-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, M8Og5x6QP+eP1AYPPTLjiVTyqEqljDO/GQkzg/2WJUgb7yJK1JTFgJpqrG6PO/sy /IG5izV/netngETJXCoDbA== 0000950135-96-003825.txt : 19960828 0000950135-96-003825.hdr.sgml : 19960828 ACCESSION NUMBER: 0000950135-96-003825 CONFORMED SUBMISSION TYPE: S-1 PUBLIC DOCUMENT COUNT: 14 FILED AS OF DATE: 19960827 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALTAVISTA INTERNET SOFTWARE INC CENTRAL INDEX KEY: 0001021305 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 043321986 STATE OF INCORPORATION: DE FILING VALUES: FORM TYPE: S-1 SEC ACT: 1933 Act SEC FILE NUMBER: 333-10881 FILM NUMBER: 96621320 BUSINESS ADDRESS: STREET 1: 30 PORTER ROAD CITY: LITTLETON STATE: MA ZIP: 01460 BUSINESS PHONE: 5084862700 MAIL ADDRESS: STREET 1: 30 PORTER ROAD CITY: LITTLETON STATE: MA ZIP: 01460 S-1 1 ALTAVISTA INTERNET SOFTWARE INC. 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 27, 1996 REGISTRATION NO. 333- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 ------------------------------ FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------------ ALTAVISTA INTERNET SOFTWARE, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) ------------------------------ DELAWARE 7379 04-3321986 (STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
------------------------------ 30 PORTER ROAD LITTLETON, MASSACHUSETTS 01460 (508) 486-2700 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) ------------------------------ ILENE H. LANG, PRESIDENT ALTAVISTA INTERNET SOFTWARE, INC. 30 PORTER ROAD LITTLETON, MASSACHUSETTS 01460 (508) 486-2700 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) Copies to: GAIL S. MANN, ESQ. EDWIN L. MILLER, JR., ESQ. RAYMOND W. WAGNER, ESQ. DIGITAL EQUIPMENT CORPORATION TESTA, HURWITZ & THIBEAULT, LLP SIMPSON THACHER & BARTLETT 111 POWDERMILL ROAD 125 HIGH STREET 425 LEXINGTON AVENUE MAYNARD, MASSACHUSETTS 01754 BOSTON, MASSACHUSETTS 02110 NEW YORK, NEW YORK 10017 (508) 493-5111 (617) 248-7000 (212) 455-2000
------------------------------ APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after this registration statement has become effective. ------------------------------ If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. / / If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act of 1933, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / If this form is a post-effective amendment filed pursuant to Rule 462(b) under the Securities Act of 1933, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. / / ------------------------------ CALCULATION OF REGISTRATION FEE - --------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM TITLE OF EACH CLASS OF AGGREGATE OFFERING AMOUNT OF SECURITIES TO BE REGISTERED PRICE(1) REGISTRATION FEE(1) - --------------------------------------------------------------------------------------------------- Common Stock, $.01 par value......................... $50,000,000 $17,242 - --------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------
(1) Calculated pursuant to Rule 457(o). ------------------------------ THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. Subject to Completion, dated August 27, 1996 PROSPECTUS SHARES [INTERNET SOFTWARE LOGO] CLASS A COMMON STOCK --------------------------- All of the shares of Class A Common Stock offered hereby are being sold by AltaVista Internet Software, Inc. ("AltaVista" or the "Company"), a wholly-owned subsidiary of Digital Equipment Corporation ("Digital"). Following the Offering (as defined below), Digital will own all of the outstanding shares of Class B Common Stock of the Company, which will represent approximately % of the economic interest (or rights of holders of common equity to participate in distributions in respect of the common equity) in the Company (assuming no exercise of the Underwriters' over-allotment options). Of the shares of Class A Common Stock offered hereby, shares are being offered in the United States and Canada (the "U.S. Offering") by the U.S. Underwriters (as defined in "Underwriting"), and shares are being offered outside the United States and Canada in a concurrent international offering (the "International Offering") by the International Managers (as defined in "Underwriting", and, together with the U.S. Underwriters, the "Underwriters"). These offerings are collectively referred to herein as the "Offering." See "Underwriting." Holders of Class A Common Stock generally have identical rights to holders of Class B Common Stock and vote together as a single class, except that holders of Class A Common Stock are entitled to one vote per share while holders of Class B Common Stock are entitled, with certain exceptions, to three votes per share on all matters submitted to a vote of stockholders. Following the Offering, the shares of Class B Common Stock owned by Digital will represent approximately % of the combined voting power of all classes of voting stock of the Company (assuming no exercise of the Underwriters' over-allotment options). Each share of Class B Common Stock is convertible into one share of Class A Common Stock at the option of Digital, and is automatically converted under certain circumstances. See "Relationship with Digital" and "Description of Capital Stock." Prior to the Offering, there has been no public market for the Common Stock of the Company. It is currently estimated that the initial public offering price will be between $ and $ per share. See "Underwriting" for the factors to be considered in determining the initial public offering price. Application will be made to list the Class A Common Stock on the Nasdaq National Market under the symbol "ALTV." --------------------------- THE CLASS A COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 8. --------------------------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. =========================================================================================================== UNDERWRITING PRICE TO DISCOUNTS PROCEEDS TO PUBLIC AND COMMISSIONS(1) COMPANY(2) - ----------------------------------------------------------------------------------------------------------- Per Share................................ - ----------------------------------------------------------------------------------------------------------- Total(3)................................. ===========================================================================================================
(1) The Company and Digital have agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended. See "Underwriting." (2) Before deducting expenses payable by the Company estimated at $ . (3) The Company has granted the U.S. Underwriters a 30-day option to purchase up to an additional shares of Class A Common Stock solely to cover over-allotments, if any. The International Managers have been granted a similar option to purchase up to additional shares solely to cover over-allotments, if any. If such options are exercised in full, the total Price to Public would be $ , the total Underwriting Discounts and Commissions would be $ and the total Proceeds to Company before estimated expenses would be $ . See "Underwriting." --------------------------- The shares of Class A Common Stock offered by this Prospectus are offered by the U.S. Underwriters subject to prior sale, to withdrawal, cancellation or modification of the offer without notice, to delivery to and acceptance by the U.S. Underwriters and to certain further conditions. It is expected that delivery of the shares will be made at the offices of Lehman Brothers Inc., New York, New York, on or about , 1996. --------------------------- LEHMAN BROTHERS COWEN & COMPANY J.P. MORGAN & CO. , 1996 3 ALTAVISTA: MAKING THE INTERNET THE WORK ENVIRONMENT OF CHOICE [ILLUSTRATION OF THE ALTAVISTA PRODUCT PORTFOLIO.] The Company's portfolio of innovative software products enables business users of the Internet and intranets to find useful information; control access to information and transmit it securely; and collaborate and communicate from multiple locations. --------------- IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CLASS A COMMON STOCK OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. --------------- AltaVista and the AltaVista logo are trademarks of the Company. All other trademarks or tradenames referred to in this Prospectus are the property of their respective owners. 2 4 PROSPECTUS SUMMARY The following is a summary of certain information contained elsewhere in this Prospectus. Reference is made to, and this summary is qualified in its entirety by, the more detailed information contained in this Prospectus. Unless otherwise indicated, the information contained in this Prospectus assumes no exercise of the over-allotment options granted to the Underwriters and reflects the filing of an Amended and Restated Certificate of Incorporation of the Company increasing the number of authorized shares of capital stock and effecting a recapitalization of the outstanding shares of common stock. THE COMPANY The Company develops and markets software products for use in the emerging integrated Internet/intranet business environment. The Company's portfolio of innovative software products enables users of the Internet and intranets to (i) find useful information, (ii) control access to information and transmit it securely and (iii) collaborate and communicate from multiple locations. The Company's products and services are designed to integrate all levels of the work environment -- Internet, enterprise, workgroup and individual user -- and to allow location- and platform-independent computing. To increase global awareness of the AltaVista brand and showcase AltaVista software technologies and products, the Company provides the popular AltaVista Internet Search Service and other Internet services free on the World Wide Web. The Company also licenses its Internet services to major telecommunications and media companies outside the United States and to major Internet content providers. The Internet and the Web have grown dramatically primarily due to the platform-independence of Internet technologies and the ease of use of standard Web browsers. Recognizing these benefits, many organizations have begun to create "intranets" by adopting Internet technologies on their private networks. Intranets provide users substantially increased access to information and other users both inside an organization and, via the Internet, throughout the world. To take advantage of these expanded capabilities and resources and allow the Internet/intranet environment to become the work environment of choice, users need products and services that integrate all levels of their work environment. The Company has developed the following portfolio of products to address these needs: - SEARCH/DIRECTORY PRODUCTS. AltaVista Search assists users in finding relevant information in all levels of their work environment. AltaVista Directory provides a single, integrated on-line directory of employees, customers or other affiliated individuals. - SECURITY PRODUCTS. AltaVista Firewall provides an easy-to-manage, secure gateway between an organization's private intranet and the Internet, or between sub-networks of an intranet. AltaVista Tunnel employs advanced authentication and encryption technologies to create a secure Internet pathway over which external users can connect inexpensively and securely to an organization's intranet, thereby allowing external users to work as if directly connected to the organization's private network. - COLLABORATION AND COMMUNICATION PRODUCTS. AltaVista Forum provides an environment for members of workgroups to share documents, conduct asynchronous discussions or real-time conferences from multiple locations and search the entire text of a Forum, all using a standard Web browser. AltaVista Mail is Internet/intranet email server software that provides email services and supports a wide range of email clients and attachments. The Company's target customers are business users. To date, customers for one or more of the Company's products include AT&T, Inc., British Columbia Hydro and Power Authority, Computer Sciences Corporation, Woods Hole Research Center and Xerox Corporation. As an integral part of its marketing strategy, the Company provides free of charge its AltaVista Internet Search Service, which assists Web users in finding information anywhere on the Web. The AltaVista Internet Search Service uses advanced search engine and indexing technology developed in Digital's Palo Alto research laboratories in response to the industry-wide challenge of indexing the entire Web. This service recorded over 300,000 requests for information or "hits" on its December 15, 1995 Web-wide launch date, and recorded over 3 5 17.5 million hits per day during the week of August 5, 1996. The Company's goal is to establish the AltaVista Internet Search Service as the global standard for Internet search results by licensing it to major telecommunications and media companies outside the United States to provide "mirror sites" for local markets and by licensing major Internet content providers to deliver branded AltaVista Internet Search Service results to their users through "value added links" on their Web sites. The Company has entered into letters of intent for mirror sites to be established by Telia TeleCom AB (Sweden) and Telstra Corporation Ltd. (Australia) and into value added link agreements with Yahoo! Inc. and CNET, Inc., thereby generating a revenue stream from the AltaVista Internet Search Service. Because the Company does not accept advertising on its own Web sites and, therefore, does not compete for Internet advertising revenue, the Company is able to partner with Internet companies that derive revenue from advertising. The Company's goal is to be the leading supplier of software products and services for use in the emerging integrated Internet/intranet business environment. The Company's strategy includes the following elements: - INCREASE ALTAVISTA BRAND RECOGNITION WORLDWIDE. The Company provides free Internet services from its Web sites and licenses AltaVista branded services to leading Internet partners to showcase AltaVista technologies and increase global awareness of the AltaVista brand. - DELIVER INNOVATIVE SOFTWARE PRODUCTS FOR INTERNET/INTRANET USERS. In addition to its current portfolio of software products, the Company intends to build upon its technical expertise and that of its partners and Digital to develop additional innovative products, product suites and services for general and specific industry and business application needs in the emerging Internet/intranet environment. - CONDUCT BUSINESS ON THE WEB. The Company conducts a significant portion of its business over the Web, including marketing, communications, partner registration, sales, software distribution and partner and customer support. The Company believes that this "Web-centric" strategy will establish it as a highly visible Internet/intranet software leader, as well as facilitate responsive, low-cost, global business operations. The Company intends to achieve broad market penetration with its products by employing multiple Internet-focused distribution channels. - LEVERAGE RELATIONSHIP WITH DIGITAL. The Company intends to leverage its relationship with Digital, one of the world's leading suppliers of computer hardware, software and services. The Company's products are sold by Digital's worldwide direct and channel sales organizations, which also provide the Company access to Digital's major customers, channel partners and strategic alliance partners. In addition, the Company has a preferred relationship with Digital's research laboratories. The Company is currently wholly owned by Digital. As used herein, unless the context requires otherwise, the "Company" means AltaVista Internet Software, Inc. and its subsidiaries, and "Digital" means Digital Equipment Corporation and its subsidiaries (other than the Company and its subsidiaries). References herein to the Company also include, as required by the context, the business of the Company as conducted by Digital prior to the transfer of that business to the Company, which transfer will occur prior to the consummation of the Offering; this Prospectus assumes that such transfer has occurred. The Company was incorporated in Delaware on June 28, 1996. Its principal executive offices are located at 30 Porter Road, Littleton, Massachusetts 01460, and its telephone number is (508) 486-2700. The Company's primary Web site is located at http://www.altavista.software.digital.com. Information contained in such Web site or any other Web site referred to in this Prospectus shall not be deemed a part of this Prospectus. 4 6 THE OFFERING(1) Class A Common Stock offered hereby: U.S. Offering................................ shares International Offering....................... shares --------- Total................................ shares Common Stock to be outstanding after the Offering(2): Class A Common Stock......................... shares Class B Common Stock......................... shares --------- Total................................ shares Working capital and other general corporate purposes, including product development, expansion of sales and marketing efforts and capital expenditures. In addition, the Company may make one or more acquisitions of complementary technologies, products or Use of proceeds................................ businesses. See "Use of Proceeds." Proposed Nasdaq National Market symbol......... ALTV The holders of Class A Common Stock generally have rights identical to, and generally vote together as a single class with, the holders of the Class B Common Stock, except that the holders of Class A Common Stock are entitled to one vote per share and the holders of the Class B Common Stock, are entitled, with certain exceptions, to three votes per share. See "Relationship with Digital" and "Description of Capital Stock -- Common Voting rights.................................. Stock -- Voting Rights."
- --------------- (1) Does not include up to shares of Class A Common Stock that are subject to the over-allotment options granted to the Underwriters by the Company. See "Underwriting." (2) Does not include an aggregate of shares of Class A Common Stock reserved for issuance in respect of employee stock options granted as of the date of this Prospectus with an exercise price equal to the initial public offering price set forth on the cover page of this Prospectus. See "Capitalization" and "Management -- Compensation of Executive Officers." 5 7 SUMMARY FINANCIAL INFORMATION (IN THOUSANDS, EXCEPT PER SHARE DATA)
FISCAL YEAR ENDED -------------------------------- JULY 2, JULY 1, JUNE 29, 1994 1995 1996 ------- ------- -------- STATEMENT OF OPERATIONS DATA(1): Total operating revenues..................................... $ 298 $ 964 $ 3,632 ------- ------- -------- Costs and expenses: Cost of operating revenues.............................. 47 374 1,110 Research and engineering expenses....................... 2,235 4,516 15,352 Selling and marketing expenses.......................... 50 248 10,522 General and administrative expenses..................... 684 1,062 6,516 ------- ------- -------- Total costs and expenses........................... 3,016 6,200 33,500 ------- ------- -------- Operating loss............................................. (2,718) (5,236) (29,868) ------- ------- -------- Net loss................................................... $(2,718) $(5,236) $(29,868) ======= ======= ======== Unaudited pro forma net loss per common share(2)........... $ ========
AS OF JUNE 29, 1996 --------------------------------- PRO FORMA, HISTORICAL(1) AS ADJUSTED(3) ------------- --------------- BALANCE SHEET DATA: Working capital.................................................. $ (925) $ Total assets..................................................... 7,508 Net parent's investment.......................................... 5,528 -- Total stockholders' equity....................................... --
- --------------- (1) Historical amounts are included in or derived from the AltaVista Internet Software Products Financial Statements included elsewhere in this Prospectus. (2) Historical earnings per share data is omitted from the statement of operations data because it is not meaningful. Unaudited pro forma net loss per common share is calculated based on the net loss divided by the number of shares of Class B Common Stock to be issued to Digital prior to the consummation of the Offering. (3) Balance sheet data for the Company on a pro forma, as adjusted basis gives effect to the contribution, as of June 29, 1996, of assets from Digital to the Company and the Company's assumption of certain liabilities from Digital, includes the assets and stockholder's equity of AltaVista Internet Software, Inc. and gives effect to the net proceeds from the sale of shares of Class A Common Stock offered by the Company hereby at an assumed initial public offering price of $ per share. Net parent's investment has been restated as total stockholders' equity as if Digital's investment was in the Class B Common Stock of the Company to be issued to Digital prior to the consummation of the Offering. See "Use of Proceeds" and "Capitalization." 6 8 RELATIONSHIP WITH DIGITAL The Company is currently wholly owned by Digital. Upon consummation of the Offering, Digital will beneficially own all of the Class B Common Stock, which will represent approximately % of the combined voting power of all classes of voting stock ( % if the Underwriters' over-allotment options are exercised in full) and thus will continue to have the ability to direct the election of all of the directors of the Company and otherwise exercise a controlling influence over the business and affairs of the Company. Digital has advised the Company that its current intent is to continue to hold all of the Class B Common Stock. However, Digital has no agreement with the Company not to sell or distribute such shares, and there can be no assurance concerning the period of time during which Digital will maintain its beneficial ownership of Common Stock after the expiration of the 180-day lock-up agreement contained in the Underwriting Agreements. See "Relationship with Digital -- Corporate Agreement" and "Underwriting." Each share of Class B Common Stock is convertible while held by Digital or any of its subsidiaries at such holder's option into one share of Class A Common Stock. Any shares of Class B Common Stock transferred to a person other than Digital or any of its subsidiaries shall automatically convert to shares of Class A Common Stock upon such disposition, except for a disposition effected in connection with a transfer of Class B Common Stock to stockholders of Digital as a dividend intended to be on a tax-free basis (a "Tax-Free Spin-Off") under the Internal Revenue Code of 1986, as amended (the "Code"). See "Description of Capital Stock -- Common Stock -- Conversion." Upon consummation of the Offering, Digital will continue to provide certain services to the Company and make available certain employee benefit plans to the Company's employees in a manner generally consistent with past practices. The Company and Digital will enter into a number of intercompany agreements with respect to such services and other matters. See "Relationship with Digital." ------------------------ Certain statements under the captions "Prospectus Summary," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business" and elsewhere in this Prospectus, including statements regarding the intent, belief or current expectations of the Company with respect to, among other things, (i) the Company's operating strategies, (ii) the markets for the Company's products and (iii) the development and release of the Company's products and services, and other statements contained herein regarding matters that are not historical facts, constitute "forward-looking statements." Such forward-looking statements are not guarantees of future performance and involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance and achievements of the Company, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, but are not limited to, those discussed herein under "Risk Factors." 7 9 RISK FACTORS In addition to the other information contained in this Prospectus, investors should carefully consider the following risk factors: LIMITED OPERATING HISTORY; ANTICIPATED CONTINUING LOSSES The Company has commercially introduced most of its products and services since November 1995. Further, the Company's prospects are dependent upon the commercial release of additional products and services which are in the process of being developed or tested. Accordingly, the Company has only a limited operating history upon which an evaluation of its business and prospects can be based. The Company has incurred net operating losses in each of the last three fiscal years and expects that it will continue to incur net operating losses at least through fiscal year 1997. As of June 29, 1996, the Company had an accumulated deficit of $39.8 million. The limited operating history of the Company makes the prediction of future results of operations difficult or impossible, and the Company and its prospects must be considered in light of the risks, costs and difficulties frequently encountered by companies in their early stages of development, particularly companies in the new and rapidly evolving Internet/intranet market. There can be no assurance that the Company can generate substantial revenue growth, or that any revenue growth that is achieved can be sustained. Revenue growth that the Company has achieved or may achieve may not be indicative of future operating results. In addition, the Company has increased, and plans to increase further, its operating expenses in order to fund higher levels of research and development, increase its sales and marketing efforts, develop new distribution channels, broaden its customer support capabilities and increase its administrative resources in anticipation of future growth. To the extent that increases in such expenses precede or are not subsequently followed by increased revenues, the Company's business, results of operations and financial condition would be materially adversely affected. Moreover, due to the intense competition in the Company's markets, the Company must seek to expand all aspects of its business rapidly, which increases the challenges facing the Company. There can be no assurance that the Company will achieve or sustain profitability. In addition, in view of recent revenue growth, the rapidly evolving nature of its business and markets and its short operating history, the Company believes that period-to-period comparisons of financial results are not necessarily meaningful and should not be relied upon as an indication of future performance. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." POTENTIAL FLUCTUATIONS IN QUARTERLY OPERATING RESULTS The Company is likely to experience significant fluctuations in quarterly operating results caused by many factors, including the rate of growth, usage and acceptance of intranets and the Internet, changes in the demand for the Company's products and services, introductions or enhancements of products and services by the Company and its competitors, delays in the introduction or enhancement of products and services by the Company or its competitors, customer order deferrals in anticipation of upgrades and new products, changes in the Company's pricing policies or those of its competitors, changes in the distribution channels through which products are sold, the Company's ability to anticipate and effectively adapt to developing markets and rapidly changing technologies, the Company's ability to attract, retain and motivate qualified personnel, changes in the mix of products and services sold, changes in the mix of international and North American revenues, changes in foreign currency exchange rates and changes in general economic conditions. The Company is attempting to expand its channels of distribution, and increases in the Company's revenues will be dependent on its ability to implement its distribution strategy. There also may be other factors that significantly affect the Company's quarterly results which are difficult to predict given the Company's limited operating history, such as seasonality and the timing of receipt and delivery of orders within a fiscal quarter. As a software business, the Company expects to operate with little or no backlog. As a result, quarterly sales and operating results depend generally on the volume and timing of orders and the ability of the Company to fulfill orders received within the quarter, all of which are difficult to forecast. The Company's expense levels are based in part on its expectations as to future orders and sales, which, given the Company's limited operating history, are also extremely difficult to predict. The Company's expense levels are to a large extent fixed, and it will be difficult for the Company to adjust spending in a timely manner to compensate for 8 10 any unexpected revenue shortfall. Accordingly, any significant shortfall in demand for the Company's products and services in relation to the Company's expectations would have an immediate adverse impact on the Company's business, results of operations and financial condition, which could be material. Due to all of the foregoing factors, the Company believes that its quarterly operating results are likely to vary significantly in the future. Therefore, in some future quarter the Company's operating results may fall below the expectations of securities analysts and investors. In such event, the trading price of the Company's Class A Common Stock would likely be materially adversely affected. UNPROVEN ACCEPTANCE OF THE COMPANY'S PRODUCTS AND SERVICES; DEVELOPING MARKET Many of the Company's products and services have been introduced only recently, have yet to be introduced or will be introduced in a substantially enhanced form. See "Business -- AltaVista Internet Services" and "-- AltaVista Software Products." The Company's success will depend largely upon the success of these and future products and services and enhancements. Failure of these products and services or enhancements to achieve significant market acceptance and usage would materially adversely affect the Company's business, results of operations and financial condition. If the Company were unable to successfully market its current products and services, develop new products and services and enhancements to current products and services or complete products and services currently under development, or if such new products and services or enhancements do not achieve market acceptance, the Company's business, results of operations and financial condition would be materially adversely affected. The primary markets for the Company's products and services have only recently begun to develop and are rapidly evolving. As is typical in the case of a new and rapidly evolving industry, demand for and market acceptance of products and services that have been released recently or that are planned for future release are subject to a high level of uncertainty. If the markets for the Company's products and services fail to develop, develop more slowly than expected or become saturated with competitors, or if the Company's products and services do not achieve market acceptance, the Company's business, results of operations and financial condition would be materially adversely affected. DEPENDENCE ON THE INTERNET; UNCERTAIN ADOPTION OF THE INTERNET AS A MEDIUM OF COMMUNICATIONS AND COMMERCE Rapid growth of interest in and use of the Internet is a recent phenomenon. The markets for certain of the Company's products and services are highly dependent upon the increased acceptance and use of the Internet, particularly for commercial applications. In addition, the Company plans to distribute certain products and services electronically over the Internet. Critical issues concerning the commercial use of the Internet, including security, reliability, capacity, cost, ease of use, access, quality of service and acceptance of advertising, remain unresolved and may retard the growth of Internet use for commercial applications. If widespread commercial use of the Internet does not develop or if widespread adoption of the Internet causes the performance and reliability of the Internet to suffer, the Company's business, results of operations and financial condition would be materially adversely affected. DEPENDENCE ON THE ADOPTION OF INTRANETS; UNCERTAIN ADOPTION OF INTRANETS The Company will be substantially dependent on the development of markets for products that support or increase the functionality of intranets. There can be no assurance that intranets will be adopted by large numbers of organizations, that organizations will seek to enable users to collaborate over intranets or that the Company's products will appeal to organizations that do so. If intranets are not adopted by large numbers of organizations, or if organizations adopting intranets do not select the Company's products, the Company's business, results of operations and financial condition would be materially adversely affected. COMPETITION; NEW ENTRANTS The markets for the Company's products and services are new, intensely competitive, evolving quickly and subject to rapid technological change. The Company expects competition to persist, increase and intensify 9 11 in the future as the markets for the Company's products and services continue to develop and as additional companies enter each of its markets. The Company is aware of numerous major software developers as well as smaller entrepreneurial companies that are focusing significant resources on developing and marketing products and services that will compete with the Company's products and services. Numerous releases of products and services that compete with those of the Company can be expected in the near future. Intense price competition may develop in the Company's markets. The Company faces competition in the overall Internet/intranet software market, as well as in each of the market segments where its products and services compete. The Company has multiple competitors for each of its products and services. See "Business -- Competition." Many of the Company's current and potential competitors in each of its markets have longer operating histories and significantly greater financial, technical and marketing resources, name recognition and installed product base than the Company. The Company's competitors include Microsoft Corporation and Netscape Communications Corporation, each of which provides or has announced an intention to provide a range of software products based on Internet protocols and to compete in the broad Internet/intranet software market, as well as in specific market segments where the Company competes. The Company does not believe its markets will support the increasing number of competitors and their products and services. In the past, a number of software markets have become dominated by one or a small number of suppliers, and a small number of suppliers or even a single supplier may dominate one or more of the Company's market segments. The Company's competitors may bundle their products with other software, including operating system and browser software, in a manner that may discourage users from purchasing products offered by the Company. This strategy may be particularly effective for companies with leading market shares in their respect markets, such as Microsoft and Netscape. If the Company does not provide products and services that achieve success in their respective segments in the short term, the Company could suffer an insurmountable loss in market share and brand name acceptance, which would result in a material adverse effect on the Company's business, results of operations and financial condition. There can be no assurance that the Company will be able to compete effectively with current and future competitors. See "Business -- Competition." NEW PRODUCT DEVELOPMENT AND TECHNOLOGICAL CHANGE The emerging market for Internet/intranet products and services is characterized by rapid technological developments, evolving industry standards and customer demands, and frequent new product introductions and enhancements. In addition, many companies are expected to introduce new Internet/intranet products and services in the near future. The Company's success will depend on its ability to design, develop, test, market, sell and support new products and services and enhancements of current products and services on a timely basis in response to both competitive products and services and evolving demands of the marketplace. In addition, new products and services and enhancements must remain compatible with standard platforms and file formats. The Company's ability to successfully develop and release new products and services and enhancements in a timely manner is subject to a variety of factors, including its ability to solve technical problems and test products, competing priorities of the Company, the availability of development and other resources and other factors outside the control of the Company. There can be no assurance that the Company will not experience difficulties that could delay or prevent the successful development, introduction or marketing of new products and services and enhancements. If the Company is unable to develop new products and services and enhancements to existing products and services or to complete products and services currently under development, or if such new products and services or enhancements do not achieve market acceptance, the Company's business, results of operations and financial condition would be materially adversely affected. See "Business -- AltaVista Software Products" and "-- Product Development." FUTURE LIQUIDITY NEEDS; UNCERTAINTY OF ADDITIONAL FINANCING The Company currently anticipates that the net proceeds of the Offering will be sufficient to meet its anticipated liquidity needs for at least the next twelve months. Thereafter, the Company may need to raise 10 12 additional funds. The Company may need to raise additional funds sooner in order to fund more rapid expansion, to develop new or enhanced products or services, to respond to competitive pressures or to acquire complementary products, businesses or technologies. If additional funds are raised through the issuance of equity or securities convertible into equity, the percentage ownership of the stockholders of the Company will be reduced, stockholders may experience dilution and such securities may have rights, preferences or privileges senior to those of the holders of the Common Stock. There can be no assurance that additional financing will be available on terms favorable to the Company, if at all. Digital has not made any commitment to supply such funds to the Company. If adequate funds are not available or are not available on acceptable terms, the Company may not be able to fund its expansion, take advantage of acquisition opportunities, develop or enhance products or services or respond to competitive pressures. Such inability could have a material adverse effect on the Company's business, results of operations and financial condition. See "Use of Proceeds" and "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." MANAGEMENT OF POTENTIAL GROWTH; NEW MANAGEMENT TEAM The Company recently has experienced rapid growth in its sales and operations and in the number and complexity of its products and product distribution channels. Several key members of the Company's management team, including its chief executive officer, have recently joined the Company. See "Management -- Executive Officers and Directors." The Company recently increased the size of its sales force and has recently established and is continuing to establish additional distribution channels through third party relationships. The Company's growth, coupled with the rapid evolution of the Company's markets, has placed, and is likely to continue to place, significant strains on its administrative, operational and financial resources and increased demands on its internal systems, procedures and controls. If the Company is unable to manage any future growth effectively, the Company's business, results of operations and financial condition could be materially adversely affected. DEPENDENCE ON KEY PERSONNEL; RECENT HIRES The Company's performance is substantially dependent on the performance of its key technical and senior management personnel, most of whom have worked together for a relatively short period of time and none of whom is bound by an employment agreement. The Company also intends to utilize the services of certain of Digital's technical personnel for certain technical assistance services. See "Management" and "Relationship with Digital -- Technical Assistance Agreement." The loss of the services of any of such personnel could have a material adverse effect on the business, results of operations and financial condition of the Company. The Company does not maintain "key person" life insurance policies on any of its employees. The Company's success is highly dependent on its continuing ability to identify, hire, train, retain and motivate highly qualified management, technical and sales and marketing personnel, including recently hired officers and other employees. Competition for such personnel is intense, and there can be no assurance that the Company will be able to attract, assimilate or retain highly qualified technical and managerial personnel in the future. The inability to attract and retain the necessary management, technical and sales and marketing personnel could have a material adverse effect on the Company's business, results of operations and financial condition. See "Business -- Employees" and "Management." RELIANCE ON EVOLVING DISTRIBUTION CHANNELS The Company's distribution strategy is to develop multiple distribution channels, including sales over the Web and sales through Digital's sales organization, major system integrators, value added resellers, Internet service providers, telecommunications companies, original equipment manufacturers and independent software vendors (collectively "channel partners"). To date, the Company has sold its products principally through Digital's sales force and Digital's channel partners. The Company intends to develop a large number of new channel partner relationships. Accordingly, the success of the Company will be dependent in large part on its ability to develop these additional distribution relationships and on the performance and success of these third parties, which are outside the Company's control. The Company's existing channel partner relationships 11 13 have been established recently, and the Company cannot predict the extent to which its channel partners will be successful in marketing the Company's products. The Company generally expects that its agreements with its channel partners will be terminable by either party without cause. The Company's inability to attract channel partners, their inability to penetrate their respective market segments, or the loss of any of the Company's channel partners, as a result of competitive products offered by other companies or products developed internally by these channel partners or otherwise, could materially adversely affect the Company's business, results of operations and financial condition. See "Business -- Sales and Marketing." The Company has expanded, and plans to continue expanding, its sales force. The Company's strategy is to use its sales force principally to develop and support its relationships with its channel partners. The Company also intends to use its Web site to demonstrate, market and sell its products. This Web-centric aspect of the Company's sales and marketing strategy is largely untested. The inability of the Company to successfully expand its sales force, the inability of its sales force to successfully establish new channel partner relationships or the failure to successfully implement a Web-centric sales and marketing program could materially adversely affect the Company's business, results of operations and financial condition. DEPENDENCE ON MIRROR SITES AND INTERNET CONTENT PROVIDERS The Company intends to license major telecommunications and media companies to establish a number of AltaVista Internet Search Service mirror sites outside the United States to improve service response times for users outside the United States, to facilitate worldwide distribution of the AltaVista Internet Search Service and increase global awareness of the AltaVista brand. In addition, the Company is seeking to establish value added links with leading Internet content providers to allow a content provider's users to use the AltaVista Internet Search Service without leaving the content provider's Web site. The Company expects to derive revenue from mirror sites and value added links and to increase AltaVista brand recognition among their users. To date, the Company has entered into letters of intent with respect to two mirror sites and has established value added links with two Internet content providers. See "Business -- AltaVista Partner-Provided Services." The success of the Company in establishing the AltaVista brand name and achieving market acceptance of certain of its products and services is dependent, in part, on its and its partners' success in establishing and maintaining additional mirror sites and value added links and on the success of the mirror sites and value added links. The Company's or its partners' inability to achieve such success would materially adversely affect the Company's business, results of operations and financial condition. RISK OF CAPACITY CONSTRAINTS AND SYSTEM FAILURE RELATING TO THE ALTAVISTA SEARCH SITES A key element of the Company's marketing strategy and promotional efforts is the AltaVista Internet Search Service, which the Company makes available at no charge to users of the Internet through its Web site and mirror sites. Accordingly, the performance of the AltaVista Internet Search Service is critical to the Company's ability to establish the AltaVista brand name and the value of its products and services. An increase in the volume of searches conducted using the AltaVista Internet Search Service could strain its capacity, which could lead to slower response times or complete system failures. In addition, as the number of Internet users and of Web pages and other Internet content increases, there can be no assurance that the AltaVista Internet Search Service will be able to be scaled appropriately. The Company has made certain performance and support commitments under its mirror site and value added link agreements, and, accordingly, any failure by the Company to meet these commitments could result in the termination of, or exposure to damages under, one or more of these agreements. The Company is also dependent on hardware suppliers, particularly Digital, for prompt delivery, installation and service of servers and other equipment used to operate the AltaVista Internet Search Service and for Internet access. The servers for the Company's Web site, located in Palo Alto, California, and for the mirror sites are vulnerable to damage from fire, earthquakes, power loss, telecommunications failures and similar events. Despite the implementation of network security measures by the Company and mirror site providers, their servers are also vulnerable to computer viruses, break-ins and similar disruptive problems. Computer viruses, break-ins or other problems caused by third parties could lead to interruptions, delays or cessation in service in the AltaVista Internet Search Service. Any loss of availability, decrease in response time or other deterioration in performance of the AltaVista Internet 12 14 Search Service at the Company's Web site or any mirror site could affect the success of the AltaVista Internet Search Service, which could materially adversely affect the Company's business, results of operations and financial condition. RISK OF PRODUCT DEFECTS; PRODUCT LIABILITY As a result of their complexity, software products may contain undetected errors or failures when first introduced or as new versions are released. There can be no assurance that, despite testing by the Company and testing and use by current and potential customers, errors will not be found in new products after commencement of commercial shipments or, if discovered, that the Company will be able to successfully correct such errors in a timely manner or at all. Computer break-ins and other disruptions, if caused or permitted by errors or failures in the Company's security products, would jeopardize the security of information stored in and transmitted through or by the computer systems of the Company's customers, which may result in significant liability to the Company and deter potential customers. The occurrence of errors and failures in the Company's products could result in loss of or delay in market acceptance of the Company's products, and alleviating such errors and failures could require significant expenditure of capital and resources by the Company. The consequences of such errors and failures could have a material adverse effect on the Company's business, results of operations and financial condition. The Company's license agreements with its customers are expected to typically contain provisions designed to limit the Company's exposure to potential product liability claims. It is possible, however, that the limitation of liability provisions contained in the Company's license agreements may not be effective under the laws of certain jurisdictions. A product liability claim brought against the Company could have a material adverse effect on the Company's business, results of operations and financial condition. UNCERTAIN PROTECTION OF INTELLECTUAL PROPERTY RIGHTS The Company's success depends significantly upon proprietary technology. The Company relies on a combination of patent, copyright, trademark and trade secret laws, non-disclosure agreements and other contractual provisions to establish, maintain and protect its proprietary rights, all of which afford only limited protection. Digital has several pending U.S. patent applications relating to the Company's products. The Company has acquired certain non-exclusive license rights related to these patents from Digital. See "Relationship with Digital -- Asset Transfer and License Agreement." There can be no assurance that patents will issue from these pending applications or from any future applications or that, if issued, any claims will be sufficiently broad to protect the Company's rights in such technology. In addition, there can be no assurance that any patents that may be issued will not be challenged, invalidated or circumvented, or that any rights granted thereunder would provide protection of the Company's proprietary rights. The Company may not prevent Digital from granting other licenses under such patents, will not be able to realize licensing revenues from any such licenses, cannot require Digital to enforce any such patents against competitors of the Company and cannot control any enforcement proceedings Digital undertakes. Digital may choose not to enforce these patents because of its own policies and business relationships even though enforcement would be in the best interests of the Company. Also, Digital has cross licensing arrangements with certain computer hardware and software companies, including Microsoft. The patent license rights granted to the Company by Digital are subject to such cross licenses, and therefore both the Company and Digital will be unable to enforce these patents against any of such cross licensees. In addition, patented technology developed by the Company in the future may become subject to such cross licenses. Failure of any patents to protect the Company's rights in technology and such cross licensing arrangements may make it easier for the Company's competitors to offer equivalent or superior technology. Despite the Company's efforts to protect its proprietary rights, unauthorized parties may attempt to copy aspects of the Company's products or services or to obtain and use information that the Company regards as proprietary. Third parties may also independently develop similar technology without breach of the Company's proprietary rights. In addition, the laws of some foreign countries do not protect proprietary rights to as great an extent as do the laws of the United States. In addition, some of the Company's products are licensed under "shrink wrap" license agreements or license agreements distributed over the Web that are not signed by 13 15 licensees and therefore may not be binding under the laws of certain jurisdictions. The Company's plan to distribute certain software over the Web and allow potential customers to electronically download its software for a free evaluation period would make the Company's software more susceptible to unauthorized copying and use. The Company has applied for U.S. and foreign registrations of AltaVista as a trademark and a service mark and will continue to evaluate registration of additional trademarks and service marks as appropriate. The Company is aware that certain third parties are using the name "AltaVista" as a trademark or as part of their Internet address. No assurance can be given that such parties will not challenge the right of the Company to use AltaVista as a trademark, service mark or as part of its Internet address. See "Business -- Intellectual Property Rights." Although the Company does not believe it is infringing the intellectual property rights of others, claims of infringement are becoming increasingly common as the software industry develops and legal protections, including patents, are applied to software products. Litigation may be necessary to protect the Company's proprietary technology and rights, and third parties may assert infringement claims against the Company with respect to their proprietary rights. Any claims or litigation can be time-consuming and expensive regardless of their merit. Infringement claims against the Company can cause product release delays, require the Company to redesign its products or require the Company to enter into royalty or license agreements, which agreements may not be available on terms acceptable to the Company or at all. See "Business -- Intellectual Property Rights." POSSIBLE REGULATION OF THE INTERNET; LIABILITY FOR INFORMATION RETRIEVED FROM THE INTERNET Other than laws and regulations applicable to businesses generally, there are currently few laws or regulations expressly applicable to access and commerce on the Internet. Due to the increased popularity and use of the Internet, it is possible that new laws or regulations may be adopted with respect to the Internet relating to issues such as user privacy, pricing and characteristics and quality of products and services. The adoption of any such laws or regulations may retard the growth of use of the Internet, which could adversely affect demand for the Company's products and services. Such laws or regulations also could result in significant additional costs and technological challenges in complying with any mandatory requirements. In addition, claims have been brought, and sometimes successfully pressed, against on-line services, for defamation, negligence, copyright or trademark infringement or under other theories with respect to materials disseminated through such services. The Company maintains a Web site to which users can upload materials, and there can be no assurance that the Company will not be subject to similar claims. EFFECT OF GOVERNMENT REGULATION OF TECHNOLOGY EXPORTS The Company's international sales and operations, especially with respect to AltaVista Tunnel and AltaVista Firewall, may be subject to risks such as the imposition of governmental controls, export license requirements, restrictions on the export of critical technology, trade restrictions and changes in tariffs. In particular, because of current government controls on the exportation of encryption technology, the Company is unable to export its most robust security products. As a result, competitors outside the United States that face less stringent controls on their products may be able to compete more effectively than the Company in the global network security market. There can be no assurance that these factors will not have a material adverse effect on the Company's business, results of operations and financial condition. RISKS ASSOCIATED WITH GLOBAL OPERATIONS The Company expects to derive a substantial portion of its revenues from customers outside the United States. The Company intends to expand its operations outside of the United States and enter additional international markets, which will require significant management attention and financial resources. The Company's ability to expand its products and services internationally is limited by the general acceptance of 14 16 the Internet and intranets in other countries. The Company expects to commit additional time and development resources to customizing its products and services for selected international markets and to developing international sales and support channels. There can be no assurance that such efforts will be successful. International operations are subject to a number of risks, including costs of customizing products and services for international markets, dependence on independent resellers, multiple and conflicting regulations regarding communications, use of data and control of Internet access, longer payment cycles, unexpected changes in regulatory requirements, import and export restrictions and tariffs, difficulties in staffing and managing international operations, greater difficulty or delay in accounts receivable collection, potentially adverse tax consequences, the burden of complying with a variety of laws outside the United States, the impact of possible recessionary environments in economies outside the United States, and political and economic instability. In addition, the Company's ability to expand its business in certain countries will require the modification of its products to operate compatibly with different hardware and software standards. Furthermore, the Company expects that its export sales will be denominated predominantly in United States dollars. An increase in the value of the United States dollar relative to other currencies could make the Company's products and services more expensive and, therefore, potentially less competitive in international markets. As the Company increases its international sales, its total revenue may also be affected to a greater extent by seasonal fluctuations resulting from lower sales that typically occur during the summer months in Europe and other parts of the world. CONTROL BY DIGITAL Ownership of Stock Digital is currently the only stockholder of the Company. Upon consummation of the Offering, Digital will own, directly or indirectly, all of the outstanding Class B Common Stock of the Company (which Class B Common Stock is entitled, with certain exceptions, to three votes per share on any matter submitted to a vote of the Company's stockholders). The Class B Common Stock will represent approximately % of the combined voting power of all classes of voting stock ( % if the Underwriters' over-allotment options are exercised in full) and thus will be able to direct the election of all of the members of the Company's Board of Directors, change the size and composition of the Board of Directors and exercise a controlling influence over the business and affairs of the Company, including determinations with respect to mergers or other business combinations, acquisitions or dispositions of assets, incurrence of indebtedness, issuance of additional Common Stock or other equity securities and payment of dividends. Similarly, Digital will have the power to determine matters submitted to a vote of the Company's stockholders without the consent of the Company's other stockholders, will have the power to prevent a change of control of the Company and could take other actions that might be favorable to Digital. In addition, the grant pursuant to employee benefit plans of Common Stock to, or the acquisition of Common Stock upon the exercise of stock options held by, employees of the Company would reduce further the percentage ownership and voting interest in the Company of the public stockholders of the Company. Digital has advised the Company that its current intent is to continue to hold all of the Class B Common Stock. However, Digital has no agreement with the Company not to sell or distribute such shares, and, except for the restrictions in the Underwriting Agreements set forth below, there can be no assurance concerning the period of time during which Digital will maintain its beneficial ownership of Common Stock. Pursuant to the Underwriting Agreements, Digital has agreed, subject to certain exceptions, not to sell or otherwise dispose of, directly or indirectly, any shares of Common Stock (or any security convertible into or exchangeable or exercisable for Common Stock) owned by it for a period of 180 days after the date of this Prospectus without the prior written consent of Lehman Brothers Inc. The Company has agreed, at the request of Digital, to use its best efforts to effect the future registration under applicable federal and state securities laws of any of the Class B Common Stock held by Digital. The Code requires beneficial ownership by Digital of at least 80% of the total voting power and value of the outstanding Common Stock of the Company in order to continue to include the Company in its 15 17 consolidated group for federal income tax purposes. In addition, Digital must beneficially own at least 80% of the total voting power and 80% of each class of nonvoting capital stock of the Company in order to be able to effect a tax-free spin-off of the Company under the Code. Because Digital may seek to maintain its beneficial ownership percentage of the Company for tax planning purposes or otherwise and may not desire to acquire additional shares of Common Stock in connection with a future issuance of shares by the Company, the Company may be constrained in its ability to raise equity capital in the future or to issue Common Stock or other equity securities in connection with acquisitions. Corporate Agreement The terms of a corporate agreement between Digital and the Company restrict, for so long as Digital maintains beneficial ownership of a majority of the number of outstanding shares of Common Stock, the Company's ability to act in any way which may reasonably be anticipated to result in a contravention by Digital of (i) Digital's corporate charter or by-laws, (ii) any credit agreement or other material instrument binding upon Digital, (iii) any judgment, order or decree of any governmental body having jurisdiction over Digital or (iv) any provision of applicable law or regulation. See "Relationship with Digital -- Corporate Agreement." Control of Tax Matters; Tax and ERISA Liability By virtue of its controlling beneficial ownership and the terms of the tax-sharing agreement entered into between the Company and Digital, Digital will effectively control all of the Company's tax decisions. Under the tax-sharing agreement, Digital will have sole authority to respond to and conduct all tax proceedings (including tax audits) relating to the Company, to file all returns on behalf of the Company and to determine the amount of the Company's liability to (or entitlement to payment from) Digital under the tax-sharing agreement. See "Relationship with Digital -- Tax-Sharing Agreement." Digital may choose to contest, compromise or settle any adjustment or deficiency proposed by the relevant taxing authority in a manner that may be beneficial to Digital and detrimental to the Company. Each member of a consolidated group for federal income tax purposes is jointly and severally liable for the federal income tax liability of each other member of the consolidated group. In addition, under the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and federal income tax law, each member of the controlled group is jointly and severally liable for funding and termination liabilities of tax qualified defined benefit retirement plans as well as certain plan taxes. Accordingly, during the period in which the Company is included in Digital's consolidated or controlled group, the Company could be liable if such liability or tax is incurred, and not discharged, by any other member of Digital's consolidated or controlled group. Intercompany Agreements Not Subject to Arm's-Length Negotiations Digital or one or more of its subsidiaries and the Company have entered into certain intercompany agreements, including agreements pursuant to which Digital or one or more of its subsidiaries will provide various services to the Company that may be material to the conduct of the Company's business. With respect to matters covered by the services agreement, the relationship between Digital and the Company is intended to continue in a manner generally consistent with past practices. See "Relationship with Digital -- Services Agreement." Because the Company is a wholly owned subsidiary of Digital, none of such intercompany agreements resulted from arm's-length negotiations. These agreements may include terms and conditions that may be more or less favorable to the Company than terms contained in similar agreements negotiated with third parties. For instance, the prices charged to the Company for services provided under the services agreement may be higher or lower than prices that may be charged by third parties. POTENTIAL CONFLICTS OF INTEREST; LIMITATIONS ON LIABILITY Various conflicts of interest between the Company and Digital could arise following consummation of the Offering, and persons serving as directors, officers and employees of both the Company and Digital may have 16 18 conflicting duties to each. The Company's Board of Directors currently consists of one member. Prior to the consummation of the Offering, the Company anticipates that four additional directors will be added to the Board of Directors who will be officers or employees of Digital. Ownership interests of directors or officers of the Company in common stock of Digital could also create or appear to create potential conflicts of interest when directors and officers are faced with decisions that could have different implications for the Company and Digital. In addition, for financial reporting purposes, the Company's financial results will be included in Digital's consolidated financial statements. The members of the Board of Directors of the Company who are affiliated with Digital will consider not only the short-term and long-term impact of financial and operating decisions on the Company, but also the impact of such decisions on Digital's consolidated financial results. In some instances, the impact of such decisions could be disadvantageous to the Company while advantageous to Digital, or vice versa. The Company's Amended and Restated Certificate of Incorporation includes provisions relating to competition by Digital with the Company, allocations of corporate opportunities, transactions with interested parties and intercompany agreements and provisions limiting the liability of certain persons. See "Description of Capital Stock -- Certain Certificate of Incorporation and By-law Provisions." Certain of such provisions in the Company's Amended and Restated Certificate of Incorporation were adopted in light of the fact that the Company and Digital are both engaged in the software business and intend to enter into contracts and other arrangements with each other after the Offering. The enforceability under Delaware corporate law of such provisions which eliminate certain rights that might have been available to stockholders under Delaware law had such provisions not been included has not been established and, due to the absence of relevant judicial authority, counsel to the Company is not able to deliver an opinion as to the enforceability of such provisions. The Company's Amended and Restated Certificate of Incorporation provides that any person purchasing or acquiring an interest in shares of capital stock of the Company, including the Underwriters, shall be deemed to have consented to the provisions in the Amended and Restated Certificate of Incorporation relating to competition by Digital with the Company, conflicts of interest, corporate opportunities and intercompany agreements, and such consent may restrict such person's ability to challenge transactions carried out in compliance with such provisions. The Company intends to disclose the existence of such provisions in its Annual Reports on Form 10-K as well as in certain other filings with the Securities and Exchange Commission (the "Commission"). The corporate charter of Digital does not include comparable provisions and, as a result, persons who are directors and/or officers of the Company and who are also directors and/or officers of Digital may choose to take action in reliance on such provisions rather than act in a manner that might be favorable to the Company but adverse to Digital. Competition with Digital; Corporate Opportunities Digital is one of the largest providers of computer hardware, software and services in the world. Digital is not restricted in any manner from competing with the Company, and there can be no assurance that Digital will not expand, through development of new lines of products or businesses, acquisition or otherwise, its operations in a way that might compete with the Company's business. The Company's Amended and Restated Certificate of Incorporation provides that Digital shall not have a duty to refrain from engaging directly or indirectly in the same or similar business activities or lines of business as the Company and that neither Digital nor any officer or director thereof shall be liable to the Company or its stockholders for breach of any fiduciary duty by reason of any such actions of Digital or any such person's participation therein. The Company's Amended and Restated Certificate of Incorporation also provides that, in the event that Digital acquires knowledge of a potential transaction or matter that may be a corporate opportunity for both Digital and the Company, Digital, its officers and its directors shall have no duty to communicate or offer such corporate opportunity to the Company. In addition, directors, officers or employees of the Company who are also directors, officers or employees of Digital shall be entitled to offer any corporate opportunity for the Company or Digital (whether such potential transaction or matter is proposed by a third-party or is conceived of by such director, officer or employee of the Company) to the Company or Digital as such director, officer or employee deems appropriate under the circumstances, in his or her sole discretion. 17 19 The Company's Amended and Restated Certificate of Incorporation further provides that Digital, its officers and its directors shall not be liable to the Company or its stockholders for breach of any fiduciary duty as a stockholder of the Company or controlling person of a stockholder by reason of the fact that Digital pursues or acquires such corporate opportunity for itself, directs such corporate opportunity to another person or entity, or does not communicate information regarding, or offer, such corporate opportunity to the Company. In addition, directors, officers or employees of the Company who are also directors, officers or employees of Digital shall be not be liable to the Company or its stockholders for breach of any fiduciary duty or duty of loyalty or failure to act in (or not opposed to) the best interests of the Company if such director, officer or employee offers any corporate opportunity (whether such opportunity is proposed by a third-party or is conceived of by such director, officer or employee of the Company) to Digital and not the Company or does not communicate information regarding such opportunity to the Company. Transactions with Interested Parties Directors and officers of the Company, Digital or any Related Entity (as such terms are defined below) may be required to enter into, vote to authorize or take any action under certain agreements between the Company and Digital, any Related Entity or any individual director or officer. The Company's Amended and Restated Certificate of Incorporation provides that no contract, agreement, arrangement or transaction (or any amendment, modification or termination thereof) between the Company and Digital, any Related Entity or any director or officer of the Company, Digital or any Related Entity, shall be void or voidable solely for the reason that Digital, a Related Entity or any one or more of the officers or directors of the Company, Digital or any Related Entity are parties thereto, or solely because any such directors or officers are present at, participate in or vote with respect to the authorization of such contract, agreement, arrangement or transaction (or any amendment, modification or termination thereof). No vote cast or other action taken by any person in his or her capacity as an officer, director or other representative of Digital or any Related Entity shall constitute an action of or the exercise of a right by or a consent of Digital or such Related Entity for the purpose of any such agreement or contract. The Company's Amended and Restated Certificate of Incorporation provides that neither Digital nor any officer or director thereof or of any Related Entity shall be liable to the Company or its stockholders for breach of any fiduciary duty or duty of loyalty or failure to act in (or not opposed to) the best interests of the Company or the derivation of any improper personal benefit by reason of the fact that Digital or an officer or director thereof or of such Related Entity in good faith takes any action or exercises any rights or gives or withholds any consent in connection with any agreement or contract between Digital or such Related Entity and the Company. For the purpose of the foregoing, the "Company" and "Digital" include all corporations and other entities in which the Company or Digital, as the case may be, owns 50% or more of the outstanding voting stock, and "Related Entity" refers to one or more corporations or other entities in which one or more of the directors of the Company have a direct or indirect financial interest. The provisions described above are applicable to the intercompany agreements between the Company and Digital. See "Relationship with Digital." Limitations on Personal Liability, Including for Gross Negligence Under the Company's Amended and Restated Certificate of Incorporation, the personal monetary liability of the directors of the Company for breach of their fiduciary duty of care, including actions involving gross negligence, are eliminated to the fullest extent permitted under Delaware law. See "Description of Capital Stock -- Certain Certificate of Incorporation and By-law Provisions -- Limitations on Directors' Liability." IMMEDIATE AND SUBSTANTIAL DILUTION Purchasers of Class A Common Stock in the Offering will experience an immediate dilution of $ per share in the net tangible book value of their Class A Common Stock from the assumed initial 18 20 public offering price of $ per share. Prior to consummation of the Offering, the Company's pro forma net tangible book value per share of Common Stock will be $ , whereas upon consummation of the Offering, based on such assumed price, it will be $ . This will result in an increase in net tangible book value of $ per share of Class B Common Stock that will be received by Digital attributable to the Offering. NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE Prior to the Offering, there has been no public market for the shares of Class A Common Stock, and there can be no assurance that an active public market for the shares of Class A Common Stock will develop or be sustained after the Offering. The initial public offering price will be determined by negotiation between the Company and the Underwriters based upon several factors. See "Underwriting" for a discussion of the factors to be considered in determining the initial public offering price. The market price of the shares of Class A Common Stock may be highly volatile and could be subject to wide fluctuations in response to variations in operating results, announcements of technological innovations or new products or services by the Company or its competitors, changes in financial estimates by securities analysts or other events or factors. In addition, the financial markets have experienced significant price and volume fluctuations that have particularly affected the market prices of equity securities of many high technology companies and that often have been unrelated to the operating performance of such companies or have resulted from the failure of the operating results of such companies to meet market expectations in a particular quarter. Broad market fluctuations or any failure of the Company's operating results in a particular quarter to meet market expectations may adversely affect the market price of the shares of Class A Common Stock. In the past, following periods of volatility in the market price of a company's securities, securities class action litigation has often been instituted against such a company. Such litigation could result in substantial costs and a diversion of management's attention and resources, which would have a material adverse effect on the Company's business, results of operations and financial condition. POSSIBLE FUTURE SALES OF COMMON STOCK BY DIGITAL Subject to applicable federal securities laws and the restrictions set forth below in the Underwriting Agreements, Digital may sell any and all of the shares of Common Stock beneficially owned by it or distribute any or all of the shares of Common Stock to its stockholders. Pursuant to the Underwriting Agreements, Digital has agreed, subject to certain exceptions, not to sell or otherwise dispose of, directly or indirectly, any shares of Common Stock (or any security convertible into or exchangeable or exercisable for Common Stock) for a period of 180 days after the date of this Prospectus without the prior written consent of Lehman Brothers Inc. Sales or distributions by Digital of substantial amounts of Common Stock in the public market or to its stockholders could adversely affect prevailing market prices for the Class A Common Stock. See "Relationship with Digital" and "Shares Eligible for Future Sale." 19 21 USE OF PROCEEDS The net proceeds to the Company from the sale of the shares of Class A Common Stock offered by the Company hereby are estimated to be $ ($ if the Underwriters' over-allotment options are exercised in full) assuming an initial public offering price of $ per share. The Company expects to use the net proceeds for working capital and other general corporate purposes, including product development, expansion of the Company's sales and marketing efforts and capital expenditures. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." In addition, the Company may make one or more acquisitions of complementary technologies, products or businesses that broaden or enhance the Company's current products and services. No such acquisitions are being negotiated as of the date of this Prospectus, and no portion of the net proceeds has been allocated for any specific acquisition. Pending such uses, the net proceeds of the Offering will be invested in interest-bearing securities, either directly by the Company or through Digital's cash management system. DIVIDEND POLICY The Company has never paid any cash dividends on its Common Stock and does not anticipate paying any cash dividends in the foreseeable future. The Company currently intends to retain any future earnings to fund the development and growth of its business. 20 22 CAPITALIZATION The following table sets forth (i) the historical capitalization of the Company as of June 29, 1996 which is included in the AltaVista Internet Software Products Financial Statements included elsewhere in this Prospectus, (ii) the capitalization of the Company as of June 29, 1996 on a pro forma basis to reflect an amendment to the Company's Certificate of Incorporation prior to the consummation of the Offering to increase the number of authorized shares and to reflect the reclassification of 1,000 shares of common stock of the Company held by Digital into shares of Class B Common Stock, and (iii) the pro forma capitalization of the Company as of June 29, 1996, as adjusted to reflect the issuance of the shares of Class A Common Stock offered hereby at an assumed initial offering price of $ per share (after deduction of the estimated underwriting discounts and commissions and offering expenses payable by the Company). This table should be read in conjunction with the financial statements and related notes appearing elsewhere in this Prospectus.
