<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 2, 1998
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
INKTOMI CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 7379 94-3238130
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NUMBER)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
---------------
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, CA 94304 MENLO PARK, CA 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>
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PROPOSED MAXIMUM
AGGREGATE
TITLE OF EACH CLASS OF SECURITIES TO BE OFFERING AMOUNT OF
REGISTERED PRICE(1) REGISTRATION FEE
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<S> <C> <C>
Common Stock, $.001 par value.............. $272,765,625 $75,829
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</TABLE>
(1) Estimated solely for the purpose of computing the amount of the
registration fee pursuant to Rule 457(o).
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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.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY BE +
+CHANGED. THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT +
+FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS +
+PRELIMINARY PROSPECTUS IS NOT AN OFFER TO SELL NOR DOES IT SEEK AN OFFER TO +
+BUY THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT +
+PERMITTED. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION. DATED NOVEMBER 2, 1998.
3,000,000 Shares
INKTOMI CORPORATION
[INKTOMI LOGO]
Common Stock
-----------
Inktomi Corporation is offering 300,000 shares to be sold in the offering.
The selling stockholders identified in this prospectus are offering an
additional 2,700,000 shares. Inktomi will not receive any of the proceeds for
the sale of shares by the selling stockholders.
Inktomi's Common Stock is traded on the Nasdaq National Market under the
symbol "INKT". On October 29, 1998, the last reported sale price for the Common
Stock on the Nasdaq National Market was $79.0625 per share.
See "Risk Factors" beginning on page 4 to read about certain factors you
should consider before buying shares of the Common Stock.
-----------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY BODY
HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
-----------
<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Initial public offering price............................... $ $
Underwriting discount....................................... $ $
Proceeds, before expenses, to Inktomi....................... $ $
Proceeds, before expenses, to the selling stockholders...... $ $
</TABLE>
The underwriters may, under certain circumstances, purchase up to an
additional 450,000 shares from Inktomi at the initial public offering price
less the underwriting discount.
-----------
The underwriters are severally underwriting the shares being offered. The
underwriters expect to deliver the shares against payment in New York, New York
on , 1998.
GOLDMAN, SACHS & CO.
BT ALEX. BROWN
HAMBRECHT & QUIST
MERRILL LYNCH & CO.
-----------
Prospectus dated , 1998.
<PAGE>
INSIDE FRONT COVER
Short description of the company with the "Inktomi" logo. Background includes
names of partners: Yahoo!, RealNetworks, C/Net, GeoCities, HotBot, Grolier,
@Home Network, Digex, Sun Microsystems, Telenor, Microsoft, NTT, Compaq/Digital
and America Online.
"Inktomi develops and markets scalable software designed for use by the
world's largest Internet infrastructure and media companies. Inktomi'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 the world's largest search
engines, online comparison shopping solutions and carrier-class network cache
software."
[ART WORK]
2
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PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information regarding our company and the Common Stock being sold in this
offering and our financial statements and notes to those statements appearing
elsewhere in this prospectus.
INKTOMI CORPORATION
We are a leading provider of software applications designed to address the
challenges posed by the explosive growth in the number of end users, documents,
transactions and services on the Internet and private networks. We currently
have three software applications. Traffic Server, our large-scale network
cache, is designed to help Internet service providers and telecommunications
carriers alleviate capacity constraints on their networks by storing frequently
requested data closer to end users. Our powerful, award-winning search
engine enables Internet portals and other web site customers to provide a vari-
ety of search services to end users. Our newest software application, an
Internet shopping engine that we recently acquired, is expected to be commer-
cially available in the first calendar quarter of 1999. We are designing the
shopping engine to enable Internet portals and other web site customers to of-
fer a comparative shopping experience for end users, including the ability to
access product information, compare prices and make purchases online.
THE OFFERING
The following information assumes that the underwriters do not exercise the
option granted by Inktomi to purchase additional shares in the offering. See
"Underwriting".
<TABLE>
<S> <C>
Shares offered by Inktomi..................................... 300,000 shares
Shares offered by the selling stockholders.................... 2,700,000 shares
</TABLE>
<TABLE>
<S> <C>
Shares to be outstanding after the offering(1).............. 23,688,372 shares
Nasdaq National market symbol............................... "INKT"
Use of proceeds............................................. For general
corporate purposes,
principally working
capital and capital
expenditures.
</TABLE>
SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED
FEBRUARY 2, 1996 SEPTEMBER 30,
(INCEPTION) TO ------------------
CONSOLIDATED STATEMENT OF OPERATIONS SEPTEMBER 30, 1996 1997 1998
DATA: ------------------ -------- --------
<S> <C> <C> <C>
Total revenues......................... $ 530 $ 5,785 $ 20,426
Operating loss......................... (3,431) (10,181) (22,782)
Net loss............................... (3,534) (10,377) (22,355)
Basic and diluted net loss per
share(2).............................. $ (0.80) $ (1.15)
Shares used in computing basic and di-
luted net loss per share(2)........... 12,977 19,360
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
----------------------
ACTUAL AS ADJUSTED(3)
CONSOLIDATED BALANCE SHEET DATA: ------- --------------
<S> <C> <C>
Cash, cash equivalents, and short-term investments..... $47,436 $69,487
Working capital........................................ 34,393 56,444
Total assets........................................... 70,641 92,692
Debt and capital lease obligations, less current por-
tion.................................................. 8,696 8,696
Total stockholders' equity............................. 43,270 65,321
</TABLE>
- -------
(1) The following information is based on shares outstanding as of September
30, 1998. It excludes 3,289,510 shares of Common Stock reserved for
issuance under Inktomi's stock option and stock purchase plans, of which
2,682,360 shares were subject to outstanding options as of September 30,
1998, and 729,806 shares of Common Stock issuable upon exercise of
outstanding warrants. See "Capitalization", "Management--Incentive Stock
Plans", "Description of Capital Stock" and Notes 9 and 10 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.
(3) As adjusted reflects the application of the net proceeds from the sale of
the 300,000 shares of Common Stock offered by Inktomi in this offering and
after deducting the underwriting discount and estimated offering expenses.
3
<PAGE>
RISK FACTORS
You should carefully consider the risks described below before making an
investment decision. The risks and uncertainties described below are not the
only ones facing our company. Additional risks and uncertainties not presently
known to us or that we currently deem immaterial may also impair our business
operations.
If any of the following risks actually occur, our business, financial
condition or results of operations could be materially adversely affected. In
such case, the trading price of our Common Stock could decline, and you may
lose all or part of your investment.
This prospectus also contains forward-looking statements that involve risks
and uncertainties. Our actual results could differ materially from those
anticipated in the forward-looking statements as a result of certain factors,
including the risks described below and elsewhere in this prospectus.
LIMITED OPERATING HISTORY
Inktomi was founded in February 1996 and has a limited operating history. An
investor in our Common Stock must consider the risks and difficulties
frequently encountered by early stage companies in new and rapidly evolving
markets. These risks include our:
. substantial dependence on products with only limited market acceptance;
. need to expand our sales and support organizations;
. competition;
. need to manage changing operations;
. customer concentration;
. reliance on strategic relationships; and
. dependence upon key personnel.
We also depend on the growing use of the Internet for commerce and
communication and on general economic conditions. We cannot be certain that our
business strategy will be successful or that we will successfully address these
risks.
HISTORY OF LOSSES AND EXPECTATION OF FUTURE LOSSES
We incurred net losses of $3.5 million for the period from inception through
September 30, 1996, $10.4 million for the year ended September 30, 1997, and
$22.4 million for the year ended September 30, 1998. As of September 30, 1998,
we had an accumulated deficit of $36.3 million. We have not achieved
profitability and expect to continue to incur net losses for at least the next
several quarters. We expect to continue to incur significant sales and
marketing, product development and administrative expenses and, as a result,
will need to generate significant revenues to achieve and maintain
profitability. Although our revenues have grown in recent quarters, we cannot
be certain that we will achieve sufficient revenues for profitability. If we do
achieve profitability, we cannot be certain that we can sustain or increase
profitability 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
Our future growth substantially depends on the commercial success of our
Traffic Server network cache product, which we have licensed to only a small
number of customers. We are initially targeting telecommunications carriers and
Internet service providers for our Traffic Server product. The market for
large-scale network caching is in its infancy, and we are not certain that our
target customers will widely adopt and deploy caching technology throughout
their networks. Even if they do so, they may not choose our Traffic Server
network cache product for technical, cost, support or other reasons. Although
we have tested our Traffic Server product prior to making it available to
customers, we cannot be certain that we have found and fixed all significant
4
<PAGE>
performance errors. If our target customers do not widely adopt and purchase
our Traffic Server product, our business, financial condition and results of
operations will be adversely affected.
LONG SALES CYCLE FOR TRAFFIC SERVER
To date, our customers have taken a long time to evaluate Traffic Server and
many people have been involved in the process. Along with our distribution
partners, we spend a lot of time educating and providing information to our
prospective customers regarding the use and benefits of Traffic Server. Even
after purchase, our customers tend to deploy Traffic Server slowly and
deliberately, depending on the skill set of the customer, the size of the
deployment, the complexity of the customer's network environment, and the
quantity of hardware and the degree of hardware configuration necessary to
deploy Traffic Server. The long sales and implementation cycles for Traffic
Server may cause license revenues and operating results to vary significantly
from period to period.
NEED TO EXPAND SALES AND SUPPORT ORGANIZATIONS
We will need to substantially expand our direct and indirect sales
operations, both domestically and internationally, in order to increase market
awareness and sales of our products. Our products and services require a
sophisticated sales effort targeted at several people within our prospective
customers. We have recently expanded our direct sales force and plan to hire
additional sales personnel. Competition for qualified sales personnel is
intense, and we might not be able to hire the kind and number of sales
personnel we are targeting. In addition, we believe that our future success is
dependent upon establishing successful relationships with a variety of
distribution partners. We have entered into agreements with only a small number
of distribution partners. We cannot be certain that we will be able to reach
agreement with additional distribution partners on a timely basis or at all, or
that these distribution partners will devote adequate resources to selling our
products.
Similarly, the complexity of our products and the difficulty of installing
them require highly trained customer service and support personnel. We
currently have a small customer service and support organization and will need
to increase our staff to support new customers and the expanding needs of
existing customers. Hiring customer service and support personnel is very
competitive in our industry due to the limited number of people available with
the necessary technical skills and understanding of the Internet.
RISKS ASSOCIATED WITH INTERNET SEARCH ENGINE SERVICE
Our search services revenues result primarily from the number of end-user
searches that are processed by our search engine and the level of advertising
revenue generated by our Internet portal and other web site customers. Our
agreements with customers do not require them to direct end users to our search
services or to use the search service at all. Accordingly, revenues from search
services are highly dependent upon the willingness of customers to promote and
use the search services we provide, the ability of our customers to attract end
users to their online services, the volume of end-user searches that are
processed by our search engine, and the ability and willingness of customers to
sell advertisements on the Internet pages viewed by end users.
Our search contracts require us to meet specific requirements, including the
features provided, performance, the size of the Internet database maintained,
the frequency of updating the search database and reliability. If we do not
meet these specifications, customers may cancel our service. We provide our
search engine services from multiple data centers. Circumstances outside of our
control such as fires, earthquakes, power failures, telecommunications
failures, sabotage and similar events could occur that may bring down one or
more of our data centers. For example, in June 1998, lightning struck the
facility housing our data center in Virginia and interrupted service from this
center. Service interruptions for any reason would reduce our
5
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revenues and could result in contract cancellations.
QUARTERLY FINANCIAL RESULTS ARE SUBJECT TO SIGNIFICANT FLUCTUATIONS
Our revenues and operating results may vary significantly from quarter to
quarter due to a number of factors, including:
. demand for our products and services;
. the timing of sales of our products and services;
. changes in the growth rate of Internet usage;
. delays in introducing new products and services;
. new product introductions by competitors;
. changes in our pricing policies or the pricing policies of our competitors;
. the mix of products and services sold;
. the mix of sales channels through which our products and services are sold;
. the mix of domestic and international sales;
. costs related to acquisitions of technology or businesses; and
. economic conditions generally as well as those specific to the Internet and
related industries.
Quarterly revenues and operating results generated by our search engine
business generally depend on per-query fees and shared advertising revenues
received from our search engine customers within the quarter. Advertising
revenues generated by our customers are 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 our search
engine. Reduced advertising sales, a low level of usage by end users or the
cancellation or deferral of any customer contract would reduce our expected
revenues, which could adversely affect our quarterly financial performance.
We expect that a significant portion of our future revenues will come from
licenses of Traffic Server. We further expect that such revenues will come from
licenses of Traffic Server to a small number of customers. The volume and
timing of orders are difficult to predict because the market for Traffic Server
is in its infancy and the sales cycle may vary substantially from customer to
customer. The cancellation or deferral of even a small number of licenses of
Traffic Server would reduce our expected revenues, which would adversely affect
our quarterly financial performance. To the extent significant sales occur
earlier than expected, operating results for later quarters may not compare
favorably with operating results from earlier quarters.
We plan to significantly increase our operating expenses to expand our sales
and marketing operations, broaden our customer support capabilities, establish
new search engine data centers, develop new distribution channels, and fund
greater levels of research and development. Our operating expenses are largely
based on anticipated revenue trends and a high percentage of our expenses are
fixed in the short term. As a result, a delay in generating or recognizing
revenue for the reasons set forth above or for any other reason could cause
significant variations in our operating results from quarter to quarter and
could result in substantial operating losses.
Due to the foregoing factors, we believe that quarter-to-quarter comparisons
of our operating results are not a good indication of our future performance.
It is likely that in some future quarter, our operating results may be below
the expectations of public market analysts and investors. In this event, the
price of our Common Stock may fall.
OUR MARKETS ARE HIGHLY COMPETITIVE
We compete in markets that are new, intensely competitive, highly fragmented
and rapidly changing. We face competition in the overall network infrastructure
market as well as the network cache and Internet search segments of this
market. In addition, we have recently entered the online comparison shopping
business and expect to face competition in this market as well. We have
experienced and expect to continue to experience increased competition from
current and potential competitors, many of which have significantly greater
financial, technical, marketing and other resources.
6
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In the network cache market, we compete with several companies, including
CacheFlow, Inc., Cisco Systems, Inc., Microsoft Corporation, Mirror Image
Internet, Inc., Netscape Communications Corp., Network Appliance, Inc., Novell,
Inc., and Spyglass, Inc. We also compete against freeware caching solutions
including CERN, Harvest and Squid. We are aware of numerous other major
software developers as well as smaller entrepreneurial companies that are
focusing significant resources on developing and marketing products and
services that will compete with Traffic Server. We believe that Traffic Server
may face competition from other providers of hardware and software offering
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, Hewlett-Packard Company,
Intel Corporation, Motorola, Inc. and Sun Microsystems, Inc.;
telecommunications providers such as AT&T, Inc., MCI Worldcom, Inc., and
regional Bell operating companies; cable TV/communications providers such as
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 Systems, 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 we compete.
We compete with a number of companies to provide Internet search services,
many of which have operated services in the market for a longer period, have
greater financial resources, have established marketing relationships with
leading online services and advertisers, and have secured greater presence in
distribution channels. Competitors that offer search services to online service
providers include Digital Equipment (Alta Vista), Excite, Inc., Infoseek
Corporation, Lycos Corporation, and Northern Light, Inc., among others. In
addition, large media companies such as The Walt Disney Company and NBC
Enterprises have recently made investments in Internet search engine companies
and we believe that other large media enterprises may enter or expand their
presence in the Internet search engine market, either directly or indirectly
through collaborations or other strategic alliances.
The market for our shopping engine application is rapidly evolving and
intensely competitive. Our current and potential competitors include other
providers of shopping technologies and services including Jango.com, owned by
Excite, Junglee, recently acquired by Amazon.com, Inc., and mySimon.com, Inc.;
and various online retailers and aggregators of merchandise including
Amazon.com, Bottom Dollar, owned by WebCentric, Inc., eBay, Inc.,
InfoSpace.com, Inc. and Yahoo! Inc. We believe the principal factors that will
draw end users to an online shopping application include brand availability,
selection, personalized services, convenience, price, accessibility, customer
services, quality of search tools, quality of content, and reliability and
speed of fulfillment for products ordered. We will have little or no control
over many of these factors.
Our competitors may be able to respond more quickly to new or emerging
technologies and changes in customer requirements than we can. In addition, our
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 us. Also, current and
potential competitors have greater name recognition, more extensive customer
bases that could be leveraged, and access to proprietary content. Increased
competition could result in price reductions, fewer customer orders, fewer
search queries served, reduced gross margins and loss of market share.
RISKS ASSOCIATED WITH INTERNET SHOPPING ENGINE
In September 1998, we acquired C\\2\\B Technologies Inc. to accelerate our
entry into
7
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the online comparison shopping business. Our Internet shopping engine is still
under development and is not yet commercially available. Like our Internet
search engine, we plan to make our Internet shopping engine available to
Internet portals and other web site customers and will not develop our own
branded online shopping site. We are developing the shopping engine to enable
Internet portals and other web site customers to provide shopping services to
their end users. This is our first acquisition and we are in the process of
integrating the operations of our two companies, including the approximately 30
former employees of C\\2\\B Technologies.
We are still developing the business model for our shopping engine and
anticipate that revenues will be generated from revenue sharing arrangements
with online merchants, and Internet portals and other web site customers using
the shopping engine. The success of our shopping engine will depend on our
ability to establish strong relationships with customers and online merchants,
the dollar volume of online purchases generated by participating merchants, and
the level of advertising revenues generated by customers. In addition, the
shopping engine will need to collect and organize vast amounts of electronic
information from online merchants and publishers of comparative product
information, which is a highly complex task. Developing these capabilities and
other required features for the shopping engine will require significant
additional expenses and management and development resources. We cannot be
certain that our entry into the online shopping business will be successful.
NEED TO MANAGE CHANGING OPERATIONS
Our ability to successfully offer products and services and implement our
business plan in a rapidly evolving market requires an effective planning and
management process. We continue to increase the scope of our operations
domestically and internationally and have grown our headcount substantially. At
September 30, 1997, we had a total of 67 employees and at September 30, 1998 we
had a total of 185 employees. This growth has placed, and our anticipated
future operations will continue to place, a significant strain on our
management systems and resources. We expect that we will need to continue to
improve our financial and managerial controls and reporting systems and
procedures, and will need to continue to expand, train and manage our work
force worldwide. Furthermore, we expect that we will be required to manage
multiple relationships with various customers and other third parties.
In October 1998, we entered into an 11-year lease for 177,000 square feet of
new office space in Foster City, California. We anticipate that the lease will
commence in June 1999. The lease is for substantially more space than we will
need for the next several years. The commercial real estate market in San Mateo
County, California is volatile and unpredictable in terms of rental fees,
occupancy rates and preferred locations. If we fail to sublease a significant
portion or all of our existing space or a substantial portion of our new space,
we will incur substantial additional operating expense during the lease term.
DEPENDENCE UPON KEY PERSONNEL
We intend to hire a significant number of additional sales, support,
marketing, and research and development personnel in calendar 1999 and beyond.
Competition for these individuals is intense, and we may not be able to
attract, assimilate or retain additional highly qualified personnel in the
future. Our future success also depends upon the continued service of our
executive officers and other key sales, marketing and support personnel. In
addition, our products and technologies are complex and we are substantially
dependent upon the continued service of our existing engineering personnel, and
especially our founders. None of our officers or key employees is bound by an
employment agreement for any specific term. Our relationships with these
officers and key employees are at will. We do not have "key person" life
insurance policies covering any of our employees.
8
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CUSTOMER CONCENTRATION
We have generated a substantial portion of our historical search services
revenues and network applications revenues from a limited number of customers.
We expect that a small number of customers will continue to account for a
substantial portion of revenues for the foreseeable future. As a result, if we
lose a major customer, or in the case of our search engine business, if there
is a decline in usage of any customer's search service, our revenues would be
adversely affected. In addition, we cannot be certain 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.
RISKS OF INFRINGEMENT AND PROPRIETARY RIGHTS
Our products and services operate in part by making copies of material
available on the Internet and other networks and making this material available
to end users from a central location. This creates the potential for claims to
be made against us (either directly or through contractual indemnification
provisions with customers) for defamation, negligence, copyright or trademark
infringement, personal injury, invasion of privacy or other legal theories
based on the nature, content or copying of these materials. These claims have
been threatened against us from time to time, and have been brought, and
sometimes successfully pressed, against online service providers in the past.
It is also possible that if any information provided through our search engine
or shopping engine, 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
us for losses incurred in reliance on this information. Although we carry
general liability insurance, our insurance may not cover potential claims of
this type or may not be adequate to protect us from all liability that may be
imposed.
Our success and ability to compete are substantially dependent upon our
internally developed technology, which we protect through a combination of
patent, copyright, trade secret and trademark law. We generally enter into
confidentiality or license agreements with our employees, consultants and
corporate partners, and generally control access to and distribution of our
software, documentation and other proprietary information. Despite our efforts
to protect our proprietary rights, unauthorized parties may attempt to copy or
otherwise obtain and use our products or technology. Policing unauthorized use
of our products is difficult, and we cannot be certain that the steps we have
taken will prevent misappropriation of our technology, particularly in foreign
countries where the laws may not protect our proprietary rights as fully as in
the United States.
Substantial litigation regarding intellectual property rights exists in the
software industry. We expect that software products may be increasingly subject
to third-party infringement claims as the number of competitors in our 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
may bring actions against companies that it believes are infringing this patent
in the future. We also believe that many of our competitors in the network
cache business have filed or intend to file patent applications covering
aspects of their technology that they may claim our technology infringes. We
cannot be certain that Lycos or other third parties will not make a claim of
infringement against us with respect to our products and technology. Any
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 us to enter into royalty or licensing agreements.
These royalty or licensing agreements, if required, may not be available on
acceptable terms, if at all. A successful claim of product infringement against
us and our failure or inability to license the infringed or similar technology
could adversely affect our business.
DEPENDENCE ON STRATEGIC RELATIONSHIPS
We believe that our success in penetrating our target markets depends in part
on our ability to develop and maintain strategic
9
<PAGE>
relationships with key hardware and software vendors, distribution partners and
customers. We believe these relationships are important in order to validate
our technology, facilitate broad market acceptance of our products, and enhance
our sales, marketing and distribution capabilities. If we are unable to develop
key relationships or maintain and enhance existing relationships, we may have
difficulty selling our products and services.
In July 1997, we entered into a series of agreements with Microsoft whereby
Microsoft selected our technology as the basis for the Internet search services
to be provided by Microsoft. Federal and state regulatory authorities have
recently initiated broad antitrust actions against Microsoft. We cannot predict
to what extent these antitrust actions may affect our relationship with
Microsoft, although these actions may narrow the scope of Internet sites and
applications where Microsoft may incorporate our Internet search engine
services.
We have from time to time licensed minor components from others such as
reporting functions and security features and incorporated them into our
products. If these licensed components are not maintained, it could impair the
functionality of our products and require us to obtain alternative products
from other sources or to develop this software internally, either of which
could involve costs and delays as well as diversion of engineering resources.
RAPID TECHNOLOGICAL CHANGE
The network infrastructure market is characterized by rapid technological
change, frequent new product introductions, changes in customer requirements
and evolving industry standards. The introduction of products embodying new
technologies and the emergence of new industry standards could render our
existing products obsolete. Our future success will depend upon our ability to
develop and introduce a variety of new products and product enhancements to
address the increasingly sophisticated needs of our customers. We have
experienced delays in releasing new products and product enhancements and may
experience similar delays in the future. Material delays in introducing new
products and enhancements may cause customers to forego purchases of our
products and purchase those of our competitors.
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS
We market and sell our products in the United States and internationally. We
have established a subsidiary located in England to market and sell our
products in Europe. We have offices in Germany and Japan to market and sell our
products in those countries and surrounding regions. We plan to establish
additional facilities in other parts of the world. The expansion of our
existing international operations and entry into additional international
markets will require significant management attention and financial resources.
We cannot be certain that our investments in establishing facilities in other
countries will produce desired levels of revenue. We currently have limited
experience in developing localized versions of our products and marketing and
distributing our products internationally. In addition, international
operations are subject to other inherent risks, including:
. the impact of recessions in economies outside the United States;
. greater difficulty in accounts receivable collection and longer collection
periods;
. 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.
Our international revenues are generally denominated in local currencies. We
do not currently engage in currency hedging activities. Although exposure to
currency fluctuations to date has been insignificant, future fluctuations in
currency exchange rates may adversely affect revenues from international sales.
10
<PAGE>
YEAR 2000 RISKS
Many currently installed computer systems and software products are coded to
accept only two digit entries in the date code field. As a result, software
that records only the last two digits of the calendar year may not be able to
distinguish whether "00" means 1900 or 2000. This may result in software
failures or the creation of erroneous results.
We are in the early stages of assessing our Year 2000 readiness. We have only
conducted a preliminary investigation and performed limited testing to
determine whether our Traffic Server and search engine software are Year 2000
compliant. We have not performed any evaluation regarding our shopping engine
application. Our software products operate in complex network environments and
directly and indirectly interact with a number of other hardware and software
systems. Despite preliminary investigation and testing by us and our partners,
our software products and the underlying systems and protocols running our
products may contain errors or defects associated with Year 2000 date
functions. We are unable to predict to what extent our business may be affected
if our software or the systems that operate in conjunction with our software
experience a material Year 2000 failure. Known or unknown errors or defects
that affect the operation of our software could result in delay or loss of
revenue, interruption of search or shopping services, cancellation of customer
contracts, diversion of development resources, damage to our reputation,
increased service and warranty costs, and litigation costs, any of which could
adversely affect our business, financial condition and results of operations.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations".
RISKS ASSOCIATED WITH POTENTIAL ACQUISITIONS
We intend to make investments in complementary companies, products or
technologies. If we buy a company, we could have difficulty in assimilating
that company's personnel and operations. In addition, the key personnel of the
acquired company may decide not to work for us. If we make other types of
acquisitions, we could have difficulty in assimilating the acquired technology
or products into our operations. These difficulties could disrupt our ongoing
business, distract our management and employees and increase our expenses.
Furthermore, we may have to incur debt or issue equity securities to pay for
any future acquisitions, the issuance of which could be dilutive to Inktomi or
our existing stockholders.
GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES
Laws and regulations directly applicable to communications or commerce over
the Internet are becoming more prevalent. The most recent session of the United
States Congress resulted in Internet laws regarding children's privacy,
copyrights, taxation and the transmission of sexually explicit material. The
European Union recently enacted its own privacy regulations. The law of the
Internet, however, remains largely unsettled, even in areas where there has
been some legislative action. It may take years to determine whether and how
existing laws such as those governing intellectual property, privacy, libel and
taxation apply tothe Internet. In addition, the growth and development of the
market for online commerce may prompt calls for more stringent consumer
protection laws, both in the United States and abroad, that may impose
additional burdens on companies conducting business online. The adoption or
modification of laws or regulations relating to the Internet could adversely
affect our business.
DISCRETION AS TO USE OF PROCEEDS
Our management can spend most of the proceeds from this offering in ways with
which the stockholders may not agree. We cannot predict that the proceeds will
be invested to yield a favorable return. See "Use of Proceeds".
POTENTIAL VOLATILITY OF STOCK PRICE
The market price of our Common Stock has fluctuated in the past and is likely
to fluctuate in the future. In addition, the securities markets have
experienced significant price and volume fluctuations and the market prices of
11
<PAGE>
the securities of Internet-related companies have been especially volatile.
Investors may be unable to resell their shares of our Common Stock at or above
the offering price. In the past, companies that have experienced volatility in
the market price of their stock have been the object of securities class action
litigation. If we were the object of securities class action litigation, it
could result in substantial costs and a diversion of management's attention and
resources. See "Price Range of Common Stock".
CONTROL BY OFFICERS AND DIRECTORS
We anticipate that the executive officers, directors and entities affiliated
with them will, in the aggregate, beneficially own approximately 36.2% of our
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 our stockholders, 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 SELLING STOCKHOLDERS
Several of our stockholders are selling shares in this offering. The average
price per share paid by existing Inktomi stockholders is $3.52. Based upon an
assumed public offering price of $79.0625 per share, the average realized gain
per share to these stockholders will be approximately $75.5425.
ANTITAKEOVER PROVISIONS
Provisions of our Amended and Restated Certificate of Incorporation, Bylaws,
and Delaware law could make it more difficult for a third party to acquire us,
even if doing so would be beneficial to our stockholders. See "Description of
Capital Stock".
SHARES ELIGIBLE FOR FUTURE SALE
If our stockholders sell substantial amounts of our Common Stock (including
shares issued upon the exercise of outstanding options and warrants) in the
public market following this offering, the market price of our Common Stock
could fall. Such sales also might make it more difficult for us to sell equity
or equity-related securities in the future at a time and price that we deem
appropriate. Upon completion of this offering, we will have outstanding
23,688,372 shares of Common Stock (based upon shares outstanding as of
September 30, 1998), assuming no exercise of the Underwriters' over- allotment
option and no exercise of outstanding options or warrants after September 30,
1998. Of these shares, the 3,000,000 shares sold in this offering, together
with the 2,592,100 shares sold in our initial public offering in June 1998 and
the 596,228 shares that were released from the initial public offering lock-up
agreements in October 1998, are freely tradeable. This leaves 17,500,044 shares
eligible for sale in the public market as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES DATE
---------------- ---------------------------------------------
<C> <S>
4,590,078........ December 8, 1998
9,362,151........ 90 days from the date of this prospectus
2,445,307........ At various times thereafter through June 1999
1,102,507........ September 25, 1999
</TABLE>
See "Description of Capital Stock--Registration Rights", "Shares Eligible for
Future Sale" and "Underwriting".
NO INTENTION TO PAY DIVIDENDS
We have never declared or paid any cash dividends on our capital stock. We
currently intend to retain any future earnings for funding growth and,
therefore, do not expect to pay any dividends in the foreseeable future. See
"Dividend Policy".
12
<PAGE>
USE OF PROCEEDS
The net proceeds to Inktomi from the sale of the 300,000 shares of Common
Stock offered by Inktomi are estimated to be $22,051,406 at an assumed public
offering price of $79.0625 per share, after deducting the underwriting discount
and estimated offering expenses payable by Inktomi ($56,028,516 if the over-
allotment option is exercised in full).
Inktomi expects to use the net proceeds from this offering for working
capital and general corporate purposes. In addition, Inktomi 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, Inktomi intends to invest the net
proceeds in interest-bearing, investment-grade securities. Inktomi will not
receive any proceeds from the sale of the shares being sold by the selling
stockholders. See "Principal and Selling Stockholders".
PRICE RANGE OF COMMON STOCK
Inktomi's Common Stock has been quoted on the Nasdaq National Market under
the symbol INKT since Inktomi's initial public offering on June 10, 1998. Prior
to such time, there was no public market for the Common Stock of Inktomi. The
following table sets forth, for the periods indicated, the high and low sale
prices per share of the Common Stock as reported on the Nasdaq National Market.
<TABLE>
<CAPTION>
HIGH LOW
------- --------
<S> <C> <C>
FISCAL YEAR 1998
Third Quarter (from June 10, 1998)........................... $ 45.75 $ 18.00
Fourth Quarter............................................... $ 88.75 $ 39.00
FISCAL YEAR 1999
First Quarter (through October 29, 1998)..................... $ 93.75 $ 53.125
</TABLE>
On October 29, 1998, the reported last sale price of the Common Stock on the
Nasdaq National Market was $79.0625 per share. As of September 30, 1998, there
were approximately 356 stockholders of record of the Common Stock.
DIVIDEND POLICY
Inktomi has never declared or paid any dividends on its capital stock.
Inktomi 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 Inktomi under its
existing line of credit prohibit the payment of dividends.
CORPORATE INFORMATION
Inktomi was incorporated in California in February 1996 and was
reincorporated in Delaware in February 1998. References in this prospectus to
"Inktomi", "we", "our", and "us" refer to Inktomi Corporation, a Delaware
corporation; its predecessor, Inktomi Corporation, a California corporation;
Inktomi Limited, its wholly owned subsidiary located in England; and C\\2\\B
Technologies Inc. Inktomi's principal executive offices are located at 1900 S.
Norfolk Street, Suite 310, San Mateo, California 94403 and Inktomi's telephone
number is (650) 653-2800. Information contained on Inktomi's web site does not
constitute part of this prospectus.
Inktomi and the Inktomi logo are registered trademarks of Inktomi. Traffic
Server and Scaling the Internet are trademarks of Inktomi. Each trademark,
trade name or service mark of any other company appearing in this prospectus
belongs to its holder.
13
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of Inktomi as of September
30, 1998 on an actual basis and on an as adjusted basis to give effect to the
receipt by Inktomi of the estimated net proceeds from the sale of 300,000
shares of Common Stock offered by Inktomi hereby at an assumed public offering
price of $79.0625 per share:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
--------------------------
ACTUAL AS ADJUSTED
----------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Long-term obligations, less current portion........ $ 8,696 $ 8,696
Stockholders' equity:
Common Stock: $0.001 par value; authorized:
100,000,000; issued and outstanding: 23,388,372,
actual; 23,688,372, as adjusted(1).............. 23 24
Additional paid-in capital......................... 82,385 104,435
Deferred compensation and other.................... (2,871) (2,871)
Accumulated deficit................................ (36,267) (36,267)
----------- -----------
Total stockholders' equity......................... 43,270 65,321
----------- -----------
Total capitalization............................... $ 51,966 $ 74,017
=========== ===========
</TABLE>
- --------
(1) Excludes 3,289,510 shares of Common Stock reserved for issuance under
Inktomi's stock option and stock purchase plans, of which 2,682,360 shares
were subject to outstanding options as of September 30, 1998, and 729,806
shares of Common Stock issuable upon exercise of outstanding warrants. See
"Management--Incentive Stock Plans", "Description of Capital Stock" and
Notes 9 and 10 of Notes to Consolidated Financial Statements.
14
<PAGE>
DILUTION
The net tangible book value of Inktomi as of September 30, 1998 was $43.3
million or approximately $1.85 per share. Net tangible book value per share
represents the amount of Inktomi's total tangible assets less total
liabilities, divided by the number of shares of Common Stock outstanding.
Dilution in 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 300,000 shares of Common Stock offered by Inktomi hereby at an
assumed public offering price of $79.0625 per share and after deducting the
underwriting discount and estimated offering expenses payable by Inktomi, the
net tangible book value of Inktomi at September 30, 1998 would have been $65.3
million or approximately $2.76 per share. This represents an immediate increase
in net tangible book value of $0.91 per share to existing stockholders and an
immediate dilution of $76.30 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........................... $79.0625
Net tangible book value per share as of September 30, 1998...... $1.85
Increase per share attributable to new investors(1)............. 0.91
-----
Net tangible book value per share after the offering(1)........... 2.76
--------
Dilution per share to new investors(1)............................ $76.3025
========
</TABLE>
- --------
(1) This table excludes 3,289,510 shares of Common Stock reserved for issuance
under Inktomi's stock option and stock purchase plans, of which 2,682,360
shares were subject to outstanding options as of September 30, 1998, and
729,806 shares of Common Stock were issuable upon exercise of outstanding
warrants. See "Capitalization", "Management--Incentive Stock Plans",
"Description of Capital Stock" and Notes 9 and 10 of Notes to Consolidated
Financial Statements.
The following table sets forth, as of September 30, 1998, the differences
between the number of shares of Common Stock purchased from Inktomi, 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 estimated offering expenses payable by Inktomi, at an assumed
public offering price of $79.0625 per share.
<TABLE>
<CAPTION>
SHARES PURCHASED AVERAGE PRICE
--------------------- TOTAL CONSIDERATION --------------------
NUMBER PERCENTAGE AMOUNT (IN THOUSANDS) PERCENTAGE PER SHARE
---------- ---------- --------------------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Existing
stockholders(1)........ 23,388,372 98.7% $ 82,408 78.9% $ 3.52
New investors(1)........ 300,000 1.3 22,051 21.1 73.50
---------- ----- -------- -----
Total................. 23,688,372 100.0% $104,459 100.0%
========== ===== ======== =====
</TABLE>
- --------
(1) Sales by the selling stockholders in this offering will reduce the number
of shares of Common Stock held by existing stockholders to 20,688,372 or
approximately 87.3% (approximately 85.7%, 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 3,000,000 or approximately
12.7% (3,450,000 shares, or approximately 14.3%, 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".
15
<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 of Inktomi
Corporation and the Notes thereto 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 years ended September
30, 1997 and 1998 have been derived from the audited financial statements of
Inktomi Corporation included elsewhere in this prospectus, which have been
audited by PricewaterhouseCoopers LLP, Independent Accountants. 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>
FEBRUARY 2, 1996
(INCEPTION) TO YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------- --------------------------
1996 1997 1998
--------------- ------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
CONSOLIDATED STATEMENTS OF
OPERATIONS DATA:
Revenues:
Network applications........... $ -- $ 60 $ 7,962
Search services................ 530 5,725 12,464
----------- ------------ ------------
Total revenues............... 530 5,785 20,426
Operating expenses:
Cost of revenues............... 239 1,512 4,816
Sales and marketing............ 898 7,835 21,452
Research and development....... 1,483 5,134 12,173
General and administrative..... 1,341 1,485 3,749
Acquisition-related charges.... -- -- 1,018
----------- ------------ ------------
Total operating expenses..... 3,961 15,966 43,208
----------- ------------ ------------
Operating loss................... (3,431) (10,181) (22,782)
Interest income (expense), net... (102) (194) 428
----------- ------------ ------------
Loss before income taxes......... (3,533) (10,375) (22,354)
Provision for income taxes....... 1 2 1
----------- ------------ ------------
Net loss......................... $ (3,534) $ (10,377) $ (22,355)
=========== ============ ============
Basic and diluted net loss per
share(1)........................ $ (0.80) $ (1.15)
============ ============
Weighted average shares outstand-
ing used in computing per share
calculation(1).................. 12,977 19,360
============ ============
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
------------------
(IN THOUSANDS)
<S> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments........... $47,436
Working capital............................................. 34,393
Total assets................................................ 70,641
Debt and capital lease obligations, less current portion.... 8,696
Total stockholders' equity.................................. 43,270
</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.
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Except for historical information, the discussion in this prospectus contains
forward-looking statements that involve risks and uncertainties. Such forward-
looking statements include, among others, those statements including the words,
"expects", "anticipates", "intends", "believes" and similar language. Inktomi's
actual results could differ materially from those discussed herein. Factors
that could cause or contribute to such differences include, but are not
limited, to the risks discussed in the section titled "Risk Factors" 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, Inktomi's
operations consisted primarily of start-up activities, including research and
development of Inktomi's core coupled cluster software architecture and
dataflow technology, personnel recruiting and capital raising. In May 1996,
Inktomi released the first commercial application based on its core technology,
an Internet search engine that enables customers to provide a variety of online
search services to end users. In December 1997, Inktomi began licensing Traffic
Server, Inktomi's second application, a large-scale network cache designed to
address capacity constraints in high-traffic network routes. In September 1998,
Inktomi acquired C\\2\\B Technologies, a developer of online shopping
technology, to accelerate its entry into the online comparison shopping
business. The transaction was accounted for as a pooling of interests. Financial
results for all periods have been restated to reflect combined operations.
Network applications revenues are composed of Traffic Server license,
consulting, support and maintenance fees. Traffic Server license fees are
generally recognized upon shipment of the software. Consulting, support and
maintenance fees are recognized ratably over the service period. 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. Online shopping has not generated revenues to date.
Inktomi has a limited operating history. Inktomi incurred a net loss of $3.5
million for the period from inception through September 30, 1996, $10.4 million
for the year ended September 30, 1997, and $22.4 million for the year ended
September 30, 1998. As of September 30, 1998, Inktomi had an accumulated
deficit of $36.3 million. Inktomi has not achieved profitability on a quarterly
or annual basis, and Inktomi anticipates that it will incur net losses for at
least the next several quarters. Inktomi expects to continue to incur
significant sales and marketing, product development and administrative
expenses and, as a result, will need to generate significant quarterly revenues
to achieve and maintain profitability.
Inktomi has generated a substantial portion of its historical search services
revenues and network applications revenues from a limited number of customers.
Inktomi expects that a small number of customers will continue to account for a
substantial portion of revenues for the foreseeable future.
17
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth the results of operations for Inktomi
expressed as a percentage of revenues. Inktomi's historical operating results
are not necessarily indicative of the results for any future period.
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
---------------
1997 1998
------ ------
<S> <C> <C>
Revenues:
Network applications........................................ 1 % 39 %
Search services............................................. 99 61
------ ------
Total revenues............................................ 100 100
Operating expenses:
Cost of revenues............................................ 26 24
Sales and marketing......................................... 135 105
Research and development.................................... 89 60
General and administrative.................................. 26 18
Acquisition-related charges................................. -- 5
------ ------
Total operating expenses.................................. 276 212
------ ------
Operating loss................................................ (176) (112)
Interest income (expense), net................................ (3) 2
------ ------
Loss before income taxes...................................... (179) (110)
Provision for income taxes.................................... -- --
------ ------
Net loss...................................................... (179)% (110)%
====== ======
</TABLE>
REVENUES
Total revenues were $20.4 million in the year ended September 30, 1998, an
increase of $14.6 million or 253% over the year ended September 30, 1997. Four
customers each represented over 10% and, in the aggregate, 77% of total
revenues for the year ended September 30, 1998. For the year ended September
30, 1997, two customers accounted for approximately 92% of total revenues.
Network applications revenues totaled $8.0 million in fiscal 1998. Most of
these revenues represented new Traffic Server license sales. There were minimal
network applications revenues in fiscal 1997. Search services revenues totaled
$12.5 million in fiscal 1998, representing a 118% increase over the prior year.
Most of this increase came from the provision of search services to new
customers and, to a lesser extent, an increase in revenues from existing
customers.
A significant portion of search revenues are derived from the HotBot search
service maintained by Inktomi and marketed by Wired Digital, Inc. 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 Inktomi. Barter revenues represented 27% of
total revenues in fiscal 1997 and 9% in fiscal 1998. Inktomi anticipates that
barter revenue will comprise a decreasing percentage of total revenues in
future years.
EXPENSES
COST OF REVENUES
Cost of revenues consists primarily of expenses related to the operation of
Inktomi's search services, which comprise depreciation and network charges.
Cost of revenues was $4.8 million for fiscal 1998, an increase of $3.3 million
or 219% from fiscal 1997. The increase was due primarily to increased
depreciation and network charges resulting from expansions of Inktomi's data
center in California during fiscal 1998, and the addition of a new service
facility in Virginia in the third quarter of fiscal
18
<PAGE>
1998. Inktomi expects cost of revenues to increase substantially in absolute
dollars in the next few quarters as a result of expanded cluster operation
costs.
SALES AND MARKETING EXPENSES
Sales and marketing expenses consist of personnel and related costs for
Inktomi'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 Inktomi's support of the HotBot search site.
Sales and marketing expenses were $21.5 million in fiscal 1998, an increase of
$13.6 million or 174% from fiscal 1997. This increase was primarily due to an
increase in the number of sales and marketing personnel in the United States
and abroad, increased HotBot marketing expenses and other customer-related
costs, and expenses incurred in connection with attendance at trade shows and
additional marketing programs. Inktomi expects that sales and marketing
expenses will increase substantially in absolute dollars over the next year as
Inktomi 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 Inktomi's development and technical support efforts. Research and
development expenses were $12.2 million in fiscal 1998, an increase of $7.0
million or 137% over fiscal 1997. The increase was primarily due to an increase
in the number of research and development personnel to support expansion of
Inktomi's search engine and network application businesses, initial online
shopping development, and increases in quality assurance, technical support and
technical publications personnel. Inktomi 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. Inktomi 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
totaled $3.7 million in fiscal 1998, an increase of $2.3 million or 152% over
fiscal 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 activities.
ACQUISITION-RELATED CHARGES
In the fourth quarter of fiscal 1998, Inktomi incurred expenses of $1.0
million related to its merger with C\\2\\B Technologies. The charge comprised
C\\2\\B Technologies' financial advisory fees, facilities consolidation costs,
and legal and accounting fees related to the transaction. Of the total charge,
$0.7 million of the expenses were paid in fiscal 1998.
INTEREST INCOME AND EXPENSE, NET
Interest income and expense, net includes income on Inktomi's cash
investments net of expenses related to Inktomi's financing obligations.
Interest income, net totaled $0.4 million of income in fiscal 1998. This total
compares with a net expense of $0.2 million in fiscal 1997. Most of this
increase was generated from interest income on proceeds from Inktomi's June
1998 initial public offering and preferred stock issuances, partially offset by
increased interest charges on debt and capital lease obligations.
INCOME TAXES
As of September 30, 1998, Inktomi had $31.5 million of federal net operating
loss carryforwards for tax reporting purposes available to offset future
taxable income. Such net operating loss carryforwards expire through 2018.
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QUARTERLY RESULTS OF OPERATIONS
The following table presents Inktomi's operating results for each of the
eight quarters in the period ending September 30, 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 Inktomi Corporation 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, JUNE 30, SEPT. 30,
1996 1997 1997 1997 1997 1998 1998 1998
-------- -------- -------- --------- -------- -------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues
Network applications... $ -- $ -- $ -- $ 60 $ 70 $ 621 $ 3,062 $ 4,209
Search services........ 1,138 1,144 1,521 1,922 2,352 2,834 3,233 4,045
------- ------- ------- ------- ------- ------- ------- -------
Total revenues......... 1,138 1,144 1,521 1,982 2,422 3,455 6,295 8,254
Operating expenses
Cost of revenues....... 186 280 358 688 794 901 1,276 1,845
Sales and marketing.... 1,660 1,264 2,056 2,855 2,986 3,939 6,410 8,117
Research and
development........... 1,008 1,053 1,232 1,841 2,187 2,507 3,252 4,227
General and
administrative........ 231 371 382 501 795 894 993 1,067
Acquisition-related
charges............... -- -- -- -- -- -- -- 1,018
------- ------- ------- ------- ------- ------- ------- -------
Total operating
expenses.............. 3,085 2,968 4,028 5,885 6,762 8,241 11,931 16,274
------- ------- ------- ------- ------- ------- ------- -------
Operating loss.......... (1,947) (1,824) (2,507) (3,903) (4,340) (4,786) (5,636) (8,020)
Interest income
(expense), net......... (19) (58) (29) (88) (58) (33) 93 426
------- ------- ------- ------- ------- ------- ------- -------
Loss before income
taxes.................. (1,966) (1,882) (2,536) (3,991) (4,398) (4,819) (5,543) (7,594)
Provision for income
taxes.................. -- 1 1 -- 1 -- -- --
------- ------- ------- ------- ------- ------- ------- -------
Net loss................ $(1,966) $(1,883) $(2,537) $(3,991) $(4,399) $(4,819) $(5,543) $(7,594)
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
Inktomi's operating results may fluctuate significantly in the future as a
result of a variety of factors, many of which are outside of Inktomi's control.
These factors include demand for Traffic Server, demand for commercial search
services powered by Inktomi's search technology, length of sales cycles,
changes in the growth rate of Internet usage, introduction of new products or
services by Inktomi or its competitors, delays in the introduction or
enhancement of products and services by Inktomi or its competitors, changes in
Inktomi's pricing policy or the pricing policies of its competitors, changes in
the mix of products and services sold, changes in the mix of sales channels
through which products and services are sold, changes in the mix of
international and domestic revenues, costs related to acquisitions of
technology or businesses, and economic conditions generally as well as those
specific to the Internet and related industries. Additionally, as a strategic
response to a changing competitive environment, Inktomi may elect from time to
time to make certain pricing, service, marketing or acquisition decisions that
could have a material adverse effect on Inktomi's quarterly financial
performance.
Quarterly revenues and operating results generated by Inktomi's search engine
business generally depend on per-query fees and shared advertising revenues
received from Inktomi's search engine customers within the quarter. Advertising
revenues generated by Inktomi's search engine customers are 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. Reduced advertising sales, a low level
of usage by end users or the cancellation or deferral of any customer contract
would reduce expected revenues, which could adversely affect Inktomi's
quarterly financial performance.
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Inktomi expects that a significant portion of its future revenues will be
generated by licenses of Traffic Server. Inktomi further expects that such
revenues will come from orders placed by a small number of customers. The
volume and timing of such orders are difficult to predict because the market
for Traffic Server is in its infancy and the sales cycle may vary substantially
from customer to customer. The cancellation or deferral of even a small number
of licenses of Traffic Server would reduce expected revenues, which would
adversely affect quarterly financial performance. To the extent significant
sales occur earlier than expected, operating results for subsequent quarters
may not compare favorably with operating results from earlier quarters.
LIQUIDITY AND CAPITAL RESOURCES
Cash, cash equivalents and short-term investments totaled $47.4 million at
September 30, 1998, up from $7.0 million at September 30, 1997. Most of the
increase came from common and preferred stock sales, partially offset by cash
used in operations and the purchase of property and equipment.
Inktomi used $13.7 million in cash for operations in fiscal 1998, an increase
of $5.5 million from the $8.2 million used in fiscal 1997. The increase was
primarily due to an increase in Inktomi's net loss from $10.4 million in fiscal
1997 to $22.4 million in fiscal 1998, partially offset by increased non-cash
charges in fiscal 1998.
Inktomi has made significant investments in equipment since its inception.
This equipment consists largely of computer servers, workstations and
networking equipment. Inktomi financed $12.7 million in fiscal 1998 and
$6.0 million in fiscal 1997 primarily to further expand its Internet search
engine service capacity. In fiscal 1998, Inktomi sold $0.9 million of fixed
assets to two leasing companies as part of sale-leaseback transactions.
Inktomi has used debt and leases to partially finance its operations and
capital purchases and plans to continue this practice until it begins
generating cash from operations. In fiscal 1998, Inktomi obtained an additional
$2.0 million bank loan to partially fund its increased search capacity and
added $6.9 million in capitalized leases. At September 30, 1998, Inktomi had
$14.6 million in total loans and capitalized lease obligations outstanding. The
loans are collateralized by substantially all of Inktomi's assets.
Approximately $5.0 million of total debt at September 30, 1998 were bank loans.
The bank loans include certain covenants requiring minimum liquidity, tangible
net worth and profitability over time.
In July 1997, Inktomi and Microsoft entered into a series of agreements
whereby Microsoft selected Inktomi'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, Inktomi 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. At September 30, 1998, loans totaling $2.4
million were outstanding.
Inktomi raised approximately $54.8 million, net of issuance costs, from
equity sales in fiscal 1998. This total included approximately $38.8 million
from Inktomi's June 1998 initial public offering, $12.9 million from a February
1998 preferred stock offering and $3.1 million from other stock offerings.
Inktomi also received approximately $5.0 million from option and warrant
conversions. In fiscal 1997, Inktomi raised $10.2 million from a preferred
stock offering.
Inktomi's capital requirements depend on numerous factors, including market
acceptance of Inktomi's products, the resources Inktomi devotes to developing,
marketing, selling and supporting its products, the timing and extent of
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establishing international operations, and other factors. Inktomi 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 Inktomi believes that its current cash balances will be
sufficient to fund its operations for at least the next 12 months, there can be
no assurance that Inktomi will not require additional financing within this
time frame or that such additional funding, if needed, will be available on
terms acceptable to Inktomi, or at all.
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products are coded to
accept only two digit entries in the date code field. As a result, software
that records only the last two digits of the calendar year may not be able to
distinguish whether "00" means 1900 or 2000. This may result in software
failures or the creation of erroneous results.
Inktomi is currently conducting a review of the current versions of its
Traffic Server and Internet search engine software to determine Year 2000
compliance. Inktomi has searched through the software code for each of these
applications and believes that it has identified all instances where date
specific information is required. Inktomi has further investigated whether
these date fields contain two or four digits, and has initiated efforts to
upgrade its software when date fields that contain only two digits are
discovered. Based on its preliminary review and the results of limited testing,
Inktomi believes that its Traffic Server and search engine applications, when
configured and used in accordance with its documentation, correctly recognize
and function when used with Year 2000 date codes. Inktomi recently acquired its
shopping engine application and has not yet reviewed the software for this
application for Year 2000 compliance. Inktomi intends to begin its review of
the shopping engine application during the first half of fiscal 1999 to develop
a preliminary assessment as to Year 2000 compliance. Inktomi further intends to
conduct extensive tests on all of its applications during this same time period
to identify areas of deficiency and to develop action plans to correct and
upgrade its software code.
Inktomi's software applications run on several hardware platforms and
associated operating systems, including those provided by Sun Microsystems,
Digital Equipment and Silicon Graphics. In addition, Inktomi's software
operates in accordance with several external Internet protocols, such as HTTP
and NNTP. Inktomi's software is therefore dependent upon the correct processing
of dates by these systems and protocols. Inktomi has reviewed information made
publicly available by its hardware platform partners regarding Year 2000
compliance and researched the date handling capabilities of applicable Internet
protocols. Based on this research, Inktomi does not believe that the underlying
systems and protocols that operate in conjunction with its software
applications contain material Year 2000 deficiencies. However, Inktomi has not
conducted its own tests to determine to what extent its software running on any
of its hardware platforms and in accordance with any of its supported Internet
protocols fails to properly recognize Year 2000 dates.
Inktomi uses multiple software systems for its internal business purposes,
including accounting, email, development, human resources, customer service and
support, and sales tracking systems. All of these applications have been
purchased within the preceding 18 months. Inktomi has made inquiries of vendors
of the systems that Inktomi believes are mission critical to its business
regarding their Year 2000 readiness. Each of these vendors has indicated to
Inktomi that it believes its applications are Year 2000 compliant. However,
Inktomi has not received affirmative documentation in this regard from any of
these vendors, and Inktomi has not performed any operational tests on its
internal systems.
Inktomi is in the early stages of assessing its Year 2000 readiness. To date,
the costs for conducting its assessment have not been material. Despite
preliminary investigation and
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testing by Inktomi and its partners, Inktomi's software applications and the
underlying hardware systems and protocols running the software may contain
undetected errors or defects associated with Year 2000 date functions.
Inktomi's software applications operate in complex network environments and
directly and indirectly interact with a number of other hardware and software
systems. Inktomi is unable to predict to what extent its business may be
affected if its software or the systems that operate in conjunction with its
software experience a material Year 2000 failure. Known or unknown errors or
defects that affect the operation of Inktomi's software could result in delay
or loss of revenue, interruption of search or shopping services, cancellation
of customer contracts, diversion of development resources, damage to Inktomi's
reputation, increased service and warranty costs, and litigation costs, any of
which could adversely affect Inktomi's business, financial condition and
results of operation.
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<PAGE>
BUSINESS
INKTOMI
Inktomi develops and markets scalable software applications designed to
significantly enhance the performance and intelligence of large-scale networks.
Inktomi 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 end users accessing
millions of documents.
Currently, Inktomi has three scalable applications based on its software
architecture: a large-scale network cache, an Internet search engine and an
Internet shopping engine. The large-scale network cache application, Traffic
Server, is 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 Inktomi believes comprises a significant portion of network
traffic. Traffic Server is initially being targeted at telecommunications
carriers and 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.
The Internet search engine application is a powerful, award-winning Internet
search engine that enables Internet portals and other web site customers to
provide a variety of online search services 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 customers
with a programming interface and software tools to enable them to design custom
search service user interfaces. Inktomi provides search services to its
customers through four data centers, each consisting of 100 workstations,
located in California and Virginia.
The Internet shopping engine is Inktomi's newest application and was
initiated with the acquisition of C/2/B Technologies in September 1998. Similar
to the search engine application, Inktomi intends to make the shopping engine
available to Internet portals and other web site customers and will not develop
its own branded online shopping site. The shopping engine is being designed to
enable end users to quickly and easily locate products of interest, compare
features and prices among products, and locate and purchase such products
through participating merchants. Inktomi anticipates that the first release of
its shopping engine will be commercially available to customers in the first
calendar quarter of 1999.
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 electronic commerce, online magazines, e-mail services, specialized
news feeds, interactive games, and educational and entertainment applications.
Although primarily text and graphics-based today, information and services
available on the Internet are increasingly
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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.
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, Internet portals and other providers of
online services such as search, electronic commerce, e-mail and chat must scale
and enhance their services to keep pace with the tremendous growth in user
demand and available information. The technical challenges and on-going
investments associated with maintaining and upgrading the systems required to
provide these services are substantial. Continued increases in the volume,
variety and richness of 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.
Internet portals and other online 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
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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.
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 Inktomi'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 Inktomi 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, one or more workstations
can be added on an incremental, "pay-as-you-go" basis. In contrast, when a
mainframe or SMP-based system reaches full capacity, the existing system must
be replaced with a larger system or an additional system must be added 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. Inktomi's search application crawler operates on Intel-based
workstations and its search engine servers operate on Sun Microsystems SPARC
workstations, in both cases running the Solaris operating system. Inktomi's
Traffic Server application operates on Sun Microsystems SPARC workstations
running the Solaris operating system, Digital Equipment Alpha workstations
running the Digital Equipment UNIX operating system, and Silicon Graphics
workstations running the IRIX operating system.
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Inktomi is collaborating with Intel to port its applications to Intel-based
workstations running Windows NT by mid-1999. Inktomi'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.
STRATEGY
Inktomi's strategy 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. 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
Inktomi 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. Inktomi 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. Inktomi 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. Inktomi is initially
targeting telecommunications carriers and Internet service providers 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. Inktomi 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. Inktomi believes
that adoption of Traffic Server by these leading providers will validate
Inktomi's technology and facilitate broad market acceptance, as well as further
Inktomi'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 Inktomi to
establish Traffic Server as the de facto standard through its adoption and
implementation by high profile network providers. Inktomi 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 TECHNOLOGY PROVIDER OF CHOICE TO ONLINE SERVICE PROVIDERS. Inktomi
believes that it can leverage its scalable software architecture to develop and
provide
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multiple service applications to Internet portals and other online service
providers. In the early days of the Internet, online service providers
primarily focused on providing a single service to end users, such as search,
e-mail, online magazines and interactive games. As the Internet has matured,
many online service providers have expanded their service offerings and
fostered online communities in an effort to attract and retain increasing
numbers of end users. The goal of these Internet portals and other online
service providers has been to build brand and user loyalty and to diversify and
enhance their sources of direct and indirect revenue. However, the addition of
new services and the significant increase in the size and complexity of the
Internet requires substantial on-going investments and technological expertise
in order to maintain and upgrade the quality of the services provided. Inktomi
believes these factors will lead many companies to outsource certain services
such as their search and online shopping capabilities rather than develop and
maintain them in-house. Already, companies such as Wired Digital, Yahoo! and
Microsoft have elected to use Inktomi's search technology not only because of
the performance and scalability advantages it provides, but also because it
allows them to retain the critical flexibility to customize the user interface.
Inktomi believes the same performance, scalability and flexibility benefits
will lead customers to choose the Inktomi shopping engine when available. As
Inktomi continues to develop and enhance its technology and back-end service
offerings, Inktomi believes that the incentives will increase for companies to
outsource these services to Inktomi.
DEVELOP DIRECT AND INDIRECT DISTRIBUTION CHANNELS. Inktomi'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 has established a direct sales force covering
the United States and Canada as well as a direct sales force in England to
address the European market. Inktomi intends to increase the size of its direct
sales force and to establish additional sales offices domestically and
internationally. Inktomi plans to complement its direct sales force by
establishing multiple indirect distribution channels including original
equipment manufacturers ("OEMs"), systems integrators, value-added resellers
("VARs") and joint marketing partners. These channels are intended to increase
geographic sales coverage and to address mid-tier Internet service providers
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. Currently, Inktomi has three scalable
network applications based on its software architecture: Traffic Server, a
large-scale network cache; an Internet search engine; and an Internet shopping
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 Internet service providers, both domestically
and internationally. Inktomi has announced licenses of Traffic Server with
America Online, Inc., Ameritech Interactive Media Services, Inc., At Home
Corporation, BellSouth.net, Digex (an Intermedia Communications Company),
Nippon Telegraph and Telephone, and Telenor Nextel.
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.
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[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 Internet service providers. 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.
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 smoothes 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 online experience for the end user.
[DIAGRAM OF NETWORK WITH CACHING]
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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 Microsystems, Traffic Server configured with 16 nodes, 1/2
terabyte of cache and a 40% cache hit rate achieved 3,488 operations per
second. This performance metric implies that Traffic Server can support more
than 300 million hits per day, 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 online experience for the end user. 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.
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
Microsystems, Digital Equipment and Silicon Graphics. 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. In addition, Inktomi has recently partnered with RealNetworks, Inc.
to develop software plug-in components that integrate the audio and video
streaming capabilities of the upcoming RealNetworks RealSystem G2 into Traffic
Server. The solution has been designed to deliver audio and video files to end
users at higher speeds and quality while reducing network congestion.
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 an array of popular Internet protocols, including HTTP, FTP, RTSP,
NNTP, ICP and SNMP.
Traffic Server currently operates on Sun Microsystems SPARC workstations
running the Solaris operating system, Digital Equipment Alpha workstations
running the Digital Equipment UNIX operating system, and Silicon Graphics
workstations running the IRIX 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
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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, support and maintenance services, and the streaming
media plug-in are priced separately. Inktomi's future growth substantially
depends on the commercial success of Traffic Server, which has only been
licensed by a small number of customers. Traffic Server has been installed in
only a few large-scale, commercial deployments, 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 Inktomi's
business, financial condition and results of operations. See "Risk Factors--
Substantial Dependence on Traffic Server; Uncertainty of Market Acceptance" and
"--Long Sales Cycle for Traffic Server".
SEARCH ENGINE
Inktomi 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 Digital. HotBot has garnered broad media acclaim, including PCWorld's
1998 World Class Award as "Best Web Search Site" (June 1998) and selection as
the best Internet search engine by SmartMoney Magazine (April 1998) and by PC
Computing in their "A-List Top Picks" (June 1998). HotBot has also been
designated an "Editor's Choice" in the "Search Engine Shootout" sponsored by
c/net (January 1998), an "Editor's Choice" by PC Magazine (December 1997) and a
"Most Valuable Product" in the search category by PC Computing (November 1997).
In addition to the Wired Digital relationship, Inktomi has announced search
engine agreements with 15 companies, including At Home Corporation, CNet Snap!,
GeoCities, Inc., Goto.com, Microsoft, Nippon Telegraph and Telephone, and
Yahoo!.
Inktomi's Internet search engine technology enables customers to provide a
variety of online search services to end users. Inktomi generally provides
information search services based on its Internet search engine to its
customers, who in turn incorporate these services into online offerings 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 Inktomi to serve multiple customers while continuing to
concentrate on developing its search engine technology.
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Inktomi'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.
[DIAGRAM OF INKTOMI SEARCH ENGINE]
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 online 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 online 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. Inktomi's coupled cluster technology enables Inktomi 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 Inktomi believes is one
of the largest databases of full text and embedded multimedia documents
commercially available.
HIGH AVAILABILITY AND FRESHNESS. High availability of any online 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
Inktomi 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.
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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, Inktomi 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. Inktomi 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. Inktomi'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. Inktomi's contracts do not typically require the
customer to direct its end users to Inktomi's search service or to use the
search service at all. Accordingly, Inktomi is highly dependent on the
willingness of customers to promote and use the search services provided by
Inktomi, the ability of customers to attract end users to their online
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
Inktomi'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 Inktomi, which could have a
material adverse effect on Inktomi's business, financial condition and results
of operations. See "Risk Factors--Risks Associated with Internet Search Engine
Service".
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SHOPPING ENGINE
The Internet shopping engine is Inktomi's newest application and was
initiated with the acquisition of C\\2\\B Technologies in September 1998.
Inktomi is developing the shopping engine to provide a comprehensive shopping
experience for online consumers, enabling them to quickly and easily locate
products of interest, compare features and prices among products, and locate and
purchase such products through participating online merchants. Inktomi believes
that its scalable software architecture and associated core technologies are
well-suited to managing the complex challenges of collecting and organizing vast
quantities of electronic product information and presenting this information to
millions of online consumers in a comparative manner. Similar to the search
engine application, Inktomi will not develop its own branded online shopping
site; rather, Inktomi intends to make the shopping engine available to Internet
portals and other web site customers who can, in turn, provide online shopping
services through their sites to end users. Inktomi intends to provide Internet
portals and other web site customers with tools and protocols to enable them to
customize the shopping interface presented to their end users and to seamlessly
connect with the back-end shopping engine. Inktomi will provide and manage all
hardware, software and operational aspects of the shopping engine and will
collect and organize the associated database of product libraries, product
reviews and purchasing locations. Inktomi anticipates that the first release of
its shopping engine will be available to customers in the first calendar quarter
of 1999.
[DIAGRAM OF INKTOMI SHOPPING ENGINE]
Inktomi is still developing the business model for its shopping engine and
anticipates that revenues will be generated from revenue sharing arrangements
with online merchants, Internet portals and other web site customers using the
shopping engine. The success of our shopping engine will depend on our ability
to establish strong relationships with customers and online merchants, the
dollar volume of online purchases generated by participating merchants, and the
level of advertising revenues generated by customers. In addition, Inktomi's
shopping engine will need to collect and organize vast amounts of electronic
information from online merchants and publishers of comparative product
information, which is a highly complex task. Developing these capabilities and
other required features for the shopping engine will require significant
additional expenses and management and development resources. Inktomi cannot be
certain that its entry into the online shopping business will be successful.
See "Risk Factors--Risks Associated with Internet Shopping Engine".
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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 early work, which Inktomi has significantly modified
and enhanced. Inktomi developed its dataflow technology internally.
Inktomi'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. Inktomi 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, Inktomi has developed technologies in
several important related areas, including information retrieval, secure remote
cluster management and object databases for network caches. Inktomi 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
Inktomi'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 maintains direct sales personnel in California, Colorado, Georgia,
Virginia, Germany and England. The direct sales force is organized into
individual account teams, each consisting of a sales representative and a
systems engineer. Inktomi generates leads from contacts made through seminars,
conferences, trade shows, customers and an ongoing public relations program.
Inktomi qualifies the leads
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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, sales of the Traffic Server
application generally include a pilot implementation, successful completion and
testing of which are a pre-requisite to full-scale deployment. Inktomi intends
to increase the size of its direct sales force and to establish additional
sales offices domestically and internationally. Competition for sales personnel
is intense, and there can be no assurance that Inktomi will be able to attract,
assimilate or retain additional qualified personnel in the future.
In order to achieve broad distribution of Inktomi'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 Internet service providers and,
eventually, large corporate customers. Inktomi is in the early stages of
building these channels and currently has entered into written agreements with
a limited number of companies. There can be no assurance that Inktomi 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 Inktomi's products.
Inktomi believes it is important to have a strong international presence and
intends to translate and localize its products to address international
markets. Inktomi intends to employ a mix of channels similar to its U.S. model
through the use of OEMs, system integrators and VARs. The Company has
established a subsidiary in England and a sales office in Germany to address
the European market and is in the process of establishing subsidiaries in Japan
and Korea to support channel partners in the Asia-Pacific region. Inktomi
intends to hire additional sales and marketing personnel in these offices and
to establish additional offices to support its international operations.
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.
Inktomi believes that strategic relationships will assist Inktomi's products
and technology in gaining broad market acceptance as well as enhancing
Inktomi's marketing, sales and distribution capabilities. Inktomi has
informally collaborated with Sun Microsystems since early 1997 regarding a
range of marketing and sales activities relating to Traffic Server. Inktomi has
also partnered with Digital Equipment and Silicon Graphics to port Traffic
Server to run on their equipment, and informally collaborates with these
companies on joint market development activities. Inktomi is currently working
with Intel to port Traffic Server to operate on Intel-based workstations
running Windows NT, and expects to complete the port by mid-1999. In addition,
Inktomi has teamed with RealNetworks to develop the first network cache for
streaming audio and video content. Inktomi intends to pursue other strategic
relationships. See "Risk Factors--Dependence on Strategic Relationships".
CUSTOMER SERVICE AND SUPPORT
Inktomi believes that a high level of customer service and support is
critical to the successful marketing and sale of its products. Inktomi 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, search engine and online shopping applications are deployed across a
range of customers. Inktomi provides support for its products and services
primarily from its San Mateo, California location. Inktomi plans to establish
additional service and support sites internationally commensurate with customer
needs.
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Inktomi provides a base level of technical support to its customers through
maintenance and support agreements. The base level of support includes
assistance with installation, configuration and initial set-up of the
application, run-time support, and software maintenance releases. For an
additional fee, a customer may choose to receive software upgrades, training
and support during extended hours. Inktomi generally provides its base level of
support via e-mail, the Internet, fax and telephone.
Inktomi also provides a variety of value-added services to its customers.
These services include customer network evaluation and implementation guidance,
assistance with installation, configuration and initial set-up of the
application at the customer's facility, and cluster growth and other scaling
recommendations. Inktomi expects to expand the variety of such services as
necessary to meet the growing needs of its customers.
Inktomi 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. Inktomi 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
Inktomi will be able to increase the size of its customer service and support
organization on a timely basis or at all, or that Inktomi 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 Inktomi 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
Inktomi, 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, Inktomi strives to
create and maintain an environment of rapid innovation and product release.
Since inception, Inktomi 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. Inktomi is currently working on completing development on the
first version of its shopping engine, porting its Traffic Server application to
operate on Intel-based workstations running Windows NT, and adding features and
new functionality to its Traffic Server and search engine products. Inktomi's
research and development expenses totaled $12.2 million for the year ended
September 30, 1998, $5.1 million for the year ended September 30, 1997 and $1.5
million for the period from February 2, 1996 (inception) to September 30, 1996.
COMPETITION
Inktomi competes in markets that are new, intensely competitive, highly
fragmented and rapidly changing. Inktomi faces competition in the overall
network infrastructure market as well as in the network cache and Internet
search segments of this market. Inktomi has experienced and expects to continue
to experience increased competition from current and potential competitors,
many of which have significantly greater financial, technical, marketing and
other resources.
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In the market for network cache solutions, Inktomi competes on the basis of
performance, scalability, data throughput, ease of integration and
manageability. Inktomi competes primarily against several companies including
CacheFlow, Cisco Systems, Microsoft, Mirror Image Internet, Netscape, Network
Appliance, Novell, and Spyglass, among others. Inktomi also competes against
freeware caching solutions including CERN, Harvest and Squid. Inktomi is aware
of numerous other major software developers as well as smaller entrepreneurial
companies that are focusing significant resources on developing and marketing
products and services that will compete with Traffic Server. Inktomi believes
that Traffic Server may face competition from other providers of hardware and
software offering competing solutions to network infrastructure problems,
including networking hardware and companion software manufacturers such as
Ascend Communications, Bay Networks, Ciena and IBM; hardware manufacturers such
as Digital Equipment, Hewlett-Packard, Intel, Motorola and Sun Microsystems;
telecommunications providers such as AT&T, MCI Worldcom, and regional Bell
operating companies; cable TV/communications providers such as Continental
Cablevision, TimeWarner, and regional cable operators; software database
companies such as Informix, Oracle and Sybase; and large diversified software
and technology companies including Microsoft, Netscape and others. Cisco
Systems, 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 Inktomi competes.
In the market for providing outsourced search services, Inktomi competes on
the basis of performance, scalability, price, relevance of results and user
response time. Inktomi competes with a number of companies to provide Internet
search services, many of which have operated services in the market for a
longer period, have greater financial resources, have established marketing
relationships with leading online services and advertisers, and have secured
greater presence in distribution channels. Competitors that offer search
services to online service providers include Digital Equipment (Alta Vista),
Excite, Infoseek, Lycos and Northern Light, among others. In addition, large
media companies such as The Walt Disney Company and NBC Enterprises have
recently made investments in Internet search engine companies, and Inktomi
believes that other large media enterprises may enter or expand their presence
in the Internet search engine market, either directly or indirectly through
collaborations or other strategic alliances.
The market for the shopping engine application is rapidly evolving and
intensely competitive. Inktomi's current and potential competitors include
other providers of shopping technologies and services including Jango.com,
owned by Excite, Junglee, recently acquired by Amazon.com, and mySimon.com; and
various online retailers and aggregators of merchandise including Amazon.com,
Bottom Dollar, owned by WebCentric, eBay, InfoSpace.com and Yahoo!. Inktomi
believes the principal factors that will draw end users to an online shopping
application include brand availability, selection, personalized services,
convenience, price, accessibility, customer services, quality of search tools,
quality of content, and reliability and speed of fulfillment for products
ordered. Inktomi will have little or no control over many of these factors.
Inktomi's competitors may be able to respond more quickly to new or emerging
technologies and changes in customer requirements than Inktomi. In addition,
certain of Inktomi'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 Inktomi. Also, certain current and potential competitors have
greater name recognition, more extensive customer bases that could be leveraged
or access to proprietary content, thereby gaining market share to Inktomi's
detriment. Inktomi expects additional competition as other established and
emerging companies enter the network infrastructure
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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
Inktomi's business, financial condition and results of operations.
PROPRIETARY RIGHTS
Inktomi's products and services operate in part by making copies of material
available on the Internet and other networks and making this material available
to end users from a central location. This creates the potential for claims to
be made against Inktomi (either directly or through contractual indemnification
provisions with customers) for defamation, negligence, copyright or trademark
infringement, personal injury, invasion of privacy or other legal theories
based on the nature, content or copying of such materials. Such claims have
been threatened against Inktomi from time to time, and have been brought and
sometimes successfully pressed against online services in the past. It is also
possible that if any information provided through the Inktomi search engine or
shopping engine, 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
Inktomi for losses incurred in reliance on such information. Although Inktomi
carries general liability insurance, Inktomi's insurance may not cover
potential claims of this type or may not be adequate to indemnify Inktomi for
all liability that may be imposed.
Inktomi's success and ability to compete are substantially dependent upon its
internally developed technology. While Inktomi relies on patent, copyright,
trade secret and trademark law to protect its technology, Inktomi 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 Inktomi's technology.
Inktomi 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 Inktomi's efforts to protect its proprietary rights,
unauthorized parties may attempt to copy or otherwise obtain and use Inktomi's
products or technology. Policing unauthorized use of Inktomi's products is
difficult, and there can be no assurance that the steps taken by Inktomi will
prevent misappropriation of its technology, particularly in foreign countries
where the laws may not protect Inktomi'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 Inktomi expects that software products may be
increasingly subject to third-party infringement claims as the number of
competitors in Inktomi'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. In
addition, Inktomi believes that many of its competitors in the network cache
business have filed or intend to file patent applications covering aspects of
their technology that they may claim Inktomi's technology infringes. There can
be no assurance that Lycos or other third parties will not claim infringement
by Inktomi with respect to its products and technology 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 Inktomi to enter into royalty or licensing
agreements. Such royalty or licensing agreements, if required, may not be
available on terms acceptable to Inktomi, if at all. A successful claim of
product infringement against Inktomi and failure or inability of Inktomi to
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license the infringed or similar technology could have a material adverse
effect on Inktomi's business, financial condition and results of operations.
EMPLOYEES
As of September 30, 1998, Inktomi had 185 full-time employees, 84 of whom
were engaged in research and development, 72 in sales and marketing, 10 in
customer support, and 19 in finance, administration and operations. Inktomi'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 Inktomi's key employees could have a
material adverse effect on Inktomi's business, financial condition and results
of operations. Inktomi'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 Inktomi can retain its key personnel in the future. None of
Inktomi's employees is represented by a labor union. Inktomi has not
experienced any work stoppages and considers its relations with its employees
to be good.
TECHNICAL ADVISORY BOARD
Inktomi has assembled a Technical Advisory Board composed 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
Inktomi, 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 Microsystems; 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 48,000 square feet in a single office building
located in San Mateo, California. Approximately 16,400 square feet is leased
pursuant to a sublease that expires February 2000. This 16,400 square feet
becomes the subject of an extension directly with the master landlord upon
expiration of the sublease. This extension expires in October 2002.
Approximately 32,300 square feet of this San Mateo space is leased pursuant to
a lease that expires in October of 2003. Inktomi has also executed a lease for
approximately 177,000 square feet of office space in Foster City, California.
This lease expires 11 years after commencement, which is anticipated to be in
June 1999. This lease provides Inktomi with an option to expand into a total of
approximately 241,000 square feet after five years and provides an option to
purchase the site from months 13 through 59. Inktomi also leases space in
Epsom, England; Atlanta, Georgia; Denver, Colorado; McLean, Virginia; Tokyo,
Japan; and Munich, Germany. The term of any one of these leases is not more
than 12 months. See "Risk Factors--Need to Manage Changing Operations".
40
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information with respect to the execu-
tive officers and directors of Inktomi as of October 31, 1998.
<TABLE>
<CAPTION>
NAME AGE POSITION
---------------------------- --- --------------------------------------------
<C> <C> <S>
Chairman of the Board, President and Chief
David C. Peterschmidt(1).... 51 Executive Officer
Dr. Eric A. Brewer.......... 31 Chief Scientist and Director
Paul Gauthier............... 26 Chief Technology Officer
Vice President of Finance, Chief Financial
Jerry M. Kennelly........... 48 Officer and Secretary
Dennis L. McEvoy............ 51 Vice President of Development and Support
Richard B. Pierce........... 39 Vice President of Marketing
Timothy Stevens............. 32 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).. 38 Director
John A. Porter(1)(2)(3)..... 54 Director
Alan F. Shugart(2)(3)....... 68 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 Inktomi since its inception in
February 1996. From February 1996 to December 1997, Dr. Brewer was Chief
Technology Officer of Inktomi and was appointed Chief Scientist in December
1997. From May 1996 to July 1996, he served as interim President and Chief
Executive Officer of Inktomi. 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 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 Inktomi
from February 1996 until his appointment as Chief Technology Officer in
December 1997. From May 1995 to August 1995, Mr. Gauthier served
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<PAGE>
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 Inktomi 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 Inktomi 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 degree 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 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,
42
<PAGE>
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 Bachelor of
Science and Masters degrees in Industrial Engineering from Stanford University.
FREDRIC W. HARMAN joined Inktomi 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 Bachelor of Science and Masters degrees in Electrical Engineering from
Stanford University and a Masters of Business Administration from Harvard
University.
JOHN A. PORTER joined Inktomi 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 MCI 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
previously served on the Board of Directors of WorldCom from 1989 until its
merger with MCI, 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.
ALAN F. SHUGART joined Inktomi as a Director in December 1997. Mr. Shugart
has been Chief Executive Officer of Al Shugart International since September
1998. From 1979 to 1998, Mr. Shugart was Chief Executive Officer of Seagate
Technology, Inc., a manufacturer of disk drives and other computer equipment.
From 1979 until September 1991 and from October 1992 to September 1998,
Mr. Shugart 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
Cypress Semiconductor Corp.
Inktomi'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. Inktomi's Bylaws provide that the authorized
number of directors may be changed only by resolution of the Board of
Directors.
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 Inktomi.
BOARD COMMITTEES
Inktomi has established an Audit Committee, a Compensation Committee and a
Nominating Committee. The Audit Committee reviews the internal accounting
procedures of Inktomi and consults with and reviews the services provided by
Inktomi's independent accountants. The Compensation Committee reviews and
recommends to the Board of Directors the compensation and benefits of all
officers of Inktomi and establishes and reviews general policies relating to
compensation and benefits of employees of Inktomi. The Nominating Committee is
responsible for establishing general qualification guidelines applicable to
nominees to the Board of Directors, and for identifying, interviewing and
43
<PAGE>
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 Inktomi 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 Inktomi'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 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 Board of Directors.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE. The following table sets forth the compensation
earned for services rendered to Inktomi in all capacities for the fiscal years
ended September 30, 1998 and 1997 by Inktomi's Chief Executive Officer and
Inktomi's four next most highly compensated executive officers who earned more
than $100,000 during the fiscal year ended September 30, 1998 (collectively,
the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
-------------------- ------------
SECURITIES
UNDERLYING
NAME AND PRINCIPAL POSITIONS YEAR SALARY($) BONUS($) OPTIONS(#)
---------------------------- ---- ---------- --------- ------------
<S> <C> <C> <C> <C>
David C. Peterschmidt................ 1998 $ 150,000 $ 125,000 100,000
Chairman of the Board, President and 1997 150,000 280,000(1) --
Chief Executive Officer
Jerry M. Kennelly(2)................. 1998 200,000 73,105 40,000
Vice President of Finance and Chief 1997 184,102 37,045 200,001(3)
Financial Officer
Dennis L. McEvoy(4).................. 1998 200,000 61,507 40,000
Vice President of Development and 1997 66,667 92,210 268,801
Support
Richard B. Pierce(5)................. 1998 185,000 67,916 50,000
Vice President of Marketing 1997 150,016 333,776 233,334(3)
Vince Vannelli(6).................... 1998 150,000 192,065 250,000
Vice President of Worldwide Field 1997 -- -- --
Operations
</TABLE>
- --------
(1) Bonus earned and accrued during the 1997 fiscal year and paid over the
1998 fiscal year.
(2) Mr. Kennelly joined Inktomi in October 1996.
(3) Shares subject to options granted under Inktomi's 1996 Equity Incentive
Plan. Excludes 133,334 shares and 233,334 shares issuable upon exercise of
options granted during the 1997 fiscal year under the 1996 Equity
Incentive Plan to Mr. Kennelly and Mr. Pierce, respectively. Such options
were cancelled during the fiscal year.
(4) Mr. McEvoy joined Inktomi in June 1997.
(5) Mr. Pierce joined Inktomi in November 1996.
(6) Mr. Vannelli joined Inktomi in January 1998.
44
<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, 1998. 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 Inktomi'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.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------------------------
POTENTIAL REALIZABLE
% OF TOTAL VALUE AT ASSUMED
NUMBER OF OPTIONS ANNUAL RATES OF
SECURITIES GRANTED TO STOCK APPRECIATION
UNDERLYING EMPLOYEES EXERCISE FOR OPTION TERM(3)
OPTIONS DURING PRICE EXPIRATION ---------------------
NAME GRANTED(#) PERIOD(1) ($/SHARE)(2) DATE 5% 10%
---- ---------- ---------- ------------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
David C. Peterschmidt... 100,000(4) 6.5% $49.00 09/01/08 $3,081,584 $7,809,338
Jerry M. Kennelly....... 40,000(4) 2.6 49.00 09/01/08 1,232,634 3,123,736
Dennis L. McEvoy........ 40,000(4) 2.6 49.00 09/01/08 1,232,634 3,123,736
Richard B. Pierce....... 50,000(4) 3.2 49.00 09/01/08 1,540,792 3,904,670
Vince Vannelli.......... 200,000(5) 12.9 3.33 02/09/08 418,844 1,061,433
50,000(4) 3.2 49.00 09/01/08 1,540,792 3,904,670
</TABLE>
- --------
(1) Based on an aggregate of 1,544,605 options granted by Inktomi during the
fiscal year ended September 30, 1998 to employees of and consultants to
Inktomi, including the Named Executive Officers. Excludes options granted
by C\\2\\B Technologies during the fiscal year that were assumed by Inktomi
in connection with its acquisition of C\\2\\B Technologies.
(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 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) Option was granted under Inktomi's 1998 Stock 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 Inktomi
the right in the event of any termination of employment to repurchase all
then unvested shares at cost. 2% of the shares become vested 37 months from
the date of grant and an additional 2% of the shares become vested monthly
thereafter.
(5) Option was granted under Inktomi'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
Inktomi the right in the event of any termination of employment to
repurchase all then unvested shares at cost. 2% of the shares become vested
six months from the date of commencement of employment and 2% of the shares
become vested monthly thereafter. Mr. Vannelli exercised and purchased all
shares under this option in April 1998.
45
<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, 1998 and exercisable and
unexercisable options held as of September 30, 1998:
OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS AT IN-THE-MONEY OPTIONS AT
ACQUIRED ON VALUE SEPTEMBER 30, 1998 (#) SEPTEMBER 30, 1998 ($)(2)
NAME EXERCISE (#) REALIZED ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ------------ --------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
David C. Peterschmidt... 66,667 $ 4,903,358 750,200(3) -- $50,322,210 --
Jerry M. Kennelly....... -- -- 40,000(4) -- 1,000,000 --
Dennis L. McEvoy........ -- -- 40,000(4) -- 1,000,000 --
Richard B. Pierce....... -- -- 50,000(4) -- 1,250,000 --
Vince Vannelli.......... 200,000(5) 14,134,000 50,000(4) -- 1,250,000 --
</TABLE>
- --------
(1) Based on a value of $74.00 per share, the closing price of Inktomi's stock
on the Nasdaq National Market on September 30, 1998, minus the per share
exercise price, multiplied by the number of shares issued upon exercise of
the option.
