Commencement Date, notwithstanding the fact that Tenant may not be in occupancy
of the Premises, and (viii) Tenant shall indemnify and hold harmless Landlord
from any loss, damage, cost or expense incurred by Landlord, whether before or
after the Rent Commencement Date, as a result of the performance by Tenant of
such work, and Landlord shall have the right to offset the same against any
amounts to be credited to Tenant pursuant to Exhibit B or invoice the same as
additional costs to Tenant, payable within thirty (30) days. Landlord shall have
the right to inspect Tenant's contractor's work on a regular basis and shall
charge Tenant all of Landlord's costs associated with said inspection. Tenant,
upon written notice from Landlord, shall immediately pay said costs to Landlord
as additional rent. Corrections, if any, noted during Landlord inspection of
work shall be immediately performed at Tenant's sole cost.
8. It is agreed that Tenant's obligations for the payment of rent shall not
commence until Landlord has substantially completed all work to be performed by
Landlord as hereinbefore set forth; provided, however that, notwithstanding the
provisions of paragraph 32 of the Lease, if Landlord shall be delayed in
substantially completing said work as a result of: (i) Tenant's failure to
deliver its plans or any revisions thereto by the dates set forth herein; (ii)
Tenant's request for changes in the working drawings; (iii) Tenant's failure to
approve in writing, the working drawings and cost estimates for non-standard or
additional work shown thereon within the time required hereunder; (iv) Tenant's
request for materials, finishes or installations other than Building Standards
(Schedule 1), or for changes in the work after approval of final plans and
acceptance of cost estimates; or (v) the performance of a person, firm, or
corporation employed by Tenant and the completion of the said work of said
person, firm or corporation; then Tenant shall be liable for the payment of rent
commencing on the Rent Commencement Date determined as if no such delay had
occurred.
9. "As Is" Condition. The "as is" condition of the Lease space is defined as
follows:
(i) General Finishes and Assemblies:
(a) All existing leasehold improvements of general finishes (i.e.
carpet and wallcoverings) are delivered in the existing condition
without any change or improvement.
(b) All existing leasehold improvements of assemblies (i.e. ceiling
grid and tile) are delivered in the existing condition without any
change or improvement.
(ii) Building Systems:
(a) All buildings systems and existing improvements of building
systems are delivered in operational order. Building systems are
defined as: Plumbing, Fire Sprinkler, HVAC Distribution, Controls
and Electrical.
10. Substantial Completion. The Premises shall be deemed to be substantially
complete when the Work (except for items of work and adjustment of equipment and
fixtures than can be completed after occupancy (i.e. the "Punch List" items)
shall have been completed, reasonably determined by local jurisdiction's
approval for occupancy. However, if such work is delayed as a result of any
Tenant delay, then such work shall be deemed to have been substantially complete
on the date the Landlord determined it is reasonable judgement that such work
would have been substantially complete if such delay(s) had not occurred. A
"Tenant Delay" shall be (1) Tenant's failure to comply with any of its duties
and obligations under the Lease or this Exhibit or with any deadlines specified
in this Exhibit, (2) Tenant's failure to pay when due any amount required
pursuant to the Lease or this Exhibit, (3) Tenant's request for materials,
finishes or installations reasonably deemed by :Landlord to be long-lead type
items, (4) the performance or timing of any work , or the entry into the
Premises, by Tenant or any person or firm employed or retained by Tenant, (5)
any other action or inaction of Tenant or any Agent, or (6) Tenant's request for
modifications to plans or working drawings subsequent to the date same are
approved by Landlord.
11. Possession. Tenant's taking of possession of the Premises shall constitute
Tenant's acknowledgement that the Premises are in good condition and that all
work and materials are satisfactory, except as to any defect or incomplete work
that is described in a written notice given by Tenant to Landlord not later than
the day Tenant takes possession of the Premises and those items which the
project architect or engineer conforms are latent defects. Tenant and its agent
shall have no right to make any Alteration in the Premises until Tenant submits
such written notice. Landlord will correct and complete those defects and
incomplete items which Landlord conforms are in fact defects or incomplete
items. At Landlord's request, tenant shall accompany Landlord to prepare the
punch list on or before the date the Tenant takes possession of the Premises.
12. Any agreement, obligation or liability made, entered into or incurred by or
on behalf of B.F. Saul Real Estate Investment Trust binds only its trust
property, and no shareholder, trustee, officer or agent of the trust assumes or
shall be held to any liability therefor.