AS OF JUNE 29, 1996 -------------------------------------- AS HISTORICAL PRO FORMA ADJUSTED ----------- --------- -------- (IN THOUSANDS, EXCEPT SHARE DATA) Parent's investment.......................................... $ 45,322 -- -- Stockholders' equity: Preferred stock, $0.01 par value; 5,000,000 shares authorized; none issued and outstanding................. -- -- -- Class A common stock, $0.01 par value; 50,000,000 shares authorized; shares issued and outstanding(1)..... -- Class B common stock, $0.01 par value; 50,000,000 shares authorized; shares issued and outstanding........ -- Additional paid-in capital................................. -- Retained deficit........................................... (39,794) ------- ------ ------ Total stockholders' equity/net parent's investment....................................... $ 5,528 $ 5,529 $ ======= ====== ======
- --------------- (1) Excludes an aggregate of shares of Class A Common Stock reserved for issuance under the Company's stock-based compensation plans. Options to purchase an aggregate of shares of Class A Common Stock have been granted thereunder as of the date of this Prospectus with an exercise price equal to the initial public offering price set forth on the cover page of this Prospectus. See "Management -- Compensation of Executive Officers," Note H to the AltaVista Internet Software Products Financial Statements and Note 2 to the AltaVista Internet Software, Inc. Balance Sheet. 21 23 DILUTION The pro forma net tangible book value of the Company as of June 29, 1996 would have been $ , or $ per share of Common Stock, based upon shares of Class B Common Stock outstanding. Pro forma net tangible book value per share is equal to the Company's total tangible assets less total liabilities, divided by the total number of shares of Common Stock outstanding on a pro forma basis. After giving effect to the sale of the shares of Class A Common Stock offered by the Company hereby at an assumed initial public offering price per share of $ (after deduction of the estimated underwriting discounts and commissions and offering expenses payable by the Company), the pro forma net tangible book value of the Company as of June 29, 1996 would have been $ , or $ per share of Common Stock. This represents an immediate increase in such pro forma net tangible book value of $ per share of Class B Common Stock to Digital and an immediate dilution of $ per share to new investors purchasing shares in the Offering. The following table illustrates this per share dilution: Assumed initial public offering price per share............... $ Pro forma net tangible book value per share before the Offering................................................. $ Increase per share attributable to new investors............ ---------- Pro forma net tangible book value per share after the Offering.................................................... ---------- Dilution per share to new investors........................... $ ==========
The following table summarizes, on a pro forma basis as of June 29, 1996, the differences between the number of shares held by, the voting rights of, the total investment in the Company of, and the average cost per share paid by Digital and the new investors purchasing shares of Class A Common Stock in the Offering, assuming an initial public offering price of $ per share:
SHARES HELD TOTAL INVESTMENT ----------------------------------------- ------------------------------------------ PERCENTAGE OF PERCENTAGE OF PERCENTAGE OF AVERAGE COST NUMBER THE COMPANY VOTING RIGHTS AMOUNT INVESTMENT PER SHARE ------- ------------- ---------------- ---------- ------------- ------------ Digital............... % % $ (1) % $ New investors......... $ Total....... 100.0% 100.0% $ 100.0% ====== ====== ======
- --------------- (1) Represents the book value of the net assets transferred by Digital to the Company in exchange for shares of Class B Common Stock. The foregoing tables assume no exercise of the Underwriters' over-allotment options or any outstanding stock options, all of which have an exercise price equal to the initial public offering price. See "Management -- Compensation of Executive Officers" for information regarding stock options. 22 24 SELECTED FINANCIAL DATA The selected financial data presented below for each of the three fiscal years in the period ended June 29, 1996 have been derived from the AltaVista Internet Software Products Financial Statements, which have been audited by Coopers & Lybrand L.L.P., independent accountants. This data should be read in conjunction with the financial statements and the notes thereto, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and other financial information appearing elsewhere in this Prospectus.
FISCAL YEAR ENDED -------------------------------- JULY 2, JULY 1, JUNE 29, 1994 1995 1996 ------- ------- -------- (IN THOUSANDS, EXCEPT PER SHARE DATA) STATEMENT OF OPERATIONS DATA: Total operating revenues..................................... $ 298 $ 964 $ 3,632 ------- ------- -------- Costs and expenses: Cost of operating revenues................................. 47 374 1,110 Research and engineering expenses.......................... 2,235 4,516 15,352 Selling and marketing expenses............................. 50 248 10,522 General and administrative expenses........................ 684 1,062 6,516 ------- ------- -------- Total costs and expenses.............................. 3,016 6,200 33,500 Operating loss............................................. (2,718) (5,236) (29,868) ------- ------- -------- Net loss..................................................... $(2,718) $(5,236) $(29,868) ======= ======= ======== Unaudited pro forma net loss per common share(1)............. $ ========
JULY 2, JULY 1, JUNE 29, 1994 1995 1996 ------- ------- -------- BALANCE SHEET DATA: Working capital.............................................. $ 189 $ (16) $ (925) Total assets................................................. 1,125 888 7,508 Net parent's investment...................................... 1,104 629 5,528
- --------------- (1) Historical earnings per share data is omitted from the statement of operations data because it is not meaningful. Unaudited pro forma net loss per common share is calculated based on net loss divided by the number of shares of Class B Common Stock to be issued to Digital prior to the consummation of the Offering. 23 25 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW AltaVista Internet Software, Inc. was formed on June 28, 1996 to develop and market software products for use in the emerging integrated Internet/intranet business environment. The Company's products were developed within various business units of Digital and have been managed since January 1996 within Digital's Internet Software Business Unit. The AltaVista Internet Software Products Financial Statements included in this Prospectus (the "Products Financial Statements") have been carved out of Digital's consolidated financial statements and reflect the actual revenues from and direct costs of the Company's products, as well as an allocation from Digital of all related support and overhead costs. The Products Financial Statements may not reflect the operating results of a stand-alone company and should not be relied upon as indicative of future results. The Company and its prospects should be considered in light of the risks, expenses and difficulties frequently encountered by companies in the new and rapidly evolving markets for Internet/intranet products and services. See "Risk Factors." The Company's total operating revenues have increased in each of the last three fiscal years as a result of the successful introduction of an expanding portfolio of Internet/intranet products. Due primarily to investments in research and engineering and sales and marketing, the Company has experienced operating losses in each of its last three fiscal years. The operations of the Company have been funded by Digital. Such funding is reflected in the Products Financial Statements as parent's investment. Future operating results will depend on many factors, including demand for the Company's products and services, the introduction of new products and services by the Company and its competitors, the enhancement of existing products and services, the growth of the Internet/intranet market and the ability of the Company to develop the required sales and marketing infrastructure. There can be no assurance that the Company will achieve or sustain profitability. The Company first recognized revenues from software products introduced during the last three fiscal years as follows: AltaVista Directory in the third quarter of fiscal 1994; AltaVista Firewall in the fourth quarter of fiscal 1995; and AltaVista Tunnel and AltaVista Forum in the second quarter of fiscal 1996. These products were primarily packaged with Digital's hardware systems and were priced to promote sales of Digital's hardware and services. Following the Offering, the Company will sell its products and services to Digital (both as an end-user and a reseller) on commercial terms. The Company is expanding its software product portfolio; the Company introduced AltaVista Mail in the fourth quarter of fiscal 1996 and expects to introduce AltaVista Search Private eXtensions beginning in September 1996. In addition, the Company has created additional sources of revenue by expanding its AltaVista Internet Search Service offerings to include licensed mirror sites, value added links and web custom crawls. Warranty and maintenance support revenues have not been included in the Products Financial Statements because warranty and maintenance support have historically been provided by Digital through a separate business unit. Following the Offering, the Company expects to offer warranty and maintenance support to its customers either directly or through authorized service providers, including Digital. Authorized service providers that sell maintenance service contracts pay a commission to the Company. Prior to fiscal 1996, no equipment was dedicated to the business conducted by the Company or is recorded on the balance sheet as of July 1, 1995 contained in the Products Financial Statements. However, a rental charge for the use of equipment was included in the statements of operations. During fiscal 1996, equipment became fully dedicated to the business conducted by the Company, and assets with a net book value of $3,989,000 were transferred to the business. The business also acquired new equipment from Digital which was recorded at cost. Cost of operating revenues includes the cost of software media, documentation and distribution, and the amortization of certain capitalized software costs. Following the Offering, warranty and maintenance support costs will be included in cost of operating revenues when such services are provided by the Company. Beginning in fiscal 1997, cost of operating revenues also will include costs incurred in support of mirror sites, value added links and web custom crawls. 24 26 Research and engineering expenses consist primarily of compensation and consulting fees paid to software engineers to support new product and technology development and new version releases. Research and engineering expenses also include rental charges and depreciation expense associated with equipment used in research and engineering and allocations from Digital of overhead costs. Selling and marketing expenses consist primarily of compensation paid to sales employees, advertising, new product introduction programs and promotional costs associated with the launch of the AltaVista brand. Selling and marketing expenses also include rental charges and, in fiscal 1996, depreciation expense associated with equipment used in selling and marketing and allocations from Digital of overhead costs. Beginning in fiscal 1996, selling and marketing expenses include the cost of the Company's free Web promotional sites that showcase the AltaVista Internet Search Service and the AltaVista software technologies and products. The Company expects to significantly expand its sales force in fiscal 1997 to support the development of additional sales channels. Marketing efforts also will be increased to include the trial use of software, commercial transactions on the Web and programs to increase AltaVista brand awareness. General and administrative expenses consist primarily of compensation paid to administrative, executive, finance and human resource employees. General and administrative expenses also include rental charges and, in fiscal 1996, depreciation expense associated with equipment used in administrative activities and allocations from Digital of overhead costs. Following the Offering, Digital will provide certain administrative support services pursuant to certain intercompany agreements, the costs of which are expected to be consistent with Digital's historical cost allocation methodologies. See "Relationship with Digital." RESULTS OF OPERATIONS Total Operating Revenues Total operating revenues were $3.6 million in fiscal 1996, $1.0 million in fiscal 1995 and $0.3 million in fiscal 1994. The increase in 1996 was due principally to increased demand for AltaVista Firewall and, to a lesser extent, the introduction of AltaVista Forum and AltaVista Tunnel. The increase in 1995 was due principally to increased demand for AltaVista Directory and, to a lesser extent, the introduction of AltaVista Firewall. Fiscal 1994 revenues consisted solely of sales of AltaVista Directory. All revenues were generated via Digital sales channels. Non-U.S. revenues (sales to customers outside the United States) accounted for 64% of total operating revenues in fiscal 1996, down from 69% and up from 63% in fiscal 1995 and 1994, respectively. See Note C to Products Financial Statements. Cost of Operating Revenues Cost of operating revenues were $1.1 million in fiscal 1996, $0.4 million in fiscal 1995 and nominal in fiscal 1994. The increase in fiscal 1996 was primarily the result of increased sales of AltaVista Firewall, the cost of certain versions of which included the cost of third party software incorporated therein, and increased amortization of capitalized software costs. The increase in fiscal 1995 was primarily the result of the amortization of capitalized software costs. Research and Engineering Expenses Research and engineering expenses were $15.4 million in fiscal 1996, $4.5 million in fiscal 1995 and $2.2 million in fiscal 1994. The increase in research and engineering expenses reflects principally the development of new products and technologies. Selling and Marketing Expenses Selling and marketing expenses were $10.5 million in fiscal 1996, $0.2 million in fiscal 1995 and nominal in fiscal 1994. In fiscal 1996, selling and marketing expenses increased significantly primarily due to new software and version introductions and the approximately $4.0 million of costs associated with the launch of the AltaVista brand in the fourth quarter of fiscal 1996. 25 27 General and Administrative Expenses General and administrative expenses were $6.5 million in fiscal 1996, $1.1 million in fiscal 1995 and $0.7 million in fiscal 1994. The increase in fiscal 1996 was primarily attributable to costs incurred beginning in the second quarter to organize the business of the Company into a separate operating unit with separate administrative functions; in addition, a fourth quarter accrual of $0.4 million was recorded for employee termination benefits. The fiscal 1995 and 1994 costs represent allocations from Digital for general and administrative support. The increase in fiscal 1995 was primarily due to increased support costs for products in development. Operating Loss Due to the foregoing factors, the Company experienced operating losses of $29.9 million in fiscal 1996, $5.2 million in fiscal 1995 and $2.7 million in fiscal 1994. Income Taxes The operations of the business are included in Digital's consolidated U.S. tax returns. No income tax provision has been included in the Products Financial Statements because net losses were realized throughout the reporting period. The Company has entered into a tax-sharing agreement with Digital effective upon the consummation of the Offering. See "Relationship with Digital -- Tax-Sharing Agreement." Net Loss Due to the foregoing factors, the Company experienced net losses of $29.9 million in fiscal 1996, $5.2 million in fiscal 1995 and $2.7 million in fiscal 1994. Unaudited Pro Forma Net Loss Per Common Share Unaudited pro forma net loss per common share results from the net loss divided by the number of shares of Class B Common Stock to be issued to Digital prior to consummation of the Offering. QUARTERLY RESULTS OF OPERATIONS The following table presents certain unaudited quarterly financial information for the eight fiscal quarters ended June 29, 1996. In the opinion of the Company's management, this information has been prepared on the same basis as the audited financial statements appearing elsewhere in this Prospectus and includes all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the unaudited quarterly results set forth herein. The Company's quarterly results may fluctuate significantly in the future. See "Risk Factors -- Potential Fluctuations in Quarterly Operating Results."
FISCAL YEAR ENDED JULY 1, 1995 FISCAL YEAR ENDED JUNE 29, 1996 ----------------------------------------- -------------------------------------------- Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 ----- ------- ------- ------- ------- ------- ------- -------- (IN THOUSANDS) Total operating revenues...... $ 165 $ 145 $ 354 $ 300 $ 393 $ 803 $ 1,137 $ 1,299 Costs and expenses: Cost of operating revenues.................. 83 84 85 122 165 129 250 566 Research and engineering expenses.................. 742 1,050 1,171 1,553 2,211 4,116 4,077 4,948 Selling and marketing expenses.................. 37 21 65 125 157 685 1,468 8,212 General and administrative expenses.................. 129 147 318 468 618 1,016 2,395 2,487 ----- ------- ------- ------- ------- ------- ------- -------- Operating loss.............. (826) (1,157) (1,285) (1,968) (2,758) (5,143) (7,053) (14,914) ----- ------- ------- ------- ------- ------- ------- -------- Net loss...................... $(826) $(1,157) $(1,285) $(1,968) $(2,758) $(5,143) $(7,053) $(14,914) ===== ======= ======= ======= ======= ======= ======= ========
26 28 LIQUIDITY AND CAPITAL RESOURCES The Company had negative cash flow of $34.8 million in fiscal 1996, $4.8 million in fiscal 1995 and $3.8 million in fiscal 1994 due to operating losses and increased requirements for working capital, and, in fiscal 1996, capital expenditures. The Company's operations historically have been funded by Digital. Digital intends to continue to fund the Company's operations until the consummation of the Offering. In fiscal 1996, cash flows used in investing activities were $7.1 million in respect of additions to and transfers of equipment by Digital to the Company and $0.6 million in respect of investment in capitalized software transferred by Digital to the Company. The transfer of these assets by Digital to the Company is reflected as cash flows from financing activities. In fiscal 1997, the Company anticipates capital expenditures of approximately $10 million for additional equipment. The Company currently anticipates that the net proceeds of the Offering will be sufficient to meet its anticipated capital needs for at least the next twelve months. The Company may need to raise additional funds. There can be no assurance that additional funds will be available on terms favorable to the Company, or at all. Digital has not made any commitment to supply such funds to the Company. See "Risk Factors -- Future Liquidity Needs; Uncertainty of Additional Financing" and "Use of Proceeds." ADOPTION OF STATEMENTS OF ACCOUNTING STANDARDS In the fourth quarter of fiscal 1996, the Company adopted Statement of Financial Accounting Standard (SFAS) No. 121 -- Accounting for the Impairment of Long-Lived Assets to Be Disposed Of. The adoption of SFAS No. 121 did not have a material impact on the results of operations or financial position of the Company, and there was no cash flow impact associated with the adoption. In October 1995, the Financial Accounting Standards Board issued SFAS No. 123 -- Accounting for Stock-Based Compensation. SFAS No. 123 encourages companies to recognize compensation costs for all stock-based compensation arrangements using a fair value method of accounting. Alternatively, SFAS No. 123 permits a company to continue accounting for these arrangements under Accounting Principles Board Opinion No. 25 -- Accounting for Stock Issued to Employees, accompanied by footnote disclosure of the pro forma effects on net income and earnings per share had the new accounting rules been applied. The Company will implement the alternative approach in fiscal 1997. The adoption of SFAS No. 123 will have no cash flow impact on the Company. 27 29 BUSINESS The Company develops and markets software products for use in the emerging integrated Internet/intranet business environment. The Company's portfolio of innovative software products enables users of the Internet and intranets to (i) find useful information, (ii) control access to information and transmit it securely and (iii) collaborate and communicate from multiple locations. The Company's products and services are designed to integrate all levels of the work environment -- Internet, enterprise, workgroup and individual user -- and to allow location- and platform-independent computing. To increase global awareness of the AltaVista brand and showcase AltaVista software technologies and products, the Company provides the popular AltaVista Internet Search Service and other Internet services free on the World Wide Web. The Company also licenses its Internet services to major telecommunications and media companies outside the United States and to major Internet content providers. INDUSTRY BACKGROUND The Internet is a worldwide network of separate computer networks that enables commercial organizations, educational institutions, government agencies and individuals to communicate, access and share information and, increasingly, to conduct business. The Internet uses a standard communications protocol known as TCP/IP. In 1993, certain additional protocols were adopted to facilitate the navigation of portions of the Internet with graphical point-and-click interfaces and to permit multimedia content such as audio, video and animation. These protocols consist of a standard document format (HTML), a standard information transfer protocol (HTTP) and a standard Internet addressing scheme (URL). The portion of the Internet that has adopted these additional protocols is called the World Wide Web. The widespread availability of platform-independent, graphically-based user interfaces known as "browsers" has resulted in tremendous growth of the Web. International Data Corporation has estimated that approximately 200 million people worldwide will have access to the Internet by the end of 1999, up from approximately 38 million at the end of 1995. Contemporaneously with the development of the Internet, corporations, universities and other large organizations have been developing private data networks to serve the needs of their organizations. These networks have been custom-built using proprietary protocols to connect specific communities or groups of users through local area networks (LANs) and wide area networks (WANs). Private networks are expensive to build and maintain, and the proprietary nature of these networks and their applications has made it difficult to manage and exchange information between them. In addition, these networks use expensive leased telephone lines, modem banks and other proprietary systems to connect geographically distinct parts of the same private network (for example, the connection of a field office in San Francisco with a home office in Boston), to link separate private networks (for example, a manufacturer with a supplier) and to permit access by remote individual users (for example, salespeople). The Development of Intranets Recognizing the benefits of platform-independent communications over the Internet and the increasing availability of innovative software applications, such as graphically-based browsers, that use Internet protocols, many organizations have begun to create "intranets" by adopting Internet protocols on their private networks. The adoption of Internet protocols to create intranets generally can be accomplished without abandoning existing hardware, applications and data in proprietary formats. Because the Internet and intranets use the same protocols, intranets provide users with substantially increased access to information and other users both inside an organization and, via the Internet, throughout the world. Organizations have also begun to replace expensive leased lines and communications equipment with Internet gateways to connect networks and remote individual users. A July 1996 Forrester Research Survey of 50 Fortune 1000 companies reported that 64% of the respondents were currently using intranets and another 32% were building intranets. According to International Data Corporation, the market for intranet software products and services in the year 2000 will exceed $3 billion, up from approximately $276 million in 1995 and the estimated expenditures for Internet software products and services will exceed $6 billion in the year 2000, up from approximately $259 million in 1995. 28 30 Emerging Internet/Intranet Market Opportunity The adoption of Internet protocols on private networks to create intranets and the increasing use of the Internet to link private networks has created a need for location- and platform-independent software products and services that integrate all levels of the work environment -- Internet, enterprise, workgroup and individual user -- and that address the following problems: - Finding Useful Information. Current solutions for searching and retrieving information from the Web and private data sources generally involve the use of catalogs, search services or other specially designed applications. The Company believes that the tools in use today lack sufficient speed, accuracy, comprehensiveness or ease of use. In addition, these products are not well suited to an integrated Internet/intranet environment due to their inability to access seamlessly the vast amount of information available at all levels of the work environment. The Company believes that the rapid growth of intranets and their linkage to the Internet has created demand for products capable of working across such networks in order to make the vast amount of information on such networks more readily accessible to users. - Security. One of the greatest impediments to making private networks accessible to users through the Internet is the fear of exposing confidential data to unauthorized persons and allowing unauthorized persons to tamper with data. Similarly, organizations that have implemented intranets are concerned with the risk of unauthorized access to sub-networks containing sensitive data within their organizations. The Company believes that there is a need for highly reliable, easy-to-manage products, known as "firewalls," that control access to and from private networks and sub-networks. In addition, the Company believes that there is a need for products, known as "tunnels," that allow authenticated users to traverse firewalls and that provide encrypted communication over the Internet and intranets. While there has been significant development of firewalls and, to a lesser extent, tunnels, many such products prevent legitimate users from obtaining flexible access to network resources, are difficult to install and manage and are not compatible with a range of systems. - Collaboration and Communication. The increasing use of the Internet and intranets has highlighted the incompatibility, high resource demands and inflexibility of many current collaboration and communication products. Few current workgroup solutions are designed to work in the new open- standards environment, but rely instead on proprietary software and hardware with substantial installation, maintenance and support requirements. Email, one of the most popular applications used on the Internet and private networks, is difficult and expensive to administer in a mixed environment of proprietary systems, intranets and the Internet. The Company believes that there is a need for flexible collaboration and communication products based on standard Web browsers and Internet communication protocols that permit the sharing and communication of information and documents among intended users. ALTAVISTA STRATEGY The Company's goal is to be the leading supplier of software products and services for use in the emerging integrated Internet/intranet business environment. The Company's strategy includes the following elements: - Increase AltaVista Brand Recognition Worldwide. The Company believes that global brand recognition on the Internet is central to the effective marketing of Internet/intranet products and services. The Company is offering its AltaVista Internet Search Service without charge to Web users to showcase AltaVista technology, establish the Company as a premier provider of services on the Web and generate strong awareness of the AltaVista brand. The Company has built a high volume of traffic on its AltaVista Internet Search Service Web site (http://www.altavista.digital.com) and seeks to make the AltaVista Internet Search Service the de facto global standard for Internet search results by (i) licensing major telecommunications and media companies outside the United States to offer the AltaVista Internet Search Service at "mirror sites" to achieve worldwide coverage and (ii) licensing major Internet content providers to deliver branded AltaVista Internet Search Service results to their users through "value added links" on the providers' Web sites. The Company plans to make available 29 31 additional free services on the Web to showcase its technology and to extend awareness of the AltaVista brand. - Deliver Innovative Software Products for Internet/Intranet Users. The Company provides business users with software products that integrate the Internet and intranets to create location- and platform-independent work environments. The Company currently offers a portfolio of flexible and scaleable products under the AltaVista brand name that permit users to (i) find useful information (AltaVista Search Private eXtensions, AltaVista Directory), (ii) control access to information and transmit it securely (AltaVista Firewall, AltaVista Tunnel) and (iii) collaborate and communicate from multiple locations (AltaVista Forum, AltaVista Mail), in each case seamlessly at all levels of the work environment. The Company also intends to build upon its technical expertise and that of its partners and Digital to develop additional innovative products, product suites and services for general and specific industry and business application needs in the emerging Internet/intranet environment. - Realize Revenue from Products and Services, not from Internet Advertising. The Company earns revenue from (i) the sale of software products and related support and services and (ii) fees from mirror site and value added link licenses. Because the Company does not accept advertising on its own Web sites and, therefore, does not compete for Internet advertising revenue, the Company is able to partner with Internet companies that derive revenue from advertising. - Conduct Business on the Web. The Company conducts a significant portion of its business over the Web, including marketing, communications, partner registration, sales, software distribution and partner and customer support. The Company's AltaVista Marketspace Web site (http://www.altavista.software.digital.com) is the "front door" of its business, available 24 hours a day throughout the world. The AltaVista Marketspace offers the Company's prospects, customers and business partners an interactive multimedia environment where they can access information about the Company's products, download software products, receive support and conduct commercial transactions with the Company. The Company believes that this "Web-centric" strategy will establish it as a highly visible Internet/intranet software leader, as well as facilitate responsive, low-cost, global business operations. - Accelerate Product Adoption with Targeted Marketing and Aggressive Pricing. The Company seeks to build significant market share for its products with free trial programs, aggressive pricing and licensing of selected products for inclusion in major hardware and software vendors' product lines. In addition, the Company targets self-selected early adopters and industry influencers to use preliminary versions of the Company's products, provide feedback to the Company and generate valuable word-of-mouth publicity. - Distribute Products through Multiple Internet-Focused Channels. The Company intends to achieve broad market penetration by employing multiple distribution channels, including direct sales over the Web and sales through Digital's sales organization, major system integrators, value added resellers, Internet service providers, telecommunications companies and software and hardware vendors. - Leverage Relationship with Digital. The Company intends to leverage its relationship with Digital, one of the world's leading suppliers of computer hardware, software and services. The Company's products are sold by Digital's worldwide direct and channel sales organizations, which also provide the Company access to Digital's major customers, channel partners and strategic alliance partners. In addition, the Company has a preferred relationship with Digital's research laboratories. 30 32 ALTAVISTA INTERNET SERVICES The Company offers a portfolio of Internet services, directly and through partners, free of charge to Web users to showcase AltaVista technologies, to increase AltaVista brand recognition worldwide and, through partner-provided services, to generate revenue. Below is a summary of the main Internet services currently offered or planned to be offered by the Company, including a brief description of each service, its target users or third-party service providers and its status or availability. Detailed information regarding each service can be found under the appropriate heading following the table. ALTAVISTA INTERNET SERVICES
TARGET USERS OR ALTAVISTA SERVICE APPLICATION SERVICE PROVIDERS STATUS ALTAVISTA TECHNOLOGY SHOWCASES AltaVista Internet Search Service Web and Usenet data indexing, Web users Available since December search and retrieval 1995 AltaVista Internet Forum Service Web-based Internet Web users Scheduled for September collaboration 1996 availability AltaVista Internet Directory Service Comprehensive on-line listing Web users In development of Internet users' email addresses ALTAVISTA PARTNER- PROVIDED SERVICES Mirror Sites AltaVista Internet Search Non-U.S. tele- Letters of intent with Service licensed to and communications and Telia TeleCom AB (Sweden) provided by third parties media companies and Telstra Corporation Ltd. (Australia) Value Added Links Third-party delivery of Internet content Agreement with Yahoo! Inc. AltaVista Internet Search providers and CNET, Inc. Service results Web Custom Crawls Indexing, search and Internet content Scheduled for September retrieval software for a providers 1996 availability focused subset of the Web - ------------------------------------------------------------------------------------------------------------------
ALTAVISTA TECHNOLOGY SHOWCASES As an essential element of the Company's strategy to showcase AltaVista technology and to increase global awareness of the AltaVista brand, the Company offers, free of charge to Web users, the Internet services described below. AltaVista Internet Search Service The AltaVista Internet Search Service assists Web users in finding information anywhere on the Web or in Internet Usenet News groups. The Company believes that the AltaVista Internet Search Service is the fastest Internet search service, that its index is among the most comprehensive and current indexes available and that it produces highly relevant search results. On March 14, 1996 at CeBIT '96 in Europe, PC-Online magazine gave the AltaVista Internet Search Service the "Web Site of the Year" award, and on April 30, 1996 at the Internet World Conference in California, Internet World magazine awarded the AltaVista Internet Search Service the "Industry Award for Outstanding Service." The Company offers the AltaVista Internet Search Service to Web users without charge or advertising. 31 33 The AltaVista Internet Search Service was developed by Digital's research laboratories in Palo Alto, California as a showcase for a variety of Digital technologies. The goal of the project was to index every word contained on the Web, a goal then considered unattainable. The AltaVista Internet Search Service was made available for internal use at Digital in September 1995 and was launched on the Web on December 15, 1995. On its first day of Web operation, it recorded approximately 300,000 requests for information or "hits." The site recorded over 17.5 million hits per day during the week of August 5, 1996. The key factors in the popularity of the AltaVista Internet Search Service are its size, speed, currency and relevance. - Size. As of August 7, 1996, the AltaVista Internet Search Service had indexed approximately 16 billion words from over 32 million pages. The data included in the AltaVista Internet Search Service index are collected by a "spider," which continuously "crawls" the Web searching for new and revised Web pages and retrieving their contents for indexing. The AltaVista Internet Search Service spider, known as "Scooter," which the Company believes is the fastest spider in use, is capable of retrieving approximately three million Web pages per day. Every word on every page that Scooter retrieves is added to the index at a rate of up to one gigabyte of text per hour. In addition, the AltaVista Internet Search Service currently has an index of over 4.5 million articles from over 14,000 Usenet News groups. - Speed. The AltaVista Internet Search Service is extremely fast, responding to queries in an average of 0.7 seconds (although transmission of search queries and results from and to the end-user across the Internet may take longer) with no significant degradation in performance as the scope of the query is expanded or the number of search results increases. This short and predictable response time results primarily from a proprietary search algorithm. - Currency. Currency measures the degree to which the data in an index is "fresh" or up to date. Scooter is programmed to conduct "intelligent" searches, returning more frequently to pages which it learns change often and less frequently to pages which change less often. In addition, the AltaVista Internet Search Service retrieves and indexes specific Web pages upon request. The Company believes that because of Scooter's speed, intelligent search method and continuous crawling, the AltaVista Internet Search Service is among the most current indexes available. - Relevance. Relevance measures how closely the results of a search conform to a specific query. The ability of a search service to deliver relevant responses depends upon the comprehensiveness of the underlying index, the flexibility of the query interface and the criteria used to determine relevance. The AltaVista Internet Search Service currently ranks documents found according to the number of times the search terms occur in each document and the position of the search terms within the document. The Company intends to add technology to allow users to specify other ranking methods. The Company believes that its ranking algorithms, combined with the size and currency of its index and the flexibility of its query language, enable the AltaVista Internet Search Service to deliver highly relevant search results. Technology. Operating through Digital's Palo Alto Internet gateway at one of the principal interconnection points of the Internet in North America, the AltaVista Internet Search Service can maintain multiple connections to the Internet with over 135 megabits per second of bandwidth. Six index servers, each of which holds a complete copy of the Web index (currently exceeding 40 gigabytes) to facilitate high-speed retrieval, run on the fastest Digital Alpha servers, each with either eight or ten 64-bit Alpha processors, six or eight gigabytes of main memory and 210 gigabytes of disk storage. Scooter obeys "Web etiquette" by not retrieving pages that the site's owner has requested not be indexed, and by limiting its requests to ensure that it never uses more than 1% of the resources of the server from which it is retrieving Web pages. The Company is committed to continuing to use the best and most efficient technology available to maintain the performance of the AltaVista Internet Search Service. 32 34 AltaVista Internet Forum Service On August 12, 1996, the Company announced the AltaVista Internet Forum Service, a free showcase of the Company's collaboration technology on the Internet. Implemented using a skyscraper metaphor, the AltaVista Internet Forum Service Web site (http://www.altavista.forum.digital.com) consists of ready-to-use time-limited Forums organized one per floor of the office building. In the lobby, users can either register to create a new time-limited Forum or join an existing Forum. The Company manages the Forums for the users during the time-limited trial period. At the end of the trial period, the user may license the AltaVista Internet Forum product for private use on the user's own Web site or intranet. The Company expects the AltaVista Internet Forum Service to be available for public Internet use in September 1996. See " -- Software Products -- AltaVista Forum." AltaVista Internet Directory Service The Company is developing the AltaVista Internet Directory Service, a free directory of Internet users' email addresses, to showcase the Company's directory technology on the Internet. The AltaVista Internet Directory Service will contain Internet email addresses from many sources, including leading on-line services and the AltaVista Internet Search Service index. Users will be encouraged to add or edit their own entries using any standard Web browser. The Company's goal is to create the largest, most comprehensive and most up-to-date directory of email users on the Internet. Users of the AltaVista Internet Directory Service will also be offered the opportunity to buy the Company's AltaVista Directory software product. See " -- Software Products -- AltaVista Directory." AltaVista Partner-Provided Services The Company earns revenue from the AltaVista Internet Search Service by licensing mirror sites outside the United States, by establishing value added links with major Internet content providers and by licensing versions of the Company's search and indexing software as web custom crawls to allow Internet content providers to offer search services for a focused subset of the Web. The Company intends to develop additional revenue-generating opportunities based on its AltaVista Internet Services as part of its strategy of showcasing AltaVista technologies and increasing global awareness of the AltaVista brand. Mirror Sites The Company has established the AltaVista Network Affiliate program to license major telecommunications and media companies to provide AltaVista Internet Search Service mirror sites outside the United States. Mirror sites are intended to improve service response times and language support for users located outside the United States, to facilitate worldwide distribution of the AltaVista Internet Search Service and to increase global recognition of the AltaVista brand. Each mirror site will provide users in its region with local service that eliminates the delays associated with sending queries across long distances to the Company's Palo Alto Web site. Under the AltaVista Network Affiliate program, an AltaVista Network Affiliate invests in the hardware, communications equipment, high bandwidth Internet connections and staff to operate the site, and licenses the AltaVista Internet Search Service from the Company for a monthly fee. In addition, the Affiliate pays the Company a transaction fee based on the number of pages of search results viewed by the mirror site's users. The Company provides the search and query processing software and the index (with regular updates), training and promotion of the Affiliate's site. The Affiliate also provides local language translation of the AltaVista Internet Search Service query and help pages. The Affiliate is required to provide the AltaVista Internet Search Service without charge to users, but may run advertising with the service and use the service to attract users to its other revenue-generating services. The Company's goal is to have the AltaVista Network, when fully operational, able to process up to 100 million hits per day. The Company plans to license additional services to the AltaVista Network Affiliates, including the AltaVista Internet Forum Service and the AltaVista Internet Directory Service in development. 33 35 The Company has entered into letters of intent with Telia TeleCom AB for a mirror site in Northern Europe and with Telstra Corporation Ltd. for a mirror site in Australia, New Zealand and several other countries. The letter of intent with Telia contemplates an initial term of 18 months, renewable for additional one-year terms, subject to renegotiation of pricing terms prior to each renewal. The letter of intent with Telstra contemplates an initial term of two years, renewable for additional one-year terms, subject to renegotiation of pricing terms after the first year and prior to each renewal term. The Company's goal is to establish additional mirror sites to service regions of the world where Internet usage is high or rapidly increasing. Value Added Links Certain Internet content providers allow their users to search the Web as a means to augment the content found at the providers' sites. Often these search capabilities are provided by linking users to the sites of Web search services such as the AltaVista Internet Search Service. When a user decides to search the Web, however, the user leaves the content provider's site, thereby depriving the provider of the opportunity to display advertising with the search results and generate more revenue. The Company's goal is to implement value added links with leading Internet content providers to allow a content provider's users to use the AltaVista Internet Search Service without leaving the provider's Web site. The content provider has the opportunity to add value by making context-sensitive modifications to a user's query and/or the search results. The content provider can return the AltaVista-branded search results to the user along with targeted advertisements that generally command a much higher rate than advertisements run on general purpose Web pages. Content providers are not permitted to charge users separate fees to use value added links to the AltaVista Internet Search Service. The Company receives transaction fees from content providers based on the number of AltaVista Internet Search Service-generated pages of results viewed by users. Because the Company does not compete for Internet advertising revenue, it can partner, rather than compete, with Internet content providers who do, thereby building AltaVista brand recognition and generating continuing revenue. The Company has implemented a value added link relationship with Yahoo! Inc., the leading guide service on the Web, has signed an agreement with CNET, Inc., a leading online publisher of technology information, and is in negotiations with other Internet content providers. Web Custom Crawls The Company's web custom crawls allow Internet content providers to offer search services for a focused subset of the Web as a means to augment the subject-specific content they offer on their site. Using software licensed from the Company similar to the AltaVista Internet Search Service, the Internet content provider is able to create, maintain and allow its users to search a specialized index of Web sites selected by the provider. Because the content provider's index consists of a limited subset of the entire Web, it is more likely to deliver search results of high relevance to the content provider's users and is able to be updated more frequently than a full-Web index. The content provider is required to display the AltaVista brand with all search results. In addition to licensing and maintenance fees for the search and indexing software, the Company plans to receive transaction fees linked to the number of pages of results viewed by the user. The Company plans to deliver the first web custom crawl in September 1996. 34 36 ALTAVISTA SOFTWARE PRODUCTS The Company offers a portfolio of software products that enable users of the Internet and intranets to (i) find useful information, (ii) control access to information and transmit it securely and (iii) collaborate and communicate from multiple locations. Below is a summary of the main products currently offered or planned to be offered by the Company, including a brief description of each product, its target market and its current status. Detailed information regarding each product can be found under the appropriate heading following the table. ALTAVISTA SOFTWARE PRODUCTS
TARGET ALTAVISTA PRODUCT APPLICATION MARKET COMMERCIAL AVAILABILITY ALTAVISTA SEARCH Intranet Private eXtension Indexing, search and retrieval of Fortune 500 businesses and large Scheduled September 1996; data on an intranet organizations in beta testing Workgroup Private eXtension Indexing, search and retrieval of Business units/departments, Scheduled November 1996 data on specified servers workgroups and small organizations My Computer Private eXtension Indexing, search and retrieval of Individual users Scheduled October 1996; in private data on individual beta testing computers and servers ALTAVISTA DIRECTORY Directory of user, customer or Large and medium-size November 1993 other information organizations ALTAVISTA FIREWALL Intranet security Large, medium-size and small May 1994 organizations ALTAVISTA TUNNEL Workgroup Edition Secure communications through Organizations needing to connect November 1995 firewalls between sites and to multiple locations and/or remote users remote users Personal Edition Secure communications through Mobile/remote workers November 1995 firewalls between a remote user and a site ALTAVISTA FORUM Internet/intranet collaboration Business units/departments, December 1995 and conferencing workgroups, small organizations and Internet service providers ALTAVISTA MAIL Internet/intranet email server Business units/departments, June 1996 software workgroups, small to medium-size organizations and Internet service providers - ------------------------------------------------------------------------------------------------------------------