(2) Based on a value of $74.00 per share, the closing price of Inktomi's stock
on the Nasdaq National Market on September 30, 1998, minus the per share
exercise price, multiplied by the number of shares underlying the option.
(3) Includes an option to purchase 100,000 shares of Common Stock. All shares
under the option are immediately exercisable; however, as a condition of
exercise, the optionee must enter into a stock restriction agreement giving
Inktomi the right in the event of any termination of employment to
repurchase all then unvested shares at cost. 2% of the shares become vested
37 months following the date of grant and an additional 2% of the shares
become vested monthly thereafter.
(4) All shares under the option are immediately exercisable; however, as a
condition of exercise, the optionee must enter into a stock restriction
agreement giving Inktomi the right in the event of any termination of
employment to repurchase all then unvested shares at cost. 2% of the shares
become vested 37 months following the date of grant and an additional 2% of
the shares become vested monthly thereafter.
(5) As of September 30, 1998, 164,000 of the shares acquired by Mr. Vannelli
were subject to a right of repurchase by Inktomi at cost in the event of
termination of employment with Inktomi. The repurchase option lapses as to
4,000 shares per month.
INCENTIVE STOCK PLANS
1996 EQUITY INCENTIVE PLAN. Inktomi'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 September 30, 1998,
options to purchase 1,784,370 shares of Common Stock were outstanding and
2,589,911 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 Inktomi 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 Inktomi.
For consultants and directors, the right of repurchase generally lapses over
the term of service. Prior to adopting the Incentive Plan, Inktomi granted
nonstatutory stock options to purchase Common Stock to certain employees and
consultants. As of September 30, 1998, options to purchase 75,556 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.
46
<PAGE>
C\\2\\B TECHNOLOGIES 1997 STOCK PLAN. In connection with Inktomi's acquisition
of C\\2\\B Technologies in September 1998, Inktomi assumed the outstanding stock
options granted under the C\\2\\B Technologies 1997 Stock Plan (the "C\\2\\B
Stock Plan"). A total of 129,584 shares of Common Stock has been reserved for
issuance pursuant to the outstanding options assumed. The assumed options will
continue to be governed by the terms of the C\\2\\B Stock Plan and the related
stock option agreements. Issuances of additional options pursuant to the C\\2\\B
Stock Plan were discontinued as of the effectiveness of the merger, and no
further options will be granted thereunder. The C\\2\\B Stock Plan is currently
administered by the Board of Directors, although the Board may designate a
committee to administer the plan. Options granted under the C\\2\\B Stock 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 Inktomi at the exercise price. For employees, the stock options
typically vest or the right of repurchase generally lapses as to 1/36th of the
granted shares following each month after the first date of employment. In
connection with Inktomi's assumption of the options, each of the employees with
outstanding options under the C\\2\\B Stock Plan received an additional nine
months of vesting.
1998 STOCK PLAN. Inktomi'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. 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. As of September 30, 1998, options to purchase 692,850 shares of
Common Stock were outstanding and 307,150 shares available for future grant.
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
Inktomi. 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 Inktomi'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. Inktomi's 1998 Employee Stock Purchase
Plan (the "Purchase Plan") provides employees of Inktomi with an opportunity to
purchase Common Stock of Inktomi 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 had been issued at September 30, 1998. 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 Inktomi 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 Inktomi for at
least 20 hours per week and more than five months in any calendar year. Unless
the Board of Directors or its committee determines otherwise, each offering
period will run for 24
47
<PAGE>
months and will be divided into four consecutive purchase periods of
approximately six months. The first offering period and the first purchase
period commenced on June 9, 1998, and new 24 month offering periods commence
every six months thereafter. In the event of an acquisition of Inktomi,
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.
401(K) PLAN
In 1996, Inktomi adopted a Retirement Savings and Investment Plan (the
"401(k) Plan") covering Inktomi'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 Inktomi, and the investment earnings
thereon, are not taxable to employees until withdrawn from the 401(k) Plan, and
so that contributions by Inktomi, if any, will be deductible by Inktomi 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 Inktomi on behalf of all participants in the 401(k) Plan. To
date, Inktomi has not made any contributions to the 401(k) Plan.
EMPLOYMENT AGREEMENT
Inktomi 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 Inktomi 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 Inktomi for such time
period.
LIMITATIONS ON DIRECTORS' LIABILITY AND INDEMNIFICATION
Inktomi'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.
Inktomi's Certificate of Incorporation and Bylaws provide that Inktomi 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.
Inktomi believes that indemnification under its Bylaws covers at least
negligence and gross negligence on the part of indemnified parties. Inktomi'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,
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regardless of whether the Bylaws would permit indemnification.
Inktomi has entered into agreements to indemnify its directors and executive
officers, in addition to indemnification provided for in Inktomi's Bylaws.
These agreements, among other things, provide for indemnification of Inktomi'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 Inktomi,
arising out of such person's services as a director or executive officer of
Inktomi, any subsidiary of Inktomi or any other company or enterprise to which
the person provides services at the request of Inktomi. Inktomi believes that
these provisions and agreements are necessary to attract and retain qualified
persons as directors and executive officers.
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<PAGE>
CERTAIN TRANSACTIONS
In February 1996, Inktomi issued 751,815 shares of Common Stock to each of
Dr. Eric A. Brewer and Paul Gauthier at a cash price of $0.000075 per share. In
March 1996, Inktomi issued 1,683,168 shares of Common Stock to each of Dr.
Brewer and Mr. Gauthier at a cash price of $0.00075 per share. Dr. Brewer and
Mr. Gauthier are each executive officers of Inktomi, and Dr. Brewer is a
Director of Inktomi.
In March 1996, Inktomi LLC, a California limited liability company whose
members include Dr. Brewer and Mr. Gauthier, and Dr. Brewer and Mr. Gauthier as
individuals, transferred to Inktomi all of their right, title and interest in
certain technology in exchange for $100,000 cash and a promissory note of
Inktomi 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 Inktomi 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 Inktomi's Common
Stock at an exercise price of $0.33 per share and forgave all other
indebtedness under the promissory note.
In July 1996, Inktomi entered into an employment agreement with David C.
Peterschmidt, Inktomi'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 Inktomi 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 Inktomi
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 Inktomi'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 Inktomi. In exchange for consulting services, Inktomi 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 Inktomi full time as Vice President of Development and Support in June
1997.
In April 1997, Inktomi issued and sold to entities affiliated with Oak
Investment Partners ("Oak Partners") 2,405,653 shares of Common Stock at
$3.3255 per share and warrants to purchase 801,884 shares of Common 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). Oak Partners is a 5%
stockholder of Inktomi. Fredric W. Harman is a Managing Partner of the General
Partners of the Oak Partners entities and is a Director of Inktomi.
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 Inktomi's Board of Directors.
In April 1998, Inktomi loaned $666,000 to Vince Vannelli, Vice President of
Worldwide Field Operations, in connection with the exercise of his stock
options. The loan bears interest at the lowest applicable federal
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rate and is secured by the shares issued upon exercise of the stock option. All
principal and accrued interest under the loan is due and payable in April 2002,
or within 90 days following any termination of employment.
All future transactions, including any loans from Inktomi 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 Inktomi than could be obtained from unaffiliated third parties.
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PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth information known to Inktomi with respect to
the beneficial ownership of its Common Stock as of September 30, 1998, and as
adjusted to reflect the sale of Common Stock offered hereby by (i) each
stockholder known by Inktomi to own beneficially more than 5% of the Common
Stock, (ii) each of the Named Executive Officers, (iii) each director of
Inktomi, (iv) all directors and executive officers as a group, and (v) all
other selling stockholders. As of September 30, 1998, there were 23,388,372
shares of Common Stock outstanding.
<TABLE>
<CAPTION>
SHARES OF COMMON SHARES OF COMMON
STOCK BENEFICIALLY STOCK TO BE BENEFICIALLY
OWNED BEFORE SALE OWNED AFTER SALE
UNDER THIS UNDER THIS
PROSPECTUS(1) SHARES PROSPECTUS(1)(2)
-------------------- TO BE -----------------------------
NUMBER PERCENTAGE SOLD(2) NUMBER PERCENTAGE
--------- ---------- ------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Entities affiliated with
Oak Investment
Partners(3)............ 3,197,514 13.7% 500,000 2,697,514 11.4%
525 University Avenue,
Suite 1300
Palo Alto, CA 94301
Fredric W. Harman(4).... 3,197,514 13.7 500,000 2,697,514 11.4
525 University Avenue,
Suite 1300
Palo Alto, CA 94301
Dr. Eric A. Brewer(5)... 2,129,765 9.0 100,000 2,029,765 8.5
Inktomi Corporation
1900 S. Norfolk Street,
Suite 310
San Mateo, CA 94403
Paul Gauthier(6)........ 2,072,563 8.8 150,000 1,922,563 8.0
Inktomi Corporation
1900 S. Norfolk Street,
Suite 310
San Mateo, CA 94403
David C.
Peterschmidt(7)........ 956,867 4.0 -- 956,867 3.9
Jerry M. Kennelly(8).... 316,926 1.4 -- 316,926 1.3
Dennis L. McEvoy(9)..... 308,801 1.3 -- 308,801 1.3
Richard B. Pierce(10)... 385,898 1.6 -- 385,898 1.6
Vince Vannelli(11)...... 250,000 1.1 -- 250,000 1.1
John A. Porter(12)...... 66,667 * -- 66,667 *
Alan F. Shugart(13)..... 50,000 * -- 50,000 *
All directors and
executive officers as a
group (11
persons)(14)........... 9,828,210 39.6 750,000 9,078,210 36.2
United Capital Group
LP..................... 759,408 3.2 100,000 659,408 2.8
Entities affiliated with
Integral Capital
Partners(15)........... 373,336 1.6 73,336 300,000 1.3
Artal Luxembourg S.A. .. 314,000 1.3 150,000 164,000 *
Seligman Communications
and Information Fund,
Inc. .................. 314,000 1.3 314,000 -- *
Scott Walchek........... 278,456 1.2 112,500 165,956 *
All other selling
stockholders each
owning less than 1% of
the total voting power
prior to this offering
(76 persons)........... 1,721,312 7.4 987,465 733,847 3.1
</TABLE>
- --------
* Less than 1% of the outstanding shares of Common Stock.
(1) Assumes no exercise of Underwriters' over-allotment option.
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<PAGE>
(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 September 30, 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.
(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. Oak Investment Partners VII, Limited Partnership, is selling
488,495 shares in this offering and Oak VII Affiliates Fund, Limited
Partnership, is selling 11,505 shares in this offering.
(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. Oak Investment Partners VII, Limited Partnership, is selling
488,495 shares in this offering and Oak VII Affiliates Fund, Limited
Partnership, is selling 11,505 shares in this offering. Mr. Harman is a
Managing Partner of the general partners of the Oak Partners entities and
is a Director of Inktomi. 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 1,904,331 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
Inktomi. Also includes an option held by Dr. Brewer to purchase 50,000
shares of Common Stock. The option is fully exercisable although as of
September 30, 1998 all of such shares issuable upon exercise of the option
were subject to a right of repurchase at cost in the event Dr. Brewer
ceases to be an employee of Inktomi.
(6) Includes 1,847,129 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 Inktomi. Also includes
an option held by Mr. Gauthier to purchase 50,000 shares of Common Stock.
The option is fully exercisable although as of September 30, 1998 all of
such shares issuable upon exercise of the option were subject to a right
of repurchase at cost in the event Mr. Gauthier ceases to be an employee
of Inktomi.
(7) 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 are fully vested. Also includes an option held by Mr.
Peterschmidt to purchase 100,000 shares of Common Stock. The option is
fully exercisable although as of September 30, 1998 all of such shares
issuable upon exercise of the option were subject to a right of repurchase
at cost in the event Mr. Peterschmidt ceases to be an employee of Inktomi.
(8) 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 September 30, 1998, 118,667 of the shares held by Mr. Kennelly were
subject to a right of repurchase by Inktomi at cost in the event
Mr. Kennelly ceases to be an employee of Inktomi. The right of repurchase
lapses at the rate of 4,000 shares per month and lapses in full upon
consummation of an acquisition of Inktomi. Also includes an option held by
Mr. Kennelly to purchase 40,000 shares of Common Stock. The option is
fully exercisable although as of September 30, 1998 all of such shares
issuable upon exercise of the option were subject to a right of repurchase
at cost in the event Mr. Kennelly ceases to be an employee of Inktomi.
(9) All shares are held by Mr. McEvoy and his wife, Kim Worsencroft. At
September 30, 1998, 123,129 of the shares held by Mr. McEvoy and Ms.
Worsencroft were subject to a right of repurchase by Inktomi at cost in
the event Mr. McEvoy ceases to be an employee of Inktomi. The right of
repurchase lapses at the rate of approximately 3,579 shares per month, and
as to all shares upon consummation of an acquisition of Inktomi. Also
includes an option held by Mr. McEvoy to purchase 40,000 shares of Common
Stock. The option is fully exercisable although as of September 30, 1998
all of such shares issuable upon exercise of the option were subject to a
right of repurchase at cost in the event Mr. McEvoy ceases to be an
employee of Inktomi.
(10) 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 September 30,
1998, 126,668 of the shares held by the Pierce Family Trust were subject
to a right of repurchase by Inktomi at cost in the event Mr. Pierce ceases
to be an employee of Inktomi. 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. Also includes an option held by Mr. Pierce to purchase
50,000 shares of Common Stock. The option is fully exercisable although as
of September 30, 1998 all of such shares issuable upon exercise of the
option were subject to a right of repurchase at cost in the event Mr.
Pierce ceases to be an employee of Inktomi.
(11) All shares are held by Mr. Vannelli. As of September 30, 1998, 164,000 of
the shares held by Mr. Vannelli were subject to a right of repurchase by
Inktomi at cost in the event Mr. Vannelli ceases to be an employee of
Inktomi. The right of repurchase lapses at the rate of approximately 4,000
shares per month. Also includes an option held by Mr. Vannelli to purchase
50,000 shares of Common Stock. The option is fully exercisable although as
of September 30, 1998 all shares issuable upon exercise of the option were
subject to a right of repurchase at cost in the event Mr. Vannelli ceases
to be an employee of Inktomi.
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<PAGE>
(12) All shares are held by Integra Holdings, L.P. As of September 30, 1998,
16,667 of the shares held by Integra Holdings were subject to a right of
repurchase by Inktomi at cost in the event Mr. Porter ceases to be a
Director of Inktomi. The right of repurchase lapses at the rate of 2,778
shares per month.
(13) Consists of an option held by Mr. Shugart to purchase 50,000 shares of
Common Stock. The option is fully exercisable although as of September 30,
1998, 33,333 of the shares issuable upon exercise of the option were
subject to a right of repurchase by Inktomi at cost in the event Mr.
Shugart ceases to be a Director of Inktomi. The right of repurchase lapses
at the rate of 1,389 shares per month.
(14) Includes 350,868 shares issuable upon exercise of warrants and options to
purchase 1,050,200 shares, which options are fully exercisable as of
September 30, 1998.
(15) Includes 304,132 shares held by Integral Capital Partners III, L.P., and
69,204 shares held by Integral Capital Partners International III, L.P.
Integral Capital Partners III, L.P., is selling 59,743 shares in this
offering and Integral Capital Partners International, L.P., is selling
13,593 shares in this offering.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
GENERAL
Inktomi is 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 Inktomi's capital stock does not purport to be
complete and is subject to and qualified in its entirety by Inktomi'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 September 30, 1998, there were 23,388,372 shares of Common Stock
outstanding which were held of record by approximately 356 stockholders.
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 Inktomi, 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 Inktomi
without further action by the stockholders. Inktomi has no present plans to
issue any shares of Preferred Stock.
WARRANTS
At September 30, 1998, there were warrants outstanding to purchase a total of
729,806 shares of Common Stock. Warrants to purchase 200,472 shares at $4.99
per share will expire in April 1999, warrants to purchase 5,120 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, warrants to purchase
27,778 shares at $17.55 per share will expire in June 2002, warrants to
purchase 69,445 shares at $35.10 per share will expire in June 2002 and
warrants to purchase 5,956 shares at $5.86 will expire in June 2002.
REGISTRATION RIGHTS
The holders of 12,869,668 shares of Common Stock and the holders of warrants
to purchase 200,472 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 Inktomi and the holders of registrable
securities. Under these registration rights, beginning on
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<PAGE>
December 8, 1998, holders of at least a majority of the then outstanding
registrable securities may require on one occasion that Inktomi register their
shares for public resale. Inktomi 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 Inktomi register their shares for public resale on Form
S-3 or similar short-form registration, provided Inktomi 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 Inktomi 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 Inktomi 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 Inktomi. All registration rights will terminate on June 9, 2002, or, with
respect to each holder of registrable securities, at such time as the holder is
entitled to sell all of its shares in any three month period under Rule 144 of
the Securities Act.
The holders of 1,102,507 shares of Common Stock (and their permitted
transferees) received in connection with the acquisition of C\\2\\B Technologies
are entitled to certain rights with respect to the registration of such shares
under the Securities Act. Under these registration rights, in the event Inktomi
elects to register any of its shares of Common Stock for purposes of effecting
any public offering, the holders of these registrable securities are entitled
to include their shares of Common Stock in the registration, subject to the
right of Inktomi 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 Inktomi.
All registration rights will terminate on September 25, 1999.
DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER AND BYLAW PROVISIONS
Certain provisions of Delaware law and Inktomi's Certificate of Incorporation
and Bylaws could make more difficult the acquisition of Inktomi 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 Inktomi to first
negotiate with Inktomi. Inktomi believes that the benefits of increased
protection of Inktomi's potential ability to negotiate with the proponent of an
unfriendly or unsolicited proposal to acquire or restructure Inktomi outweigh
the disadvantages of discouraging such proposals because, among other things,
negotiation of such proposals could result in an improvement of their terms.
Inktomi 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
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<PAGE>
the market price for the shares of Common Stock held by stockholders.
Inktomi'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
Inktomi. These and other provisions may have the effect of deterring hostile
takeovers or delaying changes in control or management of Inktomi. 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.
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SHARES ELIGIBLE FOR FUTURE SALE
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 Inktomi'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 Inktomi in the public market after the restrictions lapse could
adversely affect the prevailing market price and the ability of Inktomi to
raise equity capital in the future.
Upon completion of this offering, Inktomi will have outstanding 23,688,372
shares of Common Stock (based upon shares outstanding as of September 30,
1998), assuming no exercise of the Underwriters' over-allotment option and no
exercise of outstanding options or warrants after September 30, 1998. Of these
shares, the 3,000,000 shares sold in this offering will be freely tradable
without restriction under the Securities Act except for any shares purchased by
"affiliates" of Inktomi as that term is defined in Rule 144 under the
Securities Act. In addition, the 2,592,100 shares sold in Inktomi's initial
public offering in June 1998 and 596,228 shares released from the lock-up
agreements executed by certain stockholders in connection with the initial
public offering are freely tradeable.
The remaining 17,500,044 shares of Common Stock held by existing stockholders
are "Restricted Shares" as that term is defined in Rule 144 and may not be sold
publicly unless they are registered under the Securities Act or are sold
pursuant to Rule 144 or another exemption from registration. On December 8,
1998, the lock-up agreements relating to Inktomi's initial public offering will
expire. On this date, approximately 4,590,078 Restricted Shares will be
eligible for resale, subject in some cases to compliance with the volume
limitations and other restrictions under Rule 144.
The Company's officers, directors, the selling stockholders and certain other
stockholders and the underwriters entered into lock-up agreements in connection
with this offering. These lock-up agreements provide that, with certain limited
exceptions, the stockholder will not offer, sell, contract to sell or otherwise
dispose of any securities of Inktomi 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 90 days after the date of this prospectus without
the prior written consent of Goldman, Sachs & Co. Upon expiration of the lock-
up agreements, approximately 9,362,151 Restricted Shares will be eligible for
resale, subject in some cases to compliance with the volume limitations and
other restrictions under Rule 144. Of the remaining 3,547,815 shares, 2,445,307
shares will become eligible for sale at various times from February 1999
through June 1999 and 1,102,507 shares will become eligible for sale on
September 25, 1999, subject in some cases to the volume and manner of sale
limitations under Rule 144. Any early release of the lock-up agreements by
Goldman, Sachs & Co., which, if granted, could permit sales of a substantial
number of shares and could adversely affect the trading price of the Company's
shares, may not be accompanied by an advance public announcement by the
Company. In addition, certain holders of Common Stock have the right to include
their shares in any future registration of securities effected by the Company
and to require the Company to register their shares for future sale, subject to
certain exceptions.
In general, under Rule 144 as currently in effect, 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
58
<PAGE>
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 236,900
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 Inktomi. Under Rule 144(k), a
person who is not deemed to have been an affiliate of Inktomi 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 Inktomi 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 who have not executed lock-up agreements in connection with
this offering will be able to sell such shares beginning on December 8, 1998.
In October 1998, Inktomi filed a Registration Statement on Form S-8
registering 3,297,218 shares of Common Stock subject to outstanding options or
reserved for future issuance under its stock plans. As of September 30, 1998,
options to purchase a total 2,682,360 shares were outstanding and 3,289,510
shares were reserved for future issuance under Inktomi's stock plans. Common
Stock issued upon exercise of outstanding vested options or issued pursuant to
the Purchase Plan, other than Common Stock issued to affiliates of Inktomi, is
available for immediate resale in the open market.
59
<PAGE>
ADDITIONAL INFORMATION
Inktomi 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 Inktomi 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.
Inktomi is subject to the informational requirements of the Exchange Act and,
in accordance therewith, files reports, proxy statements and other information
with the Commission. Such reports, proxy statements and other information filed
by Inktomi can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549 and at the Commission's regional offices located at 7 World Trade
Center, Suite 1300, New York, New York 10048 and 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. Copies of such material can also be obtained
from the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. The Commission also makes
electronic filings publicly available on the Internet within 24 hours of
acceptance. The Commission's Internet address is http://www.sec.gov. The
Commission web site also contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission. The Common Stock of Inktomi is quoted on the Nasdaq National
Market. Reports, proxy and information statements and other information
concerning Inktomi may be inspected at the National Association of Securities
Dealers, Inc. at 1735 K Street, N.W., Washington, D.C. 20006.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for
Inktomi 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 Inktomi's
Common Stock.
60
<PAGE>
EXPERTS
The consolidated balance sheets as of September 30, 1996, 1997 and 1998 and
the consolidated statements of operations, changes in stockholders' equity and
cash flows for the period from February 2, 1996 (date of incorporation) through
September 30, 1996 and the years ended September 30, 1997 and 1998 included in
this prospectus have been included herein in reliance on the report of
PricewaterhouseCoopers LLP, Independent Accountants, which report is given on
the authority of that firm as experts in auditing and accounting.
61
<PAGE>
INKTOMI CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Accountants........................................... F-2
Consolidated Balance Sheets................................................. F-3
Consolidated Statements of Operations....................................... F-4
Consolidated Statements of Changes in Stockholders' 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 Board of Directors and Stockholders of
Inktomi Corporation
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations and changes in stockholders' equity and
of cash flows present fairly, in all material respects, the financial position
of Inktomi Corporation and its subsidiaries at September 30, 1997 and 1998, and
the results of their operations and their cash flows for the period from
February 2, 1996 (date of inception) to September 30, 1996, and the years ended
September 30, 1997 and 1998, in conformity with generally accepted accounting
principles. 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 of these statements in
accordance with generally accepted auditing standards which 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, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
PricewaterhouseCoopers LLP
San Francisco, California
October 16, 1998
F-2
<PAGE>
INKTOMI CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------
1997 1998
---------- ----------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents............................. $ 7,043.9 $ 28,944.1
Short-term investments................................ -- 18,491.6
---------- ----------
Total cash and cash equivalents and short-term
investments.......................................... 7,043.9 47,435.7
Accounts receivable, net of allowances of $80.5 and
$631.7, respectively................................. 829.4 5,080.6
Prepaid expenses...................................... 142.3 500.5
Other current assets.................................. 29.1 50.9
---------- ----------
Total current assets.................................. 8,044.7 53,067.7
Property and equipment, net............................ 6,912.7 17,361.6
Other assets........................................... 199.4 211.5
---------- ----------
Total assets.......................................... $ 15,156.8 $ 70,640.8
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current portion of notes payable...................... $ 2,489.6 $ 3,819.6
Current portion of capital lease obligations.......... -- 2,054.3
Accounts payable...................................... 1,028.5 4,884.4
Accrued liabilities................................... 1,147.5 6,601.0
Deferred revenue...................................... 714.9 1,315.4
---------- ----------
Total current liabilities............................. 5,380.5 18,674.7
Notes payable......................................... 5,029.4 4,050.1
Capital lease obligations, less current portion....... -- 4,646.2
---------- ----------
Total liabilities..................................... 10,409.9 27,371.0
Commitments (Note 4 and 14)
Stockholders' equity
Convertible preferred stock, $0.001 par value;
Authorized: 17,080,000 at September 30, 1997 and
10,000,000 at September 30, 1998; Issued and
outstanding: 14,938,121 at September 30, 1997 and
none at September 30, 1998........................... 14.9 --
Common stock, $0.001 par value; Authorized: 50,000,000
at September 30, 1997 and 100,000,000 at September
30, 1998; Outstanding: 5,961,845 at September 30,
1997 and 23,388,372 at September 30, 1998 ........... 6.0 23.4
Additional paid-in capital............................ 17,728.2 82,385.2
Deferred compensation and other....................... 909.5 (2,871.7)
Accumulated deficit................................... (13,911.7) (36,267.1)
---------- ----------
Total stockholders' equity............................ 4,746.9 43,269.8
---------- ----------
Total liabilities and stockholders' equity............ $ 15,156.8 $ 70,640.8
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
INKTOMI CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE PERIOD FROM FOR THE YEAR ENDED
FEBRUARY 2, 1996 (DATE OF SEPTEMBER 30,
INCEPTION) THROUGH ----------------------
SEPTEMBER 30, 1996 1997 1998
------------------------- ---------- ----------
<S> <C> <C> <C>
Revenues
Network applications........ $ -- $ 60.0 $ 7,962.3
Search services............. 530.1 5,725.1 12,463.6
--------- ---------- ----------
Total revenues........... 530.1 5,785.1 20,425.9
Operating expenses
Cost of revenues............ 238.8 1,511.9 4,816.0
Sales and marketing......... 898.2 7,835.2 21,451.6
Research and development.... 1,482.4 5,133.9 12,172.9
General and administrative.. 1,341.2 1,485.5 3,749.5
Acquisition-related
charges.................... -- -- 1,017.8
--------- ---------- ----------
Total operating
expenses................ 3,960.6 15,966.5 43,207.8
--------- ---------- ----------
Operating loss............... (3,430.5) (10,181.4) (22,781.9)
Interest income (expense),
net......................... (103.1) (194.3) 427.3
--------- ---------- ----------
Loss before income
taxes................... (3,533.6) (10,375.7) (22,354.6)
Provision for income taxes... 0.8 1.6 0.8
--------- ---------- ----------
Net loss................. $(3,534.4) $(10,377.3) $(22,355.4)
========= ========== ==========
Basic and diluted net loss
per share................... $ (1.88) $ (0.80) $ (1.15)
========= ========== ==========
Weighted average shares
outstanding used in
calculating basic and
diluted net loss per common
share....................... 1,884 12,977 19,360
========= ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
INKTOMI CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM FEBRUARY 2, 1996 (DATE OF INCEPTION)
THROUGH SEPTEMBER 30, 1996, THE YEAR ENDED SEPTEMBER 30, 1997,
AND THE YEAR ENDED SEPTEMBER 30, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED STOCK COMMON STOCK ADDITIONAL DEFERRED
----------------- ------------- PAID-IN COMPENSATION ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL AND OTHER DEFICIT TOTAL
-------- ------- ------ ------ ---------- ------------ ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Transfer of technology.. -- $ -- -- $ -- $ -- $(3,132.8) $ -- $(3,132.8)
Issuance of Common
Stock................... 2,187 2.1 42.9 45.0
Issuance of Preferred
Stock................... 10,072 10.1 4,011.5 4,021.6
Issuance of Common Stock
warrants................ 910.0 910.0
Exercise of Common Stock
warrants................ 280 0.3 350.3 (319.0) 31.6
Net loss................ (3,534.4) (3,534.4)
-------- ------ ------ ----- --------- --------- ---------- ---------
Balance, September 30,
1996.................... 10,072 10.1 2,467 2.4 4,404.7 (2,541.8) (3,534.4) (1,659.0)
Exercise of Common Stock
options................. 1,957 2.0 775.1 777.1
Issuance of Preferred
Stock, net of issuance
costs of $109........... 4,786 4.7 9,671.9 9,676.6
Issuance of Preferred
Stock upon conversion of
note payable............ 80 0.1 199.9 200.0
Forgiveness of note
payable related to
transfer of technology.. 3,132.8 3,132.8
Issuance of Preferred
Stock warrants.......... 490.2 490.2
Stock options granted to
consultants............. 93.2 93.2
Exercise of Common Stock
options in exchange for
note receivable......... 260 0.3 213.4 (213.7) --
Unearned compensation in
connection with issuance
of stock options........ 102.7 (102.7) --
Issuance of Common
Stock................... 1,278 1.3 2,360.5 2,361.8
Issuance of warrant to
lender.................. 51.5 51.5
Net loss................ (10,377.3) (10,377.3)
-------- ------ ------ ----- --------- --------- ---------- ---------
Balance, September 30,
1997.................... 14,938 14.9 5,962 6.0 17,728.2 909.5 (13,911.7) 4,746.9
Issuance of Preferred
Stock, net of issuance
costs of $1,128......... 3,298 3.3 12,883.8 12,887.1
Exercise of Common Stock
options................. 523 0.6 561.7 562.3
Exercise of Common Stock
warrants................ 708 0.7 1,774.6 (1,448.3) 327.0
Exercise of Preferred
Stock warrants.......... 1,225 1.3 4,070.9 4,072.2
Conversion of Preferred
Stock to Common Stock... (19,461) (19.5) 13,038 13.0 6.5 --
Unearned compensation in
connection with issuance
of stock options net of
amortization of $316.... 2,394.8 (2,078.8) 316.0
Issuance of Common
Stock, net of issuance
costs of $727........... 2,900 2.9 41,953.7 41,956.6
Issuance of Common Stock
warrants................ 425.0 425.0
Exercise of Common Stock
option in exchange for
note receivable......... 200 0.2 665.8 (666.0) --
Issuance of Common Stock
for prepaid
advertising............. 40 -- 284.8 284.8
Common Stock options
granted to consultants.. 35.8 35.8
Common Stock options
granted and immediately
exercised by
consultants............. 17 -- 60.4 60.4
Foreign currency
translation............. (48.9) (48.9)
Net loss................ (22,355.4) (22,355.4)
-------- ------ ------ ----- --------- --------- ---------- ---------
Balance, September 30,
1998.................... -- $ -- 23,388 $23.4 $82,385.2 $(2,871.7) $(36,267.1) $43,269.8
======== ====== ====== ===== ========= ========= ========== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
INKTOMI CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE PERIOD FROM FOR THE YEAR ENDED
FEBRUARY 2, 1996 (DATE OF SEPTEMBER 30,
INCEPTION) THROUGH ----------------------
SEPTEMBER 30, 1996 1997 1998
------------------------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating
activities:
Net loss................... $(3,534.4) $(10,377.3) $(22,355.4)
Adjustments to reconcile
net loss to net cash used
in operating activities
Depreciation and
amortization.............. 336.1 1,393.4 3,739.3
Provision for doubtful
accounts.................. 50.0 30.5 551.2
Non-cash expenses.......... 390.0 144.7 521.2
Unearned compensation...... -- -- 316.0
Changes in operating
assets and liabilities
Accounts receivable....... (177.8) (732.1) (4,802.4)
Prepaid expenses and
other assets............. (86.4) (284.4) (107.3)
Accounts payable.......... 388.7 226.5 2,383.4
Deferred revenue.......... -- 714.8 600.5
Accrued liabilities and
other.................... 458.2 689.1 5,501.5
--------- ---------- ----------
Net cash used in
operating activities.... (2,175.6) (8,194.8) (13,652.0)
Cash flows from investing
activities:
Purchases of short-term
investments............... -- -- (31,283.2)
Proceeds from maturities of
short-term investments.... -- -- 12,791.6
Purchase of property and
equipment................. (2,226.8) (6,001.9) (6,703.9)
Proceeds from sale of
equipment................. -- -- 927.6
--------- ---------- ----------
Net cash used in
investing activities.... (2,226.8) (6,001.9) (24,267.9)
Cash flows from financing
activities:
Proceeds from notes
payable................... 500.0 9,786.4 2,646.9
Repayments on notes
payable................... (300.0) (2,267.4) (2,296.1)
Payments on obligations
under capital leases...... -- -- (335.9)
Proceeds from issuance of
Preferred Stock, net...... 3,631.6 10,166.7 12,887.1
Proceeds from exercise of
stock options and
warrants.................. 31.5 777.0 4,961.5
Proceeds from issuance of
Common Stock.............. 45.1 2,361.8 41,956.6
Proceeds from issuance of
warrants.................. 910.0 0.3 --
--------- ---------- ----------
Net cash provided by
financing activities.... 4,818.2 20,824.8 59,820.1
--------- ---------- ----------
Increase in cash and cash
equivalents................ 415.8 6,628.1 21,900.2
Cash and cash equivalents at
beginning of period........ -- 415.8 7,043.9
--------- ---------- ----------
Cash and cash equivalents at
end of period.............. $ 415.8 $ 7,043.9 $ 28,944.1
========= ========== ==========
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Technology acquired for
notes payable.............. $ 3,132.8 $ -- $ --
========= ========== ==========
Accounts payable related to
purchase of property and
equipment.................. $ -- $ 413.4 $ 1,472.5
========= ========== ==========
Foregiveness of note payable
related to technology
acquired................... $ -- $ 3,132.8 $ --
========= ========== ==========
Preferred Stock issued as
compensation for services
received................... $ 390.0 $ -- $ --
========= ========== ==========
Exercise of Common Stock
options in exchange for
note receivable............ $ -- $ 93.2 $ 666.0
========= ========== ==========
Stock options issued as
compensation for services
rendered................... $ -- $ 93.2 $ 35.8
========= ========== ==========
Conversion of note payable
into Preferred Stock....... $ -- $ 200.0 $ --
========= ========== ==========
Assets acquired under
capital lease.............. $ -- $ -- $ 6,939.4
========= ========== ==========
Common Stock issued in
exchange for prepaid
advertising................ $ -- $ -- $ 284.8
========= ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
INKTOMI CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SIGNIFICANT ACCOUNTING POLICIES:
ORGANIZATION:
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, Inktomi's
operations consisted primarily of start-up activities, including research and
development of Inktomi's core coupled cluster software architecture and
dataflow technology, personnel recruiting and capital raising. In May 1996,
Inktomi 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, Inktomi began licensing Traffic
Server, Inktomi's second application, a large-scale network cache designed to
address capacity constraints in high-traffic network routes. In September 1998,
Inktomi initiated its third application through its acquisition of C\\2\\B
Technologies Inc. ("C\\2\\B"), a developer of online shopping technology. The
Company issued 1,891,314 shares of its Common Stock in exchange for all of the
outstanding shares of C\\2\\B. C\\2\\B recognized no revenues since inception,
raised $5.9 million through various stock issuances, and recorded losses of
$1.7 million and $5.0 million for the years ended September 30, 1997 and 1998
respectively. The transaction was accounted for as a pooling of interests.
Financial results for all periods have been restated to reflect combined
operations.
REVERSE STOCK SPLIT:
In May 1998, the Board of Directors and stockholders approved a 2:3 reverse
stock split of the Company's Common Stock. All share and per share information
in the accompanying consolidated financial statements and notes thereto have
been restated for the 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 subsidiaries, Inktomi Limited, a United Kingdom subsidiary
formed in October 1997, and C\\2\\B Technologies Inc., incorporated in June
1996. All significant intercompany balances and transactions have been
eliminated in the consolidated financial statements.
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, other debt instruments and money market funds.
SHORT-TERM INVESTMENTS:
Short-term investments are comprised primarily of debt securities and are
classified as available-for-sale investments. Due to the short-term nature of
such investments, carrying value approximates fair value. The amortized cost of
debt securities is adjusted for amortization of premiums and accretion of
discounts to maturity, both of which are included in interest income. Realized
gains and losses are recorded using the specific identification method. All
investments have maturity dates from three to nine months.
F-7
<PAGE>
INKTOMI CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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. Any gains or losses on the disposal of property and
equipment are recorded in the year of disposition.
SOFTWARE DEVELOPMENT COSTS:
Software development costs have been accounted for in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 86, Accounting for the
Costs of Computer Software to be Sold, Leased or 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 software
development costs and research and development costs to expenses.
INCOME TAXES:
Income taxes are accounted for in accordance with SFAS 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.
IMPAIRMENT OF LONG-LIVED ASSETS:
The Company evaluates the recoverability of its long-lived assets in
accordance with 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 will
assess the impairment of long-lived assets when events or changes in
circumstances indicate that the carrying value of an asset may not be
recoverable.
REVENUE RECOGNITION:
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. A significant portion of the Company's search advertising revenues
are from a search service that 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.
F-8
<PAGE>
INKTOMI CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
A portion of the advertising on the Wired search site is exchanged for
advertisements on the web 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, and expense from barter transactions is recognized when
advertisements are delivered on the other companies' web sites. Barter revenues
and expenses were approximately $133,000, $1,580,000 and $1,810,000 for the
period from February 2, 1996 (date of inception) through September 30, 1996 and
for the years ended September 30, 1997 and 1998, respectively.
Network applications revenues represent primarily license, maintenance,
upgrade and distribution fees for the Company's Traffic Server product. License
and distribution fees are typically recognized when the software is delivered
and all significant obligations have been met. Maintenance and upgrade revenues
are recognized pro-rata over the life of support and upgrade agreements.
COMPUTATION OF HISTORICAL 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 have not been included as such
shares are anti-dilutive.
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 and such deposits exceed federally insured limits.
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 total revenue.
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 year ended September 30, 1998, four customers represented
35%, 16%, 14% and 12%, respectively, of all revenue generated by the Company,
and 10%, 0%, 22% and 8% of accounts receivable at September 30, 1998,
respectively.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS:
In June 1997, the Financial Accounting Standards Board issued SFAS 130,
Reporting Comprehensive Income. SFAS 130 establishes standards for reporting
comprehensive income and its components in a financial statement. Comprehensive
income as defined includes all changes in equity (net assets) during a period
from non-owner sources. Examples of items to be included in comprehensive
income, which are excluded from net income, include foreign currency
translation adjustments and unrealized gains/losses on available-for-sale
securities. The difference between net loss, as reported, and comprehensive
income relates solely to the change in the cumulative translation adjustment
for the respective periods which were not material to these financial
statements.
F-9
<PAGE>
INKTOMI CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
During 1997, the Financial Accounting Standards Board issued SFAS No. 131,
Disclosure About Segments of an Enterprise and Related Information, effective
for the year ended September 30, 1999. The Company is currently determining the
disclosures that may be required under this pronouncement.
(2) PROPERTY AND EQUIPMENT:
Property and equipment consists of (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------
1997 1998
-------- ---------
<S> <C> <C>
Property and equipment, net
Computer equipment..................................... $8,047.1 $21,216.8
Furniture and fixtures................................. 448.9 1,243.8
Leasehold improvements................................. 65.8 289.4
-------- ---------
8,561.8 22,750.0
Less: accumulated depreciation and amortization........ 1,649.1 5,388.4
-------- ---------
$6,912.7 $17,361.6
======== =========
</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 furniture and fixtures and totaled $0
and $6,939,400 (including equipment previously purchased), with related
amortization of $0 and $335,900 as of September 30, 1997 and 1998,
respectively.
(3) INCOME TAXES:
The principal items accounting for the difference between the income tax
benefits computed using the United States statutory rate and the provision for
income taxes is as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Federal tax benefit at statutory rate....... $(1,201.4) $(2,944.6) $(7,600.6)
State taxes, net of federal tax effect...... (214.8) (526.7) (1,299.6)
Research and experimentation credits........ (56.7) (75.4) (468.6)
Unutilized net operating losses............. 1,473.7 3,548.3 9,369.6
--------- --------- ---------
$ 0.8 $ 1.6 $ 0.8
========= ========= =========
</TABLE>
Net deferred tax assets comprise (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------------
1997 1998
--------- ----------
<S> <C> <C>
Net operating loss carryforwards--federal and
state............................................. $ 4,005.7 $ 12,576.0
Research and experimentation credit carryforwards.. 132.2 1,087.3
Other liabilities and reserves..................... 83.5 634.0
Property and equipment............................. (210.0) (662.5)
Acquired technology................................ 593.2 173.3
Deferred revenue................................... 356.6 523.8
Valuation allowance................................ (4,961.2) (14,331.9)
--------- ----------
Net deferred tax asset......................... $ -- $ --
========= ==========
</TABLE>
F-10
<PAGE>
INKTOMI CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
At September 30, 1998, the Company had the following carryforwards available
to reduce future taxable income and income taxes (in thousands):
<TABLE>
<CAPTION>
1998
---------------
FEDERAL STATE
------- -------
<S> <C> <C>
Net operating loss carryforwards............................. $31,524 $31,869
Research and experimentation credit carryforwards............ 718 370
</TABLE>
The federal and state net operating loss carryforwards expire through 2018
and 2003, respectively, and the research and experimentation credits expire
through 2003.
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.
(4) NOTES PAYABLE AND LINE OF CREDIT (IN THOUSANDS):
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------
1997 1998
--------- ---------
<S> <C> <C>
Bank line (1).......................................... $ -- $ --
Bank equipment notes (2)............................... 1,750.0 3,388.9
Bank term note (3)..................................... 1,833.3 1,166.7
Other bank note (4).................................... -- 490.0
Notes payable (5)...................................... 3,396.4 2,444.1
Other notes payable (6)................................ 539.3 380.0
--------- ---------
7,519.0 7,869.7
Less current portion................................... (2,489.6) (3,819.6)
--------- ---------
$ 5,029.4 $ 4,050.1
========= =========
</TABLE>
- --------
(1) The Company has a $2,500,000 revolving line of credit collateralized by
substantially all assets. Amounts borrowed under the line require monthly
payments at prime (8.5% at September 30, 1998) and any unpaid principal and
interest will be due on May 1, 1999. The Company also has $5,000,000 of
additional unused availability under an equipment loan facility with the
same bank. Borrowings under the facility are repayable in 36 equal monthly
installments plus interest at 0.25% over prime (8.75% at September 30,
1998). At September 30, 1998 the Company had no borrowings outstanding. The
master bank credit agreement requires the Company to comply with certain
financial covenants related to working capital, tangible net worth, debt
service coverage and liquidity coverage. Pursuant to the agreement, the
Company may not distribute cash dividends. As of September 30, 1998, the
Company was in compliance with the covenants.
(2) The bank equipment notes include two loans. The first loan for $1,750,000
has monthly payments of interest only until May 1998 and then payable in
equal monthly payments of $48,611 plus interest at 0.5% over prime (9.0% at
September 30, 1998) through April 2001. The second loan for $2,000,000 has
monthly payments of $55,556 plus interest at 0.25% over prime (8.75% at
September 30, 1998) through June 2001. The notes have collateralization and
covenant requirements consistent with the bank line of credit as described
above.
(3) The bank term note is payable in equal monthly payments of $55,556 plus
interest at 0.5% over prime (9.0% at September 30, 1998) through June 2000.
The note has collateralization and covenant requirements consistent with
the bank line of credit as described above.
(4) The other bank note consists of a term note obtained by C/2/B Technologies
Inc., an Inktomi subsidiary. The maturity of this note was accelerated with
the change of control of C/2/B Technologies in September 1998. The note is
payable in full by November 1998 and requires payment with interest at
prime (8.5% at September 30, 1998).
F-11
<PAGE>
INKTOMI CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(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 proceeds from 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 proceeds from the notes.
Scheduled maturities of long-term debt at September 30, 1998 are as follows:
<TABLE>
<S> <C>
Years ending:
September 30, 1999................................................ $3,819.6
September 30, 2000................................................ 3,151.8
September 30, 2001................................................ 898.3
--------
$7,869.7
========
</TABLE>
The carrying value of notes payable approximated fair value as such debt
agreements were recently negotiated.
(5) ACCRUED LIABILITIES:
Accrued liabilities comprise (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
-----------------
1997 1998
-------- --------
<S> <C> <C>
Accrued payroll, vacation and bonuses..................... $1,078.9 $3,814.9
Other accrued liabilities................................. 68.6 2,786.1
-------- --------
Total accrued liabilities............................. $1,147.5 $6,601.0
======== ========
</TABLE>
(6) 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
September 30, 1998 are as follows (in thousands):
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
--------- --------
<S> <C> <C>
Years ending September 30:
1999................................................... $ 4,311.6 $2,694.0
2000................................................... 2,224.2 2,677.6
2001................................................... 1,992.6 2,504.7
2002................................................... 1,480.8 13.9
and thereafter......................................... 1,478.2 --
--------- --------
Total minimum lease payments............................. $11,487.4 7,890.2
=========
Less amount representing interest........................ 1,189.7
--------
Present value of minimum lease payments.................. 6,700.5
Less current portion..................................... 2,054.3
--------
$4,646.2
========
</TABLE>
Rent expense for the period from inception through September 30, 1996 and the
years ended September 30, 1997 and 1998 were $83,886, $372,700 and $1,475,300,
respectively.
F-12
<PAGE>
INKTOMI CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(7) STOCKHOLDERS' EQUITY:
In June 1998, all 19.5 million shares of Preferred Stock were converted into
13.0 million shares of Common Stock of the Company.
In June 1998, the stockholders of the Company approved an amendment to the
Company's certificate of incorporation authorizing 10,000,000 shares of
undesignated Preferred Stock of which the Board of Directors has the authority
to issue and to determine the rights, preferences and privileges.
In June 1998, the Company raised $42.0 million, net of issuance costs, from
an initial public offering of 2,356,497 shares of Common Stock and other stock
offerings.
(8) OTHER EQUITY:
Other equity includes (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------
1997 1998
-------- ---------
<S> <C> <C>
Deferred Compensation................................... $ (102.7) $(2,181.5)
Warrants issued and options granted to consultants...... 1,225.9 358.4
Shareholder loans....................................... (213.7) (999.7)
Cumulative foreign exchange adjustment.................. -- (48.9)
-------- ---------
Total deferred compensation and equity.............. $ 909.5 $(2.871.7)
======== =========
</TABLE>
(9) WARRANTS:
In 1997 and 1998, the Company issued warrants to purchase Common Stock to
investors, a customer and financial providers. At September 30, 1998 the
following are outstanding:
<TABLE>
<CAPTION>
SHARES OF AGGREGATE
COMMON STOCK EXERCISE PRICE EXPIRATION DATES
------------ -------------- ----------------
<S> <C> <C> <C>
Common Stock.................... 417,701 $ 137,841 April 2001
Common Stock.................... 208,926 $1,082,000 August 2001
Common Stock.................... 103,179 $2,959,937 June 2002
</TABLE>
(10) STOCK OPTIONS:
Pursuant to the Inktomi Corporation 1998 Stock Plan, its 1996 Equity Incentive
Plan and the C\\2\\B Technologies Inc. 1997 Stock Plan (the "Plans") as amended,
employees, directors and consultants of the Company may be granted options to
purchase shares of Common Stock. At September 30, 1998, 1,000,000 shares of
Common Stock were reserved under the 1998 plan. At September 30, 1998, shares
were no longer available for issue from the 1996 and 1997 plans. Options granted
under the Plans include incentive stock options and nonqualified stock options.
All stock options granted under the Plans 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 for the 1996 and 1998 plans, and
generally over 36 months for the 1997 plan). Prior to the adoption of the Plans,
the Company granted nonqualified stock options to purchase Common Stock to
certain employees and consultants.
F-13
<PAGE>
INKTOMI CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
A summary of the activity under all Plans is set forth below (in thousands,
except per share amounts):
<TABLE>
<CAPTION>
EXERCISE AGGREGATE WEIGHTED
PRICE PER EXERCISE AVERAGE
SHARES SHARE PRICE EXERCISE PRICE
------ ------------ --------- --------------
<S> <C> <C> <C> <C>
Outstanding at February 2,
1996....................... -- -- $ -- --
Granted..................... 2,361 $0.11- $0.45 899.2 $ 0.381
Canceled.................... (180) $0.11- $0.45 (69.7) 0.387
------ ------------ --------- -------
Outstanding at September 30,
1996....................... 2,181 $0.11- $0.45 829.5 0.380
Granted..................... 2,145 $0.33- $1.95 1,260.0 0.587
Exercised................... (2,217) $0.11- $1.38 (990.8) 0.447
Canceled.................... (174) $0.45 (78.0) 0.451
------ ------------ --------- -------
Outstanding and exercisable
at September 30, 1997...... 1,935 $0.11- $1.95 1,020.7 0.527
Granted..................... 1,666 $3.33-$53.75 36,672.2 22.012
Exercised................... (740) $0.11-$10.50 (1,288.7) 1.741
Canceled.................... (179) $0.45-$18.00 (211.4) 1.181
------ ------------ --------- -------
Outstanding and exercisable
at September 30, 1998...... 2,682 $0.11-$53.75 $36,192.8 $13.495
====== =========
</TABLE>
At September 30, 1998, options to purchase 956,872 shares were fully vested.
Of the stock options exercised, 1,714,502 shares were no longer subject to
repurchase.
The following table summarizes information with respect to stock options
outstanding at September 30, 1998:
<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 9/30/98 LIFE (YEARS) PRICE AT 9/30/98 PRICE
-------- ----------- ------------ -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$0.11-$0.45 1,248 8.08 $ 0.42 1,248 $ 0.42
$1.38-$13.00 738 9.37 $ 6.04 738 $ 6.04
$18.00-$53.75 696 9.88 $44.75 696 $44.75
</TABLE>
The following information concerning the Plans is provided in accordance with
SFAS No. 123, Accounting for Stock-Based Compensation. The Company accounts for
the Plans in accordance with Accounting Principles Board (APB) Opinion No. 25
and related interpretations.
F-14
<PAGE>
INKTOMI CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The fair value of each employee and director stock option grant has been
estimated on the date of grant using the minimum value method for grants in the
period February 2, 1996 (date of inception) to September 30, 1996, and the year
ended September 30, 1997. For the year ended September 30, 1998, the fair value
has been estimated using the Black-Scholes Option Pricing Model. The following
assumptions were used in determining the fair value of options granted:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-----------------------------------
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Risk-free interest rates................. 6.48%-6.60% 6.00%-6.47% 5.47%-6.60%
Expected Life............................ 5 5 5
Dividends................................ $0 $0 $0
Volatility............................... 0% 0% 140%
</TABLE>
The following comprises the pro forma information pursuant to the provisions
of SFAS No. 123 (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------------------------
1996 1997 1998
--------- ---------- ----------
<S> <C> <C> <C>
Net loss--Historical...................... $(3,534.4) $(10,377.3) $(22,355.4)
Net loss--Pro Forma....................... $(3,575.1) $(10,751.7) $(23,875.8)
</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.
In connection with the completion of the Company's initial public offering,
certain options granted in 1997 and 1998 have been considered to be
compensatory. Compensation associated with such options for the years ended
September 30, 1997 and September 30, 1998 amounted to $102,725 and $2,394,800,
respectively. Of these amounts, $316,000 were charged to operations for the
year ended September 30, 1998 and $2,181,525 will be charged to operations
during the remaining period to 2002.
(11) RELATED PARTY TRANSACTION:
In April 1998, the Company provided a loan to a corporate officer to exercise
Common Stock options. The loan totaled $666,000 and is repayable to the Company
in April 2002, plus interest at a rate of 5.69%. The loan is collateralized by
the underlying Common Stock purchased.
(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, 1998.
F-15
<PAGE>
INKTOMI CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(13) EARNINGS PER SHARE ("EPS"):
The following is a reconciliation of the numerator and denominator used to
determine basic and diluted EPS (in thousands, except per share amounts):
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
FEBRUARY 2, 1996
(DATE OF INCEPTION)
THROUGH YEAR ENDED SEPTEMBER 30,
SEPTEMBER 30, --------------------------
1996 1997 1998
------------------- ------------ ------------
<S> <C> <C> <C>
Numerator -- Basic and
Diluted EPS
Net loss................. $(3,534.4) $ (10,377.3) $ (22,355.4)
========= ============ ============
Denominator -- Basic and
Diluted EPS
Weighted average Common
Stock outstanding....... 1,884 12,977 19,360
========= ============ ============
Basic and diluted loss per
common share.............. $ (1.88) $ (0.80) $ (1.15)
========= ============ ============
</TABLE>
(14) SUBSEQUENT EVENTS:
In October 1998, the Company signed a lease for new office space located in
Foster City, California. This lease is anticipated to commence on June 8, 1999,
for a duration of 11 years thereafter. During the term of the lease, Inktomi is
to occupy a total of 177,147 square feet, incurring a minimum lease obligation
of $79,928,000. In connection with this lease agreement, Inktomi paid a cash
security deposit of $1,308,000 in October 1998 and is obligated to provide a
supplemental deposit in the form of a letter of credit in the amount of
$4,844,000 by January 1999.
In October 1998, the Board of Directors authorized management of the Company
to file a Registration Statement with the Securities and Exchange Commission
covering the proposed sale of additional shares of its Common Stock to the
public.
F-16
<PAGE>
UNDERWRITING
Inktomi, the selling stockholders and the underwriters for the offering (the
"Underwriters") named below have entered into an underwriting agreement with
respect to the shares being offered. Subject to certain conditions, each
Underwriter has severally agreed to purchase the number of shares indicated in
the following table. Goldman, Sachs & Co., BT Alex. Brown Incorporated,
Hambrecht & Quist LLC, and Merrill Lynch & Co. are the representatives of the
Underwriters.
<TABLE>
<CAPTION>
Underwriters Number of Shares
------------ ----------------
<S> <C>
Goldman, Sachs & Co. ........................................
BT Alex. Brown Incorporated..................................
Hambrecht & Quist LLC........................................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated........................................
---------
Total...................................................... 3,000,000
=========
</TABLE>
----------------
If the Underwriters sell more shares than the total number set forth in the
table above, the Underwriters have an option to buy up to an additional 450,000
shares from Inktomi to cover such sales. They may exercise that option for 30
days. If any shares are purchased pursuant to this option, the Underwriters
will severally purchase shares in approximately the same proportion as set
forth in the table above.
The following tables show the per share and total underwriting discounts and
commissions to be paid to the Underwriters by Inktomi and the selling
stockholders. Such amounts are shown assuming both no exercise and full
exercise of the Underwriters' option to purchase 450,000 additional shares.
<TABLE>
<CAPTION>
Paid by the Company
-------------------
No Exercise Full Exercise
----------- -------------
<S> <C> <C>
Per Share............................................. $ $
Total................................................. $ $
<CAPTION>
Paid by the Selling Stockholders
--------------------------------
No Exercise Full Exercise
----------- -------------
<S> <C> <C>
Per Share............................................. $ $
Total................................................. $ $
</TABLE>
BT Alex. Brown Incorporated acted as placement agent in connection with
Inktomi'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 Inktomi
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. The purchase of such shares was deemed by the National Association
of Securities Dealers, Inc. to constitute underwriting compensation in
connection with Inktomi's initial public offering in June 1998. As a result,
such affiliates of Hambrecht & Quist LLC agreed that they will not sell,
transfer, assign or hypothecate such shares until June 9, 1999, except to
officers or partners (not directors) of the underwriter and members of the
selling group and/or their officers or partners.
Shares sold by the Underwriters to the public will initially be offered at
the initial public offering price set forth on the cover of this prospectus.
Any shares sold by the Underwriters to securities dealers may be sold at a
discount of up to $ per share from the initial public offering price. Any
such securities dealers may resell any shares purchased from the Underwriters
to certain other brokers or dealers at a discount of up to $ per share from
the initial public offering price. If all the shares are not sold at the
initial offering price, the representatives may change the offering price and
the other selling terms.
Inktomi and the selling stockholders have agreed with the Underwriters not to
dispose of or hedge any of their Common Stock or securities convertible into or
exchangeable for shares of Common Stock during the period from the date of this
prospectus continuing through the date 90 days after the date of this
U-1
<PAGE>
prospectus, except with the prior written consent of the representatives. This
agreement does not apply to any existing employee benefit plans. See "Shares
Available for Future Sale" for a discussion of certain transfer restrictions.
In connection with the offering, the Underwriters may purchase and sell
shares of Common Stock in the open market. These transactions may include short
sales, stabilizing transactions and purchases to cover positions created by
short sales. Short sales involve the sale by the Underwriters of a greater
number of shares than they are required to purchase in the offering.
Stabilizing transactions consist of certain bids or purchases made for the
purpose of preventing or retarding a decline in the market price of the Common
Stock while the offering is in progress.
The Underwriters also may impose a penalty bid. This occurs when a particular
Underwriter repays to the Underwriters a portion of the underwriting discount
received by it because the representatives have repurchased shares sold by or
for the account of such Underwriter in stabilizing or short covering
transactions.
These activities by the Underwriters may stabilize, maintain or otherwise
affect the market price of the Common Stock. As a result, the price of the
Common Stock may be higher than the price that otherwise might exist in the
open market. If these activities are commenced, they may be discontinued by the
Underwriters at any time. These transactions may be effected on the Nasdaq
National Market, in the over-the-counter market or otherwise.
Inktomi estimates that the total expenses of the offering, excluding
underwriting discounts and commissions, will be approximately $600,000.
Inktomi and the selling stockholders have agreed to indemnify the several
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933.
In connection with this offering, certain Underwriters and selling group
members (if any) who are qualified market makers on the Nasdaq National Market
may engage in passive market making transactions in the Common Stock on the
Nasdaq National Market in accordance with Rule 103 of Regulation M under the
Securities Exchange Act of 1934, as amended, during the business day prior to
the pricing of the offering before the commencement of offers or sales of the
Common Stock. Passive market makers must comply with applicable volume and
price limitations and must be identified as such. In general, a passive market
maker must display its bid at a price not in excess of the highest independent
bid of such security; if all independent bids are lowered below the passive
market makers' bid, however, such bid must then be lowered when certain
purchase limits are exceeded.
U-2
<PAGE>
Heading: "Inktomi: Scaling the Internet"
[INKTOMI LOGO]
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
No dealer, salesperson or other person is authorized to give any information
or to represent anything not contained in this prospectus. You must not rely
on any unauthorized information or representations. This prospectus is an
offer to sell only the shares offered hereby, but only under circumstances and
in jurisdictions where it is lawful to do so. The information contained in
this prospectus is current only as of its date.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 4
Use of Proceeds.......................................................... 13
Price Range of Common Stock.............................................. 13
Dividend Policy.......................................................... 13
Company Address and Trademark Information................................ 13
Capitalization........................................................... 14
Dilution................................................................. 15
Selected Consolidated Financial Data..................................... 16
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 17
Business................................................................. 24
Management............................................................... 41
Certain Transactions..................................................... 50
Principal and Selling Stockholders....................................... 52
Description of Capital Stock............................................. 55
Shares Eligible for Future Sale.......................................... 58
Additional Information................................................... 60
Legal Matters............................................................ 60
Experts.................................................................. 61
Index to Consolidated Financial Statements............................... F-1
Underwriting............................................................. U-1
</TABLE>
----------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
3,000,000 Shares
INKTOMI CORPORATION
Common Stock
----------------
[INKTOMI LOGO]
----------------
GOLDMAN, SACHS & CO.
BT ALEX. BROWN
HAMBRECHT & QUIST
MERRILL LYNCH & CO.
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 Inktomi 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............................................... $ 75,829
NASD filing fee.................................................... 27,777
Nasdaq National Market listing fee................................. 17,500
Printing and engraving costs....................................... 200,000
Legal fees and expenses............................................ 125,000
Accounting fees and expenses....................................... 80,000
Blue Sky fees and expenses......................................... 5,000
Transfer Agent and Registrar fees.................................. 25,000
Miscellaneous expenses............................................. 43,894
--------
Total............................................................ $600,000
========
</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 Inktomi's Restated Certificate of Incorporation provides for
the indemnification of directors to the fullest extent permissible under
Delaware law.
Article VI of Inktomi's Bylaws provides for the indemnification of officers,
directors and third parties acting on behalf of Inktomi if such person acted in
good faith and in a manner reasonably believed to be in and not opposed to the
best interest of Inktomi, and, with respect to any criminal action or
proceeding, the indemnified party had no reason to believe his or her conduct
was unlawful.
Inktomi has entered into indemnification agreements with its directors and
executive officers, in addition to indemnification provided for in Inktomi'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, Inktomi 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 Inktomi's Common Stock effected in May 1998 and the
conversion of all outstanding shares of Preferred Stock into Common Stock in
connection with Inktomi's initial public offering in June 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
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
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 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 933,334 shares
of Common Stock to one employee and two consultants in a voluntary share
exchange transaction. In the transaction, the Predecessor issued these
shares 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 551,938 shares of
Common Stock and warrants to purchase 800,000 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 Predecessor issued and sold 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 Predecessor issued and sold 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 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) 2,577,666 shares of Common Stock and (ii) warrants to purchase an
aggregate of 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 the transaction.
(o) In September 1997, the Predecessor issued and sold an aggregate of
(i) 601,413 shares of Common Stock and (ii) warrants to purchase an
aggregate of 200,471 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, Inktomi issued and sold 1,000 shares of Common
Stock to the Predecessor for an aggregate purchase price of $100.
(q) In February 1998, Inktomi issued shares of its capital stock to the
shareholders of the Predecessor in connection with the reincorporation
merger of the Predecessor with and into Inktomi. Inktomi believes this
transaction was exempt from registration under Section 2(3) on the basis
that such transaction did not involve a "sale" of securities.
II-2
<PAGE>
(r) In February 1998, Inktomi issued an aggregate of 2,198,547 shares of
Common Stock for an aggregate purchase price of $14,015,735. Inktomi paid a
commission of $840,944 to the placement agent in the transaction.
(s) In March 1998, Inktomi issued and sold 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, Inktomi issued warrants to purchase 27,778 shares of
Common Stock at $16.58 per share and warrants to purchase 69,445 shares of
Common Stock at $33.16 per share to a customer in consideration for
publicity activities.
(u) In June 1998, Inktomi issued 113,813 shares of Common Stock to two
investors upon the net exercise of warrants held by the investors.
(v) In July 1998, Inktomi issued 20,502 shares of Common Stock to three
investors upon the net exercise of warrants held by the investors.
(w) In September 1998, Inktomi issued 1,891,314 shares of Common Stock to
28 investors in connection with the acquisition of C\\2\\B Technologies Inc.
These shares were issued in exchange for all outstanding shares of C\\2\\B
Technologies Inc.
(x) As of September 30, 1998, an aggregate of 2,957,025 shares of Common
Stock had been issued upon exercise of options under Inktomi's stock option
plans and programs.
Except as indicated above, none of the foregoing transactions involved any
underwriters, underwriting discounts or commissions, or any public offering,
and Inktomi 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 Inktomi
and the Predecessor, to information about Inktomi and the Predecessor.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<C> <S>
1.1* Form of Underwriting Agreement.
2.1** Agreement and Plan of Reorganization dated August 31, 1998 by and
among Inktomi, IC Merger Corp. and C/2/B Technologies Inc.
3.2*** Amended and Restated Certificate of Incorporation of Inktomi.
3.4*** Bylaws of Inktomi.
4.1*** Specimen Common Stock Certificate.
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation.
10.1*** Form of Indemnification Agreement between Inktomi 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
February 13, 1998 among Inktomi and certain of its securityholders
named therein.
10.6*** Executive Employment Agreement dated as of July 1, 1996 between
Inktomi and David C. Peterschmidt.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<C> <S>
10.7 Amended and Restated Loan and Security Agreement dated as of
September 2, 1998 between Inktomi and Silicon Valley Bank.
10.8*** Sublease Agreement dated November 27, 1996 between Inktomi and
Macromedia, Inc.
10.9*** Office Lease dated July 31, 1997 between Inktomi 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
Inktomi and Wired Digital, Inc.
10.12+*** Information Services Agreement dated as of July 27, 1997 between
Inktomi and Microsoft Corporation.
10.13+*** Software Development Agreement dated as of July 27, 1997 between
Inktomi and Microsoft Corporation.
10.14+*** Software Hosting Agreement dated as of July 27, 1997 between Inktomi
and Microsoft Corporation.
10.15+*** Loan Agreement dated as of July 27, 1997 between Inktomi and
Microsoft Corporation.
10.16*** Security Agreement dated as of July 27, 1997 between Inktomi and
Microsoft Corporation.
10.17+*** Escrow Agreement dated as of July 29, 1997 among Inktomi, Data Base,
Inc., and Microsoft Corporation.
10.18**** Lease dated May 14, 1998 between Inktomi and B.F. Saul Real Estate
Investment Trust.
10.19 First Amendment dated July 31, 1998 to Office Lease dated July 31,
1997 between Inktomi and Norfolk Atrium, a California limited
partnership.
10.20 Office Lease dated October 9, 1998 between Inktomi and WHFST Real
Estate Limited Partnership, a Delaware limited partnership.
10.21 C\\2\\B Technologies Inc. (formerly BeyondNews, Inc.) 1997 Stock Plan
and form of agreement thereunder.
10.22** Registration Rights Agreement dated September 25, 1998 between
Inktomi and former stockholders of C\\2\\B Technologies Inc.
(included in Exhibit 2.1)
21.1 Subsidiaries of Inktomi.
23.1 Consent of PricewaterhouseCoopers LLP, Independent Accountants.
23.2 Consent of Counsel (see Exhibit 5.1).
24.1 Power of Attorney (see page II-6).
27.1 Financial Data Schedules.
</TABLE>
- --------
* To be filed by amendment.
** Incorporated by reference from Inktomi's Current Report on Form 8-K filed
with the Commission on October 9, 1998, as amended.
*** Incorporated by reference from Inktomi's Registration Statement on Form S-1
(Reg. No. 333-50247), as amended.
**** Incorporated by reference from Inktomi's Quarterly Report on Form 10-Q
filed with the Commission on August 13, 1998.
+ Certain portions of this exhibit have been granted confidential treatment
by the Commission. The omitted portions have been separately filed with the
Commission.
(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.
II-4
<PAGE>
ITEM 17. UNDERTAKINGS
Inktomi 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 Inktomi for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of Inktomi pursuant to the provisions referenced in Item 14 of this
Registration Statement or otherwise, Inktomi 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 Inktomi of expenses incurred or paid by
a director, officer, or controlling person of Inktomi in the successful defense
of any action, suit or proceeding) is asserted by a director, officer or
controlling person in connection with the securities being registered
hereunder, Inktomi 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.
Inktomi 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 Inktomi pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of Prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1993, AS AMENDED, THE
REGISTRANT HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF SAN MATEO,
STATE OF CALIFORNIA, ON THE 2ND DAY OF NOVEMBER, 1998.
Inktomi Corporation
/s/ David C. Peterschmidt
By___________________________________
DAVID C. PETERSCHMIDT, PRESIDENT
AND CHIEF EXECUTIVE OFFICER
II-6
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, THAT EACH PERSON WHOSE SIGNATURE APPEARS
BELOW CONSTITUTES AND APPOINTS DAVID C. PETERSCHMIDT AND JERRY M. KENNELLY AND
EACH OF THEM, HIS ATTORNEYS-IN-FACT, EACH WITH THE POWER OF SUBSTITUTION, FOR
HIM AND IN HIS NAME, PLACE AND STEAD, IN ANY AND ALL CAPACITIES, TO SIGN ANY
AND ALL AMENDMENTS (INCLUDING POST-EFFECTIVE AMENDMENTS) TO THIS REGISTRATION
STATEMENT, AND TO SIGN ANY REGISTRATION STATEMENT FOR THE SAME OFFERING COVERED
BY THIS REGISTRATION STATEMENT THAT IS TO BE EFFECTIVE UPON FILING PURSUANT TO
RULE 462(B) PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND ALL
POST-EFFECTIVE AMENDMENTS THERETO, AND TO FILE THE SAME, WITH ALL EXHIBITS
THERETO AND ALL DOCUMENTS IN CONNECTION THEREWITH, WITH THE SECURITIES AND
EXCHANGE COMMISSION, GRANTING UNTO SAID ATTORNEYS-IN-FACT AND AGENTS, AND EACH
OF THEM, FULL POWER AND AUTHORITY TO DO AND PERFORM EACH AND EVERY ACT AND
THING REQUISITE AND NECESSARY TO BE DONE IN AND ABOUT THE PREMISES, AS FULLY TO
ALL INTENTS AND PURPOSES AS HE MIGHT OR COULD DO IN PERSON, HEREBY RATIFYING
AND CONFIRMING ALL THAT SUCH ATTORNEYS-IN-FACT AND AGENTS OR ANY OF THEM, OR
HIS OR THEIR SUBSTITUTE OR SUBSTITUTES, MAY LAWFULLY DO OR CAUSE TO BE DONE BY
VIRTUE HEREOF.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ David C. Peterschmidt President, Chief Executive November 2, 1998
______________________________________ Officer and Director
(DAVID C. PETERSCHMIDT) (Principal Executive
Officer)
/s/ Jerry M. Kennelly Vice President of Finance November 2, 1998
______________________________________ and Chief Financial
(JERRY M. KENNELLY) Officer (Principal
Financial Officer)
/s/ Eric A. Brewer Director November 2, 1998
______________________________________
(ERIC A. BREWER)
/s/ Fredric W. Harman Director November 2, 1998
______________________________________
(FREDRIC W. HARMAN)
/s/ John A. Porter Director November 2, 1998
______________________________________
(JOHN A. PORTER)
/s/ Alan F. Shugart Director November 2, 1998
______________________________________
(ALAN F. SHUGART)
</TABLE>
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER PAGE
------- ----
<C> <S> <C>
1.1* Form of Underwriting Agreement.
2.1** Agreement and Plan of Reorganization dated August 31, 1998 by
and among Inktomi, IC Merger Corp. and C\\2\\B Technologies
Inc.
3.2*** Amended and Restated Certificate of Incorporation of Inktomi.
3.4*** Bylaws of Inktomi.
4.1*** Specimen Common Stock Certificate.
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation.
10.1*** Form of Indemnification Agreement between Inktomi 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 February 13, 1998 among Inktomi and certain of its
securityholders named therein.
10.6*** Executive Employment Agreement dated as of July 1, 1996
between Inktomi and David C. Peterschmidt.
10.7 Amended and Restated Loan and Security Agreement dated as of
September 2, 1998 between Inktomi and Silicon Valley Bank.
10.8*** Sublease Agreement dated November 27, 1996 between Inktomi
and Macromedia, Inc.
10.9*** Office Lease dated July 31, 1997 between Inktomi 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 Inktomi and Wired Digital, Inc.
10.12+*** Information Services Agreement dated as of July 27, 1997
between Inktomi and Microsoft Corporation.
10.13+*** Software Development Agreement dated as of July 27, 1997
between Inktomi and Microsoft Corporation.
10.14+*** Software Hosting Agreement dated as of July 27, 1997 between
Inktomi and Microsoft Corporation.
10.15+*** Loan Agreement dated as of July 27, 1997 between Inktomi and
Microsoft Corporation.
10.16*** Security Agreement dated as of July 27, 1997 between Inktomi
and Microsoft Corporation.
10.17+*** Escrow Agreement dated as of July 29, 1997 among Inktomi,
Data Base, Inc., and Microsoft Corporation.
10.18**** Lease dated May 14, 1998 between Inktomi and B.F. Saul Real
Estate Investment Trust.
10.19 First Amendment dated July 31, 1998 to Office Lease dated
July 31, 1997 between Inktomi and Norfolk Atrium, a
California limited partnership.
10.20 Office Lease dated October 9, 1998 between Inktomi and WHFST
Real Estate Limited Partnership, a Delaware limited
partnership.
10.21 C\\2\\B Technologies Inc. (formerly BeyondNews, Inc.) 1997
Stock Plan and form of agreement thereunder.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER PAGE
------- ----
<C> <S> <C>
10.22** Registration Rights Agreement dated September 25, 1998 between
Inktomi and former stockholders of C\\2\\B Technologies Inc.
(included in Exhibit 2.1)
21.1 Subsidiaries of Inktomi.
23.1 Consent of PricewaterhouseCoopers LLP, Independent Accountants.
23.2 Consent of Counsel (see Exhibit 5.1).
24.1 Power of Attorney (see page II-6).
27.1 Financial Data Schedules.
</TABLE>
- --------
* To be filed by amendment.
** Incorporated by reference from Inktomi's Current Report on Form 8-K filed
with the Commission on October 9, 1998, as amended.
*** Incorporated by reference from Inktomi's Registration Statement on Form S-1
(Reg. No. 333-50247), as amended.
**** Incorporated by reference from Inktomi's Quarterly Report on Form 10-Q
filed with the Commission on August 13, 1998.
+ Certain portions of this exhibit have been granted confidential treatment
by the Commission. The omitted portions have been separately filed with the
Commission.
<PAGE>
EXHIBIT 5.1
WILSON SONSINI GOODRICH & ROSATI
Professional Corporation
650 Page Mill Road
Palo Alto, California 94304-1050
Telephone (650) 493-9300 Facsimile (650) 493-6811
November 2, 1998
Inktomi Corporation
1900 S. Norfolk Street, Suite 310
San Mateo, California 94403
RE: REGISTRATION STATEMENT ON FORM S-1
Ladies and Gentlemen:
We have examined the Registration Statement on Form S-1 to be filed by
you with the Securities and Exchange Commission on November 2, 1998 (the
"Registration Statement") in connection with the registration under the
Securities Act of 1933, as amended, of 3,000,000 shares of Common Stock of
Inktomi Corporation (the "Shares"). As your counsel in connection with this
transaction, we have examined the proceedings proposed to be taken in
connection with said sale and issuance of the Shares.
It is our opinion that, upon completion of the proceedings being taken
or contemplated by us, as your counsel, to be taken prior to the issuance of
the Shares, and upon completion of the proceedings being taken in order to
permit such transactions to be carried out in accordance with the securities
laws of various states, where required, the Shares when issued and sold in the
manner referred to in the Registration Statement will be legally and validly
issued, fully paid and nonassessable.
We consent to the use of this opinion as an exhibit to the
Registration Statement, and further consent to the use of our name wherever
appearing in the Registration Statement, including the prospectus constituting
a part thereof, and any amendment thereto.
Very truly yours,
/s/ WILSON SONSINI GOODRICH & ROSATI
------------------------------------
WILSON SONSINI GOODRICH & ROSATI
Professional Corporation
<PAGE>
EXHIBIT 10.7
INKTOMI CORPORATION
AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
<PAGE>
TABLE OF CONTENTS
Page
----
1. DEFINITIONS AND CONSTRUCTION..................................... 1
1.1 Definitions................................................. 1
1.2 Accounting Terms............................................ 9
2. LOAN AND TERMS OF PAYMENT........................................ 9
2.1 Revolving, Term and Equipment Loan Facilities............... 9
2.2 Overadvances................................................ 13
2.3 Interest Rates, Payments, and Calculations.................. 13
2.4 Crediting Payments.......................................... 14
2.5 Fees........................................................ 14
2.6 Additional Costs............................................ 14
2.7 Term........................................................ 15
3. CONDITIONS OF LOANS.............................................. 15
3.1 Conditions Precedent to Initial Advance..................... 15
3.2 Conditions Precedent to all Advances........................ 15
4. CREATION OF SECURITY INTEREST.................................... 16
4.1 Grant of Security Interest.................................. 16
4.2 Delivery of Additional Documentation Required............... 16
4.3 Right to Inspect............................................ 16
5. REPRESENTATIONS AND WARRANTIES................................... 16
5.1 Due Organization and Qualification.......................... 16
5.2 Due Authorization; No Conflict.............................. 17
5.3 No Prior Encumbrances....................................... 17
5.4 Merchantable Inventory...................................... 17
5.5 Intellectual Property....................................... 17
5.6 Name; Location of Chief Executive Office.................... 17
5.7 Litigation.................................................. 17
5.8 No Material Adverse Change in Financial Statements.......... 17
5.9 Solvency.................................................... 17
5.10 Regulatory Compliance....................................... 17
5.11 Environmental Condition..................................... 18
5.12 Taxes....................................................... 18
5.13 Subsidiaries................................................ 18
5.14 Government Consents......................................... 18
5.15 Full Disclosure............................................. 18
6. AFFIRMATIVE COVENANTS............................................ 18
6.1 Good Standing............................................... 18
6.2 Government Compliance....................................... 18
6.3 Financial Statements, Reports, Certificates................. 19
6.4 Inventory; Returns.......................................... 19
6.5 Taxes....................................................... 19
6.6 Insurance................................................... 19
6.7 Bank Balances............................................... 20
6.8 Quick Ratio................................................. 20
6.9 Liquidity Coverage/Debt Service Coverage.................... 20
6.10 Tangible Net Worth.......................................... 20
i
<PAGE>
6.11 Registration of Intellectual Property Rights................ 20
6.12 Further Assurances.......................................... 21
7. NEGATIVE COVENANTS............................................... 21
7.1 Dispositions................................................ 21
7.2 Change in Business.......................................... 21
7.3 Mergers or Acquisitions..................................... 21
7.4 Indebtedness................................................ 21
7.5 Encumbrances................................................ 21
7.6 Distributions............................................... 21
7.7 Investments................................................. 22
7.8 Transactions with Affiliates................................ 22
7.9 Intellectual Property Agreements............................ 22
7.10 Subordinated Debt........................................... 22
7.11 Inventory................................................... 22
7.12 Compliance.................................................. 22
7.13 Prohibition on Transfer of Assets........................... 22
8. EVENTS OF DEFAULT................................................ 22
8.1 Payment Default............................................. 22
8.2 Covenant Default............................................ 23
8.3 Material Adverse Change..................................... 23
8.4 Attachment.................................................. 23
8.5 Insolvency.................................................. 23
8.6 Other Agreements............................................ 23
8.7 Subordinated Debt........................................... 23
8.8 Judgments................................................... 23
8.9 Misrepresentations.......................................... 23
9. BANK'S RIGHTS AND REMEDIES....................................... 24
9.1 Rights and Remedies......................................... 24
9.2 Power of Attorney........................................... 24
9.3 Accounts Collection......................................... 25
9.4 Bank Expenses............................................... 25
9.5 Bank's Liability for Collateral............................. 25
9.6 Remedies Cumulative......................................... 25
9.7 Demand; Protest............................................. 26
10. NOTICES.......................................................... 26
11. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER....................... 26
12. GENERAL PROVISIONS............................................... 26
12.1 Successors and Assigns..................................... 26
12.2 Indemnification............................................ 27
12.3 Time of Essence............................................ 27
12.4 Severability of Provisions................................. 27
12.5 Amendments in Writing, Integration......................... 28
12.6 Counterparts............................................... 28
12.7 Survival................................................... 28
12.8 Confidentiality............................................ 28
ii
<PAGE>
This AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT (this "Agreement") is
entered into as of September 2, 1998, by and between SILICON VALLEY BANK
("Bank") and INKTOMI CORPORATION ("Borrower").
RECITALS
--------
A. Borrower and Bank are parties to that certain Amended and Restated
Loan and Security Agreement dated as of May 12, 1998, 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, an Equipment Facility B Advance, or
an Equipment Facility C 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.
"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.
<PAGE>
"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 plus (iv) the amortization expense of capitalized software
----
during such quarter minus (v) any increase in capitalized software during such
-----
quarter, 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.
----
"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 C Advance" or "Equipment Facility C
Advances" has the meaning set forth in Section 2.1.5.
2
<PAGE>
"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 C Committed Line" means Five Million Dollars
($5,000,000).
"Equipment Facility A Maturity Date" means May 2, 2001.
"Equipment Facility B Availability End Date" means June 12, 1998.
"Equipment Facility B Maturity Date" means the date thirty-six
(36) months from the Equipment Facility B Availability End Date.
"Equipment Facility C Availability End Date" means the date nine
(9) calendar months from the date of this Agreement.
"Equipment Facility C Maturity Date" means the date thirty-six
(36) months from the Equipment Facility C 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 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;
3
<PAGE>
(e) All licenses or other rights to use any of the Copyrights,
Patents or Trademarks, and all license fees and royalties arising from such
use to the extent permitted by such license or rights;
(f) All amendments, renewals and extensions of any of the
Copyrights, Trademarks or Patents; and
(g) All proceeds and products of the foregoing, including
without limitation all payments under insurance or any indemnity or warranty
payable in respect of any of the foregoing.
"Inventory" means all present and future inventory in which
Borrower has any interest, including merchandise, raw materials, parts,
supplies, packing and shipping materials, work in process and finished
products intended for sale or lease or to be furnished under a contract of
service, of every kind and description now or at any time hereafter owned by
or in the custody or possession, actual or constructive, of Borrower,
including such inventory as is temporarily out of its custody or possession or
in transit and including any returns upon any accounts or other proceeds,
including insurance proceeds, resulting from the sale or disposition of any of
the foregoing and any documents of title representing any of the above, and
Borrower's Books relating to any of the foregoing.
"Investment" means any beneficial ownership of (including stock,
partnership interest or other securities) any Person, or any loan, advance or
capital contribution to any Person.
"IRC" means the Internal Revenue Code of 1986, as amended, and
the regulations thereunder.
"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.
"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.
4
<PAGE>
"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;
(d) Subordinated Debt;
(e) Indebtedness of Borrower to any Subsidiary and Contingent
Obligations of any Subsidiary with respect to obligations of Borrower
(provided that the primary obligations are not prohibited hereby), and
Indebtedness of any Subsidiary to any other Subsidiary and Contingent
Obligations of any Subsidiary with respect to obligations of any other
Subsidiary (provided that the primary obligations are not prohibited hereby);
(f) Indebtedness secured by Permitted Liens;
(g) Capital leases or indebtedness incurred solely to purchase
equipment which is secured in accordance with clause (c) of "Permitted Liens"
below and is not in excess of the lesser of the purchase price of such
equipment or the fair market value of such equipment on the date of
acquisition;
(h) Extensions, refinancings, modifications, amendments and
restatements of any of items of Permitted Indebtedness (a) through (g) above,
provided that the principal amount thereof is not increased or the terms
thereof are not modified to impose more burdensome terms upon Borrower or its
Subsidiary, as the case may be; and
(i) Other Indebtedness not 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
5
<PAGE>
(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;
(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;
(l) Investments in Subsidiaries not to exceed $2,500,000; and
(m) other Investments not to exceed $250,000 in any fiscal year.
"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
6
<PAGE>
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 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.
7
<PAGE>
"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 May 11, 1999.
"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.
8
<PAGE>
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 Committed Line 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.
(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 Committed Line
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
9
<PAGE>
strictly in accordance with the terms of this Agreement and such Letters of
Credit, under all circumstances whatsoever. Borrower shall indemnify, defend
and hold Bank harmless from any loss, cost, expense or liability, including,
without limitation, reasonable attorneys' fees, arising out of or in
connection with any Letters of Credit.
2.1.1.2 Letter of Credit Reimbursement; Reserve.
---------------------------------------
(a) Borrower may request that Bank issue a Letter of
Credit payable in a currency other than United States Dollars. If a demand for
payment is made under any such Letter of Credit, Bank shall treat such demand
as an advance to Borrower of the equivalent of the amount thereof (plus cable
charges) in United States currency at the then prevailing rate of exchange in
San Francisco, California, for sales of that other currency for cable transfer
to the country of which it is the currency.