(SIGNATURE PAGE FOLLOWS)
3
<PAGE>
Landlord and Tenant hereby agree upon the foregoing Work Agreement.
ATTEST: LANDLORD:
B.F. SAUL REAL ESTATE INVESTMENT TRUST
/s/ [SIGNATURE ILLEGIBLE] By: /s/ [SIGNATURE ILLEGIBLE]
- ---------------------------------- ----------------------------------
ATTEST/WITNESS: TENANT:
INKTOMI CORPORATION
/s/ [SIGNATURE ILLEGIBLE]
- ---------------------------------- ----------------------------------
4
<PAGE>
EXHIBIT B - SCHEDULE 1
8201 GREENSBORO DRIVE
BUILDING STANDARDS
CEILING SYSTEM
- ---------------
TYPE: EXPOSED SUSPENSION SYSTEM 15/16" Wide exposed face roll-formed
steel as manufactured by: Chicago Metallic Corp. (530 System), U.S. Gypsum /
Donn DX).
Clean and repair all exposed surfaces of existing metal grid to be reused.
ACOUSTICAL TILE
- ---------------
2" X 2" revealed edge as manufactured by: CELOTEX Celotone Everest #454.
Install system to comply with ASTM C 636.
DOOR HARDWARE
- -------------
SUITE ENTRY: YALE Security, Inc. 8700 / 8600 series Mortised locksets ADA,
office entrance function keyed to building master keyway. All finish to be US26.
TENANT INTERIOR: YALE Security, Inc. 5400L series bored latch or lock
sets.US26D.
Hinges to be ball bearing 4 1/4" x 4 1/4" US26D finish.
DOOR AND FRAME
- --------------
TENANT SUITE ENTRY DOORS: 13/4" 3'-0" x 8"-0" Solid core stained red Mahogany
solid or veneer.
TENANT SUITE ENTRY FRAMES: Solid Mahogany wood frame stained to match red
Mahogany doors.
TENANT INTERIOR DOORS: 1/3/4" 3'-0" x 7'-0" Mahogany stained Oak solid core.
Typical door openings shall be 6"+- from adjacent wall on hinged side unless
otherwise noted.
TENANT INTERIOR FRAMES: 2" face standard 16ga. Hollow Metal interlock KD without
exposed screw fasteners. Miter joints to be reinforced with 18ga. Gusset for
tight joint alignment. Premortised and reinforced to accept 4 7/8" universal
strike and full mortise hinges. Fixed concealed in track floor anchors and door
silencers.
TENANT CARPET
- -------------
The base building standard for tenant carpet will be commercial grade 28oz.
textured loop continuous filament olefin direct glue.
TENANT HVAC
- -----------
AIR DISTRIBUTION PER TENANT FLOOR: 2 each zones with 400 amp distribution panels
per floor.
Maximum of 3900 watts on 277 volt. Maximum of 1600 watt on 120 volt. All
equipment to be Trane Manufacturer.
TENANT ELECTRICAL
- -----------------
POWER DISTRIBUTION PER TENANT FLOOR: 2 each zones with 400 amp main distribution
panels per floor.
Maximum of 3900 watts on 277 volt. Maximum of 1600 watts on 120 volt.
FIRE ALARM DISTRIBUTION PANELS: Equipment to be per Silent Knight Manufacturer.
SMOKE EVACUATION SYSTEM
- -----------------------
This building is equipped with a smoke evacuation system that must be
incorporated with all tenant design layout.
The sequence of operation, transfers and jumper ducts must be indicated on all
tenant drawings. The base building smoke evacuation drawings prepared by
Combustioneer Corporation Dated 12/20/84 are available on site for copy and or
reference.
1
<PAGE>
EXHIBIT C
RULES AND REGULATIONS
1. No advertisement, or other notice, shall be inscribed, painted or affixed
on any part of the outside or inside of the Building, except upon the doors, and
of such order, size and style, and at such places as shall be designated by
Landlord in writing. Initial Building Standard Suite entry door signs and
directory listings will be supplied for tenants by Landlord at Tenant's cost.
2. The sidewalks, entry passages, corridors, halls, elevators and stairways
shall not be obstructed by tenants, or used by them for any purpose other than
for ingress and egress. The floors, and skylights and windows that reflect or
admit light into any place in said Building, shall not be covered or obstructed
by tenant. The water closets and other water apparatus, shall not be used for
any other purpose than those for which they were constructed and no sweepings,
rubbish, or other obstructing substances shall be thrown therein. Any damage
resulting to them, or to associated systems, from misuse, shall be repaired by
tenants who, or whose employees, clerks, agents, invitees, or servants shall
cause it.