FINDING USEFUL INFORMATION AltaVista Search Private Extensions Using the same technology as the AltaVista Internet Search Service, AltaVista Search Private eXtensions extend the AltaVista Internet Search Service through a single user interface to provide comprehensive, fast and relevant search results seamlessly at all levels of the work environment -- Internet, enterprise, workgroup and individual user. The AltaVista Search Private eXtensions find information from all sources visible to the search software through a standard Web browser. The eXtensions support full text indexing of HTML (Web page) data and, in the case of Workgroup Private eXtension and My Computer Private eXtension, the file formats used by many Windows-based word processors, email clients, spreadsheets and other applications. 35 37 - Intranet Private eXtension. By indexing data found on all accessible pages in an intranet, Intranet Private eXtension allows employees of an organization to find information anywhere on their intranet. This eXtension is designed for medium-size to large intranets (up to 50 million Web pages). Intranet Private eXtension is currently available on Digital's 64-bit UNIX operating system. The Company believes that it can be easily adapted for other platforms as market conditions warrant. Intranet Private eXtension currently searches HTML data; however, the Company intends to offer an application programming interface known as the AltaVista Search Software Developers Kit to allow customized indexing of proprietary document formats. Targeted customers are Fortune 500 businesses and large organizations. The Company expects Intranet Private eXtension to be commercially available in September 1996. Intranet Private eXtension is distributed through system integrators that customize it for use in large organizations and to work with proprietary data types. The initial license fee for Intranet Private eXtension ranges from $25,000 to $1 million, depending on the number of end user licenses and other factors, and not including customization and integration service fees. - Workgroup Private eXtension. Workgroup Private eXtension searches specified files, directories and HTML data to create an index of information available and of interest to members of a business unit or department, workgroup or small organization. A workgroup administrator configures the data collector to index specific files and directories at specified intervals. Workgroup Private eXtension runs on the Windows NT platform. The Company expects Workgroup Private eXtension to be commercially available in November 1996. Workgroup Private eXtension is distributed to end user organizations through the AltaVista Marketspace Web site and through value added resellers. The Company expects license fees to range from $500 to $20,000, depending on the number of end user licenses and other factors, and not including customization services that may be provided by the channel partner. - My Computer Private eXtension. My Computer Private eXtension creates an index of specified files and directories on a user's local drives and network drives. The user configures the data collector to index specific files and directories at specified intervals. My Computer Private eXtension resides on an individual user's computer running Windows 95 or Windows NT and is able to index the file formats used by over 140 Windows-based applications. A beta version of My Computer Private eXtension has been available for free download via the Web since July 22, 1996 and had been downloaded by over 16,000 users as of August 18, 1996. The Company expects My Computer Private eXtension to be commercially available in October 1996. My Computer Private eXtension will be distributed directly to end users through the AltaVista Marketspace and hardware and software vendors, and to organizations through value added resellers and system integrators. The list price of My Computer Private eXtension is $29.95. AltaVista Directory Directories are specialized databases that typically contain names, addresses, telephone numbers, email addresses, and biographical and other personal data. AltaVista Directory allows information service managers to provide their users a single, integrated on-line directory of users, customers or other affiliated individuals that eliminates the need to print and distribute paper directories and separately update other databases as changes occur. In addition to traditional directory data, the AltaVista Directory permits the attachment to an entry of other files or objects, such as photographs and other multimedia content. AltaVista Directory allows people in different places to make changes on local copies of the directory and automatically replicates the changes at all sites. AltaVista Directory complies with the industry standard X.500 protocol. It also supports the LDAP protocol, which is becoming the Internet standard for directory access from standard Web browsers and Internet email clients, and MAPI, Microsoft's Windows application programming interface for email-enabled applications. AltaVista Directory is highly scaleable, supporting small numbers of entries at the low end and up 36 38 to 15 million entries at the high end. The product has been commercially available on the Digital UNIX platform since November 1993, and the Company expects a Windows NT version to be commercially available in late 1996. AltaVista Directory is targeted at medium to large organizations which need to construct directories that can be accessed by users and applications, both on intranets and through the Internet. In fiscal 1996, AltaVista Directory was sold to approximately 100 organizations. AltaVista Directory is distributed through value added resellers and system integrators. The license fee for AltaVista Directory ranges from $500 to $20,000 depending on the number of directory entries and other factors. SECURITY AltaVista Firewall AltaVista Firewall provides an easy-to-manage, secure gateway between an organization's private intranet and the Internet, or between a sub-network and the rest of an intranet. AltaVista Firewall provides a flexible interface which allows a system administrator to control who may send data into or out of the intranet or sub-network, what kind of data can be transmitted and when such data can be transmitted (for example, HTML traffic can be disabled during normal business hours). A system administrator can selectively activate or deactivate transmission of HTML, email, FTP (file transfer protocol), News group or telnet (remote log-in) traffic. AltaVista Firewall can also be customized to allow filtering of other protocols. AltaVista Firewall provides for real-time logging, auditing, monitoring and reporting to recognize and trace attempts to gain unauthorized entry to a network. The product has been commercially available on Digital UNIX since May 1994, and on BSDI (Intel-based) UNIX and Windows NT since August 1996. The January 29, 1996 edition of Network World ranked AltaVista Firewall's management interface as being the "best thought-out" and "most powerful" of the firewall products it reviewed. AltaVista Firewall offers a scaleable solution, from a low-end firewall with pre-defined security policies for small and medium-size organizations to a high-end customized multi-firewall solution for large organizations. AltaVista Firewall is sold through system integrators and value added resellers to organizations installing intranets at competitive, tiered prices. AltaVista Tunnel AltaVista Tunnel allows authenticated external users connected to the Internet, such as telecommuters, remote sites, partners, customers and consultants, to connect inexpensively and securely to an organization's intranet, including through firewalls. The Company believes that AltaVista Tunnel is compatible with all existing firewalls. Using advanced authentication and encryption technologies, AltaVista Tunnel creates a secure Internet pathway between two intranets or between a remote individual user and an intranet, thereby allowing an external user to work as if directly connected to that organization's private network. AltaVista Tunnel allows the secure use of the Internet as an extension of an intranet to create a "virtual private network," thereby eliminating the high cost and administrative burden of leased lines, modem banks and other proprietary interconnection systems. AltaVista Tunnel can also be used to provide secure communications between two firewall-protected segments of an intranet. Because AltaVista Tunnel works at the network connection level, all network applications will work through AltaVista Tunnel as if they were running on a private network. Security features include RSA 512-bit public/private key authentication to validate user identity, as well as RSA RC4 128-bit secret key encryption for use within the United States and RSA RC4 40-bit secret key encryption for export. Keys are exchanged every 30 minutes for maximum protection against data interception. 37 39 The two editions of AltaVista Tunnel are: - AltaVista Tunnel Workgroup Edition permits secure communications between independent intranets or between sub-networks of an intranet. The Workgroup Edition also operates as a server for multiple AltaVista Tunnel Personal Edition clients to allow remote individual users to connect to the intranet or sub-network. The Workgroup Edition has been commercially available on Digital UNIX since November 1995, and the Company expects that it will be commercially available on BSDI (Intel-based) UNIX and Windows NT in September 1996. - AltaVista Tunnel Personal Edition permits a remote individual user to connect securely to an intranet or a sub-network via AltaVista Tunnel Workgroup Edition server software. Personal Edition has been commercially available on Windows 95 since November 1995, and the Company expects that it will be commercially available on Windows NT in September 1996. Targeted customers include organizations that have implemented intranets and that have remote users, branch offices or customers or suppliers that need to communicate securely with the organization's intranet. For example, Digital is installing AltaVista Tunnel to support its remote sales force. AltaVista Tunnel can also be licensed to Internet service providers for inclusion in services offered to their customers. AltaVista Tunnel is distributed through value added resellers and system integrators. In addition, manufacturers of networking hardware are beginning to integrate encryption technology into their routers to provide secure connectivity transparently to the user. Digital intends to embed AltaVista Tunnel in its routers, and the Company seeks to license AltaVista Tunnel for incorporation into other manufacturers' routers. The Company also seeks to enter into licensing agreements with client-server application vendors that would embed AltaVista Tunnel in their applications to allow their applications to operate securely over the Internet, independent of the type of networking hardware or firewalls used by their customers. For example, Digital integrates AltaVista Tunnel into the Internet version of its transaction processing software product. The license fee for AltaVista Tunnel Workgroup Edition ranges from $995 to $2,495, depending on the number of end users supported and other factors. The list price of AltaVista Tunnel Personal Edition is $99.95. COLLABORATION AND COMMUNICATION AltaVista Forum AltaVista Forum provides an environment for members of workgroups to share documents, conduct asynchronous discussions or real-time conferences from multiple locations and search the entire text of a Forum, all using a standard Web browser. AltaVista Forum supports the following workgroup activities: - Team Working Environments. AltaVista Forum allows groups of users to set up and administer a team working environment without requiring participation from an organization's information services personnel. Users can create a team home page for both pre-defined and ad hoc teams, manage team membership lists, send email to all team members and schedule team conferences. AltaVista Forum workgroup administrators can control access to documents and discussion groups for different users and different groups of users by setting password control and access privileges. - Document Sharing. AltaVista Forum allows users to create a repository for documents, applications, links to Web sites and other data that can be accessed from any Web browser, as an alternative to mass emailing or other cumbersome distribution methods. AltaVista Forum provides a traceable edit history of all postings and requests, as well as email notifications of new postings. - Discussion Groups. AltaVista Forum supports the creation of discussion areas that can be used to conduct discrete, topical, asynchronous discussions. Users can post questions or comments, attach or include links to other documents or Web pages and poll other users to vote on selected topics, with 38 40 results displayed graphically in real-time. Users can view postings by date or by author; in addition, the threaded discussion feature enables users to view postings in the context of related responses. - Real-Time Conferencing. AltaVista Forum supports the use of real-time text-based conference sessions. Users can schedule "chat" sessions using an on-line group calendar. Participants are connected to the on-line conference automatically and the session can be recorded for later viewing. - Built-In Search. The entire text of an AltaVista Forum can be indexed and subsequently searched using built-in AltaVista Search technology. - Customized Applications. AltaVista Forum provides an interface that permits users, systems integrators and value added resellers to customize it for additional uses, such as a Web-based problem tracking and reporting system. AltaVista Forum, Version 1.0, was ranked "Editor's Choice" by PC Magazine in its April 23, 1996 edition and "Analyst's Choice" in the Web-based conferencing systems category by PC Week in its February 26, 1996 edition. AltaVista Forum has been commercially available on the Digital UNIX and Windows NT platforms since December 1995 and on the Sun Microsystems Solaris platform since March 1996. Version 2.0, which has been commercially available since August 1996, introduced real time conferencing and certain features to facilitate working in groups. Targeted customers include business units and departments, workgroups and small organizations, as well as Internet service providers seeking to offer Web-based collaboration and conferencing services to their users and subscribers. The Company uses AltaVista Forum on its AltaVista Marketspace Web site to host discussion groups with customers, answer questions and manage software downloads. AltaVista Forum can also be licensed to Internet service providers for inclusion in services offered to their customers. AltaVista Forum is distributed through value added resellers, system integrators and direct sales via the Web. The license fee for AltaVista Forum begins at $495 for an entry-level 25-user license and ranges up to several thousand dollars, depending on the number of end users supported and other factors, and not including customization services that may be provided by a channel partner. AltaVista Mail AltaVista Mail is Internet/intranet mail server software that complies with the SMTP and POP3 standards, the de facto protocols for email servers on the Internet and intranets. The use of these standards allows the AltaVista Mail server to support a wide range of client software (including Microsoft Exchange, Netscape Mail and Eudora) which communicates with the mail server to allow a user to read and send email. AltaVista Mail supports text messages and the full range of attachments from word processing documents and spreadsheets to multimedia presentations. AltaVista Mail has been commercially available on Windows NT since June 1996. Version 2.0 of AltaVista Mail, which the Company expects to be commercially available in October 1996, supports gateways to MS Mail and cc:Mail post offices, as well as the IMAP4 protocol. AltaVista Mail is targeted at business units and departments, workgroups and small to medium-size organizations looking for an easy-to-use Internet mail server, as well as Internet service providers seeking to provide email services to users and subscribers. The product is sold directly over the Web and is distributed through value added resellers and OEMs. The entry level license price is $495 per server. SALES AND MARKETING The Company's sales strategy is to achieve broad market penetration by employing multiple distribution channels, including direct sales over the Web and sales through Digital's sales organization, major system integrators, value added resellers (VARs), Internet service providers (ISPs), telecommunications companies (Telcos), original equipment manufacturers (OEMs) and independent software vendors (ISVs). Direct Sales on the Web. The Company uses its AltaVista Marketspace Web site (http://www.altavista.software.digital.com) to demonstrate, promote and sell software products that can be downloaded directly to the customer's computer. Direct sales over the Web generally will be offered only at 39 41 list price in order to avoid competing with channel partners. Products currently sold on the Web are AltaVista Search My Computer Private eXtension, AltaVista Mail and AltaVista Forum. In addition, to seed widespread use of its products, the Company has created the AltaVista Visionary Club, a reserved area of the AltaVista Marketspace where Web users anywhere in the world can register and thereafter receive free time-limited beta test versions and trial copies of new products and participate in other promotions. The Company particularly targets early adopters and industry influencers (for example, product evaluators and reviewers, technology consultants and "webmasters") to preview its products, provide feedback to the Company and generate valuable word-of-mouth publicity. Digital's Sales Organizations. The Company's products are sold by Digital's worldwide direct and channel sales organizations. Approximately 100 Digital salespeople and more than 200 Digital channel partners have been trained in using and selling the Company's products. In addition, the Company's close relationship with Digital provides it access to and credibility with Digital's large customer base, channel partners and strategic alliance partners. See "Relationship with Digital -- Strategic Alliance Agreement." System Integrators. System integrators, who specialize in planning, installing, customizing and upgrading large private networks for large organizations, customize, configure and install the Company's software products with complementary hardware, software and services. By combining products and services, system integrators are able to deliver complete information management solutions to address specific customer needs. System integrators are most important to the sale of AltaVista Search Intranet Private eXtension and AltaVista Directory, each of which requires substantial consulting, design, customization and integration services to ensure full access to legacy data and existing systems. Value Added Resellers. VARs, like system integrators, customize, configure and install the Company's products with complementary hardware, software and services. VARs generally offer solutions to smaller scale information technology needs, including pieces of a large private network, networking solutions for small to medium-size organizations and customizations that address the needs of specific industry and business applications. Internet Service Providers and Telecommunications Companies. ISPs and Telcos offer Internet access and a growing set of value added Internet applications and services. ISPs and Telcos can offer value added services based on AltaVista Mail, AltaVista Tunnel and AltaVista Forum, especially in the small company market. The Company currently has agreements with a number of ISPs and Telcos, and is targeting approximately 50 of the largest ISPs and Telcos worldwide. Original Equipment Manufacturers and Independent Software Vendors. The Company selectively markets its products to OEMs and ISVs with the goal of having its products and technologies embedded in OEM and ISV products that enjoy strong positions in specific target markets or large installed customer bases. The Company has OEM and ISV arrangements with Digital for AltaVista Tunnel and an ISV agreement with Worldtalk Corporation for AltaVista Mail. The Company intends to pursue additional OEM and ISV opportunities to gain broad market share for AltaVista Tunnel, AltaVista Mail and AltaVista Search Private eXtensions. Company Sales Force. The Company's sales force is currently focusing on expanding its network of channel partners. Sales force compensation is highly leveraged; sales personnel receive incentive compensation for selling products and establishing relationships with selected channel partners. The sales force includes technical pre-sales engineers. The Company's sales force does not sell to end users, but supports channel partners in pursuing major sales opportunities with large or influential organizations. International Sales The Company sells its products worldwide from its AltaVista Marketspace Web site and plans to use the same types of channel partners internationally as it does in the United States. The Company has international sales force coverage for Canada and Latin America, and is currently hiring marketing and sales representatives in Western Europe, with initial emphasis on the major and leading-edge Internet markets in the United Kingdom, Germany, France, The Netherlands and Scandinavia. The Company intends to expand into 40 42 Southern and Central Europe as opportunities emerge. Similarly, the Company intends to deploy marketing and sales representatives in Australia and Japan, the early-adopter Internet markets in Asia, as opportunities develop, followed by expansion into other Asian, Middle Eastern and African markets. In addition, Digital's strong international presence and existing customer and channel relationships offer the Company increased access to international business opportunities. The Company plans to localize (translate and adapt for local use) its products in French, German, Spanish, Japanese and other languages as market conditions warrant. AltaVista Search and its underlying search and indexing technology can process most Western European languages; the Company intends to add technology to support additional language families in conjunction with partners in relevant locations. CUSTOMER SUPPORT AND SERVICES Product Support. The Company believes that a high level of customer support and service for its products will be critical to its success. The Company's principal focus has been to provide training, documentation and technical support to its channel partners to ensure that they have the knowledge required to sell, implement, maintain and provide technical support for the Company's products. The Company's AltaVista Marketspace Web site is the focal point of its support program. The Company uses, and provides incentives for channel partners to use, email to log calls and communicate product maintenance updates, interim (bug) fixes, frequently asked questions and beta software releases. Channel partners will also have direct access to the Company's support personnel by telephone to address high priority issues. The Company also offers product support and services directly to customers through its AltaVista Marketspace Web site. The Company recognizes that some channel partners may have limited product support capability. To ensure quality support for its products, the Company has created an Authorized Service Provider ("ASP") program. ASPs are certified to provide a broad range of support services for the Company's products, including installation, remedial support and update services. The Company has entered into a nonexclusive agreement under which Digital will be an ASP worldwide. See "Relationship with Digital -- Strategic Alliance Agreement." The Company intends to add additional ASPs as the demand for its products warrants. Support for Partner-Provided Internet Services. The Company's Web site operations team provides support to mirror site, value added link and web custom crawl partners. Custom Engineering Services. Many of the Company's major customers require customization of products purchased from the Company. Although most customization services will be provided by channel partners, the Company plans to provide some customization services directly for a fee. COMPETITION The markets for the Company's products and services are new, intensely competitive, evolving quickly and subject to rapid technological change. The Company faces competition in the overall Internet/intranet software market, as well as each of the market segments where its products and services compete. The Company expects competition to persist, increase and intensify in the future as the markets for its products and services continue to develop and as additional companies enter its markets. Microsoft and Netscape provide or have announced intentions to provide a range of software products based on Internet protocols and to compete in the broad Internet/intranet software market as well as in specific market segments where the Company competes. Both Microsoft and Netscape occasionally acquire technology and products from other companies to augment their product lines, in addition to developing their own technology and products. The Company's AltaVista Internet Search Service faces competition from America Online, Inc. (WebCrawler), Excite, Inc. (Excite), Inktomi Corporation and Wired Ventures, Inc. (Hotbot), Infoseek Corporation (Infoseek and Ultraseek), Lycos, Inc. (Lycos and a2z), The McKinley Group, Inc. (which has announced its intention to merge with Excite, Inc.) (Magellan), and Open Text Corporation (Open Text Index). America Online, Inc., Excite, Inc., Infoseek Corporation, Lycos, Inc. and Open Text Corporation have been offering search services on the Internet longer than the Company. Increased use and visibility of the 41 43 AltaVista Internet Search Service depends in part on the Company's ability to build and host a larger Web index as the Web grows in size and to maintain average sub-second operational performance levels. The Company believes that significant investments and business alliances will be essential to longer-term success to keep up with the technological and operational demands imposed by the explosive worldwide growth of the Web. In the market for information search and retrieval software, the Company competes with Excalibur Technologies Corporation, Fulcrum Technologies, Inc., Information Dimensions, Inc., Open Text Corporation, Personal Library Software, Inc. and Verity, Inc., among others. In the future, the Company may also compete with database vendors should they offer intranet versions of their information search and retrieval capabilities with their core database products. The Company may also encounter competition from companies that currently sell document management systems, groupware applications, Internet and intranet products and operating systems if they decide to enhance their products by including information search and retrieval functions. In the market for directory services, the Company competes with both standards-based companies such as Control Data Systems, Inc., ISOCOR and Siemens Nixdorf Informationsysteme AG and proprietary technology companies such as Banyan Systems, Inc. and Novell, Inc. The proprietary technology companies have been aggressively pursuing partnerships with key Internet software vendors, such as Netscape and Software.Com, Inc., to establish their technology as the de facto standard for Internet directories. In the market for security software, the Company competes with CheckPoint Software Technologies, Ltd., Raptor Systems, Inc. and Secure Computing Corporation, among others. These companies offer integrated packages of both firewall and tunnel products and have also been in the security software market longer than the Company. In the market for Web-based collaboration software, the Company competes with vendors such as Lundeen & Associates (Web Crossing), O'Reilly & Associates Inc. (WebBoard), and OS TECHnologies Corporation (WebNotes). AltaVista Forum may also be perceived as competing with products such as Attachmate Corporation's OpenMind and Lotus Development Corporation's Lotus Notes, which are workgroup solutions that offer significantly greater customization and application development, workflow and complex conferencing functionality and that are priced significantly higher than AltaVista Forum. Netscape has announced its intention to introduce an intranet version of its Collabra Share product late in 1996; Microsoft has announced its intention to create a workgroup collaboration product based on Microsoft Exchange; and Lotus has announced plans to deliver an Internet-based version of Lotus Notes. In the market for Internet email server software, the Company competes with Internet software vendors such as Software.Com, Inc. and Netscape. AltaVista Mail may also be perceived as competing with proprietary email server software, such as Microsoft Exchange, Lotus's cc:Mail and Lotus Notes, all of which provide Internet mail gateways. The Company is aware of numerous other major software developers as well as smaller entrepreneurial companies that are focusing significant resources on developing and marketing software products and services that will compete with the Company's products and services. Certain of the Company's current and potential competitors may bundle their products with other software or hardware, including operating systems and browsers, in a manner that may discourage users from purchasing products offered by the Company. Many of the Company's current and potential competitors in each of its markets have longer operating histories and significantly greater financial, technical and marketing resources, name recognition and installed product base than the Company. There can be no assurance that the Company will be able to compete effectively with current and future competitors. If significant price competition were to develop, the Company would likely be forced to lower its prices, which could have a material adverse effect on the Company's business, results of operations and financial condition. See "Risk Factors -- Competition; New Entrants." 42 44 PRODUCT DEVELOPMENT As of July 27, 1996, the Company's research and development organization consisted of 114 employees and 15 Digital contract employees. The Company's research and development facilities are located in Littleton, Massachusetts; Palo Alto, California; and Reading, England. The Company's current product development efforts are focused on enhancing and broadening its information, security and collaboration and communication products. Areas of particular emphasis are the refinement of the AltaVista Search index and search capabilities and the integration of this technology with other Internet/intranet-focused products. The Company intends to actively support industry standards and incorporate new standards-compliant features into its products. Although the principal technologies used in the Company's products have been developed internally, the Company also licenses and incorporates third-party technology to supplement its own efforts. The Company spent $2.2 million, $4.5 million and $15.4 million in fiscal 1994, 1995 and 1996, respectively, on Company-sponsored research and engineering activities. The Company's ability to successfully develop and release new products and services and enhancements in a timely manner is subject to a variety of factors, including its ability to solve technical problems and test products, competing priorities of the Company, the availability of development and other resources and other factors outside the control of the Company. There can be no assurance that the Company will not experience difficulties that could delay or prevent the successful development, introduction or marketing of new products and services and enhancements. See "Risk Factors -- New Product Development and Technological Change." INTELLECTUAL PROPERTY RIGHTS The Company relies on a combination of patent, copyright, trademark and trade secret laws, non-disclosure agreements and other contractual provisions to establish, maintain and protect its proprietary rights. The Company and Digital intend to enter into an asset transfer and license agreement (the "Asset Transfer Agreement") pursuant to which the Company will acquire from Digital intellectual property rights relating to the Company's products and services, including certain patent licenses, copyrights, trademarks and licenses from third parties. The core technologies of the Company's products and services were developed by Digital and are either owned by or licensed to the Company. See "Relationship with Digital -- Asset Transfer and License Agreement." Digital has several pending U.S. patent applications relating to the Company's products. Pursuant to the Asset Transfer Agreement, the Company will acquire from Digital a license to such patent rights. There can be no assurance that patents will issue from these pending applications or from any future applications or that, if issued, any claims will be sufficiently broad to protect the Company's rights in technology. In addition, there can be no assurance that any patents that may be issued will not be challenged, invalidated or circumvented, or that any rights granted thereunder would provide protection of the Company's proprietary rights. Failure of any patents to protect the Company's rights in technology may make it easier for the Company's competitors to offer equivalent or superior technology. Pursuant to the Asset Transfer Agreement, the Company also will acquire from Digital all of Digital's rights in the AltaVista trademark, service mark and logo. Digital has acquired all right, title and interest of AltaVista Technologies, Inc., an unaffiliated California corporation, in the AltaVista mark and will transfer such rights to the Company. In addition, the Company is aware of the existence of AltaVista Computer Company ("ACC"), a California corporation, and of AltaVista Software ("AS"), a California sole proprietorship. To the Company's knowledge, neither ACC nor AS has applied for the registration of any trademarks or service marks incorporating the term "AltaVista." To the Company's knowledge, no entity has applied to register any trademarks or service marks incorporating the term "AltaVista" for use in the computer industry. If necessary, the Company will challenge the efforts by any third party to register trademarks or service marks incorporating the term "AltaVista" or any other trade or service marks of the Company, although there can be no assurance that the Company will be successful. 43 45 Although the Company does not believe it is infringing the intellectual property rights of others, claims of infringement are becoming increasingly common as the software industry develops and legal protections, including patents, are applied to software products. See "Risk Factors -- Uncertain Protection of Intellectual Property Rights." EMPLOYEES As of July 27, 1996, the Company had 186 full-time employees, including 114 in research and development, 36 in marketing and sales, 16 in technical/customer support and 20 in management, finance and administration. In addition, the Company contracts with Digital and others for the services of certain of its employees. The Company's future success will depend, in part, on its ability to continue to attract retain and motivate highly qualified technical and management personnel, particularly highly skilled engineers for new product development, for whom competition is intense. The Company's employees are not represented by any collective bargaining unit and the Company has never experienced a work stoppage. The Company believes its relationship with its employees is good. See "Risk Factors -- Management of Potential Growth; New Management Team" and "Risk Factors -- Dependence on Key Personnel; Recent Hires." FACILITIES The Company's principal administrative, sales, marketing and research and development operations are located in a facility owned by Digital in Littleton, Massachusetts, consisting of approximately 100,000 square feet of office space, of which approximately half is now occupied by the Company under a facilities agreement being entered into with Digital. Under the facilities agreement, the Company also occupies approximately 8,500 square feet in San Mateo, California; approximately 3,000 square feet in Palo Alto, California; and approximately 7,500 square feet in Reading, England. See "Relationship with Digital -- Facilities Agreement." The Company believes that suitable alternative space is available in each of its locations. 44 46 RELATIONSHIP WITH DIGITAL Upon consummation of the Offering, Digital will own all of the outstanding Class B Common Stock of the Company, which will represent approximately % of the combined voting power of all of the outstanding Common Stock (or approximately % if the Underwriters' over-allotment options are exercised in full). For so long as Digital continues to own shares of Common Stock representing more than 50% of the combined voting power of the Common Stock of the Company, Digital will be able, among other things, to determine any corporate action requiring approval of holders of Common Stock representing a majority of the combined voting power of the Common Stock, including the election of the entire Board of Directors of the Company, without the consent of the other stockholders of the Company. In addition, through its control of the Board of Directors and beneficial ownership of Common Stock, Digital will be able to control certain decisions, including decisions with respect to the Company's dividend policy, the Company's access to capital (including borrowing from third-party lenders and the issuance of additional equity securities), mergers or other business combinations involving the Company, the acquisition or disposition of assets by the Company and any change in control of the Company. Digital has advised the Company that its current intent is to continue to hold all of the Class B Common Stock. However, Digital has no agreement with the Company not to sell or distribute such shares, and, other than pursuant to the Underwriting Agreements, in which Digital has agreed, subject to certain exceptions, not to sell or otherwise dispose of any shares of Common Stock (or any security convertible into or exchangeable or exercisable for Common Stock) owned by it for a period of 180 days following the date of this Prospectus without the prior written consent of Lehman Brothers Inc., there can be no assurance concerning the period of time during which Digital will maintain its beneficial ownership of Common Stock. Beneficial ownership of at least 80% of the total voting power and value of the outstanding Common Stock is required in order for Digital to continue to include the Company in its consolidated group for federal income tax purposes and ownership of at least 80% of the total voting power and 80% of each class of nonvoting capital stock is required in order for Digital to be able to effect a tax-free spin-off of the Company under the Code. The Company's relationship with Digital will also be governed by agreements to be entered into in connection with the Offering, including a services agreement, a facilities agreement, a tax-sharing agreement, a corporate agreement, a strategic alliance agreement, a technical assistance agreement and an asset transfer and license agreement, the material terms of which are summarized below. It is anticipated that such agreements will be entered into prior to the consummation of the Offering. With respect to matters covered by the services agreement, the relationship between Digital and the Company is intended to continue in a manner generally consistent with past practices. Because the Company is a wholly owned subsidiary of Digital, none of these arrangements will result from arm's-length negotiations and, therefore, the prices charged to the Company for services provided thereunder may be higher or lower than prices that may be charged by third parties. The Company's Amended and Restated Certificate of Incorporation contains provisions relating to competition by Digital with the Company, potential conflicts of interest that may arise between the Company and Digital, the allocation of business opportunities that may be suitable for either of Digital or the Company and the approval of transactions between the Company and Digital. For additional information concerning such provisions and circumstances under which the Class A Common Stock and Class B Common Stock may be converted, see "Description of Capital Stock." The descriptions of agreements set forth below are intended to be summaries and, while material terms of the agreements are set forth herein, the descriptions are qualified in their entirety by reference to the relevant agreements filed as exhibits to the Registration Statement of which this Prospectus forms a part. SERVICES AGREEMENT The Company and Digital intend to enter into an intercompany services and operating agreement (the "Services Agreement") with respect to services to be provided by Digital (or subsidiaries of Digital) to the Company. The Services Agreement will provide that such services will be provided in exchange for fees which (based on current costs for such services) management of the Company believes would not exceed fees that 45 47 would be paid if such services were provided by independent third parties and which are substantially consistent with the allocation of the costs of such services set forth in the historical financial statements of the Company. See the financial statements included elsewhere herein. Such fees will be paid monthly in arrears. The Company may request an expansion or termination of services, in which case the parties will discuss, without obligation, the provision or termination of such services and an appropriate change or reduction in charges for such services. Services will be provided to the Company based on several billing methodologies. Pursuant to one of such billing methodologies, specified services will be provided to the Company at costs comparable to those charged to other businesses operated by Digital from time to time, and the Company will be obligated to purchase those services at the specified costs. In the event Digital proposes changes in billing methodology which would result in a significant increase (being the greater of a 10% increase in costs or $100,000) in costs for the affected services, the Company may terminate such services. The purpose of the Services Agreement is to ensure that Digital continues to provide to the Company the range of services that Digital provided to the Company prior to the Offering. With respect to matters covered by the Services Agreement, the relationship between Digital and the Company is intended to continue in a manner generally consistent with current practices. The services initially to be provided by Digital to the Company under the Services Agreement include, among other things, certain accounting, audit, cash management, corporate development, corporate secretary, employee benefit plan administration, governmental affairs, human resources and compensation, investor and public relations, legal, risk management, tax and treasury services. In addition to the identified services, Digital intends to agree to continue coverage of the Company under Digital's umbrella liability, property, casualty and fiduciary insurance policies. The Company intends to agree to reimburse Digital for the portion of Digital's premium cost with respect to such insurance that is attributable to coverage of the Company. Either Digital or the Company may terminate such coverage under Digital's policies at any time on 90 days' written notice, provided that termination of coverage by the Company may only be for nonpayment and only if a replacement policy, acceptable to Digital, is entered into by the Company. Also, in addition to the identified services, Digital intends to agree to allow eligible employees of the Company to participate in certain of Digital's employee benefit plans. In addition to a monthly services fee under the Services Agreement, the Company will reimburse Digital for Digital's costs (including any contributions and premium costs and including certain third-party expenses and allocations of certain personnel expenses), generally in accordance with past practice, relating to participation by the Company's employees in any of Digital's benefit plans. The Services Agreement will have an initial term of two years and will be renewed automatically thereafter for successive one-year terms unless either the Company or Digital elects not to renew it. After the initial two-year term, the Services Agreement may be terminated at any time by either party upon 90 days' written notice. The Services Agreement is subject to early termination by either the Company or Digital upon 90 days' written notice if Digital ceases to own shares of Common Stock representing more than 50% of the combined voting power of the Common Stock of the Company. Pursuant to the Services Agreement, the Company will indemnify Digital against any damages that Digital may incur in connection with its performance of services under the Services Agreement (other than those arising from Digital's gross negligence or willful misconduct), and Digital will indemnify the Company against any damages arising out of Digital's gross negligence or willful misconduct in connection with its rendering of services under the Services Agreement. FACILITIES AGREEMENT The Company and Digital intend to enter into a facilities agreement (the "Facilities Agreement"). The Facilities Agreement provides that the Company may occupy space located in facilities owned or leased by Digital in exchange for rental fees determined at charges comparable to those charged to other businesses operated by Digital and subject to adjustment from time to time. Rent is payable monthly in arrears. The purpose of the Facilities Agreement is to ensure that Digital continues to provide the Company with the same 46 48 or comparable facilities that Digital provided to the Company prior to the Offering. With respect to matters covered by the Facilities Agreement, the relationship between Digital and the Company is intended to continue in a manner generally consistent with past practices. The Facilities Agreement has an initial term of two years and is renewable automatically thereafter for successive one-year terms unless either the Company or Digital elects not to renew it. The Facilities Agreement is subject to early termination by either the Company or Digital upon six months' written notice if Digital ceases to own shares of Common Stock representing more than 50% of the combined voting power of the Common Stock of the Company, and by the Company with respect to any particular facility upon 30 days' written notice for any reason. The Company's use of any particular property subject to the Facilities Agreement is limited by the term of any underlying lease between Digital and a landlord with respect to those properties leased by Digital and by any disposition by Digital of any property owned by it. TAX-SHARING AGREEMENT The Company is, and immediately after the Offering will continue to be, included in Digital's federal consolidated income tax group, and the Company's federal income tax liability will be included in the consolidated federal income tax liability of Digital and its subsidiaries. In certain circumstances, the Company and certain of its subsidiaries will also be included with certain other subsidiaries of Digital in combined, consolidated or unitary income tax groups for state and local tax purposes. The Company and Digital intend to enter into a tax-sharing agreement (the "Tax-Sharing Agreement") pursuant to which the Company and Digital will make payments between them such that, with respect to any period, the amount of taxes to be paid by the Company, subject to certain adjustments, will be determined as though the Company were to file separate federal, state and local income tax returns (including, except as provided below, any amounts determined to be due as a result of a redetermination of tax liability of Digital arising from an audit or otherwise) as the common parent of an affiliated group of corporations filing combined, consolidated or unitary (as applicable) federal, state and local returns rather than a consolidated subsidiary of Digital with respect to federal, state and local income taxes. Pursuant to the Tax-Sharing Agreement, under certain circumstances, the Company will be reimbursed for tax attributes that it generates after the Offering, such as net operating losses. Such reimbursement, if any, will be made for utilization of the Company's losses only after Digital's losses are fully utilized. In determining the amount of tax-sharing payments under the Tax-Sharing Agreement, Digital will prepare for the Company pro forma returns with respect to federal and applicable state and local income taxes that reflect the same positions and elections used by Digital in preparing the returns for Digital's consolidated group and other applicable groups. Digital will continue to have all the rights of a parent of a consolidated group (and similar rights provided for by applicable state and local law with respect to a parent of a combined, consolidated or unitary group), will be the sole and exclusive agent for the Company in any and all matters relating to the income, franchise and similar tax liabilities of the Company, will have sole and exclusive responsibility for the preparation and filing of consolidated federal and consolidated or combined state income tax returns (or amended returns), and will have the power, in its sole discretion, to contest or compromise any asserted tax adjustment or deficiency and to file, litigate or compromise any claim for refund on behalf of the Company. In addition, Digital has agreed to undertake to provide the aforementioned services with respect to the Company's separate state and local returns and the Company's foreign returns. Under the Tax-Sharing Agreement, the Company will pay Digital a fee intended to reimburse Digital for all direct and indirect costs and expenses incurred with respect to the Company's share of the overall costs and expenses incurred by Digital with respect to tax related services. In general, the Company will be included in Digital's consolidated group for federal income tax purposes for so long as Digital beneficially owns at least 80% of the total voting power and value of the outstanding Common Stock. Each member of a consolidated group is jointly and severally liable for the federal income tax liability of each other member of the consolidated group. Accordingly, although the Tax-Sharing Agreement allocates tax liabilities between the Company and Digital, during the period in which the Company is included in Digital's consolidated group, the Company could be liable in the event that any federal tax liability is 47 49 incurred, but not discharged, by any other member of Digital's consolidated group. See "Risk Factors -- Relationship with Digital." CORPORATE AGREEMENT The Company and Digital intend to enter into a corporate agreement (the "Corporate Agreement") under which the Company will grant to Digital a continuing option, transferable to any of its subsidiaries, to purchase, under certain circumstances, additional shares of Class B Common Stock or shares of nonvoting capital stock of the Company (the "Stock Option"). The Stock Option may be exercised by Digital simultaneously with the issuance of any equity security of the Company (other than in the Offering or upon the exercise of the Underwriters' over-allotment options), with respect to Class B Common Stock, only to the extent necessary to maintain its then-existing percentage of the total voting power and value of the Company and, with respect to shares of nonvoting capital stock, to the extent necessary to own 80% of each outstanding class of such stock. The purchase price of the shares of Class B Common Stock purchased upon any exercise of the Stock Option, subject to certain exceptions, will be based on the market price at which such stock may be purchased by third parties. The Stock Option expires in the event that Digital reduces its beneficial ownership of Common Stock in the Company to Common Stock representing less than 60% of the number of outstanding shares of Common Stock. The Company does not intend to issue additional shares of Class B Common Stock except pursuant to the exercise of the Stock Option. The Corporate Agreement will further provide that, upon the request of Digital, the Company will use its best efforts to effect the registration under applicable federal and state securities laws of any of the shares of Class B Common Stock and nonvoting capital stock (and any other securities issued in respect of or in exchange for either) held by Digital for sale in accordance with Digital's intended method of disposition thereof, and will take such other actions as may be necessary to permit the sale thereof in other jurisdictions, subject to certain limitations specified in the Corporate Agreement. Digital will also have the right, which it may exercise at any time and from time to time, to include the shares of Class B Common Stock and nonvoting capital stock (and any other securities issued in respect of or in exchange for either) held by it in certain other registrations of common equity securities of the Company initiated by the Company on its own behalf or on behalf of its other stockholders. The Company will agree to pay all out-of-pocket costs and expenses (other than underwriters' discounts and commissions and transfer taxes) in connection with each such registration that Digital requests or in which Digital participates. Subject to certain limitations specified in the Corporate Agreement, such registration rights will be assignable by Digital and its assigns. The Corporate Agreement will contain indemnification and contribution provisions: (i) by Digital and its permitted assigns for the benefit of the Company and related persons; and (ii) by the Company for the benefit of Digital and the other persons entitled to effect registrations of Common Stock (and other securities) pursuant to its terms and related persons. The Corporate Agreement will also provide that, for so long as Digital maintains beneficial ownership of a majority of the number of outstanding shares of Common Stock, the Company may not take any action or enter into any commitment or agreement which may reasonably be anticipated to result, with or without notice and with or without lapse of time, or otherwise, in contravention (or an event of default) by Digital of: (i) any provision of applicable law or regulation, including but not limited to provisions pertaining to the Code or ERISA; (ii) any provision of Digital's corporate charter or by-laws; (iii) any credit agreement or other material instrument binding upon Digital; or (iv) any judgment, order or decree of any governmental body, agency or court having jurisdiction over Digital or any of its assets. See "Description of Capital Stock -- Certain Certificate of Incorporation and By-law Provisions." STRATEGIC ALLIANCE AGREEMENT The Company and Digital intend to enter into a strategic alliance agreement (the "Strategic Alliance Agreement") that provides that Digital will distribute the Company's products on a non-exclusive, worldwide basis through Digital's reseller and distribution networks. The Strategic Alliance Agreement also designates Digital as an Authorized Service Provider of the Company to provide training, documentation, technical support and maintenance services to the Company's customers and end-users. In addition, the Strategic 48 50 Alliance Agreement provides that Digital will loan the Company certain hardware equipment for product development purposes and provide the Company with certain hardware and software for internal use at Digital's then prevailing rates and prices. Digital and the Company have also established a joint marketing relationship with respect to the Company's products and services. The Agreement has an initial term of two years and is renewable automatically thereafter for successive one-year terms, subject to termination by either the Company or Digital upon six months' written notice if Digital ceases to own shares of Common Stock representing more than 50% of the combined voting power of the Common Stock of the Company. TECHNICAL ASSISTANCE AGREEMENT The Company and Digital intend to enter into a technical assistance agreement (the "Technical Assistance Agreement") pursuant to which the Company may, from time to time, request Digital (including its research laboratories) to provide consulting and technical assistance to the Company with respect to technology related to or derived from the Company's products. The Company will pay Digital fees for any consulting or technical assistance provided by Digital under the Technical Assistance Agreement at Digital's prevailing rates for consulting services. Ownership of and rights to any and all ideas, improvements and inventions conceived or created under the performance of work under the Technical Assistance Agreement will be determined in writing between the parties prior to Digital performing the work. ASSET TRANSFER AND LICENSE AGREEMENT The Company and Digital intend to enter into an asset transfer and license agreement (the "Asset Transfer Agreement") which will provide for the transfer to the Company of all assets and the assumption by the Company of all liabilities that relate principally to the Company's business, including all assets and liabilities reflected on the AltaVista Internet Software Products Balance Sheet included in this Prospectus as adjusted to give effect to the conduct of the Company's business in the ordinary course from such balance sheet date to the date of transfer. Pursuant to the Asset Transfer Agreement, Digital will assign to the Company all of Digital's rights in the AltaVista trademark, service mark and logo and will license to the Company all of its Internet addresses. Digital will retain the right to use such trademarks in advertising, marketing literature and corporate communications that refer to the Company. Under the Asset Transfer Agreement, Digital will grant the Company a non-exclusive, irrevocable, royalty-free license to all Digital patents and pending and future patent applications covering inventions made as of the consummation of the Offering that are embodied in the Company's products and services. Under this license, the Company will have a right to sell to its customers products embodying technology covered by the patents. The Company will not otherwise have a right to sublicense its rights under this license or to assign or transfer the license except in connection with a change of control of the Company or the sale of all or substantially all of the Company's assets. The Company may not prevent Digital from granting other licenses under such patents, will not be able to realize licensing revenues from any such licenses, cannot require Digital to enforce any such patents against competitors of the Company and cannot control any enforcement proceedings Digital undertakes. Under the Asset Transfer Agreement, Digital will assign to the Company all of Digital's rights in software code developed specifically for and included in the Company's products and services, subject to the terms of the patent license described above ("Transferred Code"). Digital will retain an irrevocable, royalty-free license to use Transferred Code for its internal use, including research and development. All rights to any performance or functionality improvements or enhancements ("Modifications") to Transferred Code developed by or on behalf of Digital will be owned by Digital; provided, however, that Digital will grant the Company an irrevocable, royalty-free license to use Modifications developed by Digital during the two years following the consummation of the Offering. Similarly, all rights to any Modifications developed by or on behalf of the Company will be owned by the Company; provided, however, that the Company will grant to 49 51 Digital an irrevocable, royalty-free license to use for Digital's internal use Modifications developed by the Company during the two years following the consummation of the Offering. For two years following the consummation of the Offering, Digital will not have the right to commercialize any new software product derived from Transferred Code ("Derived Software") that is designed for use primarily in the Internet/intranet market, that runs on Windows, Windows NT or UNIX platforms and that offers functionality substantially similar to any of the AltaVista Products as of the consummation of the Offering. Notwithstanding the foregoing, Digital will be free to commercialize without restriction any Digital product, excluding the AltaVista products, existing as of the consummation of the Offering that includes Transferred Code as of the consummation of the Offering without restriction. Under the Asset Transfer Agreement, Digital will retain all of its rights in software code used in, but not developed specifically for, the Company's products ("Shared Code"). Digital will grant the Company a non-exclusive, irrevocable, royalty-free license to use Shared Code. Under the license, the Company will have the right to sell to its customers products containing Shared Code. The Company will not otherwise have a right to sublicense its rights or to assign or transfer such license except in connection with a change of control of the Company or the sale of all or substantially all of the Company's assets. Pursuant to the Asset Transfer Agreement, Digital will license to the Company all of its rights in all know-how related to and necessary to use, make and sell the Company's products. Any third party technology used in the Company's products will, to the extent permitted, be sublicensed or assigned by Digital to the Company under the Asset Transfer Agreement. 50 52 MANAGEMENT EXECUTIVE OFFICERS AND DIRECTORS The executive officers and directors of the Company and their ages as of June 29, 1996 are as follows:
NAME AGE POSITION - ------------------------------------- --- ----------------------------------------------------- Ilene H. Lang........................ 52 President, Chief Executive Officer and Director Jeanette A. Horan.................... 40 Vice President, Product Development Robert E. Hult....................... 49 Vice President, Finance and Operations, Chief Financial Officer and Treasurer William A. Laing..................... 44 Chief Technical Officer Freddy J. Mini....................... 35 Vice President, Worldwide Marketing James E. Toale....................... 43 Vice President, Human Resources Ray J. Wilkes........................ 46 Vice President, Sales-Americas Carel F.H. de Bos.................... 49 Vice President, Sales-Europe, Middle East and Africa