(b) Upon the issuance of any Letter of Credit payable in a
currency other than United States Dollars, Bank shall create a reserve under
the Committed Line for letters of credit against fluctuations in currency
exchange rates, in an amount equal to twenty percent (20%) of the face amount
of such Letter of Credit. The amount of such reserve may be amended by Bank
from time to time to account for fluctuations in the exchange rate. The
availability of funds under the Committed Line shall be reduced by the amount
of such reserve for so long as such Letter of Credit remains outstanding.
2.1.1.3 Foreign Exchange Contract; Foreign Exchange
--------------------------------------------
Settlements.
- -----------
(a) Subject to the terms of this Agreement, Borrower may
enter into foreign exchange contracts (the "Exchange Contracts") not to exceed
(i) the Committed Line minus (ii) the sum of (A) the then outstanding
-----
principal balance of the Revolving Advances, (B) the face amount of all
outstanding Letters of Credit (including drawn but unreimbursed Letters of
Credit, (C) the Foreign Exchange Reserve, and (D) 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:
10
<PAGE>
(i) if there is sufficient availability under the
Committed Line in the amount of the Foreign Exchange Reserve as of each
Determination Date, provided that Bank in advance shall reserve the full
amount of the Foreign Exchange Reserve against the Committed Line; or
(ii) if there is insufficient availability under the
Committed Line, as to settlements within any two (2) business day period,
provided that Bank, in its sole discretion, may: (A) verify good funds
overseas prior to crediting Borrower's deposit account with Bank (in the case
of Borrower's sale of foreign currency); or (B) debit Borrower's deposit
account with Bank prior to delivering foreign currency overseas (in the case
of Borrower's purchase of foreign currency).
(d) In the case of Borrower's purchase of foreign
currency, Borrower in advance shall instruct Bank upon settlement either to
treat the settlement amount as a Revolving Advance under the Committed Line,
or to debit Borrower's account for the amount settled.
(e) Borrower shall execute all standard form applications
and agreements of Bank in connection with the Exchange Contracts and, without
limiting any of the terms of such applications and agreements, Borrower will
pay all standard fees and charges of Bank in connection with the Exchange
Contracts.
(f) Without limiting any of the other terms of this
Agreement or any such standard form applications and agreements of Bank,
Borrower agrees to indemnify Bank and hold it harmless from and against any
and all claims, debts, liabilities, demands, obligations, actions, costs and
expenses (including, without limitation, attorneys' fees of counsel of Bank's
choice), of every nature and description which it may sustain or incur, based
upon, arising out of, or in any way relating to any of the Exchange Contracts
or any transactions relating thereto or contemplated thereby.
2.1.1.4 Cash Management Sublimit. Subject to the terms and
------------------------
conditions of this Agreement, Borrower may utilize up to an aggregate amount
not to exceed Two Million Five Hundred Thousand Dollars ($2,500,000) (the
"Cash Management Sublimit") for cash management services provided by Bank,
which 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 $_________________.
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.
-----------------------------
11
<PAGE>
(a) Borrower and Bank acknowledge that from time to time from the
date of the Original Agreement prior to 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.
(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) Borrower and Bank acknowledge that from time to time from May
12, 1998 through the Equipment Facility B Availability End Date, Bank has made
advances (each an "Equipment Facility B Advance" and, collectively, the
"Equipment Facility B Advances") to Borrower in an aggregate amount not
exceeding the Equipment Facility B Committed Line. Borrower may not request or
receive additional Equipment Facility B Advances. Equipment Facility B
Advances may not be reborrowed once repaid.
(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 on the first (1st) calendar day of the month 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 shall be immediately due and payable.
2.1.5 Equipment Facility C Advances.
-----------------------------
(a) Subject to and upon the terms and conditions of this
Agreement, at any time from the date hereof through the Equipment Facility C
Availability End Date, Bank agrees to make advances (each an "Equipment
Facility C Advance" and, collectively, the "Equipment Facility C Advances") to
Borrower in an aggregate outstanding amount not to exceed the Equipment
Facility C Committed Line. The Equipment Facility C Advances shall be used
only to purchase or refinance Equipment approved from time to time by Bank.
(b) Interest shall accrue from the date of each Equipment
Facility C Advance at the rate specified in Section 2.3(a), and shall be
payable monthly on the first (1st) calendar day of each month through the
month in which the Equipment Facility C Availability End Date falls. Any
Equipment Facility C Advances that are outstanding on the Equipment Facility C
Availability End Date will 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 Equipment Facility C Availability End
Date, and continuing on the same day of each month thereafter through the
Equipment Facility C Maturity Date, at which time all amounts owing under this
Section 2.1.5, and any other amounts due under this Agreement, shall be
immediately due and payable. Equipment Facility C Advances, once repaid, may
not be reborrowed.
12
<PAGE>
(c) When Borrower desires to obtain an Equipment Facility C
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 C 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.
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 Committed Line, Borrower shall immediately pay to Bank, in
cash, the amount of such excess.
2.3 Interest Rates, Payments, and Calculations.
------------------------------------------
(a) Interest Rate.
-------------
(i) Revolving Advances. Except as set forth in Section
------------------
2.3(b), all Revolving Advances shall bear interest, on the average daily
balance thereof, at a 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 Prime 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.
(v) Equipment Facility C Advances. Except as set forth in
-----------------------------
Section 2.3(b), all Equipment Facility C 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.
13
<PAGE>
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 Twenty Five Thousand
-------------
Dollars ($25,000), 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,
(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.
14
<PAGE>
2.7 Term. This Agreement shall become effective on the Closing Date
----
and, subject to Section 12.7, shall continue in full force and effect for a term
ending on the Equipment Facility C 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);
(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 Sections 2.1.5 and 2.1.6; 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 (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), and
no Event of Default shall have occurred and be continuing, or would result
from such Advance. 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).
15
<PAGE>
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.
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.
16
<PAGE>
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 Merchantable Inventory. All Inventory is in all material respects
----------------------
of good and marketable quality, free from all material defects.
5.5 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 (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.
5.6 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.
5.7 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.
5.8 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.
5.9 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.
5.10 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.
17
<PAGE>
5.11 Environmental Condition. None of Borrower's or any Subsidiary's
-----------------------
properties or assets has ever been used by Borrower or any Subsidiary or, to the
best of Borrower's knowledge, by previous owners or operators, in the disposal
of, or to produce, store, handle, treat, release, or transport, any hazardous
waste or hazardous substance other than in accordance with applicable law; to
the best of Borrower's knowledge, none of Borrower's properties or assets has
ever been designated or identified in any manner pursuant to any environmental
protection statute as a hazardous waste or hazardous substance disposal site, or
a candidate for closure pursuant to any environmental protection statute; no
lien arising under any environmental protection statute has attached to any
revenues or to any real or personal property owned by Borrower or any
Subsidiary; and neither Borrower nor any Subsidiary has received a summons,
citation, notice, or directive from the Environmental Protection Agency or any
other federal, state or other governmental agency concerning any action or
omission by Borrower or any Subsidiary resulting in the releasing, or otherwise
disposing of hazardous waste or hazardous substances into the environment.
5.12 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.
5.13 Subsidiaries. Borrower does not own any stock, partnership
------------
interest or other equity securities of any Person, except for Permitted
Investments.
5.14 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.
5.15 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:
18
<PAGE>
(a) as soon as available, but in any event within forty-five (45) days
after the end of each fiscal quarter of Borrower, all reports on Form 10-Q
required to be filed with the Securities and Exchange Commission;
(b) as soon as available, but in any event within one hundred twenty
(120) days after the end of Borrower's fiscal year, all reports on Form 10-K
required to be filed with the Securities and Exchange Commission;
(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;
(d) promptly upon receipt of notice thereof, a report of any legal
actions pending or threatened against Borrower or any Subsidiary that could
result in damages or costs to Borrower or any Subsidiary of Three Hundred
Thousand Dollars ($300,000) 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.
Borrower shall deliver to Bank, together with the quarterly and annual
reports on Form 10-Q and 10-K required to be filed with the Securities and
Exchange Commission, a Compliance Certificate signed by a Responsible Officer
in substantially the form of Exhibit C hereto.
---------
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.
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<PAGE>
(b) All such policies of insurance shall be in such form, with
such companies, and in such amounts as reasonably satisfactory to Bank. All
such policies of property insurance shall contain a lender's loss payable
endorsement, in a form satisfactory to Bank, showing Bank as an additional
loss payee thereof and all liability insurance policies shall show the Bank as
an additional insured, and shall specify that the insurer must give at least
twenty (20) days notice to Bank before canceling its policy for any reason.
Upon Bank's request, Borrower shall deliver to Bank certified copies of such
policies of insurance and evidence of the payments of all premiums therefor.
So long as no Event of Default has occurred and is continuing, Borrower shall
have the option of applying the proceeds of any casualty policy to the
replacement or repair of destroyed or damaged property; provided, that after
--------
the occurrence and during the continuance of an Event of Default, all proceeds
payable under any such policy shall, at the option of Bank, be payable to Bank
for application to the Obligations.
6.7 Bank Balances. Borrower shall maintain its principal operating
-------------
accounts with Bank.
6.8 Quick Ratio. Borrower shall maintain, as of the last day of each
-----------
fiscal quarter, a ratio of Quick Assets to Current Liabilities (minus deferred
revenues and Microsoft Debt) of at least 2.00 to 1.00. For purposes of this
Section, "Quick Assets" shall not include Microsoft Accounts to the extent the
proceeds of such Accounts service the Microsoft Debt.
6.9 Liquidity Coverage/Debt Service Coverage. Subject to the remainder
----------------------------------------
of this section, Borrower shall maintain, as of the last day of each fiscal
quarter, 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) sixty percent
----
(60%) of Borrower's net accounts receivable minus (iii) any outstanding
-----
Revolving Advances, to (b) the aggregate outstanding amount of the Term Advance,
Equipment Facility A Advances, Equipment Facility B Advances, and Equipment
Facility C Advances.
6.10 Tangible Net Worth. Borrower shall maintain, as of the last day of
------------------
each fiscal quarter, a Tangible Net Worth of not less than Fifteen Million
Dollars ($15,000,000).
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
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 material intellectual property rights developed or acquired by
Borrower from time to time, including without limitation revisions or
additions to the intellectual property rights listed on such Exhibits A, B and
C, when Borrower reasonably determines that such registration is appropriate;
provided that Borrower shall in any case promptly register such additional
Patents, Trademarks and/or Copyrights as are developed or obtained in
connection with any product accounting for more than five percent (5%) of
Borrower's gross revenues in any calendar month.
(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
commercially reasonable efforts to detect infringements of the Trademarks,
Patents and Copyrights and promptly advise Bank in writing of material
infringements detected and
20
<PAGE>
(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 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
15% of Borrower's Tangible Net Worth 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
21
<PAGE>
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 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 any Subsidiary, other than as permitted under the definition of
Permitted Investments.
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;
22
<PAGE>
8.2 Covenant Default. If Borrower fails to perform any obligation under
----------------
Sections 6.3, 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);
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 Three Hundred Thousand
Dollars ($300,000) 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.
23
<PAGE>
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;
(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
24
<PAGE>
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
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.
25
<PAGE>
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
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.
26
<PAGE>
(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 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.
27
<PAGE>
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 under Section 2.6 and 12.2 to the extent
they remain inchoate at the time the outstanding payment Obligations are paid
in full) remain outstanding. The obligations of Borrower to indemnify Bank
with respect to the expenses, damages, losses, costs and liabilities described
in Section 12.2 shall survive until all applicable statute of limitations
periods with respect to actions that may be brought against Bank have run.
12.8 Confidentiality. In handling any confidential information Bank
---------------
shall exercise the same degree of care that it exercises with respect to its own
proprietary information of the same types to maintain the confidentiality of any
non-public information thereby received or received pursuant to this Agreement
except that disclosure of such information may be made (i) to the subsidiaries
or affiliates of Bank in connection with their present or prospective business
relations with Borrower, (ii) to prospective transferees or purchasers of any
interest in the Loans, provided that they have entered into a comparable
confidentiality agreement in favor of Borrower and have delivered a copy to
Borrower, (iii) as required by law, regulations, rule or order, subpoena,
judicial order or similar order, (iv) as may be required in connection with the
examination, audit or similar investigation of Bank and (v) as Bank may
determine in connection with the enforcement of any remedies hereunder.
Confidential information hereunder shall not include information that either:
(a) is in the public domain or in the knowledge or possession of Bank when
disclosed to Bank, or becomes part of the public domain after disclosure to Bank
through no fault of Bank; or (b) is disclosed to Bank by a third party, provided
Bank does not have actual knowledge that such third party is prohibited from
disclosing such information.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
INKTOMI CORPORATION
By:_______________________________
Title:____________________________
SILICON VALLEY BANK
By:_______________________________
Title:____________________________
28
<PAGE>
EXHIBIT A
---------
The Collateral shall consist of all right, title and interest of
Borrower in and to the following:
(a) All goods and equipment now owned or hereafter acquired, including,
without limitation, all machinery, fixtures, vehicles (including motor
vehicles and trailers), and any interest in any of the foregoing, and all
attachments, accessories, accessions, replacements, substitutions, additions,
and improvements to any of the foregoing, wherever located;
(b) All inventory, now owned or hereafter acquired, including, without
limitation, all merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products including such
inventory as is temporarily out of Borrower's custody or possession or in
transit and including any returns upon any accounts or other proceeds,
including insurance proceeds, resulting from the sale or disposition of any of
the foregoing and any documents of title representing any of the above, and
Borrower's Books relating to any of the foregoing;
(c) All contract rights and general intangibles now owned or hereafter
acquired, including, without limitation, goodwill, trademarks, servicemarks,
trade styles, trade names, patents, patent applications, leases, license
agreements, franchise agreements, blueprints, drawings, purchase orders,
customer lists, route lists, infringements, claims, computer programs,
computer discs, computer tapes, literature, reports, catalogs, design rights,
income tax refunds, payments of insurance and rights to payment of any kind;
(d) All now existing and hereafter arising accounts, contract rights,
royalties, license rights and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods, the licensing of technology or the
rendering of services by Borrower, whether or not earned by performance, and
any and all credit insurance, guaranties, and other security therefor, as well
as all merchandise returned to or reclaimed by Borrower and Borrower's Books
relating to any of the foregoing;
(e) All documents, cash, deposit accounts, securities, investment
property, securities accounts, securities entitlements, letters of credit,
certificates of deposit, instruments and chattel paper now owned or hereafter
acquired and Borrower's Books relating to the foregoing;
(f) All copyright rights, copyright applications, copyright
registrations and like protections in each work of authorship and derivative
work thereof, whether published or unpublished, now owned or hereafter
acquired; all trade secret rights, including all rights to unpatented
inventions, know-how, operating manuals, license rights and agreements and
confidential information, now owned or hereafter acquired; all mask work or
similar rights available for the protection of semiconductor chips, now owned
or hereafter acquired; all claims for damages by way of any past, present and
future infringement of any of the foregoing; and
(g) Any and all claims, rights and interests in any of the above and
all substitutions for, additions and accessions to and proceeds thereof.
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 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
<PAGE>
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."
<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)
________________________________________________________________________________
<PAGE>
EXHIBIT C
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.
REPORTING COVENANT REQUIRED COMPLIES
------------------ -------- --------
10-Q & CC Quarterly within 45 days Yes No
10-K & CC FYE within 120 days Yes No
A/R & A/P Agings Within 20 days of request Yes No
Financial Covenant REQUIRED ACTUAL COMPLIES
------------------ -------- ------ --------
Maintain on a Quarterly Basis:
Minimum Quick Ratio 2.0:1.0/1/ _____:1.0 Yes No
Liquidity Ratio/2/ 2.0:1.0 _____:1.0 Yes No
Debt Service Coverage/3/ 1.5:1.0 _____:1.0 Yes No
Minimum Tangible Net Worth $15,000,000 $________ Yes No
/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.
COMMENTS REGARDING EXCEPTIONS: See Attached.
Sincerely,
__________________________________
BANK USE ONLY
SIGNATURE
Received by:_____________________
AUTHORIZED SIGNER
TITLE
Date:____________________________
DATE Verified:________________________
AUTHORIZED SIGNER
Date:____________________________
Compliance Status: Yes No
__________________________________
<PAGE>
DISBURSEMENT REQUEST AND AUTHORIZATION
Borrower: Inktomi Corporation Bank: Silicon Valley Bank
LOAN TYPE. This is a variable rate, revolving line of credit of up to
$2,500,000, a previously advanced term facility of $2,000,000, a previously
advanced equipment facility of $1,750,000, an equipment facility of up to
$2,000,000, and an equipment facility of up to $5,000,000.
PRIMARY PURPOSE OF LOAN. The primary purpose of this loan is for business.
SPECIFIC PURPOSE. The specific purpose of this loan is: Short Term Working
Capital and purchase of Equipment.
DISBURSEMENT INSTRUCTIONS. Borrower understands that no loan proceeds will be
disbursed until all of Bank's conditions for making the loan have been
satisfied. Please disburse the loan proceeds as follows:
Revolving Line Equipment Line
-------------- --------------
Amount paid to Borrower directly: $___________ $___________
Undisbursed Funds $___________ $___________
Principal $___________ $___________
CHARGES PAID IN CASH. Borrower has paid or will pay in cash as agreed the
following charges:
Prepaid Finance Charges Paid in Cash: $________
$25,000 Loan Fees
Other Charges Paid in Cash: $________
$TBD UCC Search Fees
$TBD UCC Filing Fees
$TBD Patent Filing Fees
$TBD Trademark Filing Fees
$TBD Copyright Filing Fees
$TBD Outside Counsel Fees and Expenses (Estimate)
Total Charges Paid in Cash $________
AUTOMATIC PAYMENTS. Borrower hereby authorizes Bank automatically to deduct
from Borrower's account numbered ______________ the amount of any loan payment.
If the funds in the account are insufficient to cover any payment, Bank shall
not be obligated to advance funds to cover the payment.
FINANCIAL CONDITION. BY SIGNING THIS AUTHORIZATION, BORROWER REPRESENTS AND
WARRANTS TO BANK THAT THE INFORMATION PROVIDED ABOVE IS TRUE AND CORRECT AND
THAT THERE HAS BEEN NO ADVERSE CHANGE IN BORROWER'S FINANCIAL CONDITION AS
DISCLOSED IN BORROWER'S MOST RECENT FINANCIAL STATEMENT TO BANK. THIS
AUTHORIZATION IS DATED AS OF SEPTEMBER 2, 1998.
BORROWER:
Inktomi Corporation
Authorized Officer
<PAGE>
AGREEMENT TO PROVIDE INSURANCE
GRANTOR: Inktomi Corporation BANK: Silicon Valley Bank
INSURANCE REQUIREMENTS. Inktomi Corporation ("Grantor") understands that
insurance coverage is required in connection with the extending of a loan or the
providing of other financial accommodations to Grantor by Bank. These
requirements are set forth in the Loan Documents. The following minimum
insurance coverages must be provided on the following described collateral (the
"Collateral"):
Collateral: All Inventory, Equipment and Fixtures.
Type: All risks, including fire, theft and liability.
Amount: Full insurable value.
Basis: Replacement value.
Endorsements: Loss payable clause to Bank with stipulation that
coverage will not be canceled or diminished
without a minimum of twenty (20) days' prior
written notice to Bank.
INSURANCE COMPANY. Grantor may obtain insurance from any insurance
company Grantor may choose that is reasonably acceptable to Bank. Grantor
understands that credit may not be denied solely because insurance was not
purchased through Bank.
FAILURE TO PROVIDE INSURANCE. Grantor agrees to deliver to Bank, on or
before closing, evidence of the required insurance as provided above, with an
effective date of September 2, 1998, or earlier. Grantor acknowledges and agrees
that if Grantor fails to provide any required insurance or fails to continue
such insurance in force, Bank may do so at Grantor's expense as provided in the
Amended and Restated Loan and Security Agreement. The cost of such insurance, at
the option of Bank, shall be payable on demand or shall be added to the
indebtedness as provided in the security document. GRANTOR ACKNOWLEDGES THAT IF
BANK SO PURCHASES ANY SUCH INSURANCE, THE INSURANCE WILL PROVIDE LIMITED
PROTECTION AGAINST PHYSICAL DAMAGE TO THE COLLATERAL, UP TO THE BALANCE OF THE
LOAN; HOWEVER, GRANTOR'S EQUITY IN THE COLLATERAL MAY NOT BE INSURED. IN
ADDITION, THE INSURANCE MAY NOT PROVIDE ANY PUBLIC LIABILITY OR PROPERTY DAMAGE
INDEMNIFICATION AND MAY NOT MEET THE REQUIREMENTS OF ANY FINANCIAL
RESPONSIBILITY LAWS.
AUTHORIZATION. For purposes of insurance coverage on the Collateral,
Grantor authorizes Bank to provide to any person (including any insurance agent
or company) all information Bank deems appropriate, whether regarding the
Collateral, the loan or other financial accommodations, or both.
GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS AGREEMENT TO
PROVIDE INSURANCE AND AGREES TO ITS TERMS. THIS AGREEMENT IS DATED SEPTEMBER 2,
1998.
GRANTOR: Inktomi Corporation
x
Authorized Officer
================================================================================
FOR BANK USE ONLY
INSURANCE VERIFICATION
DATE: PHONE:
AGENT'S NAME:
INSURANCE COMPANY:
POLICY NUMBER:
EFFECTIVE DATES:
COMMENTS:
================================================================================
<PAGE>
CORPORATE RESOLUTIONS TO BORROW
BORROWER: INKTOMI CORPORATION
I, the undersigned Secretary or Assistant Secretary of Inktomi
Corporation (the "Corporation"), HEREBY CERTIFY that the Corporation is
organized and existing under and by virtue of the laws of the State of
California.
I FURTHER CERTIFY that attached hereto as Attachments 1 and 2 are true
and complete copies of the Articles of Incorporation and Bylaws of the
Corporation, each of which is in full force and effect on the date hereof.
I FURTHER CERTIFY that at a meeting of the Directors of the Corporation,
duly called and held, at which a quorum was present and voting (or by other duly
authorized corporate action in lieu of a meeting), the following resolutions
were adopted.
BE IT RESOLVED, that ANY ONE (1) of the following named officers,
employees, or agents of this Corporation, whose actual signatures are shown
below:
NAMES POSITIONS ACTUAL SIGNATURES
------------------------------------------------------------------
acting for an on behalf of this Corporation and as its act and deed be, and they
hereby are, authorized and empowered:
BORROW MONEY. To borrow from time to time from Silicon Valley Bank
("Bank"), on such terms as may be agreed upon between the officers, employees,
or agents and Bank, such sum or sums of money as in their judgment should be
borrowed, without limitation, including such sums as are specified in that
certain Amended and Restated Loan and Security Agreement dated as of September
2, 1998 (the "Loan Agreement").
EXECUTE NOTES. To execute and deliver to Bank the promissory note or
notes of the Corporation, on Bank's forms, at such rates of interest and on such
terms as may be agreed upon, evidencing the sums of money so borrowed or any
indebtedness of the Corporation to Bank, and also to execute and deliver to Bank
one or more renewals, extensions, modifications, refinancings, consolidations,
or substitutions for one or more of the notes, or any portion of the notes.
GRANT SECURITY. To grant a security interest to Bank in the Collateral
described in the Loan Agreement, which security interest shall secure all of the
Corporation's Obligations, as described in the Loan Agreement.
NEGOTIATE ITEMS. To draw, endorse, and discount with Bank all drafts,
trade acceptances, promissory notes, or other evidences of indebtedness payable
to or belonging to the Corporation or in which the Corporation may have an
interest, and either to
<PAGE>
receive cash for the same or to cause such proceeds to be credited to the
account of the Corporation with Bank, or to cause such other disposition of the
proceeds derived therefrom as they may deem advisable.
LETTERS OF CREDIT; FOREIGN EXCHANGE. To execute letters of credit
applications, foreign exchange agreements and other related documents pertaining
to Bank's issuance of letters of credit and foreign exchange contracts.
FURTHER ACTS. In the case of lines of credit, to designate additional
or alternate individuals as being authorized to request advances thereunder, and
in all cases, to do and perform such other acts and things, to pay any and all
fees and costs, and to execute and deliver such other documents and agreements
as they may in their discretion deem reasonably necessary or proper in order to
carry into effect the provisions of these Resolutions.
BE IT FURTHER RESOLVED, that any and all acts authorized pursuant to
these resolutions and performed prior to the passage of these resolutions are
hereby ratified and approved, that these Resolutions shall remain in full force
and effect and Bank may rely on these Resolutions until written notice of their
revocation shall have been delivered to and received by Bank. Any such notice
shall not affect any of the Corporation's agreements or commitments in effect at
the time notice is given.
I FURTHER CERTIFY that the officers, employees, and agents named above
are duly elected, appointed, or employed by or for the Corporation, as the case
may be, and occupy the positions set forth opposite their respective names; that
the foregoing Resolutions now stand of record on the books of the Corporation;
and that the Resolutions are in full force and effect and have not been modified
or revoked in any manner whatsoever.
IN WITNESS WHEREOF, I have hereunto set my hand on September 2, 1998 and
attest that the signatures set opposite the names listed above are their genuine
signatures.
CERTIFIED TO AND ATTESTED BY:
X
Attachment 1 - Articles of Incorporation
Attachment 2 - Bylaws
<PAGE>
EXHIBIT 10.19
FIRST AMENDMENT TO OFFICE LEASE
-------------------------------
THIS FIRST AMENDMENT TO OFFICE LEASE (this "First Amendment") is made and
---------------
entered into as of July 31, 1998, by and between NORFOLK ATRIUM, a California
Limited Partnership ("Lessor"), and INKTOMI CORPORATION, a California
------
corporation ("Lessee").
------
RECITALS:
--------
A. Lessor and Lessee have entered into that certain Office Lease and Addenda
to Lease dated as of July 31, 1997 (collectively, the "Lease"), with respect to
-----
the lease of certain "Initial Premises" and "Additional Space" (as such terms
---------------- ----------------
are defined in the Lease), as more particularly described in the Lease within
the building located at 1900 South Norfolk Street, San Mateo, California. All
initial capitalized terms used herein but not herein defined shall have the
meaning ascribed to such terms in the Lease.
B. Lessor and Lessee now desire to enter into this First Amendment to
provide, among other things, for the expansion of the "Premises" leased pursuant
--------
to the Lease to include the "First Expansion Premises" and the "Second Expansion
------------------------ ----------------
Premises" (as such terms are hereinafter defined), on the terms and subject to
- --------
the conditions hereinafter set forth.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, Lessor and Lessee agree as follows:
1. The Term of the Lease of the Initial Premises is hereby extended such that
the Expiration Date for the Initial Premises shall be October 31, 2003. Monthly
Base Rent for the Initial Premises for the period of such extension from
November 1, 2002 through and including October 31, 2003, shall be as follows:
$57,137.10 per month ($3.65 per month per square foot of Rentable Area within
the Initial Premises) for the period from November 1, 2002 through and including
June 30, 2003; and shall be $58,702.50 per month ($3.75 per month per square
foot of Rentable Area within the Initial Premises) for the period from July 1,
2003 through and including October 31, 2003. The Term of the lease of the
Additional Space shall remain unchanged such that the Expiration Date for the
Additional Space shall remain October 31, 2001.
2. From and after the date hereof, the "Premises" leased pursuant to the
--------
Lease shall be deemed to include (in addition to the premises theretofore leased
to Lessee pursuant to the Lease, as amended hereby) that certain premises
located immediately adjacent to the Initial Premises, containing approximately
480 square feet of Rentable Area, designated as "Suite 304" on the Floor Plan
attached hereto as Schedule 1 and incorporated herein by this reference (the
----------
"First Expansion Premises"). The lease of the First Expansion Premises pursuant
- -------------------------
hereto shall be for a lease term which is co-terminous with the Term of the
lease of the Initial Premises (as extended pursuant to Section 1 above, and as
---------
may be further extended pursuant to Section 5 below), and otherwise subject to
---------
all terms and conditions of the Lease applicable to the Initial Premises (except
as hereinafter provided and except for such other terms and conditions as are
specifically or by their operation limited to the Initial Premises), subject to
the following:
(a) The First Expansion Premises shall be leased on an entirely "AS
IS", "WHERE IS", basis, with no representations or warranties, express or
implied, by Lessor, Lessee hereby agreeing and acknowledging (1) that Lessee
has had the opportunity to inspect the First Expansion Premises and shall
accept the First Expansion Premises on the date hereof in their existing
condition, and (2) that Lessor shall have absolutely no obligation to improve
or alter the First Expansion Premises for the benefit of Lessee or to provide
Lessee with any allowance for the improvement of the First Expansion Premises;
except, however, that upon delivery of possession to Lessee, the First
Expansion Premises shall be in "broom clean" condition and otherwise in good
operating condition, order and repair, including, without limitation, all
building systems serving the First Expansion Premises. The First Expansion
Premises shall be deemed to contain 480 square feet of Rentable Area for all
purposes hereof notwithstanding any deviation in actual Rentable Area thereof.
Lessee may improve the First Expansion Premises in accordance with the
provisions of Exhibit "C" to the Lease (entitled "Work Letter"), which shall
be separately applicable to the initial improvement of the First Expansion
Premises as if fully set forth herein, subject to the following: (i)
references in such Exhibit "C" to the "Premises" shall be deemed to refer to
the First Expansion Premises; (ii) there shall be no "Tenant Improvement
Allowance" payable from Lessor to Lessee within the First Expansion Premises;
(iii) the term "Tenant Improvements" shall mean any tenant improvements that
Lessee elects to make to the First Expansion Premises provided that Lessor
shall have the right to approve such Tenant Improvements, which approval shall
not be unreasonably withheld or delayed; (iv) Lessee may use any architect
selected by Lessee in connection with the Tenant Improvements, provided that
Lessor shall have the right to approve of such architect, which approval shall
not be unreasonably withheld or delayed; and (v) Lessee may use any general
contractor selected by Lessee in connection with the Tenant Improvements,
provided that Lessor shall have the right to approve of such general
contractor, which approval shall not be unreasonably withheld or delayed.
Notwithstanding anything to the contrary contained in the Lease or herein,
Lessee (and not Lessor) shall be responsible for making all alterations or
improvements required to cause the First Expansion Premises to comply with
applicable laws, regulations, ordinances or orders of any public agencies
(including, without limitation, laws respecting use and access by disabled
persons, including, without limitation, the Americans with Disabilities Act of
1990). Notwithstanding anything to the contrary contained in this First
Amendment, the parties hereby agree that the First Expansion Premises is
presently available for occupancy by Lessee, and Lessor shall be deemed for
all purposes hereof to have delivered possession to Lessee of the First
Expansion Premises upon the execution and delivery of this First Amendment by
Lessee and Lessor.
-1-
<PAGE>
(b) In addition to the other rental amounts owing pursuant to the
Lease (as amended by this First Amendment), Lessee shall be responsible for
monthly Base Rent with respect to the First Expansion Premises in the
following amounts:
Monthly Base Rent
From and Including Per Rentable Square Foot Monthly Base Rent
- ------------------ ------------------------ -----------------
Date hereof-June 30, 1999 $2.75 $1,320.00
July 1, 1999-June 30, 2000 $2.90 $1,392.00
July 1, 2000-June 30, 2001 $3.05 $1,464.00
July 1, 2001-June 30, 2002 $3.20 $1,536.00
July 1, 2002-June 30, 2003 $3.35 $1,608.00
July 1, 2003-October 31, 2003 $3.50 $1,680.00
Base Rent for the First Expansion Premises shall be prorated for any partial
month during the Term and payable on the first day of each month during the Term
from and after the date hereof in accordance with the provisions of the Lease
governing payment of Base Rent for the Initial Premises.
(c) From and after the date hereof, Lessee shall be responsible for
Lessee's Percentage Share of Excess Expenses for the First Expansion Premises
based upon Base Expenses of $7.10 per square foot per year of Rentable Area
within the Building, in the same manner as Lessee's Percentage Share of Excess
Expenses are payable under the Lease with respect to the Initial Premises.
Accordingly, Lessee's Percentage Share (for purposes of calculation of
Lessee's obligation for Excess Expenses) shall be increased as of the date
hereof to the amount of 9.97% (based upon a total of 16,134 square feet of
Rentable Area, being the sum of 15,654 square feet of Rentable Area within the
Initial Premises plus 480 square feet of Rentable Area within the First
Expansion Premises). Upon inclusion of the Additional Space into the Premises
pursuant to the Lease, Lessee's Percentage Share shall be further adjusted to
reflect the additional Rentable Area of such Additional Space.
(d) Each of Lessor and Lessee warrants that it has had no dealing with
any real estate broker or agents in connection with the negotiation of the
lease of the First Expansion Premises who shall be entitled to or can claim a
commission or fee in connection therewith. Each party agrees to indemnify,
defend and hold the other party harmless from and against any and all claims,
demands, losses, liabilities, lawsuits, judgments, and costs and expenses
(including, without limitation, reasonable attorneys' fees and expenses) with
respect to any alleged leasing commission or equivalent compensation alleged
to be owing in connection with the lease of the First Expansion Premises on
account of dealings of the indemnifying party with any real estate broker or
agent.
3. As used in this First Amendment, the "Second Expansion Premises" shall
-------------------------
mean those certain premises located on the third (3rd) floor of the Building,
designated on Schedule 1 attached hereto as "Suite 318" containing approximately
----------
3,897 square feet of Rentable Area, "Suite 320" containing approximately 1,518
square feet of Rentable Area, "Suite 323" containing approximately 2,287 square
feet of Rentable Area, "Suite 325" containing approximately 4,552 square feet of
Rentable Area, and "Suite 336" containing approximately 3,876 square feet of
Rentable Area. From and after the date upon which the applicable portion of the
Second Expansion Premises is made available for occupancy by Lessee, the
"Premises" leased pursuant to the Lease shall be deemed to include (in addition
- ---------
to the premises theretofore leased to Lessee pursuant to the Lease, as amended
hereby) such portion of the Second Expansion Premises. The lease of the Second
Expansion Premises pursuant hereto shall be for a lease term which is co-
terminous with the Term of the lease of the Initial Premises (as extended
pursuant to Section 1 above, and as may be further extended pursuant to Section
--------- -------
5 below), and otherwise subject to all terms and conditions of the Lease
- -
applicable to the Initial Premises (except as hereinafter provided and except
for such other terms and conditions as are specifically or by their operation
limited to the Initial Premises), subject to the following:
(a) Each of the suites comprising the Second Expansion Premises shall
be separately made available for occupancy by Lessee in accordance with the
following. "Suite 318" and "Suite 320" as shown on Schedule 1 are
----------
presently available for occupancy by Lessee, and Lessor shall be deemed for
all purposes hereof to have delivered possession to Lessee of such "Suite
318" and "Suite 320" upon the execution and delivery of this First
Amendment by Lessee and Lessor. The parties hereby acknowledge that "Suite
323", "Suite 325" and "Suite 336" as shown on Schedule 1 are presently
----------
occupied by existing occupants and, accordingly, shall not be available for
occupancy by Lessee until Lessee's receipt of written notice thereof from
Lessor. Lessor makes no representation or warranty, express or implied as
to the date(s) upon which any of such premises shall be available for
occupancy by Lessee and no delay in Lessor's making of any of such suite(s)
available for occupancy by Lessee shall affect the lease thereof pursuant
hereto or subject Lessor to any liability with respect thereto or for any
loss or damage resulting therefrom (subject to the provisions of Section
-------
3(b) below respecting the Allowance amount for the Second Expansion
- ----
Premises and subject to the final sentence of this Section 3(a)). The
------------
parties agree that available for occupancy by Lessee shall mean the date
on which Lessor actually delivers possession of the applicable portion of
the Second Expansion Premises to Lessee in the condition required under
this First Amendment. Notwithstanding anything to the contrary contained
herein, as to each suite comprising a portion of the Second Expansion
Premises, until such suite is made available for occupancy by Lessee, the
Premises leased by Lessee shall not include such suite, and neither
Lessee nor Lessor shall have any obligations under the Lease (as hereby
amended) as to such suite. Following the applicable dates of inclusion of
each of "Suite 323", "Suite 325" and "Suite 336" within the Premises in
accordance herewith, the parties hereto shall execute a commencement
memorandum confirming such dates. Notwithstanding anything to the
contrary contained in this First Amendment, if any of the suites
comprising a portion of the Second Expansion Premises has not been made
available for occupancy by Lessee by December 1, 1998 (any such suite
which have not then been made available for occupancy by Lessee are
referred to herein as an "Undelivered
-----------
-2-
<PAGE>
Suite(s)"), then Lessee shall thereafter until the applicable Undelivered
- --------
Suite is made available for occupancy by Lessee, have the right to elect to
delete the applicable Undelivered Suite from the Second Expansion Premises, in
the event of which election, it shall be deemed as if such Undelivered Suite
was never included within the Second Expansion Premises, Lessee shall have no
further right or obligation to lease such Undelivered Suite and Lessor shall
have no further obligation to lease such Undelivered Suite to Lessee.
(b) The Second Expansion Premises shall be leased on an entirely "AS
IS", "WHERE IS", basis, with no representations or warranties, express or
implied, by Lessor, Lessee hereby agreeing and acknowledging (1) that Lessee
has had the opportunity to inspect the Second Expansion Premises and shall
accept the Second Expansion Premises on the respective dates upon which the
portions thereof are made available for occupancy by Lessee pursuant hereto in
their then existing condition, and (2) that Lessor shall have absolutely no
obligation to improve or alter the Second Expansion Premises for the benefit
of Lessee or to provide Lessee with any allowance for the improvement of the
Second Expansion Premises except as expressly set forth below; except,
however, that upon delivery of possession to Lessee, the applicable portion of
the Second Expansion Premises shall be in "broom clean" condition and
otherwise in good operating condition, order and repair, including, without
limitation, all building systems serving such applicable portion of the Second
Expansion Premises. The suites comprising the Second Expansion Premises shall
be deemed to contain the respective amounts of Rentable Area specified in the
first sentence of this Section 3 for all purposes hereof notwithstanding any
---------
deviation in actual Rentable Area thereof. Lessee may improve the Second
Expansion Premises (as each respective portion of the Second Expansion
Premises is made available for occupancy by Lessee) in accordance with the
provisions of Exhibit "C" to the Lease (entitled "Work Letter"), which shall
be separately applicable to the initial improvement of each portion of the
Second Expansion Premises as if fully set forth herein, subject to the
following: (i) references in such Exhibit "C" to the "Premises" shall be
deemed to refer to the applicable portion of the Second Expansion Premises;
(ii) the amount of the "Tenant Improvement Allowance" shall be $6.00 per
square foot of Rentable Area within the applicable portion of the Second
Expansion Premises, except, however, that as to any portion of the Second
Expansion Premises which is not made available for occupancy by Lessee until
after the date which is seventy (70) days following the full execution and
delivery of this First Amendment by Lessee and Lessor, the amount of the
"Tenant Improvement Allowance" shall be $8.00 per square foot of Rentable Area
within such applicable portion of the Second Expansion Premises; (iii) the
term "Tenant Improvements" shall mean any tenant improvements that Lessee
elects to make to the applicable portion of the Second Expansion Premises
provided that Lessor shall have the right to approve such Tenant Improvements,
which approval shall not be unreasonably withheld or delayed; (iv) Lessee may
use any architect selected by Lessee in connection with the Tenant
Improvements, provided that Lessor shall have the right to approve of such
architect, which approval shall not be unreasonably withheld or delayed; and
(v) Lessee may use any general contractor selected by Lessee in connection
with the Tenant Improvements, provided that Lessor shall have the right to
approve of such general contractor, which approval shall not be unreasonably
withheld or delayed. Notwithstanding anything to the contrary contained in the
Lease or herein, Lessee (and not Lessor) shall be responsible for making all
alterations or improvements required to cause the Second Expansion Premises to
comply with applicable laws, regulations, ordinances or orders of any public
agencies (including, without limitation, laws respecting use and access by
disabled persons, including, without limitation, the Americans with
Disabilities Act of 1990).
(c) In addition to the other rental amounts owing pursuant to the
Lease (as amended by this First Amendment), Lessee shall be responsible for
monthly Base Rent with respect to the Second Expansion Premises in the
following amounts:
Monthly Base Rent
From and Including Per Rentable Square Foot
- ------------------ ------------------------
Date of inclusion of
applicable premises within
the Premises-June 30, 1999 $3.25
July 1, 1999-June 30, 2000 $3.35
July 1, 2000-June 30, 2001 $3.45
July 1, 2001-June 30, 2002 $3.55
July 1, 2002-June 30, 2003 $3.65
July 1, 2003-October 31, 2003 $3.75
Base Rent for each portion of the Second Expansion Premises shall be prorated
for any partial month during the Term during which such portion thereof is
included within the Premises, and shall be payable on the first day of each
month during the Term from and after the inclusion of the applicable portion of
the Second Expansion Premises into the Premises in accordance with the
provisions of the Lease governing payment of Base Rent for the Initial Premises.
(d) From and after the respective dates of inclusion thereof within
the Premises in accordance herewith, Lessee shall be responsible for Lessee's
Percentage Share of Excess Expenses for the portions of the Second Expansion
Premises then included within the Premises, based upon Base Expenses of $7.62
per square foot per year of Rentable Area within the Building, and otherwise
in the same manner as Lessee's Percentage Share of Excess Expenses are payable
under the Lease with respect to the Initial Premises. Lessee's Percentage
Share with respect to the Second Expansion Premises (for purposes of
calculation of Lessee's obligation for Excess Expenses with respect to the
Second Expansion Premises) shall be separately calculated from Lessee's
Percentage Share for the Initial Premises, First Expansion Premises and the
Additional Space due to the fact that there is a different amount of Base
Expenses for purposes of such calculation.
-3-
<PAGE>
(e) Each of Lessor and Lessee warrants that it has had no dealing with
any real estate broker or agents in connection with the negotiation of the
lease of the Second Expansion Premises who shall be entitled to or can claim a
commission or fee in connection therewith, except BT Commercial (the
"Broker"), whose commission in the amount of $3.50 per square foot of
-------
Rentable Area within Suite 318 and Suite 320 plus $2.50 per square foot of
Rentable Area within Suite 323, 325 and 336, shall be earned by the Broker,
and due and payable from Lessor to Broker, fifty percent (50%) upon execution
and delivery of this Lease by both Lessor and Lessee, and fifty percent (50%)
upon commencement of occupancy and payment of rent for the applicable portion
of the Second Expansion Premises. Each party agrees to indemnify, defend and
hold the other party harmless from and against any and all claims, demands,
losses, liabilities, lawsuits, judgments, and costs and expenses (including,
without limitation, reasonable attorneys' fees and expenses) with respect to
any alleged leasing commission or equivalent compensation (other than any
amount owing to Broker from Lessor pursuant to the foregoing) alleged to be
owing in connection with the lease of the Second Expansion Premises on account
of dealings of the indemnifying party with any real estate broker or agent.
4. Addendum 8 of the Lease (entitled "Option to Extend Term") and Addendum 10
of the Lease (entitled "Rent During Extended Term") shall each continue in
effect, except, however, that the option to extend granted pursuant to Addendum
8 shall relate only to the Additional Space (and not to the Initial Premises,
the First Expansion Premises or the Second Expansion Premises), and the
determination of Base Rent during the Extended Term pursuant to Addendum 10
shall relate only to Base Rent for the Additional Space (and not to the Initial
Premises, the First Expansion Premises or the Second Expansion Premises).
5. Lessee shall have the option to extend the Term of the Lease for the
Initial Premises, First Expansion Premises and the Second Expansion Premises for
an additional period of three (3) years commencing upon November 1, 2003 and
expiring upon October 31, 2006 (the "Third Floor Extended Term"), subject to the
-------------------------
same provisions as are set forth in Addendum 8 and Addendum 10 with respect to
the Additional Space (in accordance with Section 4 above), which shall be
---------
separately applicable to the extension of the Term of the lease of Initial
Premises, First Expansion Premises and the Second Expansion Premises for the
Third Floor Extended Term as if fully set forth herein, subject to the
following:
(a) References to the "Premises", "Initial Premises" or "Additional
Space" shall be deemed to refer to the Initial Premises, the First Expansion
Premises and the Second Expansion Premises and the option to extend granted
pursuant hereto shall apply concurrently to, and only to all of, the Initial
Premises, the First Expansion Premises and the Second Expansion Premises (such
that Lessee shall not have any option to extend with respect to only a portion
thereof).
(b) References to the "Extended Term" shall be deemed to refer to the
Third Floor Extended Term.
(c) The Option Notice must be delivered no later than October 31, 2002;
(d) Base Rent during the Third Floor Extended Term shall be the then
current Fair Market Rental Value of the Initial Premises, the First Expansion
Premises and the Second Expansion Premises at November 1, 2003, but in no
event less than the monthly Base Rent in effect for the Initial Premises, the
First Expansion Premises and the Second Expansion Premises for the month of
October 2003.
6. Upon the full execution and delivery of this First Amendment by the
parties, Lessee shall increase the Security Deposit held by Lessor pursuant to
the Lease by the amount of $53,742.50 (being one month's Base Rent (at their
respective initial rental rates) for the First Expansion Premises and the Second
Expansion Premises), which amount shall be deposited by Lessee with Lessor in
cash upon such execution. The Security Deposit, as so increased, shall be held,
applied, retained, replaced and/or refunded in accordance with the terms of the
Lease applicable to the Cash Security Deposit (although such $53,742.50 shall
not be applied as a credit toward the amount of the Cash Security Deposit if
deposited by Lessee with Lessor pursuant to the Lease).
7. Addendum 9 of the Lease (entitled "Delay in Commencement; Right to
Terminate") is hereby deleted and of no further force or effect.
8. Addendum 6 of the Lease (entitled "Parking") is hereby deleted, and
notwithstanding anything to the contrary contained in the Lease and in lieu of
any parking spaces which may be specified in the Lease to be provided to Lessee,
the parties agree that (and Article 1.1 of the Lease is hereby amended to
reference that) during the Term of the Lease (as hereby extended and as such
Term may be further extended in accordance herewith), the amount of parking to
which Lessee is entitled pursuant to the Lease shall equal three and one-half
(3.5) single, unreserved and undesignated parking spaces within the Common Area
per each one thousand (1,000) square feet of Rentable Area then included within
the Premises leased by Lessee (rounded to the nearest whole number).
9. Except as specifically amended and supplemented by this First Amendment,
the Lease shall continue in full force and effect. In the event of any conflict
between the provisions of the Lease and the provisions of this First Amendment,
the provisions of this First Amendment shall prevail.
-4-
<PAGE>
10. This First Amendment may be executed in any number of counterparts, any
number of which, taken together, shall constitute one and the same instrument.
IN WITNESS WHEREOF, Lessee and Lessor have entered into this First Amendment as
of the date first written above.
LESSOR: LESSEE:
NORFOLK ATRIUM, a California INKTOMI CORPORATION,
Limited Partnership a California corporation
By: NAPA RIVER DEVCO, INC., By:__________________________________
a California corporation,
its general partner Print Name:__________________________
By: PROM MANAGEMENT GROUP, INC., Its:_________________________________
a California corporation,
dba Maxim Property Management,
as Agent for Owner
By:________________________________
Print Name:________________________
Its:_______________________________
-5-
<PAGE>
EXHIBIT 10.20
LEASE AGREEMENT
AT
[LOGO OF BAYSIDE TOWERS]
WITH
[LOGO OF INKTOMI CORPORATION]
<PAGE>
OFFICE LEASE
BAYSIDE TOWERS
--------------
FOSTER CITY, CALIFORNIA
-----------------------
WHFST REAL ESTATE LIMITED PARTNERSHIP,
a Delaware limited partnership,
as Landlord,
and
INKTOMI CORPORATION, a Delaware corporation,
as Tenant
<PAGE>
BAYSIDE TOWERS
--------------
SUMMARY OF BASIC LEASE INFORMATION
----------------------------------
This Summary of Basic Lease Information ("Summary") is hereby incorporated
into and made a part of the attached Office Lease (this Summary and the Office
Lease to be known collectively as the "Lease"). Each reference in the Office
Lease to any term of this Summary shall have the meaning as set forth in this
Summary for such term. In the event of a conflict between the terms of this
Summary and the Office Lease, the terms of the Office Lease shall prevail. Any
capitalized terms used herein and not otherwise defined in this Summary shall
have the meaning as set forth in the Office Lease.
<TABLE>
<CAPTION>
<S> <C>
TERMS OF LEASE DESCRIPTION
(References are to
the Office Lease)
1. Date: October 9, 1998
2. Landlord: WHFST Real Estate Limited Partnership,
a Delaware limited partnership
Tax ID No. 75-2682940
3. Address of Landlord (Section 29.19): WHFST Real Estate Limited Partnership
101 Lincoln Centre Drive, 4th Floor
Foster City, California 94404-1167
Attn: Rick Wada
and
WHFST Real Estate Limited Partnership
c/o Legacy Partners Commercial, Inc.
455 Market Street, Suite 1520
San Francisco, California 94015
Attn: D. Allen Palmer
4. Tenant: INKTOMI CORPORATION, a Delaware corporation
5. Address of Tenant (Section 29.19): 1900 South Norfolk Street, Suite 310
San Mateo, CA 94403
Attention: Chief Financial Officer
with a copy to:
1900 South Norfolk Street, Suite 310
San Mateo, CA 94403
Attention: General Counsel
(Prior to Lease Commencement Date)
and
4100 Third Avenue
Foster City, CA 94404
Attention: Chief Financial Officer
with a copy to:
4100 Third Avenue
Foster City, CA 94404
Attention: General Counsel
(After Lease Commencement Date)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
6. Premises (Article 1):
6.1 Building 1: 4000 Third Avenue, Foster City, CA 94404
Building 2: 4100 Third Avenue, Foster City, CA 94404
6.2 Premises: Approximately 177,147 rentable square feet of
space, consisting of (i) the entire rentable
square feet of Building 2, containing
approximately 130,837 rentable square feet of
space on floors 1 through 6 of Building 2,
and (ii) approximately 46,310 rentable square
feet of space on the fourth (4th) and fifth
(5th) floors of Building 1, as set forth in
Exhibit A attached hereto.
7. Term (Article 2).
7.1 Lease Term: Eleven (11) years.
7.2 Lease Commencement Date: The earlier of: (i) the date Tenant
commences business in the Premises; or (ii)
the later of (a) the date which is 120 days
after the date possession of the Premises is
delivered to Tenant with the "Base, Shell and
Core" in the "Access Condition" (as such
terms are defined in the Tenant Work Letter),
as such 120-day period may be extended
pursuant to Section 5.2 of the Tenant Work
Letter, or (b) June 8, 1999. The Lease
Commencement Date is anticipated to be June
8, 1999.
7.3 Lease Expiration Date: The last day of the month in which the
eleventh (11th) anniversary of the Lease
Commencement Date occurs.
7.4 Amendment to Lease: Landlord and Tenant shall confirm the Lease
Commencement Date and Lease Expiration Date
in an Amendment to Lease (Exhibit C) to be
executed pursuant to Article 2 of the Office
Lease.
</TABLE>
8. Base Rent (Article 3):
Monthly Monthly Rental Rate
Months of Annual Installment per Rentable
Lease Term Base Rent of Base Rent Square Foot
- ---------- --------- ------------ -----------
1 - 3 $4,098,472.90 $341,539.41 $1.928
4 - 6 $4,791,147.90 $399,289.33 $2.254
7 - 9 $5,548,244.00 $462,353.67 $2.610
10 - 12 $6,305,016.00 $525,418.00 $2.966
13 - 24 $6,517,592.40 $543,132.70 $3.066
25 - 36 $6,730,168.80 $560,847.40 $3.166
37 - 48 $6,942,745.20 $578,562.10 $3.266
-ii-
<PAGE>
Monthly Monthly Rental Rate
Months of Annual Installment per Rentable
Lease Term Base Rent of Base Rent Square Foot
- ---------- --------- ------------ -----------
49 - 60 $7,155,321.60 $596,276.80 $3.366
61 - 72 $7,367,898.00 $613,991.50 $3.466
73 - 84 $7,580,474.40 $631,706.20 $3.566
85 - 96 $7,793,050.80 $649,420.90 $3.666
97 - 108 $8,005,627.20 $667,135.60 $3.766
109 - 120 $8,218,203.60 $684,850.30 $3.866
121 - 132 $8,430,780.00 $702,565.00 $3.966
In the event that Tenant elects to receive the Additional Allowance
described in Section 2.1.2 of the Tenant Work Letter attached to the Office
Lease as Exhibit B, Base Rent shall be increased pursuant to Section 2.1.2 of
the Tenant Work Letter. The Base Rent shall also be adjusted based upon the
final determination of the amount of rentable square feet within the Premises
pursuant to Section 1.2 of the Office Lease.
9. Tenant's Share (Article 4)
9.1 Tenant's Approximately 35.40%. (See Section 4.1.1 of
Building 1 Share of the Office Lease for abatement of certain
Direct Expenses percentages ofTenant's Building 1 Share of
(Section 4.2.7): Direct Expenses for the first nine (9)
months of the Lease Term)
9.2 Tenant's 100%. (See Section 4.1.1 of the Office
Building 2 Share of Lease for abatement of certain percentages
Direct Expenses of Tenant'sBuilding 2 Share of Direct
(Section 4.2.8): Expenses for the first nine (9) months of
the Lease Term)
10. Security Deposit One Million Three Hundred Eight Thousand
(Article 21): Fifty-Three and 40/100 Dollars
($1,308,053.40). (See Article 21 for
reduction of Security Deposit to Seven
Hundred Two Thousand Five Hundred
Sixty-Five Dollars($702,565.00).)
11. Parking (Article 28): Four (4) unreserved parking passes for every
1,000 rentable square feet of the Premises.
12. Brokers (Section 29.25): Legacy Partners Commercial, Inc.
Cornish & Carey Commercial
BT Commercial
13. Amount of Letter of
Credit (Letter of Credit
Rider)
13.1 Amount of Letter of Four Million Eight Hundred Forty-Three
Credit for the period Thousand Nine Hundred Seven and 60/100
of January 15, 1999 ($4,843,907.60)
through the day before
the Lease Commencement
Date:
13.2 Amount of Letter of Five Million Four Hundred Forty-Nine
Credit for the period Thousand Three Hundred Ninety-Six Dollars
from and after the ($5,449,396.00),subject to reduction as
Lease Commencement Date: provided in the Letter of Credit Rider.
-iii-
<PAGE>
BAYSIDE TOWERS
--------------
TABLE OF CONTENTS
-----------------
ARTICLE SUBJECT MATTER PAGE
- ------- -------------- ----
ARTICLE 1 REAL PROPERTY, BUILDINGS AND
PREMISES..................................................1
ARTICLE 2 LEASE TERM................................................6
ARTICLE 3 BASE RENT.................................................6
ARTICLE 4 ADDITIONAL RENT...........................................6
ARTICLE 5 USE OF PREMISES..........................................14
ARTICLE 6 SERVICES AND UTILITIES...................................15
ARTICLE 7 REPAIRS..................................................18
ARTICLE 8 ADDITIONS AND ALTERATIONS................................19
ARTICLE 9 COVENANT AGAINST LIENS...................................21
ARTICLE 10 INSURANCE................................................21
ARTICLE 11 DAMAGE AND DESTRUCTION...................................24
ARTICLE 12 NONWAIVER................................................26
ARTICLE 13 CONDEMNATION.............................................26
ARTICLE 14 ASSIGNMENT AND SUBLETTING................................27
ARTICLE 15 SURRENDER OF PREMISES; OWNERSHIP
AND REMOVAL OF TRADE FIXTURES............................30
ARTICLE 16 HOLDING OVER.............................................31
ARTICLE 17 ESTOPPEL CERTIFICATES....................................32
ARTICLE 18 SUBORDINATION............................................32
ARTICLE 19 DEFAULTS; REMEDIES.......................................33
ARTICLE 20 COVENANT OF QUIET ENJOYMENT..............................34
ARTICLE 21 SECURITY DEPOSIT.........................................35
ARTICLE 22 INTENTIONALLY OMITTED....................................35
ARTICLE 23 SIGNS....................................................35
ARTICLE 24 COMPLIANCE WITH LAW......................................38
ARTICLE 25 LATE CHARGES.............................................38
ARTICLE 26 LANDLORD'S RIGHT TO CURE DEFAULT;
PAYMENTS BY TENANT.......................................39
ARTICLE 27 ENTRY BY LANDLORD........................................39
ARTICLE 28 TENANT PARKING...........................................40
ARTICLE 29 MISCELLANEOUS PROVISIONS.................................40
-iv-
<PAGE>
EXHIBITS
A OUTLINE OF PREMISES
B TENANT WORK LETTER
C AMENDMENT TO LEASE
D RULES AND REGULATIONS
E FORM OF TENANT'S ESTOPPEL CERTIFICATE
F PARKING RULES AND REGULATIONS
G SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT
H MEMORANDUM OF LEASE
EXTENSION OPTION RIDER
OPTION TO PURCHASE/RIGHTS OF FIRST OFFER TO PURCHASE RIDER
LETTER OF CREDIT RIDER
-v-
<PAGE>
BAYSIDE TOWERS
--------------
OFFICE LEASE
------------
This Office Lease, which includes the preceding Summary attached hereto and
incorporated herein by this reference (the Office Lease and Summary to be known
sometimes collectively hereafter as the "Lease"), dated as of the date set forth
in Section 1 of the Summary, is made by and between WHFST REAL ESTATE LIMITED
PARTNERSHIP, a Delaware limited partnership ("Landlord"), and INKTOMI
CORPORATION, a Delaware corporation ("Tenant").
ARTICLE 1
REAL PROPERTY, BUILDINGS AND PREMISES
1.1 Real Property, Buildings and Premises. Upon and subject to the terms,
-------------------------------------
covenants and conditions hereinafter set forth in this Lease, Landlord hereby
leases to Tenant and Tenant hereby leases from Landlord the premises set forth
in Section 6.2 of the Summary (the "Premises"), which Premises shall be located
in those two certain "Buildings" set forth in Section 6.1 of the Summary to be
constructed on the Real Property. The outline of the floor plan of the Premises
is set forth in Exhibit A attached hereto. The Buildings are part of an office
---------
building project to be constructed which shall be known as "Bayside Towers."
The term "Real Property," as used in this Lease, shall mean, collectively, (i)
both of the Buildings, (ii) any outside plaza areas, land and other improvements
now or hereafter constructed surrounding the Buildings, including the surface
parking facilities servicing the Buildings (collectively, the "Parking
Facilities"), which are designated from time to time by Landlord as common areas
(or parking facilities, as the case may be) appurtenant to or servicing the
Buildings, and (iii) the land upon which any of the foregoing are situated,
except that the Real Property does not include the restaurant pad which is
located contiguous to the Real Property. The site plan for the Real Property is
attached hereto as Exhibit A-1, and the Real Property consists of Parcels 1 and
-----------
3 shown on such site plan but does not include Parcel 2 shown on such site plan.
Tenant is hereby granted the right to the nonexclusive use of the common
corridors and hallways, stairwells, elevators, restrooms and other public or
common areas located on the Real Property; provided, however, that the manner in
which such public and common areas are maintained and operated shall be at the
sole discretion of Landlord and the use thereof shall be subject to such rules,
regulations and restrictions as Landlord may make from time to time. Landlord
reserves the right to make alterations or additions to or to change the location
of elements of the Real Property and the common areas thereof.
1.2 Rentable Square Feet. The rentable square feet of the Premises are
--------------------
approximately as set forth in Section 6.2 of the Summary. For purposes hereof,
the "rentable square feet" of the Premises and the Buildings shall be calculated
by Landlord pursuant to the Standard Method for Measuring Floor Area in Office
Buildings, ANSI Z65.1-1996 (the "BOMA Standard"). The rentable square feet of
the Buildings is estimated to be 241,394 rentable square feet. The rentable
square feet of the Premises and the Buildings shall be certified to Landlord and
Tenant with reasonably particularized supporting calculations by Landlord's
planner/designer prior to the Lease Commencement Date, and such certification
shall be made in accordance with the provisions of this Section 1.2 (the
"Certification"); provided, however, that in the event that Tenant's architect
disputes the number of rentable square feet in the Premises and the Buildings as
set forth in the Certification and contends that such calculation was not made
in accordance with the provisions of this Section 1.2, written notice of such
dispute shall be provided to Landlord within thirty (30) days after Tenant's
receipt of the Certification. To resolve such dispute, Landlord's
planner/designer, Tenant's architect, Tenant and Landlord shall meet to attempt
to reach agreement on the number of rentable square feet in the Premises and the
Buildings. If such parties cannot agree on such number, then the parties shall
appoint Stevenson Systems ("Neutral Planner/Designer") to make the decision as
to the number of rentable square feet in the Premises and the Buildings, and
such decision by the Neutral Planner/Designer shall be final and binding upon
the parties. In the event that Landlord's planner/designer determines that the
rentable square footage shall be different from those set forth in this Lease
and Tenant's architect approves such determination or in the event that a
Neutral Planner/Designer is appointed and such Neutral
<PAGE>
Planner/Designer makes such a determination, all amounts, percentages and
figures appearing or referred to in this Lease based upon such incorrect
rentable square feet (including, without limitation, the amount of the Base
Rent, Security Deposit, and Tenant's Building 1 Share, but specifically
excluding Tenant's Building 2 Share and the amount of the Letter of Credit)
shall be modified in accordance with such determination. If such determination
is made, it will be confirmed in writing by Landlord to Tenant.
1.3 Condition of the Premises. Except as specifically set forth in this
-------------------------
Lease and in the Tenant Work Letter attached hereto as Exhibit B, Landlord shall
---------
not be obligated to provide or pay for any improvement work or services related
to the improvement of the Premises. Tenant also acknowledges that Landlord has
made no representation or warranty regarding the condition of the Premises, the
Buildings or Real Property, except as specifically set forth in this Lease and
the Tenant Work Letter. Notwithstanding the foregoing, Landlord hereby
represents and warrants to Tenant that to Landlord's actual knowledge, as of the
date of execution of this Lease, and based solely upon the information contained
in the Environmental Reports (as such term is defined below in this Section
1.3), copies of which have been delivered by Landlord to Tenant, the Real
Property does not contain any Hazardous Materials (as defined below in this
Section 1.3) in violation of applicable Environmental Laws (as defined below in
this Section 1.3), except as described in the Environmental Reports. Landlord
further covenants that Landlord shall not introduce any Hazardous Materials in,
on or under the Real Property in violation of Environmental Laws in effect at
the time of such introduction. Landlord agrees to indemnify, defend, protect
and hold harmless Tenant from and against any and all claims, losses, damages,
causes of action, liabilities, costs and expenses (including reasonable
attorneys' fees) sustained by Tenant attributable to Landlord's breach of any of
the foregoing representations, warranties and covenants of Landlord set forth in
this Section 1.3, which indemnity shall survive the expiration or earlier
termination of this Lease. As used in this Lease, the term "Hazardous
Materials" shall mean and include any substance that is or contains petroleum,
asbestos, polychlorinated biphenyls, lead, or any other substance, material or
waste which is now or is hereafter classified or considered to be hazardous or
toxic under any federal, state or local law, rule, regulation or ordinance
relating to pollution or the protection or regulation of human health, natural
resources or the environment (collectively "Environmental Laws"). As used in
this Section 1.3, the term "Environmental Reports" collectively refers to the
following reports: (i) Salt Marsh Harvest Mouse, dated July 1, 1998, prepared
by H.T. Harvey & Associates; (ii) Phase I Environmental Site Assessment, dated
January 20, 1997 and March 20, 1998, prepared by CET Environmental Services;
(iii) Geotechnical Investigation Phase I & II, dated February 2, 1998, prepared
by Treadwell & Rollo; (iv) Final Environmental Impact Report, dated March 1998,
prepared by Baseline Environmental Consultant; (v) Mitigation & Monitoring Plan
(2), dated April 15, 1997 and April 28, 1997, prepared by H.T. Harvey &
Associates; (vi) Identification of Waters of the U.S., dated February 13, 1998,
prepared by H.T. Harvey & Associates; (vii) Application Information
Environmental Assessment: General Plan/Rezoning/ Tentative Map/Vesting
Tentative Map/Use Permit, dated January 1996, prepared by City of Foster City
Community Development Department; and (viii) Draft EIR, dated December 1997,
prepared by Baseline Environmental Consulting.
1.4 Right of First Offer. Tenant shall have a right of first offer to
--------------------
lease certain space in Building 1 as follows:
1.4.1 Right of First Offer; First Offer Space. During the initial
---------------------------------------
Lease Term ("First Offer Eligibility Period"), Tenant shall have a right of
first offer to lease that certain space consisting of the entire sixth (6th)
floor of Building 1 ("First Offer Space"), when such space becomes available for
lease, as determined by Landlord, following (i) the expiration or earlier
termination of Landlord's existing lease of the First Offer Space with Lincoln
Property Company N.C., Inc. as such lease may be assigned to Legacy Partners
Commercial, Inc. (the "LPC Lease"), including renewals pursuant to options to
extend or renew existing under the LPC Lease as of the date set forth in Section
1 of the Summary, and (ii) the tenant under the LPC Lease has vacated the First
Offer Space; provided, however, if Landlord delivers to Tenant Landlord's First
Offer Notice (as defined below) during the last four (4) years of the initial
Lease Term, Tenant shall not have such right of first offer unless Tenant
concurrently delivers to Landlord with Tenant's Election Notice (as defined
below) Tenant's Exercise Notice exercising the extension option contained in the
Extension Option Rider. Tenant's right of first offer shall be on the terms and
conditions set forth in this Section 1.4 and shall be for the entire First Offer
Space, and not a
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portion thereof unless a portion thereof becomes available for
lease prior to the expiration or earlier termination of the LPC Lease due to a
downsizing or reduction of space leased by the tenant under the LPC Lease. In
the event that only a portion of the First Offer Space becomes available for
lease, Tenant's right of first offer shall continue as to the remainder of the
First Offer Space, when such remainder becomes available on the terms and
conditions set forth in this Section 1.4.
1.4.2 First Offer Notice. During the First Offer Eligibility Period,
------------------
Landlord shall give Tenant written notice (the "First Offer Notice") when the
First Offer Space (or any portion thereof as described in the last sentence of
Section 1.4.1 above) is expected to become or has become available for lease by
Tenant during the First Offer Eligibility Period (as such availability is
reasonably determined by Landlord) pursuant to the terms of Tenant's right of
first offer, as set forth in this Section 1.4. Landlord's First Offer Notice
shall describe the First Offer Space so offered to Tenant (if only a portion of
such space becomes so available) and the rentable square footage thereof as
determined by Landlord pursuant to the BOMA Standard, and shall also set forth
the rent for the First Offer Space (the "First Offer Space Rent") which shall be
equal to the "Fair Market Rental Rate" for the First Offer Space (as that term
is defined in Section 2 of the Extension Option Rider) and the other material
terms upon which Landlord would lease the First Offer Space to Tenant; provided,
however, that (i) the lease term for the First Offer Space shall be coterminous
with the Lease Term for the original Premises (as may be extended pursuant to
the Extension Option Rider); (ii) the Security Deposit shall be increased by the
amount of the First Offer Space Rent payable by Tenant for the last month of the
term of the lease for the First Offer Space; (iii) Tenant shall deliver to
Landlord additional collateral as security for Tenant's rental and other
obligations with respect to the First Offer Space, in such amounts and of such
types (e.g., cash security deposit and/or letter of credit), if any, as shall be
determined as part of the Fair Market Rental Rate calculation; and (iv) subject
to such tenant improvement allowance granted to Tenant or tenant improvement
work to be provided by Landlord as a component of the Fair Market Rental Rate
for the First Offer Space as determined pursuant to the Extension Option Rider,
Tenant shall take the First Offer Space in its "as is" condition as of the date
of delivery of such space, and the construction of improvements in the First
Offer Space shall be Tenant's sole responsibility, with any such construction to
comply with the terms of Article 8 of this Lease.
1.4.3 Procedure for Acceptance. On or before the date which is ten
------------------------
(10) business days after Tenant's receipt of Landlord's First Offer Notice (the
"Election Date"), Tenant shall deliver written notice to Landlord ("Tenant's
Election Notice") pursuant to which Tenant shall have the one-time right to
elect either to: (i) lease the entire First Offer Space described in the First
Offer Notice at the First Offer Space Rent and upon the other terms set forth in
the First Offer Notice; (ii) lease the entire First Offer Space described in the
First Offer Notice upon the terms set forth in the First Offer Notice, except
that Tenant may concurrently object to Landlord's determination of the Fair
Market Rental Rate for the First Offer Space; provided that not objecting to
Landlord's determination of the Fair Market Rental Rate shall be deemed Tenant's
acceptance of same; or (iii) refuse to lease such First Offer Space identified
in the First Offer Notice. If Tenant does not respond in writing to Landlord's
First Offer Notice by the Election Date, Tenant shall be deemed to have elected
not to lease the First Offer Space. If Tenant elects or is deemed to have
elected not to lease the First Offer Space, then Tenant's right of first offer
set forth in this Section 1.4 shall terminate with respect to the First Offer
Space specified in the First Offer Notice and Landlord shall thereafter have the
right to lease all or any portion of the First Offer Space to anyone to whom
Landlord desires on any terms Landlord desires. If Tenant elects to lease the
First Offer Space identified in the First Offer Notice but objects to Landlord's
determination of the Fair Market Rental Rate for the First Offer Space pursuant
to clause (ii) hereinabove, then Landlord and Tenant shall use the procedure set
forth in Section 4 of the Extension Option Rider to determine the First Offer
Space Rent.
1.4.4 Amendment to Lease. If Tenant exercises its right of first
------------------
offer to lease any First Offer Space pursuant to this Section 1.4, Landlord and
Tenant shall promptly thereafter execute an amendment to this Lease covering the
First Offer Space and the lease terms thereof. Tenant must elect to exercise its
right of first offer provided herein, if at all, with respect to all of the
space offered by Landlord to Tenant in Landlord's First Offer Notice at any
particular time, and Tenant may not elect to lease only a portion thereof. The
term for the First Offer Space shall commence upon the date of delivery of the
First Offer Space to Tenant, and the Rent for the First Offer Space shall also
commence as of such date, subject, however, to any rent abatement period
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(including any period to construct tenant improvements in the First Offer Space)
provided as part of the Fair Market Rental Rate for the First Offer Space. .
1.4.5 Suspension of Right of First Offer. Notwithstanding anything
----------------------------------
in the foregoing to the contrary, at Landlord's option, and in addition to all
of Landlord's remedies under this Lease, at law or in equity, the right of first
offer herein above granted to Tenant shall not be deemed to be properly
exercised if, as of the date Tenant exercises its right of first offer or on the
scheduled commencement date for the First Offer Space, Tenant is in monetary or
material non-monetary default under this Lease beyond any applicable notice and
cure period. In addition, Tenant's right of first offer to lease the First
Offer Space is personal to the original Tenant executing this Lease ("Original
Tenant"), any Affiliate to which Tenant's entire interest in this Lease has been
assigned pursuant to Section 14.7 below and any entity which would qualify as an
Affiliate but for its failure to meet the financial criteria set forth in
Section 14.7.3, and may not be assigned or exercised, voluntarily or
involuntarily, to or by, any other person or entity other than the Original
Tenant or such Affiliate assignee, as the case may be, and shall only be
available to and exercisable by the Tenant when the Original Tenant has not
assigned this Lease or subleased any portion of the Premises to anyone other
than Tenant's Affiliate or an assignee which would have qualified as an
Affiliate but for its failure to meet the financial criteria set forth in
Section 14.7.3.
1.4.6 Broker's Commission. In the event that (i) Tenant shall
-------------------
exercise its rights under this Section 1.4 and lease any First Offer Space, (ii)
Tenant shall deliver a letter to Landlord whereby Tenant recognizes BT
Commercial as its exclusive real estate broker in connection with the lease of
such First Offer Space, and (iii) BT Commercial actively negotiates the lease of
such First Offer Space to Tenant and the amendment described in Section 1.4.4
above on behalf of Tenant, Landlord shall pay to BT Commercial, after the full
execution of the amendment described in Section 1.4.4 above, a commission equal
to the prevailing market rate for such commission pursuant to the terms and
conditions, including the timing of payment as set forth therein, of Landlord's
standard brokerage agreement to be executed by Landlord and BT Commercial as a
condition to such payment.
1.5 Expansion Space. Landlord hereby grants to Tenant the right to lease
---------------
the first (1st), second (2nd) and third (3rd) floors of Building 1
(collectively, the "Expansion Space") upon the terms and conditions set forth in
this Section 1.5 and this Lease.
1.5.1 Expansion Space/Delivery Period. Tenant shall have the one-
-------------------------------
time right (the "Expansion Option") to lease all or a portion of the Expansion
Space (except that if Tenant elects to lease any Expansion Space, it must lease
the Expansion Space in one or more full-floor increments, and if Tenant elects
to lease only one (1) floor of the Expansion Space, Tenant must lease the entire
third (3rd) floor of Building 1, and if Tenant elects to lease only two (2)
floors of the Expansion Space, Tenant must lease the entire second (2nd) and
third (3rd) floors of Building 1) at the time and in the manner set forth below
in this Section 1.5. The time period during which Landlord shall deliver the
Expansion Space to Tenant (the "Delivery Period") shall be any time during the
sixty-first (61st) month through the sixty-sixth (66th) month of the initial
Lease Term.
1.5.2 Method of Exercise/Delivery of Expansion Space. Tenant may
----------------------------------------------
request in writing (the "Request Notice") from Landlord, not more than once in
any Lease Year, or if no such Request Notice has been provided to Landlord,
Landlord shall, not later than the end of the forty-seventh (47th) month of the
initial Lease Term, send to Tenant without first receiving a Request Notice,
Landlord's then-current good faith estimate of the approximate date of delivery
during the Delivery Period of the Expansion Space (the "Scheduled Delivery
Date"). Within ten (10) business days following Landlord's receipt of the
Request Notice, Landlord shall inform Tenant of Landlord's then-current good
faith estimate of the Scheduled Delivery Date for the Expansion Space. Unless
and until Tenant has received from Landlord a notice establishing the Scheduled
Delivery Date, the Scheduled Delivery Date shall be the first day of the
Delivery Period. Tenant's option to lease the Expansion Space shall be
exercised by Tenant, if at all, in the following manner: (i) Tenant may deliver
notice to Landlord at least fourteen (14) months prior to the Scheduled Delivery
Date for such Expansion Space, stating that Tenant may be interested in
exercising its Expansion Option to lease the Expansion Space (the "Expansion
Interest Notice"); (ii) Landlord shall deliver notice (the "Expansion Rent
Notice") to Tenant at least
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thirteen (13) months prior to the Scheduled Delivery Date, which Expansion Rent
Notice shall set forth Landlord's determination of the Rent payable by Tenant
for the entire Expansion Space (and for one (1) or two (2) floors thereof if
Landlord determines such rental rate is different if Tenant leases less than all
of the Expansion Space) (the "Expansion Rent"), which shall be equal to the
"Fair Market Rental Rate" for the Expansion Space (as that term is defined in
Section 2 of the Extension Option Rider); and (iii) if Tenant wishes to exercise
Tenant's Expansion Option to lease such Expansion Space, Tenant shall, on or
before the date occurring twelve (12) months prior to the Scheduled Delivery
Date, exercise the Expansion Option by delivering written notice thereof (the
"Expansion Exercise Notice"), which notice shall designate the full floor or
full floors of the Expansion Space (if less than all) as to which Tenant is
exercising the Expansion Option, to Landlord, and upon, and concurrent with,
such exercise, Tenant may at its option, either accept Landlord's determination
of the Fair Market Rental Rate for such Expansion Space as set forth in the
Expansion Rent Notice or object to same; provided that not objecting to
Landlord's determination of such Fair Market Rental Rate shall be deemed
Tenant's acceptance of the same. If Tenant timely objects to Landlord's
determination, the parties shall follow the procedure, and the Expansion Rent
for such Expansion Space shall be determined in accordance with Section 4 of the
Extension Option Rider. Landlord shall deliver such Expansion Space to Tenant
during the Delivery Period, provided that if Landlord desires to deliver such
Expansion Space on a date other than the Scheduled Delivery Date, then Landlord
may do so upon notice to Tenant (the "Fixed Date Notice"), provided that such
delivery date (the "Fixed Delivery Date") is within the Delivery Period and is
no earlier than sixty (60) days following the date of Landlord's Fixed Date
Notice to Tenant.
1.5.3 Construction in Expansion Space. Subject to any tenant
-------------------------------
improvement allowance granted to Tenant or tenant improvement work to be
provided by Landlord as a component of the Fair Market Rental Rate for the
Expansion Space as determined pursuant to Section 2 of the Extension Option
Rider, Tenant shall take the Expansion Space in its "as-is" condition as of the
date of delivery of such space, and the construction of improvements in the
Expansion Space shall be Tenant's sole responsibility, with any such
construction to comply with the terms of Article 8 of this Lease.
1.5.4 Amendment to Lease. If Tenant timely exercises Tenant's
------------------
Expansion Option as set forth herein, Landlord and Tenant shall promptly
thereafter execute an amendment to this Lease memorializing Tenant's lease for
such Expansion Space upon the terms and conditions set forth in this Section
1.5. The term for the Expansion Space shall commence upon the date of delivery
of the Expansion Space to Tenant (the "Expansion Commencement Date") and
terminate coterminous with the termination of the Lease Term, as such may be
extended pursuant to the Extension Option Rider, and the Rent for the Expansion
Space shall also commence as of the Expansion Commencement Date, subject,
however, to any rent abatement period (including any period to construct tenant
improvements in the Expansion Space) provided as part of the Fair Market Rental
Rate for the Expansion Space.
1.5.5 Suspension of Expansion Option. Notwithstanding anything to
------------------------------
the contrary contained in this Section 1.5, Tenant's Expansion Option contained
in this Section 1.5 is personal to the Original Tenant, any Affiliate to which
Tenant's entire interest in this Lease had been assigned pursuant to Section
14.7 below and an entity which would qualify as an Affiliate but for its failure
to meet the financial criteria set forth in Section 14.7.3, and may not be
assigned or exercised, voluntarily or involuntarily, to or by, any other person
or entity other than the Original Tenant or such Affiliate assignee or an
assignee which would have qualified as an Affiliate but for its failure to meet
the financial criteria set forth in Section 14.7.3, as the case may be, and
shall only be available to and exercisable by the Tenant when the Original
Tenant has not assigned this Lease or subleased any portion of the Premises to
anyone other than Tenant's Affiliate or an assignee which would have qualified
as an Affiliate of Tenant except for such assignee's failure to meet the
financial criteria set forth in Section 14.7.3. In addition, at Landlord's
option, and in addition to all of Landlord's remedies under this Lease, at law
or in equity, Tenant shall not have the right to lease the Expansion Space, as
provided in this Section 1.5, if, as of the date of the attempted exercise of
the Expansion Option by Tenant, or as of the scheduled date of delivery of such
Expansion Space to Tenant, Tenant is in monetary default or material non-
monetary default under this Lease beyond any applicable notice and cure periods.
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1.5.6 Broker's Commission. In the event that (i) Tenant shall
-------------------
exercise Tenant's Expansion Option and lease the Expansion Space pursuant to
this Section 1.5, (ii) Tenant shall deliver to Landlord a letter whereby Tenant
recognizes BT Commercial as its exclusive real estate broker in connection with
the lease of such Expansion Space, and (iii) BT Commercial actively negotiates
the lease of such Expansion Space to Tenant and the amendment described in
Section 1.5.4 above on behalf of Tenant, Landlord shall pay to BT Commercial,
after the full execution of the amendment described in Section 1.5.4 above, a
commission equal to the prevailing market rate for such commission pursuant to
the terms and conditions, including the timing of payment as set forth therein,
of Landlord's standard brokerage agreement to be executed by Landlord and BT
Commercial as a condition to such payment.
ARTICLE 2
LEASE TERM
The terms and provisions of this Lease shall be effective as of the date of
this Lease except for the provisions of this Lease relating to the payment of
Rent. The term of this Lease (the "Lease Term") shall be as set forth in
Section 7.1 of the Summary and shall commence on the date (the "Lease
Commencement Date") set forth in Section 7.2 of the Summary subject, however, to
the terms of Section 5 of the Tenant Work Letter, and shall terminate on the
date (the "Lease Expiration Date") set forth in Section 7.3 of the Summary,
unless this Lease is sooner terminated as hereinafter provided or extended
pursuant to the Extension Option Rider attached to this Lease. For purposes of
this Lease, the term "Lease Year" shall mean each consecutive twelve (12) month
period during the Lease Term, provided that the last Lease Year shall end on the
Lease Expiration Date. Promptly following the Lease Commencement Date, Landlord
shall execute and deliver to Tenant an amendment in the form as set forth in
Exhibit C, attached hereto, which amendment Tenant shall execute and return to
- ---------
Landlord within five (5) days after receipt thereof.
ARTICLE 3
BASE RENT
Tenant shall pay, without notice or demand, to Landlord or Landlord's agent
at the management office of the Real Property, or at such other place as
Landlord may from time to time designate in writing, in currency, by wire
transfer or a check for currency which, at the time of payment, is legal tender
for private or public debts in the United States of America, base rent ("Base
Rent") as set forth in Section 8 of the Summary, payable in equal monthly
installments as set forth in Section 8 of the Summary in advance on or before
the first day of each and every month during the Lease Term, without any setoff
or deduction except as otherwise expressly provided in this Lease. The Base
Rent for the first full month of the Lease Term shall be paid on or before
January 15, 1999. If any rental payment date (including the Lease Commencement
Date) falls on a day of the month other than the first day of such month or if
any rental payment is for a period which is shorter than one month, then the
rental for any such fractional month shall be a proportionate amount of a full
calendar month's rental based on the proportion that the number of days in such
fractional month bears to the number of days in the calendar month during which
such fractional month occurs. All other payments or adjustments required to be
made under the terms of this Lease that require proration on a time basis shall
be prorated on the same basis.
ARTICLE 4
ADDITIONAL RENT
4.1 Additional Rent. In addition to paying the Base Rent specified in
---------------
Article 3 of this Lease, but subject to the abatement provisions of Section
4.1.1 below, Tenant shall pay Landlord as additional rent (i) "Tenant's Building
1 Share" of the annual "Direct Expenses" (as those terms are defined in Sections
4.2.7 and 4.2.2 of this Lease, respectively) allocated to Building 1 pursuant to
Section 4.3.3 and (ii) "Tenant's Building 2 Share" (as such term is defined in
Section 4.2.7 of this Lease) of the annual Direct Expenses allocated to Building
2 pursuant to Section 4.3.3. Tenant's Building 1 Share and Tenant's Building 2
Share shall hereafter collectively be referred to as "Tenant's Share." Such
additional rent, together with any and all other amounts
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payable by Tenant to Landlord pursuant to the terms of this Lease, shall be
hereinafter collectively referred to as the "Additional Rent." The Base Rent and
Additional Rent are herein collectively referred to as the "Rent." All amounts
due under this Article 4 as Additional Rent shall be payable for the same
periods and in the same manner, time and place as the Base Rent. Without
limitation on other obligations of Tenant which shall survive the expiration of
the Lease Term, the obligations of Tenant to pay the Additional Rent provided
for in this Article 4 shall survive the expiration of the Lease Term.
4.1.1 Abatement of Tenant's Share. Notwithstanding the foregoing,
---------------------------
Tenant shall not be required to pay: (i) thirty-five percent (35%) of the
monthly installment of Tenant's Share of Direct Expenses which are otherwise
payable for the first (1st), second (2nd) and third (3rd) months of the initial
Lease Term, (ii) twenty-four percent (24%) of the monthly installment of
Tenant's Share of Direct Expenses which are otherwise payable for the fourth
(4th), fifth (5th) and sixth (6th) months of the initial Lease Term and (iii)
twelve percent (12%) of the monthly installment of Tenant's Share of Direct
Expenses which are otherwise payable for the seventh (7th), eighth (8th) and
ninth (9th) months of the initial Lease Term. Such abatement shall be based
initially on the monthly installment of Tenant's Share of Estimated Expenses (as
defined in Section 4.3 below) and thereafter reconciled based on Tenant's Share
of the annualized Actual Expenses (as defined in Section 4.3 below).
Notwithstanding such abatement, Tenant shall remain obligated to pay all of its
other monetary obligations under this Lease, as and when such payments are due.