3. No tenant shall do or permit to be done in said Premises, or bring or keep
anything therein, which shall in any way obstruct or interfere with the rights
of other tenants or in any way injure or annoy them. Tenants, their clerks and
servants, shall maintain order in the Building, shall not make or permit any
improper noise in the Building or interfere in any way with other tenants or
those having business with them. Nothing shall be thrown by tenants, their
clerks or servants, out of the windows or doors, or down the passages or
skylights of the Building. No rooms shall be occupied or used as sleeping or
lodging apartments at any time. No part of the Building shall be used or in any
way appropriated for gambling, immoral or other unlawful practices. No
intoxicating liquor or liquors shall be sold in said Building without Landlord's
prior written consent. At no time shall any firearms or other weapons of any
kind be kept at the Premises.
4. Tenant shall not employ any person other than the janitors of Landlord (who
will be provided with pass-keys into the offices) for the purpose of cleaning or
taking charge of said Premises. It is understood and agreed that the Landlord
shall not be responsible to any tenant for any loss of property from rented
premises, however occurring, or from any damage done to the furniture or other
effects of any tenant by the janitor or any of its employees.
5. No animals, birds, bicycles or other vehicles shall be allowed in the
office, halls, corridors, or elsewhere in the Building.
6. All tenants and occupants shall observe strict care not to leave their
windows or doors open when it rains or snows, or while air conditioning or
heating systems are in operation, and, for any fault or carelessness in any of
these respects, shall make good any injury sustained by other tenants, and to
Landlord for damage to paint, plastering or other parts of the Building,
resulting from such default or carelessness. No painting shall be done, nor
shall any alterations be made, to any part of the Building by putting up or
changing any partitions, doors or windows, nor shall there be any nailing,
except for decorating, boring or screwing into the woodwork or plastering, nor
shall any connection be made to the electric wires or electric fixtures, without
the prior consent in writing on each occasion of Landlord or its Agent. All
glass, locks, and trimmings in or upon the doors and windows of the Building
shall be kept whole and, when any part hereof shall be broken, the same shall be
immediately replaced or repaired and put in order under the direction and to the
satisfaction of Landlord, or its Agent, and shall be left whole and in good
repair. Tenant shall not injure, overload or deface the Building, the woodwork
or the walls of the premises, nor carry on upon the Premises any noisome,
noxious, noisy, or offensive business.
7. An adequate number of keys will be provided upon initial occupancy. The
charge for additional keys shall be Five Dollars ($5.00) each. No additional
locks or latches shall be put upon any door without prior written consent of
Landlord. Tenants, at termination of their lease of the premises, shall return
to Landlord all keys to doors in the Building.
8. Landlord in all cases retains the power to prescribe the weight and
position of iron safes or other heavy articles. Tenants must make arrangements
with the manager of the Building when the elevator is required for the purpose
of the carrying of any kind of freight.
9. The tenant shall not (without the Landlord's prior written consent) install
or operate any electric heating device, steam engine, boiler, machinery or stove
upon the Premises, or carry on any mechanical business therein, or do any
cooking therein, except microwave, or use or allow to be used upon the Premises,
oil, burning fluids, camphene, gasoline or kerosene for heating, warming or
lighting. No article deemed extra hazardous on account of fire and no
explosives shall be brought into said Premises. No offensive gases or liquids
will be permitted.
10. If tenants desire blinds or windows covering of any kind over the windows,
they must be of such shape, color and material as may be prescribed by Landlord,
and shall be erected with Landlord's prior consent and at the expense of said
tenants. No awnings shall be placed on said Building.
11. Landlord reserves all vending rights. Request for such service will be
made to Landlord. Tenant has rights to its own vending machines for its break
room.
1
<PAGE>
12. Security Cards will be required by Tenants and furnished initially by
Landlord at no charge to enter the building during non business hours. There
will be a charge of $10.00 for each security card replaced. These cards remain
the property of and must be returned to the Landlord upon expiration of the
Lease, or upon Landlord's request. If any card is not returned, or is lost or
damaged by Tenant, then there will be an additional charge of $10.00 per card at
Landlord's discretion.
13. Except for the storage of trash or rubbish in dumpsters or containers
provided by Landlord, Tenant shall not permit storage of any kind outside of the
Premises.