All of the Company's directors are elected annually by the stockholders and hold office until their respective successors are duly elected and qualified. Prior to the consummation of the Offering, the Company anticipates that four additional directors will be added to the Board of Directors who will be officers or employees of Digital. Upon consummation of the Offering, the Company anticipates that two additional directors will be added to the Board of Directors who will be persons not associated with the Company or Digital. In light of its voting power in the Company, Digital has the ability to change the size and composition of the Board of Directors. The Board of Directors is expected to appoint members to a compensation committee of the Board of Directors (the "Compensation Committee") and an audit committee of the Board of Directors (the "Audit Committee") after the independent directors referred to above are elected. The Compensation Committee will establish remuneration levels for certain officers of the Company and perform such functions as may be delegated to it under employee benefit programs and executive compensation programs. The Audit Committee will select and engage, on behalf of the Company, the independent public accountants to audit the Company's annual financial statements. The Audit Committee will also review and approve the planned scope of the annual audit. Executive officers are elected annually by the Board of Directors and serve at its discretion. All of the current directors and executive officers of the Company were elected to their current officer positions with the Company shortly following the organization of the Company in June 1996. Ilene H. Lang joined Digital in November 1995 and has been the Vice President of Digital's Internet Software Business Unit (formerly the Connectivity Software Business Unit) since its inception in January 1996. From January 1993 to September 1995, she was employed by Lotus Development Corporation, most recently as Senior Vice President, Desktop Business Group. Prior to joining Lotus, from August 1991 to June 1992, she was the Chief Operating Officer of the Industrial Technology Institute. Prior to that time, she was President of Adelie Corporation, a wholly owned AT&T, Inc. subsidiary; Vice President, Products and Services for Ontologic Inc.; and Vice President, Marketing and Software Products for Symbolics, Inc. Ms. Lang received an A.B. from Radcliffe College and an M.B.A. from Harvard Business School. Jeanette A. Horan joined Digital in 1994 and has been Vice President, Product Development of the Internet Software Business Unit since January 1996. From 1989 to 1994 she was employed by The Open Software Foundation as Director of Engineering and later Vice President, Interoperable Technologies. From 1981 to 1989 she was employed by Gould Computer Systems Division, most recently as Director, Software Engineering. Ms. Horan received a B.Sc. in Mathematics from the University of London and an M.B.A. from Boston University. Robert E. Hult has been employed by Digital since 1972 in various finance and general management positions, including Vice President, Finance and Operations of the Internet Software Business Unit since 51 53 January 1996; Vice President, Investor Relations; Area Vice President, Asia Pacific and Americas; and Vice President, Western States Region. Prior to joining Digital, Mr. Hult was a consultant at Arthur Andersen & Co. Mr. Hult received a B.S./M.S. from Rensselaer Polytechnic Institute and an M.B.A. from Babson College. He also completed the Harvard Business School Executive Program for Management Development. William A. Laing has been employed by Digital from 1982 to 1986 and since 1987, most recently as a Corporate Consulting Engineer and the Technical Director of the Internet Software Business Unit since January 1996. Prior to that, he held a number of senior technical positions, including Technical Director OpenVMS Engineering, Technical Director Engineering Europe and as a software strategist in the Computer Systems Division. From 1986 to 1987 he was the Software Director for European Silicon Structures Ltd., and from 1972 to 1981 he was a researcher and lecturer at the University of Edinburgh. Mr. Laing received a B.Sc. in Mathematics and Computer Science and a M.Phil., Computer Science, both from the University of Edinburgh. Freddy J. Mini joined Digital in May 1996 as Director of Marketing of the Internet Software Business Unit. From 1991 to 1996 he was employed by Lotus Development Corporation, most recently as Senior Director, Product and Business Electronic Marketing. From 1990 to 1991 he was the Director of Marketing for Evolution France, an IBM subsidiary, and from 1989 to 1990 he was Director of Business Development for BIG Systeme. Mr. Mini received a Baccalaureate in Science and a Master of Engineering from the Ecole Nationale Superieure d'Ingenieur in France. James E. Toale has been employed by Digital since July 1984 in various human resource management capacities, most recently as Director, Human Resources, of the Internet Software Business Unit since January 1996. From 1981 to 1984 he was Manager of Corporate Employment and Affirmative Action for Philip Morris Companies, Inc., and from 1971 to 1981 was employed by the Atlantic Mutual Companies insurance group, most recently as Manager Human Resource Planning. Mr. Toale received a B.B.A. from the College of Insurance and an M.A. in Human Resource Management from The New School. Ray J. Wilkes has been employed by Digital since 1977 in various sales and sales management assignments, most recently as Vice President, Sales-Americas of the Internet Software Business Unit since January 1996. Prior to that time, he was Director of Business Operations for the Americas Systems Business Unit and the Regional Channels Sales Manager for the Eastern Region. From 1974 to 1977 he was a financial planning consultant with Dayton Hudson Corporation. Mr. Wilkes received a B.S. from Boston College and an M.B.A. from Boston University. Carel F.H. de Bos joined Digital in May 1996 as Vice President, Sales-Europe, Middle East and Africa of the Internet Software Business Unit. From 1993 to 1996 he was Director of Information Services/Europe for R.R. Donnelley & Sons Company. From 1987 to 1991 he was Corporate Business Manager for Philips Information Systems, and from 1991 to 1993, after the acquisition by Digital of that business unit, he was the Business Manager for 800 Software, Inc. in Europe, a corporate reseller of desktop software. Mr. de Bos holds a B.Sc. in electronic engineering from the HTS in Amsterdam. COMPENSATION OF DIRECTORS Directors who are not employees of the Company, Digital or any other subsidiary of Digital (also referred to as "outside directors") will receive an annual retainer of $ and a fee of $ per day for attending regular meetings of the Board of Directors and $ per day for participating in meetings of the Board of Directors held by means of conference telephone and for participating in certain meetings of committees of the Board of Directors. Payment of director fees will be made quarterly. Directors will also be reimbursed for reasonable out-of-pocket expenses incurred in attending such meetings. Directors Stock Option Plan. The Company has adopted a directors stock option plan (the "Directors Plan") providing for the annual grant of stock options to purchase shares of Class A Common Stock to outside directors as additional compensation for their service as directors. A total of shares of Class A Common Stock have been reserved for issuance under the Directors Plan. 52 54 Under the Directors Plan, each eligible director initially joining the Board of Directors in fiscal 1997 will be granted an option to purchase shares of Class A Common Stock upon the later of the adoption of the plan or the director's appointment or election. With respect to each eligible director who is a director as of June 29, 1997 or who joins the Board of Directors on or after June 29, 1997, options to purchase shares of Class A Common Stock will be granted on the date of the Company's next annual meeting of stockholders provided that such director's service as a director will continue after such meeting. The exercise price of options granted under the Directors Plan will be 100% of the fair market value per share of the Class A Common Stock on the date the option is granted. Options granted under the Directors Plan will become exercisable at the rate of 33% on the first and second anniversaries of the date of grant and 34% on the third anniversary of the date of grant. The options will expire on the tenth anniversary of the grant date, unless terminated earlier in accordance with the Directors Plan. However, any option granted to a director who ceases to be a director of the Company because of death will expire one year from the date of death. If an optionee ceases to be a director of the Company because of permanent disability or death or by reason of retirement from the Board of Directors and has completed at least five years of service as a director at the time of such retirement, his or her option will become immediately exercisable in full. If an optionee ceases to be a director of the Company after his or her option becomes exercisable, the option will remain exercisable in accordance with its terms. If an optionee ceases to be a director of the Company for any reason other than those described above prior to the time his or her option becomes fully exercisable, the option will terminate with respect to the shares as to which the option is not then exercisable. COMPENSATION OF EXECUTIVE OFFICERS Summary Compensation Table The following table summarizes compensation for services to the Company, Digital and its subsidiaries in all capacities awarded to, earned by or paid to the Company's chief executive officer and the four most highly compensated executive officers of the Company for the fiscal year ended June 29, 1996. SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION ANNUAL -------------- COMPENSATION(1) SECURITIES FISCAL --------------------- UNDERLYING ALL OTHER NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS(2) COMPENSATION(3) - -------------------------------- ----- -------- -------- -------------- --------------- Ilene H. Lang................... 1996 $300,000 $ 67,500(4) (ALTV) -- President and CEO 30,000 (DEC) -- Jeanette A. Horan............... 1996 209,000 -- (ALTV) -- Vice President, 5,000 (DEC) $3,294 Product Development Robert E. Hult.................. 1996 173,617 -- (ALTV) -- Vice President, Finance and 5,000 (DEC) 3,979 Operations, Chief Financial Officer and Treasurer William A. Laing................ 1996 139,680(5) 35,000(5)(6) (ALTV) -- Chief Technical Officer 5,000 (DEC) -- Ray J. Wilkes................... 1996 133,536 10,000(7) (ALTV) -- Vice President, 5,000 (DEC) 3,347 Sales-Americas
- --------------- (1) The Company was organized on June 28, 1996, and the persons named in the table above became executive officers of the Company at that time or shortly thereafter. Reported in the table under "Annual Compensation" and "All Other Compensation" are the total amounts paid to such persons for their service in all capacities to Digital and its subsidiaries. 53 55 (2) Includes options to purchase shares of the Company's Class A Common Stock (designated in the table as ALTV)will be granted prior to the consummation of the Offering but are included in the table for clarity of presentation. Includes options to purchase shares of Digital common stock (designated in the table as DEC) granted under Digital's 1995 Equity Plan on August 21, 1996, but does not include any other stock-based compensation received from Digital. (3) Includes matching contributions by Digital under its Savings and Investment Plan ("SAVE Plan") for each executive officer as follows: Ms. Horan, $3,294; Mr. Hult, $2,462; and Mr. Wilkes, $2,563; and under the Digital Equipment Corporation Restoration Pension Plan, adopted effective as of May 1, 1992 (amended and renamed the Digital Equipment Corporation Cash Account Pension Plan effective as of March 1, 1996), for each executive officer as follows: Mr. Hult, $1,517 and Mr. Wilkes, $784. Neither Ms. Lang nor Mr. Laing participate in Digital's SAVE Plan. (4) Represents an amount Digital agreed to pay to Ms. Lang in fiscal year 1996 as an inducement for her to commence employment with Digital. (5) Paid in British Pounds Sterling. The amount given in U.S. dollar equivalents is based on the British Pounds Sterling/U.S. dollar exchange rate of .6433, as quoted in the Wall Street Journal on June 28, 1996, the last business day of Digital's 1996 fiscal year. (6) Represents a cash retention award paid by Digital in December 1995. (7) Represents sales commissions. Stock Options The following table sets forth information concerning individual grants of stock options made during fiscal 1996 to the Company's chief executive officer and the other named executive officers. No grants of stock appreciation rights to such persons have been made at any time. OPTION GRANTS
POTENTIAL PERCENT OF REALIZED VALUE TOTAL AT ASSUMED RATES NUMBER OF OPTIONS OF STOCK PRICE SHARES GRANTED TO APPRECIATION FOR UNDERLYING COMPANY EXERCISE OPTION TERM(3)(4) OPTIONS EMPLOYEES PRICE EXPIRATION ----------------- NAME GRANTED(1) IN 1996(2) PER SHARE DATE 5% 10% - --------------------- ------------ ---------- --------- -------- ------ ------ Ilene H. Lang........ (ALTV) % $ $ $ 30,000 (DEC) 1.00 37.75 8/21/06 -- -- Jeanette A. Horan.... (ALTV) 5,000 (DEC) 0.17 37.75 8/21/06 -- -- Robert E. Hult....... (ALTV) 5,000 (DEC) 0.17 37.75 8/21/06 -- -- William A. Laing..... (ALTV) 5,000 (DEC) 0.17 37.75 8/21/06 -- -- Ray J. Wilkes........ (ALTV) 5,000 (DEC) 0.17 37.75 8/21/06 -- --
- --------------- (1) All options to purchase shares of Class A Common Stock of the Company (designated in the table as ALTV) will be granted prior to the consummation of the Offering but are included in the table for clarity of presentation. Options to purchase shares of common stock of Digital (designated in the table as DEC) were granted on August 21, 1996 to the named executive officers. Options with respect to one-half of the shares of Class A Common Stock of the Company become exercisable on October 1, 1998, one quarter on October 1, 1999 and one quarter on October 1, 2000. These options expire on the tenth anniversary of the grant date, unless the optionee dies or ceases to serve as an employee of the Company prior to that date. Options granted by the Company prior to the consummation of the Offering are to be effective and deemed to be granted as of the date of this Prospectus, and the exercise price of all such options is equal to the public offering price set forth on the cover page of this Prospectus. The stock options granted by Digital include incentive and non-qualified stock options granted under Digital's 1995 Equity Plan at exercise prices equal to the fair market value of Digital's common stock on 54 56 the date of grant. The stock options granted by Digital have a term of ten years and become exercisable ratably over three years from the date of grant. (2) In the case of Digital, reflects percentage of total options granted to all employees by Digital on August 21, 1996. (3) Amounts reported in these columns represent amounts that may be realized upon exercise of the options immediately prior to the expiration of their term assuming the specified compounded rates of appreciation on the Company's Class A Common Stock over the term of the options. These numbers are calculated based on rules promulgated by the Securities and Exchange Commission and do not reflect the Company's estimates of future stock price growth. Actual gains, if any, on stock option exercises and Class A Common Stock holdings are dependent on the timing of such exercise and sale of the shares and the future performance of the Company's Class A Common Stock. There can be no assurances that the rates of appreciation assumed in this table can be achieved or that the amounts reflected will be received by the individuals. (4) The following is applicable to Digital:
GRANT DATE VALUE ----------------------------------------- MARKET VALUE GRANT DATE NAME ON GRANT DATE PRESENT VALUE - --------------------------------------------------- ------------------ ------------------ Ilene H. Lang................................. $37.75 $392,643 Jeanette A. Horan............................. 37.75 65,440 Robert E. Hult................................ 37.75 65,440 William A. Laing.............................. 37.75 65,440 Ray J. Wilkes................................. 37.75 65,440
The grant date present values shown were determined using a Black-Scholes pricing model with the following assumptions and adjustments: stock price volatility of 35%, and interest rate of 6.3% representing the interest rate on a U.S. Treasury security on the dates of grant with a maturity date corresponding to that of the option term; and an assumed 3.6-year option term. The use of this model should not be construed as an endorsement of its accuracy. Whether the model's assumptions will prove to be accurate cannot be known at the date of grant. The ultimate value of the options, if any, will depend on the future value of the underlying Digital common stock, which cannot be forecast with reasonable accuracy, and on the holder's investment decisions. Stock Options Exercised During Fiscal 1996 and Fiscal Year-end Option Values The following table reports certain information regarding Digital stock option exercises during fiscal 1996 and outstanding Digital stock options held at the end of fiscal 1996 by the Company's chief executive officer and the other named executive officers. There were no Company stock options outstanding at any time during fiscal 1996. The value of unexercised, in-the-money options at fiscal year-end is the difference between the exercise price and the fair market value of the underlying stock on June 28, 1996, the last business day of the fiscal year. The closing price of Digital's common stock on the New York Stock Exchange on such date was $45.6875. No stock appreciation rights were exercised or were outstanding with respect to such persons during fiscal 1996. AGGREGATED OPTION EXERCISES IN FISCAL 1996 AND FISCAL 1996 YEAR-END OPTION VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS SHARES OPTIONS AT FISCAL YEAR-END AT FISCAL YEAR-END ACQUIRED ------------------------------ --------------------------------- ON VALUE RESTRICTED/ RESTRICTED/ NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE - ---------------------------- -------- -------- ----------- ---------------- ----------- ------------------- Ilene H. Lang............... 0 -- 0 45,000 $ 0 $ 0 Jeanette A. Horan........... 0 -- 2,840 5,960 13,148 31,603 Robert E. Hult.............. 0 -- 6,866 8,922 107,896 89,551 William A. Laing............ 0 -- 6,230 3,356 158,091 84,737 Ray J. Wilkes............... 1,400 $11,453 3,830 920(1) 2,558 1,224
55 57 - --------------- (1) All of these options represent immediately exercisable restricted stock options, with restrictions on disposition of the underlying shares lapsing ratably over periods of three to ten years from date of grant. Pension Plans The Company's employees currently participate in Digital's pension plans which cover substantially all of the Company's and Digital's employees. Effective March 1, 1996, Digital's defined benefit pension plan (the "Prior Pension Plan") for its U.S. employees was amended and renamed the Cash Account Pension Plan (the "New Pension Plan"). Under the Prior Pension Plan, benefits were based upon the employee's earnings during service with Digital and were payable after retirement in the form of annuities or a lump sum benefit and the annual amount payable upon retirement at age 65 was, in general, 1.5% of the aggregate amount of the participant's eligible compensation earned on and after July 1, 1989. Those persons who were active participants under the Prior Pension Plan on July 1, 1989, or who later become active participants and were credited with prior service, were also eligible to receive 1.5% of the average of the participant's annual compensation between July 1, 1984 and July 1, 1989, multiplied by the number of years of accredited service prior to July 1, 1989. Under the New Pension Plan, benefits for U.S. employees are based upon the employee's eligible earnings during service with Digital, and are credited quarterly by Digital at the rate of 4% of the employee's total eligible pay for that quarter, plus interest. The accumulated, vested account balance is payable in one lump sum or in monthly payments, as elected by the participant, upon the employee's retirement or termination of employment with Digital. The opening account balance under the New Pension Plan for employees who were participants under the Prior Pension Plan on February 29, 1996 was determined by calculating the highest of (a) the lump sum value of the benefit that would have been payable under the Prior Pension Plan as of February 29, 1996, (b) the lump sum value of the benefit that would have been payable under the Prior Pension Plan but using average pay for the five-year period ending June 30, 1995, in place of average pay during all years of employment with Digital, or (c) a percentage factor (between 4.5% and 7.0%) times years of service times base pay as of December 18, 1995. The New Pension Plan continues the Prior Pension Plan formula for five years for all employees who on February 29, 1996 had reached age 50 and had completed at least five years of vesting service, or who were age 60 or older. At the earlier of March 31, 2001 or the employee's date of termination, his or her benefit will be the greater of the value of the benefit accrued under the Prior Pension Plan's formula or the employee's then current account balance under the New Pension Plan. A participant is 100% vested in his or her benefit after completing five years of vesting service with Digital. For purposes of calculating a participant's pension benefit under either the Prior Pension Plan or the New Pension Plan, annual compensation is currently limited to $150,000, subject to adjustment to reflect cost of living increases, pursuant to the Code. The Digital Equipment Corporation Restoration Pension Plan (the "Restoration Plan"), adopted effective as of May 1, 1992 (amended and renamed the Digital Equipment Corporation Cash Account Pension Plan effective as of March 1, 1996), compensates Digital's employees for reductions in the benefits calculated under either the Prior or the New Pension Plan, as the case may be, due to legislative and regulatory limitations. The Restoration Plan, which is a non-qualified plan under the Code, and which is unfunded, provides additional retirement compensation equal to the difference between the benefit a participant would receive under either Pension Plan without the legislative and regulatory limitations and the benefit actually payable to the participant under either Pension Plan. Estimated annual retirement benefits payable as a straight life annuity under the New Pension Plan and Restoration Plan at age 65 based on projected compensation and continued employment for the following individuals would be: Ms. Lang, $23,040; Ms. Horan, $54,617; Mr. Hult, $87,830; and Mr. Wilkes, $71,299. Mr. Laing is not covered by the New Pension Plan. In addition, Digital has a Savings and Investment Plan ("SAVE Plan") which allows eligible U.S. employees to defer up to 12% (14% as of June 30, 1996) of their eligible compensation on a tax-deferred basis into a tax exempt trust pursuant to rules set forth in the Code. Beginning in fiscal year 1996, Digital makes a matching contribution to the trust for the benefit of each participant in the SAVE Plan at the rate equal to the 56 58 lesser of (a) 33 1/3% of such employee's contributions or (b) 2% of such employee's annual eligible compensation (subject to Code limitations). The employee accounts are invested by the plan trustee in up to nine investment alternatives, as directed by the employee. Annual employee pre-tax deferrals are currently limited to $9,500 for the 1996 calendar year. The Digital Equipment Corporation SAVE Restoration Plan was adopted effective on July 1, 1995. The SAVE Restoration Plan, which is a non-qualified plan under the Code and is unfunded, allows any SAVE Plan participant whose annual eligible compensation is at least $150,000 (subject to adjustment to reflect cost of living increases) and who defers the maximum amount of his or her eligible compensation under the SAVE Plan for the year to receive a credit equal to 2% of the amount by which such employee's eligible compensation for that year exceeds $150,000 (as adjusted) resulting in a total matching contribution equal to what would have otherwise been provided under the SAVE Plan but for legislative and regulatory limitations. PRINCIPAL STOCKHOLDER All of the shares of Class B Common Stock outstanding immediately prior to the consummation of the Offering are owned by Digital. Upon consummation of the Offering, Digital will own all of the outstanding Class B Common stock and, accordingly, will own Common Stock representing approximately % of the economic interest in the Company ( % if the Underwriters' over-allotment options are exercised in full) and representing approximately % of the combined voting power of the Company's outstanding Common Stock (or % if the Underwriters' over-allotment options are exercised in full). The address of Digital is 111 Powdermill Road, Maynard, Massachusetts 01754. SHARES ELIGIBLE FOR FUTURE SALE Upon consummation of the Offering, the Company will have shares of Class A Common Stock issued and outstanding ( if the Underwriters' over-allotment options are exercised in full) and shares of Class B Common Stock issued and outstanding. All of the shares of Class A Common Stock to be sold in the Offering will be freely tradeable without restrictions under the Securities Act of 1933, as amended (the "Securities Act"), except for any shares acquired by an "affiliate" of the Company (as that term is defined in Rule 144 adopted under the Securities Act ("Rule 144")), which will be subject to the resale limitations of Rule 144 unless sold under an effective registration statement under the Securities Act or pursuant to another exemption from registration. All of the outstanding shares of Class B Common Stock are owned by Digital and have not been registered under the Securities Act and may not be sold in the absence of an effective registration statement under the Securities Act other than in accordance with Rule 144 or another exemption from registration. Digital has certain rights to require the Company to effect registration of shares of Class B Common Stock owned by Digital, which rights may be assigned. See "Relationship with Digital -- Corporate Agreement." In general, under Rule 144 as currently in effect, a person (or persons whose shares are required to be aggregated) who has beneficially owned shares of Common Stock for at least two years, including a person who may be deemed an "affiliate" of the Company, is entitled to sell within any three-month period a number of shares that does not exceed the greater of one percent of the total number of outstanding shares of the class of stock being sold or the average weekly reported trading volume of the class of stock being sold during the four calendar weeks preceding the sale. A person who is not deemed an "affiliate" of the Company at any time during the three months preceding a sale and who has beneficially owned shares for at least three years is entitled to sell such shares without regard to the volume limitations described above. As defined in Rule 144, an "affiliate" of an issuer is a person that directly or indirectly through the use of one or more intermediaries controls, is controlled by, or is under common control with, such issuer. The Securities and Exchange Commission has proposed to amend the holding period required by Rule 144 to permit sales of "restricted securities" after one year rather than two years (and to permit sales without any volume limitation after two years, rather than three years, for non-affiliates). 57 59 Rule 144A under the Securities Act ("Rule 144A") provides a non-exclusive safe harbor exemption from the registration requirements of the Securities Act for specified resales of restricted securities to certain institutional investors. In general, Rule 144A allows unregistered resales of restricted securities to a "qualified institutional buyer," which generally includes an entity, acting for its own account or for the account of other qualified institutional buyers, that in the aggregate owns or invests at least $100 million in securities of unaffiliated issuers. Rule 144A does not extend an exemption to the offer or sale of securities that, when issued, were of the same class as securities listed on a national securities exchange or quoted on an automated quotation system. The shares of Class B Common Stock outstanding as of the date of this Prospectus would be eligible for resale under Rule 144A because such shares, when issued, were not of the same class as any listed or quoted securities. Prior to the Offering, there has been no market for the Class A Common Stock. No predictions can be made of the effect, if any, that market sales of currently outstanding shares of Class B Common Stock or the availability of such shares for sale will have on the market price of Class A Common Stock prevailing from time to time. Nevertheless, sales of substantial amounts of Class B Common Stock in the public market, or the perception that such sales could occur, could adversely affect prevailing market prices for Class A Common Stock. Although Digital in the future may effect or direct sales or other dispositions of Common Stock that would reduce its ownership interest in the Company, Digital has advised the Company that its current intention is to continue to hold all of the Class B Common Stock owned by it immediately after the completion of the Offering. However, Digital has no agreement with the Company not to sell or distribute such shares, and, other than pursuant to the Underwriting Agreements described below, there can be no assurance concerning the period of time during which Digital will maintain its ownership of Common Stock. Beneficial ownership of at least 80% of the total voting power and value of the outstanding Common Stock is required in order for Digital to continue to include the Company in its consolidated group for federal tax purposes, and ownership of at least 80% of the total voting power and 80% of each class of non-voting capital stock is required in order for Digital to be able to effect a tax-free spin-off of the Company. Digital has indicated to the Company that any decision by Digital to reduce such ownership interest would be made in the future on the basis of all of the circumstances existing at such time, including the effect of any such reduction on Digital (including any benefit to Digital from the removal from Digital's consolidated balance sheet of the Company's assets and liabilities in the event Digital's interest in the Common Stock is reduced below 50%), the needs of Digital, the performance of Digital, stock market conditions and other factors. In connection with the Offering, subject to certain exceptions, the Company and Digital will agree with the Underwriters not to sell or otherwise dispose of, directly or indirectly, any shares of Common Stock (or any security convertible into or exchangeable or exercisable for Common Stock) for a period of 180 days after the date of this Prospectus without the prior written consent of Lehman Brothers Inc. 58 60 DESCRIPTION OF CAPITAL STOCK GENERAL The authorized capital stock of the Company will consist of (a) 100,000,000 shares of Common Stock, par value $0.01 per share, of which: (i) 50,000,000 shares initially will be designated as Class A Common Stock; and (ii) 50,000,000 shares initially will be designated as Class B Common Stock; and (b) 5,000,000 shares of Preferred Stock, par value $0.01 per share, of which no shares are outstanding as of the date hereof. Of the 50,000,000 shares of Common Stock designated as Class A Common Stock, shares are being offered hereby and shares are reserved for issuance upon conversion of Class B Common Stock into Class A Common Stock. Of the 50,000,000 shares of Common Stock designated as Class B Common Stock, shares will be outstanding and held by Digital upon consummation of the Offering. Each of the Class A Common Stock and Class B Common Stock constitutes a series of Common Stock under the General Corporation Law of the State of Delaware (the "DGCL"). A description of the material terms and provisions of the Company's Amended and Restated Certificate of Incorporation affecting the relative rights of the Class A Common Stock, the Class B Common Stock and the Preferred Stock is set forth below. The description is intended as a summary and is qualified in its entirety by reference to the form of the Company's Amended and Restated Certificate of Incorporation filed as an exhibit to the Registration Statement of which this Prospectus forms a part. COMMON STOCK Voting Rights The holders of Class A Common Stock and Class B Common Stock generally have identical rights, except that holders of Class A Common Stock are entitled to one vote per share while holders of Class B Common Stock, with some exceptions described below, are entitled to three votes per share on all matters to be voted on by stockholders. Holders of shares of Class A Common Stock and Class B Common Stock are not entitled to cumulate their votes in the election of directors. Generally, all matters to be voted on by stockholders must be approved by a majority (or, in the case of election of directors, by a plurality) of the votes entitled to be cast by all shares of Class A Common Stock and Class B Common Stock present in person or represented by proxy, voting together as a single class, subject to any voting rights granted to holders of any Preferred Stock. Except as otherwise provided by law, and subject to any voting rights granted to holders of any outstanding Preferred Stock, amendments to the Company's Amended and Restated Certificate of Incorporation must be approved by a majority of the combined voting power of all Class A Common Stock and Class B Common Stock, voting together as a single class. However, amendments to the Company's Amended and Restated Certificate of Incorporation that would alter or change the powers, preferences or special rights of the Class A Common Stock or the Class B Common Stock so as to affect them adversely also must be approved by a majority of the votes entitled to be cast by the holders of the shares affected by the amendment, voting as a separate class. Dividends The Board of Directors of the Company currently does not intend to pay dividends on the Class A Common Stock and Class B Common Stock. By virtue of its stock ownership, Digital will have the ability to change the size and composition of the Company's Board of Directors and thereby control the payment of dividends by the Company. Conversion Each share of Class B Common Stock will be convertible at the holder's option into one share of Class A Common Stock while such share of Class B Common Stock is held by Digital or any of its subsidiaries and until the earlier of: (i) the date on which shares of Class B Common Stock are issued to stockholders of Digital or its successor in a Tax-Free Spin-Off; and (ii) the date on which the number of shares of Class B Common Stock outstanding is less than 60% of the aggregate number of shares of Common Stock 59 61 outstanding. Any shares of Class B Common Stock transferred to a person other than Digital or any of its subsidiaries shall automatically convert to shares of Class A Common Stock upon such disposition, except for a disposition effected in connection with a transfer of Class B Common Stock to stockholders of Digital as a dividend in a Tax-Free Spin-Off. In the event of a Tax-Free Spin-Off, shares of Class B Common Stock shall automatically convert into shares of Class A Common Stock on the fifth anniversary of the Tax-Free Spin-Off, unless prior to such Tax-Free Spin-Off Digital delivers to the Company an opinion of counsel (which counsel shall be reasonably satisfactory to the Company) to the effect that such conversion would preclude Digital from obtaining a favorable ruling from the Internal Revenue Service that the distribution would be tax-free under the Code. If such an opinion is received, approval of such conversion shall be submitted to a vote of the holders of the Company's Common Stock as soon as practicable after the fifth anniversary of the Tax-Free Spin-Off unless Digital delivers to the Company an opinion of Digital's counsel (which counsel shall be reasonably satisfactory to the Company) prior to such anniversary that such vote would adversely affect the status of the Tax-Free Spin-Off. Approval of such conversion will require the affirmative vote of the holders of a majority of the shares of both the Company's Class A Common Stock and Class B Common Stock present and voting, voting together as a single class, with each share entitled to one vote for such purpose. No assurance can be given that such conversion would be consummated. Digital has no current plans with respect to a Tax-Free Spin-Off of the Company. Digital expects to convert its Class B Common Stock into Class A Common Stock immediately prior to a Tax-Free Spin-Off if, after such conversion, it would have beneficial ownership of at least 80% of the voting power of the outstanding Common Stock. All shares of Class B Common Stock shall automatically convert into Class A Common Stock if a Tax-Free Spin-Off has not occurred and the number of outstanding shares of Class B Common Stock falls below 60% of the aggregate number of outstanding shares of Common Stock. This will prevent Digital from decreasing its economic interest in the Company to less than 60% while still retaining control of approximately 81.8% of the Company's voting power. All conversions will be effected on a share-for-share basis. The requirement that Digital retain beneficial ownership of at least 80% of the voting power of the outstanding Common Stock after any conversion prior to a Tax-Free Spin-Off is intended to ensure that the tax treatment of the Tax-Free Spin-Off is preserved. Similarly, the requirement to submit such conversion to a vote of the holders of Common Stock is intended to preserve such tax treatment should the Internal Revenue Service challenge automatic conversion on the fifth anniversary of the Tax-Free Spin-Off as violating the 80% vote requirement. Automatic conversion of the Class B Common Stock into Class A Common Stock if a Tax-Free Spin-Off has not occurred and Digital decreases its economic interest in the Company to less than 60% is intended to ensure that Digital retains voting control by virtue of its ownership of Class B Common Stock only if it has a sizable economic interest in the Company. In addition, in order to give any holder of the Class A Common Stock or Class B Common Stock the right to participate in any offer for a significant amount of the shares of the other class that is not similarly offered for the shares of such holder's class, following a Tax-Free Spin-Off shares of Common Stock of each class will be convertible, at the option of the registered holder thereof, on a share-for-share basis, into shares of the other class if any person (other than Digital or any of its consolidated subsidiaries), or any group of persons (other than Digital or any one or more of its subsidiaries) agreeing to act together for the purpose of acquiring, holding, voting or disposing of shares of Common Stock, makes an offer, which the Company's Board of Directors deems, in its sole discretion, to be a bona fide offer, to purchase 5% or more of the other class of Common Stock for cash or a combination of cash and other securities or property without making a similar offer for the shares of such class. The shares of Common Stock of a class may only be so converted during the period in which such bona fide offer is in effect. Any share of Common Stock so converted and not acquired by the offeror prior to the termination, rescission or completion of the offer will automatically reconvert to a share of the class from which it was converted upon such termination, rescission or completion. Other Rights In the event of any merger or consolidation of the Company with or into another company in connection with which shares of Common Stock are converted into or exchangeable for shares of stock, other securities or 60 62 property (including cash), all holders of Common Stock, regardless of class, will be entitled to receive the same kind and amount of shares of stock and other securities and property (including cash). On liquidation, dissolution or winding up of the Company after payment in full of the amounts required to be paid to holders of Preferred Stock, all holders of Common Stock, regardless of class, are entitled to share ratably in any assets available for distribution to holders of shares of Common Stock. No shares of either class of Common Stock are subject to redemption or have preemptive rights to purchase additional shares of Common Stock. However, the Company and Digital intend to enter into a corporate agreement under which the Company will grant to Digital a continuing option, transferable to any of its subsidiaries, to purchase, under certain circumstances, at market price, additional shares of Class B Common Stock or shares of nonvoting capital stock of the Company to the extent necessary to maintain its then-existing percentage of the total voting power and value of the Company and, with respect to shares of nonvoting capital stock, to the extent necessary to own 80% of each outstanding class of such stock. See "Relationship with Digital -- Corporate Agreement." Upon consummation of the Offering, all the outstanding shares of Class A Common Stock and Class B Common Stock will be legally issued, fully paid and nonassessable. PREFERRED STOCK The Preferred Stock is issuable from time to time in one or more series and with such designations and preferences for each series as shall be stated in the resolutions providing for the designation and issue of each such series adopted by the Board of Directors of the Company. The Board of Directors is authorized by the Company's Amended and Restated Certificate of Incorporation to determine, among other things, the voting, dividend, redemption and liquidation preferences and limitations pertaining to such series. The Board of Directors, without stockholder approval, may issue Preferred Stock with voting and other rights that could adversely affect the voting power of the holders of the Common Stock and could have certain antitakeover effects. The Company has no present plans to issue any shares of Preferred Stock. The ability of the Board of Directors to issue Preferred Stock without stockholder approval could have the effect of delaying, deferring or preventing a change in control of the Company or the removal of existing management. CERTAIN CERTIFICATE OF INCORPORATION AND BY-LAW PROVISIONS The Company's Amended and Restated Certificate of Incorporation provides that any person purchasing or acquiring an interest in shares of capital stock of the Company is deemed to have consented to the following provisions relating to intercompany agreements and to transactions with interested parties and corporate opportunities. The corporate charter of Digital does not include comparable provisions relating to intercompany agreements, transactions with interested parties or corporate opportunities. Transactions With Interested Parties The Company's Amended and Restated Certificate of Incorporation provides that no contract, agreement, arrangement or transaction (or any amendment, modification or termination thereof) between the Company and Digital or any Related Entity (as such terms are defined below) or between the Company and any director or officer of the Company, Digital or any Related Entity shall be void or voidable solely for the reason that Digital, a Related Entity or any one or more of the officers or directors of the Company, Digital or any Related Entity are parties thereto, or solely because any such directors or officers are present at, participate in or vote with respect to the authorization of such contract, agreement, arrangement or transaction (or any amendment, modification or termination thereof). Further, the Company's Amended and Restated Certificate of Incorporation provides that neither Digital nor any officer or director thereof or of any Related Entity shall be liable to the Company or its stockholders for breach of any fiduciary duty or duty of loyalty or failure to act in (or not opposed to) the best interests of the Company or the derivation of any improper personal benefit by reason of the fact that Digital or an officer or director thereof or of such Related Entity in good faith takes any action or exercises any rights or gives or withholds any consent in connection with any agreement or contract between Digital or such Related Entity and the Company. No vote cast or other action 61 63 taken by any person who is an officer, director or other representative of Digital or such Related Entity, which vote is cast or action is taken by such person in his capacity as a director of the Company, shall constitute an action of or the exercise of a right by or a consent of Digital, such subsidiary or Related Entity for the purpose of any such agreement or contract. For purposes of the foregoing, the "Company" and "Digital" include all corporations and other entities in which the Company or Digital, as the case may be, owns fifty percent or more of the outstanding voting stock, and "Related Entity" means one or more corporations or other entities in which one or more of the directors of the Company have a direct or indirect financial interest. Competition by Digital with the Company; Corporate Opportunities The Company's Amended and Restated Certificate of Incorporation provides that except as Digital may otherwise agree in writing: (i) neither Digital nor any subsidiary of Digital (other than the Company) shall have a duty to refrain from engaging directly or indirectly in the same or similar business activities or lines of business as the Company; and (ii) neither Digital nor any subsidiary (other than the Company), officer or director thereof will be liable to the Company or to its stockholders for breach of any fiduciary duty by reason of any such activities or of such person's participation therein. The Company's Amended and Restated Certificate of Incorporation also provides that if Digital or any subsidiary of Digital (other than the Company) acquires knowledge of a potential transaction or matter which may be a corporate opportunity both for Digital or such subsidiary and for the Company, neither Digital nor such subsidiary (nor the officers and directors of either thereof) shall have a duty to communicate or offer such corporate opportunity to the Company and shall not be liable to the Company or its stockholders for breach of fiduciary duty as a stockholder of the Company or controlling person of a stockholder by reason of the fact that Digital or such subsidiary pursues or acquires such opportunity for itself, directs such corporate opportunity to another person, or does not communicate information regarding such corporate opportunity to the Company. Further, the Company's Amended and Restated Certificate of Incorporation provides that in the event that a director, officer or employee of the Company who is also a director, officer or employee of Digital acquires knowledge of a potential transaction or matter that may be a corporate opportunity both for the Company and Digital (whether such potential transaction or matter is proposed by a third party or is conceived of by such director, officer or employee of the Company), such director, officer or employee shall be entitled to offer such corporate opportunity to the Company or Digital as such director, officer or employee deems appropriate under the circumstances in his or her sole discretion, and no such director, officer or employee shall be liable to the Company or its stockholders for breach of any fiduciary duty or duty of loyalty or failure to act in (or not opposed to) the best interests of the Company or the derivation of any improper personal benefit by reason of the fact that (i) such director, officer or employee offered such corporate opportunity to Digital (rather than the Company) or did not communicate information regarding such corporate opportunity to the Company or (ii) Digital pursues or acquires such corporate opportunity for itself or directs such corporate opportunity to another person or does not communicate information regarding such corporate opportunity to the Company. The enforceability of the provisions discussed above under Delaware corporate law has not been established and, due to the absence of relevant judicial authority, counsel to the Company is not able to deliver an opinion as to the enforceability of such provisions. These provisions of the Company's Amended and Restated Certificate of Incorporation eliminate certain rights that might have been available to stockholders under Delaware law had such provisions not been included in the Amended and Restated Certificate of Incorporation, although the enforceability of such provisions has not been established. At the time of the consummation of the Offering, certain of the directors of the Company will also be employees of Digital. 62 64 The foregoing provisions of the Company's Amended and Restated Certificate of Incorporation shall expire on the date that Digital ceases to own beneficially Common Stock representing at least 20% of the number of outstanding shares of Common Stock and no person who is a director or officer of the Company is also a director or officer of Digital or its subsidiaries. Actions Under Intercompany Agreements The Company's Amended and Restated Certificate of Incorporation will also limit the liability of Digital and its subsidiaries for certain breaches of their fiduciary duties in connection with action that may be taken or not taken in good faith under the intercompany agreements. See "Relationship with Digital." Advance Notice Provision The Company's Amended and Restated By-Laws provide for an advance notice procedure for the nomination, other than by or at the direction of the Board of Directors, of candidates for election as directors as well as for other stockholder proposals to be considered at annual meetings of stockholders. In general, notice of intent to nominate a director or raise matters at such meetings will have to be received by the Company not less than 120 or more than 150 days prior to the first anniversary of the Company's proxy statement in connection with the previous year's annual meeting, and must contain certain information concerning the person to be nominated or the matters to be brought before the meeting and concerning the stockholder submitting the proposal. Limitations on Directors' Liability The Company's Amended and Restated Certificate of Incorporation and the applicable provisions of the DGCL provide that no director of the Company shall be liable to the Company or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Company or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) in respect of certain unlawful dividend payments or stock redemptions or repurchases or (iv) for any transaction from which the director derived an improper personal benefit. The effect of these provisions will be to eliminate the rights of the Company and its stockholders (through stockholders' derivative suits on behalf of the Company) to recover monetary damages against a director for breach of fiduciary duty as a director (including breaches resulting from grossly negligent behavior), except in the situations described above. The Delaware General Corporation Law The Company is a Delaware corporation subject to Section 203 of the DGCL. Section 203 provides that, subject to certain exceptions specified therein, a corporation shall not engage in any business combination with any "interested stockholder" for a three-year period following the date that such stockholder becomes an interested stockholder unless: (i) prior to such date, the Board of Directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder; (ii) upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced (excluding certain shares); or (iii) on or subsequent to such date, the business combination is approved by the Board of Directors of the corporation and by the affirmative vote of at least 66% of the outstanding voting stock which is not owned by the interested stockholder. Except as specified in Section 203 of the DGCL, an interested stockholder is defined to include (x) any person that is the owner of 15% or more of the outstanding voting stock of the corporation, or is an affiliate or associate of the corporation and was the owner of 15% or more of the outstanding voting stock of the corporation, at any time within three years immediately prior to the relevant date and (y) the affiliates and associates of any such person. Under certain circumstances, Section 203 of the DGCL makes it more difficult for an "interested stockholder" to effect various business combinations with a corporation for a three-year period, although the stockholders of a corporation may elect to exclude a corporation from the restrictions imposed thereunder. By virtue of its beneficial ownership of Class B Common Stock, Digital is in a position to 63 65 elect to exclude the Company from the restrictions under Section 203 of the DGCL, although it currently has no intention to do so. TRANSFER AGENT The Company's transfer agent and registrar for its Common Stock is First Chicago Trust Company of New York. CERTAIN UNITED STATES FEDERAL TAX CONSEQUENCES TO NON-UNITED STATES HOLDERS The following is a general discussion of the material United States federal income and estate tax consequences of the ownership and disposition of the Common Stock applicable to Non-United States Holders of such Common Stock. For the purposes of this discussion, a "Non-United States Holder" is any person other than (i) a citizen or resident of the United States, (ii) a corporation, partnership or other entity created or organized in the United States or under the laws of the United States or any state, or (iii) an estate or trust the income of which is includible in gross income for United States federal income tax purposes regardless of its source. The term "Non-United States Holder" does not include individuals who were United States citizens within the ten-year period immediately preceding the date of this Prospectus and whose loss of United States citizenship had as one of its principal purposes the avoidance of United States taxes. This discussion does not deal with all aspects of United States federal income and estate taxation and does not deal with foreign, state and local tax consequences that may be relevant to Non-United States Holders in light of their personal circumstances. Furthermore, the following discussion is based on current provisions of the Code and administrative and judicial interpretations as of the date hereof, all of which are subject to change. Prospective non-United States investors are urged to consult their tax advisors regarding the United States federal, state, local and non-United States income and other tax consequences of owning and disposing of Common Stock. DIVIDENDS Generally, any dividend paid to a Non-United States Holder of Common Stock will be subject to United States withholding tax either at a rate of 30% of the gross amount of the dividend or such lower rate as may be specified by an applicable tax treaty. Under current United States Treasury regulations, dividends paid to an address outside the United States are presumed to be paid to a resident of such country (absent knowledge that such presumption is not warranted) for purposes of the withholding discussed above and, under the current interpretation of United States Treasury regulations, for purposes of determining applicability of a tax treaty rate. However, under proposed United States Treasury regulations not currently in effect, a Non-United States Holder of Common Stock (including a beneficial owner of an interest in certain Non-United States Holders) who wishes to claim the benefit of an applicable treaty rate would be required to satisfy certain certification and disclosure requirements. Dividends received by a Non-United States Holder that are effectively connected with a United States trade or business conducted by such Non-United States Holder are exempt from such withholding tax. However, such effectively connected dividends, net of certain deductions and credits, are taxed at the same graduated rates applicable to United States persons. Currently, certain certification and disclosure requirements must be complied with in order to be exempt from withholding under the effectively connected income exemption. In addition to the graduated tax described above, dividends received by a corporate Non-United States Holder that are effectively connected with a United States trade or business of the corporate Non-United States Holder may also be subject to a branch profits tax at a rate of 30% or such lower rate as may be specified by an applicable tax treaty. A Non-United States Holder of Common Stock eligible for a reduced rate of United States withholding tax pursuant to a tax treaty may obtain a refund of any excess amounts currently withheld by filing an appropriate claim for refund with the U.S. Internal Revenue Service. 64 66 GAIN ON DISPOSITION OF COMMON STOCK A Non-United States Holder generally will not be subject to United States federal income tax on any gain realized upon the sale or other disposition of his Common Stock unless: (i) such gain is effectively connected with a United States trade or business of the Non-United States Holder; (ii) the Non-United States Holder is an individual who holds such Common Stock as a capital asset and who is present in the United States for 183 days or more during the calendar year in which such sale or disposition occurs and certain other conditions are met; or (iii) the Company is or has been a "United States real property holding corporation" for federal income tax purposes at any time within the shorter of the five-year period preceding such disposition or such holder's holding period. The Company has determined that it is not and does not believe that it will become a "United States real property holding corporation" for federal income tax purposes. If the Company were to become a "United States real property holding corporation," gains realized on a disposition of Common Stock by a Non-United States Holder which did not directly or indirectly own more than 5% of the Common Stock during the shorter of the periods described above generally would not be subject to United States federal income tax, provided that the Common Stock is "regularly traded" on an established securities market. An individual Non-United States Holder described in clause (i) above will be taxed on the net gain derived from the sale under regular graduated United States federal income tax rates. An individual Non-United States Holder described in clause (ii) above will be subject to a flat 30% tax on the gain derived from the sale, which may be offset by United States capital losses (notwithstanding the fact that the individual is not considered a resident of the United States). If a Non-United States Holder that is a foreign corporation falls under clause (i) above, it will be taxed on its gain under regular graduated United States federal income tax rates and, in addition, may be subject to the branch profits tax equal to 30% of its effectively connected earnings and profits within the meaning of the Code for the taxable year, as adjusted for certain items, unless it qualifies for a lower rate under an applicable income tax treaty. BACKUP WITHHOLDING AND INFORMATION REPORTING Generally, the Company must report to the U.S. Internal Revenue Service the amount of dividends paid, the name and address of the recipient of such dividends, and the amount, if any, of tax withheld. A similar report is sent to the recipient of such dividends. Pursuant to tax treaties or other agreements, the U.S. Internal Revenue Service may make its reports available to tax authorities in the recipient's country of residence. Under current Treasury Regulations, dividends paid to a Non-United States Holder at an address within the United States may be subject to backup withholding at a rate of 31% if the Non-United States Holder fails to establish that it is entitled to an exemption or to provide a correct taxpayer identification number and other information to the payor. Under current Treasury Regulations, backup withholding will generally not apply to dividends paid to Non-United States Holders at an address outside the United States (unless the payor has knowledge that the payee is a U.S. person). Under proposed United States Treasury regulations not currently in effect, however, a Non-United States Holder will be subject to back-up withholding unless applicable certification requirements are met. Under current Treasury Regulations, the payment of the proceeds of the disposition of Common Stock to or through the United States office of a broker is subject to information reporting and backup withholding at a rate of 31% unless the holder certifies its Non-United States Holder status under penalties of perjury or otherwise establishes an exemption. Generally, the payment of the proceeds of the disposition by a Non-United States Holder of Common Stock outside the United States to or through a foreign office of a broker will not be subject to backup withholding. However, information reporting requirements (but not backup withholding) will apply to a payment of disposition proceeds outside the United States through an office outside the United States of a broker that is (a) a United States person, (b) a United States "controlled foreign corporation" for U.S. tax purposes or (c) a foreign person 50% or more of whose gross income for certain periods is from the conduct of a United States trade or business unless such broker has documentary evidence in its files of the owner's foreign status and has no knowledge to the contrary or the holder otherwise establishes an exemption. 65 67 Backup withholding is not an additional tax. Rather, the tax liability of persons subject to backup withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund may be obtained, provided that the required information is furnished to the U.S. Internal Revenue Service. ESTATE TAX A Non-United States Holder who is an individual and who owns Common Stock at the time of his death or has made certain lifetime transfers of an interest in Common Stock will be required to include the value of such stock in his gross estate for United States federal estate tax purposes, unless an applicable estate tax treaty provides otherwise. 66 68 UNDERWRITING The underwriters of the U.S. Offering of the Class A Common Stock (the "U.S. Underwriters"), for whom Lehman Brothers Inc., Cowen & Company and J.P. Morgan Securities Inc. are serving as representatives (the "Representatives"), have severally agreed, subject to the terms and conditions of the U.S. Underwriting Agreement, the form of which is filed as an exhibit to the Registration Statement, to purchase from the Company, and the Company has agreed to sell to each U.S. Underwriter, the following number of shares of Class A Common Stock at the public offering price less the underwriting discounts and commissions set forth on the cover page of this Prospectus:
U.S. UNDERWRITERS NUMBER OF SHARES --------------------------------------------------------------------- ---------------- Lehman Brothers Inc. ................................................ Cowen & Company...................................................... J.P. Morgan Securities Inc. ......................................... ---------------- Total...................................................... =============
The managers of the International Offering named below (the "International Managers"), for whom Lehman Brothers International (Europe), Cowen & Company and J.P. Morgan Securities Ltd. are acting as lead managers, have severally agreed, subject to the terms and conditions of the International Underwriting Agreement, the form of which is filed as an exhibit to the Registration Statement, to purchase from the Company, and the Company has agreed to sell to each International Manager, the following aggregate number of shares of Class A Common Stock at the public offering price less the underwriting discounts and commissions set forth on the cover page of this Prospectus:
INTERNATIONAL MANAGERS NUMBER OF SHARES --------------------------------------------------------------------- ---------------- Lehman Brothers International (Europe)............................... Cowen & Company...................................................... J.P. Morgan Securities Ltd. ......................................... ---------------- Total...................................................... =============
The U.S. Underwriting Agreement and the International Underwriting Agreement (collectively, the "Underwriting Agreements") provide that the obligations of the U.S. Underwriters and the International Managers, respectively, to purchase shares of Class A Common Stock are subject to the approval of certain legal matters by counsel and to certain other conditions and that if any of the shares of Class A Common Stock are purchased by the U.S. Underwriters pursuant to the U.S. Underwriting Agreement or by the International Managers pursuant to the International Underwriting Agreement, all the shares of Class A Common Stock agreed to be purchased by either the U.S. Underwriters or the International Managers, as the case may be, pursuant to their respective Underwriting Agreement, must be so purchased. The offering price and underwriting discounts and commissions for the U.S. Offering and the International Offering are identical. The closing of the International Offering is a condition to the closing of the U.S. Offering and the closing of the U.S. Offering is a condition to the closing of the International Offering. The Company has been advised that the U.S. Underwriters and the International Managers propose to offer shares of Class A Common Stock directly to the public initially at the public offering price set forth on the cover page of this Prospectus and to certain selected dealers (who may include the U.S. Underwriters and International Managers) at such public offering price less a selling concession not to exceed $ per share. The Underwriters may allow and the selected dealers may reallow a concession not to exceed $ per share. After the initial offering of the Class A Common Stock, the public offering price, the concession to selected 67 69 dealers and the reallowance to other dealers may be changed by the U.S. Underwriters and the International Managers. The Representatives have informed the Company that the Underwriters do not intend to confirm sales of shares of Class A Common Stock to any accounts over which they exercise discretionary authority. The U.S. Underwriters and the International Managers have entered into an Agreement Between U.S. Underwriters and International Managers (the "Agreement Between") pursuant to which each U.S. Underwriter has agreed that, as part of the distribution of the shares of Class A Common Stock offered in the U.S. Offering, (a) it is not purchasing any of such shares for the account of anyone other than a U.S. or Canadian Person (as defined below) and (b) it has not offered or sold, and will not offer, sell, resell or deliver, directly or indirectly, any of such shares or distribute any prospectus relating to the U.S. Offering outside the United States or Canada or to anyone other than a U.S. or Canadian Person. In addition, pursuant to the Agreement Between, each International Manager has agreed that, as part of the distribution of the shares of Class A Common Stock offered in the International Offering, (a) it is not purchasing any of such shares for the account of any U.S. or Canadian Person and (b) it has not offered or sold, and will not offer, sell, resell or deliver, directly or indirectly, any of such shares or distribute any prospectus relating to the International Offering within the United States or Canada or to any U.S. or Canadian Person. The foregoing limitations do not apply to stabilization transactions or to certain other transactions specified in the Underwriting Agreements and the Agreement Between, including (i) certain purchases and sales between the U.S. Underwriters and the International Managers; (ii) certain offers, sales, resales, deliveries or distributions to or through investment advisors or other persons exercising investment discretion; (iii) purchases, offers or sales by a U.S. Underwriter who is also acting as an International Manager or by an International Manager who also is acting as a U.S. Underwriter and (iv) other transactions specifically approved by the U.S. Underwriters and International Managers. As used herein, "U.S. or Canadian Person" means any resident or citizen of the United States or Canada, any corporation, pension, profit sharing or other trust or other entity organized under or governed by the laws of the United States or Canada or any political subdivision thereof (other than the foreign branch of any United States or Canadian Person), any estate or trust the income of which is subject to United States or Canadian federal income taxation regardless of the source of its income, and any United States or Canadian branch of a person other than a United States or Canadian Person. The term "United States" means the United States of America (including the states thereof and the District of Columbia) and its territories, its possessions and other areas subject to its jurisdiction. The term "Canada" means the provinces of Canada, its territories, its possessions and other areas subject to its jurisdiction. Pursuant to the Agreement Between, sales may be made among the U.S. Underwriters and the International Managers of such number of shares of Class A Common Stock as may be mutually agreed. The price of any shares so sold shall be the public offering price as then in effect for Class A Common Stock being sold by the U.S. Underwriters and International Managers, less an amount not greater than the selling concession unless otherwise determined by mutual agreement. To the extent that there are sales pursuant to the Agreement Between, the number of shares initially available for sale by the U.S. Underwriters and the International Managers may be more or less than the amount specified on the cover page of this Prospectus. Each International Manager has represented and agreed that: (i) it has not offered or sold and, prior to the date six months after the date of issue of the shares of Class A Common Stock, will not offer or sell any shares of Class A Common Stock to persons in the United Kingdom except to persons whose ordinary activities involve them in acquiring, holding, managing or disposing of investments (as principal or agent) for the purposes of their businesses or otherwise in circumstances which have not resulted and will not result in an offer to the public in the United Kingdom within the meaning of the Public Offers of Securities Regulations 1995; (ii) it has complied and will comply with all applicable provisions of the Financial Services Act 1986 with respect to anything done by it in relation to the Class A Common Stock in, from or otherwise involving the United Kingdom; and (iii) it has only issued or passed on, and will only issue or pass on, to any person in the United Kingdom, any document received by it in connection with the issue of the Class A Common Stock if that person is of a kind described in Article 11(3) of the Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order 1995. 68 70 Purchasers of the shares offered pursuant to the Offering may be required to pay stamp taxes and other charges in accordance with the laws and practices of the country of purchase in addition to the offering price set forth on the cover page hereof. The Company has granted to the U.S. Underwriters and the International Managers options to purchase up to an additional and shares of Class A Common Stock, respectively, at the initial public offering price less the aggregate underwriting discounts and commissions shown on the cover page of this Prospectus, solely to cover over-allotments, if any. The options may be exercised at any time up to 30 days after the date of this Prospectus. To the extent that the U.S. Underwriters and the International Managers exercise such options, each of the U.S. Underwriters and the International Managers, as the case may be, will be committed (subject to certain conditions) to purchase a number of option shares proportionate to such U.S. Underwriter's or International Manager's initial commitment. The Company and Digital have agreed to indemnify the U.S. Underwriters and the International Managers against certain liabilities, including liabilities under the Securities Act, and to contribute to payments which the U.S. Underwriters and the International Managers may be required to make in respect thereof. The Company and Digital have also agreed that they will not, without the prior written consent of Lehman Brothers Inc., offer, sell, grant any options to purchase or otherwise dispose of any shares of Common Stock within 180 days after the date of this Prospectus, other than (i) the shares of Class A Common Stock to be sold to the Underwriters in the Offering, (ii) the issuance of options and sales of Common Stock pursuant to currently existing stock-based compensation plans, (iii) sales of shares to Digital, and (iv) the issuance of shares of Common Stock as consideration for the acquisition of one or more businesses (provided that such Common Stock may not be resold prior to the expiration of the 180-day period referenced above). See "Shares Eligible for Future Sale." Certain of the Underwriters from time to time have performed various investment banking services for Digital and its subsidiaries. Prior to the Offering there has been no public market for the Common Stock. The initial public offering price for the Class A Common Stock will be determined by negotiation among the Company and the Representatives. Among the factors to be considered in determining the initial public offering price will be prevailing market and economic conditions, estimates of the business potential and prospects of the Company, the state of the Company's business operations, an assessment of the Company's management, the consideration of the above factors in relation to market valuations of companies in related businesses and other factors deemed relevant. The estimated initial public offering price range set forth on the cover page of this preliminary prospectus is subject to change as a result of market conditions and other factors. LEGAL MATTERS The validity of the shares of Class A Common Stock offered hereby will be passed upon for the Company by Testa, Hurwitz & Thibeault, LLP, Boston, Massachusetts. Certain legal matters in connection with the Offering will be passed upon for the Underwriters by Simpson Thacher & Bartlett (a partnership which includes professional corporations), New York, New York. EXPERTS The balance sheet of AltaVista Internet Software, Inc. as of June 29, 1996 and the balance sheets of AltaVista Internet Software Products as of June 29, 1996 and July 1, 1995 and the statements of operations, net parent's investment and cash flows of AltaVista Internet Software Products for each of the three fiscal years in the period ended June 29, 1996 included in this Prospectus have been included herein in reliance on the report of Coopers & Lybrand L.L.P., independent accountants, given on the authority of that firm as experts in accounting and auditing. 69 71 ADDITIONAL INFORMATION The Company has filed with the Commission a Registration Statement on Form S-1 (including all amendments thereto, the "Registration Statement") under the Securities Act with respect to the Common Stock offered hereby. As permitted by the rules and regulations of the Commission, this Prospectus omits certain information contained in the Registration Statement. For further information with respect to the Company and the Common Stock offered hereby, reference is hereby made to the Registration Statement and to the exhibits and schedules filed therewith. Statements contained in this Prospectus regarding the contents of any agreement or other document filed as an exhibit to the Registration Statement are not necessarily complete, and in each instance reference is made to the copy of such agreement filed as an exhibit to the Registration Statement, each such statement being qualified in all respects by such reference. The Registration Statement, including the exhibits and schedules thereto, may be inspected at the public reference facilities maintained by the Commission at 450 Fifth Street, N.W., Washington, DC 20549, and copies of all or any part thereof may be obtained from such office upon payment of the prescribed fees. In addition, the Commission maintains a Web site that contains reports, proxy and information statements and other information regarding registrants (including the Company) that file electronically with the Commission which can be accessed at http://www.sec.gov. REPORTS TO SECURITY HOLDERS The Company intends to furnish holders of its Class A Common Stock offered hereby with annual reports containing financial statements audited by independent accountants. 70 72 ALTAVISTA INTERNET SOFTWARE, INC. INDEX TO FINANCIAL STATEMENTS
PAGE ---- ALTAVISTA INTERNET SOFTWARE, INC. Report of Independent Accountants................................................... F-2 Balance Sheet as of June 29, 1996................................................... F-3 Notes to Balance Sheet.............................................................. F-4 ALTAVISTA INTERNET SOFTWARE PRODUCTS Report of Independent Accountants................................................... F-10 Statements of Operations for the fiscal years ended July 2, 1994, July 1, 1995 and June 29, 1996.................................................................... F-11 Balance Sheets as of July 1, 1995 and June 29, 1996................................. F-12 Statements of Cash Flows for the fiscal years ended July 2, 1994, July 1, 1995 and June 29, 1996.. F-13 Statements of Net Parent's Investment for the fiscal years ended July 2, 1994, July 1, 1995 and June 29, 1996........................................................ F-14 Notes to Financial Statements....................................................... F-15
F-1 73 REPORT OF INDEPENDENT ACCOUNTANTS To the Stockholder of AltaVista Internet Software, Inc.: We have audited the accompanying balance sheet of AltaVista Internet Software, Inc. as of June 29, 1996. This balance sheet is the responsibility of the Company's management. Our responsibility is to express an opinion on this balance sheet based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the balance sheet is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the balance sheet. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides us a reasonable basis for our opinion. In our opinion, the balance sheet referred to above presents fairly, in all material respects, the financial position of AltaVista Internet Software, Inc. as of June 29, 1996 in conformity with generally accepted accounting principles. Coopers & Lybrand L.L.P. Boston, Massachusetts August 26, 1996 F-2 74 ALTAVISTA INTERNET SOFTWARE, INC. BALANCE SHEET JUNE 29, 1996 ASSETS Current assets: Cash.............................................................................. $1,000 ====== STOCKHOLDER'S EQUITY Common stock, $0.01 par value; 1,000,000 shares authorized; 1,000 shares issued and outstanding................................... $ 10 Paid-in capital..................................................................... 990 Retained earnings................................................................... -- ------ Total stockholder's equity................................................ $1,000 ======
The accompanying notes are an integral part of the balance sheet. F-3 75 ALTAVISTA INTERNET SOFTWARE, INC. NOTES TO BALANCE SHEET 1. ORGANIZATION AltaVista Internet Software, Inc. (the "Company") was incorporated on June 28, 1996 and, except for organizational matters and activities undertaken in connection with the proposed initial public offering of its common stock (the "offering"), has been inactive since that date. As a result, the Company has not had any income or expenses. On June 28, 1996, the Company issued 1,000 shares of common stock to its sole stockholder, Digital Equipment Corporation ("Digital"), for cash. 2. SUBSEQUENT EVENTS AltaVista Internet Software, Inc. intends to enter into an agreement with Digital pursuant to which AltaVista Internet Software Products (the "Business") will contribute its assets to the Company and the Company will assume the liabilities relating to the Business. On July 18, 1996, the Company opened a subsidiary in the Netherlands under the name AltaVista Internet Software, B.V. Prior to the consummation of the offering, the Company's certificate of incorporation will be amended to authorize 50,000,000 shares of Class A common stock and 50,000,000 shares of Class B common stock, each with a par value of $0.01 per share. Holders of Class A common stock generally will have identical rights to holders of Class B common stock except that holders of Class A common stock will be entitled to one vote per share while holders of Class B common stock will be entitled, with certain exceptions, to three votes per share on all matters submitted to a vote of stockholders. Each share of Class B common stock will be convertible while held by Digital or any of its subsidiaries into one share of Class A common stock. The amended and restated certificate of incorporation will also authorize 5,000,000 shares of preferred stock that may be issued at the discretion of the Board of Directors. The Board is authorized to determine the voting, dividend, redemption and liquidation preferences and limitations of any preferred stock that may be issued. Potential Conflicts of Interest The Company's amended and restated certificate of incorporation includes provisions relating to competition by Digital with the Company, allocations of corporate opportunities, transactions with interested parties and intercompany agreements and provisions limiting the liability of certain persons. Various conflicts of interest between the Company and Digital could arise following the consummation of the offering, and persons serving as directors, officers and employees of both the Company and Digital may have conflicting duties to each. The members of the Board of Directors of the Company who are affiliated with Digital will consider not only the short-term and long-term impact of financial and operating decisions on the Company, but also the impact of such decisions on Digital's consolidated financial results. In some instances, the impact of such decisions could be disadvantageous to the Company while advantageous to Digital, or vice versa. Agreements with Digital The Company's relationship with Digital will be governed by intercompany agreements. It is anticipated that such agreements will be entered into prior to the consummation of the offering. With respect to matters covered by the services agreement, the relationship between Digital and the Company is intended to continue in a manner generally consistent with past practices. Because the Company is a wholly-owned subsidiary of Digital, none of these arrangements will result from arm's-length negotiations and, therefore, the prices charged to the Company for services provided thereunder may be higher or lower than prices that may be charged by third parties. Services Agreement The Company and Digital intend to enter into an intercompany services and operating agreement (the "Services Agreement") with respect to services to be provided by Digital (or subsidiaries of Digital) to the Company. Under the Services Agreement, certain services will be provided in exchange for fees which are F-4 76 ALTAVISTA INTERNET SOFTWARE, INC. NOTES TO BALANCE SHEET -- (CONTINUED) based on Digital's costs for such services and are consistent in all material respects with the allocation of the costs of such services set forth in the financial statements of the Business. The services initially to be provided by Digital to the Company under the Services Agreement include, among other things, certain accounting, administration, cash management, employee benefit plan administration, legal, risk management, tax and treasury services. The Company may request an expansion or termination of services, in which case the parties will discuss, without obligation, the provision or termination of such services and an appropriate change or reduction in charges for such services. In the event Digital proposes changes in billing methodology which would result in a significant increase (being the greater of a 10% or $100,000) in costs for the affected services, the Company may terminate such services. In addition to the identified services, Digital intends to agree to continue coverage of the Company under Digital's umbrella liability, property, casualty and fiduciary insurance policies. The Company intends to agree to reimburse Digital for the portion of Digital's premium cost with respect to such insurance that is attributable to coverage of the Company. Either Digital or the Company may terminate such coverage under Digital's policies at any time on 90 days' written notice. Also, in addition to the identified services, Digital intends to agree to allow eligible employees of the Company to participate in certain Digital employee benefit plans. In addition to a monthly service fee under the Services Agreement, the Company intends to agree to reimburse Digital for Digital's costs (including any contributions and premium costs and including certain third-party expenses and allocations of certain personnel expenses), generally in accordance with past practice, relating to participation by the Company's employees in any of Digital's benefit plans. The Services Agreement will have an initial term of two years and will be renewed automatically thereafter for successive one-year terms unless either the Company or Digital elects not to renew it. After the initial 2-year term, the Services Agreement may be terminated at any time by either party upon 90 days' written notice. The Services Agreement may also be terminated at any time upon 90 days' written notice, if Digital ceases to own shares of common stock representing more than 50% of the combined voting power of the common stock of the Company. Facilities Agreement The Company and Digital intend to enter into an intercompany facilities agreement (the "Facilities Agreement"). The Facilities Agreement provides that the Company may occupy space located in facilities owned or leased by Digital in exchange for rental fees determined at charges comparable to those charged to other businesses operated by Digital. The Facilities Agreement has an initial term of two years and is renewable automatically thereafter for successive one-year terms unless either the Company or Digital elects not to renew it. The Facilities Agreement is subject to early termination by either the Company or Digital upon six months' written notice if Digital ceases to own shares of common stock representing more than 50% of the combined voting power of the common stock of the Company, and by the Company with respect to any particular facility upon 30 days' written notice for any reason. The Company's use of any particular property subject to the Facilities Agreement is limited by the term of any underlying lease between Digital and a landlord with respect to those properties leased by Digital and by any disposition by Digital of any property owned by it. Tax-Sharing Agreement The Business is, and immediately after the offering the Company will continue to be, included in Digital's federal consolidated income tax group, and the Company's federal income tax liability will be included in the consolidated federal income tax liability of Digital and its subsidiaries. In certain circumstances, the Company and certain of its subsidiaries will also be included with certain other subsidiaries of Digital in combined, consolidated or unitary income tax groups for state and local tax purposes. The Company and Digital intend to F-5 77 ALTAVISTA INTERNET SOFTWARE, INC. NOTES TO BALANCE SHEET -- (CONTINUED) enter into a tax-sharing agreement (the "Tax-Sharing Agreement") pursuant to which the Company and Digital will make payments between them such that, with respect to any period, the amount of taxes to be paid by the Company, subject to certain adjustments, will be determined as though the Company were to file separate federal, state and local income tax returns. Pursuant to the Tax-Sharing Agreement, under certain circumstances, the Company will be reimbursed for tax attributes, such as net operating losses, that it generates after the offering. Such reimbursement, if any, will be made for utilization of the Company's losses only after Digital's losses are fully utilized. Reimbursement will not be made for losses incurred by the Company while Digital is subject to the alternative minimum tax. Under the Tax-Sharing Agreement, the Company will pay Digital a fee intended to reimburse Digital for all direct and indirect costs and expenses incurred with respect to the Company's share of the overall costs and expenses incurred by Digital with respect to tax related services. In general, the Company will be included in Digital's consolidated group for federal income tax purposes for so long as Digital beneficially owns at least 80% of the total voting power and value of the outstanding common stock. Each member of a consolidated group is jointly and severally liable for the federal income tax liability of each other member of the consolidated group. Accordingly, although the Tax-Sharing Agreement allocates tax liabilities between the Company and Digital, during the period in which the Company is included in Digital's consolidated group, the Company could be liable in the event that any federal tax liability is incurred, but not discharged, by any other member of Digital's consolidated group. Asset Transfer and License Agreement The Company and Digital intend to enter into an asset transfer and license agreement (the "Asset Transfer Agreement") which will provide for the transfer to the Company of all assets and the assumption by the Company of all liabilities that relate principally to the Company's business, including all assets and liabilities reflected on the AltaVista Internet Software Products Balance Sheet included in this Prospectus as adjusted to give effect to the conduct of the Company's business in the ordinary course from such balance sheet date to the date of transfer. Pursuant to the Asset Transfer Agreement, Digital will assign to the Company all of Digital's rights in the AltaVista trademark and logo and will license to the Company all of its Internet addresses. Digital will retain the right to use such trademarks in advertising, marketing literature and corporate communications that refer to the Company. Under the Asset Transfer Agreement, Digital will grant the Company a non-exclusive, irrevocable, royalty-free license to all Digital patents and pending and future patent applications covering inventions made as of the consummation of the offering that are embodied in the Company's products and services. Under this license, the Company will have a right to sell to its customers products embodying technology covered by the patents. The Company will not otherwise have a right to sublicense its rights under this license or to assign or transfer the license except in connection with a change of control of the Company or the sale of all or substantially all of the Company's assets. The Company may not prevent Digital from granting other licenses under such patents, will not be able to realize licensing revenues from any such licenses, cannot require Digital to enforce any such patents against competitors of the Company and cannot control any enforcement proceedings Digital undertakes. Under the Asset Transfer Agreement, Digital will assign to the Company all of Digital's rights in software code developed specifically for and included in the Company's products and services, subject to the terms of the patent license described above ("Transferred Code"). Digital will retain an irrevocable, royalty-free license to use Transferred Code for its internal use, including research and development. All rights to any performance or functionality improvements or enhancements ("Modifications") to Transferred Code developed by or on behalf of Digital will be owned by Digital; provided, however, that Digital will grant the Company an irrevocable, royalty-free license to use Modifications developed by Digital during the two years F-6 78 ALTAVISTA INTERNET SOFTWARE, INC. NOTES TO BALANCE SHEET -- (CONTINUED) following the consummation of the offering. Similarly, all rights to any Modifications developed by or on behalf of the Company will be owned by the Company; provided, however, that the Company will grant to Digital an irrevocable, royalty-free license to use for Digital's internal use Modifications developed by the Company during the two years following the consummation of the offering. For two years following the consummation of the offering, Digital will not have the right to commercialize any new software product derived from Transferred Code ("Derived Software") that is designed for use primarily in the Internet/intranet market, that runs on Windows, Windows NT or UNIX platforms and that offers functionality substantially similar to any of the AltaVista Products as of the consummation of the offering. Notwithstanding the foregoing, Digital will be free to commercialize without restriction any Digital product, excluding the AltaVista products, existing as of the consummation of the Offering that includes Transferred Code as of the consummation of the Offering without restriction. Under the Asset Transfer Agreement, Digital will retain all of its rights in software code used in, but not developed specifically for, the Company's products ("Shared Code"). Digital will grant the Company a non-exclusive, irrevocable, royalty-free license to use Shared Code. Under the license, the Company will have the right to sell to its customers products containing Shared Code. The Company will not otherwise have a right to sublicense its rights or to assign or transfer such license except in connection with a change of control of the Company or the sale of all or substantially all of the Company's assets. Pursuant to the Asset Transfer Agreement, Digital will license to the Company all its rights in all know-how related to and necessary to use, make and sell the Company's products. Any third party technology used in the Company's products will, to the extent permitted, be sublicensed or assigned by Digital to the Company under the Asset Transfer Agreement. Technical Assistance Agreement The Company intends to enter into a technical assistance agreement (the "Technical Assistance Agreement") with Digital pursuant to which the Company may, from time to time, request Digital (including its research laboratories) to provide consulting and technical assistance to the Company with respect to technology related to or derived from the Company's products. The Company will pay Digital fees for any consulting or technical assistance provided by Digital under the Technical Assistance Agreement at Digital's then prevailing rate for consulting services. Ownership of and rights to any and all ideas, improvements and inventions conceived or created under the performance of work under the Technical Assistance Agreement shall be determined in writing between the parties prior to Digital performing the work. Strategic Alliance Agreement The Company and Digital intend to enter into a strategic alliance agreement (the "Strategic Alliance Agreement") that grants Digital a license to distribute the Company's products on a non-exclusive, worldwide basis through Digital's reseller and distribution networks. The Strategic Alliance Agreement also designates Digital as an Authorized Service Provider of the Company to provide training, documentation, technical support and maintenance services to the Company's customers and end-users. Digital will pay to the Company a fee for the license and support services as agreed upon in the Digital-AltaVista Fee Schedule. In addition, the Strategic Alliance Agreement provides that Digital will loan the Company certain hardware equipment for product development purposes, and provide the Company with hardware and software for internal use at Digital's then prevailing rates and prices. Digital and the Company have also established a joint marketing relationship with respect to the Company's products and services. The Strategic Alliance Agreement has an initial term of two years and is renewable automatically thereafter for successive one-year terms, subject to termination by either the Company or Digital upon six F-7 79 ALTAVISTA INTERNET SOFTWARE, INC. NOTES TO BALANCE SHEET -- (CONTINUED) months' written notice if Digital ceases to own shares of common stock representing more than 50% of the combined voting power of the common stock of the Company. Corporate Agreement The Company and Digital intend to enter into a corporate agreement (the "Corporate Agreement") under which the Company will grant to Digital a continuing option, transferable to any of its subsidiaries, to purchase, under certain circumstances, additional shares of Class B common stock or shares of nonvoting capital stock of the Company (the "Stock Option"). The Stock Option may be exercised by Digital simultaneously with the issuance of any equity security of the Company (other than in the Offering or upon the exercise of the Underwriters' over-allotment options), with respect to Class B common stock, only to the extent necessary to maintain its then-existing percentage of the total voting power and value of the Company and, with respect to shares of nonvoting capital stock, to the extent necessary to own at least 80% of the total number of shares of each outstanding class of such stock. The purchase price of the shares of Class B common stock purchased upon any exercise of the Stock Option, subject to certain exceptions, will be based on the market price of a share of Class A common stock. The purchase price of the shares of nonvoting capital stock purchased upon any exercise of the stock option, subject to certain exceptions, will be based on the market price at which such stock may be purchased by third parties. The Stock Option expires in the event that Digital reduces its beneficial ownership of common stock in the Company to less than 60% of the number of outstanding shares of common stock. The Company does not intend to issue additional shares of Class B common stock except pursuant to the exercise of the Stock Option. The Corporate Agreement will further provide that, upon the request of Digital, the Company will use its best efforts to effect the registration under the applicable federal and state securities laws of any of the shares of Class B common stock and nonvoting capital stock (and any other securities issued in respect of or in exchange for either) held by Digital for sale in accordance with Digital's intended method of disposition thereof, and will take such other actions as may be necessary to permit the sale thereof in other jurisdictions, subject to certain limitations specified in the Corporate Agreement. Digital will also have the right, which it may exercise at any time and from time to time, to include the shares of Class B common stock and nonvoting capital stock (and any other securities issued in respect of or in exchange for either) held by it in certain other registrations of common equity securities of the Company initiated by the Company on its own behalf or on behalf of its other stockholders. The Company will agree to pay all out-of-pocket costs and expenses (other than the underwriters' discounts and commissions and transfer taxes) in connection with each such registration that Digital requests or in which Digital participates. Subject to certain limitations specified in the Corporate Agreement, such registration rights will be assignable by Digital and its assignees. Equity Incentive Plan The Company intends to adopt, subject to Board of Directors and stockholder approval, the Equity Incentive Plan (the "Incentive Plan") under which awards of common stock options and restricted and unrestricted common stock, and deferred stock may be granted to employees, officers and directors of, or consultants to, the Company. Options granted under the Incentive Plan may be either incentive stock options or non-statutory stock options. Incentive stock options granted have an exercise price not less than fair market value of the stock at the grant date (110% of fair value in certain instances) and vesting schedules as determined by the Board. Non-statutory options are granted at prices and vesting schedules as determined by the Board. Restricted stock is granted by the Board permitting the recipient to purchase common stock at a price and subject to restrictions specified by the Board. A participant who acquires shares of restricted stock will have all the rights of a stockholder, including the right to receive dividends and to vote. Deferred stock is granted by the Board entitling the recipient to receive stock at a specified future date. The Company intends to reserve shares of Class A common stock for issuance under the Incentive Plan. F-8 80 ALTAVISTA INTERNET SOFTWARE, INC. NOTES TO BALANCE SHEET -- (CONTINUED) Directors Stock Option Plan The Company intends to adopt a directors stock option plan (the "Directors Plan") providing for the annual grant of stock options to purchase shares of Class A common stock to outside directors as additional compensation for their service as directors. The Company plans to reserve shares of Class A common stock for issuance under the Directors Plan. Under the Directors Plan, each eligible director joining the Board of Directors in 1996 will be granted an option to purchase shares of Class A common stock upon the later of the adoption of the plan or the director's appointment or election. With respect to each eligible director who is a director as of June 29, 1997 or who joins the Board of Directors on or after June 29, 1997, options to purchase shares of Class A common stock will be granted on the date of the Company's next annual meeting of stockholders, provided that such director's service as a director will continue after such meeting. The exercise price of options granted under the Directors Plan will be 100% of the fair market value per share of the Class A common stock on the date the option is granted. Options granted under the Directors Plan will become exercisable at the rate of 33% on the first and second anniversaries of the date of grant and 34% on the third anniversary of the date of grant. The options will expire on the tenth anniversary of the grant date, unless terminated earlier in accordance with the Directors Plan. Value Added Link Agreements On July 3, 1996, Yahoo! Inc. ("Yahoo!") and Digital signed an agreement whereby Yahoo! established AltaVista as the preferred search engine for all Yahoo! properties that contain World Wide Web functionality. Yahoo! pays a fee to Digital based on the number of search result pages viewed according to an agreed upon rate schedule. The agreement has an initial term of two years and is renewable automatically thereafter for successive one-year terms for up to three successive one year terms, subject to termination by either Digital or Yahoo! upon 90 days' written notice. On August 23, 1996, CNET, Inc ("CNET") and Digital signed an agreement enabling users of CNET Properties to conduct World Wide Web Searches through the AltaVista Internet Search Service. CNET pays a fee to Digital based on the number of search result pages viewed according to an agreed upon schedule. The agreement has an initial term of one year and is renewable automatically thereafter for successive one-year terms, subject to termination by either Digital or CNET upon 30 days' written notice. 3. MIRROR SITE AGREEMENTS Telia TeleCom AB Digital signed a letter of intent in June 1996 with Telia TeleCom AB of Sweden ("Telia") to establish a mirror site in Northern Europe. Telia would pay Digital a monthly license fee as well as a fee based on the total number of hits (requests for information) per day. Telstra Corporation Ltd. Digital signed a letter of intent in July 1996 with Telstra Corporation Ltd. of Australia ("Telstra") to establish a mirror site in Australia, New Zealand and several other countries. Telstra would pay Digital a monthly license fee as well as a fee based on the total number of hits per day. F-9 81 REPORT OF INDEPENDENT ACCOUNTANTS To Digital Equipment Corporation: We have audited the accompanying balance sheets of AltaVista Internet Software Products (the "Business") as of June 29, 1996 and July 1, 1995, and the related statements of operations, cash flows and net parent's investment for each of the three fiscal years in the period ended June 29, 1996. These financial statements are the responsibility of the Business' management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of AltaVista Internet Software Products as of June 29, 1996 and July 1, 1995 and the results of their operations and their cash flows for each of the three fiscal years in the period ended June 29, 1996 in conformity with generally accepted accounting principles. Coopers & Lybrand L.L.P. Boston, Massachusetts August 26, 1996 F-10 82 ALTAVISTA INTERNET SOFTWARE PRODUCTS STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA)
FOR THE FISCAL YEARS ENDED -------------------------------- JULY 2, JULY 1, JUNE 29, 1994 1995 1996 ------- ------- -------- Total operating revenues..................................... $ 298 $ 964 $ 3,632 ------- ------- -------- Costs and expenses: Cost of operating revenues................................. 47 374 1,110 Research and engineering expenses.......................... 2,235 4,516 15,352 Selling and marketing expenses............................. 50 248 10,522 General and administrative expenses........................ 684 1,062 6,516 ------- ------- -------- Total costs and expenses........................... 3,016 6,200 33,500 Operating loss............................................... (2,718) (5,236) (29,868) ------- ------- -------- Net loss..................................................... $(2,718) $(5,236) $(29,868) ======= ======= ======== Unaudited pro forma net loss per common share................ $ ========
The accompanying notes are an integral part of the financial statements. F-11 83 ALTAVISTA INTERNET SOFTWARE PRODUCTS BALANCE SHEETS (IN THOUSANDS)
FOR THE FISCAL YEARS ENDED -------------------- JULY 1, JUNE 29, 1995 1996 ------- -------- ASSETS Current assets: Accounts receivable, net of allowance of $15 and $76.................. $ 243 $ 1,010 Inventories........................................................... -- 45 ------- -------- Total current assets.......................................... 243 1,055 Capitalized software, net............................................... 645 577 Equipment, net.......................................................... -- 5,876 ------- -------- Total assets.................................................. $ 888 $ 7,508 ======= ======== LIABILITIES AND NET PARENT'S INVESTMENT Current liabilities: Salaries, wages and related items..................................... $ 259 $ 1,980 ------- -------- Total current liabilities..................................... 259 1,980 Parent's investment: Parent's investment................................................... 10,555 45,322 Retained deficit...................................................... (9,926) (39,794) ------- -------- Net parent's investment....................................... 629 5,528 ------- -------- Total liabilities and net parent's investment................. $ 888 $ 7,508 ======= ========
The accompanying notes are an integral part of the financial statements. F-12 84 ALTAVISTA INTERNET SOFTWARE PRODUCTS STATEMENTS OF CASH FLOWS (IN THOUSANDS)
FOR THE FISCAL YEARS ENDED -------------------------------- JULY 2, JULY 1, JUNE 29, 1994 1995 1996 ------- ------- -------- Cash flows from (used in) operating activities: Net loss................................................... $(2,718) $(5,236) $(29,868) Adjustments to reconcile net loss to cash used in operating activities: Depreciation............................................ -- -- 800 Amortization............................................ 46 320 438 Loss on disposition and write-down of equipment......... -- -- 390 Write-down of capitalized software to net realizable value.................................. -- -- 238 Allowance for bad debts................................. 6 9 61 Changes in operating assets and liabilities: Increase in accounts receivable....................... (216) (42) (828) Increase in inventories............................... -- -- (45) Increase in salaries, wages and related items......... 21 238 1,721 ------- ------- -------- Net cash used in operating activities.............. (2,861) (4,711) (27,093) Cash flows from (used in) investing activities: Additions and transfers of equipment....................... -- -- (7,066) Investment in capitalized software......................... (961) (50) (608) ------- ------- -------- Net cash used in investing activities.............. (961) (50) (7,674) Cash flows from financing activities: Proceeds from investment by parent......................... 3,822 4,761 34,767 ------- ------- -------- Net cash provided from financing activities........ 3,822 4,761 34,767 ------- ------- -------- Net increase (decrease) in cash.................... $ -- $ -- $ -- ======= ======= ========
The accompanying notes are an integral part of the financial statements. F-13 85 ALTAVISTA INTERNET SOFTWARE PRODUCTS STATEMENTS OF NET PARENT'S INVESTMENT FOR THE FISCAL YEARS ENDED JULY 2, 1994, JULY 1, 1995 AND JUNE 29, 1996 (IN THOUSANDS)
NET RETAINED PARENT'S PARENT'S DEFICIT INVESTMENT INVESTMENT -------- ---------- ---------- BALANCE AT JULY 3, 1993.................................... $ (1,972) $ 1,972 $ 0 Net loss................................................... (2,718) -- (2,718) Investment by parent....................................... -- 3,822 3,822 -------- ------- -------- BALANCE AT JULY 2, 1994.................................... (4,690) 5,794 1,104 Net loss................................................... (5,236) -- (5,236) Investment by parent....................................... -- 4,761 4,761 -------- ------- -------- BALANCE AT JULY 1, 1995.................................... (9,926) 10,555 629 Net loss................................................... (29,868) -- (29,868) Investment by parent....................................... -- 34,767 34,767 -------- ------- -------- BALANCE AT JUNE 29, 1996................................... $(39,794) $ 45,322 $ 5,528 ======== ======= ========
The accompanying notes are an integral part of the financial statements. F-14 86 ALTAVISTA INTERNET SOFTWARE PRODUCTS NOTES TO FINANCIAL STATEMENTS A. THE BUSINESS Nature of the Business The accompanying financial statements include the revenues and expenses (direct and allocated indirect) and assets and liabilities related to the development and sales of the following products and services: AltaVista Search AltaVista Directory AltaVista Firewall AltaVista Tunnel AltaVista Forum AltaVista Mail In the financial statements these products are collectively referred to as "AltaVista Internet Software Products" or the "Business." AltaVista Internet Software Products are software products and services for use in the emerging integrated Internet/intranet business environment. The software products included in the Business were developed within various Digital Equipment Corporation ("Digital" or "Parent") business units. These products have been managed within a single business unit for less than one year. Most of the products were developed primarily in fiscal years 1995 and 1996 and did not generate revenues until fiscal 1996. AltaVista Directory and AltaVista Firewall began generating revenues in fiscal 1994 and 1995, respectively. AltaVista Mail was released in June 1996. Basis of Presentation The financial statements are derived from the historic books and records of Digital and present the assets, liabilities, results of operations and cash flows applicable to AltaVista Internet Software Products. Operations prior to 1994 consisted primarily of research and engineering expenses and are not considered to be material. The Business' foreign sales are transacted by Digital's subsidiaries and are denominated in local currencies. Certain costs and expenses presented in these financial statements have been allocated based on management's estimates of the cost of services provided to the Business by Digital. Management believes that these allocations are based on assumptions that are reasonable under the circumstances. The Business has incurred recurring losses from operations through June 29, 1996. Digital has committed to provide the funds required for the conduct of the Business' operations through the earlier of June 30, 1997 or the closing of an initial public offering (the "offering") of the Business' common stock. The historical operating results may not be indicative of future results. The financial statements have been prepared for inclusion in a registration statement relating to the public offering of a portion of the common stock of a wholly-owned subsidiary of Digital, AltaVista Internet Software, Inc. (the "Company"), which was formed on June 28, 1996. Prior to the consummation of the offering, Digital will transfer the assets of AltaVista Internet Software Products to AltaVista Internet Software, Inc. and the Company will assume the liabilities of AltaVista Internet Software Products. The transfers will be accounted for at historical cost. Operating losses through the consummation of the offering will be recorded as contributions of capital to the Business by Digital. Prior to the consummation of the offering, the Business intends to enter into various agreements with Digital wherein Digital agrees to provide certain services, facilities and technologies to the Business in accordance with the terms described in Note H. F-15 87 ALTAVISTA INTERNET SOFTWARE PRODUCTS NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) B. SIGNIFICANT ACCOUNTING POLICIES Fiscal Year The fiscal year of the Business is the fifty-two/fifty-three week period ending the Saturday nearest the last day of June. The fiscal years ended July 2, 1994, July 1, 1995 and June 29, 1996 each included 52 weeks. Revenue Recognition The product revenues of the Business are principally derived from product licensing fees. Product revenues are generally recognized upon shipment, net of allowances for estimated future returns, provided that no significant vendor obligations remain and collection of the resulting receivable is deemed probable. Warranty Digital provides maintenance and support services to the Business. In connection with these services, the Business paid Digital approximately $16,000, $62,000 and $225,000 for the fiscal years ended July 2, 1994, July 1, 1995 and June 29, 1996, respectively. Digital also sells extended warranty contracts and maintenance contracts covering the products for which it pays the Business a fee amounting to 22% of the extended warranty and maintenance contract revenue. Unaudited Pro Forma Net Loss Per Common Share Historical earnings per share data is omitted from the statements of operations because it is not meaningful. Unaudited pro forma net loss per common share is calculated based on the net loss divided by the number of shares of Class B common stock to be issued to Digital prior to consummation of the offering. Because the offering price and number of shares of Class B common stock to be reclassified have not yet been determined, unaudited pro forma net loss per common share has not been presented. These determinations will be made prior to consummation of the offering and unaudited pro forma net loss per common share based on the number of shares of Class B common stock issued to Digital will be furnished by amendment and reflected in the definitive Prospectus. Taxes The Business was not a separate taxable entity for federal, state or local income tax purposes. The Business' operations are included in the consolidated Digital tax returns. No income tax provision has been calculated on a separate return basis because net losses were realized in each of the years presented as to which there was no related realizable tax benefit due to the Parent's net operating loss carryforward. Tax assets, including net operating loss carryforwards incurred by the Business prior to the offering, will remain with Digital. Prior to the consummation of the offering, the Business intends to enter into a tax-sharing agreement with Digital as described in Note H. Inventories Inventories are stated at the lower of cost (first-in, first-out) or market. F-16 88 ALTAVISTA INTERNET SOFTWARE PRODUCTS NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Equipment Equipment is stated at cost.