4.2 Definitions. As used in this Article 4, the following terms shall
-----------
have the meanings hereinafter set forth:
4.2.1 "Calendar Year" shall mean each calendar year in which any
portion of the Lease Term falls, through and including the calendar year in
which the Lease Term expires.
4.2.2 "Direct Expenses" shall mean "Operating Expenses" and "Tax
Expenses."
4.2.3 "Expense Year" shall mean each Calendar Year, provided that
Landlord, upon notice to Tenant, may change the Expense Year from time to time
to any other twelve (12) consecutive-month period, and, in the event of any such
change, Tenant's Share of Direct Expenses shall be equitably adjusted for any
Expense Year involved in any such change.
4.2.4 "Operating Expenses" shall mean all expenses, costs and amounts
of every kind and nature which Landlord shall pay during any Expense Year
because of or in connection with the ownership, management, maintenance, repair,
replacement, restoration or operation of the Real Property, including, without
limitation, any amounts paid for (i) the cost of supplying all utilities
(excluding the cost of electricity consumed in the Premises and the premises of
other tenants of the Buildings since Tenant is separately paying for the cost of
electricity consumed in the Premises pursuant to Section 6.1.2 below and, with
respect to the Operating Expenses allocated to Building 2 pursuant to Section
4.3.3 below, excluding the cost of water consumed in Building 2 since Tenant is
separately paying for the cost of water consumed in Building 2 pursuant to
Section 6.1.3 below), the cost of operating, maintaining, repairing, renovating
and managing the utility systems, mechanical systems, sanitary and storm
drainage systems, and any escalator and/or elevator systems, and the cost of
supplies and equipment and maintenance and service contracts in connection
therewith; (ii) the cost of licenses, certificates, permits and inspections and
the cost of contesting the validity or applicability of any governmental
enactments which may affect Operating Expenses, and the costs incurred in
connection with the implementation and operation of a transportation system
management program or similar program required by law; (iii) the cost of
insurance carried by Landlord, in such amounts as Landlord may reasonably
determine or as may be required by any mortgagees or the lessor of any
underlying or ground lease affecting the Real Property; (iv) the cost of
landscaping, relamping, and all supplies, tools, equipment and materials used in
the operation, repair and maintenance of the Real Property; (v) the cost of
parking area repair, restoration, and maintenance, including, but not limited
to, resurfacing, repainting, restriping, and cleaning; (vi) fees, charges and
other costs, including consulting fees, legal fees and accounting fees, of all
contractors engaged by Landlord or otherwise reasonably incurred by Landlord in
connection with the management, operation, maintenance and repair of the Real
Property; (vii) any equipment rental agreements or management agreements
(including the cost of any management fee and the fair rental value of
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any office space provided thereunder); (viii) wages, salaries and other
compensation and benefits of all persons engaged in the operation, management,
maintenance or security of the Real Property, and employer's Social Security
taxes, unemployment taxes or insurance, and any other taxes which may be levied
on such wages, salaries, compensation and benefits; provided, that if any
employees of Landlord provide services for more than one project of Landlord,
then a prorated portion of such employees' wages, benefits and taxes shall be
included in Operating Expenses based on the portion of their working time
devoted to the Real Property; (ix) payments under any easement, license,
operating agreement, declaration, restrictive covenant, underlying or ground
lease (excluding rent), or instrument pertaining to the sharing of costs by the
Real Property; (x) operation, repair, maintenance and replacement of all
"Systems and Equipment," as that term is defined in Section 4.2.5 of this Lease,
and components thereof; (xi) the cost of janitorial service, alarm and security
service, window cleaning, trash removal, replacement of wall and floor
coverings, ceiling tiles and fixtures in lobbies, corridors, restrooms and other
common or public areas or facilities, maintenance and replacement of curbs and
walkways, repair to roofs and re-roofing; (xii) amortization (including interest
on the unamortized cost) of the cost of acquiring or the rental expense of
personal property used in the maintenance, operation and repair of the Real
Property; and (xiii) the cost of any capital alterations, capital additions,
capital repairs and capital improvements (I) which are intended as a labor-
saving device or to effect other economies in the operation or maintenance of
the Real Property, (II) made to the Real Property after the Lease Commencement
Date that are required under any governmental law or regulation not in effect on
the Lease Commencement Date, or (III) which are reasonably determined by
Landlord to be reasonably required to maintain the functional character of the
Real Property as a first-class office building project; provided, however, that
such cost shall be amortized (including interest on the unamortized cost at a
rate equal to the floating commercial loan rate announced from time to time by
Bank of America, a national banking association, or its successor, at its prime
rate, plus one percent (1%) per annum) over its useful life as Landlord shall
reasonably determine. If Landlord is not furnishing any particular work or
service (the cost of which, if performed by Landlord, would be included in
Operating Expenses) to a tenant who has undertaken to perform such work or
service in lieu of the performance thereof by Landlord, Operating Expenses shall
be deemed to be increased by an amount equal to the additional Operating
Expenses which would reasonably have been incurred during such period by
Landlord if it had at its own expense furnished such work or service to such
tenant. If the Buildings are not fully occupied during all or a portion of any
Expense Year, Landlord shall make an appropriate adjustment to the variable
components of Operating Expenses for such year or applicable portion thereof,
employing sound accounting and management principles, to determine the amount of
Operating Expenses that would have been paid had such Buildings been fully
occupied; and the amount so determined shall be deemed to have been the amount
of Operating Expenses for such year, or applicable portion thereof. Landlord
shall have the right, from time to time, to equitably allocate some or all of
the Operating Expenses between the Buildings and/or among different tenants of
the Real Property (the "Cost Pools"). Such Cost Pools may include, but shall not
be limited to, the office space tenants and retail space tenants, if any, and/or
a building or buildings in the Real Property.
4.2.4.1 Notwithstanding the foregoing, for purposes of this
Lease, Operating Expenses shall not include the following:
(a) leasing commissions;
(b) expenses which relate to the preparation of
rental space for a tenant;
(c) depreciation, interest and principal payments on
mortgages, and other debt costs, if any, except as specifically included in
Sections 4.2.4(xii) and (xiii) above;
(d) costs of correcting defects in, or significant
design error relating to, the initial design or construction of the Buildings;
(e) advertising and promotional expenditures;
(f) costs of any items (including, but not limited
to, costs incurred by Landlord for the repair of damage to the Buildings for
items which are reimbursable under any contractor, manufacturer or supplier
warranty) to the extent Landlord receives
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reimbursement from insurance or condemnation proceeds or from a contractor,
manufacturer, supplier or any other third party (other than reimbursement by
tenants pursuant to the Operating Expenses pass-through provisions of their
leases); such proceeds shall be credited to Operating Expenses in the year in
which received, except that any deductible amount under any insurance policy
shall be included within Operating Expenses;
(g) the expense of services provided to other tenants
in the Buildings which are made available to Tenant at cost or for which Tenant
is separately charged and collected;
(h) costs and legal expenses relating to negotiating
or enforcing leases;
(i) the wages and benefits of any employee who does
not devote substantially all of his or her employed time to the operation and
management of the Buildings or Real Property unless such wages and benefits are
prorated to reflect time spent on operating and managing the Buildings and Real
Property vis-a-vis time spent on matters unrelated to operating and managing the
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Buildings and Real Property;
(j) compensation (including benefits) of any employee
of Landlord above the grade of Building manager or Building engineer;
(k) costs of capital additions, capital alterations,
capital repairs or capital improvements, except those set forth in Section
4.2.4(xiii) above, and except as provided in Section 4.2.4.1(q) below;
(l) rentals and other related expenses for leasing
heating, ventilation and air conditioning systems, elevators, or other items
(except when needed in connection with normal repairs and maintenance of the
Buildings and/or to an ameliorate an emergency condition in the Buildings) which
if purchased, rather than rented, would constitute a capital improvement not
included in Operating Expenses pursuant to this Lease;
(m) costs and overhead and profit increment paid to
Landlord or to subsidiaries or affiliates of Landlord for goods and/or services
in the Buildings to the extent the same exceeds typical costs and overhead and
profit increment of such goods and/or services rendered by qualified
unaffiliated third parties on a competitive basis;
(n) any costs for which Landlord has been reimbursed
or receives a credit, refund or discount;
(o) costs of signs (other than the Building
directories) in or on the Buildings identifying the owner of the Buildings or
other tenants' signs;
(p) costs of Landlord's earthquake insurance and
flood insurance premiums in excess of those generally being charged to
institutional owners of other first class office buildings in San Mateo County,
California ("Comparable Buildings") for such insurance;
(q) costs of capital repairs to the extent that such
repairs are necessary as a result of a casualty, except for commercially
reasonable deductible amounts not exceeding deductible amounts ordinarily
obtained by institutional owners of Comparable Buildings (such deductible
amounts shall be amortized [including interest on the unamortized cost at a rate
equal to the floating commercial loan rate announced from time to time by Bank
of America, a national banking association, or its successor, at its prime rate,
plus one percent (1%) per annum] over the useful life of the item(s) being
repaired, as reasonably determined by Landlord);
(r) costs of cleanup, removal and/or remediation of
any Hazardous Materials (as such term is defined in Article 5 below) in, on or
under the Real Property required to comply with Environmental Laws which are
incurred as a result of (A) the introduction by Landlord or any tenant of the
Real Property of any such Hazardous Materials in, on or under the Real Property
in violation of Environmental Laws in effect at the time of such
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introduction, or (B) as a result of the presence of Hazardous Materials in, on,
or under the Real Property as of the date Landlord delivers to Tenant the Base
Shell and Core in the Access Condition (as such terms are defined in Section 1
of the Tenant Work Letter), to the extent such Hazardous Materials are in
violation of Environmental Laws in effect as of such date;
(s) any costs expressly excluded from Operating
Expenses elsewhere in this Lease; or
(t) any other expenses which are not specifically
identified herein as being included in Operating Expenses, where such expenses
would not normally be treated as a cost of operation (to be reimbursed by
tenants) by landlords of Comparable Buildings.
Landlord agrees that since the purpose of Operating Expenses and the
gross-up provision described above is to allow Landlord to require Tenant to pay
for the Operating Expenses attributable to the Premises, Landlord agrees that
(a) Landlord will not collect or be entitled to collect Operating Expenses from
all of its tenants in an amount which is in excess of one hundred percent (100%)
of the Operating Expenses actually paid by Landlord in connection with the
operation of the Buildings and the Real Property and (b) Landlord shall make no
profit from the collection of Operating Expenses from the tenants of the
Buildings.
4.2.5 "Systems and Equipment" shall mean any plant, machinery,
transformers, duct work, cable, wires, and other equipment, facilities, and
systems designed to supply heat, ventilation, air conditioning and humidity or
any other services or utilities, or comprising or serving as any component or
portion of the electrical, gas, steam, plumbing, sprinkler, communications,
alarm, security, or fire/life safety systems or equipment, or any other
mechanical, electrical, electronic, computer or other systems or equipment which
serve either or both of the Buildings in whole or in part.
4.2.6 "Tax Expenses" shall mean all federal, state, county, or local
governmental or municipal taxes, fees, charges or other impositions of every
kind and nature, whether general, special, ordinary or extraordinary,
(including, without limitation, real estate taxes, general and special
assessments, transit taxes, leasehold taxes or taxes based upon the receipt of
rent, including gross receipts or sales taxes applicable to the receipt of rent,
unless required to be paid by Tenant, personal property taxes imposed upon the
fixtures, machinery, equipment, apparatus, systems and equipment, appurtenances,
furniture and other personal property used in connection with the Real
Property), which Landlord shall pay during any Expense Year because of or in
connection with the ownership, leasing and operation of the Real Property or
Landlord's interest therein. For purposes of this Lease, Tax Expenses shall be
calculated as if the tenant improvements in the Buildings were fully constructed
and the Real Property, the Buildings and all tenant improvements in the
Buildings were fully assessed for real estate tax purposes.
4.2.6.1 Tax Expenses shall include, without limitation:
(i) Any tax on Landlord's rent, right to rent or
other income from the Real Property or as against Landlord's business of leasing
any of the Real Property;
(ii) Any assessment, tax, fee, levy or charge in
addition to, or in substitution, partially or totally, of any assessment, tax,
fee, levy or charge previously included within the definition of real property
tax, it being acknowledged by Tenant and Landlord that Proposition 13 was
adopted by the voters of the State of California in the June 1978 election
("Proposition 13") and that assessments, taxes, fees, levies and charges may be
imposed by governmental agencies for such services as fire protection, street,
sidewalk and road maintenance, refuse removal and for other governmental
services formerly provided without charge to property owners or occupants. It is
the intention of Tenant and Landlord that all such new and increased
assessments, taxes, fees, levies, and charges and all similar assessments,
taxes, fees, levies and charges be included within the definition of Tax
Expenses for purposes of this Lease;
(iii) Any assessment, tax, fee, levy, or charge
allocable to or measured by the area of the Premises or the rent payable
hereunder, including, without limitation, any gross income tax upon or with
respect to the possession, leasing, operating, management, maintenance,
alteration, repair, use or occupancy by Tenant of the Premises, or any portion
thereof;
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(iv) Any assessment, tax, fee, levy or charge, upon
this transaction or any document to which Tenant is a party, creating or
transferring an interest or an estate in the Premises; and
(v) Any assessment, tax, fee, levy or charge which
is attributable to or imposed with respect to the entitlements Landlord obtained
to originally construct the Project or to accomplish any future office building
or other non-common area expansion of the Project.
4.2.6.2 Any expenses incurred by Landlord in attempting to
protest, reduce or minimize Tax Expenses shall be included in Tax Expenses in
the Expense Year such expenses are paid. If Tax Expenses for any period during
the Lease Term or any extension thereof are increased after payment thereof by
Landlord for any reason, including, without limitation, error or reassessment by
applicable governmental or municipal authorities, Tenant shall pay Landlord upon
demand Tenant's Share of such increased Tax Expenses.
4.2.6.3 Notwithstanding anything to the contrary contained in
this Section 4.2.6, there shall be excluded from Tax Expenses (i) all excess
profits taxes, franchise taxes, gift taxes, capital stock taxes, inheritance and
succession taxes, estate taxes, federal and state income taxes, and other taxes
to the extent applicable to Landlord's general or net income (as opposed to
rents, receipts or income attributable to operations at the Real Property), (ii)
any items included as Operating Expenses, and (iii) any items paid by Tenant
under Section 4.4 of this Lease.
4.2.7 "Tenant's Building 1 Share" shall mean the percentage set forth
in Section 9.1 of the Summary. Tenant's Building 1 Share was calculated by
dividing the number of rentable square feet of the portion of the Premises
located in Building 1 by the total rentable square feet in Building 1. In the
event either the rentable square feet of the portion of the Premises located in
Building 1 and/or the total rentable square feet of Building 1 is changed,
Tenant's Building 1 Share shall be appropriately adjusted, and, as to the
Expense Year in which such change occurs, Tenant's Building 1 Share for such
year shall be determined on the basis of the number of days during such Expense
Year that each such Tenant's Building 1 Share was in effect.
4.2.8 "Tenant's Building 2 Share" shall mean the percentage set forth
in Section 9.2 of the Summary. Tenant's Building 2 Share was calculated by
dividing the number of rentable square feet of the portion of the Premises
located in Building 2 by the total rentable square feet in Building 2. Since
Tenant is leasing all of the rentable square feet of Building 2, Tenant's
Building 2 Share equals 100% and shall not be subject to adjustment.
4.3 Calculation and Payment of Additional Rent.
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4.3.1 Statement of Estimated Direct Expenses. Prior to that date
--------------------------------------
which is thirty (30) days prior to the first day of a new Expense Year, Landlord
shall endeavor to give Tenant a yearly expense estimate statement (the "Estimate
Statement") which shall set forth Landlord's reasonable estimate (the
"Estimate") of what the total amount of Direct Expenses for the new Expense Year
shall be (the "Estimated Expenses"). The failure of Landlord to timely furnish
the Estimate Statement for any Expense Year shall not preclude Landlord from
enforcing its rights under this Article 4. Subject to the abatement provisions
of Section 4.1.1 above, Tenant shall pay Tenant's Share of the Estimated
Expenses for each such Expense Year, in monthly installments of one-twelfth
(1/12) thereof on the first day of each calendar month during such Expense Year;
provided, however, if such Estimate Statement is delivered to Tenant after the
start of such new Expense Year, Tenant shall pay to Landlord, with its next
installment of Base Rent due, a fraction of the Estimated Expenses for the then-
current Expense Year (reduced by any amounts paid pursuant to the last sentence
of this Section 4.3.1). Such fraction shall have as its numerator the number of
months which have elapsed in such current Expense Year to the month of such
payment, both months inclusive, and shall have twelve (12) as its denominator.
If at any time Landlord determines that Direct Expenses for an Expense Year are
projected to vary from the then Estimated Expenses for such Expense Year,
Landlord may, by notice to Tenant, revise such Estimated Expenses, and Tenant's
monthly installments for the remainder of such Expense Year shall be adjusted so
that by the end of such Expense Year Tenant shall have paid to Landlord Tenant's
Share of the revised Estimated Expenses for such Expense Year. Until a new
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Estimate Statement is furnished, Tenant shall pay monthly, with the monthly Base
Rent installments, an amount equal to one-twelfth (1/12) of Tenant's Share of
the Estimated Expenses set forth in the previous Estimate Statement delivered by
Landlord to Tenant.
4.3.2 Payment. Following the end of each Expense Year, Landlord
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shall give to Tenant a statement (the "Statement") which shall state the Direct
Expenses actually incurred or accrued for such preceding Expense Year ("Actual
Expenses"), and the amount of the Estimated Expenses paid by Tenant for such
preceding Expense Year, and shall indicate the amount, if any, of the difference
between the Actual Expenses and the Estimated Expenses (the "Excess") for such
Expense Year. If an Excess is present, subject to the abatement provisions of
Section 4.1.1 above, Tenant shall pay, within thirty (30) days after receipt of
said Statement, the full amount of the Excess for such Expense Year. If any
Statement reflects that Tenant has overpaid Tenant's Share of Direct Expenses
for such Expense Year, Landlord shall, at its option either credit such
overpayment toward Tenant's next rent payment(s) under this Lease, or remit to
Tenant with such applicable Statement the amount of the overpayment. Even
though the Lease Term has expired and Tenant has vacated the Leased Premises,
when the final determination is made of Tenant's Share of the Direct Expenses
for the Expense Year in which this Lease terminates, if an Excess is present,
Tenant shall immediately pay to Landlord an amount as calculated pursuant to the
provisions of Section 4.3.2 of this Lease. Landlord shall endeavor to deliver
the applicable Statement to Tenant within 120 days after the end of the Expense
Year in question, but the failure of Landlord to furnish such Statement within
such 120 day period shall not prejudice Landlord from enforcing its rights under
this Article 4; provided, however, Landlord's failure to provide Tenant with a
Statement for a particular Expense Year within two (2) years after the end of
the Expense Year in question, shall constitute a waiver of Landlord's right to
collect any Excess payable for such Expense Year; provided further, however,
that such limitation on Landlord's ability to collect any Excess as a result of
any late delivery of such Statement shall not preclude Landlord from modifying
any Statement once such Statement is timely delivered, as provided hereinabove,
to correct any errors or reflect any new information received by Landlord with
respect to the Direct Expenses shown on such Statement (including, without
limitation, as a result of any new or supplemental tax bills issued by the
applicable taxing authority or any audit conducted by Tenant or any other tenant
of the Real Property), so long as Landlord delivers such revised Statement to
Tenant by no later than the earlier of (i) two (2) years after Landlord becomes
aware of such errors or receives such new information or (ii) two (2) years
after the end of the Expense Year to which such modification would apply. In
the event that any such revised Statement so delivered shows that an additional
Excess is present, then Tenant shall pay to Landlord, within thirty (30) days of
receipt of the revised Statement, the amount of the additional Excess. If any
such revised Statement reflects that Tenant has overpaid Tenant's Share of
Direct Expenses for such Expense Year, Landlord shall, at its option either
credit such overpayment toward Tenant's next rent payment(s) under this Lease,
or remit to Tenant with such applicable revised Statement the amount of the
overpayment. The provisions of this Section 4.3.2 shall survive the expiration
or earlier termination of the Lease Term.
4.3.3 Allocation of Direct Expenses to Building 1 and Building 2.
----------------------------------------------------------
The parties acknowledge that the Buildings are a part of a multi-building
project consisting of Building 1 and Building 2 and that the costs and expenses
incurred in connection with the Real Property (i.e., the Direct Expenses) shall
be allocated between Building 1 and Building 2. Accordingly, as set forth in
Sections 4.1 and 4.2 above, Direct Expenses are determined annually for the Real
Property as a whole, and a portion of the Direct Expenses, which portion shall
be determined by Landlord on an equitable basis, shall be allocated to Building
1, and such portion so allocated shall be the amount of Direct Expenses payable
with respect to Building 1 upon which Tenant's Building 1 Share shall be
calculated, and the other portion of the Direct Expenses, which portion shall be
determined by Landlord on an equitable basis, shall be allocated to Building 2.
Such portion of the Direct Expenses allocated to Building 1 shall include all
Direct Expenses which are attributable solely to Building 1 (such as, for
example, maintenance and repairs to Building 1 and utilities for Building 1),
and an equitable portion of the Direct Expenses attributable to the Real
Property as a whole (such as, for example, insurance, Tax Expenses and parking
area maintenance and repairs). Such portion of the Direct Expenses allocated to
Building 2 (such as, for example, maintenance and repairs to Building 2 and
utilities for Building 2) shall include all Direct Expenses which are
attributable solely to Building 2, and an equitable portion of the Direct
Expenses attributable to the Real Property as a whole.
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4.4 Taxes and Other Charges for Which Tenant Is Directly Responsible.
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Tenant shall reimburse Landlord upon demand for any and all taxes or assessments
required to be paid by Landlord (except to the extent included in Tax Expenses
by Landlord), excluding state, local and federal personal or corporate income
taxes measured by the net income of Landlord from all sources and estate and
inheritance taxes, whether or not now customary or within the contemplation of
the parties hereto, when:
4.4.1 Said taxes are measured by or reasonably attributable to the
cost or value of Tenant's equipment, furniture, fixtures and other personal
property located in the Premises, or by the cost or value of any leasehold
improvements made in or to the Premises by or for Tenant, to the extent the cost
or value of such leasehold improvements exceeds the cost or value of a building
standard build-out, regardless of whether title to such improvements shall be
vested in Tenant or Landlord;
4.4.2 Said taxes are assessed upon or with respect to the possession,
leasing, operation, management, maintenance, alteration, repair, use or
occupancy by Tenant of the Premises or any portion of the Real Property
(including the Parking Facilities); or
4.4.3 Said taxes are assessed upon this transaction or any document
to which Tenant is a party creating or transferring an interest or an estate in
the Premises.
4.5 Books and Records. Landlord shall maintain books and records, or make
-----------------
available such books and records, in San Mateo and/or San Francisco Counties in
accordance with sound accounting and management practices, reflecting the Direct
Expenses. Landlord shall maintain such books and records for the Direct
Expenses for each Expense Year for the entirety of the period which ends on the
earlier to occur of two (2) years following Landlord's delivery to Tenant of
each such Statement or one (1) year as to the Statement pertaining to the final
Expense Year.
4.6 Audit Rights. In the event Tenant disputes the amount of the Direct
------------
Expenses set forth in the Statement for the particular Expense Year delivered by
Landlord to Tenant pursuant to Section 4.3.2 above, Tenant shall have the right,
at Tenant's cost, after reasonable notice to Landlord, to have Tenant's
authorized employees inspect, at Landlord's office in San Mateo and San
Francisco Counties during normal business hours, Landlord's books, records and
supporting documents concerning the Direct Expenses set forth in such Statement;
provided, however, Tenant shall have no right to conduct such inspection, have
an audit performed by the Accountant as described below, or object to or
otherwise dispute the amount of the Direct Expenses set forth in any such
Statement unless Tenant notifies Landlord of such objection and dispute,
completes such inspection, and has the Accountant commence and complete such
audit within two (2) years immediately following Landlord's delivery of the
particular Statement in question (the "Review Period"); provided, further, that
notwithstanding any such timely objection, dispute, inspection, and/or audit,
and as a condition precedent to Tenant's exercise of its right of objection,
dispute, inspection and/or audit as set forth in this Section 4.6, Tenant shall
not be permitted to withhold payment of, and Tenant shall timely pay to
Landlord, the full amounts as required by the provisions of this Article 4 in
accordance with such Statement. However, such payment may be made under protest
pending the outcome of any audit which may be performed by the Accountant as
described below. In connection with any such inspection by Tenant, Landlord and
Tenant shall reasonably cooperate with each other so that such inspection can be
performed pursuant to a mutually acceptable schedule, in an expeditious manner
and without undue interference with Landlord's operation and management of the
Real Property. If after such inspection and/or request for documentation,
Tenant still disputes the amount of the Direct Expenses set forth in the
Statement, Tenant shall have the right, within the Review Period, to cause an
independent certified public accountant (which is not paid on a commission or
contingency basis) mutually approved by Landlord and Tenant (the "Accountant")
to complete an audit of Landlord's books and records to determine the proper
amount of the Direct Expenses incurred and amounts payable by Tenant for the
Expense Year which is the subject of such Statement. Such audit by the
Accountant shall be final and binding upon Landlord and Tenant. If Landlord and
Tenant cannot mutually agree as to the identity of the Accountant within thirty
(30) days after Tenant notifies Landlord that Tenant desires an audit to be
performed, then the Accountant shall be of the "Big 5" accounting firms (which
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is not paid on a commission or contingency basis), as selected by Tenant and
reasonably approved by Landlord. If such audit reveals that Landlord has over-
charged Tenant, then within thirty (30) days after the results of such audit are
made available to
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Landlord, Landlord shall reimburse to Tenant the amount of such over-charge,
together with interest on the amount of the over-charge at the Interest Rate (as
defined in Article 25 of this Lease). If the audit reveals that the Tenant was
under-charged, then within thirty (30) days after the results of such audit are
made available to Tenant, Tenant shall reimburse to Landlord the amount of such
under-charge. Tenant agrees to pay the cost of such audit unless it is
subsequently determined that Landlord's original Statement which was the subject
of such audit overstated Direct Expenses by four percent (4%) or more of the
actual Direct Expenses which was the subject of such audit. The payment by
Tenant of any amounts pursuant to this Article 4 shall not preclude Tenant from
questioning, during the Review Period, the correctness of the particular
Statement in question provided by Landlord, but the failure of Tenant to object
thereto, conduct and complete its inspection and have the Accountant conduct the
audit as described above prior to the expiration of the Review Period for such
Statement shall be conclusively deemed Tenant's approval of the Statement in
question and the amount of Direct Expenses shown thereon. If following Tenant's
delivery to Landlord of a written request to make Landlord's books and records
regarding the Direct Expenses reasonably available to Tenant and/or the
Accountant to conduct any such inspection and/or audit described above in this
Section 4.6, Landlord fails to make Landlord's books reasonably available for
such purposes during Landlord's normal business hours, and such failure
continues for one (1) business day after Tenant notifies Landlord thereof, and
such failure actually prevents Tenant from completing its inspection and/or the
Accountant from completing its audit within the Review Period, then the Review
Period shall be extended one (1) day for each such day that Tenant and/or the
Accountant, as the case may be, is so prevented from accessing such books and
records.
ARTICLE 5
USE OF PREMISES
Tenant shall use the Premises solely for general office and administrative
purposes and ancillary office uses reasonably related thereto (including,
without limitation, electronic commerce, research and development and product
support) consistent with the character of the Real Property as a first-class,
multi-tenant office building project, and Tenant shall not use or permit the
Premises to be used for any other purpose or purposes whatsoever. Tenant
further covenants and agrees that it shall not use, or suffer or permit any
person or persons to use, the Premises or any part thereof for any use or
purpose contrary to the provisions of Exhibit D, attached hereto, or in
---------
violation of the laws of the United States of America, the state in which the
Real Property is located, or the ordinances, regulations or requirements of the
local municipal or county governing body or other lawful authorities having
jurisdiction over the Real Property. Tenant shall comply with all recorded
covenants, conditions, and restrictions, and the provisions of all ground or
underlying leases, affecting the Real Property as of the date of execution of
this Lease. Tenant shall also comply with all recorded covenants, conditions,
and restrictions, and the provisions of all ground or underlying leases
affecting the Real Property and executed after the date of execution of this
Lease provided that such covenants, conditions and restrictions and leases do
not, as reasonably determined by Tenant, materially restrict Tenant in Tenant's
use of the Premises or materially increase Tenant's obligations or adversely
affect Tenant's rights under this Lease. (In the event that Tenant shall engage
outside counsel to determine whether such covenants, conditions and restrictions
and leases materially restrict Tenant in Tenant's use of the Premises or
materially increase Tenant's obligations or adversely affect Tenant's rights
under this Lease, Landlord shall reimburse Tenant for the reasonable attorneys'
fees that Tenant incurs in connection therewith, but in no event in excess of
Five Thousand Dollars ($5,000.00).) Tenant shall not use or allow another
person or entity to use any part of the Premises for the storage, use,
treatment, manufacture or sale of Hazardous Material (as defined in Section 1.3
above). Landlord acknowledges, however, that Tenant will maintain products in
the Premises which are incidental to the operation of its general office use,
including, without limitation, photocopy supplies, secretarial supplies and
limited janitorial supplies, which products contain chemicals which are
categorized as Hazardous Materials. Landlord agrees that the use of such
products in the Premises in the manner in which such products are designed to be
used and in compliance with applicable laws shall not be a violation by Tenant
of this Article 5.
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ARTICLE 6
SERVICES AND UTILITIES
6.1 Standard Tenant Services. Landlord shall provide the following
------------------------
services on all days during the Lease Term in a first-class manner, unless
otherwise stated below. Unless otherwise provided below, such services shall be
supplied in a manner consistent with other Comparable Buildings.
6.1.1 Subject to reasonable changes implemented by Landlord (which,
with respect to such changes Landlord implements for Building 2 only, Tenant
shall have the right to reasonably approve same in advance of their
implementation) and to all governmental rules, regulations and guidelines
applicable thereto, Landlord shall provide heating and air conditioning when
necessary for normal comfort for normal office use (i) in the portion of the
Premises located in Building 2 at all times, and (ii) in the portion of the
Premises located in Building 1 from Monday through Friday, during the period
from 7:00 a.m. to 6:00 p.m. and on Saturday, during the period from 7:00 a.m. to
12:00 p.m., except for the date of observation of New Year's Day, Presidents'
Day, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, Christmas Day
and other nationally recognized holidays designated by Landlord (collectively,
the "Holidays"); provided, however, that with respect to Tenant's use of the
heating and air conditioning in the portion of the Premises located in Building
2 after the hours set forth in clause (ii) of this Section 6.1.1 (which hours
may be changed to any other hours requested by Tenant in connection with
Tenant's use of the heating and air conditioning of the portion of the Premises
located in Building 2, subject to Landlord's reasonable ability to make such
change, to the extent that Tenant provides Landlord with thirty (30) days'
advance written notice of Tenant's request for such change and Tenant's request
does not exceed sixty (60) hours per week), (A) the supply of heating and air
conditioning shall not be automatic but shall be subject to Tenant's control and
Tenant shall be responsible for turning the heating and air conditioning on and
off and (B) Tenant shall pay to Landlord within thirty (30) days after billing
and on a hourly basis, the actual costs incurred by Landlord, without profit or
markup, for the increased wear and tear on the existing heating and air
conditioning equipment located in Building 2 caused by use thereof in excess of
sixty (60) hours per week which such hourly cost Landlord shall from time to
time reasonably establish. All such payments by Tenant shall be used to
establish reserves for repairs to and replacements of the heating and air
conditioning equipment serving Building 2. Tenant shall pay the cost of the
electricity Tenant consumes in connection with such after-hours heating and air
conditioning pursuant to Section 6.1.2 below.
6.1.2 Landlord shall provide adequate electrical wiring and
facilities and power for normal general office use as determined by Landlord.
Tenant shall pay directly to Landlord, within thirty (30) days after demand and
as additional rent under this Lease (and not as part of the Operating Expenses),
the cost of all electricity provided to and/or consumed in the Premises
(including normal and excess consumption), which electricity shall be separately
metered, at Tenant's cost. Such electricity shall be provided by a provider of
electricity which Landlord shall select in its sole discretion; provided,
however, Landlord shall not unreasonably withhold its approval of Tenant's
request to switch to other licensed, first-class, financially capable and
properly insured electricity service providers for Building 2 (and with respect
to Building 1 if Tenant leases from Landlord more than 50% of Building 1) who
provide electricity to Comparable Buildings at lower rates without materially
diminishing the reliability of electric service (an "Alternative Provider"). At
Landlord's option, the cost of such electricity usage shall be billed directly
by the electricity provider to Tenant, and Tenant shall pay such costs to such
provider as and when due. Tenant shall bear the cost of replacement of lamps,
starters and ballasts for lighting fixtures within the Premises. In the event
that Landlord approves Tenant's request to switch to an Alternative Provider,
(i) all expenses reasonably incurred by Landlord in connection with such switch
(after deducting any corresponding savings to Landlord therefrom) shall be paid
for by Tenant, (ii) such Alternative Provider shall comply with all reasonable
rules, regulations and conditions imposed by Landlord in connection with the
provision of electricity to the Buildings by an Alternative Provider and (iii)
Landlord's approval of an Alternative Provider shall not be deemed any kind of
representation or warranty by Landlord, including, without limitation, as to the
suitability or competence of the Alternative Provider.
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6.1.3 Landlord shall provide city water from the regular building
outlets for drinking, lavatory and toilet purposes, and for use in kitchen and
other eating areas within the Premises, the cost of which with respect to the
portion of the Premises located in Building 1 shall be included in Operating
Expenses. With respect to Building 2, Tenant shall pay directly to Landlord,
within thirty (30) days after demand and as additional rent under this Lease
(and not as part of the Operating Expenses), the cost of all water provided to
and/or consumed in Building 2 (including normal and excess consumption), which
water shall be separately metered at Tenant's cost; at Landlord's option, the
cost of such water for Building 2 shall be billed directly by the water provider
to Tenant, and Tenant shall pay such costs to such provider as and when due.
(See Rule No. 16 in Exhibit E regarding restrictions on cooking in kitchen and
other eating areas)
6.1.4 Landlord shall provide janitorial services five (5) days per
week, except the date of observation of the Holidays, in and about the Premises
and window washing services in a manner consistent with other Comparable
Buildings.
6.1.5 Landlord shall provide nonexclusive automatic passenger
elevator service at all times, except that with respect to Building 2 such
elevator service shall be exclusive except that Landlord and its employees,
agents and contractors shall have the right to use such elevators for purposes
reasonably related to the performance of Landlord's obligations and exercise of
Landlord's rights under this Lease.
6.1.6 Landlord shall provide nonexclusive freight elevator service
subject to scheduling by Landlord, except that with respect to Building 2 such
elevator service shall be exclusive except that Landlord and its employees,
agents and contractors shall have the right to use such elevators for purposes
reasonably related to the performance of Landlord's obligations and exercise of
Landlord's rights under this Lease.
6.2 Overstandard Tenant Use. Tenant shall not, without Landlord's prior
-----------------------
written consent, (i) use heat-generating machines, machines other than normal
fractional horsepower office machines, or equipment or lighting other than
building standard lights in the Premises, which may affect the temperature
otherwise maintained by the air conditioning system, or (ii) increase the water
normally furnished for the portion of the Premises in Building 1 by Landlord
pursuant to the terms of Section 6.1 of this Lease. In addition, Tenant shall
not use electricity in the Premises in excess of the capacity of the electricity
feeders and risers serving the Premises. With respect to Building 1, if Tenant
uses water in excess of that supplied by Landlord pursuant to Section 6.1.3 of
this Lease, Tenant shall pay to Landlord, within thirty (30) days after billing,
the actual cost of water consumed in the portion of the Premises located in
Building 1, together with the Equipment Costs (as such term is defined below),
and Landlord may install devices to separately meter any excess use of water,
and in such event Tenant shall pay the increased cost directly to Landlord,
including the cost of such additional metering devices within thirty (30) days
after demand therefor. If Tenant uses heating or air conditioning in excess of
the quantities to be provided by Landlord for normal office use as set forth in
Section 6.1.1 above, then in addition (but not in duplication of the after-hours
cost described in Section 6.1.1 above) to the costs payable by Tenant to
Landlord pursuant to Sections 6.1.1 and 6.1.2 above, Tenant shall pay to
Landlord, within thirty (30) days after billing, the actual cost incurred by
Landlord without profit or markup of the following: (A) the cost of the
installation, operation, and maintenance of equipment which is installed in
order to supply such excess consumption and (B) the cost of the increased wear
and tear on existing equipment caused by such excess consumption (the "Equipment
Costs"). If Tenant desires to use heat, ventilation or air conditioning in the
portion of the Premises located in Building 1 during hours other than those for
which Landlord is obligated to supply such utilities pursuant to the terms of
Section 6.1 of this Lease, (x) Tenant shall give Landlord such prior notice, as
Landlord shall from time to time establish as appropriate, of Tenant's desired
use (y) Landlord shall supply such utilities to Tenant at such hourly cost to
Tenant as Landlord shall from time to time establish which such hourly cost
shall be the actual cost incurred by Landlord to supply such utilities on an
hourly basis without profit or mark-up and (z) Tenant shall pay such cost to
Landlord as Additional Rent within thirty (30) days after billing.
6.3 Interruption of Use. Tenant agrees that Landlord shall not be liable
-------------------
for damages, by abatement of Rent (except as provided in Section 6.5 below) or
otherwise, for failure to furnish or delay in furnishing any service (including
telephone and telecommunication services), or for any diminution in the quality
or quantity thereof, when such failure or delay or diminution is
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occasioned, in whole or in part, by repairs, replacements, or improvements, by
any strike, lockout or other labor trouble, by inability to secure electricity,
gas, water, or other fuel at the Buildings or Real Property after reasonable
effort to do so, by any accident or casualty whatsoever, by act or default of
Tenant or other parties, or by any other cause beyond Landlord's reasonable
control; and such failures or delays or diminution shall never be deemed to
constitute an eviction or disturbance of Tenant's use and possession of the
Premises or relieve Tenant from paying Rent (except as provided in Section 6.5
below) or performing any of its obligations under this Lease. Furthermore,
except as expressly provided in Section 10.1 below, Landlord shall not be liable
under any circumstances for a loss of, or injury to, property or for injury to,
or interference with, Tenant's business, including, without limitation, loss of
profits, however occurring, through or in connection with or incidental to a
failure to furnish any of the services or utilities as set forth in this
Article 6.
6.4 Additional Services. Provided that Landlord can provide such services
-------------------
(i) at a competitive price, (ii) at a comparable level of quality and (iii)
within a comparable period of time (as compared to third party providers of such
services to Comparable Buildings), Landlord shall also have the exclusive right,
but not the obligation, to provide any additional services which may be required
by Tenant, including, without limitation, locksmithing, lamp replacement,
additional janitorial service, and additional repairs and maintenance, provided
that Tenant shall pay to Landlord upon billing, the sum of all costs to Landlord
of such additional services plus a reasonable administration fee. Charges for
any service for which Tenant is required to pay from time to time hereunder
shall be deemed Additional Rent hereunder, and shall be billed on a monthly
basis. In the event that Landlord fails to meet any of the three (3) criteria
set forth in the first clause of the first sentence of this Section 6.4, then
Tenant shall have the right to select a third party which provides such services
to Comparable Buildings, subject to Landlord's reasonable approval.
6.5 Abatement of Rent When Tenant Is Prevented From Using Premises. In
----------------------------------------------- --------------
the event that Tenant is prevented from using, and does not use, the Premises or
any portion thereof, for five (5) consecutive business days (the "Eligibility
Period") as a result of (i) any construction, repair, maintenance or alteration
performed by Landlord after the Lease Commencement Date and required to be
performed by Landlord under this Lease or permitted pursuant to Section 29.30
below, or (ii) any failure to provide to the Premises any of the essential
utilities and services required to be provided in Sections 6.1.1 or 6.1.2 above,
(iii) any failure to provide access to the Premises, or (iv) because of the
presence of Hazardous Materials in, on or around the Building, the Premises or
the Real Property which were not caused or introduced by Tenant or Tenant's
agents, employees, licensees or invitees, and which Hazardous Materials pose a
material and significant health risk to occupants of the Premises as determined
by applicable governmental authorities pursuant to applicable Environmental Laws
by written notice delivered to Landlord and Tenant, which notice specifically
prohibits occupancy of the Premises (or portions thereof) as a result of such
Hazardous Materials, then Tenant's obligation to pay Base Rent and Direct
Expenses shall be abated or reduced, as the case may be, from and after the
first (1st) day following the Eligibility Period and continuing until such time
that Tenant continues to be so prevented from using, and does not use, the
Premises or a portion thereof, in the proportion that the rentable square feet
of the portion of the Premises that Tenant is prevented from using, and does not
use, bears to the total rentable square feet of the Premises. To the extent
Tenant shall be entitled to abatement of rent because of a damage or destruction
pursuant to Article 11 or a taking pursuant to Article 13, then the Eligibility
Period shall not be applicable. Notwithstanding anything to the contrary set
forth in this Lease, in the event that Tenant is prevented from using, and does
not use, the Premises or any portion thereof, for one hundred eighty (180)
consecutive days or for a total of two hundred (200) days in any consecutive
nine (9) month period as a result of the matters described in clauses (i)
through (iv) of this Section 6.5, then Tenant shall have the right to terminate
this Lease by delivering to Landlord written termination notice within five (5)
days after the end of such one hundred eighty (180) day (or two hundred (200)
day) period; provided, however, Tenant shall not have such termination right if
any of such events described in clauses (i) through (iv) of this Section 6.5 are
caused by a taking or condemnation described in Article 13 or a casualty damage
described in Article 11, as Tenant's termination rights for such taking,
condemnation and casualty events are expressly provided in and are governed by
Articles 13 and 11 of this Lease, respectively.
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ARTICLE 7
REPAIRS
7.1 Tenant's Repairs. Subject to Landlord's repair obligations in Section
----------------
7.2 and to the provisions of Articles 11 and 13 below, Tenant shall, at Tenant's
own expense, keep the Premises, including all improvements, fixtures and
furnishings therein, in good order, repair and condition at all times during the
Lease Term. In addition, Tenant shall, at Tenant's own expense but subject to
the prior approval of Landlord, and within any reasonable period of time
specified by Landlord, promptly and adequately repair all damage to the Premises
and replace or repair all damaged or broken fixtures and appurtenances; provided
however, that, at Landlord's option, or if Tenant fails to make such repairs
within a reasonable period of time and after Landlord has notified Tenant of its
intention to do so, Landlord may, but need not, make such repairs and
replacements, and Tenant shall pay Landlord the cost thereof, including a
percentage of the cost thereof (to be uniformly established for the Real
Property) sufficient to reimburse Landlord for all overhead, general conditions,
fees and other costs or expenses arising from Landlord's involvement with such
repairs and replacements within thirty (30) days of being billed for same.
Landlord may, but shall not be required to, enter the Premises at all reasonable
times, and upon reasonable prior notice to Tenant (or without notice in case of
emergency), to make such repairs, alterations, improvements and additions to the
Premises or to the Buildings or to any equipment located in the Buildings as
shall be necessary or desirable in connection with the first-class management
and operation standards for the Buildings set forth herein, and/or as may be
required for Landlord to comply with the provisions of this Lease and/or as may
be required by governmental or quasi-governmental authority or court order or
decree. Landlord shall use commercially reasonable efforts to minimize
interference with Tenant's use of and access to the Premises during Landlord's
entry into the Premises to perform such work pursuant to the foregoing
provisions of this Section 7.1.
7.2 Landlord's Repairs. Anything contained in Section 7.1 above to the
------------------
contrary notwithstanding, Landlord shall repair and maintain the structural
portions of the Buildings, including the basic plumbing, heating, ventilating,
air conditioning and electrical systems serving the Buildings (except that in no
event shall Landlord be required to repair Tenant's raised floors, supplemental
heating, ventilation and air conditioning systems and any other systems and
equipment contained in Tenant's "clean room", computer rooms or other special
areas which shall be Tenant's responsibility to repair at Tenant's sole cost and
expense); provided, however, if such Landlord-required maintenance and repairs
are caused in part or in whole by the act, neglect, fault of or omission of any
duty by Tenant, its agents, servants, employees or invitees, Tenant shall pay to
Landlord as additional rent, the reasonable cost of such maintenance and repairs
to the extent such cost is not covered by Landlord's insurance obtained pursuant
to Section 10.2 of this Lease. Landlord shall not be liable for any failure to
make any such repairs or to perform any maintenance obligation of Landlord.
There shall be no abatement of rent (except as provided in Section 6.5 above)
and no liability of Landlord by reason of any injury to or interference with
Tenant's business arising from the making of any repairs, alterations or
improvements in or to any portion of the Buildings or the Premises or in or to
fixtures, appurtenances and equipment therein. Subject to Section 7.3 below,
Tenant hereby waives and releases its right to make repairs at Landlord's
expense under Sections 1941 and 1942 of the California Civil Code; or under any
similar law, statute, or ordinance now or hereafter in effect.
7.3 Tenant's Self-Help Rights. Notwithstanding anything to the contrary
-------------------------
set forth in this Article 7, if Tenant provides written notice to Landlord of
the need for repairs and/or maintenance which are Landlord's obligation to
perform under Section 7.2 above, and Landlord fails to undertake such repairs
and/or maintenance within a reasonable period of time, given the circumstances,
after receipt of such notice (but in no event earlier than ten (10) days after
receipt of such notice), then Tenant may proceed to undertake such repairs
and/or maintenance upon delivery of an additional three (3) business day notice
to Landlord that Tenant is taking such required action. If such repairs and/or
maintenance were required under the terms of this Lease to be performed by
Landlord, then Tenant shall be entitled to reimbursement by Landlord of Tenant's
reasonable costs and expenses in performing such maintenance and/or repairs.
Such reimbursement shall be made within thirty (30) days after Landlord's
receipt of invoice of such costs and expenses, and if Landlord fails to so
reimburse Tenant within such 30-day period, then Tenant shall be entitled to
deduct from Rent payable by Tenant under this Lease the amount of
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such invoice together with interest which shall have accrued on the amount of
such invoice during the period from and after Tenant's delivery of such invoice
to Landlord through and including the date Landlord delivers to the payment to
Tenant, at the Interest Rate; provided, however, that notwithstanding the
foregoing to the contrary, if (i) Landlord delivers to Tenant within such three
(3) business day period described above, a written objection to Tenant's right
to receive any such reimbursement based upon Landlord's claim that such action
did not have to be taken by Landlord pursuant to the terms of this Lease, or
(ii) Landlord delivers to Tenant, within thirty (30) days after receipt of
Tenant's invoice, a written objection to the payment of such invoice based upon
Landlord's claim that such charges are excessive (in which case, Landlord shall
reimburse Tenant, within such 30-day period, the amount Landlord contends would
not be excessive), then Tenant shall not be entitled to such reimbursement or
deduction from Rent, but Tenant, as its sole remedy, may proceed to institute
legal proceedings to determine and collect the amount, if any, of such
reimbursement. In the event Tenant prevails in such legal proceedings and
receives a monetary judgment against Landlord, then Landlord shall pay such
judgment to Tenant within thirty (30) days of date such monetary judgment is
entered. If such monetary judgment is not so paid, then, notwithstanding any
contrary provision of this Lease, Tenant shall be entitled to deduct from Rent
payable under this Lease the amount of such monetary judgment together with
interest which shall have accrued on such monetary judgment during the period
from and after the day after the date such monetary judgment was received
through and including the date that Tenant deducts from Rent the amount of such
monetary judgment, at the Interest Rate. In the event Tenant undertakes such
repairs and/or maintenance, and such work will affect the Systems and Equipment,
any structural portions of the Buildings, and/or the exterior appearance of the
Buildings, Tenant shall use only those unrelated third party contractors used by
Landlord in the Buildings for such work unless such contractors are unwilling or
unable to perform such work at competitive prices, in which event Tenant may
utilize the services of any other qualified contractor which normally and
regularly performs similar work in Comparable Buildings. Tenant shall comply
with the other terms and conditions of this Lease if Tenant takes the required
action, except that Tenant is not required to obtain Landlord's consent for such
repairs.
ARTICLE 8
ADDITIONS AND ALTERATIONS
8.1 Landlord's Consent to Alterations. Tenant may not make any
---------------------------------
improvements, alterations, additions or changes to the Premises (collectively,
the "Alterations") without first procuring the prior written consent of Landlord
to such Alterations, which consent shall be requested by Tenant not less than
thirty (30) days prior to the commencement thereof. Tenant shall pay for all
overhead, general conditions, fees and other costs and expenses of the
Alterations, and shall pay to Landlord a Landlord supervision fee of four
percent (4%) of the cost of the Alterations. The supervision fee described in
the immediately preceding sentence shall also apply to the initial build out by
or for Tenant of the Expansion Space, if any, and the First Offer Space, if any.
Notwithstanding anything to the contrary contained in this Section 8.1, Tenant
may make non-structural alterations, additions or improvements to the interior
of the Premises (collectively, the "Acceptable Changes") without Landlord's
consent, provided that (i) Tenant delivers to Landlord written notice of such
Acceptable Changes at least ten (10) days prior to the commencement thereof,
(ii) the aggregate cost of all such Acceptable Changes during any twelve (12)
consecutive month period does not exceed Fifty Thousand Dollars ($50,000.00),
(iii) such Acceptable Changes shall be performed by or on behalf of Tenant in
compliance with the other provisions of this Article 8, (iv) such Acceptable
Changes do not require the issuance of a building permit or other governmental
approval, (v) such Acceptable Changes do not affect any Systems and Equipment
and cannot be seen from outside the Premises, and (vi) such Acceptable Changes
shall be performed by qualified contractors and subcontractors which normally
and regularly perform similar work in Comparable Buildings. The construction of
the initial improvements to the Premises (and the Landlord supervision fee
therefor) shall be governed by the terms of the Tenant Work Letter and not the
terms of this Article 8.
8.2 Manner of Construction. Landlord may impose, as a condition of its
----------------------
consent to all Alterations or repairs of the Premises or about the Premises,
such commercially reasonable requirements as Landlord may deem desirable,
including, but not limited to, the requirement that Tenant utilize for such
purposes only contractors, materials, mechanics and materialmen reasonably
approved by Landlord, except that Landlord may designate the contractors and
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<PAGE>
subcontractors to perform all work affecting the structural components of the
Buildings or the Systems and Equipment provided such contractors and
subcontractors are unrelated to Landlord and agree to perform such work at
competitive prices and pursuant to Tenant's reasonable scheduling requirements.
Tenant shall construct such Alterations and perform such repairs in conformance
with any and all applicable rules and regulations of any federal, state, county
or municipal code or ordinance and pursuant to a valid building permit, issued
by the city in which the Real Property is located, in conformance with
Landlord's reasonable, non-discriminatory construction rules and regulations.
Landlord's approval of the plans, specifications and working drawings for
Tenant's Alterations shall create no responsibility or liability on the part of
Landlord for their completeness, design sufficiency, or compliance with all
laws, rules and regulations of governmental agencies or authorities. All work
with respect to any Alterations must be done in a good and workmanlike manner
and diligently prosecuted to completion to the end that the Premises shall at
all times be a complete unit except during the period of work. In performing
the work of any such Alterations, Tenant shall have the work performed in such
manner as not to unreasonably obstruct access to the Buildings or Real Property
or the common areas for any other tenant of the Real Property, and as not to
obstruct the business of Landlord or other tenants in the Real Property, or
interfere with the labor force working on the Real Property. In the event that
Tenant makes any Alterations, Tenant agrees to carry "Builder's All Risk"
insurance in an amount approved by Landlord covering the construction of such
Alterations, and such other insurance as Landlord may require, it being
understood and agreed that all of such Alterations shall be insured by Tenant
pursuant to Article 10 of this Lease immediately upon completion thereof. In
addition, with respect to any Alterations to be made in Building 1 which cost in
excess of $50,000.00 and with respect to any Alterations to be made in Building
2 which cost in excess of $200,000.00, Landlord may, in its discretion, require
Tenant to obtain a lien and completion bond or some alternate form of security
satisfactory to Landlord in an amount sufficient to ensure the lien-free
completion of such Alterations and naming Landlord as a co-obligee. Upon
completion of any Alterations, Tenant agrees to cause a Notice of Completion to
be recorded in the office of the Recorder of the county in which the Real
Property is located in accordance with Section 3093 of the Civil Code of the
State of California or any successor statute, and Tenant shall deliver to the
management office for the Real Property a reproducible copy of the "as built"
drawings of the Alterations.
8.3 Landlord's Property. All Alterations, improvements and/or fixtures
-------------------
which may be installed or placed in or about the Premises, from time to time,
shall be at the sole cost of Tenant and shall become the property of Landlord
upon expiration of the Lease Term or earlier termination of this Lease;
provided, however, (i) Tenant may not remove any Tenant Improvements or
Alterations paid for by Landlord with Landlord's own funds or out of any tenant
improvement allowances provided by Landlord (except any such removal made in
connection with Alterations approved by Landlord), and (ii) Landlord may, by
written notice delivered to Tenant concurrently with Landlord's approval of the
final working drawings for any Alterations, identify those Alterations which
Landlord will require Tenant to remove at the expiration or earlier termination
of this Lease; provided further, however, that Tenant shall in no event be
required to remove (A) any of the initial Tenant Improvements constructed
pursuant to the Tenant Work Letter, or any comparable improvements made to ready
the First Offer Space or Expansion Space for Tenant's initial occupancy, other
than any raised floors, internal stairwells, vaults and other similar special
use tenant improvements (collectively, "Special Use Improvements"), or (B) any
Alterations, except for Alterations which are Special Use Improvements or where
the same are of such specialized nature or application as to not be reasonably
suited for use by a successor occupant of the Premises. If Landlord requires
Tenant to remove any such Alterations, Tenant Improvements or comparable
improvements for the First Offer Space, if any, or Expansion Space, if any,
Tenant, at its sole cost and expense, shall remove the identified Alterations
and improvements on or before the expiration or earlier termination of this
Lease and repair any damage to the Premises caused by such removal. If Tenant
fails to complete such removal and/or to repair any damage caused by the removal
of any Alterations or improvements, Landlord may do so and may charge the cost
thereof to Tenant. Tenant hereby indemnifies and holds Landlord harmless from
any liability, cost, obligation, expense or claim of lien in any manner relating
to the installation, placement, removal or financing of any such Alterations,
improvements, fixtures and/or equipment in, on or about the Premises.
8.4 Equipment Leasing and Financing. Notwithstanding any provision of
-------------------------------
this Lease to the contrary, Tenant may enter into leases for, and/or grant
security interests in, Tenant's trade
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fixtures, equipment and personal property in the Premises pursuant to
commercially reasonable leases and/or security agreements, and Landlord shall
(i) subordinate any landlord lien rights it may have in and to such items to the
interest of the lessors and lenders therein and, in the case of trade fixtures,
waive any claim that the same are part of the Real Property by virtue of being
affixed thereto, and (ii) permit the lessors and lenders under any such leases
and security agreements to remove the leased or encumbered property upon default
by Tenant under such leases and security agreements, so long as such removal
work is performed prior to the expiration or within five (5) days after
termination of this Lease and each such party repairs any damage to the Premises
caused by such removal.
ARTICLE 9
COVENANT AGAINST LIENS
Tenant has no authority or power to cause or permit any lien or encumbrance
of any kind whatsoever, whether created by act of Tenant, operation of law or
otherwise, to attach to or be placed upon the Real Property, Buildings or
Premises, and any and all liens and encumbrances created by Tenant shall attach
to Tenant's interest only. Landlord shall have the right at all times to post
and keep posted on the Premises any notice which it deems necessary for
protection from such liens. Tenant covenants and agrees not to suffer or permit
any lien of mechanics or materialmen or others to be placed against the Real
Property, the Buildings or the Premises with respect to work or services claimed
to have been performed for or materials claimed to have been furnished to Tenant
or the Premises, and, in case of any such lien attaching or notice of any lien,
Tenant covenants and agrees to cause it to be immediately released and removed
of record. Notwithstanding anything to the contrary set forth in this Lease, in
the event that such lien is not released and removed within five (5) business
days after the date notice of such lien is delivered by Landlord to Tenant,
Landlord, at its sole option, may immediately take all action necessary to
release and remove such lien, without any duty to investigate the validity
thereof, and all sums, costs and expenses, including reasonable attorneys' fees
and costs, incurred by Landlord in connection with such lien shall be deemed
Additional Rent under this Lease and shall immediately be due and payable by
Tenant.
ARTICLE 10
INSURANCE
10.1 Indemnification and Waiver.
--------------------------
10.1.1 Tenant hereby assumes all risk of damage to property and
injury to persons, in, on, or about the Premises from any cause whatsoever and
agrees that Landlord, and its partners and subpartners, and their respective
officers, agents, property managers, servants, employees, and independent
contractors (collectively, "Landlord Parties") shall not be liable for, and are
hereby released from any responsibility for, any damage to property or injury to
persons or resulting from the loss of use thereof, which damage or injury is
sustained by Tenant or by other persons claiming through Tenant; provided,
however, that the foregoing assumption of risk and release shall not extend to
any damage or loss of property or death or injury to persons to the extent (i)
caused by Landlord Parties' gross negligence or willful misconduct and (ii) not
---
insured or required to be insured by Tenant under this Lease.
10.1.2 Tenant shall indemnify, defend, protect, and hold harmless the
Landlord Parties from any and all loss, cost, damage, expense and liability,
including without limitation court costs and reasonable attorneys' fees
(collectively, "Losses") incurred in connection with or arising from any cause
in, on or about the Premises (including, without limitation, Tenant's
installation, placement and removal of Alterations, improvements, fixtures
and/or equipment in, on or about the Premises), and any acts, omissions or
negligence of Tenant or of any person claiming by, through or under Tenant, or
of the contractors, agents, servants, employees, licensees or invitees of Tenant
or any such person, in, on or about the Premises, Buildings and Real Property;
provided, however, that the terms of the foregoing indemnity shall not apply to
(i) any Losses to the extent (A) resulting from the gross negligence or willful
misconduct of the Landlord Parties and (B) not insured or required to be insured
by Tenant under this Lease or
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(ii) any damages which Landlord is otherwise entitled to recover under Article
19 or any other provision of this Lease, resulting from Tenant's breach of its
obligations under this Lease.
10.1.3 Landlord shall, and does hereby agree to, protect, indemnify,
defend and hold Tenant harmless from all liability, costs, or expenses
(including reasonable attorneys' fees and court costs), on account of damage to
the person or property of any third party, including any other tenant in the
Real Property, to the extent (i) caused by the gross negligence or willful
misconduct by Landlord Parties and (ii) not insured or required to be insured by
---
Tenant under this Lease.
10.1.4 The provisions of this Section 10.1 shall survive the
expiration or sooner termination of this Lease.
10.2 Landlord's Insurance and Tenant's Compliance with Insurance
-----------------------------------------------------------
Requirements. Landlord shall, from and after the date hereof until the
- ------------
expiration of the Lease Term, maintain in effect the following insurance: (i)
fire and hazard "all risk" insurance (including a rental loss endorsement)
providing coverage in the event of fire, vandalism, malicious mischief and all
other risks normally covered by "all risk" policies in the area of the Building,
covering the Buildings (excluding the property required to be insured by Tenant
pursuant to Section 10.3 below) in an amount not less than one hundred percent
(100%) of the full replacement value (less reasonable deductibles) of the
Buildings, together with such other risks as Landlord may from time to time
determine (provided however, that Landlord shall have the right, but not the
obligation, to obtain earthquake and/or flood insurance); and (ii) commercial
general liability insurance or the equivalent in the amount of at least Five
Million Dollars ($5,000,000.00), against claims of bodily injury, personal
injury or property damage arising out of Landlord's operations, assumed
liabilities (including the liabilities assumed by Landlord under this Lease),
contractual liabilities, or use of the Buildings, common areas and Parking
Facilities. Such coverages may be carried under blanket insurance policies.
The insurers providing such insurance shall be licensed to do business in the
State of California and rated A-VII or better in "Best's Key Rating Guide," and
the policies of insurance with respect to property loss or damage by fire or
other casualty shall contain a waiver of subrogation as provided in Section 10.4
below. Upon written request from Tenant, but no more than one (1) time during
any Calendar Year, Landlord shall provide Tenant with evidence that Landlord is
carrying the insurance Landlord is required to maintain pursuant to this Section
10.2. Tenant shall, at Tenant's expense, comply as to the Premises with all
insurance company requirements pertaining to the use of the Premises. If
Tenant's conduct or use of the Premises causes any increase in the premium for
Landlord's insurance policies, then Tenant shall reimburse Landlord for any such
increase. Tenant, at Tenant's expense, shall comply with all rules, orders,
regulations or requirements of the American Insurance Association (formerly the
National Board of Fire Underwriters) and with any similar body where applicable
due to Tenant's Alterations or use of the Premises.
10.3 Tenant's Insurance. From and after the date (the "Insurance Start
------------------
Date") which is the earlier of (i) the date Tenant enters the Premises to
perform any work under this Lease (including, any work under the Tenant Work
Letter) or (ii) the Lease Commencement Date, and continuing thereafter
throughout the Lease Term, Tenant shall maintain the following coverages in the
following amounts.
10.3.1 Commercial General Liability Insurance covering the insured
against claims of bodily injury, personal injury and property damage arising out
of Tenant's operations, assumed liabilities or use of the Premises, including a
Broad Form Commercial General Liability endorsement covering the insuring
provisions of this Lease and the performance by Tenant of the indemnity
agreements set forth in Section 10.1 of this Lease, for limits of liability not
less than:
Bodily Injury and $5,000,000 each occurrence
Property Damage Liability $5,000,000 annual aggregate
Personal Injury Liability $5,000,000 each occurrence
$5,000,000 annual aggregate
0% Insured's participation
10.3.2 Physical Damage Insurance covering (i) all office furniture,
trade fixtures, office equipment, merchandise and all other items of Tenant's
property on the Premises installed
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by, for, or at the expense of Tenant, (ii) the Tenant Improvements, including
any Tenant Improvements which Landlord permits to be installed above the ceiling
of the Premises or below the floor of the Premises, and (iii) all other
improvements, Alterations and additions to the Premises, including any
improvements, Alterations or additions installed at Tenant's request above the
ceiling of the Premises or below the floor of the Premises. Such insurance shall
be written on an "all risks" of physical loss or damage basis, for the full
replacement cost value new without deduction for depreciation of the covered
items and in amounts that meet any co-insurance clauses of the policies of
insurance and shall include a vandalism and malicious mischief endorsement,
sprinkler leakage coverage and earthquake sprinkler leakage coverage.
10.3.3 Form of Policies. The minimum limits of policies of insurance
----------------
required to be carried by Landlord and Tenant under this Lease shall in no event
limit the liability of Tenant or Landlord under this Lease. Tenant's insurance
shall: (i) name Landlord, and any property manager and first mortgagee of
Landlord, as additional insureds; (ii) specifically cover the liability assumed
by Tenant under this Lease, including, but not limited to, Tenant's obligations
under Sections 10.1.1 and 10.1.2 of this Lease; (iii) be issued by an insurance
company having a rating of not less than A-VII in Best's Insurance Guide or
which is otherwise acceptable to Landlord and licensed to do business in the
State of California; (iv) be primary insurance as to all claims thereunder and
provide that any insurance carried by Landlord is excess and is non-contributing
with any insurance requirement of Tenant; (v) provide that said insurance shall
not be canceled or coverage changed unless thirty (30) days' prior written
notice shall have been given to Landlord and any first mortgagee or ground or
underlying lessor of Landlord; and (vi) contain a cross-liability endorsement or
severability of interest clause acceptable to Landlord. Tenant shall deliver
said policy or policies or certificates thereof to Landlord on or before the
Insurance Start Date and at least thirty (30) days before the expiration dates
thereof. In the event Tenant shall fail to procure such insurance, or to
deliver such policies or certificate, Landlord may, at its option after notice
to Tenant, procure such policies for the account of Tenant, and the cost thereof
shall be paid to Landlord as Additional Rent within five (5) days after delivery
to Tenant of bills therefor.
10.4 Subrogation. Landlord and Tenant agree to have their respective
-----------
insurance companies issuing property damage insurance waive any rights of
subrogation that such companies may have against Landlord or Tenant, as the case
may be, so long as the insurance carried by Landlord and Tenant, respectively,
is not invalidated thereby. As long as such waivers of subrogation are
contained in their respective insurance policies, Landlord and Tenant hereby
waive any right that either may have against the other on account of any loss or
damage to their respective property to the extent such loss or damage is
insurable under policies of insurance for fire and all risk coverage, theft,
public liability, or other similar insurance.
10.5 Additional Insurance Obligations. Tenant shall carry and maintain
--------------------------------
during the entire Lease Term, at Tenant's sole cost and expense, increased
amounts of the insurance required to be carried by Tenant pursuant to this
Article 10, and such other reasonable types of insurance coverage and in such
reasonable amounts covering the Premises and Tenant's operations therein, as may
be reasonably requested by Landlord; provided, however, that in no event shall
such increased coverage be in excess of that required by landlords of tenants
leasing comparable-sized space in Comparable Buildings.
10.6 Tenant's Right to Self-Insure. Notwithstanding the foregoing
-----------------------------
provisions of Section 10.3, Tenant shall have the right to comply with and
satisfy its obligations under Section 10.3.2(i) in lieu of actually obtaining
the applicable insurance policies, by acting as a self-insurer as to the
applicable insurance coverage; provided, however, that if Tenant's shareholders'
equity ceases to be equal to or greater than Fifty Million Dollars
($50,000,000.00), then during the period that Tenant's shareholders' equity
ceases to be equal to or greater than Fifty Million Dollars ($50,000,000.00)
(the "Non-Compliance Period"), all of Tenant's rights to self-insure under this
Section 10.6 shall terminate, and during the Non-Compliance Period Tenant shall
thereafter comply with all of the foregoing provisions of Section 10.3. If
Tenant acts as a self-insurer pursuant to this Section 10.6, then Tenant shall:
(i) assume all liability for, release and waive all rights of recovery against
Landlord (and Landlord's property manager and first mortgagee) for, and be
liable to Landlord (and Landlord's property manager and first mortgagee) for,
the full equivalent of insurance coverage which would have been available to
Tenant and/or Landlord (and Landlord's property manager and first mortgagee) if
the applicable insurance policy had been obtained by Tenant from a third-party
insurer, in full compliance with the provisions of
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this Article 10; and (ii) pay all amounts on behalf of Landlord and Landlord's
property manager and first mortgagee (and waive, release, protect, indemnify,
defend and hold harmless Landlord and Landlord's property manager and first
mortgagee from and against) all costs, expenses, damages, claims and losses
incurred by Landlord (and Landlord's property manager and first mortgagee) which
would have been payable or insured against by the hypothetical third-party
insurer for the benefit of Tenant and/or Landlord (and Landlord's property
manager and first mortgagee) had Tenant been insured and had Landlord (and/or
Landlord's property manager and first mortgagee) been named as an additional
insured, as applicable, under any insurance policy involved, with deemed full
waiver of subrogation in favor of Landlord (and Landlord's property manager and
first mortgagee), and with no deductible amount applicable to such policy.
ARTICLE 11
DAMAGE AND DESTRUCTION
11.1 Repair of Damage to Premises by Landlord. Tenant shall promptly
----------------------------------------
notify Landlord of any damage to the Premises resulting from fire or any other
casualty. If the Premises or any common areas of the Buildings or Real Property
serving or providing access to the Premises shall be damaged by fire or other
casualty, Landlord shall promptly and diligently, subject to reasonable delays
for insurance adjustment or other matters beyond Landlord's reasonable control,
and subject to all other terms of this Article 11, restore the Base, Shell, and
Core of the Premises and such common areas. Such restoration shall be to
substantially the same condition of the Base, Shell, and Core of the Premises
and common areas prior to the casualty, except for modifications required by
zoning and building codes and other laws, or any other modifications to the
common areas deemed desirable by Landlord provided access to the Premises and
Parking Facilities and any common restrooms serving the Premises shall not be
materially impaired thereby. Notwithstanding any other provision of this Lease,
upon the occurrence of any damage to the Premises, Tenant shall assign to
Landlord (or to any party designated by Landlord) all insurance proceeds payable
to Tenant under Tenant's insurance required under Sections 10.3.2(ii) and (iii)
of this Lease, and Landlord shall repair any injury or damage to the Tenant
Improvements and Alterations installed in the Premises and shall return such
Tenant Improvements and Alterations to their original condition; provided that
if the cost of such repair by Landlord (based on competitive pricing by all
contractors and subcontractors and without any profit mark-up or supervision
fees to Landlord) exceeds the amount of insurance proceeds received by Landlord
from Tenant's insurance carrier, as assigned by Tenant, the cost of such repairs
shall be paid by Tenant to Landlord on a progress payment basis with the first
such payment being due from Tenant after Landlord's commencement of the repair
of the damage. In connection with such repairs and replacements, Tenant shall,
prior to the commencement of construction, submit to Landlord, for Landlord's
review and approval, all plans, specifications and working drawings relating
thereto, and Landlord shall select the contractors to perform such improvement
work. Landlord shall not be liable for any inconvenience or annoyance to Tenant
or its visitors, or injury to Tenant's business resulting in any way from such
damage or the repair thereof; provided however, that if such fire or other
casualty shall have damaged the Premises or common areas necessary to Tenant's
occupancy, Landlord shall allow Tenant a proportionate abatement of Rent to the
extent Landlord is reimbursed from the proceeds of rental interruption insurance
purchased by Landlord as part of Operating Expenses, during the time and to the
extent the Premises are unfit for occupancy for the purposes permitted under
this Lease, and not occupied by Tenant as a result thereof. Landlord shall use
commercially reasonable efforts to minimize any such inconvenience or annoyance
to Tenant resulting from Landlord's repair of any damage pursuant to this
Section 11.1.
11.2 Landlord's Option to Repair. Within sixty (60) days after Landlord
---------------------------
becomes aware of such damage, Landlord shall notify Tenant in writing
("Landlord's Damage Notice") of the estimated time, in Landlord's reasonable
judgment, required to substantially complete the repairs of such damage (the
"Estimated Repair Period"). Notwithstanding the terms of Section 11.1 of this
Lease, Landlord may elect not to rebuild and/or restore the Premises and/or
Buildings and instead terminate this Lease by notifying Tenant in writing of
such termination within sixty (60) days after the date of damage, but Landlord
may so elect only if one or both of the Buildings shall be damaged by fire or
other casualty or cause, whether or not the Premises are affected, and one or
more of the following conditions is present: (i) repairs cannot in Landlord's
opinion, as set forth in Landlord's Damage Notice, reasonably be completed
within one hundred eighty (180)
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days of the date of damage (when such repairs are made without the payment of
overtime or other premiums); or (ii) the damage is not fully covered by
Landlord's insurance policies obtained or required to be obtained by Landlord
pursuant to Section 10.2 above and the cost of repairing such uninsured or
underinsured damage, including deductibles, exceeds the sum of $1,000,000, plus
$50,000.00 per each Lease Year of the Lease Term which has expired as of the
date of such casualty; provided, however, if Landlord terminates this Lease as a
result of an uninsured or underinsured casualty damage pursuant to clause (ii)
hereinabove, and within one hundred eighty (180) days after such termination,
Landlord commences repair of such damage to the Buildings and the Premises with
the intent to substantially restore such damaged portion of the Buildings and
Premises to the same condition existing immediately prior to the damage, then
Tenant shall have the right to reinstate this Lease notwithstanding such
termination by Landlord by delivering written notice of such reinstatement to
Landlord within sixty (60) days after Tenant has written notice of Landlord's
commencement of such restoration work. If (A) Landlord does not elect to
terminate this Lease pursuant to Landlord's termination right as provided above,
(B) the damage constitutes a Tenant Damage Event (as defined below), and (C) the
repair of such damage cannot, in the reasonable opinion of Landlord, as set
forth in Landlord's Damage Notice, be completed within one hundred eighty (180)
days after the date of the damage, then Tenant may elect to terminate this Lease
by delivering written notice thereof to Landlord within fifteen (15) days after
Tenant's receipt of Landlord's Damage Notice, which termination shall be
effective as of the date of such termination notice thereof to Landlord. As used
herein, a "Tenant Damage Event" shall mean damage to all or any part of the
Premises or any common areas of the Buildings providing access to the Premises
by fire or other casualty, which damage (x) is not the result of the negligence
or willful misconduct of Tenant or any of Tenant's employees, agents,
contractors, licensees or invitees, (y) substantially interferes with Tenant's
use of or access to the Premises (or use of at least twenty-five percent (25%)
of Tenant's parking spaces in the Parking Facilities, without replacement spaces
provided by Landlord within a reasonable walking distance from the Real Property
[but if the damage interferes with Tenant's use of or access to Tenant's parking
spaces in the Parking Facilities, Landlord shall implement at Landlord's cost,
and not as part of Operating Expenses, a transportation management system to
minimize such impact on Tenant]) and (z) would entitle Tenant to an abatement
---
of Rent pursuant to Section 11.1 above. In addition, in the event of a Tenant
Damage Event, and if neither Landlord nor Tenant has elected to terminate this
Lease as provided hereinabove, but Landlord fails to substantially complete the
repair and restoration of such Tenant Damage Event within the Estimated Repair
Period plus sixty (60) days, plus the number of days of delay, if any,
attributable to events of "Force Majeure," as that term is defined in Section
29.17 hereof, plus the number of days of delay, if any, as are attributable to
the acts or omissions of Tenant, then Tenant shall have an additional right to
terminate this Lease by delivering written termination notice to Landlord within
fifteen (15) days after the expiration of such period. Further, in the event
that the Premises or the Buildings are destroyed or damaged to any substantial
extent during the last twelve (12) months of the Lease Term (except that, in the
event that Tenant shall have exercised its option to renew pursuant to the
Extension Option Rider attached to this Lease, such twelve (12) month period
shall be the last twelve (12) months of the Option Term), then notwithstanding
anything contained in this Article 11, Landlord shall have the option to
terminate this Lease, and to the extent such destruction or damage constitutes a
Tenant Damage Event and the repair of same is reasonably expected by Landlord to
require more than sixty (60) days to complete, Tenant shall have the option to
terminate this Lease, by giving written termination notice to the other party of
the exercise of such option within thirty (30) days after the date of such
damage or destruction. If either Landlord or Tenant exercises any of its options
to terminate this Lease as provided above in this Section 11.2: (1) this Lease
shall cease and terminate as of the date set forth in such party's termination
notice, which termination date shall be no less than thirty (30) days and no
more than one hundred twenty (120) days after such termination notice is
delivered to the other party; provided, however, that if the termination notice
is delivered as a result of a casualty damage occurring during the last twelve
(12) months of the Lease Term, such termination date shall be no less than ten
(10) days and no more than thirty (30) days after such termination notice is
delivered to such other party; and if Landlord is the party delivering such
termination notice at any time other than during the last twelve (12) months of
the Lease Term, Tenant shall have the right to extend the termination date to a
date which is one hundred twenty (120) days after such termination notice is
delivered to Tenant if Landlord selects a termination date which is shorter than
such one hundred twenty (120) day period; (2) Tenant shall pay the Base Rent and
Additional Rent, properly apportioned up to such date of termination; and (3)
both parties hereto shall thereafter be freed and discharged of all further
obligations hereunder, except as provided for
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in provisions of this Lease which by their terms survive the expiration or
earlier termination of the Lease Term.
11.3 Waiver of Statutory Provisions. The provisions of this Lease,
------------------------------
including this Article 11, constitute an express agreement between Landlord and
Tenant with respect to any and all damage to, or destruction of, all or any part
of the Premises, the Buildings or any other portion of the Real Property, and
any statute or regulation of the state in which the Real Property is located,
including, without limitation, Sections 1932(2) and 1933(4) of the California
Civil Code, with respect to any rights or obligations concerning damage or
destruction in the absence of an express agreement between the parties, and any
other statute or regulation, now or hereafter in effect, shall have no
application to this Lease or any damage or destruction to all or any part of the
Premises, one or both of the Buildings or any other portion of the Real
Property.
ARTICLE 12
NONWAIVER
No waiver of any provision of this Lease shall be implied by any failure of
a party to enforce any remedy on account of the violation of such provision,
even if such violation shall continue or be repeated subsequently, any waiver by
a party of any provision of this Lease may only be in writing, and no express
waiver shall affect any provision other than the one specified in such waiver
and that one only for the time and in the manner specifically stated. No
receipt of monies by Landlord from Tenant after the termination of this Lease
shall in any way alter the length of the Lease Term or of Tenant's right of
possession hereunder or after the giving of any notice shall reinstate, continue
or extend the Lease Term or affect any notice given Tenant prior to the receipt
of such monies, it being agreed that after the service of notice or the
commencement of a suit or after final judgment for possession of the Premises,
Landlord may receive and collect any Rent due, and the payment of said Rent
shall not waive or affect said notice, suit or judgment.
ARTICLE 13
CONDEMNATION
13.1 Permanent Taking. If the whole or any part of the Premises, one or
----------------
both of the Buildings or the Real Property shall be taken by power of eminent
domain or condemned by any competent authority for any public or quasi-public
use or purpose, or if any adjacent property or street shall be so taken or
condemned, or reconfigured or vacated by such authority in such manner as to
require the use, reconstruction or remodeling of any part of the Premises, one
or both of the Buildings or the Real Property, or if Landlord shall grant a deed
or other instrument in lieu of such taking by eminent domain or condemnation,
Landlord shall have the option to terminate this Lease upon ninety (90) days'
notice, provided such notice is given no later than one hundred eighty (180)
days after the date of such taking, condemnation, reconfiguration, vacation,
deed or other instrument. If more than twenty-five percent (25%) of the
rentable square feet of the Premises is taken, or if access to the Premises is
substantially impaired or if the number of Tenant's parking spaces in the
Parking Facilities is reduced below the number required by the applicable Code
(as defined in the Tenant Work Letter), Tenant shall have the option to
terminate this Lease upon ninety (90) days' notice, provided such notice is
given no later than one hundred eighty (180) days after the date of such taking.
Landlord shall be entitled to receive the entire award or payment in connection
therewith, except that Tenant shall have the right to file any separate claim
available to Tenant for any taking of Tenant's personal property and fixtures
belonging to Tenant and removable by Tenant upon expiration of the Lease Term
pursuant to the terms of this Lease, and for moving expenses and interruption to
or damage to Tenant's business, so long as such claim does not diminish the
award available to Landlord, its ground lessor with respect to the Real Property
or its mortgagee, and such claim is payable separately to Tenant. All Rent
shall be apportioned as of the date of such termination, or the date of such
taking, whichever shall first occur. If any part of the Premises shall be
taken, and this Lease shall not be so terminated, the Rent shall be equitably
abated and Landlord shall at its sole expense restore the Real Property to any
architecturally complete and functional condition. Tenant hereby waives any and
all rights it might otherwise have pursuant to Section 1265.130 of the
California Code of Civil Procedure.
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13.2 Temporary Taking. Notwithstanding anything to the contrary contained
----------------
in this Article 13, in the event of a temporary taking of all or any portion of
the Premises for a period of ninety (90) days or less, then this Lease shall not
terminate but the Base Rent and the Additional Rent shall be abated for the
period of such taking in proportion to the ratio that the amount of rentable
square feet of the Premises taken bears to the total rentable square feet of the
Premises. Landlord shall be entitled to receive the entire award made in
connection with any such temporary taking.
ARTICLE 14
ASSIGNMENT AND SUBLETTING
14.1 Transfers. Except as provided in Section 14.7 below, Tenant shall
---------
not, without the prior written consent of Landlord, assign, mortgage, pledge,
hypothecate, encumber, or permit any lien to attach to, or otherwise transfer,
this Lease or any interest hereunder, permit any assignment or other such
foregoing transfer of this Lease or any interest hereunder by operation of law,
sublet the Premises or any part thereof, or permit the use of the Premises by
any persons other than Tenant and its employees (all of the foregoing are
hereinafter sometimes referred to collectively as "Transfers" and any person to
whom any Transfer is made or sought to be made is hereinafter sometimes referred
to as a "Transferee"). If Tenant shall desire Landlord's consent to any
Transfer, Tenant shall notify Landlord in writing, which notice (the "Transfer
Notice") shall include (i) the proposed effective date of the Transfer, which
shall not be less than twenty (20) days nor more than one hundred eighty (180)
days after the date of delivery of the Transfer Notice, (ii) a description of
the portion of the Premises to be transferred (the "Subject Space"), (iii) all
of the terms of the proposed Transfer and the consideration therefor, including
a calculation of the "Transfer Premium," as that term is defined in Section 14.3
below, in connection with such Transfer, the name and address of the proposed
Transferee, and, insofar as the same is then available, a copy of all existing
and/or proposed documentation pertaining to the proposed Transfer, including all
existing operative documents to be executed to evidence such Transfer or the
agreements incidental or related to such Transfer, and (iv) current financial
statements of the proposed Transferee certified by an officer, partner or owner
thereof, and any other information reasonably required by Landlord pursuant to
written notice delivered to Tenant within five (5) business days after
Landlord's receipt of the Transfer Notice, which will enable Landlord to
determine the financial responsibility, character, and reputation of the
proposed Transferee, nature of such Transferee's business and proposed use of
the Subject Space. Except as provided in Section 14.7 below, any Transfer made
without Landlord's prior written consent shall, at Landlord's option, be null,
void and of no effect, and shall, at Landlord's option, constitute a default by
Tenant under this Lease. Whether or not Landlord shall grant consent, Tenant
shall pay Landlord's reasonable legal fees (not to exceed $5,000.00 in any one
instance) incurred by Landlord, within thirty (30) days after written request by
Landlord.
14.2 Landlord's Consent. Landlord shall not unreasonably withhold its
------------------
consent to any proposed Transfer of the Subject Space to the Transferee on the
terms specified in the Transfer Notice. The parties hereby agree that it shall
be reasonable under this Lease and under any applicable law for Landlord to
withhold consent to any proposed Transfer where one or more of the following
apply, without limitation as to other reasonable grounds for withholding
consent:
14.2.1 The Transferee is of a character or reputation or engaged in a
business which is not consistent with the quality of the Buildings;
14.2.2 The Transferee intends to use the Subject Space for purposes
which are not permitted under this Lease and as to which Landlord has a
reasonable objection;
14.2.3 The Transferee is either a governmental agency or
instrumentality thereof unless Landlord has previously approved such an occupant
for other space in the Buildings;
14.2.4 The Transfer will result in more than a lawfully authorized
number of occupants per floor within the Subject Space;
14.2.5 The Transferee is not a party of reasonable financial worth
and/or financial stability in light of the responsibilities assumed by such
Transferee on the date consent is requested, taking into account Tenant's
continuing liability hereunder;
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14.2.6 The terms of the proposed Transfer will allow the Transferee
to exercise a right of renewal, right of expansion, right of first offer, or
other similar right held by Tenant (or will allow the Transferee to occupy space
leased by Tenant pursuant to any such right) except in connection with a right
of renewal assigned to a Transferee in connection with an assignment of Tenant's
entire interest in this Lease pursuant to this Article 14;
14.2.7 Either the proposed Transferee, or any person or entity which
directly or indirectly, controls, is controlled by, or is under common control
with, the proposed Transferee, (i) occupies space in one or both of the
Buildings at the time of the request for consent, unless there is no space in
the Buildings available for lease from Landlord, or (ii) is negotiating with
Landlord to lease space in one or both of the Buildings at such time; or
14.2.8 The Transfer occurs during the period from the Lease
Commencement Date until the date at least ninety-five percent (95%) of the
rentable square feet of the Buildings is leased, and the rent charged by Tenant
to such Transferee during the term of such Transfer, calculated using a present
value analysis, is less than eighty-five percent (85%) of the rent being
accepted by Landlord, at the time of such Transfer, for comparable space in the
Buildings for a comparable term, calculated using a present value analysis.