14. Canvassing, soliciting and peddling in the Building is prohibited and each
tenant shall cooperate to prevent the same.
15. The elevators in the Building are not to be used by the tenants or their
agents, for moving furniture into the Premises, incident to the initial
occupancy, or moving furniture or freight out, incident to vacating without the
prior written consent of Landlord and, except during the hours from 6:00 p.m. to
8:00 a.m., or on Saturdays after the hour of 1:00 p.m. unless approved in
advance in writing by the manager of the Building.
16. The Landlord reserves the right to make such other rules and regulations as
in its judgment may, from time to time, be needed for the salary, care and
cleanliness of the Premises, and for the preservation of good order therein.
17. Violation of these rules, or any amendments hereof or additions hereto,
shall be sufficient cause for a default of this Lease at the option of Landlord.
18. The smoking and/or holding and/or carrying of any lit tobacco or tobacco-
like product shall be prohibited in, on or around all public areas in, around or
about the building except in designated smoking areas.
2
<PAGE>
EXHIBIT E
LIST OF TENANT'S SHAREHOLDERS, PARTNERS, OR MEMBERS
OF A LIMITED LIABILITY COMPANY AND
PERCENTAGE OF OWNERSHIP
-------------------------------------- ------------------- %
Name
-------------------------------------- ------------------- %
Name
-------------------------------------- ------------------- %
Name
-------------------------------------- ------------------- %
Name
1
<PAGE>
EXHIBIT F
COMMENCEMENT AND ESTOPPEL
THIS COMMENCEMENT AND ESTOPPEL AGREEMENT is made and entered into this
________ day of ____________, 19_______, by and between Inktomi Corporation
("Tenant") and B.F. SAUL REAL ESTATE NVESTMENT TRUST ("Landlord").
WHEREAS, Landlord and Tenant have heretofore entered into that certain
Lease Agreement dated the ______ day of _______________, 19___ (the "Lease"),
for certain space at 8201 Greensboro Drive, McLean, Virginia 22102.
WHEREAS, paragraph 3 of the Lease provides for the execution of a
commencement agreement specifying the commencement date of the term of the
Lease;
NOW, THEREFORE, in consideration of the premises, and for other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, each party hereby warrants and represents to the other as follows:
1. That Tenant is in full and complete possession of the Demised Premises,
such possession having been delivered by the Landlord and having been
accepted by the undersigned.
2. That the Landlord's improvements, if any, and the space required to be
furnished by the terms of the Lease have been completed in all respects
and are open for the use of the Tenant, its customers, employees and
invitees.
3. That all duties of an inducement nature required of the Landlord in
said Lease have been fulfilled.
4. That said Lease is in full force and effect; that there is no existing
default on the part of the Landlord in the terms thereof; and that said
Lease has not been amended, modified, supplemented or superseded.
5. That no rents have been prepaid except as provided by said Lease; that
Tenant does not now have or hold any claim against Landlord which might
be set off or credited against future accruing rent.
6. That Tenant has received no notice of a prior sale, transfer,
assignment, hypothecation or pledge of the said Lease or of the rents
secured therein, except to Landlord.
7. That the Rent Commencement Date for the Lease is the ________________
day of _________________________, 19________ and the Lease shall expire
at midnight on the ______________ day of ______________________,
19______.
8. Any agreement, obligation, or liability made, entered into or incurred
by or on behalf of B.F. SAUL REAL ESTATE INVESTMENT TRUST binds only
its Trust property, and no shareholder, trustee, officer, or agent of
the Trust assumes or shall be held to any liability therefor.
IN WITNESS WHEREOF, the parties hereto do hereby execute this Agreement
under seal on the day and year first above written.
ATTEST: TENANT:
INKTOMI CORPORATION
By: (SEAL)
- -------------------------------- ------------------------------
Secretary Printed Name:
--------------------
Its:
-----------------------------
ATTEST: LANDLORD:
B.F. SAUL REAL ESTATE INVESTMENT TRUST
By:
- -------------------------------- ------------------------------
Merle F. Sustersich,
Assistant Vice President
1
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the inclusion in this Registration Statement on Form
S-1 (File No. 333-50247) of our report dated November 3, 1997, on our audits
of the financial statements of Inktomi Corporation. We also consent to the
references of our financial statements of Inktomi Corporation. We also
consent to the references to our firm under the caption "Experts" and
"Selected Financial Data."
COOPERS & LYBRAND L.L.P
San Jose, California
May 21, 1998