JUNE 29, 1996 -------------- (IN THOUSANDS) Equipment...................................................... $ 14,372 Less accumulated depreciation.................................. (8,496) ------- Equipment, net................................................. $ 5,876 =======
Depreciation expense is computed principally on the following basis:
CLASSIFICATION DEPRECIATION LIVES AND METHODS --------------------------------- ------------------------------------------------ Equipment........................ 3 to 10 years (principally accelerated methods)
When assets are retired, or otherwise disposed of, the assets and related accumulated depreciation are removed from the accounts. Other resulting gains and losses are included in income. Prior to fiscal 1996, no equipment was dedicated to the Business or was recorded in the Business' financial statements. However, in lieu of depreciation, a rental charge for the use of equipment was included in the statement of operations. During fiscal 1996, equipment became dedicated to the Business. Assets with a net book value of $3,989,000 were transferred to the Business. The Business also purchased new equipment from Digital at cost. Capitalized Software Software development costs are capitalized beginning at the time that technical feasibility is established. These costs are amortized over no more than three years from the date the products are available for general use. Management Estimates and Assumptions The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates due to limited operating history; anticipated continuing losses; potential fluctuations in quarterly results; unproven acceptance of the Business' products and services; dependence on the uncertain adoption of the Internet as a mode of communication; dependence on the uncertain adoption of intranets; reliance on new product development; and technological change; competition; future liquidity needs and the uncertainty of additional financing; new management team and reliance on key personnel; reliance on evolving distribution channels; dependence on mirror sites and Internet content providers; product liability; risk of capacity constraints or system failures; uncertain protection of intellectual property rights; possible regulation of the Internet or government regulation of technology exports; and risks associated with global operations and could impact future results of operations and cash flows. Fair Value The carrying amounts reflected in the balance sheets for accounts receivable approximate fair value due to the short maturities of these instruments. F-17 89 ALTAVISTA INTERNET SOFTWARE PRODUCTS NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Concentration of Credit Risk Financial instruments which potentially subject the Business to concentrations of credit risk consist principally of trade receivables. Concentration of credit risk with respect to trade receivables is limited due to the large number of customers comprising the Business' customer base, and their dispersion across many different industries and geographies. Allocated Costs Expenses have been allocated based on a variety of methods depending on the nature of the expense including: units produced; proportion of total product revenue or expense to total business unit revenue or expense, and management estimate. Allocated expenses are included in: Cost of Operating Revenues Cost of operating revenues includes an allocation of corporate manufacturing costs. Research and Engineering Expenses Research and engineering expenses include an allocation of corporate research and engineering expense. Selling and Marketing Expenses Selling and marketing expenses include an allocation of corporate selling and marketing expenses. General and Administrative Expenses The components of general and administrative expenses include a full allocation of the costs of administrative and corporate functions. The amounts allocated to the Business in each of the fiscal years presented are as follows:
1994 1995 1996 ---- ------ ------ (IN THOUSANDS) Cost of operating revenues................................. -- $ 10 $ 56 Research and engineering expenses.......................... $ 70 98 121 Selling and marketing expenses............................. 50 160 417 General and administrative expenses........................ 706 1,087 1,604
Interest Expense There was no direct interest expense incurred by the Business. However, interest expense of $27,000 included in general and administrative expenses for the year ended June 29, 1996 is an allocation of Digital's worldwide interest expense based upon the ratio of the Business' inventory and property and equipment to total Digital inventory and property and equipment. Management believes that this method provides a reasonable basis for allocation within the Business' historical statements of operations. F-18 90 ALTAVISTA INTERNET SOFTWARE PRODUCTS NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) C. SEGMENT AND GEOGRAPHIC INFORMATION The Business operates within one industry segment, the development and sale of Internet/intranet software products and services. The Business had sales to customers outside the United States and Canada representing 63%, 69% and 64% in 1994, 1995 and 1996, respectively of operating revenues. Information about the Business' sales by geographic regions is as follows:
FOR THE FISCAL YEARS ENDED -------------------------------- JULY 2, JULY 1, JUNE 29, 1994 1995 1996 ------- ------- -------- (IN THOUSANDS) North America.............................................. $ 112 $ 300 $1,290 Europe..................................................... 162 606 1,726 Asia - Pacific............................................. 24 58 616 ---- ---- ------ $ 298 $ 964 $3,632 ==== ==== ======
No customer accounted for more than 10% of total revenues in any year. D. CAPITALIZED SOFTWARE Unamortized computer software development costs were $1,011,000 and $905,000 at July 1, 1995 and June 29, 1996, respectively. Amortization expense was $46,000, $320,000 and $438,000 for the years ended July 2, 1994, July 1, 1995 and June 29, 1996, respectively. Accumulated amortization was $366,000 and $328,000 at July 1, 1995 and June 29, 1996, respectively. E. POSTRETIREMENT AND OTHER POSTEMPLOYMENT BENEFITS Pension Plans -- The Business participates in Digital's defined benefit and defined contribution pension plans (the "Retirement Plan") covering substantially all employees. Those Digital employees who accept employment with the Company will terminate employment with Digital but will maintain their vested rights in the Retirement Plan. The benefits are based on years of service and compensation during the employee's career. Pension cost is based on estimated benefit payment formulas. It is Digital's policy to make tax- deductible contributions to the plans in accordance with local laws. Contributions are intended to provide benefits for service to date and benefits expected to be earned in the future. The projected benefit obligation was determined using discount rates of 8.0%, 7.5% and 8.0% for the fiscal years ending July 2, 1994, July 1, 1995 and June 29, 1996, respectively. For the U.S. pension plan, there were no contributions in the fiscal years 1994, 1995 or 1996. The assets of the plans include corporate equity and debt securities, government securities and real estate. The statements of operations include allocated costs as fringe benefits based upon an average cost per employee for the Retirement Plan of approximately $53,900, $59,700 and $450,200 for the fiscal years ending July 2, 1994, July 1, 1995 and June 29, 1996, respectively. Postretirement Benefits Other than Pensions -- The Business participates in Digital's defined benefit postretirement plans that provide medical and dental benefits for U.S. retirees and their eligible dependents. Substantially all of Digital's U.S. employees may become eligible for postretirement benefits if they reach retirement age while working for Digital. The majority of Digital's non-U.S. subsidiaries do not offer postretirement benefits other than pensions to retirees. Digital's postretirement benefit plans other than pensions are funded as costs are incurred. The postretirement benefit obligation was determined using discount rates of 8.0%, 7.5% and 8.0% for the fiscal years ending July 2, 1994, July 1, 1995 and June 29, 1996, respectively. F-19 91 ALTAVISTA INTERNET SOFTWARE PRODUCTS NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) The statements of operations include allocated costs as fringe benefits based upon an average cost per employee for the postretirement benefit costs of approximately $2,500, $3,900 and $21,600 for the years ended July 2, 1994, July 1, 1995 and June 29, 1996, respectively. F. STOCK PLANS Certain Digital employees who will become employees of the Company have been granted options and restricted stock awards under various Digital stock plans. Such options and awards will continue to vest under the terms of the plans during their employment with the Company. G. RESTRUCTURING ACTION Included in general and administrative expenses for the year ended June 29, 1996 is a $353,000 charge for restructuring to cover costs associated with reducing the size of the Business's workforce by 28 employees in the administrative, marketing and engineering functions. The restructuring charge includes the cost of employee termination benefits and related costs associated with restructuring actions. Employee termination benefits include severance, wage continuation, notice pay, medical and other benefits. Restructuring costs were accrued and charged to expense in accordance with approved management plans. H. SUBSEQUENT EVENTS AltaVista Internet Software, Inc. AltaVista Internet Software Inc. (the "Company") intends to enter into an agreement with Digital pursuant to which the Business will contribute its assets to the Company and the Company will assume the liabilities relating to the Business. On July 18, 1996, the Company opened a subsidiary in the Netherlands under the name AltaVista Internet Software, B.V. Prior to the consummation of the offering, the Company's certificate of incorporation will be amended to authorize 50,000,000 shares of Class A common stock and 50,000,000 shares of Class B common stock, each with a par value of $0.01 per share. Holders of Class A common stock generally will have identical rights to holders of Class B common stock except that holders of Class A common stock will be entitled to one vote per share while holders of Class B common stock will be entitled, with certain exceptions, to three votes per share on all matters submitted to a vote of stockholders. Each share of Class B common stock will be convertible while held by Digital or any of its subsidiaries into one share of Class A common stock. The amended and restated certificate of incorporation will also authorize 5,000,000 shares of preferred stock that may be issued at the discretion of the Board of Directors. The Board is authorized to determine the voting, dividend, redemption and liquidation preferences and limitations of any preferred stock that may be issued. Potential Conflicts of Interest The Company's amended and restated certificate of incorporation includes provisions relating to competition by Digital with the Company, allocations of corporate opportunities, transactions with interested parties and intercompany agreements and provisions limiting the liability of certain persons. Various conflicts of interest between the Company and Digital could arise following the consummation of the offering, and persons serving as directors, officers and employees of both the Company and Digital may have conflicting duties to each. The members of the Board of Directors of the Company who are affiliated with Digital will consider not only the short-term and long-term impact of financial and operating decisions on the Company, but also the impact of such decisions on Digital's consolidated financial results. In some instances, the impact of such decisions could be disadvantageous to the Company while advantageous to Digital, or vice versa. F-20 92 ALTAVISTA INTERNET SOFTWARE PRODUCTS NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Agreements with Digital The Company's relationship with Digital will be governed by intercompany agreements. It is anticipated that such agreements will be entered into prior to the consummation of the offering. With respect to matters covered by the services agreement, the relationship between Digital and the Company is intended to continue in a manner generally consistent with past practices. Because the Company is a wholly-owned subsidiary of Digital, none of these arrangements will result from arm's-length negotiations and, therefore, the prices charged to the Company for services provided thereunder may be higher or lower than prices that may be charged by third parties. Services Agreement The Company and Digital intend to enter into an intercompany services and operating agreement (the "Services Agreement") with respect to services to be provided by Digital (or subsidiaries of Digital) to the Company. Under the Services Agreement, certain services will be provided in exchange for fees which are based on Digital's costs for such services and are consistent in all material respects with the allocation of the costs of such services set forth in the financial statements of the Business. The services initially to be provided by Digital to the Company under the Services Agreement include, among other things, certain accounting, administration, cash management, employee benefit plan administration, legal, risk management, tax and treasury services. The Company may request an expansion or termination of services, in which case the parties will discuss, without obligation, the provision or termination of such services and an appropriate change or reduction in charges for such services. In the event Digital proposes changes in billing methodology which would result in a significant increase (being the greater of a 10% or $100,000) in costs for the affected services, the Company may terminate such services. In addition to the identified services, Digital intends to agree to continue coverage of the Company under Digital's umbrella liability, property, casualty and fiduciary insurance policies. The Company intends to agree to reimburse Digital for the portion of Digital's premium cost with respect to such insurance that is attributable to coverage of the Company. Either Digital or the Company may terminate such coverage under Digital's policies at any time on 90 days' written notice. Also, in addition to the identified services, Digital intends to agree to allow eligible employees of the Company to participate in certain Digital employee benefit plans. In addition to a monthly service fee under the Services Agreement, the Company intends to agree to reimburse Digital for Digital's costs (including any contributions and premium costs and including certain third-party expenses and allocations of certain personnel expenses), generally in accordance with past practice, relating to participation by the Company's employees in any of Digital's benefit plans. The Services Agreement will have an initial term of two years and will be renewed automatically thereafter for successive one-year terms unless either the Company or Digital elects not to renew it. After the initial 2-year term, the Services Agreement may be terminated at any time by either party upon 90 days' written notice. The Services Agreement may also be terminated at any time, upon 90 days' written notice, if Digital ceases to own shares of common stock representing more than 50% of the combined voting power of the common stock of the Company. Facilities Agreement The Company and Digital intend to enter into an intercompany facilities agreement (the "Facilities Agreement"). The Facilities Agreement provides that the Company may occupy space located in facilities owned or leased by Digital in exchange for rental fees determined at charges comparable to those charged to other businesses operated by Digital. F-21 93 ALTAVISTA INTERNET SOFTWARE PRODUCTS NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) The Facilities Agreement has an initial term of two years and is renewable automatically thereafter for successive one-year terms unless either the Company or Digital elects not to renew it. The Facilities Agreement is subject to early termination by either the Company or Digital upon six months' written notice if Digital ceases to own shares of common stock representing more than 50% of the combined voting power of the common stock of the Company, and by the Company with respect to any particular facility upon 30 days' written notice for any reason. The Company's use of any particular property subject to the Facilities Agreement is limited by the term of any underlying lease between Digital and a landlord with respect to those properties leased by Digital and by any disposition by Digital of any property owned by it. Tax-Sharing Agreement The Business is, and immediately after the offering the Company will continue to be, included in Digital's federal consolidated income tax group, and the Company's federal income tax liability will be included in the consolidated federal income tax liability of Digital and its subsidiaries. In certain circumstances, the Company and certain of its subsidiaries will also be included with certain other subsidiaries of Digital in combined, consolidated or unitary income tax groups for state and local tax purposes. The Company and Digital intend to enter into a tax-sharing agreement (the "Tax-Sharing Agreement") pursuant to which the Company and Digital will make payments between them such that, with respect to any period, the amount of taxes to be paid by the Company, subject to certain adjustments, will be determined as though the Company were to file separate federal, state and local income tax returns. Pursuant to the Tax-Sharing Agreement, under certain circumstances, the Company will be reimbursed for tax attributes, such as net operating losses, that it generates after the offering. Such reimbursement, if any, will be made for utilization of the Company's losses only after Digital's losses are fully utilized. Reimbursement will not be made for losses incurred by the Company while Digital is subject to the alternative minimum tax. Under the Tax-Sharing Agreement, the Company will pay Digital a fee intended to reimburse Digital for all direct and indirect costs and expenses incurred with respect to the Company's share of the overall costs and expenses incurred by Digital with respect to tax related services. In general, the Company will be included in Digital's consolidated group for federal income tax purposes for so long as Digital beneficially owns at least 80% of the total voting power and value of the outstanding common stock. Each member of a consolidated group is jointly and severally liable for the federal income tax liability of each other member of the consolidated group. Accordingly, although the Tax-Sharing Agreement allocates tax liabilities between the Company and Digital, during the period in which the Company is included in Digital's consolidated group, the Company could be liable in the event that any federal tax liability is incurred, but not discharged, by any other member of Digital's consolidated group. Asset Transfer and License Agreement The Company and Digital intend to enter into an asset transfer and license agreement (the "Asset Transfer Agreement") which will provide for the transfer to the Company of all assets and the assumption by the Company of all liabilities that relate principally to the Company's business, including all assets and liabilities reflected on the AltaVista Internet Software Products Balance Sheet included in this Prospectus as adjusted to give effect to the conduct of the Company's business in the ordinary course from such balance sheet date to the date of transfer. Pursuant to the Asset Transfer Agreement, Digital will assign to the Company all of Digital's rights in the AltaVista trademark and logo and will license to the Company all of its Internet addresses. Digital will retain the right to use such trademarks in advertising, marketing literature and corporate communications that refer to the Company. Under the Asset Transfer Agreement, Digital will grant the Company a non-exclusive, irrevocable, royalty-free license to all Digital patents and pending and future patent applications covering inventions made F-22 94 ALTAVISTA INTERNET SOFTWARE PRODUCTS NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) as of the consummation of the offering that are embodied in the Company's products and services. Under this license, the Company will have a right to sell to its customers products embodying technology covered by the patents. The Company will not otherwise have a right to sublicense its rights under this license or to assign or transfer the license except in connection with a change of control of the Company or the sale of all or substantially all of the Company's assets. The Company may not prevent Digital from granting other licenses under such patents, will not be able to realize licensing revenues from any such licenses, cannot require Digital to enforce any such patents against competitors of the Company and cannot control any enforcement proceedings Digital undertakes. Under the Asset Transfer Agreement, Digital will assign to the Company all of Digital's rights in software code developed specifically for and included in the Company's products and services, subject to the terms of the patent license described above ("Transferred Code"). Digital will retain an irrevocable, royalty-free license to use Transferred Code for its internal use, including research and development. All rights to any performance or functionality improvements or enhancements ("Modifications") to Transferred Code developed by or on behalf of Digital will be owned by Digital; provided, however, that Digital will grant the Company an irrevocable, royalty-free license to use Modifications developed by Digital during the two years following the consummation of the offering. Similarly, all rights to any Modifications developed by or on behalf of the Company will be owned by the Company; provided, however, that the Company will grant to Digital an irrevocable, royalty-free license to use for Digital's internal use Modifications developed by the Company during the two years following the consummation of the offering. For two years following the consummation of the Offering, Digital will not have the right to commercialize any new software product derived from Transferred Code ("Derived Software") that is designed for use primarily in the Internet/intranet market, that runs on Windows, Windows NT or UNIX platforms and that offers functionality substantially similar to any of the AltaVista Products as of the consummation of the offering. Notwithstanding the foregoing, Digital will be free to commercialize without restriction any Digital product, excluding the AltaVista products, existing as of the consummation of the offering that includes Transferred Code as of the consummation of the offering without restriction. Under the Asset Transfer Agreement, Digital will retain all of its rights in software code used in, but not developed specifically for, the Company's products ("Shared Code"). Digital will grant the Company a non-exclusive, irrevocable, royalty-free license to use Shared Code. Under the license, the Company will have the right to sell to its customers products containing Shared Code. The Company will not otherwise have a right to sublicense its rights or to assign or transfer such license except in connection with a change of control of the Company or the sale of all or substantially all of the Company's assets. Pursuant to the Asset Transfer Agreement, Digital will license to the Company all its rights in all know-how related to and necessary to use, make and sell the Company's products. Any third party technology used in the Company's products will, to the extent permitted, be sublicensed or assigned by Digital to the Company under the Asset Transfer Agreement. Technical Assistance Agreement The Company intends to enter into a technical assistance agreement (the "Technical Assistance Agreement") with Digital pursuant to which the Company may, from time to time, request Digital (including its research laboratories) to provide consulting and technical assistance to the Company with respect to technology related to or derived from the Company's products. The Company will pay Digital fees for any consulting or technical assistance provided by Digital under the Technical Assistance Agreement at Digital's then prevailing rate for consulting services. Ownership of and rights to any and all ideas, improvements and inventions conceived or created under the performance of work under the Technical Assistance Agreement shall be determined in writing between the parties prior to Digital performing the work. F-23 95 ALTAVISTA INTERNET SOFTWARE PRODUCTS NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Strategic Alliance Agreement The Company and Digital intend to enter into a strategic alliance agreement (the "Strategic Alliance Agreement") that grants Digital a license to distribute the Company's products on a non-exclusive, worldwide basis through Digital's reseller and distribution networks. The Strategic Alliance Agreement also designates Digital as an Authorized Service Provider of the Company to provide training, documentation, technical support and maintenance services to the Company's customers and end-users. Digital will pay to the Company a fee for the license and support services as agreed upon in the Digital-AltaVista Fee Schedule. In addition, the Strategic Alliance Agreement provides that Digital will loan the Company certain hardware equipment for product development purposes, and provide the Company with hardware and software for internal use at Digital's then prevailing prices. Digital and the Company have also established a joint marketing relationship with respect to the Company's products and services. The Strategic Alliance Agreement has an initial term of two years and is renewable automatically thereafter for successive one-year terms, subject to termination by either the Company or Digital upon six months' written notice if Digital ceases to own shares of Common Stock representing more than 50% of the combined voting power of the common stock of the Company. Corporate Agreement The Company and Digital intend to enter into a corporate agreement (the "Corporate Agreement") under which the Company will grant to Digital a continuing option, transferable to any of its subsidiaries, to purchase, under certain circumstances, additional shares of Class B common stock or shares of nonvoting capital stock of the Company (the "Stock Option"). The Stock Option may be exercised by Digital simultaneously with the issuance of any equity security of the Company (other than in the Offering or upon the exercise of the Underwriters' over-allotment options), with respect to Class B common stock, only to the extent necessary to maintain its then-existing percentage of the total voting power and value of the Company and, with respect to shares of nonvoting capital stock, to the extent necessary to own at least 80% of the total number of shares of each outstanding class of such stock. The purchase price of the shares of Class B common stock purchased upon any exercise of the Stock Option, subject to certain exceptions, will be based on the market price of a share of Class A common stock. The purchase price of the shares of nonvoting capital stock purchased upon any exercise of the stock option, subject to certain exceptions, will be based on the market price at which such stock may be purchased by third parties. The Stock Option expires in the event that Digital reduces its beneficial ownership of common stock in the Company to less than 60% of the number of outstanding shares of common stock. The Company does not intend to issue additional shares of Class B common stock except pursuant to the exercise of the Stock Option. The Corporate Agreement will further provide that, upon the request of Digital, the Company will use its best efforts to effect the registration under the applicable federal and state securities laws of any of the shares of Class B common stock and nonvoting capital stock (and any other securities issued in respect of or in exchange for either) held by Digital for sale in accordance with Digital's intended method of disposition thereof, and will take such other actions as may be necessary to permit the sale thereof in other jurisdictions, subject to certain limitations specified in the Corporate Agreement. Digital will also have the right, which it may exercise at any time and from time to time, to include the shares of Class B common stock and nonvoting capital stock (and any other securities issued in respect of or in exchange for either) held by it in certain other registrations of common equity securities of the Company initiated by the Company on its own behalf or on behalf of its other stockholders. The Company will agree to pay all out-of-pocket costs and expenses (other than the underwriters' discounts and commissions and transfer taxes) in connection with each such registration that Digital requests or in which Digital participates. Subject to certain limitations specified in the Corporate Agreement, such registration rights will be assignable by Digital and its assignees. F-24 96 ALTAVISTA INTERNET SOFTWARE PRODUCTS NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Equity Incentive Plan The Company intends to adopt, subject to Board of Director's and stockholder approval, the Equity Incentive Plan (the "Incentive Plan") under which awards of common stock options and restricted and unrestricted common stock, and deferred stock may be granted to employees, officers and directors of, or consultants to, the Company. Options granted under the Incentive Plan may be either incentive stock options or non-statutory stock options. Incentive stock options granted have an exercise price not less than fair market value of the stock at the grant date (110% of fair value in certain instances) and vesting schedules as determined by the Board. Non-statutory options are granted at prices and vesting schedules as determined by the Board. Restricted stock is granted by the Board permitting the recipient to purchase common stock at a price and subject to restrictions specified by the Board. A participant who acquires shares of restricted stock will have all the rights of a stockholder, including the right to receive dividends and to vote. Deferred stock is granted by the Board entitling the recipient to receive stock at a specified future date. The Company plans to reserve shares of Class A common stock for issuance under the Incentive Plan. Directors Stock Option Plan The Company intends to adopt a directors stock option plan (the "Directors Plan") providing for the annual grant of stock options to purchase shares of Class A common stock to outside directors as additional compensation for their service as directors. The Company plans to reserve shares of Class A common stock for issuance under the Directors Plan. Under the Directors Plan, each eligible director joining the Board of Directors in 1996 will be granted an option to purchase shares of Class A common stock upon the later of the adoption of the plan or the director's appointment or election. With respect to each eligible director who is a director as of June 29, 1997 or who joins the Board of Directors on or after June 29, 1997, options to purchase shares of Class A common stock will be granted on the date of the Company's next annual meeting of stockholders, provided that such director's service as a director will continue after such meeting. The exercise price of options granted under the Directors Plan will be 100% of the fair market value per share of the Class A common stock on the date the option is granted. Options granted under the Directors Plan will become exercisable at the rate of 33% on the first and second anniversaries of the date of grant and 34% on the third anniversary of the date of grant. The options will expire on the tenth anniversary of the grant date, unless terminated earlier in accordance with the Directors Plan. Value Added Link Agreements On July 3, 1996, Yahoo! Inc. ("Yahoo!") and Digital signed an agreement, whereby Yahoo! established AltaVista as the preferred search engine for all Yahoo! properties that contain World Wide Web functionality. Yahoo! pays a fee to Digital based on the number of search result pages viewed according to an agreed upon rate schedule. The agreement has an initial term of two years and is renewable automatically thereafter for successive one-year terms for up to three successive one year terms subject to termination by either Digital or Yahoo! upon 90 days' written notice. On August 23, 1996, CNET, Inc ("CNET") and Digital signed an agreement enabling users of CNET Properties to conduct World Wide Web searches through the AltaVista Internet Search Service. CNET pays a fee to Digital based on the number of search result pages viewed according to an agreed upon rate schedule. The agreement has an initial term of one year and is renewable automatically thereafter for successive one-year terms, subject to termination by either Digital or CNET upon 30 days' written notice. F-25 97 ALTAVISTA INTERNET SOFTWARE PRODUCTS NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) I. MIRROR SITE AGREEMENTS Telia TeleCom AB Digital signed a letter of intent in June 1996 with Telia TeleCom AB of Sweden ("Telia") to establish a mirror site in Northern Europe. Telia would pay Digital a monthly license fee as well as a fee based on the total number of hits (requests for information) per day. Telstra Corporation Ltd. Digital signed a letter of intent in July 1996 with Telstra Corporation Ltd. of Australia ("Telstra") to establish a mirror site in Australia, New Zealand and several other countries. Telstra would pay Digital a monthly license fee as well as a fee based on the total number of hits per day. F-26 98 AltaVista Search Comprehensive, fast and relevant search results provided seamlessly at all levels of the work environment -- Internet, enterprise, workgroup and individual user -- through a single user interface. [SCREEN SHOT OF THE ALTAVISTA SEARCH USER INTERFACE.] 99 ============================================================================== NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, DIGITAL OR ANY U.S. UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO WHICH IT RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF. --------------------------- TABLE OF CONTENTS
PAGE ---- Prospectus Summary................... 3 Risk Factors......................... 8 Use of Proceeds...................... 20 Dividend Policy...................... 20 Capitalization....................... 21 Dilution............................. 22 Selected Financial Data.............. 23 Management's Discussion and Analysis of Financial Condition and Results of Operations.......... 24 Business............................. 28 Relationship with Digital............ 45 Management........................... 51 Principal Stockholder................ 57 Shares Eligible for Future Sale...... 57 Description of Capital Stock......... 59 Certain United States Federal Tax Consequences to Non-United States Holders............................ 64 Underwriting......................... 67 Legal Matters........................ 69 Experts.............................. 69 Additional Information............... 70 Reports to Security Holders.......... 70 Index to Financial Statements........ F-1
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. ============================================================================== ============================================================================== SHARES [INTERNET SOFTWARE LOGO] CLASS A COMMON STOCK --------------------------- PROSPECTUS , 1996 --------------------------- LEHMAN BROTHERS COWEN & COMPANY J.P. MORGAN & CO. ============================================================================== 100 INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. [ALTERNATE FRONT COVER PAGE] Subject to Completion, dated August 27, 1996 PROSPECTUS SHARES [INTERNET SOFTWARE LOGO] CLASS A COMMON STOCK --------------------------- All of the shares of Class A Common Stock offered hereby are being sold by AltaVista Internet Software, Inc. ("AltaVista" or the "Company"), a wholly-owned subsidiary of Digital Equipment Corporation ("Digital"). Following the Offering (as defined below), Digital will own all of the outstanding shares of Class B Common Stock of the Company, which will represent approximately % of the economic interest (or rights of holders of common equity to participate in distributions in respect of the common equity) in the Company (assuming no exercise of the Underwriters' over-allotment options). Of the shares of Class A Common Stock offered hereby, shares are being offered outside the United States and Canada (the "International Offering") by the International Managers (as defined in "Underwriting"), and shares are being offered in the United States and Canada in a concurrent U.S. offering (the "U.S. Offering") by the U.S. Underwriters (as defined in "Underwriting", and, together with the International Managers, the "Underwriters"). These offerings are collectively referred to herein as the "Offering." See "Underwriting." Holders of Class A Common Stock generally have identical rights to holders of Class B Common Stock and vote together as a single class, except that holders of Class A Common Stock are entitled to one vote per share while holders of Class B Common Stock are entitled, with certain exceptions, to three votes per share on all matters submitted to a vote of stockholders. Following the Offering, the shares of Class B Common Stock owned by Digital will represent approximately % of the combined voting power of all classes of voting stock of the Company (assuming no exercise of the Underwriters' over-allotment options). Each share of Class B Common Stock is convertible into one share of Class A Common Stock at the option of Digital, and is automatically converted under certain circumstances. See "Relationship with Digital" and "Description of Capital Stock." Prior to the Offering, there has been no public market for the Common Stock of the Company. It is currently estimated that the initial public offering price will be between $ and $ per share. See "Underwriting" for the factors to be considered in determining the initial public offering price. Application has been made to list the Class A Common Stock on the Nasdaq National Market under the symbol "ALTV." --------------------------- THE CLASS A COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 8. --------------------------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. =========================================================================================================== UNDERWRITING PRICE TO DISCOUNTS PROCEEDS TO PUBLIC AND COMMISSIONS(1) COMPANY(2) - ----------------------------------------------------------------------------------------------------------- Per Share................................ - ----------------------------------------------------------------------------------------------------------- Total(3)................................. ===========================================================================================================
(1) The Company and Digital have agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended. See "Underwriting." (2) Before deducting expenses payable by the Company estimated at $ . (3) The Company has granted the International Managers a 30-day option to purchase up to an additional shares of Class A Common Stock solely to cover over-allotments, if any. The U.S. Underwriters have been granted a similar option to purchase up to additional shares solely to cover over-allotments, if any. If such options are exercised in full, the total Price to Public would be $ , the total Underwriting Discounts and Commissions would be $ and the total Proceeds to Company before estimated expenses would be $ . See "Underwriting." --------------------------- The shares of Class A Common Stock offered by this Prospectus are offered by the International Managers subject to prior sale, to withdrawal, cancellation or modification of the offer without notice, to delivery to and acceptance by the International Managers and to certain further conditions. It is expected that delivery of the shares will be made at the offices of Lehman Brothers Inc., New York, New York, on or about , 1996. --------------------------- LEHMAN BROTHERS COWEN & COMPANY J.P. MORGAN SECURITIES LTD. , 1996 101 [ALTERNATE BACK COVER PAGE] ============================================================================== NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, DIGITAL OR ANY INTERNATIONAL MANAGER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO WHICH IT RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF. --------------------------- TABLE OF CONTENTS
PAGE ---- Prospectus Summary................... 3 Risk Factors......................... 8 Use of Proceeds...................... 20 Dividend Policy...................... 20 Capitalization....................... 21 Dilution............................. 22 Selected Financial Data.............. 23 Management's Discussion and Analysis of Financial Condition and Results of Operations.......... 24 Business............................. 28 Relationship with Digital............ 45 Management........................... 51 Principal Stockholder................ 57 Shares Eligible for Future Sale...... 57 Description of Capital Stock......... 59 Certain United States Federal Tax Consequences to Non-United States Holders............................ 64 Underwriting......................... 67 Legal Matters........................ 69 Experts.............................. 69 Additional Information............... 70 Reports to Security Holders.......... 70 Index to Financial Statements........ F-1
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. ============================================================================== ============================================================================== SHARES [INTERNET SOFTWARE LOGO] CLASS A COMMON STOCK --------------------------- PROSPECTUS , 1996 --------------------------- LEHMAN BROTHERS COWEN & COMPANY J.P. MORGAN SECURITIES LTD. ============================================================================== 102 PART II INFORMATION NOT REQUIRED IN THE PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. Estimated expenses (other than underwriting discounts and commissions) payable in connection with the sale of the Class A Common Stock offered hereby are as follows: SEC registration fee....................................................... $17,242 NASD filing fee............................................................ 5,500 Nasdaq National Market listing fee......................................... * Printing and engraving expenses............................................ * Legal fees and expenses.................................................... * Accounting fees and expenses............................................... * Blue Sky fees and expenses (including legal fees).......................... * Transfer agent and registrar fees and expenses............................. * Miscellaneous.............................................................. * ------- --- Total............................................................ $ * =======
- --------------- * To be completed by amendment. The Company will bear all expenses shown above. ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS. The Delaware General Corporation Law and the Company's corporate charter and by-laws provide for indemnification of the Company's directors and officers for liabilities and expenses that they may incur in such capacities. In general, directors and officers are indemnified with respect to actions taken in good faith in a manner reasonably believed to be in, or not opposed to, the best interests of the Company, and with respect to any criminal action or proceeding, actions that the indemnitee had no reasonable cause to believe were unlawful. Reference is made to the Company's amended and restated corporate charter and by-laws filed as Exhibits 3.2 and 3.4 hereto. The Massachusetts Business Corporation Law, Digital's by-laws and indemnification agreements between Digital and the Company's directors and officers provide for indemnification of the Company's directors and officers for liabilities and expenses that they may incur in such capacities, except with respect to any matter that the indemnified person shall have been adjudicated in any proceeding not to have acted in good faith in the reasonable belief that his or her action was in the best interest of Digital. Reference is made to Digital's corporate charter and by-laws and form of indemnification agreement filed as Exhibits 3.5 through 3.8 and Exhibit 10.10. The Company's corporate charter also provides that any person purchasing or acquiring an interest in a share of capital stock of the Company is deemed to have consented to certain provisions in the corporate charter that (i) permit the officers and directors of the Company and Digital to allocate corporate opportunities to either the Company or Digital as such officers of directors deem appropriate, and that none of the Company, Digital and their respective officers or directors shall be liable for any breach of a fiduciary duty in connection therewith, and (ii) eliminate the liability of Digital and its officers and directors for engaging in business activities similar to those of the Company and for any actions taken in connection with any agreements entered into between the Company and Digital. The Underwriting Agreements provide that the Underwriters are obligated, under certain circumstances, to indemnify directors, officers and controlling persons of the Company against certain liabilities, including liabilities under the Securities Act of 1933, as amended (the "Act"). Reference is made to the forms of Underwriting Agreements filed as Exhibits 1.1 and 1.2 hereto. II-1 103 Digital maintains directors and officers liability insurance for the benefit of its and the Company's directors and officers. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES. The Company has not issued any unregistered securities except to its parent, Digital, in connection with the organization of the Company. ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. (A) EXHIBITS: 1.1* Form of U.S. Underwriting Agreement. 1.2* Form of International Underwriting Agreement. 1.3* Form of Agreement Between U.S. Underwriters and International Managers. 3.1 Current form of Certificate of Incorporation of the Company. 3.2 Form of Amended and Restated Certificate of Incorporation of the Company, to be effective prior to consummation of the Offering. 3.3 Current form of By-laws of the Company. 3.4 Form of Amended and Restated By-laws of the Company, to be effective prior to consummation of the Offering. 3.5 Digital's Restated Articles of Organization (filed under cover of Form SE as Exhibit 3(a) to Digital's Annual Report on Form 10-K for the fiscal year ended June 29, 1991 and incorporated herein by reference). 3.6 Articles of Amendment to Digital's Restated Articles of Organization, filed with the Secretary of State of the Commonwealth of Massachusetts on November 4, 1993 (filed as Exhibit 4.3 to Digital's Registration Statement on Form S-3, No. 33-51987, and incorporated herein by reference). 3.7 Certificate of Designation of Digital, filed with the Secretary of State of the Commonwealth of Massachusetts on March 21, 1994 (filed as Exhibit 4.1 to Digital's Report on Form 8-K filed on March 23, 1994 and incorporated herein by reference). 3.8 Digital's By-laws, as amended (filed as Exhibit 3(d) to Digital's Annual Report on Form 10-K for the fiscal year ended July 1, 1995 and incorporated herein by reference). 4.1* Specimen certificate representing the Class A Common Stock. 5.1* Opinion of Testa, Hurwitz & Thibeault, LLP. 10.1 Form of Services Agreement between the Company and Digital. 10.2 Form of Facilities Agreement between the Company and Digital. 10.3 Form of Tax-Sharing Agreement between the Company and Digital. 10.4 Form of Corporate Agreement between the Company and Digital. 10.5 Form of Strategic Alliance Agreement between the Company and Digital. 10.6 Form of Technical Assistance Agreement between the Company and Digital. 10.7* Form of Asset Transfer and License Agreement between the Company and Digital. 10.8*# Agreement between the Company and Yahoo! Inc. 10.9* 1996 Stock Plan. 10.10* 1996 Non-Employee Director Stock Option Plan. 10.11* Form of Indemnification Agreement between Digital and the Company's officers and directors. 21.1 Subsidiaries of the Company. 23.1 Consent of Coopers & Lybrand L.L.P. 23.2 Consent of Testa, Hurwitz & Thibeault, LLP (included in Exhibit 5.1). 24.1 Power of Attorney (see page II-4). 27.1 Financial Data Schedule.