If Landlord consents to any Transfer pursuant to the terms of this Section
14.2 (and does not exercise any recapture rights Landlord may have under Section
14.4 of this Lease), Tenant may within six (6) months after Landlord's consent,
but not later than the expiration of said six-month period, enter into such
Transfer of the Premises or portion thereof, upon substantially the same terms
and conditions as are set forth in the Transfer Notice furnished by Tenant to
Landlord pursuant to Section 14.1 of this Lease, provided that if there are any
changes in the terms and conditions from those specified in the Transfer Notice
(i) such that Landlord would initially have been entitled to refuse its consent
to such Transfer under this Section 14.2, or (ii) which would cause the proposed
Transfer to be materially more favorable to the Transferee than the terms set
forth in Tenant's original Transfer Notice, Tenant shall again submit the
Transfer to Landlord for its approval, which Landlord shall grant or withhold
within five (5) business days after resubmittal by Tenant.
14.3 Transfer Premium. Except as otherwise provided in Sections 14.6 and
----------------
14.7 below, if Landlord consents to a Transfer, as a condition thereto which the
parties hereby agree is reasonable, Tenant shall pay to Landlord fifty percent
(50%) of any "Transfer Premium," as that term is defined in this Section 14.3,
received by Tenant from such Transferee. "Transfer Premium" shall mean all
rent, additional rent or other consideration payable by such Transferee in
excess of the Rent and Additional Rent payable by Tenant under this Lease on a
per rentable square foot basis if less than all of the Premises is transferred,
after deducting the reasonable expenses incurred by Tenant for (i) any changes,
alterations and improvements to the Premises in connection with the Transfer,
(ii) any brokerage commissions in connection with the Transfer, (iii) the
unamortized cost of all Alterations and any Tenant Improvements paid for by
Tenant from Tenant's own funds and not initially funded by Landlord or paid for
by Landlord out of any tenant improvement allowances, and (iv) reasonable legal
fees incurred by Tenant in negotiating the Transfer and obtaining Landlord's
consent thereto and in collecting any sums due from the Transferee
(collectively, the "Subleasing Costs"). "Transfer Premium" shall also include,
but not be limited to, key money and bonus money paid by Transferee to Tenant in
connection with such Transfer, and any payment in excess of fair market value
for services rendered by Tenant to Transferee or for assets, fixtures,
inventory, equipment, or furniture transferred by Tenant to Transferee in
connection with such Transfer.
14.4 Landlord's Option as to Subject Space. Notwithstanding anything to
-------------------------------------
the contrary contained in this Article 14, in the event Tenant contemplates a
sublease of all or a portion of the Premises located in Building 1 to any person
or entity (other than a Transfer to an Affiliate pursuant to Section 14.7
below), Tenant shall give Landlord notice (the "Intention to Transfer Notice")
of such contemplated sublease (whether or not the terms of the contemplated
sublease have been determined). The Intention to Transfer Notice shall specify
the portion of and amount of square feet of the portion of the Premises located
in Building 1 which Tenant intends to sublet (the "Contemplated Transfer
Space"), the contemplated date of commencement of the contemplated sublease (the
"Contemplated Effective Date"), and the contemplated length of the term of such
contemplated sublease, and shall specify that such Intention to Transfer Notice
is
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delivered to Landlord pursuant to this Section 14.4 in order to allow Landlord
to elect to recapture the Contemplated Transfer Space for the term set forth in
the Intention to Transfer Notice. Thereafter, Landlord shall have the option, by
giving written notice to Tenant within thirty (30) days after receipt of any
Transfer Notice, to recapture the Contemplated Transfer Space; provided,
however, such recapture right (i) shall not apply with respect to any sublease
of space in Building 2 or an assignment of Tenant's entire interest in this
Lease, (ii) shall only apply with respect to a sublease of space in Building 1
for a lease term, including renewals, which exceeds four (4) years or extends
for the remainder of the Lease Term and (iii) Landlord may only exercise such
recapture right if Landlord's purpose in doing so is to accommodate an existing
tenant in Building 1 by leasing the Contemplated Transfer Space to such tenant
after Landlord exercises such recapture right. Such recapture shall cancel and
terminate this Lease, with respect to the Contemplated Transfer Space in
Building 1 as of the date stated in the Transfer Notice as the effective date of
the proposed Transfer until the last day of the term of the Transfer as set
forth in the Transfer Notice. In the event of a recapture by Landlord, the Rent
reserved herein shall be prorated on the basis of the number of rentable square
feet retained by Tenant in proportion to the number of rentable square feet
contained in the Premises, and this Lease as so amended shall continue
thereafter in full force and effect, and upon request of either party, the
parties shall execute written confirmation of the same. If Landlord declines, or
fails to elect in a timely manner to recapture the Contemplated Transfer Space
under this Section 14.4, then, subject to the other terms of this Article 14,
for a period of six (6) months (the "Six Month Period") commencing on the last
day of such thirty (30) day period, Landlord shall not have any right to
recapture the Contemplated Transfer Space with respect to any sublease made
during the Six Month Period, provided that any such sublease is substantially on
the terms set forth in the Intention to Transfer Notice, and provided further
that any such sublease shall be subject to the remaining terms of this Article
14. If such a sublease is not so consummated within the Six Month Period (or if
a sublease is so consummated, then upon the expiration of the term of any
sublease of such Contemplated Transfer Space consummated within such Six Month
Period), Tenant shall again be required to submit a new Intention to Transfer
Notice to Landlord with respect any contemplated sublease of the Contemplated
Transfer Space (or portion thereof), as provided above in this Section 14.4.
14.5 Effect of Transfer. If Landlord consents to a Transfer, (i) the
------------------
terms and conditions of this Lease shall in no way be deemed to have been waived
or modified, (ii) such consent shall not be deemed consent to any further
Transfer by either Tenant or a Transferee, (iii) Tenant shall deliver to
Landlord, promptly after execution, an original executed copy of all
documentation pertaining to the Transfer in form reasonably acceptable to
Landlord, (iv) Tenant shall furnish upon Landlord's request a complete
statement, certified by an independent certified public accountant, or Tenant's
chief financial officer, setting forth in detail the computation of any Transfer
Premium Tenant has derived and shall derive from such Transfer, and (v) no
Transfer relating to this Lease or agreement entered into with respect thereto,
whether with or without Landlord's consent, shall relieve Tenant or any
guarantor of the Lease from liability under this Lease. Landlord or its
authorized representatives shall have the right at all reasonable times to audit
the books, records and papers of Tenant relating to any Transfer, and shall have
the right to make copies thereof. If the Transfer Premium respecting any
Transfer shall be found understated, Tenant shall, within thirty (30) days after
demand, pay the deficiency and Landlord's costs of such audit.
14.6 Additional Transfers. Except as provided in Section 14.7 below, for
--------------------
purposes of this Lease, the term "Transfer" shall also include: (i) if Tenant
is a partnership, the withdrawal or change, voluntary, involuntary or by
operation of law, of fifty percent (50%) or more of the partners, or transfer of
fifty percent (50%) or more of partnership interests, within a twelve (12)-month
period, or the dissolution of the partnership without immediate reconstitution
thereof; and (ii) if Tenant is a closely held corporation (i.e., whose stock is
not publicly held and not traded through an exchange or over the counter), (A)
the dissolution, merger, consolidation or other reorganization of Tenant, (B)
the sale or other transfer of more than an aggregate of fifty percent (50%) of
the voting shares of Tenant within a twelve (12)-month period (other than
transfer of voting shares to immediate family members by reason of gift or
death, and other then in connection with an initial public offering of Tenant's
stock), or (C) the sale, mortgage, hypothecation or pledge of more than an
aggregate of fifty percent (50%) of the value of the unencumbered assets of
Tenant within a twelve (12) month period. Notwithstanding the
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foregoing, to the extent that the Transfer is of a type described in this
Section 14.6, the terms and conditions of Sections 14.3 and 14.4 shall not apply
with respect thereto.
14.7 Affiliated Companies/Restructuring of Business Organization. The
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assignment or subletting by Tenant of all or any portion of this Lease or the
Premises to (i) a parent or subsidiary of Tenant, or (ii) any person or entity
which controls, is controlled by or under common control with Tenant, or (iii)
any entity which purchases all or substantially all of the assets of Tenant, or
(iv) any entity into which Tenant is merged or consolidated (all such persons or
entities described in (i), (ii), (iii) and (iv) being sometimes hereinafter
referred to as "Affiliates") shall not be deemed a Transfer under this Article
14, and thus shall not be subject to Landlord's recapture right in Section 14.4
or Landlord's right to receive any Transfer Premium pursuant to Section 14.3
above, provided that:
14.7.1 any such Affiliate was not formed as a subterfuge to avoid the
obligations of this Article 14;
14.7.2 Tenant gives Landlord at least ten (10) days' prior notice of
any such assignment or sublease to an Affiliate;
14.7.3 the successor of Tenant and Tenant have as of the effective
date of any such assignment or sublease a tangible net worth, in the aggregate,
computed in accordance with generally accepted accounting principles (but
excluding goodwill as an asset), which is sufficient to meet the obligations of
Tenant under this Lease and is equal to or greater than the net worth of Tenant
---
as of the date of execution of this Lease;
14.7.4 any such assignment or sublease shall be subject and
subordinate to all of the terms and provisions of this Lease, and such assignee
or sublessee shall assume, in a written document reasonably satisfactory to
Landlord and delivered to Landlord upon or prior to the effective date of such
assignment or sublease, all the obligations of Tenant under this Lease with
respect to the Subject Space which is the subject of such Transfer (other than
the amount of Base Rent payable by Tenant with respect to a sublease); and
14.7.5 Tenant and any guarantor shall remain fully liable for all
obligations to be performed by Tenant under this Lease.
Furthermore, Tenant may allow employees of companies to whom Tenant is
providing products or services, or with which Tenant is collaborating in the
development or provision of products or services, to work in the Premises
without Landlord's consent and without being deemed to have sublet any portion
of the Premises, so long as (A) such employees do not occupy more than ten
percent (10%) of the rentable square feet of the Premises, in the aggregate, at
any one time, and such space is not separately demised from the space occupied
by Tenant and (B) the number of such employees does not exceed ten percent (10%)
of the total number of persons regularly occupying the Premises.
ARTICLE 15
SURRENDER OF PREMISES; OWNERSHIP
AND REMOVAL OF TRADE FIXTURES
15.1 Surrender of Premises. No act or thing done by Landlord or any agent
---------------------
or employee of Landlord during the Lease Term shall be deemed to constitute an
acceptance by Landlord of a surrender of the Premises unless such intent is
specifically acknowledged in a writing signed by Landlord. The delivery of keys
to the Premises to Landlord or any agent or employee of Landlord shall not
constitute a surrender of the Premises or effect a termination of this Lease,
whether or not the keys are thereafter retained by Landlord, and notwithstanding
such delivery Tenant shall be entitled to the return of such keys at any
reasonable time upon request until this Lease shall have been properly
terminated. The voluntary or other surrender of this Lease by Tenant, whether
accepted by Landlord or not, or a mutual termination hereof, shall not work a
merger, and at the option of Landlord shall operate as an assignment to Landlord
of all subleases or subtenancies affecting the Premises.
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15.2 Removal of Tenant Property by Tenant. Upon the expiration of the
------------------------------------
Lease Term, or upon any earlier termination of this Lease, Tenant shall, subject
to the provisions of this Article 15, quit and surrender possession of the
Premises to Landlord in as good order and condition as when Tenant took
possession and as thereafter improved by Landlord and/or Tenant, reasonable wear
and tear and repairs, casualty damage and condemnation damage which are
specifically made the responsibility of Landlord hereunder excepted. Upon such
expiration or termination, Tenant shall, without expense to Landlord, remove or
cause to be removed from the Premises all debris and rubbish, and such items of
furniture, equipment, free-standing cabinet work, and other articles of personal
property owned by Tenant or installed or placed by Tenant at its expense in the
Premises, and such similar articles of any other persons claiming under Tenant,
as Landlord may, in its sole discretion, require to be removed, and Tenant shall
repair at its own expense all damage to the Premises and Buildings resulting
from such removal.
ARTICLE 16
HOLDING OVER
If Tenant holds over after the expiration of the Lease Term hereof, with or
without the express or implied consent of Landlord, such tenancy shall be from
month-to-month only, and shall not constitute a renewal hereof or an extension
for any further term, and in such case Base Rent shall be payable at a monthly
rate equal to: (i) for the first (1st) month of the holdover, one hundred fifty
percent (150%) of the Base Rent applicable during the last rental period of the
Lease Term under this Lease and (ii) for the remainder of the holdover period,
two hundred percent (200%) of the Base Rent applicable during the last rental
period of the Lease Term under this Lease. Such month-to-month tenancy shall be
subject to every other term, covenant and agreement contained herein. Landlord
hereby expressly reserves the right to require Tenant to surrender possession of
the Premises to Landlord as provided in this Lease upon the expiration or other
termination of this Lease. The provisions of this Article 16 shall not be
deemed to limit or constitute a waiver of any other rights or remedies of
Landlord provided herein or at law. If Tenant fails to surrender the Premises
upon the termination or expiration of this Lease, in addition to any other
liabilities to Landlord accruing therefrom, Tenant shall protect, defend,
indemnify and hold Landlord harmless from all loss, costs (including reasonable
attorneys' fees) and liability resulting from such failure, including, without
limiting the generality of the foregoing, any claims made by any succeeding
tenant founded upon such failure to surrender, and any lost profits to Landlord
resulting therefrom, but only to the extent Tenant has failed to surrender the
Premises within thirty (30) days after Landlord has notified Tenant that
Landlord has executed a letter of intent or lease with another tenant for all or
any portion of the Premises and Landlord has provided Tenant with information
concerning the length of lease term and basic rental of such letter of intent or
lease and any liability or loss Landlord may reasonably expect to incur in
connection with the delay of the delivery of the Premises to the successor
tenant. Notwithstanding anything set forth in this Article 16 to the contrary,
Tenant shall have the one-time right to extend the initial Lease Term for a
period of up to six (6) months thereafter ("Temporary Extension Term") by
delivering written notice of the exercise of such right at least one (1) year
prior to the expiration of the initial Lease Term which notice shall specify the
period of the Temporary Extension Term Tenant shall select (which period shall
be not less than one (1) month nor more than six (6) months), and provided that
all of the following conditions are satisfied: (A) Tenant shall not have
exercised its renewal rights under the Extension Option Rider; (B) at Landlord's
option, in addition to all remedies available to Landlord under this Lease, at
law or in equity, Tenant is not in monetary or material non-monetary default
under this Lease (after expiration of any applicable notice and cure period) as
of the date Tenant delivers such notice to Landlord or the commencement of the
Temporary Extension Term; and (C) such renewal right is personal to the Original
Tenant and any Affiliate to which Tenant's entire interest in this Lease has
been assigned pursuant to Section 14.7 above (and any assignee which would have
qualified as an Affiliate but for its failure to meet the financial criteria in
Section 14.7.3), and may only be exercised by the Original Tenant or such
Affiliate assignee (and not by any sublessee or other transferee of Tenant's
interest in this Lease). If Tenant timely exercises such renewal right, all of
the terms and conditions of this Lease shall apply during the Temporary
Extension Term, except that the monthly Base Rent payable by Tenant during the
Temporary Extension Term shall be equal to the greater of (1) the Fair Market
Rental Rate (as such term is defined in Section 2 of the Extension Option Rider)
for the Premises as of the commencement of the Temporary Extension Term (but
such Fair Market Rental Rate for the Temporary Extension Term
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shall be determined without regard to any economic concessions or inducements,
including tenant improvement allowances, and Landlord shall not be obligated to
provide any such concessions or inducements to Tenant for such Temporary
Extension Term); or (2) one hundred fifty percent (150%) of the monthly Base
Rent applicable during the last rental period of the initial Lease Term under
this Lease.
ARTICLE 17
ESTOPPEL CERTIFICATES
Within twenty (20) days following a request in writing by a party, the
other party shall execute and deliver to the requesting party an estoppel
certificate, which shall be substantially in the form of Exhibit E, attached
---------
hereto, (or such other form as may be required by any prospective mortgagee or
purchaser of the Project, or any portion thereof, if Landlord is the requesting
party), indicating therein any exceptions thereto that may exist at that time,
and shall also contain any other information reasonably requested by Landlord or
Landlord's mortgagee or prospective mortgagee if Landlord is the requesting
party. Failure of a party to timely execute and deliver such estoppel
certificate shall constitute an acknowledgment by such party that statements
included in the estoppel certificate are true and correct, without exception.
ARTICLE 18
SUBORDINATION
This Lease is subject and subordinate to all present and future ground or
underlying leases of the Real Property and to the lien of any mortgages or trust
deeds, now or hereafter in force against the Real Property and the Buildings, if
any, and to all renewals, extensions, modifications, consolidations and
replacements thereof, and to all advances made or hereafter to be made upon the
security of such mortgages or trust deeds, unless the holders of such mortgages
or trust deeds, or the lessors under such ground lease or underlying leases,
require in writing that this Lease be superior thereto. Notwithstanding any
contrary provision of this Article 18, a condition precedent to the
subordination of this Lease to any future mortgage, deed of trust, ground or
underlying lease is that Landlord shall obtain for the benefit of Tenant a
commercially reasonable subordination, non-disturbance and attornment agreement
from the mortgagee, beneficiary or lessor under such future instrument which
shall be the NationsBank SNDA described below with respect to the NationsBank
Deed of Trust if recorded as described below. Tenant covenants and agrees in
the event any proceedings are brought for the foreclosure of any such mortgage,
or if any ground or underlying lease is terminated, to attorn, without any
deductions or set-offs whatsoever, to the purchaser upon any such foreclosure
sale, or to the lessor of such ground or underlying lease, as the case may be,
if required to do so pursuant to any subordination, non-disturbance and
attornment agreement executed by Tenant pursuant to this Article 18, and to
recognize such purchaser or lessor as the lessor under this Lease. Tenant
shall, within five (5) days of request by Landlord, execute such further
instruments or assurances as Landlord may reasonably deem necessary to evidence
or confirm the subordination or superiority of this Lease to any such mortgages,
trust deeds, ground leases or underlying leases. Tenant waives the provisions
of any current or future statute, rule or law which may give or purport to give
Tenant any right or election to terminate or otherwise adversely affect this
Lease and the obligations of the Tenant hereunder in the event of any
foreclosure proceeding or sale. The parties acknowledge that Landlord is in the
process of obtaining financing for the Real Property from NationsBank (or the
entity resulting from the merger of NationsBank and Bank of America
("NationsBank")), which financing, if completed, will be secured by a deed of
trust encumbering the Real Property to be recorded after the date of execution
of this Lease (the "NationsBank Deed of Trust"). Tenant shall, within five (5)
days after request by Landlord (or at Landlord's option, concurrently with
Tenant's execution of this Lease) sign, notarize and deliver to Landlord a
subordination, non-disturbance and attornment agreement substantially in the
form of Exhibit G attached hereto (the "NationsBank SNDA"). Within ninety (90)
---------
days after Tenant delivers to Landlord the NationsBank SNDA executed and
notarized by Tenant, Landlord shall cause NationsBank, to execute the
NationsBank SNDA and deliver such executed NationsBank SNDA to Tenant.
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ARTICLE 19
DEFAULTS; REMEDIES
19.1 Events of Default. The occurrence of any of the following shall
-----------------
constitute a default of this Lease by Tenant:
19.1.1 Any failure by Tenant to pay any Rent or any other charge
required to be paid under this Lease, or any part thereof, within five (5) days
after written notice of delinquency; provided, however, that if Landlord has
given Tenant two (2) such delinquency notices in the preceding twelve (12) month
period, then Tenant's subsequent failure to pay any Rent or other charge when
due shall constitute a default under this Lease without requirement of any
notice or cure period; or
19.1.2 Any failure by Tenant to observe or perform any other
provision, covenant or condition of this Lease to be observed or performed by
Tenant where such failure continues for thirty (30) days after written notice
thereof from Landlord to Tenant; provided, however, that if the nature of such
default is such that the same cannot reasonably be cured within a thirty (30)
day period, Tenant shall not be deemed to be in default if it diligently
commences such cure within such period and thereafter diligently proceeds to
rectify and cure said default as soon as possible; provided, further, however,
that the maximum period for Tenant's cure of such default will not exceed two
hundred ten (210) days after Landlord's written notice of default; or
19.1.3 Abandonment or vacation of the Premises by Tenant.
Abandonment is herein defined to have the same meaning set forth in California
Civil Code Section 1951.3 (or any successor or similar statute).
19.2 Remedies Upon Default. Upon the occurrence of any event of default
---------------------
by Tenant, Landlord shall have, in addition to any other remedies available to
Landlord at law or in equity, the option to pursue any one or more of the
following remedies, each and all of which shall be cumulative and nonexclusive,
without any notice or demand whatsoever.
19.2.1 Terminate this Lease, in which event Tenant shall immediately
surrender the Premises to Landlord, and if Tenant fails to do so, Landlord may,
without prejudice to any other remedy which it may have for possession or
arrearages in rent, 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 or damages therefor;
and Landlord may recover from Tenant the following:
(i) The worth at the time of award of any unpaid rent which
has been earned at the time of such termination; plus
(ii) The worth at the time of award of the amount by which the
unpaid rent which would have been earned after termination until the time of
award exceeds the amount of such rental loss that Tenant proves could have been
reasonably avoided; plus
(iii) The worth at the time of award of the amount by which the
unpaid rent for the balance of the Lease Term after the time of award exceeds
the amount of such rental loss that Tenant proves could have been reasonably
avoided; plus
(iv) Any other amount necessary to compensate Landlord for all
the detriment proximately caused by Tenant's failure to perform its obligations
under this Lease or which in the ordinary course of things would be likely to
result therefrom, specifically including but not limited to, brokerage
commissions and advertising expenses incurred, expenses of remodeling the
Premises or any portion thereof for a new tenant, whether for the same or a
different use, and any special concessions made to obtain a new tenant; and
(v) At Landlord's election, such other amounts in addition to
or in lieu of the foregoing as may be permitted from time to time by applicable
law.
The term "rent" as used in this Section 19.2 shall be deemed to be and
to mean all sums of every nature required to be paid by Tenant pursuant to the
terms of this Lease, whether
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to Landlord or to others. As used in Paragraphs 19.2.1(i) and (ii), above, the
"worth at the time of award" shall be computed by allowing interest at the rate
set forth in Article 25 of this Lease, but in no case greater than the maximum
amount of such interest permitted by law. As used in Paragraph 19.2.1(iii)
above, the "worth at the time of award" shall be computed by discounting such
amount at the discount rate of the Federal Reserve Bank of San Francisco at the
time of award plus one percent (1%).
19.2.2 Landlord shall have the remedy described in California Civil
Code Section 1951.4 (lessor may continue lease in effect after lessee's breach
and abandonment and recover rent as it becomes due, if lessee has the right to
sublet or assign, subject only to reasonable limitations). Accordingly, if
Landlord does not elect to terminate this Lease on account of any default by
Tenant, Landlord may, from time to time, without terminating this Lease, enforce
all of its rights and remedies under this Lease, including the right to recover
all rent as it becomes due.
19.3 Sublessees of Tenant. If Landlord elects to terminate this Lease on
--------------------
account of any default by Tenant as set forth in this Article 19, Landlord shall
have the right to terminate any and all subleases, licenses, concessions or
other consensual arrangements for possession entered into by Tenant and
affecting the Premises or may, in Landlord's sole discretion, succeed to
Tenant's interest in such subleases, licenses, concessions or arrangements. In
the event of Landlord's election to succeed to Tenant's interest in any such
subleases, licenses, concessions or arrangements, Tenant shall, as of the date
of notice by Landlord of such election, have no further right to or interest in
the rent or other consideration receivable thereunder.
19.4 Form of Payment After Default. Following the occurrence of an event
-----------------------------
of default by Tenant, Landlord shall have the right to require that any or all
subsequent amounts paid by Tenant to Landlord hereunder, whether in the cure of
the default in question or otherwise, be paid in the form of cash, money order,
cashier's or certified check drawn on an institution acceptable to Landlord, or
by other means approved by Landlord, notwithstanding any prior practice of
accepting payments in any different form. Notwithstanding the foregoing, in the
event that Landlord exercises its rights under this Section 19.4 and for a
period of twelve (12) months thereafter there is no event of monetary or
material non-monetary default by Tenant, Landlord shall no longer have its
rights under this Section 19.4 until there is another occurrence of an event of
default by Tenant.
19.5 Waiver of Default. No waiver by Landlord or Tenant of any violation
-----------------
or breach of any of the terms, provisions and covenants herein contained shall
be deemed or construed to constitute a waiver of any other or later violation or
breach of the same or any other of the terms, provisions, and covenants herein
contained. Forbearance by Landlord in enforcement of one or more of the
remedies herein provided upon an event of default shall not be deemed or
construed to constitute a waiver of such default. The acceptance of any Rent
hereunder by Landlord following the occurrence of any default, whether or not
known to Landlord, shall not be deemed a waiver of any such default, except only
a default in the payment of the Rent so accepted.
19.6 Efforts to Relet. For the purposes of this Article 19, Tenant's
----------------
right to possession shall not be deemed to have been terminated by efforts of
Landlord to relet the Premises, by its acts of maintenance or preservation with
respect to the Premises, or by appointment of a receiver to protect Landlord's
interests hereunder. The foregoing enumeration is not exhaustive, but merely
illustrative of acts which may be performed by Landlord without terminating
Tenant's right to possession.
ARTICLE 20
COVENANT OF QUIET ENJOYMENT
Landlord covenants that Tenant, so long as Tenant is not in default under
this Lease and any applicable notice of such default has been delivered and any
applicable cure period has expired, shall, during the Lease Term, peaceably and
quietly have, hold and enjoy the Premises subject to the terms, covenants,
conditions, provisions and agreements hereof without interference by any persons
lawfully claiming by or through Landlord. The foregoing covenant is in lieu of
any other covenant express or implied.
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ARTICLE 21
SECURITY DEPOSIT
Concurrently with Tenant's execution of this Lease, Tenant shall deposit
with Landlord a security deposit (the "Security Deposit") in the amount set
forth in Section 10 of the Summary. The Security Deposit shall be held by
Landlord as security for the faithful performance by Tenant of all the terms,
covenants, and conditions of this Lease to be kept and performed by Tenant
during the Lease Term. If Tenant defaults with respect to any provisions of
this Lease, including, but not limited to, the provisions relating to the
payment of Rent, Landlord may, but shall not be required to, use, apply or
retain all or any part of the Security Deposit for the payment of any Rent or
any other sum in default, or for the payment of any amount that Landlord may
spend or become obligated to spend by reason of Tenant's default, or to
compensate Landlord for any other loss or damage that Landlord may suffer by
reason of Tenant's default. If any portion of the Security Deposit is so used
or applied, Tenant shall, within five (5) days after written demand therefor,
deposit cash with Landlord in an amount sufficient to restore the Security
Deposit to its original amount, and Tenant's failure to do so shall be a default
under this Lease. If Tenant shall fully and faithfully perform every provision
of this Lease to be performed by it, the Security Deposit, or any balance
thereof, shall be returned to Tenant, or, at Landlord's option, to the last
assignee of Tenant's interest hereunder, within sixty (60) days following the
expiration of the Lease Term. Tenant shall not be entitled to any interest on
the Security Deposit. Notwithstanding anything to the contrary set forth in
this Article 21, if on or before the Lease Commencement Date Tenant increases
the amount of the Letter of Credit to the amount set forth in Section 13.2 of
this Summary in the manner required pursuant to Section 1 of the Letter of
Credit Rider, then Landlord shall apply $605,488.44 of the Security Deposit to
the monthly installment(s) of Base Rent due from Tenant for the second (2nd) and
third (3rd) months of the initial Lease Term (or, if Base Rent for all or any
portion of such months has been abated as provided in Section 5.3 of the Tenant
Work Letter, for the months in which Base Rent first became due and payable
hereunder), provided that Tenant is not then in monetary or material non-
monetary default under this Lease beyond any applicable notice and cure period.
ARTICLE 22
INTENTIONALLY OMITTED
ARTICLE 23
SIGNS
23.1 Full Floor Tenants. Subject to Landlord's prior written approval,
------------------
and provided all signs are in keeping with the quality, design and style of the
Real Property, if any portion of the Premises comprises an entire floor of one
or both of the Buildings, Tenant, at its sole cost and expense, may install
identification signage anywhere on such full floor(s) of the Premises, including
the elevator lobby of such full floor(s), provided that such signs are not
visible from the exterior of either of the Buildings.
23.2 Multi-Tenant Floor Tenants. If Tenant occupies less than an entire
--------------------------
floor which is part of the Premises, Tenant's identifying signage on such floor
shall be provided by Landlord, at Tenant's sole cost and expense, and such
signage shall comply with Landlord's building standard signage program and be
subject to Landlord's approval.
23.3 Building Directory. Tenant shall be entitled to one (1) line per
------------------
each 1,000 rentable square feet of the Premises located in Building 1 on the
Building directory in Building 1 to display Tenant's name and location in such
Building. Tenant shall have the exclusive right to display Tenant's name and
location and the names of Tenant's employees on the Building directory in
Building 2.
23.4 Prohibited Signage and Other Items. Any signs, notices, logos,
----------------------------------
pictures, names or advertisements which are installed and that have not been
individually approved by Landlord may be removed without notice by Landlord at
the sole expense of Tenant. Except as provided in Section 23.5 below, Tenant
may not install any signs on the exterior or roof of the Buildings or the common
areas of the Buildings or the Real Property; provided, however, that subject to
the
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approval of all applicable governmental entities, and in compliance with all
applicable governmental laws and ordinances, Tenant shall be permitted to place
its logo on the roof of Building 2 (the "Fly-Over Sign") as to provide a "fly-
over" view, with the exact location and specifications for such sign to be
mutually approved by Landlord and Tenant. Any signs, window coverings, or blinds
(even if the same are located behind the Landlord approved window coverings for
the Buildings), or other items visible from the exterior of the Premises or
Buildings are subject to the prior approval of Landlord, in its sole discretion.
23.5 Monument Signage. Subject to the approval of all applicable
----------------
governmental entities, and compliance with all applicable governmental laws and
ordinances, and the terms of Section 23.5.1 below, Landlord shall, at Landlord's
sole cost and expense, construct a signage monument (the "Third Avenue
Monument") to be located on Third Avenue at the main entrance to the Real
Property, the exact location and specifications of which shall be designated by
Landlord. Tenant shall have the non-exclusive right to place its logo and its
name, "Inktomi," on one strip of the Monument ("Tenant's Third Avenue Monument
Sign"), but Tenant's Third Avenue Monument Sign shall be in the top location of
any tenant signage located on the Third Avenue Monument. Subject to the
approval of all applicable governmental entities, and compliance with all
applicable governmental laws and ordinances, and the terms of Section 23.5.1
below, Landlord shall, at Landlord's sole cost and expense, construct a signage
monument (the "Plaza Monument") in the plaza area between Building 1 and
Building 2, the exact location and specifications of which shall be designated
by Landlord; the Plaza Monument may consist of a single monument or two separate
monuments, with one of such monuments (or one-half of the Plaza Monument if
constructed as a single monument) to be designated for Building 1, and the other
of such monuments (or the other one-half of the Plaza Monument if constructed as
a single monument) to be designated for Building 2. The portion of the Plaza
Monument designated for Building 1 shall be referred to herein as the "Plaza 1
Monument", and the portion of the Plaza Monument designated for Building 2 shall
be referred to herein as the "Plaza 2 Monument". Tenant shall have the right to
place its logo and its name, "Inktomi," on the Plaza 2 Monument ("Tenant's Plaza
2 Monument Sign"), which shall be the only tenant identification sign located on
the Plaza 2 Monument. Tenant shall have no right to place any identification
signage on the Plaza 1 Monument unless and until Tenant leases three (3) full
floors of Building 1, in which event Tenant shall have the non-exclusive right
to place its logo and its name, "Inktomi," on one strip of the Plaza 1 Monument
("Tenant's Plaza 1 Monument Sign"). Subject to the approval of all applicable
governmental entities, and compliance with all applicable governmental laws and
ordinances, and the terms of Section 23.5.1 below, Landlord shall, at Landlord's
sole cost and expense, construct an additional signage monument for Building 2
(the "Building 2 Monument") facing the Freeway 92, the exact location and
specifications of which shall be mutually agreed to by Tenant and Landlord (but
shall be as close to the Freeway 92 as reasonably possible). Tenant shall have
the right to place its logo and its name, "Inktomi," on the Building 2 Monument
("Tenant's Building 2 Monument Sign") which shall be the only tenant
identification sign located thereon. The Third Avenue Monument, the Plaza
Monument and the Building 2 Monument shall hereafter collectively be referred to
as the "Monuments". Tenant's Third Avenue Monument Sign, Tenant's Plaza 2
Monument Sign, Tenant's Plaza 1 Monument Sign, if any, and Tenant's Building 2
Monument Sign shall hereafter collectively be referred to as "Tenant's Monument
Signs." The approximate locations of the Monuments are depicted on the Site
Plan for the Real Property which is attached to this Lease as Exhibit A-1. The
-----------
specifications for Tenant's Monument Signs shall be subject to Landlord's
approval. Tenant's Monument Signs, and Fly-Over Sign described in Section 23.4
above, shall be installed by Landlord at the sole cost and expense of Tenant.
Tenant's rights with respect to the Monuments and Tenant's Monument Signs
contained in this Section 23.5, and Tenant's right to the Fly-Over Sign in
Section 23.4 above, are personal to the Original Tenant and may not be
transferred by the Original Tenant or used by anyone else, except that (i)
Tenant shall have the right to transfer all, but not less than all, of Tenant's
rights with respect to the Monuments and Tenant's Monument Signs contained in
this Section 23.5, and Tenant's right to the Fly-Over Sign in Section 23.4 above
to an Affiliate (as defined in Section 14.7 above) in connection with Tenant's
assignment of its entire interest in this Lease to such Affiliate pursuant to
Section 14.7 or to any assignee that would qualify as an Affiliate but for the
financial criteria set forth in Section 14.7.3 above, (ii) Tenant shall have the
right to transfer its rights, if any, with respect to the Tenant's Plaza 1
Monument Sign to a transferee which subleases from Tenant at least three (3)
full floors of the Premises located in Building 1 pursuant to (and only during
the term of) a sublease approved by Landlord pursuant to Article 14, and (iii)
Tenant shall have the right to transfer its rights with respect to Tenant's
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Plaza 2 Monument Sign to each transferee which subleases two (2) or more full
floors of Building 2 pursuant to (and only during the term of) a sublease
approved by Landlord pursuant to Article 14 (and if there are more than one
transferee pursuant to this clause (iii), each such transferee shall be entitled
to place its name and logo on Tenant's Plaza 2 Monument Sign), but any such
transfer of signage rights set forth in clauses (i), (ii) and (iii) hereinabove
shall be subject to Landlord's reasonable approval of the name and logo change
on Tenant's Monument Signs (and the logo on Tenant's Fly-Over Sign) to reflect
the identity of such Affiliate or other transferee(s). If Tenant changes the
name of its company from Inktomi to another name, Tenant shall have the right,
at Tenant's sole cost and expense, to change the name on Tenant's Monument Signs
to reflect such new name as long as Landlord reasonably approves of such name
change.
23.5.1 Maintenance of Monument by Landlord. After the Monuments have
-----------------------------------
been constructed and Tenant's Third Avenue Monument Sign has been installed,
Tenant shall promptly pay to Landlord an amount equal to the product of (i)
Landlord's costs for maintenance, insurance, utilities and repair of the Third
Avenue Monument and Tenant's Third Avenue Monument Sign, and (ii) the proportion
which the strip(s) on the Third Avenue Monument occupied by Tenant's Third
Avenue Monument Sign bears to the total number of strips occupied at any time on
the Third Avenue Monument by other tenants. After the Plaza Monument has been
constructed and Tenant's Plaza 2 Monument Sign has been installed, Tenant shall
promptly pay to Landlord all of Landlord's costs attributable to the
maintenance, insurance, utilities and repair of the portion of the Plaza
Monument designated for Building 2 and Tenant's Plaza Monument Sign thereon.
Tenant shall not be obligated to pay any costs attributable to the maintenance,
insurance, utilities or repairs of the portion of the Plaza Monument designated
for Building 1, unless and until Tenant's Plaza Monument 1 Sign has been
installed thereon, in which event Tenant shall promptly pay to Landlord an
amount equal to the product of (A) Landlord's cost for maintenance, insurance,
utilities and repair of the portion of the Plaza Monument designated for
Building 1 and Tenant's Plaza 1 Monument Sign thereon, and (B) the proportion
which the strip on the portion of the Plaza Monument designated for Building 1
occupied by Tenant's Plaza 1 Monument sign bears to the total number of strips
occupied by other tenants at any time on such portion of the Plaza Monument
designated for Building 1. After the Building 2 Monument has been constructed
and Tenant's Building 2 Monument has been installed, Tenant shall promptly pay
to Landlord all of Landlord's costs for maintenance, insurance, utilities and
repair of the Building 2 Monument and Tenant's Building 2 Monument Sign. Tenant
shall promptly pay to Landlord all of Landlord's costs for maintenance,
insurance and repair of Tenant's Fly-Over Sign.
23.5.2 Removal of Signs. Upon the expiration or earlier termination
-----------------
of this Lease, Tenant shall, at Tenant's sole cost and expense, cause all of
Tenant's Monument Signs and Tenant's Fly-Over Sign to be removed from the
Monuments and the roof of Building 2, as applicable, and repair any damage to
the Monument Signs and the roof of Building 2 resulting from such removal.
23.6 Building 2 Exterior Signage. To the extent that Tenant shall obtain
---------------------------
all governmental approvals for same, Tenant shall have the exclusive right to
install, at Tenant's cost, one (1) sign displaying Tenant's logo and Tenant's
name, "Inktomi," on either the top of or at the eyebrow level of the exterior of
Building 2 on a side of Building 2 facing the 92 Freeway, as shall be designated
by Landlord (the "Building Exterior Signage"). The graphics, materials, color,
design, lettering, lighting, size, specifications, manner of affixing and exact
location of the Building Exterior Signage shall be subject to Landlord's
reasonable approval. If Tenant changes its corporate logo or name, Tenant shall
have the right, at Tenant's sole cost and expense, to change the logo on the
Building Exterior Signage to reflect such new logo or name as long as Landlord
reasonably approves of such change in logo or name. Tenant shall pay for all
costs and expenses related to the Building Exterior Signage, including, without
limitation, costs of the design, construction, installation, maintenance,
insurance, utilities, repair and replacement of the Building Exterior Signage.
Tenant shall install and maintain the Building Exterior signage in compliance
with all laws and subject to the applicable provisions of Articles 7 and 8
above.
23.6.1 Transferability. The rights to the Building Exterior Signage
---------------
are personal to the Original Tenant and may not be transferred by the Original
Tenant or used by anyone else, except that Tenant shall have the right to
transfer Tenant's rights to the Building Exterior Signage to an Affiliate (as
defined in Section 14.7 above) in connection with Tenant's assignment of its
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entire interest in this Lease to such Affiliate pursuant to Section 14.7 or to
any assignee that would qualify as an Affiliate but for the financial criteria
set forth in Section 14.7.3 above, but any such transfer of signage rights
pursuant to this Section 23.6.1 shall be subject to Landlord's reasonable
approval of the logo and name change on the Building Exterior Signage to reflect
the identity of such Affiliate or other transferee.
23.6.2 Maintenance/Removal. Should the Building Exterior Signage
-------------------
require maintenance, repairs or replacement as determined in Landlord's
reasonable judgment, Landlord shall have the right to provide written notice
thereof to Tenant and Tenant shall cause such repairs, replacement and/or
maintenance to be performed within ten (10) days after receipt of such notice
from Landlord, at Tenant's sole cost and expense; provided, however, if such
repairs, replacement and/or maintenance are reasonably expected to require
longer than ten (10) days to perform, Tenant shall commence such repairs,
replacement and/or maintenance within such ten (10) day period and shall
diligently prosecute such repairs, replacement and maintenance to completion.
Should Tenant fail to perform such maintenance, repairs or replacement within
the periods described in the immediately preceding sentence, Landlord shall have
the right to cause such work to be performed and to charge Tenant as Additional
Rent for the costs of such work including interest at the Interest Rate as such
term is defined in Article 25 below. Upon the expiration or earlier termination
of this Lease, Tenant shall, at Tenant's sole cost and expense, cause the
Building Exterior Signage to be removed, and Tenant shall repair all damage
occasioned thereby and restore the affected areas to their original condition
prior to the installation of Building Exterior Signage. If Tenant fails to
remove such signage, and repair and restore the affected areas as provided in
the immediately preceding sentence, within ten (10) days following the
expiration or earlier termination of this Lease, then Landlord may perform such
work, and all costs and expenses incurred by Landlord in so performing such work
shall be reimbursed by Tenant to Landlord within ten (10) days after Tenant's
receipt of invoice therefor including interest at the Interest Rate. The
immediately preceding sentence shall survive the expiration or earlier
termination of this Lease. Tenant shall be responsible for maintaining
insurance on the Building Exterior Signage as part of the insurance required to
be carried by Tenant pursuant to Section 10.3.2 above.
ARTICLE 24
COMPLIANCE WITH LAW
Tenant shall not do anything or suffer anything to be done in or about the
Premises which will in any way conflict with any law, statute, ordinance or
other governmental rule, regulation or requirement now in force or which may
hereafter be enacted or promulgated. At its sole cost and expense, Tenant shall
promptly comply with all such governmental measures, other than the making of
structural changes or changes to the Systems and Equipment of the Buildings
unless the making of such structural changes or changes to the Systems and
Equipment are a result of Tenant's Alterations or Tenant's manner of use of the
Premises (as distinguished from general office use). Should any standard or
regulation now or hereafter be imposed on Landlord or Tenant by a state, federal
or local governmental body charged with the establishment, regulation and
enforcement of occupational, health or safety standards for employers,
employees, landlords or tenants, then Tenant agrees, at its sole cost and
expense, to comply promptly with such standards or regulations insofar as the
same pertain to Tenant's use of or Alterations to the Premises. The judgment of
any court of competent jurisdiction or the admission of Tenant in any judicial
action, regardless of whether Landlord is a party thereto, that Tenant has
violated any of said governmental measures, shall be conclusive of that fact as
between Landlord and Tenant.
ARTICLE 25
LATE CHARGES
If any installment of Rent or any other sum due from Tenant shall not be
received by Landlord or Landlord's designee within five (5) days after notice
from Landlord that said amount is past due, then Tenant shall pay to Landlord a
late charge equal to five percent (5%) of the amount due or in the case of a
delinquent installment of Base Rent, two percent (2%) of the delinquent amount;
provided, however, that if Landlord has given Tenant one (1) such delinquency
notice in the preceding twelve (12) month period, then the late charge shall be
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imposed for any subsequent delinquent payment of Rent by Tenant, without
requirement of any notice or cure period. The late charge shall be deemed
Additional Rent and the right to require it shall be in addition to all of
Landlord's other rights and remedies hereunder or at law and shall not be
construed as liquidated damages or as limiting Landlord's remedies in any
manner. In addition to the late charge described above, any Rent or other
amounts owing hereunder which are not paid when they are due shall thereafter
bear interest until paid at a rate (the "Interest Rate") equal to the lower of
(i) the then-current prime interest rate as such rate is announced by The Wall
Street Journal plus two (2) percentage points, or (ii) the highest rate
permitted by applicable law.
ARTICLE 26
LANDLORD'S RIGHT TO CURE DEFAULT; PAYMENTS BY TENANT
26.1 Landlord's Cure. All covenants and agreements to be kept or
---------------
performed by a party under this Lease shall be performed at its sole cost and
expense (except as otherwise expressly provided in this Lease) and in the case
of Tenant without any reduction of Rent. If Tenant shall fail to perform any of
its obligations under this Lease, within a reasonable time after such
performance is required by the terms of this Lease, Landlord may, but shall not
be obligated to, after reasonable prior notice to Tenant, make any such payment
or perform any such act on Tenant's part without waiving its right based upon
any default of Tenant and without releasing Tenant from any obligations
hereunder.
26.2 Tenant's Reimbursement. Except as may be specifically provided to
----------------------
the contrary in this Lease, Tenant shall pay to Landlord, within thirty (30)
days after delivery by Landlord to Tenant of statements therefor: (i) sums
equal to expenditures reasonably made and obligations reasonably incurred by
Landlord in connection with the remedying by Landlord of Tenant's defaults
pursuant to the provisions of Section 26.1; (ii) sums equal to all losses,
costs, liabilities, damages and expenses referred to in Article 10 of this
Lease; and (iii) sums equal to all expenditures reasonably made and obligations
reasonably incurred by Landlord in collecting or attempting to collect the Rent
or in enforcing or attempting to enforce any rights of Landlord under this Lease
or pursuant to law, including, without limitation, all legal fees and other
amounts so expended where Landlord is the prevailing party in such collection or
enforcement actions. Tenant's obligations under this Section 26.2 shall survive
the expiration or sooner termination of the Lease Term.
ARTICLE 27
ENTRY BY LANDLORD
Landlord reserves the right at all reasonable times and upon reasonable
notice to the Tenant to enter the Premises to (i) inspect them; (ii) show the
Premises to prospective purchasers, or mortgagees, or to the ground or
underlying lessors and, during the last twelve (12) months of the Lease Term, to
prospective tenants; (iii) post notices of nonresponsibility; or (iv) alter,
improve or repair the Premises or the Buildings if necessary to comply with
current building codes or other applicable laws, or for structural alterations,
repairs or improvements to the Buildings Landlord is required to perform under
this Lease. Notwithstanding anything to the contrary contained in this Article
27, Landlord may enter the Premises at any time to (A) perform regularly
scheduled services required of Landlord; and (B) perform any covenants of Tenant
which Tenant fails to perform. Any such entries shall be without the abatement
of Rent and shall include the right to take such reasonable steps as required to
accomplish the stated purposes. Tenant hereby waives any claims for damages or
for any injuries or inconvenience to or interference with Tenant's business,
lost profits, any loss of occupancy or quiet enjoyment of the Premises, and any
other loss occasioned thereby. For each of the above purposes, Landlord shall
at all times have a key with which to unlock all the doors in the Premises,
excluding Tenant's vaults, safes and special security areas designated in
advance by Tenant. In an emergency, Landlord shall have the right to use any
means that Landlord may deem proper to open the doors in and to the Premises.
Any entry into the Premises in the manner hereinbefore described shall not be
deemed to be a forcible or unlawful entry into, or a detainer of, the Premises,
or an actual or constructive eviction of Tenant from any portion of the
Premises. Notwithstanding anything to the contrary set forth in this Lease,
Landlord agrees to use commercially reasonable efforts to minimize interference
with
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Tenant's use of and access to the Premises as a result of Landlord's exercise of
its entry rights under this Article 27.
ARTICLE 28
TENANT PARKING
Tenant shall have the right to use the number of undesignated parking
spaces set forth in Section 11 of the Summary for parking in the Parking
Facilities. Tenant shall not be charged any parking charges for the use of such
undesignated parking spaces during the initial Lease Term, but Tenant shall be
charged for the use of such undesignated parking spaces during the Option Term
at the prevailing parking rates, if any, charged by Landlord from time-to-time
for parking in the Parking Facilities. Tenant shall abide, and cause its
employees and visitors who utilize the Parking Facilities to abide, by the
Parking Rules and Regulations attached hereto as Exhibit F, as may be modified
---------
by Landlord from time to time. Landlord specifically reserves the right to
change the location, size, configuration, design, layout and all other aspects
of the Parking Facilities at any time and Tenant acknowledges and agrees that
Landlord may, without incurring any liability to Tenant and without any
abatement of Rent under this Lease, from time to time, close-off or restrict
access to the Parking Facilities for purposes of permitting or facilitating any
such construction, alteration or improvements; provided, however, that Landlord
shall not reduce the number of Tenant's parking spaces on a permanent basis
below the minimum number set forth in the Summary and Landlord shall act
reasonably to avoid or minimize any disruption to Tenant's use of Tenant's
allotted parking spaces in the Parking Facilities. The parking passes provided
to Tenant pursuant to this Article 28 are provided solely for use by Tenant's
own personnel and such passes may not be transferred, assigned, subleased or
otherwise alienated by Tenant without Landlord's prior approval.
Notwithstanding anything to the contrary set forth in this Article 28, in the
event that Landlord shall provide a tenant or tenants of Building 1 with
reserved parking spaces, then Landlord shall offer to lease to Tenant up to the
same ratio of reserved parking spaces per rentable square foot of the Premises
in Building 1 at the lowest ratio of reserved parking spaces per rentable square
feet of space that Landlord has leased to such other tenants, and upon the same
terms and conditions as Landlord shall lease such reserved parking spaces to
such other tenants. For example, if Landlord leases five (5) reserved parking
spaces to ABC tenant and ABC tenant leases 30,000 rentable square feet (i.e.,
one parking space per 6,000 rentable square feet) and Landlord leases six (6)
reserved parking spaces to XYZ tenant and XYZ tenant leases 60,000 rentable
square feet (i.e., one parking space per 10,000 rentable square feet), because
the ratio of 1:6,000 is lower than 1:10,000, Tenant shall be entitled to lease
up to one (1) reserved parking space for each 6,000 rentable square feet in the
Premises located in Building 1 (i.e., 8 reserved parking spaces based upon
Tenant's initially leasing 46,310 rentable square feet in Building 1). Tenant
acknowledges that Landlord may permit any proposed restaurant user of the pad
area located adjacent to the Real Property depicted as Parcel 2 on Exhibit A-1
-----------
to have its customers park in the Parking Facilities during the evenings on
weeknights (i.e., after 4:00 p.m.), and at all times on weekends and Holidays,
and Tenant agrees to permit such restaurant customers to use Tenant's parking
spaces in the Parking Facilities during such hours and at such times; provided,
however, that any expense incurred by Landlord directly in connection with the
restaurant's customers' use of the Parking Facilities shall not be charged to
Tenant as an Operating Expense.
ARTICLE 29
MISCELLANEOUS PROVISIONS
29.1 Terms. The necessary grammatical changes required to make the
-----
provisions hereof apply either to corporations or partnerships or individuals,
men or women, as the case may require, shall in all cases be assumed as though
in each case fully expressed.
29.2 Binding Effect. Each of the provisions of this Lease shall extend to
--------------
and shall, as the case may require, bind or inure to the benefit not only of
Landlord and of Tenant, but also of their respective successors or assigns,
provided this clause shall not permit any assignment by Tenant contrary to the
provisions of Article 14 of this Lease.
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29.3 No Air Rights. No rights to any view or to light or air over any
-------------
property, whether belonging to Landlord or any other person, are granted to
Tenant by this Lease. If at any time any windows of the Premises are
temporarily darkened or the light or view therefrom is obstructed by reason of
any repairs, improvements, maintenance or cleaning in or about the Buildings,
the same shall be without liability to Landlord and without any reduction or
diminution of Tenant's obligations under this Lease.
29.4 Memorandum of Lease. Landlord and Tenant hereby acknowledge that
-------------------
Landlord is in the process of obtaining a lot line adjustment so that the legal
description of the Real Property shall be that which is substantially similar to
that which is set forth on Exhibit A to Exhibit H attached hereto. After such
--------- ---------
lot line adjustment and the legal description are finalized and Landlord and
Tenant shall, if necessary, attach a revised legal description in accordance
with such lot line adjustment as Exhibit A to Exhibit H, Landlord and Tenant
--------- ---------
shall execute, acknowledge and deliver to the other a short form memorandum of
Lease for recording, containing, among other customary provisions, the names of
the parties, a description of the Premises, the Lease Term, Tenant's rights of
first offer, Tenant's option to extend the Lease Term and Tenant's option and
rights to purchase the Real Property. Such memorandum of Lease shall be in
substantially the form of Exhibit H attached hereto, subject to the modification
---------
described above in this Section 29.4. Notwithstanding the foregoing to the
contrary, Landlord shall not be obligated to execute or deliver such memorandum
of Lease unless Tenant concurrently delivers to Landlord a duly executed and
acknowledged quitclaim deed in a commercially reasonable form to be held by
Landlord until this Lease expires or is sooner terminated. Landlord represents,
warrants and covenants to Tenant that Landlord will not record such quitclaim
deed until the expiration or sooner termination of the Lease Term.
29.5 Transfer of Landlord's Interest. Tenant acknowledges that Landlord
-------------------------------
has the right to transfer all or any portion of its interest in the Real
Property, the Buildings and/or this Lease, and Tenant agrees that in the event
of any such transfer, Landlord shall be released from all liability under this
Lease arising after the effective date of such transfer provided such
obligations are expressly assumed by the transferee, and Tenant agrees to look
solely to such transferee for the performance of Landlord's obligations
hereunder arising after the date of transfer. The liability of any transferee
of Landlord shall be limited to the interest of such transferee in the Real
Property and Buildings and such transferee shall be without personal liability
under this Lease, and Tenant hereby expressly waives and releases such personal
liability on behalf of itself and all persons claiming by, through or under
Tenant. Tenant further acknowledges that Landlord may assign its interest in
this Lease to a mortgage lender as additional security and agrees that such an
assignment shall not release Landlord from its obligations hereunder and that
Tenant shall continue to look to Landlord for the performance of its obligations
hereunder.
29.6 Prohibition Against Recording. Except as provided in Section 29.4 of
-----------------------------
this Lease, neither this Lease, nor any memorandum, affidavit or other writing
with respect thereto, shall be recorded by Tenant or by anyone acting through,
under or on behalf of Tenant, and the recording thereof in violation of this
provision shall make this Lease null and void at Landlord's election.
29.7 Landlord's Title. Landlord's title is and always shall be paramount
----------------
to the title of Tenant. Nothing herein contained shall empower Tenant to do any
act which can, shall or may encumber the title of Landlord beyond such
encumbrances as are created by this Lease.
29.8 Captions. The captions of Articles and Sections are for convenience
--------
only and shall not be deemed to limit, construe, affect or alter the meaning of
such Articles and Sections.
29.9 Relationship of Parties. Nothing contained in this Lease shall be
-----------------------
deemed or construed by the parties hereto or by any third party to create the
relationship of principal and agent, partnership, joint venturer or any
association between Landlord and Tenant, it being expressly understood and
agreed that neither the method of computation of Rent nor any act of the parties
hereto shall be deemed to create any relationship between Landlord and Tenant
other than the relationship of landlord and tenant.
29.10 Application of Payments. Landlord shall have the right to apply
-----------------------
payments received from Tenant pursuant to this Lease, regardless of Tenant's
designation of such payments, to satisfy any obligations of Tenant hereunder, in
such order and amounts as Landlord, in its sole discretion, may elect.
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29.11 Time of Essence. Time is of the essence of this Lease and each of
---------------
its provisions.
29.12 Partial Invalidity. If any term, provision or condition contained
------------------
in this Lease shall, to any extent, be invalid or unenforceable, the remainder
of this Lease, or the application of such term, provision or condition to
persons or circumstances other than those with respect to which it is invalid or
unenforceable, shall not be affected thereby, and each and every other term,
provision and condition of this Lease shall be valid and enforceable to the
fullest extent possible permitted by law.
29.13 No Warranty. In executing and delivering this Lease, neither
-----------
Landlord nor Tenant has relied on any representation or any warranty or any
statement of the other party which is not set forth herein or in one or more of
the exhibits or riders attached hereto.
29.14 Landlord Exculpation. It is expressly understood and agreed that
--------------------
notwithstanding anything in this Lease to the contrary, and notwithstanding any
applicable law to the contrary, the liability of Landlord and the Landlord
Parties hereunder (including any successor landlord) and any recourse by Tenant
against Landlord or the Landlord Parties shall be limited solely and exclusively
to an amount which is equal to the interest of Landlord in the Real Property, or
any consideration received upon the transfer thereof, and neither Landlord, nor
any of the Landlord Parties shall have any personal liability therefor, and
Tenant hereby expressly waives and releases such personal liability on behalf of
itself and all persons claiming by, through or under Tenant.
29.15 Entire Agreement. It is understood and acknowledged that there are
----------------
no oral agreements between the parties hereto affecting this Lease and this
Lease supersedes and cancels any and all previous negotiations, arrangements,
brochures, agreements and understandings, if any, between the parties hereto or
displayed by Landlord to Tenant with respect to the subject matter thereof, and
none thereof shall be used to interpret or construe this Lease. This Lease
(including the exhibits and riders which are attached hereto and constitute an
integral part of this Lease) and any side letter or separate agreement executed
by Landlord and Tenant in connection with this Lease and dated of even date
herewith contain all of the terms, covenants, conditions, warranties and
agreements of the parties relating in any manner to the rental, use and
occupancy of the Premises, shall be considered to be the only agreement between
the parties hereto and their representatives and agents, and none of the terms,
covenants, conditions or provisions of this Lease can be modified, deleted or
added to except in writing signed by the parties hereto. All negotiations and
oral agreements acceptable to both parties have been merged into and are
included herein. There are no other representations or warranties between the
parties, and all reliance with respect to representations is based totally upon
the representations and agreements contained in this Lease.
29.16 Right to Lease. Landlord reserves the absolute right to effect such
--------------
other tenancies in the Buildings as Landlord in the exercise of its sole
business judgment shall determine to best promote the interests of the Real
Property; provided, however, that such tenancies shall be consistent with first-
class office use. Tenant does not rely on the fact, nor does Landlord
represent, that any specific tenant or type or number of tenants shall, during
the Lease Term, occupy any space in the Real Property.
29.17 Force Majeure. Any prevention, delay or stoppage due to strikes,
-------------
lockouts, labor disputes, acts of God, inability to obtain services, labor, or
materials or reasonable substitutes therefor, governmental actions or inactions,
including, without limitation, any delays in obtaining permits or approvals from
the applicable governmental authorities, civil commotions, fire or other
casualty, and other causes beyond the reasonable control of the party obligated
to perform, except with respect to the obligations imposed on Tenant under the
Tenant Work Letter or with regard to Rent and other charges to be paid by Tenant
pursuant to this Lease, or monetary amounts required to be paid by Landlord
pursuant to this Lease (collectively, the "Force Majeure"), notwithstanding
anything to the contrary contained in this Lease, shall excuse the performance
of such party for a period equal to any such prevention, delay or stoppage and,
therefore, if this Lease specifies a time period for performance of an
obligation of either party, that time period shall be extended by the period of
any delay in such party's performance caused by a Force Majeure.
29.18 Consent and Approvals. Any time the consent of Landlord or Tenant
---------------------
is required under this Lease, such consent shall not be unreasonably withheld,
conditioned or delayed, and
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<PAGE>
whenever this Lease grants Landlord or Tenant the right to take action, exercise
discretion, establish rules and regulations or make an allocation or other
determination, Landlord and Tenant shall act reasonably and in good faith.
Notwithstanding the foregoing, (i) Landlord shall be entitled to grant or
withhold its consent or exercise its discretion in its sole and absolute
discretion with respect to (A) matters which could affect the exterior
appearance of Building 1 or Building 2, (B) matters covered by Article 19 of
this Lease, or (C) matters which could have an adverse effect on the structure
of Building 1 while Tenant is leasing less than fifty percent (50%) of the
rentable area of Building 1, and (ii) Landlord and Tenant shall grant or
withhold its consent or exercise its discretion with respect to matters for
which there is a standard of consent or discretion specifically set forth in
this Lease in accordance with such specific standards.
29.19 Notices. All notices, demands, statements or communications
-------
(collectively, "Notices") given or required to be given by either party to the
other hereunder shall be in writing, shall be sent by United States certified or
registered mail, postage prepaid, return receipt requested, or delivered
personally (i) to Tenant at the appropriate address set forth in Section 5 of
the Summary, or to such other place as Tenant may from time to time designate in
a Notice to Landlord; or (ii) to Landlord at the addresses set forth in Section
3 of the Summary, or to such other firm or to such other place as Landlord may
from time to time designate in a Notice to Tenant. Any Notice will be deemed
given on the date it is mailed as provided in this Section 29.19 or upon the
date personal delivery is made. If Tenant is notified of the identity and
address of Landlord's mortgagee or ground or underlying lessor, Tenant shall
give to such mortgagee or ground or underlying lessor written notice of any
default by Landlord under the terms of this Lease by registered or certified
mail, and such mortgagee or ground or underlying lessor shall be given a
reasonable opportunity to cure such default prior to Tenant's exercising any
remedy available to Tenant.
29.20 Joint and Several. If there is more than one Tenant, the
-----------------
obligations imposed upon Tenant under this Lease shall be joint and several.
29.21 Authority. If Tenant is a corporation or partnership, each
---------
individual executing this Lease on behalf of Tenant hereby represents and
warrants that Tenant is a duly formed and existing entity qualified to do
business in the state in which the Real Property is located and that Tenant has
full right and authority to execute and deliver this Lease and that each person
signing on behalf of Tenant is authorized to do so.
29.22 Attorneys' Fees. If either party commences litigation against the
---------------
other for the specific performance of this Lease, for damages for the breach
hereof or otherwise for enforcement of any remedy hereunder, the parties hereto
agree to and hereby do waive any right to a trial by jury and, in the event of
any such commencement of litigation, the prevailing party shall be entitled to
recover from the other party such costs and reasonable attorneys' fees as may
have been incurred, including any and all costs incurred in enforcing,
perfecting and executing such judgment.
29.23 Governing Law. This Lease shall be construed and enforced in
-------------
accordance with the laws of the state in which the Real Property is located.
29.24 Submission of Lease. Submission of this instrument for examination
-------------------
or signature by Tenant does not constitute a reservation of or an option for
lease, and it is not effective as a lease or otherwise until execution and
delivery by both Landlord and Tenant.
29.25 Brokers. Landlord and Tenant hereby warrant to each other that they
-------
have had no dealings with any real estate broker or agent in connection with the
negotiation of this Lease, excepting only the real estate brokers or agents
specified in Section 12 of the Summary (the "Brokers"), and that they know of no
other real estate broker or agent who is entitled to a commission in connection
with this Lease. Each party agrees to indemnify and defend the other party
against and hold the other party harmless from any and all claims, demands,
losses, liabilities, lawsuits, judgments, and costs and expenses (including
without limitation reasonable attorneys' fees) with respect to any leasing
commission or equivalent compensation alleged to be owing on account of the
indemnifying party's dealings with any real estate broker or agent other than
the Brokers.
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<PAGE>
29.26 Independent Covenants. This Lease shall be construed as though the
---------------------
covenants herein between Landlord and Tenant are independent and not dependent
and Tenant hereby expressly waives the benefit of any statute to the contrary
and agrees that if Landlord fails to perform its obligations set forth herein,
Tenant shall not be entitled to make any repairs or perform any acts hereunder
at Landlord's expense or to any setoff of the Rent or other amounts owing
hereunder against Landlord; provided, however, that the foregoing shall in no
way impair Tenant's express rights as stated elsewhere in this Lease or the
right of Tenant to commence a separate action against Landlord for any violation
by Landlord of the provisions hereof so long as notice is first given to
Landlord and any holder of a mortgage or deed of trust covering the Buildings,
Real Property or any portion thereof, of whose address Tenant has theretofore
been notified, and an opportunity is granted to Landlord and such holder to
correct such violations as provided above.
29.27 Building Name and Signage. Landlord shall have the right at any
-------------------------
time to change or designate the name of Building 1 and the Real Property and to
install, affix and maintain any and all signs on the exterior of the Real
Property and on the exterior and interior of Building 1; provided, however, that
in the event that Tenant leases from Landlord more than fifty percent (50%) of
the total rentable square feet of Building 1, Landlord shall have no right to
name Building 1 after another tenant of Building 1.
29.28 Transportation Management. If required by law, Landlord and Tenant
-------------------------
shall fully comply with all present or future programs intended to manage
parking, transportation or traffic in and around the Real Property, and in
connection therewith, Tenant shall take responsible action for the
transportation planning and management of all employees located at the Premises
by working directly with Landlord, any governmental transportation management
organization or any other transportation-related committees or entities. Such
programs may include, without limitation: (i) restrictions on the number of
peak-hour vehicle trips generated by Tenant; (ii) increased vehicle occupancy;
(iii) implementation of an in-house ridesharing program and an employee
transportation coordinator; (iv) working with employees and any Real Property or
area-wide ridesharing program manager; (v) instituting employer-sponsored
incentives (financial or in-kind) to encourage employees to rideshare; and (vi)
utilizing flexible work shifts for employees.
29.29 Use of Outdoor Area. Landlord shall cooperate with Tenant to create
-------------------
an area in the plaza area outside of Building 2 for Tenant to use from time to
time for informal social gatherings of Tenant's employees; provided, however,
that Tenant's use of such area shall be subject to: (i) Landlord's reasonable
rules and regulations which govern the use of same, (ii) the applicable
provisions of this Lease, including, without limitation, Article 10 and (iii)
other tenants' rights to use same.
29.30 Landlord's Construction. Tenant acknowledges that during the Lease
-----------------------
Term, Landlord will be completing construction of various portions of the
Buildings and Real Property, including without limitation tenant improvements
for premises for other tenants (collectively, the "Construction"). In
connection with such Construction, Landlord may, among other things, erect
scaffolding or other necessary structures in the Buildings, limit or eliminate
access to portions of the Real Property, including portions of the common areas,
or perform work in the Buildings, which work may create noise, dust or leave
debris in the Buildings. Tenant hereby agrees that such Construction and
Landlord's actions in connection with such Construction shall in no way
constitute a constructive eviction of Tenant nor (except as provided in Section
6.5) entitle Tenant to any abatement of Rent. Landlord shall have no
responsibility or for any reason be liable to Tenant for any direct or indirect
injury to or interference with Tenant's business arising from the Construction,
nor shall Tenant be entitled to any compensation or damages from Landlord for
loss of the use of the whole or any part of the Premises or of Tenant's personal
property or improvements resulting from the Construction or Landlord's actions
in connection with such Construction, or for any inconvenience or annoyance
occasioned by such Construction or Landlord's actions in connection with such
Construction; provided, however, that Landlord agrees to use commercially
reasonable efforts to minimize interference with Tenant's use of and access to
the Premises as a result of such Construction.
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<PAGE>
29.31 Satellite Dish and Generator.
----------------------------
29.31.1 Landlord hereby agrees that Tenant shall have the
nonexclusive right at Tenant's sole cost and expense and subject to the
provisions of this Section 29.31, to install: (i) one (1) or more satellite
dishes (individually and collectively, the "Satellite Dish") on the roof of
Building 2 in a location or locations and within the screened area thereon
designated by Landlord; and (ii) one (1) back-up emergency generator for
Building 2 in a location to be designated by Landlord (which location shall be
referred to herein as the "Generator Site"), which generator shall be of such
size and specifications, and include such platforms, fencing, sheds and other
related materials and equipment, as shall be approved by Landlord prior to
installation (collectively, the "Emergency Generator"). In addition, Tenant
shall have the right, subject to available capacity of Building 2, to install
such connection equipment, such as conduits, cables, risers, feeders and
materials (collectively, the "Connecting Equipment") in the shafts, ducts,
conduits, chases, utility closets and other facilities of Building 2 as is
reasonably necessary to connect each Satellite Dish and the Emergency Generator
to Tenant's other machinery and equipment in the Premises located within
Building 2, subject however, to the provisions of Section 29.31.2, below, and
subject to the availability of vertical riser and feeder excess capacity;
provided, however, that Tenant's right to the available capacity of Building 2
shall be prior to the rights of other tenants to such capacity. Tenant shall
also have the right of access, consistent with Section 29.31.4, below, to the
areas where any such Connecting Equipment is located for the purposes of
maintaining, repairing, testing and replacing the same. In connection with and
as additional consideration to Landlord for the rights granted to Tenant
pursuant to the terms of this Section 29.31, Tenant shall pay to Landlord, as
Additional Rent, a monthly amount equal to $750.00 per each Satellite Dish
installed (collectively, the "Satellite Rent"). The Satellite Rent shall be due
at the same time and in the same manner as Base Rent.
29.31.2 The installation of each Satellite Dish, Emergency
Generator and related Connecting Equipment (hereby referred to together and/or
separately as the "Special Equipment") shall be performed in accordance with and
subject to the provisions of Article 8 of this Lease, including, without
limitation, Tenant's obligation to obtain Landlord's prior consent to the size
and other specifications of the Special Equipment; provided, however, in no
event shall any Satellite Dish be of such size as to exceed the height of the
screening to be installed by Landlord on the roof of Building 2 or otherwise not
be fully screened from view by such screening. The Special Equipment shall be
treated for all purposes of this Lease as if the same were Tenant's property.
For the purposes of determining Tenant's obligations with respect to its use of
the Generator Site and the roof of Building 2 herein provided, the portion of
the roof of Building 2 affected by the Special Equipment and the Generator Site
shall be deemed to be a portion of Tenant's Premises; consequently, all of the
provisions of this Lease with respect to Tenant's obligations hereunder shall
apply to the installation, use and maintenance of the Special Equipment,
including without limitation, provisions relating to compliance with
requirements as to insurance, indemnity, repairs and maintenance, and compliance
with laws. Landlord shall have no obligation with regard to the affected portion
of the roof, the Generator Site or the Special Equipment except as provided in
this Section 29.31.
29.31.3 It is expressly understood that Landlord retains the right
to grant third parties the right to utilize any portion of the roof of Building
2 or the Generator Site not utilized by Tenant and to use the portion of the
roof of Building 2 and the Generator Site on which the Special Equipment is
located for any purpose whatsoever, provided in each event that Tenant shall
have reasonable access to, and Landlord and such third party's use of the roof
and/or the Generator Site shall not unduly interfere with Tenant's use of, the
Special Equipment.
29.31.4 Tenant shall install, use, maintain and repair the Special
Equipment so as not to damage or interfere with the operation of the Buildings
or the Systems and Equipment or any other communications or similar equipment
located in or on the Buildings or Real Property; and Tenant hereby agrees to
indemnify, defend and hold Landlord harmless from and against any and all
claims, costs, damages, expenses and liabilities (including attorney's fees)
arising out of Tenant's failure to comply with the provisions of this Section
29.31.4, but such indemnity shall not apply to the extent of any damage to
property which is covered by insurance Landlord maintains or is required to
maintain pursuant to this Lease.
29.31.5 Landlord shall not have any obligations with respect to the
Special
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<PAGE>
Equipment or compliance with any requirements relating thereto nor shall
Landlord be responsible for any damage that may be caused to the Special
Equipment except to the extent caused by the gross negligence or willful
misconduct of Landlord and not insured or required to be insured by Tenant under
this Lease. Landlord makes no representation that the Satellite Equipment will
be able to receive or transmit communication signals without interference or
disturbance or that the Emergency Generator will be able to supply sufficient
power to the Premises, and Tenant agrees that Landlord shall not be liable to
Tenant therefor; however, Landlord agrees to use reasonable efforts to correct
or cause a correction of any unreasonable interference or disturbance with
Tenant's Satellite Equipment attributable to the use of other antennae on
Building 2 by Landlord or other tenants.
29.31.6 Tenant, at Tenant's sole cost and expense, shall paint the
Special Equipment in such color(s) as Landlord shall reasonably determine and
shall maintain such equipment and install such fencing and other protective
equipment on or about the Special Equipment as Landlord may reasonably
determine.
29.31.7 Tenant shall (i) be solely responsible for any damage
caused as a result of the Special Equipment, (ii) promptly pay any tax, license
or permit fees charged pursuant to any requirements in connection with the
installation, maintenance or use of the Special Equipment and comply with all
precautions and safeguards recommended by all governmental authorities, and
(iii) make necessary repairs, replacements to or maintenance of the Special
Equipment.
29.31.8 Tenant shall not use any Hazardous Materials in connection
with the Special Equipment, except that Tenant may use fuel stored within the
Emergency Generator as necessary for the operation thereof, as long as such fuel
is kept, maintained and used in accordance with all applicable laws and the
highest safety standards for such use, and so long as such fuel is always stored
within the Emergency Generator and is not used or stored in any area outside of
the Emergency Generator. Tenant shall promptly, at Tenant's expense, take all
investigatory and all remedial action required by applicable laws and reasonably
recommended by Landlord, whether or not formally ordered or required by
applicable laws, for the cleanup of any spill, release or other contamination of
the Satellite Site, the Generator Site and/or the Real Property caused or
contributed to by Tenant's use of the Special Equipment (including, without
limitation, the fuel for the Emergency Generator), or pertaining to or involving
any such fuel or other Hazardous Materials brought onto the Satellite Site
and/or Generator Site during the Lease Term by Tenant or any of Tenant's agents,
employees, contractors, licensees or invitees. Tenant shall indemnify, defend
and hold Landlord and the Landlord Parties harmless from and against any and all
loss of rents, damages, losses, liabilities, judgments, claims, expenses,
penalties and attorneys' and consultants' fees arising out of or involving any
Hazardous Materials brought onto the Satellite Site and/or Generator Site by or
for Tenant. Tenant's obligations shall include, but not be limited to, the
effects of any contamination or injury to person, property or the environment
created or suffered by Tenant or any of Tenant's agents, employees, licensees or
invitees, and the cost of investigation, removal, remediation, restoration
and/or abatement, and shall survive the expiration or termination of this Lease.
29.31.9 Tenant's Emergency Generator shall be routinely tested and
inspected by a qualified contractor selected by Tenant and approved by Landlord,
at Tenant's expense, in accordance with testing and inspection service contracts
approved by Landlord. Tenant will provide Landlord with copies of certificates
and other documentation related to the testing of the Emergency Generator.
Testing hours are restricted, however, to those specific hours set and
determined by Landlord from time to time.
29.31.10 If any of the conditions set forth in this Section 29.31
are not complied with by Tenant, then without limiting Landlord's rights and
remedies it may otherwise have under this Lease, Tenant shall, upon written
notice from Landlord, have the option either to (i) immediately discontinue its
use of the Special Equipment, remove the same, and make such repairs and
restoration as required under Section 29.31.9 below, (ii) reposition the Special
Equipment to a location designated by Landlord if Landlord elects to permit such
repositioning, and make such repairs and restorations as required under Section
29.31.9 below, or (iii) correct such noncompliance within thirty (30) days after
receipt of notice. If Tenant fails to correct noncompliance within thirty (30)
days after receipt of notice, then Tenant shall immediately discontinue its use
of the Special Equipment and remove the same.
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<PAGE>
29.31.11 Upon the expiration of the Lease Term or upon any earlier
termination of this Lease, Tenant shall, subject to the reasonable control of
and direction from Landlord, remove the Special Equipment, repair and damage
caused thereby, and restore the roof and other facilities of Building 2 and the
Generator Site to their condition existing prior to the installation of the
Special Equipment.
29.31.12 Tenant's rights under this Section 29.31 shall be personal
to the Original Tenant and may only be utilized by the Original Tenant and any
assignee to which Tenant's entire interest in this Lease has been assigned
pursuant to Article 14.7 above (and may not be exercised or utilized by any
other person or entity, including any sublessee or other transferee of the
Original Tenant's interest in this Lease or the Premises).
IN WITNESS WHEREOF, Landlord and Tenant have caused this Lease to be
executed the day and date first above written.
"Landlord":
WHFST REAL ESTATE LIMITED PARTNERSHIP, a Delaware
limited partnership
By: Legacy Partners Commercial, Inc., as agent
and manager for Landlord
By: /s/ D. Allen Palmer
--------------------------------------
Name: D. Allen Palmer
Its: Senior Vice President
"Tenant":
INKTOMI CORPORATION, a Delaware corporation
By: /s/ David C. Peterschmidt
--------------------------------------------
Name: David C. Peterschmidt
Its: Chief Executive officer
By: /s/ Jerry M. Kennelly
--------------------------------------------
Name: Jerry M. Kennelly
Its: Chief Financial Officer
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<PAGE>
STATE OF CALIFORNIA )
) ss.
COUNTY OF SAN MATEO )
On October 12, 1998, before me, Mayrose P. Munar, a Notary
Public in and for said state, personally appeared Jerry Kennelly,
personally known to me (or proved to me on the basis of satisfactory evidence)
to be the person whose name is subscribed to the within instrument and
acknowledged to me that he executed the same in his authorized capacity,
and that by his signature on the instrument, the person, or the entity upon
behalf of which the person acted, executed the instrument.
WITNESS my hand and official seal.
/s/ Mayrose P. Munar
--------------------------------------------
Notary Public in and for said State
STATE OF CALIFORNIA )
) ss.
COUNTY OF SAN MATEO )
On October 12, 1998, before me, Mayrose P. Munar, a Notary
Public in and for said state, personally appeared David Peterschmidt,
personally known to me (or proved to me on the basis of satisfactory evidence)
to be the person whose name is subscribed to the within instrument and
acknowledged to me that he executed the same in his authorized capacity,
and that by his signature on the instrument, the person, or the entity upon
behalf of which the person acted, executed the instrument.
WITNESS my hand and official seal.
/s/ Mayrose P. Munar
--------------------------------------------
Notary Public in and for said State
STATE OF CALIFORNIA )
) ss.
COUNTY OF SAN FRANCISCO)
On October 12, 1998, before me, Stephanie C. Wong, a Notary
Public in and for said state, personally appeared D. Allen Palmer,
personally known to me (or proved to me on the basis of satisfactory evidence)
to be the person whose name is subscribed to the within instrument and
acknowledged to me that he executed the same in his authorized capacity,
and that by his signature on the instrument, the person, or the entity upon
behalf of which the person acted, executed the instrument.
WITNESS my hand and official seal.
/s/ Stephanie C. Wong
--------------------------------------------
Notary Public in and for said State
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<PAGE>
EXHIBIT A
---------
BAYSIDE TOWERS
--------------
OUTLINE OF FLOOR PLAN OF PREMISES
<PAGE>
EXHIBIT A-1
-----------
BAYSIDE TOWERS
SITE PLAN OF REAL PROPERTY
[THE SITE PLAN WILL ALSO SHOW THE APPROXIMATE
LOCATION OF THE MONUMENT SIGNS]
EXHIBIT A-1 - Page 1
<PAGE>
EXHIBIT B
---------
TENANT WORK LETTER
------------------
This Tenant Work Letter (the "Tenant Work Letter") supplements the Office
Lease (the "Lease") executed concurrently herewith by and between the Landlord
and Tenant, covering certain premises described in the Lease (the "Premises").
All terms not defined herein shall have the same meaning as set forth in the
Lease.
SECTION 1
---------
LANDLORD'S CONSTRUCTION OF THE PROJECT
--------------------------------------
1.1 Landlord's Construction of the Project. Landlord shall construct, at
--------------------------------------
Landlord's sole cost and expense, through its contractor, the base, shell, and
core of each of the Buildings and the base, shell and core of each of the floors
in such Buildings on which the Premises are located, as described in Section 1.2
-----------
below (collectively, the "Base, Shell and Core"), the Parking Facilities, the
pedestrian bridge to the San Francisco Bay and the other common areas of the
Real Property described in Section 1.1 of the Lease (collectively the
"Project"), substantially in accordance with those certain plans and
specifications for the Project listed on Schedule 1 attached hereto (copies of
----------
which have been delivered to Tenant) (collectively, the "Project Plans") as such
Project Plans may be revised by Landlord from time to time without Tenant's
prior consent. Notwithstanding the foregoing, with respect to material changes
to the Project Plans which are not required by the applicable governmental
authorities and which (i) affect the exterior of the Buildings, or (ii) would
materially increase the cost of the Tenant Improvements or materially delay
Tenant's construction of the Tenant Improvements, Tenant shall have the right to
reasonably approve such changes within five (5) business days after Landlord's
request therefor; provided, however, that Tenant's failure to timely object to
such changes shall be deemed to be Tenant's approval thereof. Landlord shall
provide Tenant with a copy of any such revised Project Plans following
completion of same. Landlord shall cause the Project to be constructed in a
first-class manner and in compliance with all applicable laws and building codes
(collectively, the "Code"), and the requirements stated in clauses (ii) and
(iii) of Section 4.2.3 below.
--------------
1.2 Base, Shell and Core. The Base, Shell and Core shall consist of those
----------------
items identified as Base, Shell and Core items on the Project Plans (except for
those items listed on Schedule 2 attached hereto) and shall be constructed
substantially in accordance with the Project Plans. Landlord hereby represents
and warrants to Tenant that Landlord has obtained all required governmental
approvals and permits for the construction of the Base, Shell and Core shown on
the Project Plans, except that Landlord has not obtained governmental approval
for occupancy or final sign-off. Notwithstanding the fact that the Project
Plans reflect that electrical service to each electrical closet on each floor of
the Premises is 2,000 fully rated amps, electrical service to each electrical
closet on each floor of the Premises shall be modified to be 2,500 fully rated
amps and such additional amps shall be provided by Landlord at Landlord's sole
cost and expense.
1.3 Delivery of Possession. Landlord shall construct the Base, Shell and
----------------------
Core and deliver possession of the Premises to Tenant to commence construction
of the Tenant Improvements for the Premises following the date (the "Access
Condition Date") the Base, Shell and Core is in the Access Condition (as defined
below). For purposes hereof, the "Access Condition" for the Base, Shell and
Core shall mean that the Base, Shell and Core work shall be substantially in
accordance with the Project Plans, subject to punch-list items and the items
listed on Schedule 3, but only to a level and only with respect to those items
as are reasonably necessary to permit Tenant to have access to the Premises to
start construction of the Tenant Improvements without material interference with
such construction or with Landlord's completion of the remaining Base, Shell and
Core work. In connection with the foregoing, (i) Landlord shall not be
obligated to substantially complete prior to the Access Condition Date any items
of the Base, Shell and Core which can be constructed concurrently with Tenant's
construction of the Tenant Improvements without such material interference
(including, without limitation, the items listed on Schedule 3), and (ii) the
definition of "Access Condition" of the Base, Shell and Core shall specifically
exclude such items. Subject to and in accordance with Section 4.2.6 below, any
-------------
EXHIBIT B - Page 1
<PAGE>
punch-list or other incomplete items of the Base, Shell and Core shall be
diligently completed by Landlord following delivery of possession of the
Premises to Tenant in the Access Condition.
1.4 Tenant Termination Right. Landlord shall endeavor to deliver
------------------------
possession of the Premises to Tenant with the Base, Shell and Core in the Access
Condition on or before February 8, 1999, but Landlord shall not be liable to
Tenant and Tenant shall have no right to terminate this Lease as a result of any
delays in such delivery of possession of the Premises to Tenant; provided,
however, if Landlord does not deliver possession of the Premises to Tenant with
the Base, Shell and Core in the Access Condition on or before August 8, 1999
(the "Outside Date"), as such Outside Date shall be extended as a result of any
Force Majeure delays (as defined in Section 29.17 of the Lease) for a period up
to but no more than three (3) months and/or delays caused or contributed to by
Tenant or any of Tenant's architects, agents, representatives, contractors,
and/or employees, Tenant shall have the right to terminate this Lease by
delivering written notice to Landlord of such termination within ten (10) days
after the Outside Date.
1.5 Supplemental HVAC Equipment. Notwithstanding anything to the contrary
---------------------------
set forth on the Project Plans, to the extent that the HVAC System currently
shown on the Project Plans (the "Existing HVAC System") does not meet Tenant's
reasonable requirements for heating and air conditioning in the portion of the
Premises located in Building 2, Landlord will provide supplemental rooftop
heating and air conditioning equipment, with shafts to the core (which in no
event shall not exceed sixty (60) tons) (the "Supplemental Equipment") which,
together with the Existing HVAC System, will fulfill Tenant's reasonable needs
for heating and air conditioning; provided, however, that Tenant shall pay for
(i) one-half (1/2) the cost of any Supplemental Equipment that Tenant requires
in addition to the Existing HVAC System, and (ii) Tenant shall pay for the cost
to distribute the heating and air conditioning to the Premises from the Existing
HVAC System and the Supplemental Equipment including, without limitation, the
cost of design and content of the main loop for the Existing Equipment and the
Supplemental Equipment (which contributions by Tenant may be paid out of the
Allowances (as defined in Section 2.1.1 below)). Landlord shall pay for the
Existing HVAC System but not the main loop thereof to the Premises or any other
distribution thereof, and one-half the cost of the Supplemental Equipment but
not the main loop thereof or any other distribution thereof to the Premises.