- --------------- * To be filed by amendment. # Confidential treatment requested as to certain portions. II-2 104 (B) FINANCIAL STATEMENT SCHEDULES: None ITEM 17. UNDERTAKINGS. Insofar as indemnification for liabilities arising under the Act may be permitted to directors, officers and controlling persons of the registrant pursuant to provisions described in Item 14 above, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. The undersigned registrant hereby undertakes (1) to provide to the underwriters at the closing specified in the underwriting agreements certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser; (2) that for purposes of determining any liability under the Act, the information omitted from the form of prospectus filed as part of a registration statement in reliance upon Rule 430A and contained in the form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Act shall be deemed to be part of this registration statement as of the time it was declared effective; and (3) that for the purpose of determining any liability under the Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-3 105 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in Littleton, Massachusetts on August 27, 1996. ALTAVISTA INTERNET SOFTWARE, INC. By: /s/ Ilene H. Lang ------------------------------------ Ilene H. Lang President and Chief Executive Officer POWER OF ATTORNEY AND SIGNATURES We, the undersigned officers and directors of AltaVista Internet Software, Inc., hereby severally constitute and appoint Ilene H. Lang, Robert E. Hult, Gail S. Mann and Edwin L. Miller, Jr., and each of them singly, our true and lawful attorneys, with full power to them and each of them singly, to sign for us in our names in the capacities indicated below, any registration statement related to the Offering that is to be effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933 (a "462(b) Registration Statement"), any and all amendments and exhibits to this registration statement or any 462(b) Registration Statement, and any and all applications and other documents to be filed with the Securities and Exchange Commission pertaining to the registration of the securities covered hereby or thereby, and generally to do all things in our names and on our behalf in such capacities to enable AltaVista Internet Software, Inc. to comply with the provisions of the Securities Act of 1933 and all requirements of the Securities and Exchange Commission. Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE(S) DATE - --------------------------------------------- ------------------------------ ----------------- /s/ Ilene H. Lang President and Sole Director August 27, 1996 - --------------------------------------------- (Principal Executive Officer) Ilene H. Lang /s/ Robert E. Hult Vice President, Finance and August 27, 1996 - --------------------------------------------- Operations, and Treasurer Robert E. Hult (Principal Financial and Accounting Officer)
II-4 106 EXHIBIT INDEX
PAGE ----- 1.1* Form of U.S. Underwriting Agreement. 1.2* Form of International Underwriting Agreement. 1.3* Form of Agreement Between U.S. Underwriters and International Managers. 3.1 Current form of Certificate of Incorporation of the Company. 3.2 Form of Amended and Restated Certificate of Incorporation of the Company, to be effective prior to consummation of the Offering. 3.3 Current form of By-laws of the Company. 3.4 Form of Amended and Restated By-laws of the Company, to be effective prior to consummation of the Offering. 3.5 Digital's Restated Articles of Organization (filed under cover of Form SE as Exhibit 3(a) to Digital's Annual Report on Form 10-K for the fiscal year ended June 29, 1991 and incorporated herein by reference). 3.6 Articles of Amendment to Digital's Restated Articles of Organization, filed with the Secretary of State of the Commonwealth of Massachusetts on November 4, 1993 (filed as Exhibit 4.3 to Digital's Registration Statement on Form S-3, No. 33-51987, and incorporated herein by reference). 3.7 Certificate of Designation of Digital, filed with the Secretary of State of the Commonwealth of Massachusetts on March 21, 1994 (filed as Exhibit 4.1 to Digital's Report on Form 8-K filed on March 23, 1994 and incorporated herein by reference). 3.8 Digital's By-laws, as amended (filed as Exhibit 3(d) to Digital's Annual Report on Form 10-K for the fiscal year ended July 1, 1995 and incorporated herein by reference). 4.1* Specimen certificate representing the Class A Common Stock. 5.1* Opinion of Testa, Hurwitz & Thibeault, LLP. 10.1 Form of Services Agreement between the Company and Digital. 10.2 Form of Facilities Agreement between the Company and Digital. 10.3 Form of Tax-Sharing Agreement between the Company and Digital. 10.4 Form of Corporate Agreement between the Company and Digital. 10.5 Form of Strategic Alliance Agreement between the Company and Digital. 10.6 Form of Technical Assistance Agreement between the Company and Digital. 10.7* Form of Asset Transfer and License Agreement between the Company and Digital. 10.8*# Agreement between the Company and Yahoo! Inc. 10.9* 1996 Stock Plan. 10.10* 1996 Non-Employee Director Stock Option Plan. 10.11* Form of Indemnification Agreement between Digital and the Company's officers and directors. 21.1 Subsidiaries of the Company. 23.1 Consent of Coopers & Lybrand L.L.P. 23.2 Consent of Testa, Hurwitz & Thibeault, LLP (included in Exhibit 5.1). 24.1 Power of Attorney (see page II-4). 27.1 Financial Data Schedule.
- --------------- * To be filed by amendment. # Confidential treatment requested as to certain portions. EX-3.1 2 CERTIFICATE OF INCORPORATION OF THE COMPANY 1 EXHIBIT 3.1 CERTIFICATE OF INCORPORATION OF ALTAVISTA INTERNET SOFTWARE, INC. * * * * * * FIRST. The name of the corporation AltaVista Internet Software, Inc. (the "Corporation"). SECOND. The address of the registered office of the Corporation in the State of Delaware is 1209 Orange Street, in the City of Wilmington, New Castle County, Delaware 19801. The name of its registered agent at such address is The Corporation Trust Company. THIRD. The nature of the business or purposes to be conducted or promoted by the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware. FOURTH. The total number of shares of stock which the Corporation shall have authority to issue is 1,000,000 shares of Common Stock with a par value of one cent ($.01) per share. FIFTH. The Corporation is to have perpetual existence. SIXTH. In furtherance and not in limitation of the powers conferred by the laws of the State of Delaware: A. The Board of Directors of the Corporation is expressly authorized to adopt, amend or repeal the By-Laws of the Corporation. 2 -2- B. Elections of directors need not be by written ballot unless the By-Laws of the Corporation shall so provide. C. The books of the Corporation may be kept at such place within or without the State of Delaware as the By-Laws of the Corporation may provide or as may be designated from time to time by the Board of Directors of the Corporation. SEVENTH. The Corporation eliminates the personal liability of each member of its Board of Directors to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, provided, however, that, to the extent provided by applicable law, the foregoing shall not eliminate the liability of a director (i) for any breach of such director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of Title 8 of the Delaware Code or (iv) for any transaction from which such director derived an improper personal benefit. No amendment to or repeal of this provision shall apply to or have any effect on the liability or alleged liability of any director for or with respect to any acts or omissions of such director occurring prior to such amendment or repeal. EIGHTH. The Corporation reserves the right to amend or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon a stockholder herein are granted subject to this reservation. NINTH. The name and mailing address of the sole incorporator is as follows: Name Mailing Address ---- --------------- Edwin L. Miller, Jr. Testa, Hurwitz & Thibeault, LLP High Street Tower 125 High Street Boston, MA 02110 3 -3- I, THE UNDERSIGNED, being the sole incorporator hereinabove named, for the purpose of forming a corporation pursuant to the General Corporation Law of the State of Delaware, do make this certificate, hereby declaring and certifying that this is my act and deed and the facts herein stated are true, and accordingly have hereunto set my hand this 28th day of June, 1996. ------------------------------ Edwin L. Miller, Jr. Sole Incorporator EX-3.2 3 AMENDED & RESTATED CERTIFICATE OF INCORPORATION 1 EXHIBIT 3.2 FORM OF AMENDED AND RESTATED CERTIFICATE OF INCORPORATION ALTAVISTA INTERNET SOFTWARE, INC. * * * * * * * * * AltaVista Internet Software, Inc., a Delaware corporation that filed its original Certificate of Incorporation with the Secretary of State of Delaware on June 28, 1996, does hereby amend and restate its Certificate of Incorporation to read in its entirety as follows: FIRST. The name of the Corporation is: ALTAVISTA INTERNET SOFTWARE, INC. SECOND. The address of the registered office of the Corporation in the State of Delaware is 1209 Orange Street, in the City of Wilmington, New Castle County, Delaware 19801. The name of its registered agent at such address is The Corporation Trust Company. THIRD. The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware as the name exists or may hereafter be amended ("Delaware Law"). FOURTH. Section 1. Capital Stock. (a) The total number of shares of stock which the Corporation shall have authority to issue is 105,000,000, consisting of 100,000,000 shares of Common Stock, par value $0.01 per share (the "Common Stock"), and 5,000,000 shares of Preferred Stock, par value $0.01 per share (the "Preferred Stock"). The Common Stock of the Corporation shall be all of one class, and shall be divided into two initial series, consisting of Class A Common Stock and Class B Common Stock. The Preferred Stock may be issued in one or more series having such designations as may be fixed by the Board of Directors. (b) The Board of Directors is expressly authorized to provide for the issue of all or any shares of the Common Stock and the Preferred Stock, to determine the number of shares of each series and to fix for each series of Common Stock and for any series of Preferred Stock such voting powers, full or limited, or no voting powers, and such designations, preferences and relative, participating, optional or other special rights and such qualifications, limitations or restrictions thereof, as shall be stated and expressed in the resolution or resolutions 2 adopted by the Board of Directors or a duly authorized committee thereof providing for the issue of such series and as may be permitted by Delaware Law. (c) Subject to the rights of holders of the Preferred Stock, the number of authorized shares of any class or classes of stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of a majority of the Common Stock of the Corporation irrespective of the provisions of Section 242(b)(2) of Delaware Law. Section 2. Common Stock. (a) Issuance and Consideration. Any unissued or treasury shares of the Common Stock may be issued for such consideration as may be fixed in accordance with applicable law from time to time by the Board of Directors. (b) Dividends. Subject to the rights of holders of the Preferred Stock, the holders of the Common Stock shall be entitled to receive, when and as declared by the Board of Directors, out of the assets of the Corporation which are by law available therefor, dividends payable either in cash, in property, or in shares of stock and the holders of the Preferred Stock shall not be entitled to participate in any such dividends (unless otherwise provided by the Board of Directors in any resolution providing for the issue of a series of Preferred Stock). (c) Number of Shares. Of the 100,000,000 shares of Common Stock of the Corporation, 50,000,000 shares are initially designated as shares of Class A Common Stock and 50,000,000 shares are initially designated as shares of Class B Common Stock. The number of shares designated as Class A Common Stock or Class B Common Stock may be increased or decreased from time to time by a resolution or resolutions adopted by the Board of Directors or any duly authorized committee thereof (but not decreased below the number of such shares then outstanding) and will be decreased in accordance with paragraph (d)(5)(E) below, in each case without the consent of the holders of any outstanding shares of Common Stock or Preferred Stock. (d) Powers, Preferences, Etc. The following is a statement of the powers, preferences, and relative participating, optional or other special rights and qualifications, limitations and restrictions of the Class A Common Stock and Class B Common Stock of the Corporation: (1) Except as otherwise set forth below in this ARTICLE FOURTH, the powers, preferences and relative participating, optional or other special rights and qualifications, limitations or restrictions of the Class A Common Stock and Class B Common Stock shall be identical in all respects. (2) Subject to the rights of the holders of Preferred Stock, and subject to any other provisions of this Amended and Restated Certificate of Incorporation, holders of Class A Common Stock and Class B Common Stock shall be entitled to receive such dividends and other distributions in cash, stock of any corporation (other than Common 2 3 Stock of the Corporation) or property of the Corporation as may be declared thereon by the Board of Directors from time to time out of assets or funds of the Corporation legally available therefor and shall share equally on a per share basis in all such dividends and other distributions. In the case of dividends or other distributions payable in Common Stock, including distributions pursuant to stock splits or divisions of Common Stock of the Corporation, only shares of Class A Common Stock shall be paid or distributed with respect to Class A Common Stock and only shares of Class B Common Stock shall be paid or distributed with respect to Class B Common Stock. The number of shares of Class A Common Stock and Class B Common Stock so distributed shall be equal in number on a per share basis. Neither the shares of Class A Common Stock nor the shares of Class B Common Stock may be reclassified, subdivided or combined unless such reclassification, subdivision or combination occurs simultaneously and in the same proportion for each class. (3)(A) At every meeting of the stockholders of the Corporation, every holder of Class A Common Stock shall be entitled to one vote in person or by proxy for each share of Class A Common Stock standing in his or her name on the transfer books of the Corporation, and every holder of Class B Common Stock shall be entitled to three votes in person or by proxy for each share of Class B Common Stock standing in his or her name on the transfer books of the Corporation in connection with the election of directors and all other matters submitted to a vote of stockholders; provided, however, that with respect to any proposed conversion of the shares of Class B Common Stock into shares of Class A Common Stock pursuant to paragraph (d)(5)(B), every holder of a share of Common Stock, irrespective of class, shall have one vote in person or by proxy for each share of Common Stock standing in his or her name on the transfer books of the Corporation. Except as may be otherwise required by law or by this ARTICLE FOURTH, the holders of Class A Common Stock and Class B Common Stock shall vote together as a single class, subject to any voting rights which may be granted to holders of Preferred Stock, on all matters submitted to a vote of the holders of Common Stock. (B) Every reference in this Amended and Restated Certificate of Incorporation to a majority or other proportion of shares of Common Stock, Class A Common Stock or Class B Common Stock, shall refer to such majority or other proportion of the votes to which such shares of Common Stock, Class A Common Stock or Class B Common Stock are entitled. (4)(A) In the event of any dissolution, liquidation or winding up of the affairs of the Corporation, whether voluntary or involuntary, after payment in full of the amounts required to be paid to the holders of Preferred Stock, the remaining assets and funds of the Corporation shall be distributed pro rata to the holders of Class A Common Stock and Class B Common Stock. For the purposes of this paragraph (d)(4), the voluntary sale, conveyance, lease, exchange or transfer (for cash, shares of stock, securities or other consideration) of all or substantially all of the assets of the Corporation or a consolidation or merger of the Corporation with one or more other corporations (whether or not the 3 4 Corporation is the corporation surviving such consolidation or merger) shall not be deemed to be a liquidation, dissolution or winding up, voluntary or involuntary. (B) In the event of any merger or consolidation of the Company with or into another company in connection with which shares of Common Stock are converted into or exchangeable for shares of stock, other securities or property (including cash), all holders of Common Stock, regardless of class or series, will be entitled to receive the same kind and amount of shares of stock and other securities and property (including cash). (5)(A) Prior to the earliest to occur of the date on which shares of Class B Common Stock are issued to stockholders of Digital Equipment Corporation, a Massachusetts corporation, or its successors ("Digital") in a Tax-Free Spin-Off (as defined in paragraph (d)(5)(B)) and the date on which the number of shares of Class B Common Stock outstanding is less than 60% of the aggregate number of shares of Common Stock outstanding and a Tax-Free Spin-Off has not occurred, each share of Class B Common Stock is convertible at the option of the holder thereof into one share of Class A Common Stock. At the time of a voluntary conversion, the holder of shares of Class B Common Stock shall deliver to the office of the Corporation or any transfer agent for the Class B Common Stock (i) the certificate or certificates representing the shares of Class B Common Stock to be converted, duly endorsed in blank or accompanied by proper instruments of transfer, and (ii) written notice to the Corporation stating that such holder elects to convert such share or shares and stating the name and address in which each certificate for shares of Class A Common Stock issued upon such conversion is to be issued. To the extent permitted by law and subject to the taking of any necessary action or making any filing contemplated by paragraph (d)(5)(E), such voluntary conversion shall be deemed to have been effected at the close of business on the date when such delivery is made to the Corporation or such transfer agent of the shares to be converted, and the person exercising such voluntary conversion shall be deemed to be the holder of record of the number of shares of Class A Common Stock issuable upon such conversion at such time. The Corporation shall promptly delivery certificates evidencing the appropriate number of shares of Class A Common Stock to such person. (B) Each share of Class B Common Stock shall automatically convert into one share of Class A Common Stock upon the transfer of such shares if, after such transfer, such share is not beneficially owned by Digital, unless such transfer is effected in connection with a transfer of Class B Common Stock to stockholders of Digital as a dividend intended to be on a tax-free basis under the Internal Revenue Code of 1986, as amended from time to time (the "Code") (a "Tax-Free Spin-Off"). For purposes of this paragraph (d)(5), the term "beneficially owned" with respect to shares of Class B Common Stock means ownership by a person who, directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise controls the voting power (which includes the power to vote or to direct the voting of) of such Class B Common Stock. In the event of a Tax-Free Spin-Off, shares of Class B Common Stock shall automatically convert into shares of Class A Common Stock on the fifth anniversary of 4 5 the date on which shares of Class B Common Stock are first transferred to stockholders of Digital in a Tax-Free Spin-Off unless, prior to such Tax-Free Spin-Off, Digital delivers to the Corporation an opinion of Digital's counsel (which counsel shall be reasonably satisfactory to the Corporation) to the effect that such conversion would preclude Digital from obtaining a favorable ruling from the Internal Revenue Service that the distribution would be a Tax-Free Spin-Off under the Code. If such an opinion is received, approval of such conversion shall be submitted to a vote of the holders of the Common Stock as soon as practicable after the fifth anniversary of the Tax-Free Spin-Off unless Digital delivers to the Corporation an opinion of Digital's counsel (which counsel shall be reasonably satisfactory to the Corporation) prior to such anniversary to the effect that such vote would adversely affect the status of the Tax-Free Spin-Off. At the meeting of stockholders called for such purpose, every holder of Common Stock shall be entitled to one vote in person or by proxy for each share of Common Stock standing in his or her name on the transfer books of the Corporation. Approval of such conversion shall require the approval of a majority of the votes entitled to be cast by the holders of the Class A Common Stock and Class B Common Stock present and voting, voting together as a single class, and the holders of the Class B Common Stock shall not be entitled to a separate class vote. Such conversion shall be effective on the date on which such approval is given at a meeting of stockholders called for such purpose. Each share of Class B Common Stock shall automatically convert into one share of Class A Common Stock on the date on which the number of shares of Class B Common Stock outstanding is less than 60% of the aggregate number of shares of Common Stock outstanding and a Tax-Free Spin-Off has not occurred. The Corporation shall at all times reserve and keep available, free from preemptive rights, out of the aggregate of its authorized but unissued Common Stock and its issued Common Stock held in its treasury for the purpose of effecting any conversion of the Class B Common Stock pursuant to this paragraph (d)(5)(B), the full number of shares of Class A Common Stock then deliverable upon any such conversion of all outstanding shares of Class B Common Stock. The Corporation will provide notice of any automatic conversion of shares of Class B Common Stock to holders of record of the Common Stock not less than 30 nor more than 60 days prior to the date fixed for such conversion; provided, however, that if the timing or nature of the effectiveness of an automatic conversion makes it impracticable to provide at least 30 days' notice, the Corporation shall provide such notice as soon as practicable. Such notice shall be provided by mailing notice of such conversion first class postage prepaid, to each holder of record of the Common Stock, at such holder's address as it appears on the transfer books of the Corporation; provided, however, that no failure to give such notice nor any defect therein shall affect the validity of the automatic conversion of any shares of Class B Common Stock. Each such notice shall state, as appropriate, the following: (i) the automatic conversion date; 5 6 (ii) the number of outstanding shares of Class B Common Stock that are to be converted or have been converted automatically; (iii) the place or places where certificates for such shares are to be surrendered for conversion; and (iv) that no dividends will be declared on the shares of Class B Common Stock converted after such conversion date. Immediately upon such conversion, the rights of the holders of shares of Class B Common Stock as such shall cease and such holders shall be treated for all purposes as having become the record owners of the shares of Class A Common Stock issuable upon such conversion; provided, however, that such persons shall be entitled to receive when paid any dividends declared on the Class B Common Stock as of a record date preceding the time of such conversion and unpaid as of the time of such conversion. As promptly as practicable after the time of conversion, upon the delivery to the Corporation of certificates formerly representing shares of Class B Common Stock, the Corporation shall deliver or cause to be delivered, to or upon the written order of the record holder of the surrendered certificates formerly representing shares of Class B Common Stock, a certificate or certificates representing the number of fully paid and nonassessable shares of Class A Common Stock into which the shares of Class B Common Stock formerly represented by such certificates have been converted in accordance with the provisions of this paragraph (d)(5)(B). (C) Subject to the provisions of this paragraph (d)(5)(C), from and after the date on which shares of Class B Common Stock are transferred to the stockholders of Digital in a Tax-Free Spin-Off, (i) each share of Class A Common Stock shall be convertible at the option of the holder thereof into one share of Class B Common Stock on the date on which any person (other than Digital or any of its consolidated subsidiaries) or any group of persons (other than a group composed of Digital and/or one or more of its consolidated subsidiaries) agreeing to act together for the purpose of acquiring, holding, voting or disposing of shares of Class B Common Stock, shall make an offer, which the Board of Directors determines in its sole discretion to be "bona fide", to holders of Class B Common Stock to purchase 5% or more of the issued and outstanding shares of such Class B Common Stock for cash or a combination of cash and other securities or property and (ii) each share of Class B Common Stock shall be convertible at the option of the holder thereof into one share of Class A Common Stock on the date on which any person (other than Digital or any of its consolidated subsidiaries) or any group of persons (other than a group composed of Digital and/or one or more of its consolidated subsidiaries) agreeing to act together for the purpose of acquiring, holding, voting or disposing of shares of Class A Common Stock, shall make an offer, which the Board of Directors determines in its sole discretion to be "bona fide", to holders of Class A Common Stock to purchase 5% or more of the issued and outstanding shares of Class A Common Stock for cash or a combination of cash and other securities or property. The Corporation will 6 7 provide notice in writing to all holders of Common Stock of any offer referred to in the foregoing clauses (i) and (ii). Such notice shall be provided by mailing notice of such offer, first class postage prepaid, to each holder of the series of Common Stock then entitled to be converted, at such holder's address as it appears on the transfer books of the Corporation. The Common Stock shall be convertible under this paragraph (d)(5)(C) as long as such offer shall remain in effect and shall not be terminated, rescinded or completed, as determined by the Board of Directors in its sole discretion. Notwithstanding the foregoing, each share of Common Stock converted into a share of the other series of Common Stock pursuant to this paragraph (d)(5)(C) and not purchased pursuant to such offer prior to the termination, rescission or completion thereof, as determined by the Board of Directors in its sole discretion, shall automatically be reconverted into a share of Common Stock of the series from which it was converted pursuant to this paragraph (d)(5)(C) upon the earliest to occur of the termination, rescission or completion of such offer, as so determined by the Board of Directors. Any conversion pursuant to this paragraph (d)(5)(C) may be effected at the office of the Corporation or any transfer agent for the Common Stock and at such other place or places, if any, as the Board of Directors may designate. Upon conversion pursuant to this paragraph (d)(5)(C), the Corporation shall make no payment or adjustment on account of dividends accrued or in arrears on Common Stock surrendered for conversion or on account of any dividends on Common Stock issuable on such conversion. Before any holder of Common Stock shall be entitled to convert the same into any other series of stock pursuant to this paragraph (d)(5)(C), such holder shall surrender the certificate or certificates for such Common Stock at the office of said transfer agent (or other place as provided above). Such certificate(s), if the Corporation shall so request, shall be duly endorsed to the Corporation or in blank or accompanied by proper instruments of transfer to the Corporation or in blank (such endorsements or instruments of transfer to be in form satisfactory to the Corporation). Such certificate(s) shall be accompanied by a written notice to the Corporation at said office stating that such holder elects to convert all or a specified number of Common Stock represented by such certificate(s) in accordance with this paragraph (d)(5)(C) and stating the name(s) in which such holder desires the certificate(s) representing the stock to be issued. Such written notice shall also state the name(s) of the person(s) making the offer entitling such holder to convert such Common Stock. The Corporation will, as soon as practicable after deposit of the certificate(s) for the series of Common Stock to be converted, accompanied by the written notice and the statements prescribed above, issue and deliver at the office of said transfer agent (or other place as provided above) to the person for whose account such Common Stock was so surrendered, or to such person's nominee or nominees, a certificate or certificates for the number of shares of such other series of Common Stock to which such holder shall be entitled as aforesaid. Any certificate of Common Stock issued in connection with a conversion pursuant to this paragraph (d)(5)(C) shall bear a legend substantially to the effect of the last sentence of the first subparagraph of this paragraph (d)(5)(C) until such certificate shall be transferred to the person(s) making the offer entitling a holder of Common Stock to 7 8 convert such Common Stock pursuant to this paragraph (d)(5)(C), or the nominee or nominees of such person(s). Any conversion pursuant to this paragraph (d)(5)(C) shall be deemed to have been made as of the date of surrender of the Common Stock to be converted; and the person or persons entitled to receive the Common Stock issuable upon conversion shall be treated for all purposes as the record holder or holders of such Common Stock on such date. (D) The Corporation will pay any and all documentary, stamp or similar issue or transfer taxes payable in respect of the issue or delivery of shares of one series of Common Stock on the conversion of shares of the other series of Common Stock pursuant to this paragraph (d)(5); provided, however, that the Corporation shall not be required to pay any tax which may be payable in respect of any registration of transfer involved in the issue or delivery of shares of one series of Common Stock in a name other than that of the registered holder of the other series of Common Stock converted, and no such issue or delivery shall be made unless and until the person requesting such issue has paid to the Corporation the amount of any such tax or has established, to the satisfaction of the Corporation, that such tax has been paid. (E) Concurrently with any conversion of one series of Common Stock into the other series of Common Stock effected pursuant to paragraphs (d)(5)(A) and (B) above and, in the case of a conversion pursuant to paragraph (d)(5)(C) above, concurrently with the purchase of shares so converted, each share of a series of Common Stock that is converted (i) shall be retired and canceled and shall not be reissued and (ii) shall proportionally decrease the number of shares of Common Stock of such series designated hereby. The Secretary of the Corporation shall be, and hereby is, authorized and directed to file with the Secretary of State of the State of Delaware one or more Certificates of Decrease of Designated Shares to record any such decrease in designated shares of Common Stock. No undesignated shares of Common Stock shall be designated shares of Class B Common Stock following an automatic conversion of shares of Class B Common Stock pursuant to paragraph (d)(5)(B) above. (F) Immediately upon the effectiveness of this Amended and Restated Certificate of Incorporation each share of common stock of the Corporation, par value $0.01 per share, that is issued and outstanding immediately prior to such effectiveness, shall be changed into and reclassified as 1,000 shares of Class B Common Stock. Section 3. Preferred Stock. (a) Series and Limits of Variations between Series. Any unissued or treasury shares of the Preferred Stock may be issued from time to time in one or more series for such consideration as may be fixed from time to time by the Board of Directors and each share of a series shall be identical in all respects with the other shares of such series, except that, if the dividends thereon are cumulative, the date from which they shall be cumulative may differ. Before any shares of Preferred Stock of any particular series shall be issued, a certificate shall be filed with the Secretary of State of Delaware setting forth the designation, rights, privileges, 8 9 restrictions, and conditions to be attached to the Preferred Stock of such series and such other matters as may be required, and the Board of Directors shall fix and determine, and is hereby expressly empowered to fix and determine, in the manner provided by law, the particulars of the shares of such series (so far as not inconsistent with the provisions of this ARTICLE FOURTH applicable to all series of Preferred Stock), including, but not limited to, the following: (1) the distinctive designation of such series and the number of shares which shall constitute such series, which number may be increased (except where otherwise provided by the Board of Directors in creating such series) or decreased (but not below the number of shares thereof then outstanding) from time to time by like action of the Board of Directors; (2) the annual rate of dividends payable on shares of such series (or the manner of determining the same), the conditions upon which such dividends shall be payable and the date from which dividends shall be cumulative in the event the Board of Directors determines that dividends shall be cumulative; (3) whether such series shall have voting rights, in addition to the voting rights provided by law and, if so, the terms of such voting rights; (4) whether such series shall have conversion privileges and, if so, the terms and conditions of such conversion, including, but not limited to, provision for adjustment of the conversion rate upon such events and in such manner as the Board of Directors shall determine; (5) whether or not the shares of such series shall be redeemable or exchangeable for other securities and, if so, the terms and conditions of such redemption or exchange, including the date or dates upon or after which they shall be redeemable or exchangeable, and the amount per share payable in case of redemption, which amount may vary under different conditions and at different redemption rates; (6) whether such series shall have a sinking fund for the redemption or purchase of shares of that series and, if so, the terms and amount of such sinking fund; (7) the rights of the shares of such series in the event of voluntary or involuntary liquidation, dissolution or winding up of the Corporation, and the relative rights of priority, if any, of payment of shares of that series; and (8) any other relative rights, preferences and limitations of such series. Section 4. No Preemptive Rights. Except as otherwise set forth above in this ARTICLE FOURTH, no holder of shares of this Corporation of any class shall be entitled, as such, as a matter of right, to subscribe for or purchase shares of any class now or hereafter authorized, or to purchase or subscribe for securities convertible into or exchangeable for shares of the Corporation or to which there shall be attached or appertain any warrants or rights entitling the holders thereof to purchase or subscribe for shares. 9 10 FIFTH. In furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized to make, repeal, alter, amend and rescind the bylaws of the Corporation. SIXTH. Section 1. Election by Holders of Preferred Stock. During any period when the holders of any Preferred Stock or any one or more series thereof, voting as a class, shall be entitled to elect a specified number of directors, by reason of dividend arrearages or other provisions giving them the right to do so, then and during such time as such right continues (i) the then otherwise authorized number of directors shall be increased by such specified number of directors, and the holders of such Preferred Stock or such series thereof, voting as a class, shall be entitled to elect the additional directors so provided for, pursuant to the provisions of such Preferred Stock or series; (ii) each such additional director shall serve for such term, and have such voting powers, as shall be stated in the provisions pertaining to such Preferred Stock or series; and (iii) whenever the holders of any such Preferred Stock or series thereof are divested of such rights to elect a specified number of directors, voting as a class, pursuant to the provisions of such Preferred Stock or series, the terms of office of all directors elected by the holders of such Preferred Stock or series, voting as a class pursuant to such provisions or elected to fill any vacancies resulting from the death, resignation or removal of directors so elected by the holders of such Preferred Stock or series, shall forthwith terminate and the authorized number of directors shall be reduced accordingly. Section 2. Ballots. Elections of directors at an annual or special meeting of stockholders need not be by written ballot unless the bylaws of the Corporation shall provide otherwise. Section 3. Initial Directors. Immediately upon the effectiveness of this Amended and Restated Certificate of Incorporation, the directors of the Corporation shall be_______________________________________________________. each such person to hold office in accordance with the bylaws of the Corporation. Section 4. Elimination of Certain Personal Liability of Directors. A director of this Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of any fiduciary duty as a director to the fullest extent permitted by Delaware Law. SEVENTH. The Board of Directors of the Corporation, when evaluating any offer of another party to (1) make a tender or exchange offer for any equity security of the Corporation, (2) merge or consolidate the Corporation with another corporation, or (3) purchase or otherwise acquire all or substantially all of the properties and assets of the Corporation, shall in connection with the exercise of its judgment in determining what is in the best interests of the Corporation and its stockholders, give due consideration to all relevant factors, including without limitation the social and economic effects on the employees, customers, suppliers and other constituents of the Corporation and its subsidiaries and on the communities in which the Corporation and its subsidiaries operate or are located. 10 11 EIGHTH. The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Amended and Restated Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred on stockholders herein are granted subject to this reservation; provided that with respect to any proposed amendment, alternation or change to this Amended and Restated Certificate of Incorporation, or repeal of any provision of this Amended and Restated Certificate of Incorporation, which would amend, alter or change the powers, preferences or special rights of the shares of Class A Common Stock or Class B Common Stock so as to affect them adversely, the affirmative vote of a majority of the outstanding shares affected by the proposed amendment, voting as a separate class, shall be required. NINTH. Section 1. In anticipation that the Corporation will cease to be a wholly owned subsidiary of Digital, but that Digital will remain a stockholder of the Corporation, and in anticipation that the Corporation and Digital may engage in the same or similar activities or lines of business and have an interest in the same areas of corporate opportunities, and in recognition of (i) the benefits to be derived by the Corporation throughout its continued contractual, corporate and business relations with Digital (including service of officers and directors of Digital as officers and directors of the Corporation) and (ii) the difficulties attendant to any director, who desires and endeavors fully to satisfy such director's fiduciary duties, in determining the full scope of such duties in any particular situation, the provisions of this ARTICLE NINTH are set forth to regulate, define and guide the conduct of certain affairs of the Corporation as they may involve Digital and its officers and directors, and the powers, rights, duties and liabilities of the Corporation of its officers, directors and stockholders in connection therewith. Section 2. Except as Digital may otherwise agree in writing, (a) Digital shall not have a duty to refrain from engaging directly or indirectly in the same or similar business activities or lines of business as the Corporation, and (b) neither Digital nor any officer of director thereof shall be liable to the Corporation or its stockholders for breach of any fiduciary duty by reason of any such activities of Digital or of such person's participation therein. In the event that Digital acquires knowledge of a potential transaction or matter that may be a corporate opportunity for both Digital and the Corporation, Digital (and its officers and directors) shall have no duty to communicate or offer such corporate opportunity to the Corporation and shall not be liable to the Corporation or its stockholders for breach of any fiduciary duty as a stockholder of the Corporation or controlling person of a stockholder by reason of the fact that Digital pursues or acquires such corporate opportunity for itself, directs such corporate opportunity to another person or entity, or does not communicate information regarding, or offer, such corporate opportunity to the Corporation. 11 12 Section 3. In the event that a director, officer or employee of the Corporation who is also a director, officer or employee of Digital acquires knowledge of a potential transaction or matter that may be a corporate opportunity for the Corporation and Digital (whether such potential transaction or matter is proposed by a third-party or is conceived of by such director, officer or employee of the Corporation), such director, officer or employee shall be entitled to offer such corporate opportunity to the Corporation or Digital as such director, officer or employee deems appropriate under the circumstances in his or her sole discretion, and no such director, officer or employee shall be liable to the Corporation or its stockholders for breach of any fiduciary duty or duty of loyalty or failure to act in (or not opposed to) the best interests of the Corporation or the derivation of any improper personal benefit by reason of the fact that (i) such director, officer or employee offered such corporate opportunity to Digital (rather than the Corporation) or did not communicate information regarding such corporate opportunity to the Corporation or (ii) Digital pursues or acquires such corporate opportunity for itself or directs such corporate opportunity to another person or does not communicate information regarding such corporate opportunity to the Corporation. Section 4. Any person or entity purchasing or otherwise acquiring any interest in any shares of capital stock of the Corporation shall be deemed to have notice of and to have consented to the provisions of this ARTICLE NINTH. Section 5. For purposes of this ARTICLE NINTH and ARTICLE TENTH only, (i) the term "Corporation" shall mean the Corporation and all corporations, partnerships, joint ventures, associations and other entities in which the Corporation beneficially owns (directly or indirectly) fifty percent or more of the outstanding voting stock, voting power or similar voting interests, and (ii) the term "Digital" shall mean Digital and all corporations, partnerships, joint ventures, associations and other entities (other than the Corporation, defined in accordance with clause (i) of this Section 5) in which Digital beneficially owns (directly or indirectly) fifty percent or more of the outstanding voting stock, voting power or similar voting interests. Section 6. Notwithstanding anything in this Amended and Restated Certificate of Incorporation to the contrary, the foregoing provisions of this ARTICLE NINTH shall expire on the date that Digital ceases to own beneficially Common Stock representing at least 20% of the number of outstanding shares of Common Stock of the Corporation and no person who is a director or officer of the Corporation is also a director or officer of Digital. Neither the alteration, amendment, change or repeal of any provision of this ARTICLE NINTH nor the adoption of any provision of this Amended and Restated Certificate of Incorporation inconsistent with any provision of this ARTICLE NINTH shall eliminate or reduce the effect of this ARTICLE NINTH in respect of any matter occurring, or any cause of action, suit or claim that, but for this ARTICLE NINTH, would accrue or arise, prior to such alteration, amendment, repeal or adoption. Section 7. The provisions of this ARTICLE NINTH are in addition to the provisions of ARTICLE TENTH. 12 13 TENTH. Section 1. No contract, agreement, arrangement or transaction (or any amendment, modification or termination thereof) between the Corporation and Digital or any Related Entity (as defined below) or between the Corporation and one or more of the directors or officers of the Corporation, Digital or any Related Entity, shall be void or voidable solely for the reason that Digital, a Related Entity or any one or more of the officers or directors of the Corporation, Digital or any Related Entity are parties thereto, or solely because any such directors or officers are present at or participate in the meeting of the Board of Directors or committee thereof which authorizes the contract, agreement, arrangement, transaction, amendment, modification or termination or solely because his or their votes are counted for such purpose, but any such contract, agreement, arrangement or transaction (or any amendment, modification or termination thereof) shall be governed by the provisions of this Amended and Restated Certificate of Incorporation, the Corporation's Bylaws, Delaware Law and other applicable law. For purposes of this ARTICLE TENTH, (i) the term "Related Entities" means one or more corporations, partnerships, joint ventures, associations or other organizations in which one or more of the directors of the Corporation have a direct or indirect financial interest and (ii) the terms the "Corporation" and "Digital" have the meanings set forth in ARTICLE NINTH, Section 5. Section 2. Directors of the Corporation who are also directors or officers of Digital or of any Related Entity may be counted in determining the presence of a quorum at a meeting of the Board of Directors or of a committee that authorizes or approves any such contract, agreement, arrangement or transaction (or amendment, modification or termination thereof). Outstanding shares of Common Stock owned by Digital and any Related Entities may be counted in determining the presence of a quorum at a meeting of stockholders that authorizes or approves any such contract, agreement, arrangement or transaction (or amendment, modification or termination thereof). Section 3. Neither Digital nor any officer or director thereof or of any Related Entity shall be liable to the Corporation or its stockholders for breach of any fiduciary duty or duty of loyalty or failure to act in (or not opposed to) the best interests of the Corporation or the derivation of any improper personal benefit by reason of the fact that Digital or an officer of director thereof or of such Related Entity in good faith takes any action or exercises any rights or gives or withholds any consent in connection with any agreement or contract between Digital or such Related Entity and the Corporation. No vote cast or other action taken by any person who is an officer, director or other representative of Digital or such Related Entity, which vote is cast or action is taken by such person in his or her capacity as a director of this Corporation, shall constitute an action of or the exercise of a right by or a consent of Digital or such Related Entity for the purpose of any such agreement or contract. Section 4. Any person or entity purchasing or otherwise acquiring any interest in any shares of capital stock of the Corporation shall be deemed to have notice of and to have consented to the provisions of this ARTICLE TENTH. 13 14 Section 5. For purposes of this ARTICLE TENTH, any contract, agreement, arrangement or transaction with any corporation, partnership, joint venture, association or other entity in which the Corporation beneficially owns (directly or indirectly) fifty percent or more of the outstanding voting stock, voting power or similar voting interests, or with any officer or director thereto, shall be deemed to be a contract, agreement, arrangement or transaction with the Corporation. Section 6. Neither the alteration, amendment, change or repeal of any provision of this ARTICLE TENTH nor the adoption of any provision inconsistent with any provision of this ARTICLE TENTH shall eliminate or reduce the effect of this ARTICLE TENTH in respect of any matter occurring, or any cause of action, suit or claim that, but for this ARTICLE TENTH, would accrue or arise, prior to such alteration, amendment, change, repeal or adoption. Section 7. The provisions of this ARTICLE TENTH are in addition to the provisions of ARTICLE NINTH. IN WITNESS WHEREOF, this Amended and Restated Certificate of Incorporation has been duly adopted by the written consent of the sole stockholder of the Corporation in accordance with the provisions of Sections 228, 242 and 245 of the General Corporation Law of the State of Delaware, and has been executed this ___ day of ______________, 1996. ALTAVISTA INTERNET SOFTWARE, INC. By:__________________________________ Name: Title: 14 EX-3.3 4 BYLAWS OF THE COMPANY 1 EXHIBIT 3.3 BY-LAWS OF ALTAVISTA INTERNET SOFTWARE, INC. A DELAWARE CORPORATION Dated: June 28, 1996 2 ARTICLE I......................................................................................................... 1 SECTION 1. PLACE OF MEETINGS...................................................................................... 1 SECTION 2. ANNUAL MEETING......................................................................................... 1 SECTION 3. SPECIAL MEETINGS....................................................................................... 1 SECTION 4. NOTICE OF MEETINGS..................................................................................... 1 SECTION 5. VOTING LIST............................................................................................ 2 SECTION 6. QUORUM................................................................................................. 2 SECTION 7. ADJOURNMENTS........................................................................................... 2 SECTION 8. ACTION AT MEETINGS..................................................................................... 2 SECTION 9. VOTING AND PROXIES..................................................................................... 3 SECTION 10. ACTION WITHOUT MEETING................................................................................ 3 ARTICLE II........................................................................................................ 3 SECTION 1. NUMBER, ELECTION, TENURE AND QUALIFICATION............................................................. 3 SECTION 2. ENLARGEMENT............................................................................................ 4 SECTION 3. VACANCIES.............................................................................................. 4 SECTION 4. RESIGNATION AND REMOVAL................................................................................ 4 SECTION 5. GENERAL POWERS......................................................................................... 4 SECTION 6. CHAIRMAN OF THE BOARD.................................................................................. 4 SECTION 7. PLACE OF MEETINGS...................................................................................... 4 SECTION 8. REGULAR MEETINGS....................................................................................... 4 SECTION 9. SPECIAL MEETINGS....................................................................................... 5 SECTION 10. QUORUM, ACTION AT MEETING, ADJOURNMENTS............................................................... 5 SECTION 11. ACTION BY CONSENT..................................................................................... 5 SECTION 12. TELEPHONIC MEETINGS................................................................................... 5 SECTION 13. COMMITTEES............................................................................................ 6 SECTION 14. COMPENSATION.......................................................................................... 6 ARTICLE III....................................................................................................... 6 SECTION 1. ENUMERATION............................................................................................ 6 SECTION 2. ELECTION............................................................................................... 7 SECTION 3. TENURE................................................................................................. 7 SECTION 4. PRESIDENT.............................................................................................. 7 SECTION 5. VICE-PRESIDENTS........................................................................................ 7 SECTION 6. SECRETARY.............................................................................................. 8 SECTION 7. ASSISTANT SECRETARIES.................................................................................. 8 SECTION 8. TREASURER.............................................................................................. 8 SECTION 9. ASSISTANT TREASURERS................................................................................... 9 SECTION 10. BOND.................................................................................................. 9 ARTICLE IV........................................................................................................ 9 SECTION 1. DELIVERY............................................................................................... 9 SECTION 2. WAIVER OF NOTICE....................................................................................... 9 ARTICLE V........................................................................................................ 10 SECTION 1. ACTIONS OTHER THAN BY OR IN THE RIGHT OF THE CORPORATION.............................................. 10 SECTION 2. ACTIONS BY OR IN THE RIGHT OF THE CORPORATION......................................................... 10 SECTION 3. SUCCESS ON THE MERITS................................................................................. 11 SECTION 4. SPECIFIC AUTHORIZATION................................................................................ 11 SECTION 5. ADVANCE PAYMENT....................................................................................... 11 SECTION 6. NON-EXCLUSIVITY....................................................................................... 11 SECTION 7. INSURANCE............................................................................................. 11 SECTION 8. CONTINUATION OF INDEMNIFICATION AND ADVANCEMENT OF EXPENSES........................................... 12
(i) 3 SECTION 9. SEVERABILITY.......................................................................................... 12 SECTION 10. INTENT OF ARTICLE.................................................................................... 12 ARTICLE VI....................................................................................................... 12 SECTION 1. CERTIFICATES OF STOCK................................................................................. 12 SECTION 2. LOST CERTIFICATES..................................................................................... 12 SECTION 3. TRANSFER OF STOCK..................................................................................... 13 SECTION 4. RECORD DATE........................................................................................... 13 SECTION 5. REGISTERED STOCKHOLDERS............................................................................... 14 ARTICLE VII...................................................................................................... 14 SECTION 1. TRANSACTIONS WITH INTERESTED PARTIES.................................................................. 14 SECTION 2. QUORUM................................................................................................ 15 ARTICLE VIII..................................................................................................... 15 SECTION 1. DIVIDENDS............................................................................................. 15 SECTION 2. RESERVES.............................................................................................. 15 SECTION 3. CHECKS................................................................................................ 15 SECTION 4. FISCAL YEAR........................................................................................... 15 SECTION 5. SEAL.................................................................................................. 15 ARTICLE IX....................................................................................................... 15