The installation of the Supplemental Equipment shall not be a part of the Base,
Shell and Core and, if not completed by the date of the Substantial Completion
of the Base, Shell and Core (as defined in Section 5.1 below), shall not delay
the Commencement Date, except to the extent that Landlord and Tenant agree on
the specifications and all other matters respecting the installation of the
Supplemental Equipment on such date that will permit Landlord to reasonably
complete the installation of the Supplemental Equipment prior to the Substantial
Completion of the Base, Shell and Core.
SECTION 2
---------
TENANT IMPROVEMENTS
-------------------
2.1 Improvement Allowances.
----------------------
2.1.1 Tenant Improvement Allowance. Tenant shall be entitled to a
----------------------------
one-time tenant improvement allowance (the "Tenant Improvement Allowance") in
the amount of up to, but not exceeding, Thirty Dollars ($30.00) per rentable
square foot of the Premises for the costs relating to the initial design
(including, but not limited to, permitting, space planning, working drawings and
engineering) and construction of Tenant's improvements which are permanently
affixed to the Premises (the "Tenant Improvements"); provided, however, that
Tenant (i) shall be required to use the portion of the Tenant Improvement
Allowance attributable to the portion of the Premises located in Building 1
(i.e., $1,389,300.00) (the "Building 1 Portion") to pay for the Tenant
Improvement Allowance Items (as such term is defined in Section 2.2 below) which
-----------
are incurred in connection with the construction of the Tenant Improvements for
Building 1 (but Tenant shall have sole discretion in determining how to allocate
the Building 1 Portion of the Tenant Improvement Allowance for the construction
of the Tenant Improvements for Building 1), and (ii) shall not use the Building
1 Portion to pay for the Tenant Improvement Allowance Items which are incurred
in connection with the construction of the Tenant Improvements for Building 2
(but Tenant shall have sole discretion in determining how to allocate the non-
Building 1 Portion of the Tenant Improvement Allowance for the construction of
the Tenant Improvements for Building 2). In no event shall Landlord be
obligated to make disbursements pursuant to this
EXHIBIT B - Page 2
<PAGE>
Tenant Work Letter in a total amount which exceeds the Tenant Improvement
Allowance (except as provided in Section 2.1.2 below regarding the Additional
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Allowance). The Tenant Improvement Allowance and any such Additional Allowance
provided by Landlord to Tenant shall be sometimes referred herein as the
"Allowances." All Tenant Improvements for which the Allowances have been made
available shall be deemed Landlord's property under the terms of Section 8.3 of
the Lease. Tenant shall not be entitled to receive, as a credit against rent or
otherwise, any unused portion of the Allowances not used to pay for the Tenant
Improvement Allowance Items. Notwithstanding the foregoing, in the event that
(A) Tenant does not use any portion of the Tenant Improvement Allowance prior to
the Lease Commencement Date, and (B) Tenant elects to use such remaining portion
of the Tenant Improvement Allowance within two (2) years after the Lease
Commencement Date to pay for the cost of the Tenant Improvement Allowance Items
for any Tenant Improvements constructed pursuant to a phased build-out within
such two (2) year period, then Tenant may use such remaining portion of the
Tenant Improvement Allowance on the terms and conditions of this Section 2;
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provided, however, that in the event Tenant does not use such remaining portion
of the Tenant Improvement Allowance during such two (2) year period, Tenant
shall waive its rights thereto.
2.1.2 Additional Allowance. If the cost of the Tenant Improvement
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Allowance Items exceeds the Tenant Improvement Allowance, then Landlord shall
make available to Tenant, at Tenant's sole option, an "Additional Allowance" in
the amount of up to, but not exceeding, Five Dollars ($5.00) per rentable square
foot of the Premises to help Tenant pay for such excess costs. Provided that
Tenant uses such Additional Allowance to pay for Tenant Improvement Allowance
Items, Tenant may allocate such Additional Allowance to any portion of the
Premises located in Building 1 and/or Building 2 as Tenant desires. Tenant
shall notify Landlord of Tenant's election to receive the Additional Allowance
within ten (10) business days after Landlord delivers to Tenant notice of
Landlord's approval of the Cost Proposal pursuant to Section 4.2.1 below (or ten
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(10) business days after Landlord's deemed approval of the Cost Proposal, as the
case may be); provided, however, that in the event that Tenant does not inform
Landlord that (i) Tenant does not want to receive all or any portion of the
Additional Allowance or (ii) the amount of the Additional Allowance that Tenant
wants to receive, then Tenant shall be deemed to have elected to receive the
full amount of the Additional Allowance. If Tenant elects (or is deemed to
elect, as the case may be) to receive all or any portion of the Additional
Allowance, then the monthly installments of Base Rent payable by Tenant to
Landlord during each month of the initial Lease Term as set forth in Section 8
of the Summary to the Lease shall increase by $0.015 per rentable square foot of
the Premises per month for each $1.00 per rentable square foot of the Additional
Allowance that Tenant elects to receive from Landlord. For example, if Tenant
elects to receive one-half (1/2) of the Additional Allowance (i.e., $2.50 per
rentable square foot of the Premises), then the Base Rent payable by Tenant
shall increase by $0.0375 per rentable square foot per month. Notwithstanding
the foregoing, in the event that (A) Tenant does not use all of the Additional
Allowance prior to the Lease Commencement Date, and (B Tenant elects to use such
remaining portion within two (2) years after the Lease Commencement Date to pay
for the cost of the Tenant Improvement Allowance Items for any Tenant
Improvements constructed pursuant to a phased build-out within such two (2) year
period, then Tenant may use such remaining portion of the Additional Allowance
on the terms and conditions set forth in this Section 2, except that any
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increase in the monthly installments of Base Rent as provided in the immediately
two (2) preceding sentences with respect to such portion of the Additional
Allowance which is funded after the Lease Commencement Date shall not commence
until the date Landlord funds such portion of the Additional Allowance. If
Tenant does not use such remaining portion of the Additional Allowance during
such two (2) year period, Tenant shall waive its rights thereto.
2.2 Disbursement of the Allowances.
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2.2.1 Tenant Improvement Allowance Items. Except as otherwise set
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forth in this Tenant Work Letter, the Allowances shall be disbursed by Landlord
(each of which disbursements shall be made pursuant to Landlord's disbursement
process as described below) for costs related to the construction of the Tenant
Improvements and for the following items and costs (collectively, the "Tenant
Improvement Allowance Items"):
2.2.1.1 Payment of the fees of the "Architect" and the
"Engineers," as those terms are defined in Section 3.1 of this Tenant Work
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Letter;
EXHIBIT B - Page 3
<PAGE>
2.2.1.2 The payment of plan check, permit and license fees
relating to construction of the Tenant Improvements;
2.2.1.3 The cost of construction of the Tenant Improvements,
including, without limitation, contractors' fees and general conditions, testing
and inspection costs, costs of trash removal and parking and hoists;
2.2.1.4 The cost of any changes in the Base, Shell and Core
when such changes are required by the Construction Drawings (including if such
changes are due to the fact that such work is prepared on an unoccupied basis),
such cost to include all direct architectural and/or engineering fees and
expenses reasonably incurred in connection therewith less the savings to
Landlord, if any, as a result of such changes;
2.2.1.5 The cost of any changes to the Construction Drawings
or Tenant Improvements required by the Code;
2.2.1.6 Sales and use taxes and Title 24 fees;
2.2.1.7 "Coordination Fee," as that term is defined in Section
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4.2.2 of this Tenant Work Letter; and
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2.2.1.8 All other reasonable costs to be expended by Tenant in
connection with the construction of the Tenant Improvements.
2.2.2 Disbursement of Allowances. During the construction of the
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Tenant Improvements, Landlord shall make monthly disbursements of the Allowances
for Tenant Improvement Allowance Items for the benefit of Tenant and shall
authorize the release of monies for the benefit of Tenant as follows:
2.2.2.1 Monthly Disbursements. No more than one (1) time per
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calendar month during the construction of the Tenant Improvements, Tenant shall
deliver to Landlord: (i) an application and certification for payment of the
"Contractor," as that term is defined in Section 4.1 of this Tenant Work Letter,
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approved by Tenant, in the form attached to this Tenant Work Letter as Schedule
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5, showing the schedule, by trade, of percentage of completion of the Tenant
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Improvements in the Premises, detailing the portion of the work completed and
the portion not completed; (ii) invoices from all of "Tenant's Agents," as that
term is defined in Section 4.1.2 of this Tenant Work Letter, for labor rendered
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and materials delivered to the Premises; (iii) executed progress mechanic's lien
releases from all of Tenant's Agents which shall be in the form attached to this
Tenant Work Letter as Schedule 6 and shall otherwise comply with the appropriate
provisions of California Civil Code Section 3262(d); and (iv) the completed
California Preliminary Notice/Conditional and Unconditional Lien Master Listing
in the form attached hereto as Schedule 7 (the items described in clauses (i)
through (iv) are sometimes collectively referred to herein as "Tenant's Request
For Payment"). Tenant's Request For Payment shall be deemed, as between
Landlord and Tenant, Tenant's acceptance and approval of the work furnished
and/or the materials supplied as set forth in Tenant's Request For Payment.
Within thirty (30) days thereafter, Landlord shall deliver a check to Tenant
made payable to Contractor or Tenant (but Landlord shall make such check payable
to Tenant only in the case of Tenant Improvement Allowance Items for which
satisfactory evidence of unconditional lien waivers have been supplied) in
payment of the lesser of: (A) the amounts so requested by Tenant, as set forth
in this Section 2.2.2.1, above, less a ten percent (10%) retention (the
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aggregate amount of such retentions to be known as the "Final Retention"); and
(B) the balance of any remaining available portion of the Allowances (not
including the Final Retention), provided that: (x) Landlord does not dispute
any Request For Payment based on material non-compliance of any work with the
"Approved Working Drawings," as that term is defined in Section 3.4 below or due
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to any substandard work; and (y) if there is an Over-Allowance Amount required
to be paid by Tenant pursuant to Section 4.2.1 below for such disbursement,
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Landlord shall only be required to make a disbursement equal to Landlord's pro
rata share thereof and only after Tenant has paid its pro rata share thereof.
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For purposes hereof, Landlord's pro rata share for each such disbursement amount
(including the Final Retention) shall equal the percentage resulting from
dividing the Tenant Improvement Allowance plus any Additional Allowance elected
to be received by Tenant, by the total cost of the Tenant Improvement Allowance
Items as estimated in the Cost Budget delivered pursuant to Section 4.2.1 (as
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may be revised from time to time), and Tenant's pro rata
EXHIBIT B - Page 4
<PAGE>
share for each such disbursement amount shall equal the Over-Allowance Amount
divided by such total cost of the Tenant Improvement Allowance Items. Landlord's
payment of such amounts shall not be deemed Landlord's approval or acceptance of
the work furnished or materials supplied as set forth in Tenant's Request For
Payment. In the event that Landlord disputes Tenant's Request For Payment as
provided hereinabove, Landlord shall notify Tenant in writing, within five (5)
days after Landlord receives Tenant's Request For Payment, of Landlord's dispute
and the reasons therefor ("Landlord's Objection Notice"). Landlord and Tenant
shall use commercially reasonable efforts to resolve such dispute within five
(5) days after Landlord's delivery of Landlord's Objection Notice to Tenant. In
the event that Landlord and Tenant shall not resolve such dispute within such
five (5) day period, Landlord and Tenant shall appoint an independent,
California licensed architect mutually approved by Landlord and Tenant (the
"Neutral Party") to resolve such dispute. Within ten (10) days after Landlord's
receipt of the Neutral Party's decision, Landlord shall pay to Tenant the
amount, if any, the Neutral Party determines Landlord owes to Tenant.
Notwithstanding the foregoing, the Neutral Party's decision shall not be final
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and binding on the parties and both parties shall have the right to pursue any
remedies available to them at law or in equity, but neither party shall have the
right to delay the completion of the construction of the Tenant Improvements in
connection therewith.
2.2.2.2 Final Retention. Subject to the provisions of this
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Tenant Work Letter, a check for the Final Retention (or Landlord's pro rata
share thereof if there is an Over-Allowance Amount) payable jointly to Tenant
and Contractor shall be delivered by Landlord to Tenant following the completion
of construction of the Tenant Improvements, provided that: (i) Tenant delivers
to Landlord properly executed mechanics lien releases in the form attached
hereto as Schedule 8 and shall otherwise be in compliance with both California
Civil Code Section 3262(d)(2) and either Section 3262(d)(3) or Section
3262(d)(4); (ii) Landlord has reasonably determined that no substandard work
exists with respect to the Tenant Improvements which adversely affects the
Systems and Equipment, the curtain wall of the Buildings, or the structure or
exterior appearance of the Buildings; and (iii) Architect delivers to Landlord a
certificate, in a form reasonably acceptable to Landlord, certifying that the
construction of the Tenant Improvements in the Premises has been substantially
completed.
2.2.2.3 Tenant's Right of Offset. Notwithstanding anything
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to the contrary set forth in this Tenant Work Letter or elsewhere in the Lease,
in the event that (i) Landlord fails to deliver Landlord's Objection Notice and
fails to timely deliver to Tenant the payment pursuant to Tenant's Request For
Payment, (ii) Landlord fails to timely pay the amount, if any, the Neutral
Party, if one is appointed, determined Landlord owes Tenant or (iii) Landlord
fails to timely pay the Final Retention pursuant to Section 2.2.2.2 above and
such failure shall continue for thirty (30) days following Landlord's receipt of
Tenant's written notice thereof, then Tenant shall be entitled to (A) pay such
amounts (provided Tenant obtains all appropriate lien releases with respect to
any such amount prior to Tenant's payment thereof) and (B) deduct from Rent next
payable by Tenant under this Lease the amount of such Request For Payment and/or
the Final Retention, as the case may be, so paid by Tenant together with
interest which shall have accrued on the amount of the Request For Payment
and/or the Final Retention, as the case may be, so paid by Tenant during the
period from and after the date such amount was paid by Tenant through and
including the date that Tenant deducts from Rent such amount, at the Interest
Rate. Notwithstanding the provisions of this Section 2.2.2.3, Landlord shall
have the right to recover any sums that Tenant inappropriately offsets against
Rent pursuant to this Section 2.2.2.3 by pursuing any remedies available to
Landlord under this Lease, at law and/or in equity, but only where Tenant fails
to refund the sums inappropriately offset (with interest thereon from the date
of offset until the date of payment to Landlord at the Interest Rate) within
thirty (30) days after the entry of a final judgment of a court of competent
jurisdiction establishing the existence and amount of such inappropriate offset.
2.3 Standard Tenant Improvement Package. Landlord has established
-----------------------------------
specifications (the "Specifications") for the Building standard components to be
used in the construction of the Tenant Improvements in the Premises
(collectively, the "Standard Improvement Package"), which Specifications are
attached hereto as Schedule 9. Tenant shall have the right, subject to
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Landlord's reasonable approval, to use components which differ from those
included in the Standard Improvement Package in the construction of the Tenant
Improvements. In addition, notwithstanding the Specifications, Tenant shall
have the right to install in certain parts of the Premises an open ceiling, the
exact locations of which shall be reasonably approved by Landlord.
EXHIBIT B - Page 5
<PAGE>
Subject to the foregoing qualification, the quality of the Tenant Improvements
shall be equal to or of greater quality than the quality of the Specifications.
SECTION 3
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CONSTRUCTION DRAWINGS
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3.1 Selection of Architect/Construction Drawings. Tenant shall retain an
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architect/space planner reasonably approved by Landlord (the "Architect") to
prepare the "Construction Drawings," as that term is defined in this Section
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3.1. Tenant shall retain the engineering consultants from the list of
acceptable engineering consultants developed by Landlord and Tenant pursuant to
the procedure described below in this Section 3.1 (the "Engineers") to prepare
all plans and engineering working drawings relating to the structural,
mechanical, electrical, plumbing, HVAC, lifesafety, and sprinkler work of the
Tenant Improvements;. Landlord and Tenant shall develop a list of acceptable
engineering consultants together by both providing to each other names of such
consultants which are reasonably acceptable to the party providing such names;
provided, however, that Landlord shall have the opportunity to reasonably
disapprove of any engineering consultant proposed by Tenant by providing Tenant
with written notice of such disapproval, which notice shall include an
explanation of the reason(s) for such disapproval, within five (5) business days
after Landlord's receipt of such name and such engineering consultant
disapproved by Landlord shall not be retained by Tenant. The plans and drawings
for the Tenant Improvements to be prepared by Architect and the Engineers
hereunder shall be known collectively as the "Construction Drawings." Tenant
and Architect shall verify, in the field, the dimensions and conditions as shown
on the relevant portions of the Project Plans, and Tenant and Architect shall be
solely responsible for the same, and Landlord shall have no responsibility in
connection therewith. Landlord's review of the Construction Drawings as set
forth in this Section 3, shall be for its sole purpose and shall not imply
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Landlord's review of the same, or obligate Landlord to review the same, for
quality, design, Code compliance or other like matters; provided, however, that
in the event that Landlord shall have approved any portion of the Construction
Drawings, Landlord may not later require Tenant to make changes to such portion
unless such changes are required by a governmental entity. Accordingly,
notwithstanding that any Construction Drawings are reviewed by Landlord or its
space planner, architect, engineers and consultants, and notwithstanding any
advice or assistance which may be rendered to Tenant by Landlord or Landlord's
space planner, architect, engineers, and consultants, Landlord shall have no
liability whatsoever in connection therewith and shall not be responsible for
any omissions or errors contained in the Construction Drawings.
3.2 Final Space Plan. Tenant and the Architect shall prepare the final
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space plan for Tenant Improvements in the Premises (collectively, the "Final
Space Plan"), which Final Space Plan shall include a layout and designation of
all offices, rooms and other partitioning, their intended use, and equipment to
be contained therein, and shall deliver the Final Space Plan to Landlord for
Landlord's reasonable approval. Landlord shall notify Tenant of its approval or
disapproval (with reasons for such disapproval specified) of the Final Space
Plan within three (3) business days after receipt thereof; any failure by
Landlord to notify Tenant of its approval or disapproval within such three (3)
business day period shall be deemed to be Landlord's disapproval thereof. If
Landlord notifies Tenant of such disapproval, Tenant shall cause the Final Space
Plan to be revised to correct any deficiencies or other matters Landlord may
reasonably require, and shall deliver such revised Final Space Plan to Landlord
within five (5) business days thereafter.
3.3 Final Working Drawings. Tenant shall cause the Architect and the
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Engineers to (i) complete the architectural and engineering drawings for the
Premises, and the final architectural working drawings in a form which is
complete to allow subcontractors to bid on the work and to obtain all applicable
permits (collectively, the "Final Working Drawings") and (ii) submit four (4)
copies thereof to Landlord for Landlord's approval. Landlord shall notify
Tenant of its approval or disapproval (with reasons for such disapproval
specified) of the Final Working Drawings within five (5) business days after
receipt thereof; any failure by Landlord to notify Tenant of its approval or
disapproval within such five (5) business day period shall be deemed to be
Landlord's disapproval thereof. Notwithstanding the foregoing, Landlord shall
only have the right to disapprove the Final Working Drawings for reasonable and
material reasons, such as: (A) an adverse effect on the structural integrity of
the Building(s); (B) noncompliance
EXHIBIT B - Page 6
<PAGE>
with Code; (C) an adverse effect on the Systems and Equipment; (D) an effect on
the exterior appearance of the Building(s); (E) the Final Working Drawings are
inconsistent with or are not a logical development of the Final Space Plan; or
(F) the Final Working Drawings are inconsistent with the Project Plans
(individually and collectively, a "Design Problem"); provided, however, that in
no event shall Landlord have the right to disapprove the Final Working Drawings
because they show minor changes to the Building 2 ground floor lobby finishes
(such as including the colors of Tenant's corporate logo as accents to the
finishes of the Building 2 ground floor lobby as long as such colors are
included in a tasteful manner) which do not cause the Building 2 ground floor
lobby to look materially different from the Building 1 ground floor lobby when
viewed from Building 1 or the plaza between Building 1 and Building 2. If
Landlord notifies Tenant of such disapproval, Tenant shall cause the Final
Working Drawings to be revised to correct any such Design Problem that Landlord
may reasonably require, and shall deliver such revised Final Working Drawings to
Landlord within five (5) business days thereafter. The Final Working Drawings as
finally approved by Landlord and Tenant pursuant to this Section 3.3 shall be
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referred to herein as the "Approved Working Drawings."
3.4 Approved Working Drawings; Permits. After approval by Landlord of the
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Approved Working Drawings, Tenant shall promptly submit the same to the
appropriate municipal authorities for all applicable building permits necessary
to allow Contractor to commence and fully complete the construction of the
Tenant Improvements (the "Permits"), and shall obtain the Permits; provided,
however, that after Landlord approves the Final Space Plan, Tenant shall have
the right to submit the Final Space Plan to the appropriate municipal
authorities to begin the process of obtaining the Permits. Tenant hereby agrees
that neither Landlord nor Landlord's consultants shall be responsible for
obtaining any building permit or certificate of occupancy for the Premises, and
that obtaining the same shall be Tenant's sole responsibility;. Tenant shall
also supply Landlord with all plan check numbers and dates of submittal within
one (1) business day after Tenant obtains same. No material changes,
modifications or alterations in the Final Space Plan or Approved Working
Drawings may be made without the prior written consent of Landlord, which
consent shall not be unreasonably withheld, provided that Landlord may withhold
its consent, in its sole discretion, to any material change in the Final Space
Plan or Approved Working Drawings if such change would (i) directly or
indirectly delay the "Substantial Completion" of the Base, Shell and Core or the
Premises as that term is defined in Section 5.1 below, unless Tenant agrees in
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writing to be responsible for any such delay and for the cost of any such delay
resulting therefrom, and/or (ii) create a Design Problem. As used in this
Section 3.4, a material change, modification or alteration shall include,
without limitation, a change which would cause the occurrence of one or both of
the matters described in clauses (i) and (ii) of the immediately preceding
sentence.
SECTION 4
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CONSTRUCTION OF THE TENANT IMPROVEMENTS
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4.1 Tenant's Selection of Contractor.
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4.1.1 The Contractor. Either L.E. Wentz, Devcon Builders or South
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Bay Construction shall be selected and retained by Tenant as the general
contractor (the "Contractor") to construct the Tenant Improvements. Tenant
shall deliver to Landlord notice of its selection of the Contractor upon such
selection.
4.1.2 Tenant's Agents. All subcontractors and suppliers used by
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Tenant (such subcontractors and suppliers, and the Contractor to be known
collectively as "Tenant's Agents") must be reasonably approved in writing by
Landlord. If Landlord reasonably disapproves any of Tenant's proposed
subcontractors or suppliers, Tenant shall submit other proposed subcontractors
or suppliers for Landlord's written approval. Notwithstanding the foregoing,
Tenant shall use such subcontractors selected by Tenant from the list of
acceptable subcontractors to be developed by Landlord and Tenant as described
below in this Section 4.1.2 to perform any work affecting the structural
components or Building Systems and Equipment or Base, Shell and Core. Landlord
and Tenant shall develop such acceptable list of subcontractors together by both
providing to each other names of such subcontractors which are reasonably
acceptable to the party providing such names; provided, however, that Landlord
shall have the opportunity to reasonably disapprove of any subcontractor
proposed by Tenant by providing Tenant with written notice of such
EXHIBIT B - Page 7
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disapproval, which such notice shall include an explanation of the reason(s) for
such disapproval, within five (5) business days after Landlord's receipt of such
name and such subcontractor disapproved Landlord shall not be retained by
Tenant.
4.2 Construction of Tenant Improvements by Tenant's Agents.
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4.2.1 Construction Contract; Cost Budget. Prior to Tenant's
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execution of the construction contract and general conditions with Contractor
(the "Contract") (which Contract shall set forth in detail the schedule of
construction of the Tenant Improvements). Tenant shall submit the Contract to
Landlord for its reasonable approval. Landlord shall notify Tenant of
Landlord's approval or reasonable disapproval of the Contract (with reasons
specified therefor) within three (3) business days after Tenant delivers same to
Landlord. Prior to the commencement of the construction of the Tenant
Improvements, and after Tenant has accepted all bids for the Tenant
Improvements, Tenant shall provide Landlord with a detailed cost budget, by
trade, of the total estimated costs of the Tenant Improvements anticipated to be
incurred and which have been incurred in connection with the design and
construction of the Tenant Improvements to be performed by or at the direction
of Tenant or the Contractor. Landlord shall notify Tenant within five (5) days
after the receipt of such cost budget of Landlord's approval or reasonable
disapproval thereof, and Tenant shall promptly make any changes to the cost
budget reasonably requested by Landlord. In the event that (i) by the fourth
(4th) day after Landlord's receipt of the Cost Budget Tenant provides Landlord's
representative (as designated pursuant to Section 6.2 below) with telephonic
notice that Landlord has not yet notified Tenant of Landlord's approval or
disapproval of the Cost Budget and (ii) Landlord fails to notify Tenant of same
within the five (5) day period specified above, then Landlord shall be deemed to
have approved the Cost Budget. The cost budget as finally approved (or deemed
approved, as the case may be) by Landlord and Tenant shall be referred to herein
as the "Cost Budget." If the amount of the Cost Budget is greater than the sum
of the (A) Tenant Improvement Allowance and (B) any portion of the Additional
Allowance elected to be received by Tenant pursuant to Section 2.1.2 above (the
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"Over-Allowance Amount"), then Tenant shall pay Tenant's pro rata share (as
described in Section 2.2.2.1 above) of the Over-Allowance Amount directly to the
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Contractor during the construction of the Tenant Improvements as a condition
precedent to Landlord's obligation to disburse Landlord's pro rata share of the
Allowances. Notwithstanding the immediately preceding sentence, prior to making
any such payments of Tenant's pro rata share of the Over-Allowance Amount,
Tenant shall provide Landlord with the documents described in Section
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2.2.2.1(i), (ii) (iii) and (iv) above for Landlord's approval. In the event
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that after the Cost Budget has been delivered by Tenant to Landlord, the costs
relating to the design and construction of the Tenant Improvements shall change,
any additional costs in excess of the initial Cost Budget, shall be added to the
Cost Budget for purposes of this Section 4.2.1 and for purposes of calculating
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Tenant's and Landlord's pro rata share of disbursements of the Over-Allowance
Amount and Allowances, respectively.
4.2.2 Tenant's Agents.
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4.2.2.1 Landlord's General Conditions for Tenant's Agents and
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Tenant Improvement Work. Tenant's and Tenant's Agent's construction of the
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Tenant Improvements shall comply with the following: (i) the Tenant Improvements
shall be constructed in accordance with the Approved Working Drawings; (ii)
Tenant's Agents shall submit schedules of all work relating to the Tenant
Improvements to Contractor and Contractor shall, within five (5) business days
of receipt thereof, inform Tenant's Agents of any changes which are necessary
thereto, and Tenant's Agents shall adhere to such corrected schedule; and (iii)
Tenant shall abide by the reasonable construction rules and regulations which
Landlord shall provide to Tenant within thirty (30) days after the full
execution of this Lease and which shall be applied on a uniform and non-
discriminatory basis, and such other reasonable rules and regulations made by
Landlord's Building manager with respect to the use of freight, loading dock and
service elevators, storage of materials, coordination of work with the
completion of the Base, Shell and Core work, and any other matter in connection
with this Tenant Work Letter, including, without limitation, the construction of
the Tenant Improvements. Tenant shall pay a logistical coordination fee (the
"Coordination Fee") to Landlord in the amount of $60,000.00, which Coordination
Fee shall be for services relating to the coordination of the construction of
the Tenant Improvements. Notwithstanding anything to the contrary set forth in
this Tenant Work Letter, Tenant shall not be
EXHIBIT B - Page 8
<PAGE>
obligated to pay for Tenant's use of staging areas, elevators and utilities in
connection with the construction of the Tenant Improvements.
4.2.2.2 INTENTIONALLY DELETED.
4.2.2.3 Requirements of Tenant's Agents. Tenant shall cause
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Contractor to guarantee to Tenant and for the benefit of Landlord that the
portion of the Tenant Improvements for which it is responsible shall be free
from any defects in workmanship and materials for a period of not less than one
(1) year from the date of completion thereof. Contractor shall be responsible
for the replacement or repair, without additional charge, of all work done or
furnished in accordance with the Contract that shall become defective within one
(1) year after the completion of the work performed by the Contractor. The
correction of such work shall include, without additional charge, all additional
expenses and damages incurred in connection with such removal or replacement of
all or any part of the Tenant Improvements, and/or the Building and/or common
areas that may be damaged or disturbed thereby. All such warranties or
guarantees as to materials or workmanship of or with respect to the Tenant
Improvements shall be contained in the Contract or subcontract and shall be
written such that such guarantees or warranties shall inure to the benefit of
both Landlord and Tenant, as their respective interests may appear, and can be
directly enforced by either. Tenant covenants to give to Landlord any
assignment or other assurances which may be necessary to effect such right of
direct enforcement.
4.2.2.4 Insurance Requirements.
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4.2.2.4.1 General Coverages. All of Tenant's Agents
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shall carry worker's compensation insurance covering all of their respective
employees, and shall also carry public liability insurance, including property
damage, all with limits, in form and with companies as are required to be
carried by Tenant as set forth in this Lease.
4.2.2.4.2 Special Coverages. Tenant shall carry
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"Builder's All Risk" insurance in the amount of at least Six Million Dollars
($6,000,000.00) covering the construction of the Tenant Improvements, and such
other insurance as Landlord may reasonably require, it being understood and
agreed that the Tenant Improvements shall be insured by Tenant pursuant to this
Lease immediately upon completion thereof. Such insurance shall be in amounts
and shall include such extended coverage endorsements as may be reasonably
required by Landlord including, but not limited to, the requirement that all of
Tenant's Agents shall carry excess liability and Products and Completed
Operation Coverage insurance, each in amounts not less than $5,000,000 per
incident, $5,000,000 in aggregate, and in form and with companies as are
required to be carried by Tenant as set forth in the Lease.
4.2.2.4.3 Auto Insurance. Tenant shall carry
--------------
comprehensive automobile liability insurance having a combined single limit of
not less than Five Million Dollars ($5,000,000.00) per occurrence and insuring
Tenant against liability for claims arising out of ownership, maintenance or use
of any owned, hired or non-owned automobiles.
4.2.2.4.4 General Terms. Certificates for all
-------------
insurance carried pursuant to this Section 4.2.2.4 shall be delivered to
---------------
Landlord before the commencement of construction of the Tenant Improvements and
before the Contractor's equipment is moved onto the site. All such policies of
insurance must contain a provision that the company writing said policy will
give Landlord thirty (30) days' prior written notice of any cancellation or
lapse of the effective date or any reduction in the amounts of such insurance.
In the event that the Tenant Improvements are damaged during the course of the
construction thereof, Tenant shall immediately repair the same at Tenant's sole
cost and expense; provided, however, that to the extent that such damage (i) is
caused during the course of Tenant's construction of the Tenant Improvements by
the negligence or willful misconduct of Landlord or Landlord's agents, employees
or contractors, and (ii) is not insured or required to be insured by Tenant
under this Lease, including this Tenant Work Letter, Landlord shall reimburse
Tenant for the costs of such repairs and, to the extent that Tenant carries such
insurance, Landlord shall pay for the cost of any deductible payable by Tenant
under such insurance. In addition, to the extent Landlord is responsible for the
cost of such repairs pursuant to the proviso of the immediately preceding
sentence, provided that all of the other terms and conditions of Section 5.2
below are met, to the extent that the repair of such damage causes a delay in
the Substantial Completion of the Tenant
EXHIBIT B - Page 9
<PAGE>
Improvements, each day of such delay shall be a day of Landlord Delay. Tenant's
Agents shall maintain all of the foregoing insurance coverage in force until the
Tenant Improvements are fully completed and accepted by Landlord, except for any
Products and Completed Operation Coverage insurance required by Landlord, which
is to be maintained by Tenant or Contractor for ten (10) years following
completion of the work and acceptance by Landlord and Tenant. All policies
carried under this Section 4.2.2.4 shall insure Landlord and Tenant, as their
---------------
interests may appear, as well as Contractor and Tenant's Agents. All insurance,
except Workers' Compensation, maintained by Tenant's Agents shall preclude
subrogation claims by the insurer against anyone insured thereunder. Such
insurance shall provide that it is primary insurance as respects the owner and
that any other insurance maintained by owner is excess and noncontributing with
the insurance required hereunder. The requirements for the foregoing insurance
shall not derogate from the provisions for indemnification under the Lease.
Landlord may, in its discretion, require Tenant, at Tenant's sole cost and
expense (which may be deducted from the Allowances), to obtain a lien and
completion bond or some alternate form of security satisfactory to Landlord in
an amount sufficient to ensure the lien-free completion of the Tenant
Improvements and naming Landlord as a co-obligee.
4.2.2.4.5 L.E. Wentz as Additional Insured. In the
--------------------------------
event that L.E. Wentz is not Tenant's Contractor, in addition to all other
parties required to be named as an additional insured by Tenant, L.E. Wentz
shall be named as an additional insured on all of the insurance policies (other
than Workmen's Compensation Insurance) required to be obtained by Tenant
pursuant to Section 4.2.2.4 of this Tenant Work Letter.
---------------
4.2.3 Governmental Compliance. The Tenant Improvements shall comply
-----------------------
in all material respects with the following: (i) the Code and other state,
federal, city or quasi-governmental laws, codes, ordinances and regulations, as
each may apply according to the rulings of the controlling public official,
agent or other person; (ii) applicable standards of the American Insurance
Association (formerly, the National Board of Fire Underwriters) and the National
Electrical Code; and (iii) building material manufacturer's specifications.
4.2.4 Inspection by Landlord. Landlord shall have the right to
----------------------
inspect the Tenant Improvements at all times, provided however, that Landlord's
failure to inspect the Tenant Improvements shall in no event constitute a waiver
of any of Landlord's rights hereunder. Should Landlord reasonably disapprove
any portion of the Tenant Improvements, Landlord shall notify Tenant in writing
of such reasonable disapproval and shall specify the items disapproved. Any
defects or deviations in, and/or reasonable disapproval by Landlord of, the
Tenant Improvements shall be rectified by Tenant at no expense to Landlord;
provided however, that the Allowances may be used to pay for the cost of any
such corrective work.
4.2.5 Meetings. Commencing upon the execution of this Lease, Tenant
--------
through Tenant's representative (as designated in Section 6.2 below) shall hold
-----------
weekly meetings at a reasonable time, with the Architect, the Contractor and
Landlord's representative (as designated in Section 6.2 below) regarding the
-----------
progress of the preparation of Construction Drawings and the construction of the
Tenant Improvements, which meetings shall be held at a location designated by
Landlord and Landlord shall attend all such meetings, and, upon Landlord's
request, certain of Tenant's Agents shall attend such meetings. Tenant shall
provide Landlord and/or Landlord's agents with prior notice of the date and time
of such meetings. In addition, minutes shall be taken at all such meetings, a
copy of which minutes shall be promptly delivered to Landlord. One such meeting
each month shall include the review of Contractor's current request for payment.
4.2.6 Scheduling of Construction. Notwithstanding anything to the
--------------------------
contrary set forth in this Tenant Work Letter, Landlord and Tenant shall each
use commercially reasonable efforts during Tenant's construction of the Tenant
Improvements and Landlord's completion of the Base, Shell and Core work
following the Access Condition Date to (i) minimize interference by such party's
work with the other party's work under this Tenant Work Letter, and (ii)
coordinate and follow the schedule for the construction of the Base, Shell and
Core and the construction of the Tenant Improvements so as to minimize delays in
such work. Such efforts shall include, without limitation, incorporating
provisions in contracts with contractors and subcontractors which require the
parties' contractors and subcontractors to cooperate with the other party's
contractors and subcontractors and require the parties' contractors and
EXHIBIT B - Page 10
<PAGE>
subcontractors to comply with Landlord's construction coordination procedure
manual, but shall not require either party to incur material extra expense or
delay.
4.3 Notice of Completion; Copy of Record Set of Plans. Within ten (10)
-------------------------------------------------
days after completion of construction of the Tenant Improvements, Tenant shall
cause a Notice of Completion to be recorded in the office of the Recorder of San
Mateo County in accordance with Section 3093 of the Civil Code of the State of
California or any successor statute, and shall furnish a copy thereof to
Landlord upon such recordation. If Tenant fails to do so, Landlord may execute
and file the same on behalf of Tenant as Tenant's agent for such purpose, at
Tenant's sole cost and expense. At the conclusion of construction, (i) Tenant
shall cause the Architect and Contractor (A) to update the Approved Working
Drawings as necessary to reflect all changes made to the Approved Working
Drawings during the course of construction, (B) to certify to the best of their
knowledge that the "record-set" of as-built drawings are true and correct, which
certification shall survive the expiration or termination of this Lease, and (C)
to deliver to Landlord two (2) sets of copies of such record set of drawings
within ninety (90) days following issuance of a certificate of occupancy for the
Premises, and (ii) Tenant shall deliver to Landlord a copy of all warranties,
guaranties, and operating manuals and information relating to the improvements,
equipment, and systems in the Premises.
SECTION 5
---------
READY FOR OCCUPANCY/LEASE COMMENCEMENT DATE
-------------------------------------------
5.1 Ready for Occupancy. For purposes of this Lease and this Tenant Work
-------------------
Letter, the Premises shall be "Ready for Occupancy" upon "Substantial
Completion" of the Base, Shell and Core and the Tenant Improvements. For
purposes of this Lease, "Substantial Completion" shall occur upon: (i) the
completion of construction of the Base, Shell and Core substantially in
accordance with the Project Plans for the Base, Shell and Core pursuant to
Sections 1.1 and 1.2 of this Tenant Work Letter, with the exception of any punch
- --------------------
list items (which shall be diligently completed by Landlord thereafter); (ii)
the completion of construction of the Tenant Improvements in the Premises
pursuant to the Approved Working Drawings, with the exception of any punch-list
items (which shall be diligently completed by Tenant thereafter) and any tenant
fixtures, work-stations, built-in furniture, or equipment to be installed by
Tenant in the Premises pursuant to the terms of this Tenant Work Letter or under
the supervision of Contractor; and (iii) the issuance by the City of Foster City
of a certificate or temporary certificate of occupancy (or its equivalent) for
(A) the Base, Shell and Core and (B) the Premises.
5.2 Lease Commencement Date. The Lease Commencement Date shall be that
-----------------------
date which is described in Section 7.2 of the Summary, notwithstanding the fact
that the Premises may not be Ready for Occupancy until after the 120-day period
set forth in Section 7.2(ii)(a) of the Summary; provided, however, to the extent
that Substantial Completion of the Base, Shell and Core and Tenant Improvements
is actually delayed beyond such 120-day period as a result of Landlord Delays
(as defined below), then the 120-day period set forth in Section 7.2(ii)(a) of
the Summary shall be extended by the number of days of such Landlord Delays.
For purposes hereof, "Landlord Delays" shall mean any actual delay in
Substantial Completion of the Base, Shell and Core or the Tenant Improvements
beyond such 120-day period as a result of: (i) Landlord's failure to timely
approve any matter requiring Landlord's approval in this Tenant Work Letter;
(ii) Landlord's failure to substantially complete, within such 120-day period,
the Base, Shell and Core work which was not completed as of the date Landlord
delivered possession of the Premises to Tenant in the Access Condition (but only
to the extent such failure by Landlord was not caused by (A) Tenant's failure
to reasonably cooperate and coordinate with Landlord to minimize interference
with such work as required in Section 4.2.6 above and/or (B) acts or omissions
-------------
of or interference with such Base, Shell and Core work by Tenant or Tenant's
architects, representatives, agents, contractors or employees which acts,
omissions or interference could have been reasonably avoided at a reasonable
cost despite the fact that Landlord is completing certain items of the Base
Shell and Core concurrently with Tenant's construction of the Tenant
Improvements); (iii) Landlord's failure to comply with any provisions of this
Tenant Work Letter, including Sections 2.2.2.1 and 4.2.6 above; and/or (iv) any
--------------------------
other acts or omissions of Landlord, including, without limitation, damage to
the Tenant Improvements described in Section 4.2.2.4.4 above. Notwithstanding
the foregoing, no Landlord Delay shall be deemed to have occurred unless Tenant
notifies Landlord in writing (the "Delay Notice") of such contended delay within
EXHIBIT B - Page 11
<PAGE>
three (3) days after Tenant becomes aware of same, and the Landlord Delay shall
be deemed to have commenced on the date Landlord receives the Delay Notice (but
only if Landlord received such Delay Notice within the 3-day period specified
hereinabove).
5.3 Special Rent Abatement. Landlord shall not be liable to Tenant and
----------------------
Tenant shall have no right to terminate this Lease as a result of any delays in
Landlord's Substantial Completion of the Base, Shell and Core beyond the 120-day
period following Landlord's delivery to Tenant of the Base, Shell and Core in
the Access Condition; provided, however, if Landlord fails to cause Substantial
Completion of the Base, Shell and Core to occur by the date ("Outside
Substantial Completion Date") which is sixty (60) days after Tenant has caused
Substantial Completion of the Tenant Improvements to have occurred, as such
Outside Substantial Completion Date shall be extended day-for-day for each day
that Substantial Completion of the Base, Shell and Core has not occurred due to
(i) delays caused by Tenant and/or Tenant's architects, representatives, agents,
contractors or employees, and/or (ii) any Force Majeure delays, and the Lease
Commencement Date has not otherwise commenced pursuant to Section 7.2 of the
Summary, then for each day after the Outside Substantial Completion Date that
the Lease Commencement Date has not occurred, Tenant shall be entitled to
receive an abatement of Base Rent under this Lease at a daily amount of
$11,228.69, which abatement shall be credited toward the monthly Base Rent first
payable under this Lease following the Lease Commencement Date.
SECTION 6
---------
MISCELLANEOUS
-------------
6.1 Tenant's Representative. Within thirty (30) days after the full
-----------------------
execution of this Lease, Tenant shall designate a person to act as its sole
representative with respect to the matters set forth in this Tenant Work Letter,
who, until further notice from Tenant to Landlord, shall have full authority and
responsibility to act on behalf of the Tenant as required in this Tenant Work
Letter.
6.2 Landlord's Representative. Landlord has designated John Zordani as
-------------------------
its sole representative with respect to the matters set forth in this Tenant
Work Letter, who, until further notice to Tenant, shall have full authority and
responsibility to act on behalf of the Landlord as required in this Tenant Work
Letter.
6.3 Time of the Essence in This Tenant Work Letter. Unless otherwise
----------------------------------------------
indicated, all references herein to a "number of days" shall mean and refer to
calendar days. If any item requiring approval by Landlord is timely disapproved
by Landlord, the procedure for preparation of the document and approval thereof
shall be repeated until the document is approved by Landlord.
6.4 Tenant's Lease Default. Notwithstanding any provision to the contrary
----------------------
contained in this Lease, if by Tenant is in monetary or material non-monetary
default under this Lease beyond any applicable notice and cure period at any
time on or before Substantial Completion of the Base, Shell and Core and the
Tenant Improvements, then (i) in addition to all other rights and remedies
granted to Landlord pursuant to the Lease, Landlord shall have the right to
withhold payment of all or any portion of the Allowances and/or Landlord may
cause Contractor to cease the construction of the Premises (in which case Tenant
shall be responsible for any delays in Substantial Completion caused by such
work stoppage), and (ii) all other obligations of Landlord under the terms of
this Tenant Work Letter shall be suspended until such time as such default is
cured pursuant to the terms of the Lease (in which case, Tenant shall be
responsible for any delays in Substantial Completion of the Base, Shell and Core
and Tenant Improvements caused by such inaction by Landlord).
EXHIBIT B - Page 12
<PAGE>
SCHEDULE 1 TO EXHIBIT B
-----------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
ISSUE LOG
SHEET INDEX ------------------------------------------------------------------------------------------------------
ISSUE BID REV. BULL. BULL.
- ------------------------------ FOR & BLDG CONST. SILT 5 6 ISSUE
STEEL BULLE- BULLE- BULLE- GRADING BULLE- PERMIT ISSUE FNCE/ GRAD'G FNDTN BULL 7 FOR
# TITLE BID TIN 1 TIN 2 TIN 3 PERMIT TIN 4 ISSUE -12KV WETLD CONST. CONST. PLUMBING PERMIT
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
A. 0.0 TITLE SHEET X X X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
CIVIL
- ------------------------------------------------------------------------------------------------------------------------------------
C1.0 NOTES & DETAILS X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
C1.1 STORM DRAIN EXTENSION X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
C1.2 GRADING PLAN X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
C1.3 GRADING PLAN X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
C1.4 UTILITY PLAN X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
C1.5 UTILITY PLAN X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
C1.6 JOINT TRENCH PLAN X X
- ------------------------------------------------------------------------------------------------------------------------------------
C1.7 JOINT TRENCH PLAN X X
- ------------------------------------------------------------------------------------------------------------------------------------
C1.8 EROSION CONTROL PLAN X X
- ------------------------------------------------------------------------------------------------------------------------------------
C1.9 EROSION CONTROL PLAN X X
- ------------------------------------------------------------------------------------------------------------------------------------
C1.10 HORIZONTAL CONTROL PLAN X
- ------------------------------------------------------------------------------------------------------------------------------------
C1.11 PROTECTION PLAN (E)
14" & 34" SSFM X X
- ------------------------------------------------------------------------------------------------------------------------------------
C1.12 PROTECTION PLAN (E)
14" & 34" SSFM X X
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
LANDSCAPE
- ------------------------------------------------------------------------------------------------------------------------------------
L0.1 ABBREVIATIONS X X X
- -----------------------------------------------------------------------------------------------------------------------------------
LL.1 CENTRAL LANDSCAPE LAYOUT
PLAN X X X
- -----------------------------------------------------------------------------------------------------------------------------------
LL.2 WEST LANDSCAPE LAYOUT
PLAN X X X
- -----------------------------------------------------------------------------------------------------------------------------------
LL.3 EAST LANDSCAPE LAYOUT
PLAN X X X
- -----------------------------------------------------------------------------------------------------------------------------------
LD.1 LANDSCAPE CONSTRUCTION
DETAILS X X X
- -----------------------------------------------------------------------------------------------------------------------------------
LD.2 LANDSCAPE CONSTRUCTION
DETAILS X X X
- -----------------------------------------------------------------------------------------------------------------------------------
LD.3 WETLANDS DETAILS AND
SPECIFICATIONS X X X
- -----------------------------------------------------------------------------------------------------------------------------------
LG.1 CENTRAL LANDSCAPE GRADING
PLAN X X X
- -----------------------------------------------------------------------------------------------------------------------------------
LG.2 WEST LANDSCAPE GRADING
PLAN X X X
- -----------------------------------------------------------------------------------------------------------------------------------
LG.3 EAST LANDSCAPE GRADING
PLAN X X X
- -----------------------------------------------------------------------------------------------------------------------------------
LI.1 CENTRAL LANDSCAPE
IRRIGATION PLAN X X X
- -----------------------------------------------------------------------------------------------------------------------------------
LI.2 WEST LANDSCAPE
IRRIGATION PLAN X X X
- -----------------------------------------------------------------------------------------------------------------------------------
LI.3 EAST LANDSCAPE
IRRIGATION PLAN X X X
- -----------------------------------------------------------------------------------------------------------------------------------
LI.4 LANDSCAPE IRRIGATION
DETAILS X X X
- -----------------------------------------------------------------------------------------------------------------------------------
LI.5 LANDSCAPE IRRIGATION
DETAILS X X X
- -----------------------------------------------------------------------------------------------------------------------------------
LP.1 CENTRAL PLANTING PLAN X X X
- -----------------------------------------------------------------------------------------------------------------------------------
LP.2 WEST PLANTING PLAN X X X
- -----------------------------------------------------------------------------------------------------------------------------------
LP.3 EAST PLANTING PLAN X X X
- -----------------------------------------------------------------------------------------------------------------------------------
LP.4 LANDSCAPE PLANTING
DETAILS X X X
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
ARCHITECTURAL
- -----------------------------------------------------------------------------------------------------------------------------------
A. 0.1 LEGENDS, PROJECT
DESCRIPTION, CODE SUMMARY X X X
- -----------------------------------------------------------------------------------------------------------------------------------
A. 0.2 BUILDING ACCESSIBILITY X X X
- -----------------------------------------------------------------------------------------------------------------------------------
A. 1.1 SITE PLAN X X X X
- -----------------------------------------------------------------------------------------------------------------------------------
A. 2.1 FLOOR PLANS X X X X
- -----------------------------------------------------------------------------------------------------------------------------------
A. 2.2 FLOOR AND ROOF PLANS X X X
- -----------------------------------------------------------------------------------------------------------------------------------
A. 3.1 EXTERIOR ELEVATIONS X X X
- -----------------------------------------------------------------------------------------------------------------------------------
A. 3.2 BUILDING SECTIONS X X X
- -----------------------------------------------------------------------------------------------------------------------------------
A. 3.3 WALL SECTIONS X X X
- -----------------------------------------------------------------------------------------------------------------------------------
A. 4.1 ENLARGED PLANS X X X
- -----------------------------------------------------------------------------------------------------------------------------------
A. 4.2 ENLARGED PLANS X X X
- -----------------------------------------------------------------------------------------------------------------------------------
A. 4.3 ENLARGED PLANS X X X
- -----------------------------------------------------------------------------------------------------------------------------------
A. 4.4 ENLARGED REFLECTED
CEILING PLANS X X X
- -----------------------------------------------------------------------------------------------------------------------------------
A. 5.1 ENLARGED FINISH PLANS X X X
- -----------------------------------------------------------------------------------------------------------------------------------
A. 6.1 INTERIOR ELEVATIONS X X X
- -----------------------------------------------------------------------------------------------------------------------------------
A. 6.2 INTERIOR ELEVATIONS X X X
- -----------------------------------------------------------------------------------------------------------------------------------
A. 7.1 STAIR PLANS AND SECTIONS X X X
- -----------------------------------------------------------------------------------------------------------------------------------
A. 8.1 GFRC DETAILS X X X
- -----------------------------------------------------------------------------------------------------------------------------------
A. 8.2 GFRC DETAILS X X X
- -----------------------------------------------------------------------------------------------------------------------------------
A. 8.3 EIFS/CMU/MISC. DETAILS X X X X
- -----------------------------------------------------------------------------------------------------------------------------------
A. 8.4 ROOFING DETAILS X X X
- -----------------------------------------------------------------------------------------------------------------------------------
A. 9.1 INTERIOR PARTITION
DETAILS X X X
- -----------------------------------------------------------------------------------------------------------------------------------
A. 9.2 INTERIOR FINISH DETAILS X X X
- -----------------------------------------------------------------------------------------------------------------------------------
A. 9.3 INTERIOR CEILING DETAILS X X X
- -----------------------------------------------------------------------------------------------------------------------------------
A. 9.4 INTERIOR DOOR DETAILS
& SCHEDULE X X X
- -----------------------------------------------------------------------------------------------------------------------------------
A. 9.5 INTERIOR DOOR DETAILS X X X
- -----------------------------------------------------------------------------------------------------------------------------------
A. 9.6 MAIN LOBBY FINISH
DETAILS X X X
===================================================================================================================================
- -----------------------------------------------------------------------------------------------------------------------------------
ISSUE LOG KEY:
- -------------
'X' ISSUED AS PART OF SET
'-' NOT A PART OF ISSUED SET
DATE 9.19.97|2.23.98|2.24.97|3.9.98|3.17.98|4.1.98|4.6.98|4.14.98|5.1.98|5.27.98|5.28.98|6.15.98|6.19.98
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 1 of 2
<PAGE>
BAYSIDE TOWERS, FOSTER CITY
- ---------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
ISSUE LOG
SHEET INDEX ------------------------------------------------------------------------------------------------------
ISSUE BID REV. BULL BULL
- ------------------------------ FOR & BLDG CONST. SILT 5 6 ISSUE
STEEL BULLE- BULLE- BULLE- GRADING BULLE- PERMIT ISSUE FENCE/ GRAD'G FNDTN BULL 7 FOR
# TITLE BID TIN 1 TIN 2 TIN 3 PERMIT TIN 4 ISSUE -12KV WTLD CONST. CONST. PLUMBING PERMIT
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
STRUCTURAL
- -----------------------------------------------------------------------------------------------------------------------------------
S 1.1 STRUCTURAL GENERAL NOTES X X X X X
- -----------------------------------------------------------------------------------------------------------------------------------
S 1.2 TYPICAL DETAILS X X X X
- -----------------------------------------------------------------------------------------------------------------------------------
S 1.3 TYPICAL DETAILS X X X X
- -----------------------------------------------------------------------------------------------------------------------------------
S 2.1 GROUND FLOOR FOUNDATION
PLAN X X X X X
- -----------------------------------------------------------------------------------------------------------------------------------
S 2.2 SECOND FLOOR FRAMING
PLAN X X X X X
- -----------------------------------------------------------------------------------------------------------------------------------
S 2.3 THIRD FLOOR FRAMING
PLAN X X X X
- -----------------------------------------------------------------------------------------------------------------------------------
S 2.4 FOURTH FLOOR FRAMING
PLAN X X X X
- -----------------------------------------------------------------------------------------------------------------------------------
S 2.5 FIFTH FLOOR FRAMING
PLAN X X X X
- -----------------------------------------------------------------------------------------------------------------------------------
S 2.6 SIXTH FLOOR FRAMING
PLAN X X X X
- -----------------------------------------------------------------------------------------------------------------------------------
S 2.7 ROOF FRAMING PLAN X X X X X X
- -----------------------------------------------------------------------------------------------------------------------------------
S 2.8 PENTHOUSE ROOF FRAMING
PLAN X X X X X X
- -----------------------------------------------------------------------------------------------------------------------------------
S 3.1 BRACED FRAME ELEVATIONS X X X X
- -----------------------------------------------------------------------------------------------------------------------------------
S 3.2 BRACED FRAME ELEVATIONS
AND DETAILS X X X X
- -----------------------------------------------------------------------------------------------------------------------------------
S 3.3 BRACED FRAME DETAILS X X X X
- -----------------------------------------------------------------------------------------------------------------------------------
S 4.1 FOUNDATION DETAILS X X X X
- -----------------------------------------------------------------------------------------------------------------------------------
S 4.2 FOUNDATION DETAILS X X X X
- -----------------------------------------------------------------------------------------------------------------------------------
S 5.1 STEEL DETAILS X X X
- -----------------------------------------------------------------------------------------------------------------------------------
S 5.2 STEEL DETAILS X X X X
- -----------------------------------------------------------------------------------------------------------------------------------
S 5.3 STEEL DETAILS X X X
- -----------------------------------------------------------------------------------------------------------------------------------
S 5.4 STEEL DETAILS X X X
- -----------------------------------------------------------------------------------------------------------------------------------
S 5.5 STEEL DETAILS X X X
- -----------------------------------------------------------------------------------------------------------------------------------
S 6.1 G.F.R.C. PANEL
CONNECTION DETAILS X X
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
MECHANICAL
- ------------------------------------------------------------------------------------------------------------------------------------
M-1 LEGEND, ABBREVIATIONS,
SCHEDULES X X
- ------------------------------------------------------------------------------------------------------------------------------------
M-2 SCHEDULES X X
- ------------------------------------------------------------------------------------------------------------------------------------
M-3 DETAILS AND PIPING DIAGRAMS X X
- ------------------------------------------------------------------------------------------------------------------------------------
M-4 FIRST FLOOR PLAN X X
- ------------------------------------------------------------------------------------------------------------------------------------
M-5 SECOND FLOOR PLAN X X
- ------------------------------------------------------------------------------------------------------------------------------------
M-6 THIRD FLOOR PLAN
(TYPICAL 4TH, 5TH, & 6TH) X X
- ------------------------------------------------------------------------------------------------------------------------------------
M-7 ROOF FLOOR PLAN X X
- ------------------------------------------------------------------------------------------------------------------------------------
M-9 TITLE 24 REQUIREMENTS X X
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
PLUMBING
- ------------------------------------------------------------------------------------------------------------------------------------
P 1.1 PLUMBING LEGEND, SCHEDULE
AND DETAILS X X X X
- -----------------------------------------------------------------------------------------------------------------------------------
P 1.2 SITE PLAN X X X X
- -----------------------------------------------------------------------------------------------------------------------------------
P 2.1 FIRST FLOOR PLAN X X X X
- -----------------------------------------------------------------------------------------------------------------------------------
P 2.2 SECOND FLOOR PLAN X X
- -----------------------------------------------------------------------------------------------------------------------------------
P 2.3 TYPICAL FLOOR PLAN
(3RD THRU 6TH) X X
- -----------------------------------------------------------------------------------------------------------------------------------
P 2.4 ROOF FLOOR PLAN X X
- -----------------------------------------------------------------------------------------------------------------------------------
P 3.1 CORE PLANS X X
- -----------------------------------------------------------------------------------------------------------------------------------
P 4.1 DRAINAGE AND WATER
PIPING RISER DIAGRAMS X X X
- -----------------------------------------------------------------------------------------------------------------------------------
P 4.2 RAINWATER, GAS, FIRE
SPRINKLER & STANDPIPE
PIPING RISER DIAGRAMS X X X
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
ELECTRICAL
- ------------------------------------------------------------------------------------------------------------------------------------
E-1 SYMBOLS LIST, NOTES AND
DRAWING INDEX X X
- ------------------------------------------------------------------------------------------------------------------------------------
E-2 SCHEDULES X X
- ------------------------------------------------------------------------------------------------------------------------------------
E-3 POWER ONE LINE DIAGRAMS X X X
- ------------------------------------------------------------------------------------------------------------------------------------
E-4 ELECTRICAL SITE PLAN X X
- ------------------------------------------------------------------------------------------------------------------------------------
E-5 FIRST FLOOR LIGHTING
PLAN X X
- ------------------------------------------------------------------------------------------------------------------------------------
E-6 SECOND FLOOR LIGHTING
PLAN X X
- ------------------------------------------------------------------------------------------------------------------------------------
E-7 FIRST FLOOR POWER PLAN X X
- ------------------------------------------------------------------------------------------------------------------------------------
E-8 SECOND FLOOR POWER PLAN X X
- ------------------------------------------------------------------------------------------------------------------------------------
E-9 ROOM LIGHTING AND
POWER PLAN X X
- ------------------------------------------------------------------------------------------------------------------------------------
E-10 ROOM DETAILS X X
- ------------------------------------------------------------------------------------------------------------------------------------
E-11 TITLE 24 X X
- ------------------------------------------------------------------------------------------------------------------------------------
===================================================================================================================================
ISSUE LOG KEY:
- -------------
'X' ISSUED AS PART OF SET
'-' NOT A PART OF ISSUED SET
DATE 9.19.97|2.23.98|2.24.97|3.9.98|3.17.98|4.1.98|4.6.98|4.14.98|5.1.98|5.27.98|5.28.98|6.15.98|6.19.98
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 2 of 2
<PAGE>
SCHEDULE 2 TO EXHIBIT B
-----------------------
LIST OF ITEMS WHICH WILL NOT BE INCLUDED
----------------------------------------
IN THE BASE, SHELL AND CORE
---------------------------
Notwithstanding the fact that the following items are shown on the Project
Plans, the following shall not be included in the Base, Shell and Core or the
Project.
1. Main HVAC Loop
2. Mini-Blinds
3. Elevator lobby finishes (except in ground floor elevator lobbies)
4. Any work to be constructed on floors 1, 2, 3 and 6 of Building 1, except
for ground floor lobby and curtain wall.
SCHEDULE 2 TO EXHIBIT B - Page 1
<PAGE>
SCHEDULE 3 TO EXHIBIT B
-----------------------
ITEMS OF THE BASE, SHELL AND CORE WHICH WILL
--------------------------------------------
NOT BE COMPLETE AT TIME ACCESS CONDITION IS
-------------------------------------------
ACHIEVED BUT WHICH WILL NEED TO BE
----------------------------------
COMPLETED (PUNCH-LIST ITEMS EXCEPTED) AS
----------------------------------------
PART OF SUBSTANTIAL COMPLETION DEFINITION
-----------------------------------------
FOR THE BASE, SHELL AND CORE**
----------------------------
A. ITEMS WHICH RELATE TO THE REAL PROPERTY AS A WHOLE:
BUILDINGS 1 & 2
---------------
1. Site Work (except that Tenant shall have access to Buildings 1 and 2
to the extent reasonably necessary for Tenant's construction of the
Tenant Improvements).
2. Utility site work, off-site utilities (except utilities needed for
construction of Tenant Improvements will be available).
3. Landscape - hardscape and planting.
4. Loading areas for Buildings.
5. Entrances to Buildings.
6. Final connections for life safety systems.
7. Roof screens.
B. ITEMS WHICH RELATE TO BUILDING 1
1. Ground floor lobby corridors and storefront.
2. Horizontal distribution of fire sprinklers, mechanical and electrical
systems.
3. Roof and penthouse.
4. Penthouse equipment and controls.
5. Final connection of utilities.
6. Curtain walls for floors 4 and 5, but the floors will be watertight.
7. Core restrooms, drinking fountains and elevator lobbies.
8. Elevators (except that at least one elevator or a lift will be in
operation to the extent reasonably necessary for the construction of
the Tenant Improvements).
9. Final finishes.
10. Ground floor lobby finishes.
11. Perimeter drywall and columns at areas not dried in.
C. ITEMS WHICH RELATE TO BUILDING 2
1. Caulking and sealing of curtain wall.
2. Curtain wall levels 5 and 6, but the floors will be watertight.
3. Restrooms, drinking fountains, and elevator lobbies.
4. Horizontal distribution of sprinkler systems.
5. Penthouse equipment and controls.
SCHEDULE 3 TO EXHIBIT B - Page 1
<PAGE>
6. Perimeter drywall at unfinished curtain wall floors.
7. Elevators (except that at least one elevator or a lift will be in
operation to the extent reasonably necessary for the construction of
the Tenant Improvements).
8. Main lobby.
9. Lobby finishes.
10. Ground floor storefront.
**Notwithstanding the foregoing or anything contained in the Project Plans
to the contrary, completion of the Pedestrian Bridge to San Francisco Bay (i)
shall not be included in the Base, Shell and Core, and (ii) shall not be
required to be completed (A) as part of the Base, Shell and Core, (B) to achieve
Substantial Completion of the Base, Shell and Core, or (C) for the Lease
Commencement Date to occur, although Landlord shall use commercially reasonable
efforts to substantially complete such bridge as soon as reasonably possible.
SCHEDULE 3 TO EXHIBIT B - Page 2
<PAGE>
SCHEDULE 4 TO EXHIBIT B
-----------------------
PROJECT SCHEDULE
----------------
(ATTACHED)
SCHEDULE 4 TO EXHIBIT B - Page 1
<PAGE>
SCHEDULE 5 TO EXHIBIT B
-----------------------
FORM OF REQUEST FOR PAYMENT
---------------------------
<TABLE>
<S> <C> <C> <C> <C>
APPLICATION AND CERTIFICATION FOR PAYMENT AIA DOCUMENT G702 PAGE ONE OF PAGES
- ------------------------------------------------------------------------------------------------------------------------------------
TO OWNER: PROJECT: APPLICATION NO: Distribution to:
[_] OWNER
[_] ARCHITECT
PERIOD TO: [_] CONTRACTOR
FROM CONTRACTOR: VIA ARCHITECT: [_]
[_]
PROJECT NOS:
CONTRACT FOR: CONTRACT DATE:
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
CONTRACTOR'S APPLICATION FOR PAYMENT
Application is made for payment, as shown below, in connection with the
Contract. Continuation Sheet, AIA Document G703, is attached.
1. ORIGINAL CONTRACT SUM $______
2. Net change by Change Orders $______
3. CONTRACT SUM TO DATE (Line 1 +/- 2) $______
4. TOTAL COMPLETED & STORED TO $______
DATE (Column G on G703)
5. RETAINAGE:
a. ____% of Completed Work $________
(Column D + E on G703)
b. ____% of Stored Material $________
(Column F on G703)
Total Retainage (Lines 5a + 5b or
Total in Column 1 of G703) $ 0.00
-------
6. TOTAL EARNED LESS RETAINAGE $ 0.00
(Line 4 Less Line 5 Total) -------
7. LESS PREVIOUS CERTIFICATES FOR
PAYMENT (Line 6 from prior Certificate) $
-------
8. CURRENT PAYMENT DUE $ 0.00
-------
9.BALANCE TO FINISH, INCLUDING RETAINAGE $ 0.00
(Line 3 less Line 6) -------
- -------------------------------------------------------------------------------
CHANGE ORDER SUMMARY ADDITIONS DEDUCTIONS
- -------------------------------------------------------------------------------
Total changes approved
in previous months by Owner
- -------------------------------------------------------------------------------
Total approved this Month
- -------------------------------------------------------------------------------
TOTALS $0.00 $0.00
- -------------------------------------------------------------------------------
NET CHANGES by Change Order $0.00
- -------------------------------------------------------------------------------
The undersigned Contractor certifies that to the best of the Contractor's
knowledge, information and belief the work covered by this Application for
Payment has been completed in accordance with the Contract Documents, that all
amounts have been paid by the Contractor for Work for which previous
Certificates for Payment were issued and payments received from the Owner, and
that current payment shown herein is now due.
CONTRACTOR:
By: _______________________________________ Date: __________________________
State of: County of:
Subscribed and sworn to before me this day of
Notary Public:
My Commission expires:
- --------------------------------------------------------------------------------
ARCHITECT'S CERTIFICATE FOR PAYMENT
In accordance with the Contract Documents, based on on-site observations and the
data comprising the application, the Architect certifies to the Owner that to
the best of the Architect's knowledge, information and belief the Work has
progressed as indicated, the quality of the Work is in accordance with the
Contract Documents, and the Contractor is entitled to payment of the AMOUNT
CERTIFIED.
AMOUNT CERTIFIED .................... $ ________
(Attach explanation if amount certified differs from the amount applied. Initial
all figures on this Application and on the Continuation Sheet that are changed
to conform with the amount certified.)
ARCHITECT:
By: _______________________________________ Date: ____________________________
This Certificate is not negotiable. The AMOUNT CERTIFIED is payable only to the
Contractor named herein. Issuance, payment and acceptance of payment are without
prejudice to any rights of the Owner or Contractor under this Contract.
- --------------------------------------------------------------------------------
AIA DOCUMENT G702 - APPLICATION AND CERTIFICATION FOR PAYMENT - 1992 EDITION -
AIA (C) 1992 THE AMERICAN INSTITUTE OF ARCHITECTS, 1725 NEW YORK AVE., N.W.,
WASHINGTON, DC 20006-5292
USERS MAY OBTAIN VALIDATION OF THIS DOCUMENT BY REQUESTING AIA DOCUMENT D401 -
CERTIFICATION OF DOCUMENT'S AUTHENTICITY FROM THE LICENSEE.
SCHEDULE 5 TO EXHIBIT B - Page 1 of 2
<PAGE>
CONTINUATION SHEET AIA DOCUMENT G703 PAGE OF PAGES
- -------------------------------------------------------------------------------
AIA Document G702, APPLICATION AND APPLICATION NO:
CERTIFICATION FOR PAYMENT, containing APPLICATION DATE:
Contractor's signed certification is PERIOD TO:
attached. ARCHITECT'S PROJECT NO:
In tabulations below, amounts are stated to the nearest dollar.
Use Column 1 on Contracts where variable retainage for line items may apply.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
A B C D E F G H I
- -----------------------------------------------------------------------------------------------------------------------------------
ITEM DESCRIPTION OF WORK SCHEDULED WORK COMPLETED MATERIALS TOTAL % BALANCE RETAINAGE
NO. VALUE --------------------------- PRESENTLY COMPLETED (G / C) TO FINISH (IF VARIABLE
FROM PREVIOUS THIS PERIOD STORED AND STORED (C - G) RATE)
APPLICATION (NOT IN TO DATE
(D + E) D OR E) (D+E+F)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
GRAND TOTALS $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
USERS MAY OBTAIN VALIDATION OF THIS DOCUMENT BY REQUESTING OF THE LICENSE A
COMPLETED AIA DOCUMENT D401 - CERTIFICATION OF DOCUMENT'S AUTHENTICITY
AIA DOCUMENT G703 CONTINUATION SHEET FOR G702 1992 EDITION AIA (C) 1992
THE AMERICAN INSTITUTE OF ARCHITECTS, 1735 NEW YORK AVENUE, N.W.
WASHINGTON, D.C. 200006-5232
SCHEDULE 5 TO EXHIBIT B - Page 2 of 2
<PAGE>
SCHEDULE 6 TO EXHIBIT B
-----------------------
PROGRESS PAYMENT RELEASE
(Civil Code Section 3262(d)(1)(2))
<TABLE>
<S> <C>
FROM: __________________________________ PROJECT: __________________________________
(Name of Firm Giving Release) (Tenant Name and/or Scope of Work)
________________________________________ ___________________________________________
(Street Address) (Address of Project)
________________________________________ ___________________________________________
(City, State, Zip Code) (City, State, Zip Code)
TO: LINCOLN PROPERTY COMPANY N.C., INC. ___________________________________________
Attn: Construction Department (Name of Subcontractor)
101 Lincoln Centre Drive, 4th Floor
Foster City, CA 94404-1167
- --------------------------------------------------------------------------------------
</TABLE>
CONDITIONAL RELEASE
-------------------
Upon receipt by the undersigned of a check from __________________________ in
the sum of $______________ payable to _________________________________ and when
the check has been properly endorsed and has been paid by the bank upon which it
is drawn, this document shall become effective to release any mechanic's lien,
stop notice, or bond right the undersigned has on the above referenced job to
the following extent. This release covers a progress payment for labor,
services, equipment or materials furnished through ________________ only and
does ot cover any retentions retained before or after the release date; extras
furnished before the release date for which payment has not been received;
extras or items furnished after the release date. Rights based upon work
performed or items furnished under a written change order which has been fully
executed by the parties prior to the release date are covered by this release.
This release of any mechanic's lien, stop notice, or bond right shall not
otherwise affect the contract rights, including rights between parties to the
contract based upon a recission, abandonment, or breach of the contract, or the
right of the undersigned to recover compensation for furnished labor, services,
equipment, or material covered by this release if that furnished labor,
services, equipment, or material was not compensated by the progress payment.
Before any recipient of this document relies on it, said party should verify
evidence of payment to the undersigned.
______________________________________
(Name of Firm Furnishing Labor, etc.)
______________________________________
(By: Signature of Authorized Agent)
Date:_________________________________
ALL LIEN RELEASES (OVER $2,000) MUST BE NOTARIZED
(ATTACH NOTARY ACKNOWLEDGE FORMS TO THIS RELEASE)
UNCONDITIONAL RELEASE
---------------------
The undersigned has been paid and has received progress payment in the sum of
$__________ for labor, services, equipment, or material furnished to
________________________________ on the above referenced job and does hereby
release any mechanic's lien, stop notice, or bond right that the undersigned has
on the above referenced job to the following extent. This release covers a
progress payment for labor, services, equipment, or material furnished to
_______________________ through ___________________ only and does not cover any
retentions retained before or after the release date; extras furnished before
the release date for which payment has not been received; extras or items
furnihsed after the release date. Rights based upon work performed or items
furnished under a written change order which has been fully executed by the
parties prior to the release date are covered by this release unless
specifically reserved by the claimint in this release. This release of any
mechanic's lien, stop notice, or bond right shall not otherwise affect the
contract rights, including rights between parties to the contract based upon a
recission, abandonment, or breach of the contract, or the right of the
undersigned to recover compensation for furnished labor, services, equipment, or
material covered by this release if that furnished labor, services, equipment,
or material was not compensated by the progress payment.
______________________________________
(Name of Firm Furnishing Labor, etc.)
______________________________________
(By: Signature of Authorized Agent)
Date:_________________________________
"NOTICE: THIS DOCUMENT WAIVES RIGHTS UNCONDITIONALLY AND STATES THAT YOU HAVE
BEEN PAID FOR GIVING UP THOSE RIGHTS. THIS DOCUMENT IS ENFORCEABLE AGAINST YOU
IF YOU SIGN IT, EVEN IF YOU HAVE NOT BEEN PAID. IF YOU HAVE NOT BEEN PAID USE A
CONDITIONAL RELEASE FORM."
SCHEDULE 6 TO EXHIBIT B - Page 1
<PAGE>
SCHEDULE 7 TO EXHIBIT B
-----------------------
<TABLE>
<CAPTION>
LINCOLN PROPERTY COMPANY
CALIFORNIA PRELIMINARY NOTICE/CONDITIONAL AND UNCONDITIONAL LIEN MASTER LISTING
COMPANY NAME:
PROJECT NAME:
PROJECT #
PROGRESS BILLING #1
X/XX/199X
-----------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PRELIMINARY CONTRACTOR SUPPLIER
SUPPLIER NAME DATE CONDITIONAL UNCONDITIONAL UNCONDITIONAL
CONTRACTOR NAME PHASE (INDIVIDUAL OR FIRM) FILED AMOUNT AMOUNT AMOUNT
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL (EQUAL TO RELEASE FROM G.C.)
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PROGRESS BILLING #2 PROGRESS BILLING #3
X/XX/199X X/XX/199X
------------------------------------------- -------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CONTRACTOR SUPPLIER CONTRACTOR SUPPLIER
CONDITIONAL UNCONDITIONAL UNCONDITIONAL CONDITIONAL UNCONDITIONAL UNCONDITIONAL
CONTRACTOR NAME AMOUNT AMOUNT AMOUNT AMOUNT AMOUNT AMOUNT
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
SCHEDULE 8 TO EXHIBIT B
-----------------------
FINAL PAYMENT RELEASE
(Civil Code Section 3262(d)(3)(4))
<TABLE>
<S> <C>
FROM: __________________________________ PROJECT: __________________________________
(Name of Firm Giving Release) (Tenant Name and/or Scope of Work)
________________________________________ ___________________________________________
(Street Address) (Address of Project)
________________________________________ ___________________________________________
(City, State, Zip Code) (City, State, Zip Code)
TO: LINCOLN PROPERTY COMPANY N.C., INC. ___________________________________________
Attn: Construction Department (Name of Subcontractor)
101 Lincoln Centre Drive, 4th Floor
Foster City, CA 94404-1167
- --------------------------------------------------------------------------------------
</TABLE>
CONDITIONAL RELEASE
-------------------
Upon receipt by the undersigned of a check from __________________________ in
the sum of $______________ payable to _________________________________ and when
the check has been properly endorsed and has been paid by the bank upon which it
is drawn, this document shall become effective to release any mechanic's lien,
stop notice, or bond right the undersigned has on the above referenced job to
the following extent. This release covers the final payment for labor,
services, equipment or materials furnished on the job, except for disputed
claims for additional work in the amount of $_______________.
Before any recipient of this document relies on it, the party should verify
evidence of payment to the undersigned.
______________________________________
(Name of Firm Furnishing Labor, etc.)
______________________________________
(By: Signature of Authorized Agent)
Date:_________________________________
UNCONDITIONAL RELEASE
---------------------
The undersigned has been paid in full for labor, services, equipment, or
material furnished to ________________________________ on the above referenced
job and does hereby waive and release any mechanic's lien, stop notice,
or any right against a labor and material bond on the job, except for disputed
claims for extra work in the amount of $_______________.
______________________________________
(Name of Firm Furnishing Labor, etc.)
______________________________________
(By: Signature of Authorized Agent)
Date:_________________________________
"NOTICE: THIS DOCUMENT WAIVES RIGHTS UNCONDITIONALLY AND STATES THAT YOU HAVE
BEEN PAID FOR GIVING UP THOSE RIGHTS. THIS DOCUMENT IS ENFORCEABLE AGAINST YOU
IF YOU SIGN IT, EVEN IF YOU HAVE NOT BEEN PAID. IF YOU HAVE NOT BEEN PAID USE A
CONDITIONAL RELEASE FORM."
ALL LIEN RELEASES (OVER $2,000) MUST BE NOTARIZED
(ATTACH NOTARY ACKNOWLEDGE FORMS TO THIS RELEASE)
SCHEDULE 8 TO EXHIBIT B - Page 1
<PAGE>
SCHEDULE 9 TO EXHIBIT B
-----------------------
OUTLINE SPECIFICATIONS FOR BAYSIDE TOWERS
DEMISING PARTITION AND CORRIDOR WALLS:
NOTE: ALL PARTITIONS TO BE PAINT FINISHED ON SMOOTH SURFACES GA-214, LEVEL
4.
Note: One hour rated walls where required based on occupancy group.
All interior corridors to be tunnel construction.
A. 3 5/8" 20-gauge metal studs at 24" O.C. (or as required by code based on
roof height) framed from finish floor to structure above.
B. One (1) layer 5/8" drywall Type "X" both sides full height where required
by code.
INTERIOR PARTITIONS:
Note: Partitions must connect to building mullions.
A. 3 5/8" 25 gauge metal studs at 24" O.C. to underside of T-Bar ceiling grid.
B. One (1) layer 5/8" drywall both sides of wall.
C. 3 5/8" metal studs including all lateral bracing as required by code.
SUSPENDED ACOUSTICAL CEILINGS:
To be mutually approved by Landlord and Tenant.
WINDOW COVERING:
A. 1" aluminum mini-blinds as manufactured by Levelor, Riveria, perforated,
color to be mutually reasonably selected by owner and tenant.
B. Blinds to be sized to fit window module.
VCT:
A. VCT to be 1/8" x 12" x 12" as manufactured by Armstrong or equal.
B. Slabs on first floor shall be water proofed per manufacturer
recommendations, at sheet vinyl or VCT areas.
LIGHT FIXTURES:
A. 2" X 4" T-bar lay in 3-tube energy efficient fixture, t-8 tubes with
electronic ballasts, cool white fluorescent tubes with 18 cell parabolic lens as
manufactured by Lithoia or equal. (Approximately 50 F.C. at desk height.)
LIGHT SWITCHES:
A. Double switching as required by Title 24.
B. Switch assembly to be Leviton, color to be White.
ELECTRICAL OUTLET
A. 110V duplex outlet as manufactured by Leviton, color to be White.
B. Maximum eight (8) outlets per 20 amp 3 phase 4 wire circuit, spacing to
meet code or minimum 2 per office, conference room, reception and dedicated
outlets as required, 20 amps junction boxes above ceiling for large open area
with furniture partitions, one per 300 sq. ft. of usable area.
SCHEDULE 9 TO EXHIBIT B - Page 1
<PAGE>
C. Transformers to be a minimum of 20% or over required capacity.
D. Contractors to inspect electric room and to include all necessary metering
cost.
E. No aluminum wiring is acceptable.
EXIT LIGHT
A. Edge lighted exit light with recessed ceiling mount. Floating letters on a
clear panel with LED technology, by Alkco.
FIRE SPRINKLERS:
As required by fire code, all sprinkler heads shall be fully concealed with
white finish covers, except in such areas of open ceilings, the exact location
of which shall be reasonably approved by owner.
TOPSET BASE:
A. 2 1/2" rubber base top set as manufactured by Burke or equal, standard
colors only.
B. 2 1/2" rubber cover base at VCT areas.
WOOD DOORS:
Shall be 3'0" W. x 9'0"H. x 1 3/4/"T (unless otherwise specified) solid core,
maple veneer flat cut bookmatched or whole piece, clear sealer finish.
DOOR FRAMES:
Shall be Timely, ACI or equal, 3 3/4" or 4 7/8" throat, pre finish clear
aluminum.
HARDWARE:
Schlage standard hardware, the exact specifications of which are to be mutually
reasonably determined by Landlord and Tenant.
SCHEDULE 9 TO EXHIBIT B - Page 2
<PAGE>
EXHIBIT C
---------
AMENDMENT TO LEASE
------------------
This AMENDMENT TO LEASE ("Amendment") is made and entered into effective as
---------
of ____________, 19__, by and between WHFST REAL ESTATE LIMITED PARTNERSHIP, a
Delaware limited partnership ("Landlord"), and INKTOMI CORPORATION, a Delaware
--------
corporation ("Tenant").
------
R E C I T A L S :
- - - - - - - -
A. Landlord and Tenant entered into that certain Office Lease dated as of
October 1998, (the "Lease") pursuant to which Landlord leased to Tenant and
-----
Tenant leased from Landlord certain "Premises," as described in the Lease, which
are located in Buildings 1 and 2 of the Bayside Towers located at 4000 and 4100
Third Avenue, Foster City, California 94404.
B. Except as otherwise set forth herein, all capitalized terms used in
this Amendment shall have the same meaning given such terms in the Lease.
C. Landlord and Tenant desire to amend the Lease to confirm the
commencement and expiration dates of the term and to confirm all amounts,
percentages and figures appearing or referred to in the Lease based on the
number of Rentable Square Feet of the Premises, as hereinafter provided.
NOW, THEREFORE, in consideration of the foregoing Recitals and the mutual
covenants contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. Confirmation of Dates. The parties hereby confirm that (a) Landlord has
completed all work required by the Lease as of the date hereof, (b) the term of
the Lease commenced as of ________________ (the "Lease Commencement Date") for a
term of eleven (11) years ending on _______________ (unless sooner terminated as
provided in the Lease) and (c) in accordance with the Lease, Rent commenced to
accrue on _______________________.
2. Confirmation of Amounts Based on Number of Rentable Square Feet of the
----------------------------------------------------------------------
Premises. The parties hereby confirm that:
- --------
(a) The Premises consist of a total of __________ rentable square
feet, __________ of which are in the portion of the Premises located in Building
1 and __________ of which are located in the portion of the Premises located in
Building 2,
(b) Tenant shall pay Base Rent in accordance with the following
schedule:
Monthly Monthly Rental Rate
Months of Annual Installment per Rentable
Lease Term Base Rent of Base Rent Square Foot
---------- --------- ------------ -----------
1 - 3 $1.928
4 - 6 $2.254
7 - 9 $2.610
10 - 12 $2.966
13 - 24 $3.066
25 - 36 $3.166
37 - 48 $3.266
49 - 60 $3.366
61 - 72 $3.466
73 - 84 $3.566
EXHIBIT C - Page 1
<PAGE>
Monthly Monthly Rental Rate
Months of Annual Installment per Rentable
Lease Term Base Rent of Base Rent Square Foot
---------- --------- ------------ -----------
85 - 96 $3.666
97 - 108 $3.766
109 - 120 $3.866
121 - 132 $3.966
(c) Tenant's Building 1 Share of Direct Expenses is _____% and
Tenant's Building 2 Share of Direct Expenses is 100%.
3. No Further Modification. Except as set forth in this Amendment, all of
-----------------------
the terms and provisions of the Lease shall remain unmodified and in full force
and effect.
IN WITNESS WHEREOF, this Amendment to Lease has been executed as of the day
and year first above written.
"Landlord":
WHFST REAL ESTATE LIMITED PARTNERSHIP,
a Delaware limited partnership
By: Legacy Partners Commercial, Inc., as agent
and manager for Landlord
By:____________________________________
Name: D. Allen Palmer
Title: Senior Vice President
"Tenant":
INKTOMI CORPORATION,
a Delaware corporation
By:_________________________________________
Name:____________________________________
Title:___________________________________
By:_________________________________________
Name:____________________________________
Title:___________________________________
EXHIBIT C - Page 2
<PAGE>
EXHIBIT D
---------
BAYSIDE TOWERS
--------------
RULES AND REGULATIONS
---------------------
Tenant shall faithfully observe and comply with the following Rules and
Regulations. Landlord shall not be responsible to Tenant for the nonperformance
of any of said Rules and Regulations by or otherwise with respect to the acts or
omissions of any other tenants or occupants of the Buildings or Real Property,
however, Landlord shall act diligently and in good faith to enforce the rules
and regulations on a reasonable and non-discriminatory basis.
1. Tenant shall not alter any lock or install any new or additional locks
or bolts on any doors or windows of the portion of the Premises located in
Building 1 without obtaining Landlord's prior written consent. Tenant shall
bear the cost of any lock changes or repairs required by Tenant. Two keys will
be furnished by Landlord for the Premises, and any additional keys required by
Tenant must be obtained from Landlord at Landlord's actual cost.
2. All doors opening to public corridors shall be kept closed at all
times except for normal ingress and egress to the Premises, unless electrical
hold backs have been installed.
3. Landlord reserves the right to close and keep locked all entrance and
exit doors of Building 1 during such hours as are customary for Comparable
Buildings. Tenant, its employees and agents must be sure that the doors to
Building 1 are securely closed and locked when leaving the Premises located in
Building 1 if it is after the normal hours of business for the Real Property.
Any tenant, its employees, agents or any other persons entering or leaving
Building 1 at any time when it is so locked, or any time when it is considered
to be after normal business hours for the Real Property, may be required to sign
the Building 1 register when so doing. Access to Building 1 or the Real
Property may be refused unless the person seeking access has proper
identification or has a previously arranged pass for access. Landlord and its
agents shall in no case be liable for damages for any error with regard to the
admission to or exclusion from the Buildings or Real Property of any person. In
case of invasion, mob, riot, public excitement, or other commotion, Landlord
reserves the right to prevent access to the Buildings and/or Real Property
during the continuance of same by any means it deems appropriate for the safety
and protection of life and property.
4. Safes and other heavy objects shall, if considered necessary by
Landlord, stand on supports of such thickness as is necessary to properly
distribute the weight. Landlord will not be responsible for loss of or damage
to any such safe or property in any case. All damage done to any part of the
Buildings, their contents, occupants or visitors by moving or maintaining any
such safe or other property shall be the sole responsibility of Tenant and any
expense of said damage or injury shall be borne by Tenant.
5. No furniture, freight, packages, supplies, equipment or merchandise
will be brought into or removed from Building 1 or carried up or down in the
elevators in Building 1, except upon prior notice to Landlord, and in such
manner, in such specific elevator, and between such hours as shall be designated
by Landlord. Tenant shall provide Landlord with not less than 24 hours prior
notice of the need to utilize an elevator for any such purpose, so as to provide
Landlord with a reasonable period to schedule such use in Building 1 and to
install such padding or take such other actions or prescribe such procedures as
are appropriate to protect against damage to the elevators or other parts of
Building 1.
6. Landlord shall have the right to control and operate the public
portions of Building 1 and of the Real Property, the public facilities, the
heating and air conditioning, and any other facilities furnished for the common
use of tenants, in such manner as is customary for Comparable Buildings.
7. The requirements of Tenant will be attended to only upon application
at the management office for the Real Property or at such office location
designated by Landlord. Employees of Landlord shall not perform any work or do
anything outside their regular duties unless under special instructions from
Landlord.
EXHIBIT D - Page 1
<PAGE>
8. Tenant shall not disturb, solicit, or canvass any occupant of the
Buildings or Real Property and shall cooperate with Landlord or Landlord's
agents to prevent same.
9. The toilet rooms, urinals, wash bowls and other apparatus shall not be
used for any purpose other than that for which they were constructed, and no
foreign substance of any kind whatsoever shall be thrown therein. The expense
of any breakage, stoppage or damage resulting from the violation of this rule
shall be borne by the tenant who, or whose employees or agents, shall have
caused it.
10. Tenant shall not overload the floors of the Premises, nor mark, drive
nails or screws, or drill into the partitions, woodwork or plaster (except for
hanging pictures and artwork) or in any way deface the Premises or any part
thereof without Landlord's consent first had and obtained.
11. Except for vending machines intended for the sole use of Tenant's
employees and invitees, no vending machine or machines of any description other
than fractional horsepower office machines shall be installed, maintained or
operated upon the Premises without the written consent of Landlord.
12. Tenant shall not use or keep in or on the Premises, the Buildings or
Real Property any kerosene, gasoline or other inflammable or combustible fluid
or material, other than customary office and cleaning supplies typically used by
general office users in first-class office buildings, so long as Tenant complies
with all applicable laws in connection with such use.
13. Tenant shall not use any method of heating or air conditioning other
than that which may be supplied by Landlord, without the prior written consent
of Landlord.
14. Tenant shall not use, keep or permit to be used or kept, any foul or
noxious gas or substance in or on the Premises, or permit or allow the Premises
to be occupied or used in a manner offensive or objectionable to Landlord or
other occupants of the Buildings or Real Property by reason of noise, odors, or
vibrations, or interfere in any way with other Tenants or those having business
therein.
15. Tenant shall not bring into or keep within the Premises or Buildings
any bicycles or other vehicles, and shall not bring into or keep within the
Buildings, the Real Property or the Premises any animals or birds.
16. No cooking shall be done or permitted by Tenant in any kitchens,
eating areas of elsewhere on the Premises, nor shall the Premises be used for
the storage of merchandise, for lodging or for any immoral purposes.
Notwithstanding the foregoing, Underwriters' laboratory-approved equipment and
microwave ovens may be used in the Premises for heating food and brewing coffee,
tea, hot chocolate and similar beverages, provided that such use is in
accordance with all applicable federal, state and city laws, codes, ordinances,
rules and regulations, and does not cause odors which are objectionable to
Landlord and/or other tenants. In addition, in Building 2, Tenant shall be
permitted to have on-site service of food prepared off-site.
17. Landlord will approve where and how telephone and telegraph wires are
to be introduced to the Premises. No boring or cutting for wires shall be
allowed without the consent of Landlord. The location of telephone, call boxes
and other office equipment affixed to the Premises shall be subject to the
approval of Landlord.
18. Landlord reserves the right to exclude or expel from the Buildings
and/or Real Property any person who, in the judgment of Landlord, is intoxicated
or under the influence of liquor or drugs.
19. Tenant, its employees and agents shall not loiter in the entrances or
corridors, nor in any way obstruct the sidewalks, lobby, halls, stairways or
elevators, and shall use the same only as a means of ingress and egress for the
Premises.
20. Tenant shall not waste electricity, water or air conditioning and
agrees to cooperate fully with Landlord to ensure the most effective operation
of the heating and air conditioning system of the Buildings, and shall refrain
from attempting to adjust any controls.
EXHIBIT D - Page 2
<PAGE>
This includes the closing of exterior blinds, disallowing the sun rays to shine
directly into areas adjacent to exterior windows.
21. Tenant shall store all its trash and garbage within the interior of
the Premises. No material shall be placed in the trash boxes or receptacles if
such material is of such nature that it may not be disposed of in the ordinary
and customary manner of removing and disposing of trash and garbage in the city
in which the Real Property is located without violation of any law or ordinance
governing such disposal. All trash, garbage and refuse disposal shall be made
only through entry-ways and elevators provided for such purposes at such times
as Landlord shall designate.
22. Tenant shall comply with all safety, fire protection and evacuation
procedures and regulations established by Landlord or any governmental agency.
23. Tenant shall assume any and all responsibility for protecting the
Premises from theft, robbery and pilferage, which includes keeping doors locked
and other means of entry to the Premises closed, when the Premises are not
occupied.
24. Landlord may waive any one or more of these Rules and Regulations for
the benefit of any particular tenant or tenants so long as such waiver shall not
unreasonably interfere with Tenant's use of or access to the Premises, but no
such waiver by Landlord shall be construed as a waiver of such Rules and
Regulations in favor of any other tenant or tenants, nor prevent Landlord from
thereafter enforcing any such Rules or Regulations against any or all tenants of
the Buildings or Real Property.
25. No awnings or other projection shall be attached to the outside walls
of the Buildings without the prior written consent of Landlord. No curtains,
blinds, shades or screens shall be attached to or hung in, or used in connection
with, any window or door of the Premises without the prior written consent of
Landlord. All electrical ceiling fixtures hung in offices or spaces along the
perimeter of the Buildings must be fluorescent and/or of a quality, type, design
and bulb color approved by Landlord.
26. The sashes, sash doors, skylights, windows, and doors that reflect or
admit light and air into the halls, passageways or other public places in the
Buildings shall not be covered or obstructed by Tenant, nor shall any bottles,
parcels or other articles be placed on the windowsills.
27. The washing and/or detailing of or, the installation of windshields,
radios, telephones in or general work on, automobiles shall not be allowed on
the Real Property.
28. Food vendors shall be allowed in Building 1 upon receipt of a written
request from Tenant. Food vendors delivering food prepared off-site may be
allowed in Building 2 without the need for written request from Tenant. Under
no circumstance shall any food vendor be permitted to cook or prepare food in
Building 1 or Building 2 or display its products in a public or common area,
including corridors and elevator lobbies. Any failure to comply with this rule
shall result in immediate permanent withdrawal of the vendor from the Buildings.
29. Tenant must comply with requests by the Landlord concerning the
informing of their employees of items of importance to the Landlord.
30. Tenant shall comply with any non-smoking ordinance adopted by any
applicable governmental authority.
31. Landlord reserves the right at any time to change or rescind any one
or more of these Rules and Regulations, or to make such other and further
reasonable Rules and Regulations as in Landlord's judgment may from time to time
be necessary for the management, safety, care and cleanliness of the Premises,
Buildings, and the Real Property, and for the preservation of good order
therein, as well as for the convenience of other occupants and tenants therein.
Tenant shall be deemed to have read these Rules and Regulations and to have
agreed to abide by them as a condition of its occupancy of the Premises.
EXHIBIT D - Page 3
<PAGE>
EXHIBIT E
---------
BAYSIDE TOWERS
--------------
FORM OF TENANT'S ESTOPPEL CERTIFICATE
-------------------------------------
The undersigned, as Tenant under that certain Office Lease (the "Lease")
made and entered into as of _________________, 19__ and between WHFST REAL
ESTATE LIMITED PARTNERSHIP, a Delaware limited partnership as Landlord, and the
undersigned as Tenant, for Premises on floors one (1) through six (6) of
Building 2 and floors four (4) and five (5) of Building 1 located at 4000 Third
Street and 4100 Third Street, respectively, Foster City, California 94404
hereby certifies as follows:
1. Attached hereto as Exhibit A is a true and correct copy of the Lease
---------
and all amendments and modifications thereto. The documents contained in
Exhibit A represent the entire agreement between the parties as to the Premises.
- ---------
2. The undersigned has commenced occupancy of the Premises described in
the Lease, currently occupies the Premises, and the Lease Term commenced on
_________.
3. The Lease is in full force and effect and has not been modified,
supplemented or amended in any way except as provided in Exhibit A.
---------
4. Tenant has not transferred, assigned, or sublet any portion of the
Premises nor entered into any license or concession agreements with respect
thereto except as follows:
5. Base Rent became payable on _______________.
6. The Lease Term expires on _________________.
7. All conditions of the Lease to be performed by Landlord necessary to
the enforceability of the Lease have been satisfied and to Tenant's actual
knowledge (without duty of inquiry) Landlord is not in default thereunder.
8. No rental has been paid in advance and no security has been deposited
with Landlord except as provided in the Lease.
9. As of the date hereof, there are no existing defenses or offsets that
the undersigned has which preclude enforcement of the Lease by Landlord.
10. All monthly installments of Base Rent, all Additional Rent and all
monthly installments of estimated Additional Rent have been paid when due
through _________________. The current monthly installment of Base Rent is
$__________.
11. The undersigned acknowledges that this Estoppel certificate may be
delivered to Landlord's prospective mortgagee, or a prospective purchaser, and
acknowledges that it recognizes that if same is done, said mortgagee,
prospective mortgagee, or prospective purchaser will be relying upon the
statements contained herein in making the loan or acquiring the property of
which the Premises are a part, and in accepting an assignment of the Lease as
collateral security, and that receipt by it of this certificate is a condition
of making of the loan or acquisition of such property.
EXHIBIT E - Page 1
<PAGE>
12. If Tenant is a corporation or partnership, each individual executing
this Estoppel Certificate on behalf of Tenant hereby represents and warrants
that Tenant is a duly formed and existing entity qualified to do business in the
state in which the Real Property is located and that Tenant has full right and
authority to execute and deliver this Estoppel Certificate and that each person
signing on behalf of Tenant is authorized to do so.
Executed at __________________ on the _____ day of ______________, 19___.
"Tenant":
INKTOMI CORPORATION,
a Delaware corporation
By: ________________________
Name:___________________
Its:____________________
By: ________________________
Name:___________________
Its:____________________
EXHIBIT E - Page 2
<PAGE>
EXHIBIT F
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BAYSIDE TOWERS
--------------
PARKING RULES AND REGULATIONS
-----------------------------
1. Tenant and employees of Tenant (hereinafter referred to as "Tenant")
shall not park vehicles in any parking areas designated by Landlord as areas for
parking by visitors to the Buildings or Real Property. Tenant shall not leave
vehicles in the parking areas overnight (except on a limited basis for overnight
business travel) nor park any vehicles in the parking areas other than
automobiles, vans, motorcycles, motor driven or non-motor driven bicycles or
four-wheeled trucks. Landlord may designate separate areas for bicycles and
motorcycles.
2. Cars must be parked entirely within the stall lines painted on the
floor.
3. All directional signs and arrows must be observed.
4. The speed limit shall be 5 miles per hour.
5. Parking is prohibited, unless a floor parking attendant approved by
Landlord directs otherwise:
(i) In areas not striped for parking;
(ii) In aisles;
(iii) Where "No-Parking" or "Handicap" signs are posted;
(iv) On ramps;
(v) In crosshatched areas; or
(vi) In such other areas as may be designated by Landlord, its
agent, lessee or licensee.
6. Access to the Parking Facility by Tenant and other users (including
the restaurant customers described in Article 28 of the Lease) may be controlled
by Landlord through the use of parking control devices such as stickers, gates
and other procedures to be established by Landlord from time to time. Parking
stickers or any other device or form of identification which may be supplied by
Landlord shall remain the property of Landlord. Such parking identification
device must be displayed as requested and may not be mutilated in any manner.
7. Every Tenant is requested to park and lock his own car. All
responsibility for damage to Tenant's cars is assumed by Tenant. Tenant shall
repair or cause to be repaired at its sole cost and expense any and all damage
to the Parking Facilities or any part thereof caused by Tenant or resulting from
vehicles of Tenant; provided, however, that Tenant shall not be responsible for
damage to the Parking Facilities covered by insurance carried by Landlord
pursuant to Section 10.2 of the Lease.
8. Loss or theft of parking identification devices from automobiles must
be reported to Landlord immediately. Any parking identification devices found
on any unauthorized car will be confiscated and the illegal holder will be
subject to prosecution. Lost or stolen devices previously reported and then
found must be reported found to the Landlord immediately.
9. Spaces are for the express purpose of one automobile per space unless
approved by Landlord directs otherwise. Washing, waxing, cleaning or servicing
of any vehicle by the Tenant and/or Tenant's agents is prohibited. Storage of
vehicles for periods exceeding one week is prohibited and said vehicles shall be
subject to towing.
10. Landlord reserves the right to refuse the issuance of monthly stickers
or other parking identification devices to any Tenant or person and/or Tenant's
agents or representatives who willfully refuse to comply with the above Rules
and Regulations or any City, State or Federal
EXHIBIT F - Page 1
<PAGE>
ordinance, law or agreement. Tenant shall not load or unload in areas other than
those designated by Landlord for such activities.
11. Tenants parked in prohibited areas are subject to towing at their own
expense.
EXHIBIT F - Page 1
<PAGE>
EXHIBIT G
---------
SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT
-------------------------------------------------------
This Subordination, Non-Disturbance and Attornment Agreement (this
"Agreement") dated _______________, 19___, is made among INKTOMI CORPORATION, a
Delaware corporation ("Tenant"), WHFST REAL ESTATE LIMITED PARTNERSHIP, a
Delaware limited partnership ("Landlord"), and _________________________, a
national banking association ("Mortgagee").
WHEREAS, Mortgagee is the owner of a promissory note (herein, as it may
have been or may be from time to time renewed, extended, amended or
supplemented, called the "Note") dated ____________, executed by Landlord,
payable to the order of Mortgagee, in the principal face amount of
$____________, bearing interest and payable as therein provided, secured by,
among other things, a Deed of Trust (herein, as it may have been or may be from
time to time renewed, extended, amended or supplemented, called the "Mortgage"),
recorded in Volume _____, Page _____, real property records of San Mateo County,
California, covering, among other property, the land (the "Land") described in
Exhibit "A" which is attached hereto and incorporated herein by reference, and
the improvements ("Improvements") thereon (such Land and Improvements being
herein together called the "Property");
WHEREAS, Tenant is the tenant under a lease which, including all amendments
and supplements thereto, is described as follows: Office Lease by and between
Landlord and Tenant at Bayside Towers, Foster City, California 94404, dated
October 9, 1998 (herein, as it may from time to time be renewed, extended,
amended or supplemented, called the "Lease"), covering a portion of the Property
(said portion being herein referred to as the "Premises"); and
WHEREAS, the term "Landlord" as used herein means the present landlord
under the Lease or, if the landlord's interest is transferred in any manner, the
successor(s) or assign(s) occupying the position of landlord under the Lease at
the time in question;
THEREFORE, in consideration of the mutual agreements herein, and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
1. Subordination. Tenant agrees and covenants that the Lease and the
-------------
rights of Tenant thereunder, all of Tenant's right, title and interest in and to
the property covered by the Lease, and any lease thereafter executed by Tenant
covering any part of the Property, are and shall be subordinate and inferior to
(a) the Mortgage and the rights of Mortgagee thereunder, and all right, title
and interest of Mortgagee in the Property, and (b) all other security documents
now or hereafter securing payment of any indebtedness of the Landlord (or any
prior landlord) to Mortgagee which cover or affect the Property (the "Security
Documents"). This Agreement is not intended and shall not be construed to
subordinate the Lease to any mortgage, deed of trust or other security document
other than those referred to in the preceding sentence, securing the
indebtedness to Mortgagee. Without limitation of any other provision hereof,
Mortgagee may, at its option and without joinder or further consent of Tenant,
Landlord, or anyone else, at any time after the date hereof subordinate the lien
of the Mortgage (or any other lien or security interest held by Mortgagee which
covers or affects the Property) to the Lease by executing and recording an
instrument which is intended for that purpose and which specifies such
subordination; and, in the event of any such election by Mortgagee to
subordinate, Tenant will execute any documents required to evidence such
subordination.
2. Non-Disturbance and Recognition. Mortgagee agrees that so long as the
-------------------------------
Lease is in full force and effect and Tenant is not in default in the payment of
rent, additional rent or other payments or in the performance of any of the
other terms, covenants or conditions of the Lease on Tenant's part to be
performed (beyond the period, if any, specified in the Lease within which Tenant
may cure such default):
(a) Tenant's possession of the Premises under the Lease shall not
be disturbed or interfered with by Mortgagee in the exercise of any of its
rights under the Mortgage, including any foreclosure or conveyance in lieu
of foreclosure, and Mortgagee shall recognize Tenant's rights under the
Lease; and
EXHIBIT G - Page 1
<PAGE>
(b) Mortgagee will not join Tenant as a party defendant for the
purpose of terminating Tenant's interest and estate under the Lease in any
proceeding for foreclosure of the Mortgage.
The obligations of Mortgagee under this Paragraph 2 shall also bind New
Owner (as defined in Paragraph 4 below).
3. Attornment.
----------
(a) Tenant covenants and agrees that in the event of foreclosure of
the Mortgage, whether by power of sale or by court action, or upon a transfer of
the Property by conveyance in lieu of foreclosure (the purchaser at foreclosure
or the transferee in lieu of foreclosure, including Mortgagee if it is such
purchaser or transferee, being herein called "New Owner"), Tenant shall attorn
to the New Owner as Tenant's new landlord, and agrees that the Lease shall
continue in full force and effect as a direct lease between Tenant and New Owner
upon all of the terms, covenants, conditions and agreements set forth in the
Lease and this Agreement; provided, however, that in no event shall the New
Owner be:
(i) liable for any act, omission, default, misrepresentation,
or breach of warranty, of any previous landlord (including Landlord) or
obligations to the extent accruing prior to New Owner's actual ownership of
the property;
(ii) subject to any offset, defense, claim or counterclaim
which Tenant might be entitled to assert against any previous landlord
(including Landlord), except for offsets authorized pursuant to Section 7.3
of the Lease and Paragraph 6 of the Letter of Credit Rider attached to the
Lease and Section 2.2.2.3 of the Tenant Work Letter attached to the Lease
as Exhibit B;
(iii) bound by any payment of rent, additional rent or other
payments (excluding, however, any Cash Collateral under the Letter of
Credit Rider), made by Tenant to any previous landlord (including Landlord)
for more than one (1) month in advance;
(iv) bound by any (A) amendment or modification of the Lease
hereafter made except for (I) amendments to the Tenant Work Letter attached
to the Lease as Exhibit B which do not (y) delay the Lease Commencement
Date (as such term is defined in the Lease) or (z) increase Landlord's
costs for the construction of the Base, Shell and Core and the Tenant
Improvements (as such terms are defined in the Tenant Work Letter) by more
than Fifty Thousand Dollars ($50,000.00) in the aggregate or (II)
amendments that are specifically provided for in the Lease which
incorporate into the Lease certain terms referred to therein that do not
become effective until the occurrence of future events (such as by way of
example, but not limitation, an amendment which memorializes the
commencement and expiration dates of the Lease Term, the form of which is
attached to the Lease as Exhibit C or an amendment which memorializes
Tenant's exercise of a right of first offer pursuant to Section 1.4 of the
Lease or expansion into additional premises pursuant to Section 1.5 of the
Lease), or (B) consent by any previous landlord (including Landlord) under
the Lease to any assignment or sublease hereafter granted, without the
written consent of Mortgagee, which consent shall not be unreasonably
withheld, conditioned or delayed; provided, however, that in the event that
Mortgagee does not provide Landlord or Tenant with written notice of its
grant of consent or refusal to grant consent to such amendment or
modification of the Lease within seven (7) business days after Landlord's
or Tenant's request therefor, then Mortgagee shall be deemed to have
granted its consent to such amendment or modification; or
(v) except as provided in the Letter of Credit Rider, liable
for any deposit that Tenant may have given to any previous landlord
(including Landlord) which has not, as such, been transferred to New Owner.
(b) The provisions of this Agreement regarding attornment by Tenant
shall be self-operative and effective without the necessity of execution of any
new lease or other document on the part of any party hereto or the respective
heirs, legal representatives, successors or assigns of any such party. Tenant
agrees, however, to execute and deliver at any time and from time to
EXHIBIT G - Page 2
<PAGE>
time, upon the request of Landlord or of any holder(s) of any of the
indebtedness or other obligations secured by the Mortgage, any instrument or
certificate which, in the reasonable judgment of Landlord or of such holder(s),
may be necessary or appropriate in any such foreclosure proceeding or otherwise
to evidence such attornment, including, if requested, a new lease of the
Premises on the same terms and conditions as the Lease for the then unexpired
term of the Lease.
4. Estoppel Certificate. Tenant agrees to execute and deliver from time
--------------------
to time, upon the request of Landlord or of any holder(s) of any of the
indebtedness or other obligations secured by the Mortgage, a certificate
regarding the status of the Lease, consisting of statements, if true (or if not,
specifying why not), (a) that the Lease is in full force and effect, (b) the
date through which rentals have been paid, (c) the date of the commencement of
the term of the Lease, (d) the nature of any amendments or modifications of the
Lease, (e) that no default, or state of facts which with the passage of time or
notice (or both) would constitute a default, are known by Tenant to exist under
the Lease (or specifying any known defaults), and (f) such other matters as may
be reasonably requested.
5. Acknowledgment and Agreement by Tenant. Tenant acknowledges and
--------------------------------------
agrees as follows:
(a) Tenant acknowledges that Landlord will execute and deliver to
Mortgagee in connection with the financing of the Property the Mortgage
assigning absolutely the rent and all other sums due under the Lease to
Mortgagee. Tenant hereby expressly consents to such absolute assignment. Tenant
will not amend, terminate or waive any provision of, or consent to the
amendment, termination or waiver of any provision of the Lease which is not
contemplated by the Lease without the prior written consent of Mortgagee, which
consent shall not be unreasonably withheld, conditioned or delayed; provided,
however, that in the event that Mortgagee does not provide Landlord or Tenant
with written notice of its grant of consent or refusal to grant consent to such
amendment of the Lease within seven (7) business days after Landlord's or
Tenant's request therefor, then Mortgagee shall be deemed to have granted its
consent to such amendment. Notwithstanding the foregoing, Tenant shall not be
required to obtain Landlord's consent to amendments to the Tenant Work Letter
attached to the Lease as Exhibit B which do not (i) delay the Lease Commencement
Date (as such term is defined in the Lease) or (ii) increase Landlord's costs
for the construction of the Base, Shell and Core and the Tenant Improvements (as
such terms are defined in the Tenant Work Letter) by more than Fifty Thousand
Dollars ($50,000.00) in the aggregate. No termination of the Lease, which is
not pursuant to the terms of the Lease, will be effective without the prior
written consent of Mortgagee. Except as required by the Lease, including the
Letter of Credit Rider, Tenant shall not prepay any rents or other sums due
under the lease for more than one (1) month in advance of the due date therefor.
Tenant acknowledges that Mortgagee will rely upon this instrument in connection
with such financing.
(b) Mortgagee, in making any disbursements to Landlord, is under no
obligation or duty to oversee or direct the application of the proceeds of such
disbursements, and such proceeds may be used by Landlord for purposes other than
improvement of the Property.
(c) From and after the date hereof, in the event of any default by
Landlord which would give Tenant the right, either immediately or after the
lapse of time, to terminate the Lease or to claim a partial or total eviction,
Tenant will not exercise any such right (i) until it has given written notice of
such default to the Mortgagee; and (ii) until the same period of time as is
given to Landlord under the Lease to cure such act or omission shall have
elapsed following such giving of notice to Mortgagee, and following the time
when Mortgagee shall have become entitled under the Mortgage to remedy the same,
but in any event 30 days after receipt of such notice or such longer period of
time as reasonably may be necessary to cure or remedy such default, act, or
omission (provided Mortgagee is in fact undertaking to cure or remedy such
default, act or omission) including such period of time necessary to obtain
possession of the Property and thereafter cure such default, act, or omission,
during which period of time Mortgagee shall be permitted to cure or remedy such
default, act or omission (which period for Mortgagee's cure shall in no event
exceed one hundred eighty (180) days); provided, however that Mortgagee shall
have no duty or obligation to cure or remedy any breach or default. It is
specifically agreed that
EXHIBIT G - Page 3
<PAGE>
Tenant shall not, as to Mortgagee, require cure of any such default which is
personal to Landlord, and therefore not susceptible to cure by Mortgagee.
(d) In the event that Mortgagee notifies Tenant of a default under
the Mortgage, Note, or Security Documents and demands that Tenant pay its rent
and all other sums due under the Lease directly to Mortgagee. Landlord hereby
irrevocably authorizes and instructs Tenant to honor such demand and pay the
full amount of its rent and all other sums due under the Lease directly to
Mortgagee or as otherwise required pursuant to such notice beginning with the
payment next due after such notice of default, without inquiry as to whether a
default actually exists under the Mortgage, Security Documents or otherwise in
connection with the Note, and notwithstanding any contrary instructions of or
demands from Landlord.
(e) Tenant shall send a copy of any notice of default or statement
under the Lease to Mortgagee at the same time such notice or statement is sent
to Landlord
(f) Tenant has the option and right of first offer to purchase the
Property pursuant to the Option to Purchase/Rights of First Offer Rider attached
to the Lease. Such option and rights of first offer are hereby expressly made
subject and subordinate to the Mortgage, and Mortgagee and New Owner shall be
released therefrom in the event of a transfer of the Property by foreclosure or
deed in lieu of foreclosure; provided, however, notwithstanding such option and
rights, Mortgagee shall have no obligation to release the lien of the Mortgage
from the Property unless and until the indebtedness secured thereby has been
paid in full and otherwise satisfied.
(g) This Agreement satisfies any condition or requirement in the
Lease relating to the granting of a non-disturbance agreement and Tenant waives
any requirement to the contrary in the Lease.
(h) Mortgagee and any New Owner shall have no obligation nor incur
any liability with respect to the erection or completion of the improvements in
which the Premises are located or for completion of the Premises or any
improvements for Tenant's use and occupancy, either at the commencement of the
term of the Lease or upon any renewal or extension thereof or upon the addition
of additional space, pursuant to any expansion or trust offer rights contained
in the Lease; but Mortgagee and any New Owner shall be subject to Tenant's
offset rights in Section 2.2.2.3 of the Tenant Work Letter attached to the Lease
as Exhibit B for Landlord's failure to timely fund the Allowance as set forth
herein.
(i) Mortgagee and any New Owner shall have no obligation nor incur
any liability with respect to any warranties of any nature whatsoever, whether
pursuant to the Lease or otherwise, including, without limitation, any
warranties respecting use, compliance with zoning, Landlord's title, Landlord's
authority, habitability, fitness for purpose or possession; provided, however,
subject to (h) above that the foregoing limitation shall in no way release
Mortgagee or New Owner from the obligation to perform Landlord's continuing
covenants under the Lease upon such party's acquisition of title to the
Property.
(j) In the event that Mortgagee or any New Owner shall acquire title
to the Premises or the Property, Mortgagee or such New Owner shall have no
obligation, nor incur any liability, beyond Mortgagee's or New Owner's then
equity interest, if any, in the Property or the Premises, and Tenant shall look
exclusively to such equity interest of Mortgagee or New Owner, if any, for the
payment and discharge of any obligations imposed upon Mortgagee or New Owner
hereunder or under the Lease or for recovery of any judgment from Mortgagee, or
New Owner, and in no event shall Mortgagee, New Owner, nor any of their
respective officers, directors, shareholders, agents, representatives, servants,
employees or partners ever be personally liable for such judgment.
(k) Nothing herein contained is intended, nor shall it be construed,
to abridge or adversely affect any right or remedy of Landlord under the Lease
in the event of any default by Tenant in the payment of rent and/or any other
sums due under the Lease or in the performance of any of the other terms,
covenants or conditions of the Lease on Tenant's part to be performed.
(l) Landlord has not agreed to any abatement of rent or other sums or
period of "free rent" for the Premises unless same is specifically provided in
the Lease, and Tenant agrees
EXHIBIT G - Page 4
<PAGE>
that in the event Mortgagee, or any New Owner becomes the owner of the Property,
no agreement for abatement of rent or any other sum not specifically provided in
the Lease will be binding on Mortgagee or New Owner.
(m) Tenant has never permitted, and will not permit, the generation,
treatment, storage or disposal of any hazardous substance as defined under
federal, state, or local law, on the Premises or Property except for such
substances of a type and only in a quantity normally used in connection with the
occupancy or operation of buildings (such as non-flammable cleaning fluids and
supplies normally used in the day to day operation of first class office
establishments), which substances are being held, stored, and used in strict
compliance with federal, state, and local laws.
6. Acknowledgment and Agreement by Landlord. Landlord, as landlord under
----------------------------------------
the Lease and grantor under the Mortgage, acknowledges and agrees for itself and
its heirs, representative, successors and assigns, that: (a) this Agreement does
not constitute a waiver by Mortgagee of any of its rights under the Mortgage,
Note, or Security Documents, or in any way release Landlord from its obligations
to comply with the terms, provisions, conditions, covenants, agreements and
clauses of the Mortgage, Note, or Security Documents; (b) the provisions of the
Mortgage, Note, or Security Documents remain in full force and effect and must
be complied with by Landlord; and (c) Tenant is hereby authorized to pay its
rent and all other sums due under the Lease directly to Mortgagee upon receipt
of a notice as set forth in paragraph 5(d) above from Mortgagee and that Tenant
is not obligated to inquire as to whether a default actually exists under the
Mortgage, Security Documents or otherwise in connection with the Note. Landlord
hereby releases and discharges Tenant of and from any liability to Landlord
resulting from Tenant's payment to Mortgagee in accordance with this Agreement.
Landlord represents and warrants to Mortgagee that a true and complete copy of
the Lease has been delivered by Landlord to Mortgagee.
7. Lease Status. Landlord and Tenant certify to Mortgagee that neither
------------
Landlord nor Tenant has knowledge of any default on the part of the other under
the Lease, that the Lease is bona fide and contains all of the agreements of the
parties thereto with respect to the letting of the Premises and that all of the
agreements and provisions therein contained are in full force and effect.
8. Notices. All notices, requests, consents, demands and other
-------
communications required or which any party desires to give hereunder shall be in
writing and shall be deemed sufficiently given or furnished if delivered by
personal delivery, by telegram, telex, or facsimile, by expedited delivery
service with proof of delivery, or by registered or certified United States
mail, postage prepaid, at the addresses specified at the end of this Agreement
(unless changed by similar notice in writing given by the particular party whose
address is to be changed). Any such notice or communication shall be deemed to
have been given either at the time of personal delivery or, in the case of
delivery service or mail, as of the date of first attempted delivery at the
address and in the manner provided herein, or, in the case of telegram, telex or
facsimile, upon receipt. Notwithstanding the foregoing, no notice of change of
address shall be effective except upon receipt. This Paragraph 8 shall not be
construed in any way to affect or impair any waiver of notice or demand provided
in this Agreement or in the lease or in any document evidencing, securing or
pertaining to the loan evidenced by the Note or to require giving of notice or
demand to or upon any person in any situation or for any reason.
Notwithstanding anything to the contrary set forth in this Agreement, in the
event that Landlord or Tenant shall seek Mortgagee's consent to an amendment or
modification to the Lease, such request for consent shall conspicuously state
that if the Mortgagee does not respond to such request for consent within seven
(7) business days after request therefor, then such consent shall be deemed to
have been given by the Mortgagee.
9. Miscellaneous.
-------------
(a) This Agreement supersedes any inconsistent provision of the
Lease.
(b) Nothing contained in this Agreement shall be construed to
derogate from in any way impair, or affect the lien, security interest or
provisions of the Mortgage, Note, or Security Documents.
EXHIBIT G - Page 5
<PAGE>
(c) This Agreement shall inure to the benefit of the parties hereto,
their respective successors and permitted assigns, and any New Owner, and its
heirs, personal representatives, successors and assigns; provided, however, that
in the event of the assignment or transfer of the interest of Mortgagee, all
obligations and liabilities of the assigning Mortgagee under this Agreement
shall terminate, and thereupon all such obligations and liabilities shall be the
responsibility of the party to whom Mortgagee's interest is assigned or
transferred; and provided further that the interest of Tenant under this
Agreement may not be assigned or transferred without the prior written consent
of Mortgagee.
(d) THIS AGREEMENT AND ITS VALIDITY, ENFORCEMENT AND INTERPRETATION
SHALL BE GOVERNED BY THE LAWS OF THE STATE OF CALIFORNIA AND APPLICABLE UNITED
STATES FEDERAL LAW EXCEPT ONLY TO THE EXTENT, IF ANY, THAT THE LAWS OF THE STATE
IN WHICH THE PROPERTY IS LOCATED NECESSARILY CONTROL.
(e) The words "herein", "hereof", "hereunder" and other similar
compounds of the word "here" as used in this Agreement refer to this entire
Agreement and not to any particular section or provision.
(f) This Agreement may not be modified orally or in any manner other
than by an agreement in writing signed by the parties hereto or their respective
successors in interest.
(g) If any provision of the Agreement shall be held to be invalid,
illegal, or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not apply to or affect any other provision hereof, but
this Agreement shall be construed as if such invalidity, illegibility, or
unenforceability did not exist.
(h) If any bankruptcy proceedings shall hereafter commence with
respect to Landlord, and if the Lease is rejected by the trustee pursuant to
Section 365 of the United States Bankruptcy Code, Tenant agrees with Mortgagee
(i) not to treat such lease as terminated, and (ii) to remain in possession of
the Premises.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
ADDRESS OF MORTGAGEE: ___________________________________
___________________________________
Attention: ________________________
MORTGAGEE: ___________________________________,
a _________________________________
By: _______________________________
Name: _____________________________
Title: ____________________________
ADDRESS OF TENANT: 1900 South Norfolk Street, Suite 310
San Mateo, CA 94403
Attention: Chief Financial Officer
with a copy to:
1900 South Norfolk Street, Suite 310
San Mateo, CA 94403
Attention: General Counsel
(Prior to Lease Commencement Date)
and
4100 Third Avenue
Foster City, California 94404
EXHIBIT G - Page 6
<PAGE>
Attention: Chief Financial Officer
with a copy to:
4100 Third Avenue
Foster City, California 94404
Attention: General Counsel
(After Lease Commencement Date)
TENANT: INKTOMI CORPORATION, a Delaware corporation
By: _____________________________
Name: _______________________
Title:_______________________
By: _____________________________
Name: _______________________
Title:_______________________
ADDRESS OF LANDLORD:
WHFST Real Estate Limited Partnership,
101 Lincoln Centre Drive, 4th Floor
Foster City, California 94404-1167
Attn: Rick Wada
and
Legacy Partners Commercial, Inc.
455 Market Street, Suite 1520
San Francisco, California 94015
Attn: D. Allen Palmer
LANDLORD: WHFST REAL ESTATE LIMITED
PARTNERSHIP, a Delaware limited
partnership
By: Legacy Partners Commercial, Inc., as
agent and manger for Landlord
By: ______________________
Name: D. Allen Palmer
Title: Senior Vice President
EXHIBIT G - Page 7
<PAGE>
STATE OF )
) ss.
COUNTY OF )
On ________________________, before me, ________________________, a Notary
Public in and for said state, personally appeared _______________________,
personally known to me (or proved to me on the basis of satisfactory evidence)
to be the person whose name is subscribed to the within instrument and
acknowledged to me that he/she executed the same in his/her authorized capacity,
and that by his/her signature on the instrument, the person, or the entity upon
behalf of which the person acted, executed the instrument.
WITNESS my hand and official seal.
____________________________________________
Notary Public in and for said State
STATE OF )
) ss.
COUNTY OF )
On ________________________, before me, ________________________, a Notary
Public in and for said state, personally appeared _______________________,
personally known to me (or proved to me on the basis of satisfactory evidence)
to be the person whose name is subscribed to the within instrument and
acknowledged to me that he/she executed the same in his/her authorized capacity,
and that by his/her signature on the instrument, the person, or the entity upon
behalf of which the person acted, executed the instrument.
WITNESS my hand and official seal.
____________________________________________
Notary Public in and for said State
STATE OF )
) ss.
COUNTY OF )
On ________________________, before me, ________________________, a Notary
Public in and for said state, personally appeared _______________________,
personally known to me (or proved to me on the basis of satisfactory evidence)
to be the person whose name is subscribed to the within instrument and
acknowledged to me that he/she executed the same in his/her authorized capacity,
and that by his/her signature on the instrument, the person, or the entity upon
behalf of which the person acted, executed the instrument.
WITNESS my hand and official seal.
____________________________________________
Notary Public in and for said State
EXHIBIT G - Page 8
<PAGE>
EXHIBIT "A" TO EXHIBIT G
------------------------
LEGAL DESCRIPTION OF THE LAND
-----------------------------
[TO BE PROVIDED]
----------------
EXHIBIT "A" TO EXHIBIT G - Page 1
<PAGE>
EXHIBIT H
---------
MEMORANDUM OF LEASE
-------------------
RECORDING REQUESTED BY
AND WHEN RECORDED RETURN TO:
INKTOMI CORPORATION
c/o Crosby, Heafey, Roach & May
Four Embarcadero Center, Suite 1900
San Francisco, California 94111
Attention: Charles H. Seaman, Esq.
- --------------------------------------------------------------------------------
MEMORANDUM OF OFFICE LEASE
--------------------------
THIS MEMORANDUM OF OFFICE LEASE (this "Memorandum") is entered into as of
the __ day of ________, 1998, by and between WHFST REAL ESTATE LIMITED
PARTNERSHIP, a Delaware limited partnership ("Landlord"), and INKTOMI
CORPORATION, a Delaware corporation ("Tenant").
1. Terms and Premises. Landlord leases to Tenant, and Tenant leases from
------------------
Landlord, certain space (the "Premises") to be located within two (2) buildings
(the "Buildings") to be constructed on a portion of the real property (the
"Property") legally described on Exhibit A attached hereto (known by the street
addresses of 4000 Third Avenue and 4100 Third Avenue, Foster City, California
94404) in accordance with the provisions of that certain Office Lease, dated
October 9, 1998, between the parties hereto (the "Lease"). The provisions of
the Lease, specifically including, without limitation, the provisions of Article
18 of the Lease regarding subordination, non-disturbance and attornment, are
incorporated herein.
2. Term. The initial term of the Lease is for eleven (11) years and
----
shall commence on the Lease Commencement Date set forth in the Lease. Subject
to the terms of the Extension Option Rider attached to the Lease, Tenant has one
(1) option to extend the initial term of the Lease for a period of five (5)
years.
3. Option to Purchase/Rights of First Offer to Purchase. Subject to the
----------------------------------------------------
terms of the Option to Purchase/Rights of First Offer to Purchase Rider attached
to the Lease, Tenant has an option to purchase the Property and two (2) rights
of first offer to purchase the Property, which Option to Purchase/Rights of
First Offer expire no later than the fifty-ninth (59th) month of the initial
Lease Term.
4. Expansion Rights. Subject to the terms of the Lease, Tenant has the
----------------
right to expand the Premises demised thereunder to include the entire rentable
area of the Buildings.
5. Purpose of Memorandum of Lease. This Memorandum is prepared solely
------------------------------
for purposes of recordation, and in no way modifies the provisions of the Lease.
"Landlord":
WHFST REAL ESTATE LIMITED
PARTNERSHIP, a Delaware limited partnership
By: ______________________________________
Name: Edgar M. Thrift, Jr.
Its: General Partner
[SIGNATURES CONTINUE ON NEXT PAGE]
EXHIBIT H - Page 1
<PAGE>
"Tenant":
INKTOMI CORPORATION, a Delaware corporation
By: ______________________________________
Name: David C. Peterschmidt
Its: Chief Executive officer
By: ______________________________________
Name: Jerry M. Kennelly
Its: Chief Financial Officer
EXHIBIT H - Page 2
<PAGE>
STATE OF )
) ss.
COUNTY OF )
On ________________________, before me, ________________________, a Notary
Public in and for said state, personally appeared _______________________,
personally known to me (or proved to me on the basis of satisfactory evidence)
to be the person whose name is subscribed to the within instrument and
acknowledged to me that he/she executed the same in his/her authorized capacity,
and that by his/her signature on the instrument, the person, or the entity upon
behalf of which the person acted, executed the instrument.
WITNESS my hand and official seal.
____________________________________________
Notary Public in and for said State
STATE OF )
) ss.
COUNTY OF )
On ________________________, before me, ________________________, a Notary
Public in and for said state, personally appeared _______________________,
personally known to me (or proved to me on the basis of satisfactory evidence)
to be the person whose name is subscribed to the within instrument and
acknowledged to me that he/she executed the same in his/her authorized capacity,
and that by his/her signature on the instrument, the person, or the entity upon
behalf of which the person acted, executed the instrument.
WITNESS my hand and official seal.
____________________________________________
Notary Public in and for said State
STATE OF )
) ss.
COUNTY OF )
On ________________________, before me, ________________________, a Notary
Public in and for said state, personally appeared _______________________,
personally known to me (or proved to me on the basis of satisfactory evidence)
to be the person whose name is subscribed to the within instrument and
acknowledged to me that he/she executed the same in his/her authorized capacity,
and that by his/her signature on the instrument, the person, or the entity upon
behalf of which the person acted, executed the instrument.
WITNESS my hand and official seal.
____________________________________________
Notary Public in and for said State
EXHIBIT H - Page 3
<PAGE>
EXHIBIT "A" TO EXHIBIT H
------------------------
LEGAL DESCRIPTION OF THE LAND
-----------------------------
PARCEL I:
COMMENCING AT THE MOST SOUTHWESTERLY CORNER OF SAID LANDS OF WHFST AND OF OLD
PARCEL 1 THEREOF; THENCE. ALONG THE NORTHWESTERLY RIGHT OF WAY LINE OF STATE
HIGHWAY ROUTE 92. NORTH 42o 11' 46" EAST, 1,024.01 FEET TO THE TRUE POINT OF
BEGINNING; THENCE NORTH 47o 48' 14" WEST, 47.50 FEET; THENCE NORTH 42o 11' 46"
EAST, 55.87 FEET; THENCE NORTH 19o 14' 15" WEST, 226.61 FEET TO A POINT ON A
NON-TANGENT CURVE TO THE LEFT HAVING A RADIUS OF 671 FEET; THENCE NORTHEASTERLY,
ALONG SAID CURVE THROUGH A CENTRAL ANGLE OF 8o 52' 23", AN ARC DISTANCE OF
103.91 FEET, THENCE, RADIAL TO LAST SAID CURVE, NORTH 19o 14' 15" WEST, 353.53
FEET TO A POINT ON THE NORTHERLY LINE OF PARCEL 2 OF 39 PM 80; THENCE ALONG SAID
NORTHERLY LINE THE FOLLOWING SEVEN (7) COURSES: NORTH 68o 27' 38" EAST, 74.77
FEET; NORTH 62o 34' 48" EAST 130.91 FEET; NORTH 53o 22' 49" EAST, 50.09 FEET;
NORTH 47o 11' 61" EAST, 125.14 FEET; NORTH 32o 12' 03" EAST, 26.25 FEET; NORTH
44o 54' 58" EAST, 50.19 FEET; AND NORTH 55o 44' 31" EAST 9.79 FEET. THENCE
LEAVING SAID NORTHERLY LINE, SOUTH 25o 08' 20" EAST; 136.05 FEET; THENCE NORTH
64o 50' 40" WEST, 22.71 FEET: THENCE, NORTH 42o 27' 02" EAST, 270.86 FEET;
THENCE NORTH 04o 11' 44" EAST, 52.00 FEET TO A POINT ON THE NORTHERLY LINE OF
SAID PARCEL 2 OF SAID PARCEL MAP 39-80: THENCE ALONG SAID NORTHERLY LINE THE
FOLLOWING FOUR COURSES: SOUTH 64o 21' 32" EAST, 27.73 FEET; SOUTH 85o 48' 16"
EAST, 129.85 FEET; NORTH 61o 26' 03" EAST, 51.24 FEET; AND NORTH 68o 58' 30"
EAST, 127.02 FEET TO THE MOST EASTERLY CORNER OF SAID PARCEL 2; THENCE ALONG THE
NORTHWESTERLY RIGHT OF WAY LINE OF STATE HIGHWAY ROUTE 92 THE FOLLOWING THREE
COURSES; SOUTH 42o 27' 02" WEST, 897 25 FEET, SOUTH 12o 32' 05" WEST, 202.07
FEET; AND SOUTH 42o 11' 16" WEST, 327.25 FEET TO THE TRUE POINT OF BEGINNING.
PARCEL III
BEGINNING AT THE NORTHEASTERLY CORNER OF PARCEL 2 OF PARCEL MAP 39-80; THENCE
ALONG THE SOUTHERLY LINE OF EAST THIRD AVENUE. NORTH 70 45' 45" EAST, 5.97 FEET
THENCE EASTERLY, ALONG A NON-TANGENT CURVE TO THE LEFT HAVING A RADIUS OF 44.50
FEET, THROUGH A CENTRAL ANGLE OF 264 20' 35", AN ARC DISTANCE OF 205.30 FEET; TO
A POINT OF REVERSE CURVATURE; THENCE ALONG A TANGENT CURVE TO THE RIGHT, HAVING
A RADIUS OF 49.50 FEET, THROUGH A CENTRAL ANGLE OF 18 46' 18", AN ARC DISTANCE
OF 16.22 FEET: THENCE, TANGENT TO LAST SAID CURVE, SOUTH 70 45' 45" WEST, 16.24
FEET TO A POINT ON THE NORTHERLY EXTENSION OF THE EASTERLY LINE OF SAID PARCEL 2
OF PM 39-80: THENCE ALONG SAID EASTERLY LINE, NORTH 19 14' 15" WEST, 22.10 FEET
TO THE INTERSECTION OF THE NORTHERLY LINE OF THIRD AVENUE WITH THE PROJECTION OF
THE EASTERLY LINE OF PARCEL MAP 39-80, THENCE ALONG SAID NORTHERLY LINE, SOUTH
70 45' 45" WEST, 1,017.61 FEET, TO THE MOST WESTERLY CORNER OF SAID PARCEL 2 OF
PARCEL MAP 39-80; THENCE ALONG THE NORTHERLY BOUNDARY OF SAID PARCEL 2. THE
FOLLOWING THIRTEEN (13) COURSES NORTH 49 55' 43" EAST, 12.25 FEET; N. 61 13' 12"
EAST, 271.98 FEET, NORTH 85 58' 42" EAST, 49.80 FEET, SOUTH 86 22' 18" EAST,
41.20 FEET: NORTH 55 34' 52" EAST, 4.36 FEET: NORTH 67 59' 17" EAST, 50.00 FEET:
NORTH 59 27' 28" EAST. 101.12 FEET NORTH 68 22' 12" EAST, 300.01 FEET: NORTH 67
59" 17' EAST, 50.00 FEET: NORTH 73 41' 53" EAST 50.25 FEET: NORTH 69 08' 02"
EAST, 450.09 FEET, NORTH 60 01' 10" EAST, 50.49 FEET; AND NORTH 66 27' 38" EAST,
0.26 FEET; THENCE LEAVING SAID NORTHERLY BOUNDARY OF PARCEL 2 OF 30 PM 80 ALONG
A RADIAL LINE SOUTH 19 14' 15" EAST, 353.53 FEET TO A POINT ON A CURVE HAVING A
RADIUS OF 671.00 FEET; THENCE WESTERLY ALONG SAID CURVE THROUGH A CENTRAL ANGLE
OF 8 52' 23" AN ARC DISTANCE OF 103.91 FEET TO A POINT ON SAID CURVE FROM WHICH
A RADIAL
EXHIBIT "A" TO EXHIBIT H - Page 1
<PAGE>
LINE BEARS NORTH 0 21' 52" EAST; THENCE SOUTH 19 14' 15" EAST, 225.61
FEET; THENCE SOUTH 42 11' 46" WEST; 55.87 FEET; THENCE SOUTH 47 48' 14" EAST,
47.50 FEET TO A POINT ON THE NORTHWESTERLY RIGHT OF WAY LINE OF STATE HIGHWAY
ROUTE 92; THENCE, ALONG SAID NORTHWESTERLY LINE, SOUTH 42 11' 46" WEST 1,024.01
FEET TO THE MOST SOUTHWESTERLY CORNER OF SAID LANDS OF WHFST AND A POINT ON THE
SOUTHEASTERLY LINE OF SAID PARCEL 2 OF 39 PM 80; THENCE ALONG SAID SOUTHEASTERLY
LINE, NORTH 39 54' 18" EAST, 662.99 FEET TO THE SOUTHEASTERLY CORNER OF SAID
PARCEL 2, THENCE ALONG THE EASTERLY LINE OF SAID PARCEL 2; NORTH 19 14' 15"
WEST, 598.13 FEET TO THE POINT OF BEGINNING.
EXHIBIT "A" TO EXHIBIT H - Page 2
<PAGE>
BAYSIDE TOWERS
--------------
EXTENSION OPTION RIDER
----------------------
This Extension Option Rider ("Extension Rider") is made and entered into by
and between WHFST REAL ESTATE LIMITED PARTNERSHIP, a Delaware limited
partnership ("Landlord"), and INKTOMI CORPORATION, a Delaware corporation
("Tenant"), and is dated as of the date of the Office Lease ("Lease") by and
between Landlord and Tenant to which this Extension Rider is attached. The
agreements set forth in this Extension Rider shall have the same force and
effect as if set forth in the Lease. To the extent the terms of this Extension
Rider are inconsistent with the terms of the Lease, the terms of this Extension
Rider shall control.
1. Option Right. Landlord hereby grants Tenant one (1) option to extend
------------
the Lease Term for all, but not less than all, of the Premises (including any
First Offer Space leased by Tenant pursuant to Section 1.4 of the Lease) for a
period of five (5) years (the "Option Term"), which option shall be exercisable
only by written Exercise Notice (as defined below) delivered by Tenant to
Landlord as provided below, provided that, as of the date of delivery of such
Exercise Notice, Tenant is not in monetary or material non-monetary default
under the Lease and any applicable notice of such default has been delivered and
any applicable cure period has expired. Upon the proper exercise of such option
to extend, and provided that, as of the end of the initial Lease Term Tenant is
not in monetary or material non-monetary default under the Lease beyond any
applicable notice and cure period, the Lease Term shall be extended for the
Option Term. The rights contained in this Extension Rider shall be personal to
the Original Tenant and may only be exercised by the Original Tenant and any
assignee to which Tenant's entire interest in this Lease has been assigned
pursuant to Article 14 (and not by any sublessee or other transferee of Tenant's
interest in the Lease).
2. Option Rent. The Annual Base Rent payable by Tenant during the Option
-----------
Term (the "Option Rent"), the First Offer Space Rent described in Section 1.4 of
the Lease or the Expansion Rent described in Section 1.5 of the Lease, as the
case may be, shall be equal to the "Fair Market Rental Rate" for the Premises,
the First Offer Space, or the Expansion Space, as the case may be. For purposes
hereof, the "Fair Market Rental Rate" shall mean the rent at which tenants, as
of the commencement of the Option Term, the commencement of the term of the
Lease for the First Offer Space or the commencement of the term of the Lease for
the Expansion Space, as the case may be, will be leasing non-sublease, non-
encumbered space on a net basis comparable in size, location and quality to the
Premises, the First Offer Space or the Expansion Space, as the case may be, for
a comparable term, which comparable space is located in Comparable Buildings
taking into consideration all out-of-pocket monetary concessions and inducements
generally being granted at such time, including any tenant improvement
allowances provided for such space (but in determining any such tenant
improvement allowance, the quality and quantity of tenant improvements in the
Premises, the First Offer Space or the Expansion Space, as the case may be,
shall be taken into account and the value thereof deducted from such allowance),
and also taking into consideration and requiring Tenant to provide for security
or collateral for the Option Term, First Offer Space or the Expansion Space, as
applicable, in such amounts and of such types (such as, for example, a cash
security deposit and/or a letter of credit), if any, as are generally being
required by landlords in connection with such leases, expansions or extensions
(as applicable) and rental amounts and concessions for such comparable space by
tenants of comparable net worth as Tenant. Except as set forth in the next
sentence, all other terms and conditions of the Lease shall apply throughout the
Option Term; however, Tenant shall, in no event, have the option to extend the
Lease Term beyond the Option Term described in Section 1 above. In the event
that Tenant exercises the option to extend as provided in this Extension Rider,
the Security Deposit shall be increased by the amount of the Option Rent payable
by Tenant for the last month of the Option Term and Tenant shall deliver to
Landlord such additional collateral or security determined as part of the Fair
Market Rental Rate as described hereinabove.
3. Exercise of Option.
------------------
3.1 Exercise of Option Without Exercise of Right of First Offer.
-----------------------------------------------------------
Except in the event that Tenant is concurrently exercising a right of first
offer pursuant to Section 1.4 of the Lease, in which event the procedure set
forth in this Section 3.1 shall be modified as provided in
-1-
<PAGE>
Section 3.2 below, the option contained in this Extension Rider shall be
exercised by Tenant, if at all, only in the following manner: (i) Tenant shall
deliver written notice to Landlord not less than fourteen (14) months prior to
the expiration of the initial Lease Term stating that Tenant may be interested
in exercising its option; (ii) Landlord, after receipt of Tenant's notice, shall
deliver notice (the "Option Rent Notice") to Tenant not less than thirteen (13)
months prior to the expiration of the initial Lease Term setting forth
Landlord's good-faith determination of the Fair Market Rental Rate for the
Option Rent; and (iii) if Tenant wishes to exercise such option, Tenant shall,
on or before the date (the "Exercise Date") which is the later of (A) the date
occurring twelve (12) months prior to the expiration of the initial Lease Term,
and (B) the date occurring thirty (30) days after Tenant's receipt of the Option
Rent Notice, exercise the option by delivering written notice ("Exercise
Notice") thereof to Landlord, and upon and concurrent with such exercise, Tenant
may, at its option, object to Landlord's determination of the Fair Market Rental
Rate for the Option Rent contained in the Option Rent Notice, in which case the
parties shall follow the procedure and the Fair Market Rental Rate for the
Option Term shall be determined as set forth in Section 4 below. If Tenant does
not timely object to Landlord's determination of the Option Rent, Landlord's
determination shall be conclusive and the arbitration procedures in Section 4
below shall not be applicable. Tenant's failure to deliver the Exercise Notice
on or before the Exercise Date shall be deemed to constitute Tenant's waiver of
its extension right hereunder.
3.2 Exercise of Option Concurrently With Exercise of Right of First
---------------------------------------------------------------
Offer. In the event that pursuant to Section 1.4 of the Lease Tenant shall be
- -----
required to concurrently exercise the option to extend the Lease Term as set
forth in this Extension Option Rider in order to exercise the first offer right
granted to Tenant pursuant to Section 1.4 of the Lease, Tenant shall exercise
such renewal option pursuant to the following procedure: (i) Tenant shall
include in Tenant's Election Notice (as such term is defined in Section 1.4.2 of
the Lease) Tenant's Exercise Notice irrevocably exercising its option to extend
the Lease Term; (ii) on or before the date which is thirteen (13) months prior
to the expiration of the initial Lease Term, Landlord shall provide Tenant with
the Option Rent Notice; and (iii) if Tenant objects to Landlord's determination
of the Fair Market Rental Rate for the Option Rent contained in the Option Rent
Notice, Tenant may, within ten (10) business days after receipt of the Option
Rent Notice, notify Landlord of such objection, in which case the parties shall
follow the procedure and the Fair Market Rental Rate shall be determined as set
forth in Section 4 below. Tenant's failure to timely deliver the Exercise
Notice shall be deemed to constitute Tenant's waiver of its extension right
hereunder. If Tenant does not timely object to Landlord's determination of the
Option Rent, Landlord's determination shall be conclusive and the arbitration
procedures in Section 4 below shall not be applicable
4. Determination of Fair Market Rental Rate. In the event Tenant timely
----------------------------------------
objects in writing to the applicable Fair Market Rental Rate (for the Option
Term, First Offer Space or the Expansion Space, as applicable) initially
determined by Landlord, Landlord and Tenant shall attempt to agree upon the
applicable Fair Market Rental Rate, using their best good-faith efforts. If
Landlord and Tenant fail to reach agreement within ten (10) business days
following Tenant's objection to the applicable Fair Market Rental Rate (the
"Outside Agreement Date"), then each party shall submit to the other party a
separate written determination of the applicable Fair Market Rental Rate within
ten (10) business days after the Outside Agreement Date, and such determinations
shall be submitted to arbitration in accordance with Sections 4.1 through 4.7
below; provided, however, that if the Fair Market Rental Rate determination
submitted by Landlord is less than the Fair Market Rental Rate originally
provided by Landlord in Landlord's Option Rent Notice, First Offer Notice, or
Expansion Rent Notice, as the case may be, Tenant shall thereafter have five (5)
business days to accept such determination as the Option Rent, First Offer Space
Rent or Expansion Space Rent, as the case may be, in which event the arbitration
proceedings in Sections 4.1 through 4.6 below shall not apply. Failure of
Tenant or Landlord to submit a written determination of the applicable Fair
Market Rental Rate within such ten (10) business day period shall conclusively
be deemed to be the non-determining party's approval of the applicable Fair
Market Rental Rate submitted within such ten (10) business day period by the
other party.
4.1 Landlord and Tenant shall each appoint one arbitrator who shall
by profession be an independent real estate appraiser holding the professional
designation as an MAI (or its equivalent) who has no financial interest in
Landlord or Tenant and who shall have been active over the five (5) year period
ending on the date of such appointment in the appraisal for
-2-
<PAGE>
rental purposes of rentals of space in first-class office buildings in San Mateo
County, California. The determination of the arbitrators shall be limited solely
to the issue of whether Landlord's or Tenant's submitted Fair Market Rental Rate
is the closest to the actual Fair Market Rental Rate as determined by the
arbitrators, taking into account the requirements of Section 2 of this Extension
Rider. Each such arbitrator shall be appointed within thirty (30) days after the
applicable Outside Agreement Date.
4.2 The two (2) arbitrators so appointed shall within ten (10)
business days of the date of the appointment of the last appointed arbitrator
agree upon and appoint a third arbitrator who shall be qualified under the same
criteria as set forth hereinabove for qualification of the initial two (2)
arbitrators, except that the third arbitrator shall not have been previously
engaged by Landlord or Tenant for any purpose.
4.3 The three (3) arbitrators shall conduct a hearing within twenty
(20) days after the appointment of the third arbitrator and within ten (10) days
thereafter reach a decision as to which of the Landlord's or Tenant's submitted
Fair Market Rental Rate is closest to the actual Fair Market Rental Rate, and
the arbitrators shall use whichever of Landlord's or Tenant's submitted Fair
Market Rental Rate is closest to the actual Fair Market Rental Rate to be paid
during the Option Term (with respect to the Option Rent), during the term of the
Lease for the First Offer Space (with respect to the First Offer Space Rent), or
during the term of the Lease for the Expansion Space (with respect to the
Expansion Space Rent) and shall notify Landlord and Tenant thereof.
4.4 The decision of the majority of the three (3) arbitrators shall
be binding upon Landlord and Tenant.
4.5 If either Landlord or Tenant fails to appoint an arbitrator
within thirty (30) days after the Outside Agreement Date, and if such failure
shall continue for an additional fifteen (15) days after written notice thereof
is received by the non-appointing party, the arbitrator appointed by one of them
shall reach a decision, notify Landlord and Tenant thereof, and such
arbitrator's decision shall be binding upon Landlord and Tenant.
4.6 If the two (2) arbitrators fail to agree upon and appoint a third
arbitrator within the time period provided in Section 1.4.2 above, then the
parties shall mutually select the third arbitrator. If Landlord and Tenant are
unable to agree upon the third arbitrator within ten (10) days, then either
party may, upon at least five (5) days' prior written notice to the other party,
request the Presiding Judge of the San Mateo County Superior Court, acting in
his private and nonjudicial capacity, to appoint the third arbitrator.
Following the appointment of the third arbitrator, the panel of arbitrators
shall within thirty (30) days thereafter reach a decision as to whether
Landlord's or Tenant's submitted Fair Market Rental Rate shall be used and shall
notify Landlord and Tenant thereof.
[REMAINDER OF PAGE LEFT BLANK INTENTIONALLY]
-3-
<PAGE>
4.7 The cost of the arbitrators and the arbitration proceeding shall
be paid by Landlord and Tenant equally, except that each party shall pay for the
cost of its own witnesses and attorneys.
WHFST REAL ESTATE LIMITED
PARTNERSHIP, a Delaware
limited partnership
By: Legacy Partners Commercial, Inc., as agent
and manager for Landlord
By: /s/ D. Allen Palmer
---------------------------------
Name: D. Allen Palmer
Its: Senior Vice President
"Tenant":
INKTOMI CORPORATION, a Delaware
corporation
By: /s/ David C. Peterschmidt
-----------------------------------
Name: David C. Peterschmidt
Its: Chief Executive officer
By: /s/ Jerry M. Kennelly
-----------------------------------
Name: Jerry M. Kennelly
Its: Chief Financial Officer
-4-
<PAGE>
STATE OF CALIFORNIA )
) ss.
COUNTY OF SAN MATEO )
On October 12, 1998, before me, Mayrose P. Munar, a Notary
Public in and for said state, personally appeared Jerry Kennelly,
personally known to me (or proved to me on the basis of satisfactory evidence)
to be the person whose name is subscribed to the within instrument and
acknowledged to me that he executed the same in his authorized capacity,
and that by his signature on the instrument, the person, or the entity upon
behalf of which the person acted, executed the instrument.
WITNESS my hand and official seal.
/s/ Mayrose P. Munar
--------------------------------------------
Notary Public in and for said State
STATE OF CALIFORNIA )
) ss.
COUNTY OF SAN MATEO )
On October 12, 1998, before me, Mayrose P. Munar, a Notary
Public in and for said state, personally appeared David Peterschmidt,
personally known to me (or proved to me on the basis of satisfactory evidence)
to be the person whose name is subscribed to the within instrument and
acknowledged to me that he executed the same in his authorized capacity,
and that by his signature on the instrument, the person, or the entity upon
behalf of which the person acted, executed the instrument.
WITNESS my hand and official seal.
/s/ Mayrose P. Munar
--------------------------------------------
Notary Public in and for said State
STATE OF CALIFORNIA )
) ss.
COUNTY OF SAN FRANCISCO)
On October 12, 1998, before me, Stephanie C. Wong, a Notary
Public in and for said state, personally appeared D. Allen Palmer,
personally known to me (or proved to me on the basis of satisfactory evidence)
to be the person whose name is subscribed to the within instrument and
acknowledged to me that he executed the same in his authorized capacity,
and that by his signature on the instrument, the person, or the entity upon
behalf of which the person acted, executed the instrument.
WITNESS my hand and official seal.
/s/ Stephanie C. Wong
--------------------------------------------
Notary Public in and for said State
-5-
<PAGE>
OPTION TO PURCHASE/RIGHTS OF FIRST OFFER TO PURCHASE RIDER
----------------------------------------------------------
This Option to Purchase/Rights of First Offer to Purchase Rider ("Rider")
is made and entered into by and between WHFST REAL ESTATE LIMITED PARTNERSHIP, a
Delaware limited partnership ("Landlord"), and INKTOMI CORPORATION, a Delaware
corporation ("Tenant"), and is dated as of the date of the Office Lease
("Lease") by and between Landlord and Tenant to which this Rider is attached.
The agreements set forth in this Rider shall have the same force and effect as
if set forth in the Lease. To the extent the terms of this Rider are
inconsistent with the terms of the Lease, the terms of this Rider shall control.
1. Tenant's Right to Purchase. The Original Tenant (as defined in the
--------------------------
Lease) shall have the Option to Purchase (defined below) the Real Property (as
defined in the Lease), a First Right of First Offer (defined below) to purchase
the Real Property, a Second Right of First Offer (defined below) to purchase the
Real Property, Tenant's First Last Look (defined below) to purchase the Real
Property, and Tenant's Second Last Look (defined below) to purchase the Real
Property (collectively, "Tenant's Rights") on the terms and conditions set forth
in this Rider. Tenant's Rights shall be personal to the Original Tenant and any
Affiliate to which the Original Tenant's entire interest in the Lease has been
assigned pursuant to Section 14.7 of the Lease and may only be exercised by the
Original Tenant or an Affiliate and may not be assigned, voluntarily or
involuntarily, separate from or as a part of the Lease. The particular Tenant's
Right shall be void if on the date of Tenant's delivery of Tenant's Exercise
Notice (defined below), Tenant's First Acceptance Notice (defined below),
Tenant's First Last Look Notice (defined below), Tenant's Second Acceptance
Notice (defined below), or Tenant's Second Last Look Notice (defined below) as
applicable, (i) Tenant is then in monetary or material non-monetary default
under the Lease, or (ii) the Lease has been assigned or any portion of the
Premises in Building 2 has been sublet to a party which is other than an
Affiliate.
2. Tenant's Option to Purchase.
---------------------------
(a) Tenant's Option. Provided that (i) the conditions set forth in
---------------
Paragraph 1 of this Rider are satisfied, and (ii) Landlord has not previously
delivered Landlord's First Availability Notice (defined below) to Tenant, during
the period beginning on the first day of the thirteenth (13th) month of the
initial Lease Term and continuing through and including the last day of the
fifty-ninth (59th) month of the initial Lease Term (the "Purchase Period"),
Tenant shall have the option to purchase the Real Property ("Option to
Purchase") at the Option Purchase Price (defined below) and on the other terms
and conditions of this Rider, exercisable by Tenant by delivering to Landlord
written exercise notice ("Tenant's Exercise Notice") during the Purchase Period.
If Tenant does not timely deliver to Landlord Tenant's Exercise Notice during
the Purchase Period and prior to the date that Landlord has delivered Landlord's
First Availability Notice to Tenant, then Tenant's Option to Purchase shall
automatically terminate and be of no further force or effect.
(b) Option Purchase Price. As used herein, the "Option Purchase
---------------------
Price" shall be equal to ninety-seven percent (97%) of the Rents (as defined
below) divided by eight and one-half percent (8 1/2%). As used herein, the term
"Rents" shall equal the average of the annual base rent payable by all of the
tenants of the Buildings for the period ("Rental Calculation Period") which is
three (3) years after the date of Tenant's delivery to Landlord of Tenant's
Exercise Notice (the "Exercise Date"); provided, however, to the extent that not
all of the rentable area of the Buildings is leased (which for purposes hereof
shall mean leased for a fixed term, including any exercised renewal term, but
not any contingent period or renewal term which has not been exercised) for the
entire Rental Calculation Period, then for purposes of determining the average
annual base rent payable for such space during the portion of the Rental
Calculation Period that such space is not rented, the base rent for such
unleased space for such unleased period shall be deemed to be the Base Rent per
rentable square foot payable by Tenant for the Premises during such unleased
period (e.g., if floor 6 of Building 1 containing 23,155 of rentable square feet
is not leased during the last year of the Rental Calculation Period, and
Tenant's Base Rent for such year equals $3.366 per rentable square foot per
month, then the base rent payable for floor 6 for such last year shall be deemed
to equal $935,276.76; i.e., $3.366 x 23,155 rentable square feet). For example,
assume that (i) the Exercise Date occurs on the last day of the 36th month of
the Lease Term, (ii) XYZ Tenant is leasing floors 1-3 (which consist of 69,465
rentable square feet) of Building 1 for the entire Rental Calculation Period and
the monthly base rent per rentable square
-1-
<PAGE>
foot for such space during such period is (A) $3.466 for months 37-48 of the
Lease Term, (B) $3.566 for months 49-60 of the Lease Term, and (C) $3.666 for
months 61-72 of the Lease Term) and (iii) ABC Tenant is leasing floor 6 (which
consists of 23,155 rentable square feet) of Building 1 for the first two (2)
years of the Rental Calculation Period and the monthly base rent per rentable
square foot for such space during such period is $3.566, but floor 6 is not
leased during the last year of the Rental Calculation Period, then the Rents
payable for the Rental Calculation Period shall equal $11,100,099.00 calculated
as the average of the sum of the following: (1) $7,155,321.60, which is the
average annual Base Rent payable by Tenant for the Rental Calculation Period, at
the rate of $3.366 per rentable square foot per month (i.e. ($3.266 + $3.366 +
$3.466)/3 = $3.366) multiplied by 177,147 rentable square feet multiplied by 12
months; plus (2) $8,972,546.14, which is the average annual base rent payable by
XYZ Tenant for the Rental Calculation Period at the rate of $3.566 per rentable
square foot per month multiplied by 69,465 rentable square feet multiplied by 12
months; plus (3) $972,232.14, which is the average annual base rent payable by
ABC Tenant for the Rental Calculation Period at the rate of $3.499 per rentable
square foot per month (i.e., $3.566 + $3.566 + $3.366/3 = $3.499) multiplied by
23,155 rentable square feet multiplied by 12 months. Since the Rents are
$11,100,099.00, the Option Purchase Price shall be $126,671,718.00 (i.e., [97%
$11,100,099.00]/.085).
3. Tenant's First Right of First Offer and First Last Look.
-------------------------------------------------------
(a) First Right of First Offer. Provided (i) the conditions set
--------------------------
forth in Paragraph 1 of this Rider are satisfied, and (ii) Tenant has not
previously delivered to Landlord Tenant's Exercise Notice, in the event Landlord
shall decide to put the Real Property up for sale from and after the date of
execution of the Lease until the end of the Purchase Period to any person or
entity (herein, an "Unrelated Entity") which is not a Landlord Affiliate (as
---
defined in Paragraph 3(c) below) and, at Landlord's option, is not Landlord's
---
lender or a purchaser by foreclosure or deed in lieu of foreclosure, Landlord
shall deliver written notice thereof to Tenant ("Landlord's First Availability
Notice"), which Landlord's First Availability Notice shall set forth the
purchase price for the Real Property that Landlord anticipates it will receive
upon the sale of the Real Property to an Unrelated Entity (the "First
Anticipated Purchase Price"), and Tenant shall have the right ("First Right of
First Offer") to purchase the Real Property pursuant to the following provisions
of this Paragraph 3. Tenant shall have a period of ten (10) business days (the
"First Exercise Period") following receipt of Landlord's First Availability
Notice to notify Landlord in writing of (A) Tenant's exercise of such First
Right of First Offer to purchase the Real Property ("Tenant's First Acceptance
Notice"), at the First Anticipated Purchase Price and on the other terms and
conditions of this Rider, or (B) Tenant's election to not exercise such First
Right of First Offer and Tenant's interest in purchasing the Real Property but
at a purchase price which is at least twenty percent (20%) less than the First
Anticipated Purchase Price ("Tenant's First Deferral Notice"). If Tenant fails
to deliver to Landlord Tenant's First Acceptance Notice within the First
Exercise Period, it shall be deemed that (I) Tenant has elected not to purchase
the Real Property pursuant to Tenant's First Right of First Offer (and if Tenant
also failed to timely deliver to Landlord Tenant's First Deferral Notice, it
shall also be deemed that Tenant is not interested in purchasing the Real
Property at a price which is at least twenty percent (20%) less than the First
Anticipated Purchase Price), (II) Tenant's First Right of First Offer shall
automatically terminate and be of no further force or effect, and (III) Landlord
may enter into negotiations with any person or entity and/or negotiate with, and
consummate an agreement to sell the Real Property to, any person or entity at
any purchase price and on any other terms and conditions Landlord, in its sole
and absolute discretion, shall deem desirable subject to Tenant's Second Right
of First Offer, if applicable, as provided in Paragraph 4 below.
(b) First Last Look. Notwithstanding clause (III) of the last
---------------
sentence of Paragraph 3(a) to the contrary, in the event that (i) Tenant shall
have timely delivered to Landlord Tenant's First Deferral Notice pursuant to
Paragraph 3(a) above, and (ii) Landlord shall, within the earlier of (A) the
date which is eighteen (18) months after the end of the First Exercise Period or
(B) the last day of the Purchase Period, agree in principal (by bona fide letter
of intent or other bona fide document which need not be a completed purchase and
sale agreement) with an Unrelated Entity to sell the Real Property to such
Unrelated Entity at a purchase price which is more than twenty percent (20%)
less than the First Anticipated Purchase Price, then Landlord shall deliver to
Tenant written notice ("Landlord's First Last Look Notice") thereof, and Tenant
shall have the right to purchase the Real Property at such lower price (the
"First Look Purchase
-2-
<PAGE>
Price") so agreed to by Landlord and such Unrelated Entity ("Tenant's First Last
Look") by delivering written notice of its exercise of Tenant's First Last Look
("Tenant's First Last Look Notice") within five (5) business days after
Landlord's delivery of Landlord's First Last Look Notice. If Tenant fails to
timely deliver Tenant's First Last Look Notice electing to purchase the Real
Property at the First Look Purchase Price, then it shall be deemed that (1)
Tenant has elected not to purchase the Real Property and Tenant's First Last
Look shall automatically terminate and be of no further force or effect, and (2)
Landlord may enter into negotiations with any person or entity and/or negotiate
with, and consummate an agreement to sell the Real Property to, any person or
entity at any purchase price and on any other terms and conditions Landlord, in
its sole and absolute discretion, shall deem desirable, subject to Tenant's
Second Right of First Offer pursuant to Paragraph 4(a) below.
(c) Landlord Affiliate. As used herein, a "Landlord Affiliate"
------------------
shall mean any of the following persons or entities, or any entities in which
Landlord or any of the following persons or entities has an ownership interest:
Lincoln-Whitehall Realty (West) II LLC; WHFST Gen-Par, Inc.; Lincoln Industrial
Investment Fund; Lincoln Property Company No. 2233; LPDC, Inc.; LPC MS, Inc.;
any parties related or affiliated with Lincoln Property Company N.C., Inc.;
Legacy Partners Commercial, Inc.; or any of the successors-in-interest to any of
such entities by name change, merger, consolidation, reorganization, or transfer
of ownership interests.
4. Tenant's Second Right of First Offer and Second Last Look.
---------------------------------------------------------
(a) Second Right of First Offer. In the event (i) Tenant fails to
---------------------------
exercise Tenant's First Right of First Offer pursuant to Paragraph 3(a) above,
within the First Exercise Period, (ii) there are at least eighteen (18) months
remaining in the Purchase Period from and after the end of the First Exercise
Period, and (iii) Landlord shall not consummate the sale of the Real Property to
---
any other entity or person within eighteen (18) months after the end of the
First Exercise Period, Tenant shall have a second right of first offer ("Second
Right of First Offer") to purchase the Real Property in the event Landlord shall
decide to put the Real Property up for sale (or continue marketing the Real
Property for sale) to Unrelated Entities any time after the expiration of such
eighteen (18) month period but prior to the end of the Purchase Period pursuant
to the following provisions of this Paragraph 4(a). In such event, Landlord
shall deliver written notice to Tenant ("Landlord's Second Availability Notice")
of Landlord's desire to sell the Real Property, which Landlord's Second
Availability Notice shall set forth the purchase price for the Real Property
that Landlord anticipates it will receive upon the sale of the Real Property to
an Unrelated Entity (the "Second Anticipated Purchase Price"), and Tenant shall,
within ten (10) business days (the "Second Exercise Period") following receipt
of Landlord's Second Availability Notice, notify Landlord in writing of (A)
Tenant's exercise of such Second Right of First Offer to Purchase the Real
Property ("Tenant's Second Acceptance Notice") at the Second Anticipated
Purchase Price and on the other terms and conditions of this Rider, or (B)
Tenant's election to not exercise such Second Right of First Offer and Tenant's
interest in purchasing the Real Property but at a purchase price which is at
least twenty percent (20%) less than the Second Anticipated Purchase Price
("Tenant's Second Deferral Notice"). If Tenant fails to timely deliver to
Landlord Tenant's Second Acceptance Notice within the Second Exercise Period,
(I) it shall be deemed that Tenant has elected not to purchase the Real Property
pursuant to Tenant's Second Right of First Offer (and if Tenant also failed to
timely deliver to Landlord Tenant's Second Deferral Notice, it shall also be
deemed that Tenant is not interested in purchasing the Real Property at a price
which is at least twenty percent (20%) less than the Second Anticipated Purchase
Price), (II) Tenant's Second Right of First Offer shall automatically terminate
and be of no further force or effect, and (III) Landlord may thereafter enter
into negotiations with any person or entity and/or negotiate with, and
consummate an agreement to sell the Real Property at any time to, any person or
entity at any purchase price and on any other terms and conditions Landlord, in
its sole and absolute discretion, shall deem desirable.
(b) Second Last Look. Notwithstanding clause (III) of the last
----------------
sentence of Paragraph 4(a) to the contrary, in the event that (i) Tenant shall
have timely delivered to Landlord Tenant's Second Deferral Notice, and (ii)
Landlord shall, within the earlier of (A) the date which is eighteen (18) months
after the end of the Second Exercise Period or (B) the last day of the Purchase
Period, agree in principal (by bona fide letter of intent or other bona fide
document which need not be a completed purchase and sale agreement) with an
Unrelated Entity to sell the Real Property to such Unrelated Entity at a
purchase price which is more than twenty percent
-3-
<PAGE>
(20%) less than the Second Anticipated Purchase Price, then Landlord shall
deliver to Tenant written notice ("Landlord's Second Last Look Notice") thereof,
and Tenant shall have the right to purchase the Real Property at such lower
price (the "Second Look Purchase Price") so agreed to by Landlord and such
Unrelated Entity ("Tenant's Second Last Look") by delivering written notice of
its exercise of Tenant's Second Last Look ("Tenant's Second Last Look Notice")
within five (5) business days after Landlord's delivery of Landlord's Second
Last Look Notice. If Tenant fails to timely deliver Tenant's Second Last Look
Notice electing to purchase the Real Property at the Second Look Purchase Price,
then it shall be deemed that (1) Tenant has elected not to purchase the Real
Property and Tenant's Second Last Look shall automatically terminate and be of
no further force or effect, and (2) Landlord may enter into negotiations with
any person or entity and/or negotiate with, and consummate an agreement to sell
the Real Property to, any person or entity at any purchase price and on any
other terms and conditions Landlord, in its sole and absolute discretion, shall
deem desirable.
5. Purchase and Sale Agreement. If Tenant timely delivers Tenant's
---------------------------
Exercise Notice, Tenant's First Acceptance Notice, Tenant's Second Acceptance
Notice, Tenant's First Last Look Notice or Tenant's Second Last Look Notice, as
applicable, then the Purchase Price and the other terms and conditions upon
which Landlord shall sell the Real Property to Tenant, and Tenant shall purchase
the Real Property from Landlord, will be as set forth in Paragraphs 5(a) through
(e) below, and otherwise on the terms and conditions set forth in a commercially
reasonable form agreement of purchase and sale and joint escrow instructions to
be negotiated by the parties in good faith. (the "Purchase Agreement"). Tenant
and Landlord shall fully negotiate and enter into the Purchase Agreement within
fifteen (15) business days after Landlord's receipt of Tenant's Exercise Notice,
Tenant's First Acceptance Notice, Tenant's Second Acceptance Notice, Tenant's
First Last Look Notice or Tenant's Second Last Look Notice, as applicable. If
Tenant fails to timely execute the Purchase Agreement within the later of the
expiration of such fifteen (15) business day period or five (5) business days
after Landlord has delivered the Purchase Agreement to Tenant, or if Tenant
changes any of the terms of the Purchase Agreement prior to execution hereof, or
if after execution of the Purchase Agreement, Tenant breaches any of the
provisions thereof and does not consummate the purchase of the Real Property
pursuant thereto, then Tenant shall be deemed to have waived all of Tenant's
Rights in this Rider to purchase the Real Property, including the particular
Tenant's Right for which the Purchase Agreement was prepared, and any subsequent
Tenant's Rights Tenant would otherwise have pursuant to this Rider.
(a) Purchase Price. The purchase price for the Real Property
--------------
("Purchase Price") shall equal (i) the Option Purchase Price if Tenant timely
exercises its Option to Purchase; (ii) the First Anticipated Purchase Price if
Tenant timely exercises the First Right of First Offer; (iii) the Second
Anticipated Purchase Price if Tenant timely exercises the Second Right of First
Offer; (iv) the First Look Purchase Price if Tenant timely exercises Tenant's
First Last Look; or (v) the Second Look Purchase Price if Tenant timely
exercises Tenant's Second Last Look.
(b) Opening and Closing of Escrow. Within two (2) business days
-----------------------------
after Landlord and Tenant sign the Purchase Agreement, Landlord and Tenant shall
give a copy of the Purchase Agreement to a mutually agreed upon escrow holder
(the "Escrow Holder"), and Tenant shall deliver to Escrow Holder a deposit in an
amount equal to twenty percent (20%) of the Purchase Price (the "Deposit"). The
Deposit shall be non-refundable (and shall be paid to Landlord in the event that
the sale is not consummated for any reason other than Landlord's breach of the
Purchase Agreement or Tenant's reasonable disapproval of the condition of title
described below), but shall be applicable to the Purchase Price. The Purchase
Agreement shall provide for a close of escrow (the "Closing Date") on or before
the thirtieth (30th) day following the full execution and delivery of the
Purchase Agreement. The Purchase Agreement shall also provide Tenant with 10
days following the execution thereof in which to approve the Real Property's
condition of title and the physical and environmental condition of the Real
Property, in Tenant's reasonable discretion, and shall give Tenant the right to
terminate the Purchase Agreement without penalty or damages if Tenant is not
reasonably satisfied with the condition of title and the physical and
environmental condition of the Real Property. Except for Seller's obligation to
deliver the grant deed and other Closing documents and otherwise perform under
the Purchase Agreement, and except for Tenant's right to reasonably approve
title and the physical and environmental condition of the Real Property as set
forth hereinabove, there shall be no conditions precedent to Tenant's obligation
to close the purchase of the Real Property once the Purchase Agreement is fully
executed.
-4-
<PAGE>
(c) Condition of Premises. Tenant's purchase of the Real Property
---------------------
shall be on an "AS-IS" basis (with a full release of Landlord except for claims
arising under this Lease or the Purchase Agreement), with no representations or
warranties, express or implied, regarding the condition or nature of the Real
Property or the improvements thereon; provided, however that Landlord shall re-
make the representation and warranty set forth in Section 1.3 of the Lease at
the time of the full execution of the Purchase Agreement and the Closing Date,
with any exceptions thereto than actually known by Landlord.
(d) Costs and Fees. Escrow fees and recording costs for the sale of
--------------
the Real Property shall be paid by Tenant, and interest, rents, and other
expenses will be prorated to the Closing Date. Tenant shall be responsible for
the cost of a standard CLTA title insurance policy to be issued to Tenant by a
title insurance company selected by Landlord. In the event that Tenant shall
elect to obtain an ALTA title insurance policy or shall elect to obtain any
title endorsements, any increased premiums therefor shall be paid by Tenant.
Landlord shall pay all city and county real estate transfer taxes. All other
closing costs shall be shared in accordance with standard practice in Foster
City, California. Tenant shall be responsible for the payment to Landlord of
all rent due under the Lease through and including the Closing Date.
6. Commissions. Landlord and Tenant represent and warrant to each other
-----------
that no person or entity should be entitled to a brokerage or real estate
commission of any kind in connection with the purchase of the Real Property
pursuant to this Rider, except for BT Commercial, who, to the extent that (i)
Tenant delivers to Landlord a letter whereby Tenant recognizes BT Commercial as
its exclusive real estate broker and (ii) BT Commercial actively negotiates the
sale of the Real Property to Tenant and (iii) the Purchase Agreement on behalf
of Tenant and the Purchase Agreement is fully executed by and between Landlord
and Tenant and (iv) the sale of the Real Property to Tenant is consummated,
shall be paid a commission of one-half ( 1/2) of one percent (1%) (i.e., 0.5%)
of the Purchase Price for the Real Property by Landlord after the Purchase
Agreement is executed and the sale of the Real Property to Tenant is consummated
pursuant to Landlord's standard commission agreement which shall be fully
executed by Landlord and BT Commercial as a condition to Landlord's payment of
such commission.
7. Termination of Rights. In the event the Real Property is sold to any
---------------------
person or entity other than (i) to a Landlord Affiliate or (ii) in connection
with a foreclosure or deed in lieu of foreclosure of any mortgage or deed of
trust encumbering the Real Property (except to Mortgagee or New Owner pursuant
to the foreclosure or deed in lieu of foreclosure or other transfer pursuant to
the Mortgage as such terms are defined in the NationsBank SNDA described in
Article 18 of the Lease), or in the event Landlord and Tenant fail to consummate
the purchase and sale of the Real Property pursuant to the terms and conditions
of this Rider or the Purchase Agreement all of Tenant's Rights under this Rider
shall automatically terminate and be of no further force or effect, and Tenant
shall remain in possession of the Premises subject to the remaining terms,
covenants, conditions and provisions of the Lease. Within five (5) business
days after request from Landlord following termination of any of Tenant's
Rights, Tenant shall execute, acknowledge and deliver to Landlord a quitclaim
which acknowledges such termination. Notwithstanding any contrary provision of
Article 18 of the Lease, Tenant shall not be required to subordinate its rights
under this Rider to any mortgage or deed of trust (other than the NationsBank
Deed of Trust referred to in Article 18 of the Lease) or to the lessor under any
ground or underlying lease.
8. Effect on Lease. Until the consummation of the purchase and sale of
---------------
the Real Property to Tenant, the Lease shall remain in full force and effect.
Upon consummation of the purchase and sale of the Real Property to Tenant, the
Lease shall terminate and be of no further force or effect, except for the
indemnity and other obligations which specifically survive termination of the
Lease.
[REMAINDER OF PAGE LEFT BLANK INTENTIONALLY]
-5-
<PAGE>
9. Transfer to Landlord Affiliate. If the Real Property is sold or
------------------------------
transferred by Landlord to a Landlord Affiliate, all of Tenant's Rights under
this Rider which are then in effect shall continue in effect upon the terms and
conditions set forth in this Rider, and the Landlord Affiliate shall be bound by
the terms of this Rider with respect to all such remaining Tenant's Rights.
WHFST REAL ESTATE LIMITED
PARTNERSHIP, a Delaware
limited partnership
By: Legacy Partners Commercial, Inc., as agent
and manager for Landlord
By: /s/ D. Allen Palmer
---------------------------------
Name: D. Allen Palmer
Its: Senior Vice President
"Tenant":
INKTOMI CORPORATION, a Delaware
corporation
By: /s/ David C. Peterschmidt
-----------------------------------
Name: David C. Peterschmidt
Its: Chief Executive officer
By: /s/ Jerry M. Kennelly
-----------------------------------
Name: Jerry M. Kennelly
Its: Chief Financial Officer
-6-
<PAGE>
STATE OF CALIFORNIA )
) ss.
COUNTY OF SAN MATEO )
On October 12, 1998, before me, Mayrose P. Munar, a Notary
Public in and for said state, personally appeared Jerry Kennelly,
personally known to me (or proved to me on the basis of satisfactory evidence)
to be the person whose name is subscribed to the within instrument and
acknowledged to me that he executed the same in his authorized capacity,
and that by his signature on the instrument, the person, or the entity upon
behalf of which the person acted, executed the instrument.
WITNESS my hand and official seal.
/s/ Mayrose P. Munar
--------------------------------------------
Notary Public in and for said State
STATE OF CALIFORNIA )
) ss.
COUNTY OF SAN MATEO )
On October 12, 1998, before me, Mayrose P. Munar, a Notary
Public in and for said state, personally appeared David Peterschmidt,
personally known to me (or proved to me on the basis of satisfactory evidence)
to be the person whose name is subscribed to the within instrument and
acknowledged to me that he executed the same in his authorized capacity,
and that by his signature on the instrument, the person, or the entity upon
behalf of which the person acted, executed the instrument.
WITNESS my hand and official seal.
/s/ Mayrose P. Munar
--------------------------------------------
Notary Public in and for said State
STATE OF CALIFORNIA )
) ss.
COUNTY OF SAN FRANCISCO)
On October 12, 1998, before me, Stephanie C. Wong, a Notary
Public in and for said state, personally appeared D. Allen Palmer,
personally known to me (or proved to me on the basis of satisfactory evidence)
to be the person whose name is subscribed to the within instrument and
acknowledged to me that he executed the same in his authorized capacity,
and that by his signature on the instrument, the person, or the entity upon
behalf of which the person acted, executed the instrument.
WITNESS my hand and official seal.
/s/ Stephanie C. Wong
--------------------------------------------
Notary Public in and for said State
-7-
<PAGE>
LETTER OF CREDIT RIDER
----------------------
This LETTER OF CREDIT RIDER ("LC Rider") is made and entered into by and
between WHFST REAL ESTATE LIMITED PARTNERSHIP, a Delaware limited partnership
("Landlord"), and INKTOMI CORPORATION, a Delaware corporation ("Tenant"), and is
dated as of the date of the Office Lease ("Lease") by and between Landlord and
Tenant to which this LC Rider is attached. The agreements set forth in this
Letter of Credit Rider shall have the same force and effect as if set forth in
the Lease. To the extent the terms of this LC Rider are inconsistent with the
terms of the Lease, the terms of this LC Rider shall control.
1. On or before January 15, 1999, Tenant shall deliver to Landlord, as
collateral for the full and faithful performance by Tenant of all of its
obligations under the Lease and for all losses and damages Landlord may suffer
as a result of any default by Tenant under the Lease, an irrevocable and
unconditional negotiable letter of credit (the "Letter of Credit"), in the form
and containing the terms required herein, payable in the County of San
Francisco, California, running in favor of Landlord issued by Silicon Valley
Bank, in the amount set forth in Section 13.1 of the Summary of the Lease (the
"Letter of Credit Amount'); provided, however, that on the Lease Commencement
Date, the Letter of Credit Amount shall be increased to and revised to be the
amount set forth in Section 13.2 of the Summary of the Lease, which such
increase shall be evidenced by an amendment to the Letter of Credit or
replacement of the Letter of Credit delivered by Tenant to Landlord on or before
the Lease Commencement Date. The Letter of Credit shall be (i) at sight and
irrevocable, (ii) subject to the terms of this LC Rider, maintained in effect,
whether through replacement, renewal or extension, for the period from January
15, 1999 and continuing until the date (the "LC Expiration Date") which is sixty
(60) days after the expiration of the initial Lease Term, and Tenant shall
deliver a new Letter of Credit or certificate of renewal or extension to
Landlord at least thirty (30) days prior to the expiration of the Letter of
Credit, without any action whatsoever on the part of Landlord, (iii) subject to
the Uniform Customs and Practices for Documentary Credits (1993-Rev)
International Chamber of Commerce Publication #500, and (iv) fully assignable by
Landlord in connection with a transfer of Landlord's interest in the Lease,
including a transfer of Landlord's interest in the Lease by foreclosure or deed
in lieu of foreclosure, and permit partial draws. In addition to the foregoing,
the form and terms of the Letter of Credit (and the bank issuing the same) shall
be acceptable to Landlord, in Landlord's reasonable discretion, and shall
provide, among other things, in effect that: (A) Landlord, or its then managing
agent, shall have the right to draw down an amount up to the face amount of the
Letter of Credit upon the presentation to the issuing bank of Landlord's (or
Landlord's then managing agent's) written statement that such amount is due to
Landlord under the terms and conditions of the Lease, it being understood that
if Landlord or its managing agent be a corporation, partnership or other entity,
then such statement shall be signed by an officer (if a corporation), a general
partner (if a partnership), or any authorized party (if another entity); (B) the
Letter of Credit will be honored by the issuing bank without inquiry as to the
accuracy thereof and regardless of whether the Tenant disputes the content of
such statement; and (C) in the event of a transfer of Landlord's interest in the
Building, Landlord shall transfer the Letter of Credit, in whole or in part (or
cause a substitute letter of credit to be delivered, as applicable) to the
transferee and thereupon Landlord shall, without any further agreement between
the parties, be released by Tenant from all liability therefor, and it is agreed
that the provisions hereof shall apply to every transfer or assignment of the
whole or any portion of said Letter of Credit to a new Landlord. If, as result
of any application or use by Landlord of all or any part of the Letter of Credit
(or any "Cash Collateral," as that term is defined, below), the amount of the
Letter of Credit and Cash Collateral shall collectively be less than the Letter
of Credit Amount, Tenant shall, within five (5) days thereafter, provide
Landlord with either (1) cash (the "Cash Collateral") to be held and applied by
Landlord as collateral in the same manner as if Landlord held such amount as
part of the Letter of Credit, or (2) additional letter(s) of credit in an amount
equal to the deficiency (or a replacement letter of credit in the total Letter
of Credit Amount), and any such additional (or replacement) letter of credit
shall comply with all of the provisions of this LC Rider, and if Tenant fails to
comply with the foregoing, the same shall constitute an uncurable default by
Tenant. Tenant further covenants and warrants that it will neither assign nor
encumber the Letter of Credit or Cash Collateral, as the case may be, or any
part thereof and that neither Landlord nor its successors or assigns will be
bound by any such assignment, encumbrance, attempted assignment or attempted
encumbrance. Without limiting the generality of the foregoing, if the Letter of
Credit expires earlier than the LC Expiration Date, Landlord will accept Cash
Collateral, a renewal letter of credit or substitute letter of credit (such
renewal or substitute
-1-
<PAGE>
letter of credit or Cash Collateral to be in effect and delivered to Landlord,
as applicable, not later than thirty (30) days prior to the expiration of the
Letter of Credit), which with respect to any letter of credit shall be
irrevocable and automatically renewable as above provided through the LC
Expiration Date upon the same terms as the expiring Letter of Credit or such
other terms as may be acceptable to Landlord in its reasonable discretion.
However, if the Cash Collateral is not timely delivered or the Letter of Credit
is not timely renewed or a substitute Letter of Credit is not timely received,
or if Tenant fails to maintain the Letter of Credit and/or the Cash Collateral
in the amount and in accordance with the terms set forth in this LC Rider,
Landlord shall have the right to present the Letter of Credit to the bank in
accordance with the terms of this LC Rider, and the entire sum evidenced thereby
shall be paid to and held by Landlord as Cash Collateral for performance of all
of Tenant's obligations under the Lease and for all losses and damages Landlord
may suffer as a result of any default by Tenant under the Lease. If there shall
occur a default under the Lease as set forth in Article 19 of the Lease,
Landlord may, but without obligation to do so, draw upon the Letter of Credit
and/or utilize the Cash Collateral, in part or in whole, to cure any default of
Tenant and/or to compensate Landlord for any and all damages of any kind or
nature sustained or which may be sustained by Landlord resulting from Tenant's
default. Tenant agrees not to interfere in any way with payment to Landlord of
the proceeds of the Letter of Credit, either prior to or following a "draw" by
Landlord of any portion of the Letter of Credit, regardless of whether any
dispute exists between Tenant and Landlord as to Landlord's right to draw from
the Letter of Credit. No condition or term of the Lease shall be deemed to
render the Letter of Credit conditional to justify the issuer of the Letter of
Credit in failing to honor a drawing upon such Letter of Credit in a timely
manner. Landlord and Tenant acknowledge and agree that in no event or
circumstance shall the Letter of Credit or any renewal thereof or substitute
therefor or Cash Collateral be (x) deemed to be or treated as a "security
deposit" within the meaning of California Civil Code Section 1950.7, (y) subject
to the terms of such Section 1950.7, or (z) intended to serve as a "security
deposit" within the meaning of such Section 1950.7. The parties hereto (a)
recite that the Letter of Credit and/or Cash Collateral, as the case may be, is
not intended to serve as a security deposit and such Section 1950.7 and any and
all other laws, rules and regulations applicable to security deposits in the
commercial context ("Security Deposit Laws") shall have no applicability or
relevancy thereto and (b) waive any and all rights, duties and obligations
either party may now or, in the future, will have relating to or arising from
the Security Deposit Laws.
2. Notwithstanding anything to the contrary set forth in this LC Rider,
subject to Paragraph 4 of this LC Rider, it is hereby agreed that the Letter of
Credit Amount (as set forth in Section 13.2 of the Summary) shall be reduced on
the first day of the months specified in the schedule below (each a "Reduction
Date") to the amount specified in the schedule (each a "Normal Reduction
Amount") for such Reduction Date. However, in the event that as of the
applicable Reduction Date Tenant shall have met the "Financial Criteria" defined
below for each of the four (4) most recent quarters prior to such Reduction Date
(such four (4) quarter annual period preceding the Reduction Date to be referred
to herein as the "Reporting Period"), then the Letter of Credit Amount shall be
reduced on the applicable Reduction Date on an accelerated basis to the amounts
set forth in the following schedule (each an "Accelerated Reduction Amount").
Notwithstanding the foregoing, if on any Reduction Date Tenant fails to meet the
Financial Criteria for the Reporting Period applicable thereto, the Letter of
Credit Amount shall be reduced to the Normal Reduction Amount corresponding to
such Reduction Date, but only if the Normal Reduction Amount is less than the
then-current Letter of Credit Amount; otherwise, the Letter of Credit Amount
shall remain unchanged as of such Reduction Date, but shall be subject to
subsequent reduction(s) on the next Reduction Date(s) pursuant to the following
schedule. The Financial Criteria are: (i) Tenant shall have at least
$100,000,000 in current shareholders' equity for each quarter of such Reporting
Period, and (ii) Tenant has positive after-tax net profitability for each
quarter of such Reporting Period, and positive after-tax profitability for the
Reporting Period, determined annually in the amount of at least ten percent
(10%) of gross revenues for such annual Reporting Period, each as evidenced by
audited financial statements for the applicable Reporting Period delivered to
Landlord and certified as true and correct by a national independent public
accounting firm selected by Tenant and approved by Landlord.
-2-
<PAGE>
Month of Accelerated
Initial Lease Term Normal Reduction Amount Reduction Amount
------------------ ----------------------- ----------------
37 $4,843,907.50 $3,632,930.70
49 $4,238,419.00 $3,027,442.30
61 $3,632,930.60 $2,421,953.90
73 $3,027,442.20 $1,816,465.50
3. By way of example, if on the first day of the 37th month of the
initial Lease Term, Tenant meets the Financial Criteria for the Reporting Period
applicable thereto, the Letter of Credit Amount shall be reduced to
$3,632,930.70. If on the first day of the 49th month of the initial Lease Term
Tenant fails to meet the Financial Criteria for the Reporting Period applicable
thereto, then the Letter of Credit shall remain $3,632,930.70, because the
Normal Reduction Amount for the 49th month is greater than the then-current
Letter of Credit Amount. If on the first day of the 61st month of the initial
Lease Term Tenant meets the Financial Criteria for the Reporting Period
applicable thereto, the Letter of Credit Amount shall be reduced to
$2,421,953.90; however, if on such date Tenant fails to meet the Financial
Criteria for the Reporting Period applicable thereto, the Letter of Credit
Amount shall remain $3,632,930.70, because the Normal Reduction Amount for such
date is the same as the then-current Letter of Credit Amount. Finally, if on the
first day of the 73rd month of the initial Term of the Lease Tenant meets the
Financial Criteria for the Reporting Period applicable thereto, the Letter of
Credit Amount shall be reduced to $1,816,465.50; however, if on such date Tenant
fails to meet the Financial Criteria for the Reporting Period applicable
thereto, the Letter of Credit Amount shall only be reduced to $3,027,442.20.
The decision tree below demonstrates how the Letter of Credit shall be
reduced on the applicable Reduction Date, depending on whether or not Tenant
meets the Financial Criteria for the applicable Reporting Period. In all cases,
the upper branch of each fork shows the amount appropriate if Tenant meets the
Financial Criteria for the applicable Reporting Period, and the lower branch
shows the amount appropriate if Tenant does not meet the Financial Criteria for
the applicable Reporting Period.
[REMAINDER OF PAGE LEFT BLANK INTENTIONALLY]
-3-
<PAGE>
<TABLE>
<CAPTION>
Month 37 Month 49 Month 61 Month 73
- -------- -------- -------- --------
<S> <C> <C> <C>
$2,421,953.90 $1,816,465.50
---------------------------------------------
$3,027,442.30 | |$2,421,953.90
------------------------------------- --------------
| Meets Financial |$3,027,442.30 $1,816,465.50
| Criteria ---------------------------------------------
| |$3,027,442.30
$3,632,930.70 | --------------
- ------------------------|
Meets Financial |
Criteria | $2,421,953.90 $1,816,465.50
| --------------------------------------------
| $3,632,930.70 | |$2,421,953.90
------------------------------------- --------------
Does not meet |$3,632,930.70 $1,816,465.50
Financial Criteria ----------------------------------------------
|$3,027,442.20
$2,421,953.90 $1,816,465.50
---------------------------------------------
$3,027,442.30 | |$2,421,953.90
------------------------------------- --------------
| Meets Financial |$3,027,442.30 $1,816,465.50
| Criteria ---------------------------------------------
| |$3,027,442.30
$4,843,907.50 | --------------
- ------------------------|
Does not meet |
Financial | $2,421,953.90 $1,816,465.50
Criteria | --------------------------------------------
| $4,238,419.00 | |$2,421,953.90
------------------------------------- --------------
Does not meet |$3,632,930.60 $1,816,465.50
Financial Criteria ---------------------------------------------
|$3,027,442.20
--------------
</TABLE>
4. Notwithstanding anything to the contrary set forth in this LC Rider,
there shall be no reduction in the Letter of Credit Amount while Tenant is in
default of any of its obligations under this Lease or in the event that Landlord
shall have previously drawn down on any portion of the Letter of Credit.
5. Any such reduction of the Letter of Credit Amount pursuant to Paragraph
2 above may be provided by amendment to or replacement of the Letter of Credit,
as shall be determined by Landlord.
6. In the event that Landlord shall have improperly drawn down on any
portion of the Letter of Credit and such drawn down portion(s) have been
improperly applied by Landlord, then Tenant shall have the rights set forth in
this Paragraph 6. Specifically, Tenant may institute legal proceedings to
determine and collect the amount of the portion(s) of the Letter of Credit which
Landlord improperly drew down, if any, and in the event that Tenant prevails in
such legal proceedings and receives a monetary judgment against Landlord, then
Landlord shall pay such monetary judgment to Tenant within thirty (30) days
after the date such monetary judgment is entered. If such monetary judgment is
not so paid, then Tenant shall be entitled to deduct from Rent (as such term is
defined in Section 4.1 of the Lease) the amount of such monetary judgment. The
right of deduction described in the immediately preceding sentence shall be
enforceable against Landlord and any successor-in-interest to Landlord and shall
prevail over any contrary provisions of the Lease.
-4-
<PAGE>
"Landlord ":
WHFST REAL ESTATE LIMITED PARTNERSHIP,
a Delaware limited partnership
By: Legacy Partners Commercial, Inc., as agent
and manager for Landlord
By: /s/ D. Allen Palmer
--------------------------------------
Name: D. Allen Palmer
Its: Senior Vice President
"Tenant":
INKTOMI CORPORATION, a Delaware corporation
By: /s/ David C. Peterschmidt
-------------------------------------------
Name: David C. Peterschmidt
Its: Chief Executive officer
By: /s/ Jerry M. Kennelly
-------------------------------------------
Name: Jerry M. Kennelly
Its: Chief Financial Officer
-5-
<PAGE>
STATE OF California )
) ss.
COUNTY OF San Mateo )
On October 12, 1998, before me, Mayrose P. Munar, a Notary
---------------- ----------------
Public in and for said state, personally appeared Jerry Kennelly,
--------------
personally known to me (or proved to me on the basis of satisfactory evidence)
to be the person whose name is subscribed to the within instrument and
acknowledged to me that he executed the same in his authorized capacity,
and that by his signature on the instrument, the person, or the entity upon
behalf of which the person acted, executed the instrument.
WITNESS my hand and official seal.
[Notary
Seal /s/ Mayrose P. Munar
Appears ____________________________________________
Here] Notary Public in and for said State
STATE OF California )
) ss.
COUNTY OF San Mateo )
On October 12, 1998, before me, Mayrose P. Munar, a Notary
---------------- ----------------
Public in and for said state, personally appeared David Peterschmidt,
------------------
personally known to me (or proved to me on the basis of satisfactory evidence)
to be the person whose name is subscribed to the within instrument and
acknowledged to me that he executed the same in his authorized capacity,
and that by his signature on the instrument, the person, or the entity upon
behalf of which the person acted, executed the instrument.
WITNESS my hand and official seal.
[Notary
Seal /s/ Mayrose P. Munar
Appears ____________________________________________
Here] Notary Public in and for said State
STATE OF California )
) ss.
COUNTY OF San Francisco )
On October 12, 1998, before me, Stephanie C. Wong, a Notary
---------------- -----------------
Public in and for said state, personally appeared D. Allen Palmer,
---------------
personally known to me (or proved to me on the basis of satisfactory evidence)
to be the person whose name is subscribed to the within instrument and
acknowledged to me that he/she executed the same in his authorized capacity,
and that by his/her signature on the instrument, the person, or the entity upon
behalf of which the person acted, executed the instrument.
WITNESS my hand and official seal.
[Notary
Seal /s/ Stephanie C. Wong
Appears ____________________________________________
Here] Notary Public in and for said State
-6-
<PAGE>
EXHIBIT 10.21
C2B TECHNOLOGIES INCORPORATED
1997 STOCK PLAN
ADOPTED ON MAY 27, 1997
(AS AMENDED APRIL 17, 1998)
<PAGE>
TABLE OF CONTENTS
Page No.
--------
SECTION 1. ESTABLISHMENT AND PURPOSE.......................................1
SECTION 2. ADMINISTRATION..................................................1
(a) Committees of the Board of Directors...................................1
(b) Authority of the Board of Directors....................................1
SECTION 3. ELIGIBILITY.....................................................1
(a) General Rule...........................................................1
(b) Ten-Percent Stockholders...............................................1
SECTION 4. STOCK SUBJECT TO PLAN...........................................2
(a) Basic Limitation.......................................................2
(b) Additional Shares......................................................2
SECTION 5. TERMS AND CONDITIONS OF AWARDS OR SALES.........................2
(a) Stock Purchase Agreement...............................................2
(b) Duration of Offers and Nontransferability of Rights....................2
(c) Purchase Price.........................................................2
(d) Withholding Taxes......................................................3
(e) Restrictions on Transfer of Shares.....................................3
(f) Accelerated Vesting....................................................3
SECTION 6. TERMS AND CONDITIONS OF OPTIONS.................................3
(a) Stock Option Agreement.................................................3
(b) Number of Shares.......................................................3
(c) Exercise Price.........................................................3
(d) Withholding Taxes......................................................4
(e) Exercisability.........................................................4
(f) Accelerated Exercisability.............................................4
(g) Term...................................................................4
(h) Nontransferability.....................................................4
(i) Termination of Service (Except by Death)...............................4
(j) Leaves of Absence......................................................5
(k) Death of Optionee......................................................5
(l) No Rights as a Stockholder.............................................5
(m) Modification, Extension and Assumption of Options......................5
(n) Restrictions on Transfer of Shares and Minimum Vesting.................6
i
<PAGE>
(o) Accelerated Vesting...................................................6
SECTION 7. PAYMENT FOR SHARES..............................................6
(a) General Rule...........................................................6
(b) Surrender of Stock.....................................................6
(c) Services Rendered......................................................6
(d) Promissory Note........................................................6
(e) Exercise/Sale..........................................................7
(f) Exercise/Pledge........................................................7
SECTION 8. ADJUSTMENT OF SHARES............................................7
(a) General................................................................7
(b) Mergers and Consolidations.............................................7
(c) Reservation of Rights..................................................8
SECTION 9. SECURITIES LAWS REQUIREMENTS....................................8
(a) General................................................................8
(b) Financial Reports......................................................8
SECTION 10. NO RETENTION RIGHTS.............................................8
SECTION 11. DURATION AND AMENDMENTS.........................................8
(a) Term of the Plan.......................................................8
(b) Right to Amend or Terminate the Plan...................................9
(c) Effect of Amendment or Termination.....................................9
SECTION 12. DEFINITIONS.....................................................9
SECTION 13. EXECUTION......................................................11
ii
<PAGE>
C2B TECHNOLOGIES INCORPORATED 1997 STOCK PLAN
SECTION 1. ESTABLISHMENT AND PURPOSE.
The purpose of the Plan is to offer selected individuals an opportunity to
acquire a proprietary interest in the success of the Company, or to increase
such interest, by purchasing Shares of the Company's Stock. The Plan provides
both for the direct award or sale of Shares and for the grant of Options to
purchase Shares. Options granted under the Plan may include Nonstatutory
Options as well as ISOs intended to qualify under Section 422 of the Code.
Capitalized terms are defined in Section 12.
SECTION 2. ADMINISTRATION.
(a) COMMITTEES OF THE BOARD OF DIRECTORS. The Plan may be administered by
one or more Committees. Each Committee shall consist of one or more members of
the Board of Directors who have been appointed by the Board of Directors. Each
Committee shall have such authority and be responsible for such functions as the
Board of Directors has assigned to it. If no Committee has been appointed, the
entire Board of Directors shall administer the Plan. Any reference to the Board
of Directors in the Plan shall be construed as a reference to the Committee (if
any) to whom the Board of Directors has assigned a particular function.
(b) AUTHORITY OF THE BOARD OF DIRECTORS. Subject to the provisions of the
Plan, the Board of Directors shall have full authority and discretion to take
any actions it deems necessary or advisable for the administration of the Plan.
All decisions, interpretations and other actions of the Board of Directors shall
be final and binding on all Purchasers, all Optionees and all persons deriving
their rights from a Purchaser or Optionee.
SECTION 3. ELIGIBILITY.
(a) GENERAL RULE. Only Employees, Outside Directors and Consultants shall
be eligible for the grant of Options or the direct award or sale of Shares. Only
Employees shall be eligible for the grant of ISOs.
(b) TEN-PERCENT STOCKHOLDERS. An individual who owns more than 10% of the
total combined voting power of all classes of outstanding stock of the Company,
its Parent or any of its Subsidiaries shall not be eligible for designation as
an Optionee or Purchaser unless (i) the Exercise Price is at least 110% of the
Fair Market Value of a Share on the date of grant, (ii) the Purchase Price (if
any) is at least 100% of the Fair Market Value of a Share and (iii) in the case
of an ISO, such ISO by its terms is not exercisable after the expiration of five
years from the date of grant. For purposes of this Subsection (b), in
determining stock ownership, the attribution rules of Section 424(d) of the Code
shall be applied.
1
<PAGE>
SECTION 4. STOCK SUBJECT TO PLAN.
(a) BASIC LIMITATION. Shares offered under the Plan may be authorized but
unissued Shares or treasury Shares. The aggregate number of Shares that may be
issued under the Plan (upon exercise of Options or other rights to acquire
Shares) shall not exceed 1,215,306/1/ Shares, subject to adjustment pursuant to
Section 8. The number of Shares that are subject to Options or other rights
outstanding at any time under the Plan shall not exceed the number of Shares
that then remain available for issuance under the Plan. The Company, during the
term of the Plan, shall at all times reserve and keep available sufficient
Shares to satisfy the requirements of the Plan.
(b) ADDITIONAL SHARES. In the event that any outstanding Option or other
right for any reason expires or is canceled or otherwise terminated, the Shares
allocable to the unexercised portion of such Option or other right shall again
be available for the purposes of the Plan. In the event that Shares issued under
the Plan are reacquired by the Company pursuant to any forfeiture provision,
right of repurchase or right of first refusal, such Shares shall again be
available for the purposes of the Plan, except that the aggregate number of
Shares which may be issued upon the exercise of ISOs shall in no event exceed
1,215,306 Shares (subject to adjustment pursuant to Section 8).
SECTION 5. TERMS AND CONDITIONS OF AWARDS OR SALES.
(a) STOCK PURCHASE AGREEMENT. Each award or sale of Shares under the Plan
(other than upon exercise of an Option) shall be evidenced by a Stock Purchase
Agreement between the Purchaser and the Company. Such award or sale shall be
subject to all applicable terms and conditions of the Plan and may be subject to
any other terms and conditions which are not inconsistent with the Plan and
which the Board of Directors deems appropriate for inclusion in a Stock Purchase
Agreement. The provisions of the various Stock Purchase Agreements entered into
under the Plan need not be identical.
(b) DURATION OF OFFERS AND NONTRANSFERABILITY OF RIGHTS. Any right to
acquire Shares under the Plan (other than an Option) shall automatically expire
if not exercised by the Purchaser within 30 days after the grant of such right
was communicated to the Purchaser by the Company. Such right shall not be
transferable and shall be exercisable only by the Purchaser to whom such right
was granted.
(c) PURCHASE PRICE. The Purchase Price of Shares to be offered under the
Plan shall not be less than 85% of the Fair Market Value of such Shares, and a
higher percentage may be required by Section 3(b). Subject to the preceding
sentence, the Purchase Price shall be determined by the Board of Directors at
its sole discretion. The Purchase Price shall be
________________________
/1/ Reflects the 3-for-1 stock split effective July 1997 and the 70,000-share
increase authorized by the Board of Directors on April 17, 1998, subject to
stockholder approval. Reflects the 2-for-1 stock split effective July 1998 and
the 560,306 share increase authorized by the Board of Directors on July 22,
1998, subject to stockholder approval.
2
<PAGE>
payable in a form described in Section 7.
(d) WITHHOLDING TAXES. As a condition to the purchase of Shares, the
Purchaser shall make such arrangements as the Board of Directors may require for
the satisfaction of any federal, state, local or foreign withholding tax
obligations that may arise in connection with such purchase.
(e) RESTRICTIONS ON TRANSFER OF SHARES AND MINIMUM VESTING. Any Shares
awarded or sold under the Plan shall be subject to such special forfeiture
conditions, rights of repurchase, rights of first refusal and other transfer
restrictions as the Board of Directors may determine. Such restrictions shall be
set forth in the applicable Stock Purchase Agreement and shall apply in addition
to any restrictions that may apply to holders of Shares generally. In the case
of a Purchaser who is not an officer of the Company, an Outside Director or a
Consultant, any right to repurchase the Purchaser's Shares at the original
Purchase Price (if any) upon termination of the Purchaser's Service shall lapse
at least as rapidly as 20% per year over the five-year period commencing on the
date of the award or sale of the Shares. Any such repurchase right may be
exercised only within 90 days after the termination of the Purchaser's Service
for cash or for cancellation of indebtedness incurred in purchasing the Shares.
(f) ACCELERATED VESTING. Unless the applicable Stock Purchase Agreement
provides otherwise, any right to repurchase a Purchaser's Shares at the
original Purchase Price (if any) upon termination of the Purchaser's
Service shall lapse and all of such Shares shall become vested if (i) the
Company is subject to a Change in Control and (ii) the repurchase right is
not assigned to the entity that employs the Purchaser immediately after the
Change in Control or to its parent or subsidiary.
SECTION 6. TERMS AND CONDITIONS OF OPTIONS.
(a) STOCK OPTION AGREEMENT. Each grant of an Option under the Plan shall be
evidenced by a Stock Option Agreement between the Optionee and the Company. Such
Option shall be subject to all applicable terms and conditions of the Plan and
may be subject to any other terms and conditions which are not inconsistent with
the Plan and which the Board of Directors deems appropriate for inclusion in a
Stock Option Agreement. The provisions of the various Stock Option Agreements
entered into under the Plan need not be identical.
(b) NUMBER OF SHARES. Each Stock Option Agreement shall specify the number
of Shares that are subject to the Option and shall provide for the adjustment of
such number in accordance with Section 8. The Stock Option Agreement shall also
specify whether the Option is an ISO or a Nonstatutory Option.
(c) EXERCISE PRICE. Each Stock Option Agreement shall specify the Exercise
Price. The Exercise Price of an ISO shall not be less than 100% of the Fair
Market Value of a Share on the date of grant, and a higher percentage may be
required by Section 3(b). The Exercise Price of a Nonstatutory Option shall not
be less than 85% of the Fair Market Value of a Share on the date
3
<PAGE>
of grant, and a higher percentage may be required by Section 3(b). Subject to
the preceding two sentences, the Exercise Price under any Option shall be
determined by the Board of Directors at its sole discretion. The Exercise Price
shall be payable in a form described in Section 7.
(d) WITHHOLDING TAXES. As a condition to the exercise of an Option, the
Optionee shall make such arrangements as the Board of Directors may require for
the satisfaction of any federal, state, local or foreign withholding tax
obligations that may arise in connection with such exercise. The Optionee shall
also make such arrangements as the Board of Directors may require for the
satisfaction of any federal, state, local or foreign withholding tax obligations
that may arise in connection with the disposition of Shares acquired by
exercising an Option.
(e) EXERCISABILITY. Each Stock Option Agreement shall specify the date when
all or any installment of the Option is to become exercisable. In the case of an
Optionee who is not an officer of the Company, an Outside Director or a
Consultant, an Option shall become exercisable at least as rapidly as 20% per
year over the five-year period commencing on the date of grant. Subject to the
preceding sentence, the exercisability provisions of any Stock Option Agreement
shall be determined by the Board of Directors at its sole discretion.
(f) ACCELERATED EXERCISABILITY. Unless the applicable Stock Option
Agreement provides otherwise, all of an Optionee's Options shall become
exercisable in full if (i) the Company is subject to a Change in Control, (ii)
such Options do not remain outstanding, (iii) such Options are not assumed by
the surviving corporation or its parent and (iv) the surviving corporation or
its parent does not substitute options with substantially the same terms for
such Options.
(g) BASIC TERM. The Stock Option Agreement shall specify the term of the
Option. The term shall not exceed 10 years from the date of grant, and a shorter
term may be required by Section 3(b). Subject to the preceding sentence, the
Board of Directors at its sole discretion shall determine when an Option is to
expire.
(h) NONTRANSFERABILITY. No Option shall be transferable by the Optionee
other than by beneficiary designation, will or the laws of descent and
distribution. An Option may be exercised during the lifetime of the Optionee
only by the Optionee or by the Optionee's guardian or legal representative. No
Option or interest therein may be transferred, assigned, pledged or hypothecated
by the Optionee during the Optionee's lifetime, whether by operation of law or
otherwise, or be made subject to execution, attachment or similar process.
(i) TERMINATION OF SERVICE (EXCEPT BY DEATH). If an Optionee's Service
terminates for any reason other than the Optionee's death, then the Optionee's
Options shall expire on the earliest of the following occasions:
(i) The expiration date determined pursuant to Subsection (g) above;
(ii) The date three months after the termination of the Optionee's
Service for any reason other than Disability; or
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(iii) The date six months after the termination of the Optionee's
Service by reason of Disability.
The Optionee may exercise all or part of the Optionee's Options at any time
before the expiration of such Options under the preceding sentence, but only to
the extent that such Options had become exercisable before the Optionee's
Service terminated (or became exercisable as a result of the termination) and
the underlying Shares had vested before the Optionee's Service terminated (or
vested as a result of the termination). The balance of such Options shall lapse
when the Optionee's Service terminates. In the event that the Optionee dies
after the termination of the Optionee's Service but before the expiration of the
Optionee's Options, all or part of such Options may be exercised (prior to
expiration) by the executors or administrators of the Optionee's estate or by
any person who has acquired such Options directly from the Optionee by
beneficiary designation, bequest or inheritance, but only to the extent that
such Options had become exercisable before the Optionee's Service terminated (or
became exercisable as a result of the termination) and the underlying Shares had
vested before the Optionee's Service terminated (or vested as a result of the
termination).
(j) LEAVES OF ABSENCE. For purposes of Subsection (i) above, Service shall
be deemed to continue while the Optionee is on a bona fide leave of absence, if
such leave was approved by the Company in writing and if continued crediting of
Service for this purpose is expressly required by the terms of such leave or by
applicable law (as determined by the Company).
(k) DEATH OF OPTIONEE. If an Optionee dies while the Optionee is in
Service, then the Optionee's Options shall expire on the earlier of the
following dates:
(i) The expiration date determined pursuant to Subsection (g)
above;
or
(ii) The date 12 months after the Optionee's death.
All or part of the Optionee's Options may be exercised at any time before the
expiration of such Options under the preceding sentence by the executors or
administrators of the Optionee's estate or by any person who has acquired such
Options directly from the Optionee by beneficiary designation, bequest or
inheritance, but only to the extent that such Options had become exercisable
before the Optionee's death or became exercisable as a result of the death. The
balance of such Options shall lapse when the Optionee dies.
(l) NO RIGHTS AS A STOCKHOLDER. An Optionee, or a transferee of an
Optionee, shall have no rights as a stockholder with respect to any Shares
covered by the Optionee's Option until such person becomes entitled to receive
such Shares by filing a notice of exercise and paying the Exercise Price
pursuant to the terms of such Option.
(m) MODIFICATION, EXTENSION AND ASSUMPTION OF OPTIONS. Within the
limitations of the Plan, the Board of Directors may modify, extend or assume
outstanding Options or may accept the cancellation of outstanding Options
(whether granted by the Company or another
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issuer) in return for the grant of new Options for the same or a different
number of Shares and at the same or a different Exercise Price. The foregoing
notwithstanding, no modification of an Option shall, without the consent of the
Optionee, impair the Optionee's rights or increase the Optionee's obligations
under such Option.
(n) RESTRICTIONS ON TRANSFER OF SHARES AND MINIMUM VESTING. Any Shares
issued upon exercise of an Option shall be subject to such special forfeiture
conditions, rights of repurchase, rights of first refusal and other transfer
restrictions as the Board of Directors may determine. Such restrictions shall be
set forth in the applicable Stock Option Agreement and shall apply in addition
to any restrictions that may apply to holders of Shares generally. In the case
of an Optionee who is not an officer of the Company, an Outside Director or a
Consultant, any right to repurchase the Optionee's Shares at the original
Exercise Price upon termination of the Optionee's Service shall lapse at least
as rapidly as 20% per year over the five-year period commencing on the date of
the option grant. Any such repurchase right may be exercised only within 90 days
after the termination of the Optionee's Service for cash or for cancellation of
indebtedness incurred in purchasing the Shares.
(o) ACCELERATED VESTING. Unless the applicable Stock Option Agreement
provides otherwise, any right to repurchase an Optionee's Shares at the original
Exercise Price upon termination of the Optionee's Service shall lapse and all of
such Shares shall become vested if (i) the Company is subject to a Change in
Control and (ii) the repurchase right is not assigned to the entity that employs
the Optionee immediately after the Change in Control or to its parent or
subsidiary.
SECTION 7. PAYMENT FOR SHARES.
(a) GENERAL RULE. The entire Purchase Price or Exercise Price of Shares
issued under the Plan shall be payable in cash or cash equivalents at the time
when such Shares are purchased, except as otherwise provided in this Section 7.
(b) SURRENDER OF STOCK. To the extent that a Stock Option Agreement so
provides, all or any part of the Exercise Price may be paid by surrendering, or
attesting to the ownership of, Shares that are already owned by the Optionee.
Such Shares shall be surrendered to the Company in good form for transfer and
shall be valued at their Fair Market Value on the date when the Option is
exercised. The Optionee shall not surrender, or attest to the ownership of,
Shares in payment of the Exercise Price if such action would cause the Company
to recognize compensation expense (or additional compensation expense) with
respect to the Option for financial reporting purposes.
(c) SERVICES RENDERED. At the discretion of the Board of Directors, Shares
may be awarded under the Plan in consideration of services rendered to the
Company, a Parent or a Subsidiary prior to the award.
(d) PROMISSORY NOTE. To the extent that a Stock Option Agreement or Stock
Purchase Agreement so provides, all or a portion of the Exercise Price or
Purchase Price (as the
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case may be) of Shares issued under the Plan may be paid with a full-recourse
promissory note. The par value of the Shares, if newly issued, shall be paid in
cash or cash equivalents. The Shares shall be pledged as security for payment of
the principal amount of the promissory note and interest thereon. The interest
rate payable under the terms of the promissory note shall not be less than the
minimum rate (if any) required to avoid the imputation of additional interest
under the Code. Subject to the foregoing, the Board of Directors (at its sole
discretion) shall specify the term, interest rate, amortization requirements (if
any) and other provisions of such note.
(e) EXERCISE/SALE. To the extent that a Stock Option Agreement so provides,
and if Stock is publicly traded, payment may be made all or in part by the
delivery (on a form prescribed by the Company) of an irrevocable direction to a
securities broker approved by the Company to sell Shares and to deliver all or
part of the sales proceeds to the Company in payment of all or part of the
Exercise Price and any withholding taxes.
(f) EXERCISE/PLEDGE. To the extent that a Stock Option Agreement so
provides, and if Stock is publicly traded, payment may be made all or in part by
the delivery (on a form prescribed by the Company) of an irrevocable direction
to pledge Shares to a securities broker or lender approved by the Company, as
security for a loan, and to deliver all or part of the loan proceeds to the
Company in payment of all or part of the Exercise Price and any withholding
taxes.
SECTION 8. ADJUSTMENT OF SHARES.
(a) GENERAL. In the event of a subdivision of the outstanding Stock, a
declaration of a dividend payable in Shares, a declaration of an extraordinary
dividend payable in a form other than Shares in an amount that has a material
effect on the Fair Market Value of the Stock, a combination or consolidation of
the outstanding Stock into a lesser number of Shares, a recapitalization, a
spin-off, a reclassification or a similar occurrence, the Board of Directors
shall make appropriate adjustments in one or more of (i) the number of Shares
available for future grants under Section 4, (ii) the number of Shares covered
by each outstanding Option or (iii) the Exercise Price under each outstanding
Option.
(b) MERGERS AND CONSOLIDATIONS. In the event that the Company is a party to
a merger or consolidation, outstanding Options shall be subject to the agreement
of merger or consolidation. Such agreement, without the Optionees' consent, may
provide for:
(i) The continuation of such outstanding Options by the Company (if
the Company is the surviving corporation);
(ii) The assumption of the Plan and such outstanding Options by the
surviving corporation or its parent;
(iii) The substitution by the surviving corporation or its parent of
options with substantially the same terms for such outstanding Options; or
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(iv) The cancellation of such outstanding Options without payment of
any consideration.
(c) RESERVATION OF RIGHTS. Except as provided in this Section 8, an
Optionee or Purchaser shall have no rights by reason of (i) any subdivision or
consolidation of shares of stock of any class, (ii) the payment of any dividend
or (iii) any other increase or decrease in the number of shares of stock of any
class. Any issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall not affect, and
no adjustment by reason thereof shall be made with respect to, the number or
Exercise Price of Shares subject to an Option. The grant of an Option pursuant
to the Plan shall not affect in any way the right or power of the Company to
make adjustments, reclassifications, reorganizations or changes of its capital
or business structure, to merge or consolidate or to dissolve, liquidate, sell
or transfer all or any part of its business or assets.
SECTION 9. SECURITIES LAW REQUIREMENTS.
(a) GENERAL. Shares shall not be issued under the Plan unless the issuance
and delivery of such Shares comply with (or are exempt from) all applicable
requirements of law, including (without limitation) the Securities Act of 1933,
as amended, the rules and regulations promulgated thereunder, state securities
laws and regulations, and the regulations of any stock exchange or other
securities market on which the Company's securities may then be traded.
(b) FINANCIAL REPORTS. The Company each year shall furnish to Optionees,
Purchasers and stockholders who have received Stock under the Plan its balance
sheet and income statement, unless such Optionees, Purchasers or stockholders
are key Employees whose duties with the Company assure them access to equivalent
information. Such balance sheet and income statement need not be audited.
SECTION 10. NO RETENTION RIGHTS.
Nothing in the Plan or in any right or Option granted under the Plan shall
confer upon the Purchaser or Optionee any right to continue in Service for any
period of specific duration or interfere with or otherwise restrict in any way
the rights of the Company (or any Parent or Subsidiary employing or retaining
the Purchaser or Optionee) or of the Purchaser or Optionee, which rights are
hereby expressly reserved by each, to terminate his or her Service at any time
and for any reason, with or without cause.
SECTION 11. DURATION AND AMENDMENTS.
(a) TERM OF THE PLAN. The Plan, as set forth herein, shall become
effective on the date of its adoption by the Board of Directors, subject to the
approval of the Company's stockholders. In the event that the stockholders fail
to approve the Plan within 12 months after its adoption by the Board of
Directors, any grants of Options or sales or awards of Shares that have already
occurred shall be rescinded, and no additional grants, sales or awards shall be
made thereafter under the Plan. The Plan shall terminate automatically 10 years
after its adoption by
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the Board of Directors and may be terminated on any earlier date pursuant to
Subsection (b) below.
(b) RIGHT TO AMEND OR TERMINATE THE PLAN. The Board of Directors may amend,
suspend or terminate the Plan at any time and for any reason; provided, however,
that any amendment of the Plan which increases the number of Shares available
for issuance under the Plan (except as provided in Section 8), or which
materially changes the class of persons who are eligible for the grant of ISOs,
shall be subject to the approval of the Company's stockholders. Stockholder
approval shall not be required for any other amendment of the Plan.
(c) EFFECT OF AMENDMENT OR TERMINATION. No Shares shall be issued or sold
under the Plan after the termination thereof, except upon exercise of an Option
granted prior to such termination. The termination of the Plan, or any amendment
thereof, shall not affect any Share previously issued or any Option previously
granted under the Plan.
SECTION 12. DEFINITIONS.
(a) "BOARD OF DIRECTORS" shall mean the Board of Directors of the Company,
as constituted from time to time.
(b) "CHANGE IN CONTROL" shall mean:
(i) The consummation of a merger or consolidation of the Company with
or into another entity or any other corporate reorganization, if more than
50% of the combined voting power of the continuing or surviving entity's
securities outstanding immediately after such merger, consolidation or
other reorganization is owned by persons who were not stockholders of the
Company immediately prior to such merger, consolidation or other
reorganization; or
(ii) The sale, transfer or other disposition of all or substantially
all of the Company's assets.
A transaction shall not constitute a Change in Control if its sole purpose is to
change the state of the Company's incorporation or to create a holding company
that will be owned in substantially the same proportions by the persons who held
the Company's securities immediately before such transaction.
(c) "CODE" shall mean the Internal Revenue Code of 1986, as amended.
(d) "COMMITTEE" shall mean a committee of the Board of Directors, as
described in Section 2(a).
(e) "COMPANY" shall mean C2B Technologies Incorporated, a Delaware
corporation.
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(f) "CONSULTANT" shall mean an individual who performs bona fide services
for the Company, a Parent or a Subsidiary as a consultant or advisor,
excluding Employees and Outside Directors.
(g) "DISABILITY" shall mean that the Optionee is unable to engage in any
substantial gainful activity by reason of any medically determinable physical or
mental impairment.
(h) "EMPLOYEE" shall mean any individual who is a common-law employee of
the Company, a Parent or a Subsidiary.
(i) "EXERCISE PRICE" shall mean the amount for which one Share may be
purchased upon exercise of an Option, as specified by the Board of Directors in
the applicable Stock Option Agreement.
(j) "FAIR MARKET VALUE" shall mean the fair market value of a Share, as
determined by the Board of Directors in good faith. Such determination shall be
conclusive and binding on all persons.
(k) "ISO" shall mean an employee incentive stock option described in
Section 422(b) of the Code.
(l) "NONSTATUTORY OPTION" shall mean a stock option not described in
Sections 422(b) or 423(b) of the Code.
(m) "OPTION" shall mean an ISO or Nonstatutory Option granted under the
Plan and entitling the holder to purchase Shares.
(n) "OPTIONEE" shall mean an individual who holds an Option.
(o) "OUTSIDE DIRECTOR" shall mean a member of the Board of Directors who
is not an Employee.
(p) "PARENT" shall mean any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company, if each of the
corporations other than the Company owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain. A corporation that attains the status of a Parent on
a date after the adoption of the Plan shall be considered a Parent commencing as
of such date.
(q) "PLAN" shall mean this C2B Technologies Incorporated 1997 Stock Plan.
(r) "PURCHASE PRICE" shall mean the consideration for which one Share may
be acquired under the Plan (other than upon exercise of an Option), as specified
by the Board of Directors.
(s) "PURCHASER" shall mean an individual to whom the Board of Directors
has offered the right to acquire Shares under the Plan (other than upon exercise
of an Option).
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(t) "SERVICE" shall mean service as an Employee, Outside Director or
Consultant.
(u) "SHARE" shall mean one share of Stock, as adjusted in accordance with
Section 8 (if applicable).
(v) "STOCK" shall mean the Common Stock of the Company, with a par value
of $0.001 per Share.
(w) "STOCK OPTION AGREEMENT" shall mean the agreement between the Company
and an Optionee which contains the terms, conditions and restrictions pertaining
to the Optionee's Option.
(x) "STOCK PURCHASE AGREEMENT" shall mean the agreement between the Company
and a Purchaser who acquires Shares under the Plan which contains the terms,
conditions and restrictions pertaining to the acquisition of such Shares.
(y) "SUBSIDIARY" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company, if each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain. A corporation that attains
the status of a Subsidiary on a date after the adoption of the Plan shall be
considered a Subsidiary commencing as of such date.
SECTION 13. EXECUTION.
To record the adoption of the Plan by the Board of Directors, the Company
has caused its authorized officer to execute the same.
C2B TECHNOLOGIES INCORPORATED
By: __________________________________________
Title: _______________________________________
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C2B TECHNOLOGIES INCORPORATED 1997 STOCK PLAN
NOTICE OF STOCK OPTION GRANT
You have been granted the following option to purchase Common Stock of
C2B Technologies Incorporated (the "Company"):
Name of Optionee: (Name)
Total Number of Shares Granted: (TotalShares)
Type of Option: (ISO) Incentive Stock Option
(NSO) Nonstatutory Stock Option
Exercise Price Per Share: $(PricePerShare)
Date of Grant: (DateGrant)
Date Exercisable: This option may be exercised, in
whole or in part, for 100% of the
Shares subject to this option at
any time after the Date of Grant.
Vesting Commencement Date: (VestComDate)
Vesting Schedule: The Right of Repurchase shall lapse
with respect to 1/36/th/ of the
Shares subject to this option on
the (VestDay) of each month of
continuous Service measured from
the Vesting Commencement Date.
Expiration Date: (ExpDate)
By your signature and the signature of the Company's representative below, you
and the Company agree that this option is granted under and governed by the
terms and conditions of the 1997 Stock Plan and the Stock Option Agreement, both
of which are attached to and made a part of this document.
OPTIONEE: C2B TECHNOLOGIES INCORPORATED
__________________________ By:________________________________
__________________________ Title:_____________________________
Print Name
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THE OPTION GRANTED PURSUANT TO THIS AGREEMENT AND THE SHARES ISSUABLE UPON THE
EXERCISE THEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR OTHERWISE TRANSFERRED WITHOUT AN
EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR AN OPINION OF COUNSEL,
SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT
REQUIRED.
C2B TECHNOLOGIES INCORPORATED 1997 STOCK PLAN:
STOCK OPTION AGREEMENT
SECTION 1. GRANT OF OPTION.
(a) OPTION. On the terms and conditions set forth in the Notice of Stock
Option Grant and this Agreement, the Company grants to the Optionee on the Date
of Grant the option to purchase at the Exercise Price the number of Shares set
forth in the Notice of Stock Option Grant. The Exercise Price is agreed to be at
least 100% of the Fair Market Value per Share on the Date of Grant (110% of Fair
Market Value if Section 3(b) of the Plan applies). This option is intended to be
an ISO or a Nonstatutory Option, as provided in the Notice of Stock Option
Grant.
(b) STOCK PLAN AND DEFINED TERMS. This option is granted pursuant to the
Plan, a copy of which the Optionee acknowledges having received. The provisions
of the Plan are incorporated into this Agreement by this reference. Capitalized
terms are defined in Section 14 of this Agreement.
SECTION 2. RIGHT TO EXERCISE.
(a) EXERCISABILITY. Subject to Subsections (b) and (c) below and the
other conditions set forth in this Agreement, all or part of this option may be
exercised prior to its expiration at the time or times set forth in the Notice
of Stock Option Grant. Shares purchased by exercising this option may be
subject to the Right of Repurchase under Section 7.
(b) $100,000 LIMITATION. If this Option is designated as an ISO in the
Notice of Stock Option Grant, then the Optionee's right to exercise this option
shall be deferred to the extent (and only to the extent) that this option
otherwise would not be treated as an ISO by reason of the $100,000 annual
limitation under Section 422(d) of the Code, except that:
(i) The Optionee's right to exercise this option shall not be
deferred with respect to that portion of the Shares subject to this option
whose Fair Market Value as of the Date of Grant exceeds $500,000; and
(ii) The Optionee's right to exercise this option shall no longer be
deferred in the event that (A) a Change in Control occurs, (B) this option
is not assumed
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by the surviving corporation or its parent and (C) the surviving
corporation or its parent does not substitute its own option for this
option.
(c) STOCKHOLDER APPROVAL. Any other provision of this Agreement
notwithstanding, no portion of this option shall be exercisable at any time
prior to the approval of the Plan by the Company's stockholders.
SECTION 3. NO TRANSFER OR ASSIGNMENT OF OPTION.
Except as otherwise provided in this Agreement, this option and
the rights and privileges conferred hereby shall not be sold, pledged or
otherwise transferred (whether by operation of law or otherwise) and shall not
be subject to sale under execution, attachment, levy or similar process.
SECTION 4. EXERCISE PROCEDURES.
(a) NOTICE OF EXERCISE. The Optionee or the Optionee's representative
may exercise this option by giving written notice to the Company pursuant to
Section 13(c). The notice shall specify the election to exercise this option,
the number of Shares for which it is being exercised and the form of payment.
The notice shall be signed by the person exercising this option. In the event
that this option is being exercised by the representative of the Optionee, the
notice shall be accompanied by proof (satisfactory to the Company) of the
representative's right to exercise this option. The Optionee or the Optionee's
representative shall deliver to the Company, at the time of giving the notice,
payment in a form permissible under Section 5 for the full amount of the
Purchase Price.
(b) ISSUANCE OF SHARES. After receiving a proper notice of exercise,
the Company shall cause to be issued a certificate or certificates for the
Shares as to which this option has been exercised, registered in the name of the
person exercising this option (or in the names of such person and his or her
spouse as community property or as joint tenants with right of survivorship).
The Company shall cause such certificate or certificates to be deposited in
escrow or delivered to or upon the order of the person exercising this option.
(c) WITHHOLDING TAXES. In the event that the Company determines that
it is required to withhold any tax as a result of the exercise of this option,
the Optionee, as a condition to the exercise of this option, shall make
arrangements satisfactory to the Company to enable it to satisfy all withholding
requirements. The Optionee shall also make arrangements satisfactory to the
Company to enable it to satisfy any withholding requirements that may arise in
connection with the vesting or disposition of Shares purchased by exercising
this option.
SECTION 5. PAYMENT FOR STOCK.
(a) CASH. All or part of the Purchase Price may be paid in cash or
cash equivalents.
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(b) SURRENDER OF STOCK. All or any part of the Purchase Price may be
paid by surrendering, or attesting to the ownership of, Shares that are already
owned by the Optionee. Such Shares shall be surrendered to the Company in good
form for transfer and shall be valued at their fair market value (as determined
by the Board of Directors) on the date when this option is exercised. The
Optionee shall not surrender, or attest to the ownership of, Shares in payment
of the Purchase Price if such action would cause the Company to recognize
compensation expense (or additional compensation expense) with respect to this
option for financial reporting purposes.
(c) EXERCISE/SALE. If Stock is publicly traded, all or part of the
Purchase Price and any withholding taxes may be paid by the delivery (on a form
prescribed by the Company) of an irrevocable direction to a securities broker
approved by the Company to sell Shares and to deliver all or part of the sales
proceeds to the Company.
(d) EXERCISE/PLEDGE. If Stock is publicly traded, all or part of the
Purchase Price and any withholding taxes may be paid by the delivery (on a form
prescribed by the Company) of an irrevocable direction to pledge Shares to a
securities broker or lender approved by the Company, as security for a loan, and
to deliver all or part of the loan proceeds to the Company.
SECTION 6. TERM AND EXPIRATION.
(a) BASIC TERM. This option shall in any event expire on the expiration
date set forth in the Notice of Stock Option Grant, which date is 10 years after
the Date of Grant (five years after the Date of Grant if this option is
designated as an ISO in the Notice of Stock Option Grant and Section 3(b) of the
Plan applies).
(b) TERMINATION OF SERVICE (EXCEPT BY DEATH). If the Optionee's Service
terminates for any reason other than death, then this option shall expire on the
earliest of the following occasions:
(i) The expiration date determined pursuant to Subsection (a)
above;
(ii) The date three months after the termination of the Optionee's
Service for any reason other than Disability; or
(iii) The date six months after the termination of the Optionee's
Service by reason of Disability.
The Optionee may exercise all or part of this option at any time before its
expiration under the preceding sentence, but only to the extent that this option
had become exercisable before the Optionee's Service terminated. When the
Optionee's Service terminates, this option shall expire immediately with respect
to the number of Shares for which this option is not yet exercisable and with
respect to any Restricted Shares. In the event that the Optionee dies after
termination of Service but before the expiration of this option, all or part of
this option may be exercised (prior to expiration) by the executors or
administrators of the Optionee's estate or by any person who has acquired this
option directly from the Optionee by beneficiary designation, bequest or
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<PAGE>
inheritance, but only to the extent that this option had become exercisable
before the Optionee's Service terminated.
(c) DEATH OF THE OPTIONEE. If the Optionee dies while in Service, then
this option shall expire on the earlier of the following dates:
(i) The expiration date determined pursuant to Subsection (a)
above; or
(ii) The date 12 months after the Optionee's death.
All or part of this option may be exercised at any time before its expiration
under the preceding sentence by the executors or administrators of the
Optionee's estate or by any person who has acquired this option directly from
the Optionee by beneficiary designation, bequest or inheritance, but only to the
extent that this option had become exercisable before the Optionee's death. When
the Optionee dies, this option shall expire immediately with respect to the
number of Shares for which this option is not yet exercisable and with respect
to any Restricted Shares.
(d) LEAVES OF ABSENCE. For any purpose under this Agreement, Service
shall be deemed to continue while the Optionee is on a bona fide leave of
absence, if such leave was approved by the Company in writing and if continued
crediting of Service for such purpose is expressly required by the terms of such
leave or by applicable law (as determined by the Company).
(e) NOTICE CONCERNING ISO TREATMENT. If this option is designated as an
ISO in the Notice of Stock Option Grant, it ceases to qualify for favorable tax
treatment as an ISO to the extent it is exercised (i) more than three months
after the date the Optionee ceases to be an Employee for any reason other than
death or permanent and total disability (as defined in Section 22(e)(3) of the
Code), (ii) more than 12 months after the date the Optionee ceases to be an
Employee by reason of such permanent and total disability or (iii) after the
Optionee has been on a leave of absence for more than 90 days, unless the
Optionee's reemployment rights are guaranteed by statute or by contract.
SECTION 7. RIGHT OF REPURCHASE.
(a) SCOPE OF REPURCHASE RIGHT. Unless they have become vested in
accordance with the Notice of Stock Option Grant and Subsection (c) below, the
Shares acquired under this Agreement initially shall be Restricted Shares and
shall be subject to a right (but not an obligation) of repurchase by the
Company. The Optionee shall not transfer, assign, encumber or otherwise dispose
of any Restricted Shares, except as provided in the following sentence. The
Optionee may transfer Restricted Shares (i) by beneficiary designation, will or
intestate succession or (ii) to the Optionee's spouse, children or grandchildren
or to a trust established by the Optionee for the benefit of the Optionee or the
Optionee's spouse, children or grandchildren, provided in either case that the
Transferee agrees in writing on a form prescribed by the Company to be bound by
all provisions of this Agreement. If the Optionee transfers any Restricted
Shares, then this Section 7 shall apply to the Transferee to the same extent as
to the Optionee.
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<PAGE>
(b) CONDITION PRECEDENT TO EXERCISE. The Right of Repurchase shall
be exercisable only during the 60-day period next following the later of:
(i) The date when the Optionee's Service terminates for any
reason, with or without cause, including (without limitation) death or
disability; or
(ii) The date when this option was exercised by the Optionee,
the executors or administrators of the Optionee's estate or any person who
has acquired this option directly from the Optionee by bequest, inheritance
or beneficiary designation.
(c) LAPSE OF REPURCHASE RIGHT. The Right of Repurchase shall lapse
with respect to the Shares subject to this option in accordance with the vesting
schedule set forth in the Notice of Stock Option Grant. In addition, the Right
of Repurchase shall lapse and all of the remaining Restricted Shares shall
become vested if (i) the Company is subject to a Change in Control before the
Optionee's Service terminates and (ii) the Right of Repurchase is not assigned
to the entity that employs the Optionee immediately after the Change of Control
or to its parent or subsidiary. Notwithstanding the foregoing, if the Company is
subject to a Change in Control, the Right of Repurchase shall lapse and
additional Restricted Shares shall become vested, as if the Optionee performed
Services for an additional nine months.
(d) REPURCHASE COST. If the Company exercises the Right of
Repurchase, it shall pay the Optionee an amount equal to the Exercise Price for
each of the Restricted Shares being repurchased.
(e) EXERCISE OF REPURCHASE RIGHT. The Right of Repurchase shall be
exercisable only by written notice delivered to the Optionee prior to the
expiration of the 60-day period specified in Subsection (b) above. The notice
shall set forth the date on which the repurchase is to be effected. Such date
shall not be more than 30 days after the date of the notice. The certificate(s)
representing the Restricted Shares to be repurchased shall, prior to the close
of business on the date specified for the repurchase, be delivered to the
Company properly endorsed for transfer. The Company shall, concurrently with
the receipt of such certificate(s), pay to the Optionee the purchase price
determined according to Subsection (d) above. Payment shall be made in cash or
cash equivalents or by canceling indebtedness to the Company incurred by the
Optionee in the purchase of the Restricted Shares. The Right of Repurchase
shall terminate with respect to any Restricted Shares for which it has not been
timely exercised pursuant to this Subsection (e).
(f) ADDITIONAL SHARES OR SUBSTITUTED SECURITIES. In the event of the
declaration of a stock dividend, the declaration of an extraordinary dividend
payable in a form other than stock, a spin-off, a stock split, an adjustment in
conversion ratio, a recapitalization or a similar transaction affecting the
Company's outstanding securities without receipt of consideration, any new,
substituted or additional securities or other property (including money paid
other than as an ordinary cash dividend) which are by reason of such transaction
distributed with respect to any Restricted Shares or into which such Restricted
Shares thereby become convertible shall immediately be subject to the Right of
Repurchase. Appropriate adjustments to reflect the distribution of such
securities or property shall be made to the number and/or class of the
17
<PAGE>
Restricted Shares. Appropriate adjustments shall also, after each such
transaction, be made to the price per share to be paid upon the exercise of the
Right of Repurchase in order to reflect any change in the Company's outstanding
securities effected without receipt of consideration therefor; provided,
however, that the aggregate purchase price payable for the Restricted Shares
shall remain the same.
(g) TERMINATION OF RIGHTS AS STOCKHOLDER. If the Company makes
available, at the time and place and in the amount and form provided in this
Agreement, the consideration for the Restricted Shares to be repurchased in
accordance with this Section 7, then after such time the person from whom such
Restricted Shares are to be repurchased shall no longer have any rights as a
holder of such Restricted Shares (other than the right to receive payment of
such consideration in accordance with this Agreement). Such Restricted Shares
shall be deemed to have been repurchased in accordance with the applicable
provisions hereof, whether or not the certificate(s) therefor have been
delivered as required by this Agreement.
(h) ESCROW. Upon issuance, the certificates for Restricted Shares shall
be deposited in escrow with the Company to be held in accordance with the
provisions of this Agreement. Any new, substituted or additional securities or
other property described in Subsection (f) above shall immediately be delivered
to the Company to be held in escrow, but only to the extent the Shares are at
the time Restricted Shares. All regular cash dividends on Restricted Shares (or
other securities at the time held in escrow) shall be paid directly to the
Optionee and shall not be held in escrow. Restricted Shares, together with any
other assets or securities held in escrow hereunder, shall be (i) surrendered to
the Company for repurchase and cancellation upon the Company's exercise of its
Right of Repurchase or Right of First Refusal or (ii) released to the Optionee
upon the Optionee's request to the extent the Shares are no longer Restricted
Shares (but not more frequently than once every six months). In any event, all
Shares which have vested (and any other vested assets and securities
attributable thereto) shall be released within 60 days after the earlier of (i)
the Optionee's cessation of Service or (ii) the lapse of the Right of First
Refusal.
SECTION 8. RIGHT OF FIRST REFUSAL.
(a) RIGHT OF FIRST REFUSAL. In the event that the Optionee proposes to
sell, pledge or otherwise transfer to a third party any Shares acquired under
this Agreement, or any interest in such Shares, the Company shall have the Right
of First Refusal with respect to all (and not less than all) of such Shares. If
the Optionee desires to transfer Shares acquired under this Agreement, the
Optionee shall give a written Transfer Notice to the Company describing fully
the proposed transfer, including the number of Shares proposed to be
transferred, the proposed transfer price, the name and address of the proposed
Transferee and proof satisfactory to the Company that the proposed sale or
transfer will not violate any applicable federal or state securities laws. The
Transfer Notice shall be signed both by the Optionee and by the proposed
Transferee and must constitute a binding commitment of both parties to the
transfer of the Shares. The Company shall have the right to purchase all, and
not less than all, of the Shares on the terms of the proposal described in the
Transfer Notice (subject, however, to any change in such terms permitted under
Subsection (b) below) by delivery of a notice of exercise of the Right of First
Refusal within 30 days after the date when the Transfer Notice was received by
the
18
<PAGE>
Company. The Company's rights under this Subsection (a) shall be freely
assignable, in whole or in part.
(b) TRANSFER OF SHARES. If the Company fails to exercise its Right of
First Refusal within 30 days after the date when it received the Transfer
Notice, the Optionee may, not later than 90 days following receipt of the
Transfer Notice by the Company, conclude a transfer of the Shares subject to the
Transfer Notice on the terms and conditions described in the Transfer Notice,
provided that any such sale is made in compliance with applicable federal and
state securities laws and not in violation of any other contractual restrictions
to which the Optionee is bound. Any proposed transfer on terms and conditions
different from those described in the Transfer Notice, as well as any subsequent
proposed transfer by the Optionee, shall again be subject to the Right of First
Refusal and shall require compliance with the procedure described in Subsection
(a) above. If the Company exercises its Right of First Refusal, the parties
shall consummate the sale of the Shares on the terms set forth in the Transfer
Notice within 60 days after the date when the Company received the Transfer
Notice (or within such longer period as may have been specified in the Transfer
Notice); provided, however, that in the event the Transfer Notice provided that
payment for the Shares was to be made in a form other than cash or cash
equivalents paid at the time of transfer, the Company shall have the option of
paying for the Shares with cash or cash equivalents equal to the present value
of the consideration described in the Transfer Notice.
(c) ADDITIONAL SHARES OR SUBSTITUTED SECURITIES. In the event of the
declaration of a stock dividend, the declaration of an extraordinary dividend
payable in a form other than stock, a spin-off, a stock split, an adjustment in
conversion ratio, a recapitalization or a similar transaction affecting the
Company's outstanding securities without receipt of consideration, any new,
substituted or additional securities or other property (including money paid
other than as an ordinary cash dividend) which are by reason of such transaction
distributed with respect to any Shares subject to this Section 8 or into which
such Shares thereby become convertible shall immediately be subject to this
Section 8. Appropriate adjustments to reflect the distribution of such
securities or property shall be made to the number and/or class of the Shares
subject to this Section 8.
(d) TERMINATION OF RIGHT OF FIRST REFUSAL. Any other provision of this
Section 8 notwithstanding, in the event that the Stock is readily tradable on an
established securities market when the Optionee desires to transfer Shares, the
Company shall have no Right of First Refusal, and the Optionee shall have no
obligation to comply with the procedures prescribed by Subsections (a) and (b)
above.
(e) PERMITTED TRANSFERS. This Section 8 shall not apply to (i) a
transfer by beneficiary designation, will or intestate succession or (ii) a
transfer to the Optionee's spouse, children or to a trust established by the
Optionee for the benefit of the Optionee or the Optionee's spouse, children or
grandchildren, provided in either case that the Transferee agrees in writing on
a form prescribed by the Company to be bound by all provisions of this
Agreement. If the Optionee transfers any Shares acquired under this Agreement,
either under this Subsection (e) or
19
<PAGE>
after the Company has failed to exercise the Right of First Refusal, then this
Section 8 shall apply to the Transferee to the same extent as to the Optionee.
(f) TERMINATION OF RIGHTS AS STOCKHOLDER. If the Company makes
available, at the time and place and in the amount and form provided in this
Agreement, the consideration for the Shares to be purchased in accordance with
this Section 8, then after such time the person from whom such Shares are to be
purchased shall no longer have any rights as a holder of such Shares (other than
the right to receive payment of such consideration in accordance with this
Agreement). Such Shares shall be deemed to have been purchased in accordance
with the applicable provisions hereof, whether or not the certificate(s)
therefor have been delivered as required by this Agreement.
SECTION 9. LEGALITY OF INITIAL ISSUANCE.
No Shares shall be issued upon the exercise of this option unless and
until the Company has determined that:
(a) It and the Optionee have taken any actions required to register the
Shares under the Securities Act or to perfect an exemption from the registration
requirements thereof;
(b) Any applicable listing requirement of any stock exchange on which
Stock is listed has been satisfied; and
(c) Any other applicable provision of state or federal law has been
satisfied.
SECTION 10. NO REGISTRATION RIGHTS.
The Company may, but shall not be obligated to, register or qualify
the sale of Shares under the Securities Act or any other applicable law. The
Company shall not be obligated to take any affirmative action in order to cause
the sale of Shares under this Agreement to comply with any law.
SECTION 11. RESTRICTIONS ON TRANSFER.
(a) SECURITIES LAW RESTRICTIONS. Regardless of whether the offering and
sale of Shares under the Plan have been registered under the Securities Act or
have been registered or qualified under the securities laws of any state, the
Company at its discretion may impose restrictions upon the sale, pledge or other
transfer of such Shares (including the placement of appropriate legends on stock
certificates or the imposition of stop-transfer instructions) if, in the
judgment of the Company, such restrictions are necessary or desirable in order
to achieve compliance with the Securities Act, the securities laws of any state
or any other law.
(b) MARKET STAND-OFF. In connection with any underwritten public
offering by the Company of its equity securities pursuant to an effective
registration statement filed under the Securities Act, including the Company's
initial public offering, the Optionee shall not directly or indirectly sell,
make any short sale of, loan, hypothecate, pledge, offer, grant or sell any
option or other contract for the purchase of, purchase any option or
20
<PAGE>
other contract for the sale of, or otherwise dispose of or transfer, or agree to
engage in any of the foregoing transactions with respect to, any Shares acquired
under this Agreement without the prior written consent of the Company or its
underwriters. Such restriction (the "Market Stand-Off") shall be in effect for
such period of time following the date of the final prospectus for the offering
as may be requested by the Company or such underwriters. In no event, however,
shall such period exceed 180 days. The Market Stand-Off shall in any event
terminate two years after the date of the Company's initial public offering. In
the event of the declaration of a stock dividend, a spin-off, a stock split, an
adjustment in conversion ratio, a recapitalization or a similar transaction
affecting the Company's outstanding securities without receipt of consideration,
any new, substituted or additional securities which are by reason of such
transaction distributed with respect to any Shares subject to the Market Stand-
Off, or into which such Shares thereby become convertible, shall immediately be
subject to the Market Stand-Off. In order to enforce the Market Stand-Off, the
Company may impose stop-transfer instructions with respect to the Shares
acquired under this Agreement until the end of the applicable stand-off period.
The Company's underwriters shall be beneficiaries of the agreement set forth in
this Subsection (b). This Subsection (b) shall not apply to Shares registered in
the public offering under the Securities Act, and the Optionee shall be subject
to this Subsection (b) only if the directors and officers of the Company are
subject to similar arrangements.
(c) INVESTMENT INTENT AT GRANT. The Optionee represents and agrees that
the Shares to be acquired upon exercising this option will be acquired for
investment, and not with a view to the sale or distribution thereof.
(d) INVESTMENT INTENT AT EXERCISE. In the event that the sale of Shares
under the Plan is not registered under the Securities Act but an exemption is
available which requires an investment representation or other representation,
the Optionee shall represent and agree at the time of exercise that the Shares
being acquired upon exercising this option are being acquired for investment,
and not with a view to the sale or distribution thereof, and shall make such
other representations as are deemed necessary or appropriate by the Company and
its counsel.
(e) LEGENDS. All certificates evidencing Shares purchased under this
Agreement shall bear the following legend:
"THE SHARES REPRESENTED HEREBY MAY NOT BE SOLD, ASSIGNED,
TRANSFERRED, ENCUMBERED OR IN ANY MANNER DISPOSED OF,
EXCEPT IN COMPLIANCE WITH THE TERMS OF A WRITTEN AGREEMENT
BETWEEN THE COMPANY AND THE REGISTERED HOLDER OF THE SHARES
(OR THE PREDECESSOR IN INTEREST TO THE SHARES). SUCH AGREEMENT
GRANTS TO THE COMPANY CERTAIN RIGHTS OF FIRST REFUSAL UPON AN
ATTEMPTED TRANSFER OF THE SHARES AND CERTAIN REPURCHASE RIGHTS
UPON TERMINATION OF SERVICE WITH THE COMPANY. THE SECRETARY OF
THE COMPANY WILL UPON WRITTEN REQUEST
21
<PAGE>
FURNISH A COPY OF SUCH AGREEMENT TO THE HOLDER HEREOF WITHOUT
CHARGE."
All certificates evidencing Shares purchased under this Agreement in an
unregistered transaction shall bear the following legend (and such other
restrictive legends as are required or deemed advisable under the provisions of
any applicable law):
"THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD,
PLEDGED, OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE
REGISTRATION THEREOF UNDER SUCH ACT OR AN OPINION OF COUNSEL,
SATISFACTORY TO THE COMPANY AND ITS COUNSEL,THAT SUCH
REGISTRATION IS NOT REQUIRED."
(f) REMOVAL OF LEGENDS. If, in the opinion of the Company and its
counsel, any legend placed on a stock certificate representing Shares sold under
this Agreement is no longer required, the holder of such certificate shall be
entitled to exchange such certificate for a certificate representing the same
number of Shares but without such legend.
(g) ADMINISTRATION. Any determination by the Company and its counsel
in connection with any of the matters set forth in this Section 11 shall be
conclusive and binding on the Optionee and all other persons.
SECTION 12. ADJUSTMENT OF SHARES.
In the event of any transaction described in Section 8(a) of the Plan,
the terms of this option (including, without limitation, the number and kind of
Shares subject to this option and the Exercise Price) shall be adjusted as set
forth in Section 8(a) of the Plan. In the event that the Company is a party to
a merger or consolidation, this option shall be subject to the agreement of
merger or consolidation, as provided in Section 8(b) of the Plan.
SECTION 13. MISCELLANEOUS PROVISIONS.
(a) RIGHTS AS A STOCKHOLDER. Neither the Optionee nor the Optionee's
representative shall have any rights as a stockholder with respect to any Shares
subject to this option until the Optionee or the Optionee's representative
becomes entitled to receive such Shares by filing a notice of exercise and
paying the Purchase Price pursuant to Sections 4 and 5.
(b) NO RETENTION RIGHTS. Nothing in this option or in the Plan shall
confer upon the Optionee any right to continue in Service for any period of
specific duration or interfere with or otherwise restrict in any way the rights
of the Company (or any Parent or Subsidiary employing or retaining the Optionee)
or of the Optionee, which rights are hereby expressly reserved by each, to
terminate his or her Service at any time and for any reason, with or without
cause.
22
<PAGE>
(c) NOTICE. Any notice required by the terms of this Agreement shall
be given in writing and shall be deemed effective upon personal delivery or upon
deposit with the United States Postal Service, by registered or certified mail,
with postage and fees prepaid. Notice shall be addressed to the Company at its
principal executive office and to the Optionee at the address that he or she
most recently provided to the Company.
(d) ENTIRE AGREEMENT. The Notice of Stock Option Grant, this
Agreement and the Plan constitute the entire contract between the parties hereto
with regard to the subject matter hereof. They supersede any other agreements,
representations or understandings (whether oral or written and whether express
or implied) which relate to the subject matter hereof.
(e) CHOICE OF LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of California, as such laws
are applied to contracts entered into and performed in such State.
SECTION 14. DEFINITIONS.
(a) "AGREEMENT" shall mean this Stock Option Agreement.
(b) "BOARD OF DIRECTORS" shall mean the Board of Directors of the
Company, as constituted from time to time or, if a Committee has been appointed,
such Committee.
(C) "CHANGE IN CONTROL" shall mean:
(i) The consummation of a merger or consolidation of the
Company with or into another entity or any other corporate reorganization,
if more than 50% of the combined voting power of the continuing or
surviving entity's securities outstanding immediately after such merger,
consolidation or other reorganization is owned by persons who were not
stockholders of the Company immediately prior to such merger, consolidation
or other reorganization; or
(ii) The sale, transfer or other disposition of all or
substantially all of the Company's assets.
A transaction shall not constitute a Change in Control if its sole
purpose is to change the state of the Company's incorporation or to create a
holding company that will be owned in substantially the same proportions by the
persons who held the Company's securities immediately before such transaction.
(d) "CODE" shall mean the Internal Revenue Code of 1986, as amended.
(e) "COMMITTEE" shall mean a committee of the Board of Directors, as
described in Section 2 of the Plan.
(f) "COMPANY" shall mean C2B Technologies Incorporated, a Delaware
corporation.
23
<PAGE>
(g) "CONSULTANT" shall mean an individual who performs bona fide services
for the Company, a Parent or a Subsidiary as a consultant or advisor, excluding
Employees and Outside Directors.
(h) "DATE OF GRANT" shall mean the date specified in the Notice of Stock
Option Grant, which date shall be the later of (i) the date on which the Board
of Directors resolved to grant this option or (ii) the first day of the
Optionee's Service.
(i) "DISABILITY" shall mean that the Optionee is unable to engage in any
substantial gainful activity by reason of any medically determinable physical or
mental impairment.
(j) "EMPLOYEE" shall mean any individual who is a common-law employee of
the Company, a Parent or a Subsidiary.
(k) "EXERCISE PRICE" shall mean the amount for which one Share may be
purchased upon exercise of this option, as specified in the Notice of Stock
Option Grant.
(l) "FAIR MARKET VALUE" shall mean the fair market value of a Share, as
determined by the Board of Directors in good faith. Such determination shall be
conclusive and binding on all persons.
(m) "ISO" shall mean an employee incentive stock option described in
Section 422(b) of the Code.
(n) "NONSTATUTORY OPTION" shall mean a stock option not described in
Sections 422(b) or 423(b) of the Code.
(o) "NOTICE OF STOCK OPTION GRANT" shall mean the document so entitled to
which this Agreement is attached.
(p) "OPTIONEE" shall mean the individual named in the Notice of Stock
Option Grant.
(q) "OUTSIDE DIRECTOR" shall mean a member of the Board of Directors who
is not an Employee.
(r) "PARENT" shall mean any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company, if each of the
corporations other than the Company owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
(s) "PLAN" shall mean the C2B Technologies Incorporated 1997 Stock Plan,
as in effect on the Date of Grant.
(t) "PURCHASE PRICE" shall mean the Exercise Price multiplied by the
number of Shares with respect to which this option is being exercised.
24
<PAGE>
(u) "RESTRICTED SHARE" shall mean a Share that is subject to the Right
of Repurchase.
(v) "RIGHT OF FIRST REFUSAL" shall mean the Company's right of first
refusal described in Section 8.
(w) "RIGHT OF REPURCHASE" shall mean the Company's right of repurchase
described in Section 7.
(x) "SECURITIES ACT" shall mean the Securities Act of 1933, as amended.
(y) "SERVICE" shall mean service as an Employee, Outside Director or
Consultant.
(z) "SHARE" shall mean one share of Stock, as adjusted in accordance
with Section 8 of the Plan (if applicable).
(aa) "STOCK" shall mean the Common Stock of the Company, with a par
value of $0.001 per Share.
(bb) "SUBSIDIARY" shall mean any corporation (other than the Company) in
an unbroken chain of corporations beginning with the Company, if each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain.
(cc) "TRANSFEREE" shall mean any person to whom the Optionee has directly
or indirectly transferred any Share acquired under this Agreement.
(dd) "TRANSFER NOTICE" shall mean the notice of a proposed transfer of
Shares described in Section 8.
25
<PAGE>
EXHIBIT 21.1
Inktomi Corporation
Subsidiaries
Inktomi Limited, a corporation organized under the laws of the United Kingdom,
doing business under the name "Inktomi Limited."
C2B Technologies Incorporated, a Delaware corporation, doing business under
the name "Inktomi Corporation."
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Registration Statement on Form S-1 (File
No. 333- ) of our report dated October 16, 1998, on our audits of the
consolidated financial statements of Inktomi Corporation. We also consent to
the reference to our firm under the captions "Experts" and "Selected
Consolidated Financial Data."
PricewaterhouseCoopers LLP
San Francisco, California
November 2, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> SEP-30-1998 SEP-30-1997
<PERIOD-START> OCT-01-1997 OCT-01-1996
<PERIOD-END> SEP-30-1998 SEP-30-1997
<CASH> 28,944 7,044
<SECURITIES> 18,492 0
<RECEIVABLES> 5,713 1,003
<ALLOWANCES> (632) (174)
<INVENTORY> 0 0
<CURRENT-ASSETS> 53,068 8,045
<PP&E> 22,750 8,562
<DEPRECIATION> (5,388) (1,649)
<TOTAL-ASSETS> 70,641 15,157
<CURRENT-LIABILITIES> 18,675 5,381
<BONDS> 0 0
0 0
0 15
<COMMON> 23 6
<OTHER-SE> 43,247 4,726
<TOTAL-LIABILITY-AND-EQUITY> 70,641 15,157
<SALES> 20,426 5,785
<TOTAL-REVENUES> 20,426 5,785
<CGS> 4,816 1,512
<TOTAL-COSTS> 43,208 15,967
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> (22,782) (10,181)
<INTEREST-EXPENSE> 427 (194)
<INCOME-PRETAX> (22,355) (10,376)
<INCOME-TAX> (1) (2)
<INCOME-CONTINUING> (22,355) (10,377)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (22,355) (10,377)
<EPS-PRIMARY> (1.15) (0.80)
<EPS-DILUTED> (1.15) (0.80)
</TABLE>