Addendum Register of Amendments to the By-Laws (ii) 4 * * * * * BY-LAWS * * * * * ARTICLE I MEETINGS OF STOCKHOLDERS Section 1. Place of Meetings. All meetings of the stockholders shall be held at such place within or without the State of Delaware as may be fixed from time to time by the board of directors or the chief executive officer, or if not so designated, at the registered office of the corporation. Section 2. Annual Meeting. Annual meetings of stockholders shall be held in each year on the day one week following the day on which Digital Equipment Corporation holds its annual meeting of stockholders if not a legal holiday, and if a legal holiday, then on the next secular day following, at 10:00 a.m., or at such other date and time as shall be designated from time to time by the board of directors or the chief executive officer, at which meeting the stockholders shall elect by a plurality vote a board of directors and shall transact such other business as may properly be brought before the meeting. If no annual meeting is held in accordance with the foregoing provisions, the board of directors shall cause the meeting to be held as soon thereafter as convenient, which meeting shall be designated a special meeting in lieu of annual meeting. Section 3. Special Meetings. Special meetings of the stockholders, for any purpose or purposes, may, unless otherwise prescribed by statute or by the certificate of incorporation, be called by the board of directors or the chief executive officer and shall be called by the chief executive officer or secretary at the request in writing of a majority of the board of directors, or at the request in writing of stockholders owning a majority in amount of the entire capital stock of the corporation issued and outstanding and entitled to vote. Such request shall state the purpose or purposes of the proposed meeting. Business transacted at any special meeting shall be limited to matters relating to the purpose or purposes stated in the notice of meeting. Section 4. Notice of Meetings. Except as otherwise provided by law, written notice of each meeting of stockholders, annual or special, stating the place, date and hour of the meeting and, in the case of a special meeting, the purpose or purposes for which the meeting is called, shall be given not less than ten or more than sixty days before the date of the meeting, to each stockholder entitled to vote at such meeting. Section 5. Voting List. The officer who has charge of the stock ledger of the corporation shall prepare and make, at least ten days before every meeting of 5 - 2 - stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city or town where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. Section 6. Quorum. The holders of a majority of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business, except as otherwise provided by statute, the certificate of incorporation or these by-laws. Where a separate vote by a class or classes is required, a majority of the outstanding shares of such class or classes, present in person or represented by proxy, shall constitute a quorum entitled to take action with respect to that vote on that matter. If no quorum shall be present or represented at any meeting of stockholders, such meeting may be adjourned in accordance with Section 7 hereof, until a quorum shall be present or represented. Section 7. Adjournments. Any meeting of stockholders may be adjourned from time to time to any other time and to any other place at which a meeting of stockholders may be held under these by-laws, which time and place shall be announced at the meeting, by a majority of the stockholders present in person or represented by proxy at the meeting and entitled to vote (whether or not a quorum is present), or, if no stockholder is present or represented by proxy, by any officer entitled to preside at or to act as secretary of such meeting, without notice other than announcement at the meeting. At such adjourned meeting, any business may be transacted which might have been transacted at the original meeting, provided that a quorum either was present at the original meeting or is present at the adjourned meeting. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. Section 8. Action at Meetings. When a quorum is present at any meeting, the affirmative vote of the holders of a majority of the stock present in person or represented by proxy, entitled to vote and voting on the matter (or where a separate vote by a class or classes is required, the affirmative vote of the majority of shares of such class or classes present in person or represented by proxy at the meeting) shall decide any matter (other than the election of directors) brought before such meeting, unless the matter is one upon which by express provision of law, the certificate of incorporation or these by-laws, a different vote is required, in which case such express provision shall govern and control the decision of such matter. The stock of holders who abstain from voting on any matter shall be deemed not to have been voted on such matter. Directors shall be elected by a 6 - 3 - plurality of the votes of the shares present in person or represented by proxy at the meeting, entitled to vote and voting on the election of directors. Section 9. Voting and Proxies. Unless otherwise provided in the certificate of incorporation, each stockholder shall at every meeting of the stockholders be entitled to one vote for each share of capital stock having voting power held of record by such stockholder. Each stockholder entitled to vote at a meeting of stockholders, or to express consent or dissent to corporate action in writing without a meeting, may authorize another person or persons to act for him or her by proxy, but no such proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period. Section 10. Action Without Meeting. Any action required to be taken at any annual or special meeting of stockholders, or any action which may be taken at any annual or special meeting of such stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action so taken, shall be (1) signed and dated by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted and (2) delivered to the corporation within sixty days of the earliest dated consent by delivery to its registered office in the State of Delaware (in which case delivery shall be by hand or by certified or registered mail, return receipt requested), its principal place of business, or an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. ARTICLE II DIRECTORS Section 1. Number, Election, Tenure and Qualification. The number of directors which shall constitute the whole board shall be not less than one. Within such limit, the number of directors shall be determined by resolution of the board of directors or by the stockholders at the annual meeting or at any special meeting of stockholders. The directors shall be elected at the annual meeting or at any special meeting of the stockholders, except as provided in Section 3 of this Article, and each director elected shall hold office until his or her successor is elected and qualified, unless sooner displaced. Directors need not be stockholders. Section 2. Enlargement. The number of the board of directors may be increased at any time by vote of a majority of the directors then in office. Section 3. Vacancies. Vacancies and newly created directorships resulting from any increase in the authorized number of directors may be filled by a majority of the 7 - 4 - directors then in office, though less than a quorum, or by a sole remaining director, and the directors so chosen shall hold office until the next annual election and until their successors are duly elected and shall qualify, unless sooner displaced. If there are no directors in office, then an election of directors may be held in the manner provided by statute. In the event of a vacancy in the board of directors, the remaining directors, except as otherwise provided by law or these by-laws, may exercise the powers of the full board until the vacancy is filled. Section 4. Resignation and Removal. Any director may resign at any time upon written notice to the corporation at its principal place of business or to the chief executive officer or secretary. Such resignation shall be effective upon receipt unless it is specified to be effective at some other time or upon the happening of some other event. Any director or the entire board of directors may be removed, with or without cause, by the holders of a majority of the shares then entitled to vote at an election of directors, unless otherwise specified by law or the certificate of incorporation. Section 5. General Powers. The business and affairs of the corporation shall be managed by its board of directors, which may exercise all powers of the corporation and do all such lawful acts and things as are not by statute or by the certificate of incorporation or by these by-laws directed or required to be exercised or done by the stockholders. Section 6. Chairman of the Board. If the board of directors appoints a chairman of the board, he or she shall, when present, preside at all meetings of the stockholders and the board of directors. He or she shall perform such duties and possess such powers as are customarily vested in the office of the chairman of the board or as may be vested in him or her by the board of directors. Section 7. Place of Meetings. The board of directors may hold meetings, both regular and special, either within or without the State of Delaware. Section 8. Regular Meetings. Regular meetings of the board of directors may be held without notice at such time and at such place as shall from time to time be determined by the board; provided that any director who is absent when such a determination is made shall be given prompt notice of such determination. A regular meeting of the board of directors may be held without notice immediately after and at the same place as the annual meeting of stockholders. Section 9. Special Meetings. Special meetings of the board may be called by the chief executive officer, secretary, or on the written request of two or more directors, or by one director in the event that there is only one director in office. Two days' notice to each director, either personally or by telegram, cable, telecopy, commercial delivery service, telex or similar means sent to his or her business or home address, or three days' notice by written notice deposited in the mail, shall be given to each director by the secretary or by the officer or one of the directors calling the meeting. A notice or waiver 8 - 5 - of notice of a meeting of the board of directors need not specify the purposes of the meeting. Section 10. Quorum, Action at Meeting, Adjournments. At all meetings of the board a majority of directors then in office, but in no event less than one third of the entire board, shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the board of directors, except as may be otherwise specifically provided by law or by the certificate of incorporation. For purposes of this section, the term "entire board" shall mean the number of directors last fixed by the stockholders or directors, as the case may be, in accordance with law and these by-laws; provided, however, that if less than all the number so fixed of directors were elected, the "entire board" shall mean the greatest number of directors so elected to hold office at any one time pursuant to such authorization. If a quorum shall not be present at any meeting of the board of directors, a majority of the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. Section 11. Action by Consent. Unless otherwise restricted by the certificate of incorporation or these by-laws, any action required or permitted to be taken at any meeting of the board of directors or of any committee thereof may be taken without a meeting, if all members of the board or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the board or committee. Section 12. Telephonic Meetings. Unless otherwise restricted by the certificate of incorporation or these by-laws, members of the board of directors or of any committee thereof may participate in a meeting of the board of directors or of any committee, as the case may be, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such par ticipation in a meeting shall constitute presence in person at the meeting. Section 13. Committees. The board of directors may, by resolution passed by a majority of the whole board, designate one or more committees, each committee to consist of one or more of the directors of the corporation. The board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. Any such committee, to the extent provided in the resolution of the board of directors, shall have and may exercise all the powers and authority of the board of directors in the management of the business and affairs of the corporation, and may authorize the seal of the corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to amending 9 - 6 - the certificate of incorporation, adopting an agreement of merger or consolidation, recommending to the stockholders the sale, lease or exchange of all or substantially all of the corporation's property and assets, recommending to the stockholders a dissolution of the corporation or a revocation of a dissolution, or amending the by-laws of the corporation; and, unless the resolution designating such committee or the certificate of incorporation expressly so provide, no such committee shall have the power or authority to declare a dividend or to authorize the issuance of stock. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the board of directors. Each committee shall keep regular minutes of its meetings and make such reports to the board of directors as the board of directors may request. Except as the board of directors may otherwise determine, any committee may make rules for the conduct of its business, but unless otherwise provided by the directors or in such rules, its business shall be conducted as nearly as possible in the same manner as is provided in these by-laws for the conduct of its business by the board of directors. Section 14. Compensation. Unless otherwise restricted by the certificate of incorporation or these by-laws, the board of directors shall have the authority to fix from time to time the compensation of directors. The directors may be paid their expenses, if any, of attendance at each meeting of the board of directors and the performance of their responsibilities as directors and may be paid a fixed sum for attendance at each meeting of the board of directors and/or a stated salary as director. No such payment shall preclude any director from serving the corporation or its parent or subsidiary corporations in any other capacity and receiving compensation therefor. The board of directors may also allow compensation for members of special or standing committees for service on such committees. ARTICLE III OFFICERS Section 1. Enumeration. The officers of the corporation shall be chosen by the board of directors and shall be a president, a secretary and a treasurer and such other officers with such titles, terms of office and duties as the board of directors may from time to time determine, including a chairman of the board, one or more vice-presidents, and one or more assistant secretaries and assistant treasurers. If authorized by resolution of the board of directors, the chief executive officer may be empowered to appoint from time to time assistant secretaries and assistant treasurers. Any number of offices may be held by the same person, unless the certificate of incorporation or these by-laws otherwise provide. Section 2. Election. The board of directors at its first meeting after each annual meeting of stockholders shall choose a president, a secretary and a treasurer. Other officers may be appointed by the board of directors at such meeting, at any other meeting, or by written consent. Section 3. Tenure. The officers of the corporation shall hold office until their successors are chosen and qualify, unless a different term is specified in the vote choosing or appointing him or her, or until his or her earlier death, resignation or 10 - 7 - removal. Any officer elected or appointed by the board of directors or by the chief executive officer may be removed at any time, with or without cause, by the affirmative vote of a majority of the board of directors or a committee duly authorized to do so, except that any officer appointed by the chief executive officer may also be removed at any time, with or without cause, by the chief executive officer. Any vacancy occurring in any office of the corporation may be filled by the board of directors, at its discretion. Any officer may resign by delivering his or her written resignation to the corporation at its principal place of business or to the chief executive officer or the secretary. Such resignation shall be effective upon receipt unless it is specified to be effective at some other time or upon the happening of some other event. Section 4. President. The president shall be the chief operating officer of the corporation. He or she shall also be the chief executive officer unless the board of directors otherwise provides. If no chief executive officer shall have been appointed by the board of directors, all references herein to the "chief executive officer" shall be to the president. The president shall, unless the board of directors provides otherwise in a specific instance or generally, preside at all meetings of the stockholders and the board of directors, have general and active management of the business of the corporation and see that all orders and resolutions of the board of directors are carried into effect. The president shall execute bonds, mortgages, and other contracts requiring a seal, under the seal of the corporation, except where required or permitted by law to be otherwise signed and executed and except where the signing and execution thereof shall be expressly delegated by the board of directors to some other officer or agent of the corporation. Section 5. Vice-Presidents. In the absence of the president or in the event of his or her inability or refusal to act, the vice-president, or if there be more than one vice-president, the vice-presidents in the order designated by the board of directors or the chief executive officer (or in the absence of any designation, then in the order determined by their tenure in office) shall perform the duties of the president, and when so acting, shall have all the powers of and be subject to all the restrictions upon the president. The vice-presidents shall perform such other duties and have such other powers as the board of directors or the chief executive officer may from time to time prescribe. Section 6. Secretary. The secretary shall have such powers and perform such duties as are incident to the office of secretary. The secretary shall maintain a stock ledger and prepare lists of stockholders and their addresses as required and shall be the custodian of corporate records. The secretary shall attend all meetings of the board of directors and all meetings of the stockholders and record all the proceedings of the meetings of the corporation and of the board of directors in a book to be kept for that purpose and shall perform like duties for the standing committees when required. The secretary shall give, or cause to be given, notice of all meetings of the stockholders and special meetings of the board of directors, and shall perform such other duties as may be from time to time prescribed by the board of directors or chief executive officer, under whose supervision the secretary shall be. The secretary shall have custody of the corporate seal of the corporation and the secretary, or an assistant secretary, shall have 11 - 8 - authority to affix the same to any instrument requiring it and when so affixed, it may be attested by his or her signature or by the signature of such assistant secretary. The board of directors may give general authority to any other officer to affix the seal of the corporation and to attest the affixing by his or her signature. Section 7. Assistant Secretaries. The assistant secretary, or if there be more than one, the assistant secretaries in the order determined by the board of directors, the chief executive officer or the secretary (or if there be no such determination, then in the order determined by their tenure in office), shall, in the absence of the secretary or in the event of his or her inability or refusal to act, perform the duties and exercise the powers of the secretary and shall perform such other duties and have such other powers as the board of directors, the chief executive officer or the secretary may from time to time prescribe. In the absence of the secretary or any assistant secretary at any meeting of stockholders or directors, the person presiding at the meeting shall designate a temporary or acting secretary to keep a record of the meeting. Section 8. Treasurer. The treasurer shall perform such duties and shall have such powers as may be assigned to him or her by the board of directors or the chief executive officer. In addition, the treasurer shall perform such duties and have such powers as are incident to the office of treasurer. The treasurer shall have the custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the corporation in such depositories as may be designated by the board of directors. He or she shall disburse the funds of the corporation as may be ordered by the board of directors, taking proper vouchers for such disbursements, and shall render to the chief executive officer and the board of directors, when the chief executive officer or board of directors so requires, an account of all his or her transactions as treasurer and of the financial condition of the corporation. Section 9. Assistant Treasurers. The assistant treasurer, or if there shall be more than one, the assistant treasurers in the order determined by the board of directors, the chief executive officer or the treasurer (or if there be no such determination, then in the order determined by their tenure in office), shall, in the absence of the treasurer or in the event of his or her inability or refusal to act, perform the duties and exercise the powers of the treasurer and shall perform such other duties and have such other powers as the board of directors, the chief executive officer or the treasurer may from time to time prescribe. Section 10. Bond. If required by the board of directors, any officer shall give the corporation a bond in such sum and with such surety or sureties and upon such terms and conditions as shall be satisfactory to the board of directors, including without limitation a bond for the faithful performance of the duties of his or her office and for the restoration to the corporation of all books, papers, vouchers, money and other property of whatever kind in his or her possession or under his or her control and belonging to the corporation. 12 - 9 - ARTICLE IV NOTICES Section 1. Delivery. Whenever, under the provisions of law, or of the certificate of incorporation or these by-laws, written notice is required to be given to any director or stockholder, such notice may be given by mail, addressed to such director or stockholder, at his or her address as it appears on the records of the corporation, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail. Unless written notice by mail is required by law, written notice may also be given by telegram, cable, telecopy, commercial delivery service, telex or similar means, addressed to such director or stockholder at his or her address as it appears on the records of the corporation, in which case such notice shall be deemed to be given when delivered into the control of the persons charged with effecting such transmission, the transmission charge to be paid by the corporation or the person sending such notice and not by the addressee. Oral notice or other in-hand delivery (in person or by telephone) shall be deemed given at the time it is actually given. Section 2. Waiver of Notice. Whenever any notice is required to be given under the provisions of law or of the certificate of incorporation or of these by-laws, a waiver thereof in writing, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto. ARTICLE V INDEMNIFICATION Section 1. Actions other than by or in the Right of the Corporation. The corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that he or she is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him or her in connection with such action, suit or proceeding if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceedings, had no reasonable cause to believe his or her conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere 13 - 10 - or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he or she reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his or her conduct was unlawful. Section 2. Actions by or in the Right of the Corporation. The corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he or she is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys' fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit if such person acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the corporation and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable unless and only to the extent that the Court of Chancery of the State of Delaware or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery of the State of Delaware or such other court shall deem proper. Section 3. Success on the Merits. To the extent that any person described in Section 1 or 2 of this Article V has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in said Sections , or in defense of any claim, issue or matter therein, he or she shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him or her in connection therewith. Section 4. Specific Authorization. Any indemnification under Section 1 or 2 of this Article V (unless ordered by a court) shall be made by the corporation only as authorized in the specific case upon a determination that indemnification of any person described in said Sections is proper in the circumstances because he or she has met the applicable standard of conduct set forth in said Sections . Such determination shall be made (1) by the board of directors by a majority vote of directors who were not parties to such action, suit or proceeding (even though less than a quorum), or (2) if there are no disinterested directors or if a majority of disinterested directors so directs, by independent legal counsel (who may be regular legal counsel to the corporation) in a written opinion, or (3) by the stockholders of the corporation. Section 5. Advance Payment. Expenses incurred in defending a pending or threatened civil or criminal action, suit or proceeding may be paid by the corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of any person described in said Section to repay such amount 14 - 11 - if it shall ultimately be determined that he or she is not entitled to indemnification by the corporation as authorized in this Article V. Section 6. Non-Exclusivity. The indemnification and advancement of expenses provided by, or granted pursuant to, the other Sections of this Article V shall not be deemed exclusive of any other rights to which those provided indemnification or advancement of expenses may be entitled under any by-law, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his or her official capacity and as to action in another capacity while holding such office. Section 7. Insurance. The board of directors may authorize, by a vote of the majority of the full board, the corporation to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him or her and incurred by him or her in any such capacity, or arising out of his or her status as such, whether or not the corporation would have the power to indemnify him or her against such liability under the provisions of this Article V. Section 8. Continuation of Indemnification and Advancement of Expenses. The indemnification and advancement of expenses provided by, or granted pursuant to, this Article V shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. Section 9. Severability. If any word, clause or provision of this Article V or any award made hereunder shall for any reason be determined to be invalid, the provisions hereof shall not otherwise be affected thereby but shall remain in full force and effect. Section 10. Intent of Article. The intent of this Article V is to provide for indemnification and advancement of expenses to the fullest extent permitted by Section 145 of the General Corporation Law of Delaware. To the extent that such Section or any successor section may be amended or supplemented from time to time, this Article V shall be amended automatically and construed so as to permit indemnification and advancement of expenses to the fullest extent from time to time permitted by law. ARTICLE VI CAPITAL STOCK 15 - 12 - Section 1. Certificates of Stock. Every holder of stock in the corporation shall be entitled to have a certificate, signed by, or in the name of the corporation by, the chairman or vice-chairman of the board of directors, or the president or a vice-president and the treasurer or an assistant treasurer, or the secretary or an assistant secretary of the corporation, certifying the number of shares owned by such holder in the corporation. Any or all of the signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if he or she were such officer, transfer agent or registrar at the date of issue. Certificates may be issued for partly paid shares and in such case upon the face or back of the certificates issued to represent any such partly paid shares, the total amount of the consideration to be paid therefor, and the amount paid thereon shall be specified. Section 2. Lost Certificates. The board of directors may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the corporation alleged to have been lost, stolen or destroyed. When authorizing such issue of a new certificate or certificates, the board of directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or certificates, or his or her legal representative, to give reasonable evidence of such loss, theft or destruction, to advertise the same in such manner as it shall require and/or to give the corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the corporation with respect to the certificate alleged to have been lost, stolen or destroyed or the issuance of such new certificate. Section 3. Transfer of Stock. Upon surrender to the corporation or the transfer agent of the corporation of a certificate for shares, duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, and proper evidence of compliance with other conditions to rightful transfer, it shall be the duty of the corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. Section 4. Record Date. In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, the board of directors may fix a record date, which shall not precede the date upon which the resolution fixing the record date is adopted by the board of directors, and which shall not be more than sixty days nor less then ten days before the date of such meeting. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the board of directors may fix a new record date for the adjourned meeting. If no record date is fixed, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day before the day on which notice is given, or, if notice is waived, at the close of business on the day before the day on which the meeting is held. 16 - 13 - In order that the corporation may determine the stockholders entitled to consent to corporate action in writing without a meeting, the board of directors may fix a record date, which shall not precede the date upon which the resolution fixing the record date is adopted by the board of directors, and which shall not be more than ten days after the date upon which the resolution fixing the record date is adopted by the board of directors. If no record date is fixed, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the board of directors is required by statute, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the corporation as provided in Section 10 of Article I. If no record date is fixed and prior action by the board of directors is required, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting shall be at the close of business on the date on which the board of directors adopts the resolution taking such prior action. In order that the corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the board of directors may fix a record date, which shall not precede the date upon which the resolution fixing the record date is adopted, and which shall be not more than sixty days prior to such action. If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the board of directors adopts the resolution relating to such purpose. Section 5. Registered Stockholders. The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and to hold liable for calls and assessments a person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware. ARTICLE VII CERTAIN TRANSACTIONS Section 1. Transactions with Interested Parties. No contract or transaction between the corporation and one or more of its directors or officers, or between the corporation and any other corporation, partnership, association, or other organization in which one or more of its directors or officers are directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the board or committee thereof which authorizes the contract or transaction or solely because his, her or their votes are counted for such purpose, if: 17 - 14 - (a) The material facts as to his or her relationship or interest and as to the contract or transaction are disclosed or are known to the board of directors or the committee, and the board or committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; or (b) The material facts as to his or her relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; or (c) The contract or transaction is fair as to the corporation as of the time it is authorized, approved or ratified, by the board of directors, a committee thereof, or the stockholders. Section 2. Quorum. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the board of directors or of a committee which authorizes the contract or transaction. ARTICLE VIII GENERAL PROVISIONS Section 1. Dividends. Dividends upon the capital stock of the corporation, if any, may be declared by the board of directors at any regular or special meeting or by written consent, pursuant to law. Dividends may be paid in cash, in property, or in shares of the capital stock, subject to the provisions of the certificate of incorporation. Section 2. Reserves. The directors may set apart out of any funds of the corporation available for dividends a reserve or reserves for any proper purpose and may abolish any such reserve. Section 3. Checks. All checks or demands for money and notes of the corporation shall be signed by such officer or officers or such other person or persons as the board of directors may from time to time designate. Section 4. Fiscal Year. The fiscal year of the corporation shall be fixed by resolution of the board of directors. Section 5. Seal. The board of directors may, by resolution, adopt a corporate seal. The corporate seal shall have inscribed thereon the name of the corporation, the year of its organization and the word "Delaware." The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. The seal may be altered from time to time by the board of directors. 18 - 15 - ARTICLE IX AMENDMENTS These by-laws may be altered, amended or repealed or new by-laws may be adopted by the stockholders or by the board of directors, when such power is conferred upon the board of directors by the certificate of incorporation, at any regular meeting of the stockholders or of the board of directors or at any special meeting of the stockholders or of the board of directors provided, however, that in the case of a regular or special meeting of stockholders, notice of such alteration, amendment, repeal or adoption of new by-laws be contained in the notice of such meeting. 19 Register of Amendments to the By-laws Date Section Affected Change - --------------------------------------------------------- EX-3.4 5 AMENDED & RESTATED BYLAWS OF THE COMPANY 1 EXHIBIT 3.4 FORM OF AMENDED AND RESTATED BYLAWS OF ALTAVISTA INTERNET SOFTWARE, INC. (Amended and Restated on _________, 1996) ARTICLE I STOCKHOLDERS Section 1.01. Annual Meeting. The annual meeting of the stockholders of this corporation, for the purpose of fixing or changing the number of directors of the corporation, electing directors and transacting such other business as may come before the meeting, shall be held on such date, at such time and at such place as may be designated by the Board of Directors. Section 1.02. Special Meetings. Special meetings of the stockholders may be called at any time by the chairman of the board or the president, or in case of the death, absence or disability of the chairman of the board and the president, the vice president, if any, authorized to exercise the authority of the president, or a majority of the Board of Directors acting with or without a meeting; provided, that if and to the extent that any special meeting of stockholders may be called by any other person or persons specified in any provision of the certificate of incorporation or any amendment thereto or any certificate filed under Section 151(g) of the Delaware General Corporation Law (or its successor statute as in effect from time to time), then such special meeting may also be called by the person or persons, in the manner, at the times and for the purposes so specified. Section 1.03. Place of Meetings. Meetings of stockholders shall be held at the principal office of the corporation, unless the Board of Directors decides that a meeting shall be held at some other place and causes the notice thereof to so state. Section 1.04. Notice of Meetings. (a) Unless waived, a written, printed or typewritten notice of each annual or special meeting, stating the date, hour and place and the purpose or purposes thereof shall be served upon or mailed to each stockholder of record entitled to vote or entitled to notice, not 2 more than 60 days nor less than 10 days before any such meeting. If mailed, such notice shall be directed to a stockholder at his or her address as the same appears on the records of the corporation. If a meeting is adjourned to another time or place and such adjournment is for 30 days or less and no new record date is fixed for the adjourned meeting, no further notice as to such adjourned meeting need be given if the time and place to which it is adjourned are fixed and announced at such meeting. In the event of a transfer of shares after notice has been given and prior to the holding of the meeting, it shall not be necessary to serve notice on the transferee. Such notice shall specify the place where the stockholders list will be open for examination prior to the meeting if required by Section 1.08 hereof. If the adjournment is for more than 30 days, or after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. (b) A written waiver of any such notice signed by the person entitled thereto, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends the meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Business transacted at any special meeting of stockholders shall be limited to the purposes stated in the notice. Section 1.05. Fixing Date for Determination of Stockholders of Record. In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any other change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than 60 nor less than 10 days before the date of such meeting, nor more than 60 days prior to any other action. If the Board shall not fix such a record date, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held, and (ii) in any case involving the determination of stockholders for any purpose other than notice of or voting at a meeting of stockholders, the record date for determining stockholders for such purpose shall be the close of business on the day on which the Board of Directors shall adopt the resolution relating thereto. Determination of stockholders entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of such meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. Section 1.06. Organization. At each meeting of the stockholders, the chairman of the board, or in his absence, the president, or, in his absence, any vice-president, or, in the absence of the chairman of the board, the president and a vice-president, a chairman chosen by a majority in interest of the stockholders present in person or by proxy and entitled to vote, shall act as chairman, and the secretary of the corporation, or, if the secretary of the corporation not be present, the assistant secretary, or if the secretary and the assistant secretary not be present, any person whom the chairman of the meeting shall appoint, shall act as secretary of the meeting. 2 3 Section 1.07. Quorum. A stockholders' meeting duly called shall not be organized for the transaction of business unless a quorum is present. Except as otherwise expressly provided by law, the certificate of incorporation, these bylaws, or any certificate filed under Section 151(g) of the Delaware General Corporation Law (or its successor statute as in effect from time to time), (i) at any meeting called by the Board of Directors, the presence in person or by proxy of holders of record entitling them to exercise at least one-third of the voting power of the corporation shall constitute a quorum for such meeting and (ii) at any meeting called other than by the Board of Directors, the presence in person or by proxy of holders of record entitling them to exercise at least a majority of the voting power of the corporation shall constitute a quorum for such meeting. The stockholders present at a duly organized meeting can continue to do business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum. If a meeting cannot be organized because a quorum has not attended, a majority in voting interest of the stockholders present may adjourn, or, in the absence of a decision by the majority, any officer entitled to preside at such meeting may adjourn the meeting from time to time to such time (not more than 30 days after the previously adjourned meeting) and place as they (or he) may determine, without notice other than by announcement at the meeting of the time and place of the adjourned meeting. At any such adjourned meeting at which a quorum is present any business may be transacted which might have been transacted at the meeting as originally called. Section 1.08. Order of Business and Procedure. The order of business at all meetings of the stockholders and all matters relating to the manner of conducting the meeting shall be determined by the chairman of the meeting. Meetings shall be conducted in a manner designed to accomplish the business of the meeting in a prompt and orderly fashion and to be fair and equitable to all stockholders, but it shall not be necessary to follow any manual of parliamentary procedure. Section 1.09. Advance Notice of Stockholder Proposals. In order to properly submit any business to an annual meeting of stockholders, a stockholder must give timely notice in writing to the secretary of the corporation. To be considered timely, a stockholder's notice must be delivered either in person or by United States certified mail, postage prepaid, and received at the principal executive offices of the corporation (a) not less than 120 days nor more than 150 days before the first anniversary date of the corporation's proxy statement in connection with the last annual meeting of stockholders or (b) if no annual meeting was held in the previous year or the date of the applicable annual meeting has been changed by more than 30 days from the date contemplated at the time of the previous year's proxy statement, not less than a reasonable time, as determined by the Board of Directors, prior to the date of the applicable annual meeting. Nomination of persons for election to the Board of Directors may be made by the Board of Directors or any committee designated by the Board of Directors or by any stockholder entitled to vote for the election of directors at the applicable meeting of stockholders. However, nominations other than those made by the Board of Directors or its designated committee must comply with the procedures set forth in this Section 1.09, and no person shall be eligible for election as a director unless nominated in accordance with the terms of this Section 1.09. 3 4 A stockholder may nominate a person or persons for election to the Board of Directors by giving written notice to the secretary of the corporation in accordance with the procedures set forth above. In addition to the timeliness requirements set forth above for notice to the corporation by a stockholder of business to be submitted at an annual meeting of stockholders, with respect to any special meeting of stockholders called for the election of directors, written notice must be delivered in the manner specified above and not later than the close of business on the seventh day following the date on which notice of such meeting is first given to stockholders. The secretary of the corporation shall deliver any stockholder proposals and nominations received in a timely manner for review by the Board of Directors or a committee designated by the Board of Directors. A stockholder's notice to submit business to an annual meeting of stockholders shall set forth (i) the name and address of the stockholder, (ii) the class and number of shares of stock beneficially owned by such stockholder, (iii) the name in which such shares are registered on the stock transfer books of the corporation, (iv) a representation that the stockholder intends to appear at the meeting in person or by proxy to submit the business specified in such notice, (v) any material interest of the stockholder in the business to be submitted and (vi) a brief description of the business desired to be submitted to the annual meeting, including the complete text of any resolutions to be presented at the annual meeting, and the reasons for conducting such business at the annual meeting. In addition, the stockholder making such proposal shall promptly provide any other information reasonably requested by the corporation. In addition to the information required above to be given by a stockholder who intends to submit business to a meeting of stockholders, if the business to be submitted is the nomination of a person or persons for election to the Board of Directors then such stockholder's notice must also set forth, as to each person whom the stockholder proposes to nominate for election as a director, (a) the name, age, business address and, if known, residence address of such person, (b) the principal occupation or employment of such person, (c) the class and number of shares of stock of the corporation which are beneficially owned by such person, (d) any other information relating to such person that is required to be disclosed in solicitations of proxies for election of directors or is otherwise required by the rules and regulations of the Securities and Exchange Commission promulgated under the Securities Exchange Act of 1934, as amended, (e) the written consent of such person to be named in the proxy statement as a nominee and to serve as a director if elected and (f) a description of all understandings between such stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by such stockholder. Any person nominated for election as director by the Board of Directors or any committee designated by the Board of Directors shall, upon the request of the Board of Directors or such committee, furnish to the secretary of the corporation all such information pertaining to such person that is required to be set forth in a stockholder's notice of nomination. 4 5 Notwithstanding the foregoing provisions of this Section 1.09, a stockholder who seeks to have any proposal included in the corporation's proxy statement shall comply with the requirements of Regulation 14A under the Securities Exchange Act of 1934, as amended. Section 1.10. Voting. (a) Each stockholder shall, at each meeting of the stockholders, be entitled to vote in person or by proxy each share or fractional share of the stock of the corporation having voting rights on the matter in question and which shall have been held by him or her and registered in his name on the books of the corporation on the date fixed pursuant to Section 1.05 of these bylaws as the record date for the determination of stockholders entitled to notice of and to vote at such meeting. (b) Shares of its own stock belonging to the corporation or to another corporation, if a majority of the shares entitled to vote in the election of directors in such other corporation is held, directly or indirectly, by the corporation, shall neither be entitled to vote nor be counted for quorum purposes. (c) Any such voting rights may be exercised by the stockholder entitled thereto in person or by his proxy appointed by an instrument in writing, subscribed by such stockholder or by his attorney thereunto authorized and delivered to the secretary of the meeting in sufficient time to permit the necessary examination and tabulation thereof before the vote is taken; provided, however, that no proxy shall be valid after the expiration of three years after the date of its execution, unless the stockholder executing it shall have specified therein the length of time it is to continue in force. At any meeting of the stockholders all matters, except as otherwise provided in the certificate of incorporation, in these bylaws or by law, shall be decided by the vote of a majority in voting interest of the stockholders present in person or by proxy and voting thereon, a quorum being present. The vote at any meeting of the stockholders on any question need not be by ballot, unless so directed by the chairman of the meeting or required by the certificate of incorporation. On a vote by ballot each ballot shall be signed by the stockholder voting, or by his proxy, if there be such proxy, and it shall state the number of shares voted. Section 1.11. Inspectors. The Board of Directors, in advance of any meeting of the stockholders, may appoint one or more inspectors to act at the meeting. If inspectors are not so appointed, the person presiding at the meeting may appoint one or more inspectors. If any person so appointed fails to appear or act, the vacancy may be filled by appointment made by the Board of Directors in advance of the meeting or at the meeting by the person presiding thereat. Each inspector, before entering upon the discharge of his duties, shall take and sign an oath faithfully to execute the duties of inspector at the meeting with strict impartiality and according to the best of his ability. The inspectors so appointed, if any, shall determine the number of shares outstanding, the shares represented at the meeting, the existence of a quorum and the authenticity, validity and effect of proxies and shall receive votes, ballots, waivers, releases, or consents, hear and determine all challenges and questions arising in connection with the right to vote, count and tabulate all votes, ballots, waivers, releases, or consents, determine and announce 5 6 the results and do such acts as are proper to conduct the election or vote with fairness to all stockholders. On request of the person presiding at the meeting, the inspectors shall make a report in writing of any challenge, question or matter determined by them and execute a certificate of any fact found by them. Any report or certificate made by them shall be prima facie evidence of the facts stated and of the vote an certified by them. ARTICLE II BOARD OF DIRECTORS Section 2.01. General Powers of Board. The powers of the corporation shall be exercised, its business and affairs conducted, and its property controlled by or under the direction of the Board of Directors, except as otherwise provided by the law of Delaware or in the certificate of incorporation. Section 2.02. Number of Directors; Term of Office. The number of directors of the corporation (exclusive of directors to be elected by the holders of any one or more series of Preferred Stock voting separately as a class or classes) shall not be less than 5 nor more than 11, the exact number of directors to be such number as may be set from time to time within the limits set forth above by resolution adopted by affirmative vote of a majority of the whole Board of Directors. As used in these Bylaws, the term "whole Board" means the total number of directors which the corporation would have if there were no vacancies. Each director shall hold office until the next annual meeting of stockholders, and until his or her successor shall have been duly elected and qualified, or until his or her earlier death, resignation or removal. Section 2.03. Election of Directors. At each meeting of the stockholders for the election of directors, the persons receiving the greatest number of votes shall be the directors. Directors need not be stockholders. Section 2.04. Nominations. 2.04.1. Nominations for the election of directors may be made by the Board of Directors or by any stockholder entitled to vote for the election of directors. 2.04.2. Such nominations, if not made by the Board of Directors, shall be made by notice in writing, delivered or mailed by first class United States mail, postage prepaid, to the secretary of the corporation not less than 14 days nor more than 50 days prior to any meeting of the stockholders called for the election of directors; provided, however, that if less than 21 days' notice of the meeting is given to stockholders, such written notice shall be delivered or mailed, as prescribed, to the secretary of the corporation not later than the close of the seventh day following the day on which notice of the meeting was mailed to stockholders. Each such notice shall set forth (i) the name, age, business address and, if known, residence address of each nominee proposed in such notice, (ii) the principal occupation or employment of each such nominee, and (iii) the number of shares of stock of the corporation which are beneficially owned by each such nominee. 6 7 2.04.3. Notice of nominations which are proposed by the Board of Directors shall be given on behalf of the Board by the chairman of the meeting. 2.04.4. The chairman of the meeting may, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the foregoing procedure, and if the chairman should so determine, the chairman shall so declare to the meeting and the defective nomination shall be disregarded. Section 2.05. Resignations. Any director of the corporation may resign at any time by giving written notice to the chairman of the board or the secretary of the corporation. Such resignation shall take effect at the time specified therein, and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. Section 2.06. Vacancies. In the event that any vacancy shall occur in the Board of Directors, whether because of death, resignation, removal, newly created directorships resulting from any increase in the authorized number of directors, the failure of the stockholders to elect the whole authorized number of directors, or any other reason, such vacancy may be filled by the vote of a majority of the directors then in office, although less than a quorum. A director elected to fill a vacancy, other than a newly created directorship, shall hold office for the unexpired term of his predecessor. Whenever the holders of any class or classes of stock or series thereof are entitled to elect one or more directors by the certificate of incorporation, vacancies and newly created directorships of such class or classes or series may be filled by a majority of directors elected by such class or classes or series thereof then in office, or by a sole remaining director so elected. Section 2.07. Place of Meeting, etc. The Board of Directors may hold any of its meetings at the principal office of the corporation or at such other place or places as the Board of Directors (or the chairman in the absence of a determination by the Board of Directors) may from time to time designate. Directors may participate in any regular or special meeting of the Board of Directors by means of conference telephone or similar communications equipment pursuant to which all persons participating in the meeting of the Board of Directors can hear each other and such participation shall constitute presence in person at such meeting. Section 2.08. Annual Meeting. A regular annual meeting of the Board of Directors shall be held each year at the same place as and immediately after the annual meeting of stockholders, or at such other place and time as shall theretofore have been determined by the Board of Directors and notice thereof need not be given. At its regular annual meeting the Board of Directors shall organize itself and elect the officers of the corporation for the ensuing year, and may transact any other business. Section 2.09. Regular Meetings. Regular meetings of the Board of Directors may be held at such intervals at such time as shall from time to time be determined by the Board of Directors. After such determination and notice thereof has been once given to each person then a member of the Board of Directors, regular meetings may be held at such intervals and time and place without further notice being given. 7 8 Section 2.10. Special Meetings. Special meetings of the Board of Directors may be called at any time by the Board of Directors or by the chairman or by a majority of directors then in office to be held on such day and at such time as shall be specified by the person or persons calling the meeting. Section 2.11. Notice of Meetings. Notice of each special meeting or, where required, each regular meeting, of the Board of Directors shall be given to each director either by being mailed on at least the third day prior to the date of the meeting or by being telegraphed, faxed or given personally or by telephone on at least 24 hours notice prior to the date of meeting. Such notice shall specify the place, date and hour of the meeting and, if it is for a special meeting, the purpose or purposes for which the meeting is called. At any meeting of the Board of Directors at which every director shall be present, even though without such notice, any business may be transacted. Any acts or proceedings taken at a meeting of the Board of Directors not validly called or constituted may be made valid and fully effective by ratification at a subsequent meeting which shall be legally and validly called or constituted. Notice of any regular meeting of the Board of Directors need not state the purpose of the meeting and, at any regular meeting duly held, any business may be transacted. If the notice of a special meeting shall state as a purpose of the meeting the transaction of any business that may come before the meeting, then at the meeting any business may be transacted, whether or not referred to in the notice thereof. A written waiver of notice of a special or regular meeting, signed by the person or persons entitled to such notice, whether before or, after the time stated therein shall be deemed the equivalent of such notice, and attendance of a director at a meeting shall constitute a waiver of notice of such meeting except when the director attends the meeting and prior to or at the commencement of such meeting protests the lack of proper notice. Section 2.12. Quorum and Voting. At all meetings of the Board of Directors, the presence of a majority of the directors then in office shall constitute a quorum for the transaction of business. Except as otherwise required by law, the certificate of incorporation, or these bylaws, the vote of a majority of the directors present at any meeting at which a quorum is present shall be the act of the Board of Directors. At all meetings of the Board of Directors, each director shall have one vote. Section 2.13. Committees. The Board of Directors may appoint an executive committee and any other committee of the Board of Directors, to consist of one or more directors of the corporation, and may delegate to any such committee any of the authority of the Board of Directors, however conferred, other than the power or authority in reference to amending the certificate of incorporation, adopting an agreement of merger or consolidation, recommending to the stockholders the sale, lease or exchange of all or substantially all of the corporation's property and assets, recommending to the stockholders a dissolution of the corporation or a revocation of a dissolution, or amending the bylaws of the corporation. No committee shall have the power or authority to declare a dividend or to authorize the issuance of stock unless the resolution creating such committee expressly so provides. Each such committee shall serve at the pleasure of the Board of Directors, shall act only in the intervals between meetings of the Board of Directors and shall be subject to the control and direction of the Board of Directors. Any such committee may act by a majority of its members at a meeting or by a writing or 8 9 writings signed by all of its members. Any such committee shall keep written minutes of its meetings and report the same to the Board of Directors at the next regular meeting of the Board of Directors. Section 2.14. Compensation. The Board of Directors may, by resolution passed by a majority of those in office, fix the compensation of directors for service in any capacity and may fix fees for attendance at meetings and may authorize the corporation to pay the traveling and other expenses of directors incident to their attendance at meetings, or may delegate such authority to a committee of the board. Section 2.15. Action by Consent. Any action required or permitted to be taken at any meeting of the board or of any committee thereof may be taken without a meeting if a written consent thereto is signed by all members of the board or of such committee, as the case may be, and such written consent is filed with the minutes of proceedings of the board or such committee. ARTICLE III OFFICERS Section 3.01. General Provisions. The principal officers of the corporation shall be the chairman of the Board (who shall be a director), a president, such number of vice-presidents as the board may from time to time determine, a secretary and a treasurer. Any person may hold any two or more offices and perform the duties thereof, except the offices of president and vice-president or the offices of president and secretary. Section 3.02. Election, Terms of Office, and Qualification. The officers of the corporation named in Section 3.01 of this Article III shall be elected by the Board of Directors for an indeterminate term and shall hold office at the pleasure of the Board of Directors. Section 3.03. Additional Officers, Agents, etc. In addition to the officers mentioned in Section 3.01 of this Article III, the corporation may have such other officers or agents as the Board of Directors may deem necessary and may appoint, each of whom shall hold office for such period, have such authority and perform such duties as the Board of Directors may from time to time determine. The Board of Directors may delegate to any officer the power to appoint any subordinate officers or agents. In the absence of any officer of the corporation, or for any other reason the Board of Directors may deem sufficient, the Board of Directors may delegate, for the time being, the powers and duties, or any of them, of such officer to any other officer, or to any director. Section 3.04. Removal. Except as set forth below, any officer of the corporation may be removed, either with or without cause, at any time, by resolution adopted by the Board of Directors at any meeting, the notice (or waivers of notice) of which shall have specified that such removal action was to be considered. Any officer appointed not by the Board of Directors but by an officer or committee to which the Board of Directors shall have delegated the power of appointment may be removed, with or without cause, by the committee or superior officer 9 10 (including successors) who made the appointment, or by any committee or officer upon whom such power of removal may be conferred by the Board of Directors. Section 3.05. Resignations. Any officer may resign at any time by giving written notice to the Board of Directors, or to the chairman of the board, the president or the secretary of the corporation. Any such resignation shall take effect at the time specified therein, and unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. Section 3.06. Vacancies. A vacancy in any office because of death, resignation, removal, disqualification, or otherwise, shall be filled in the manner prescribed in these bylaws for regular appointments or elections to such office. ARTICLE IV DUTIES OF THE OFFICERS Section 4.01. Chairman of the Board. The chairman of the board shall, if present, preside at all meetings of the stockholders and of the Board of Directors. The chairman shall perform such duties as are conferred upon him or her by these bylaws or as may from time to time be assigned to him or her by the Board of Directors. Section 4.02. President. The president shall be chief executive officer of the corporation and shall have general supervision over the property, business and affairs of the corporation and over its several officers, subject, however, to the control of the Board of Directors. The president may sign, with the secretary, treasurer or any other proper officer of the corporation thereunto authorized by the Board of Directors, certificates for shares in the corporation. The president may sign, execute and deliver in the name of the corporation all deeds, mortgages, bonds, leases, contracts, or other instruments either when specially authorized by the Board of Directors or when required or deemed necessary or advisable by him or her in the ordinary conduct of the corporation's normal business, except in cases where the signing and execution thereof shall be expressly delegated by these bylaws to some other officer or agent of the corporation or shall be required by law or otherwise to be signed or executed by some other officer or agent, and the president may cause the seal of the corporation, if any, to be affixed to any instrument requiring the same.The president shall perform such duties as are conferred upon him or her by these bylaws or as may from time to time be assigned to him or her by the Board of Directors. Section 4.03. Vice-Presidents. The vice-presidents shall perform such duties as are conferred upon them by these bylaws or as may from time to time be assigned to them by the Board of Directors, the chairman of the board or the president. At the request of the chairman of the board, in the absence or disability of the president, the vice-president designated by the chairman of the board shall perform all the duties of the president, and when so acting, shall have all of the powers of the president. Section 4.04. The Treasurer. The treasurer shall be the custodian of all funds and securities of the corporation. Whenever so directed by the Board of Directors, the treasurer shall 10 11 render a statement of the cash and other accounts of the corporation, and the treasurer shall cause to be entered regularly in the books and records of the corporation to be kept for such purpose full and accurate accounts of the corporation's receipts and disbursements. The treasurer shall have such other powers and shall perform such other duties as may from time to time be assigned to him or her by the Board of Directors or the president. Section 4.05. The Secretary. The secretary shall record and keep the minutes of all meetings of the stockholders and the Board of Directors in a book to be kept for that purpose. The secretary shall be the custodian of, and shall make or cause to be made the proper entries in, the minute book of the corporation and such other books and records as the Board of Directors may direct. The secretary shall be the custodian of the seal of the corporation, if any, and shall affix such seal to such contracts, instruments and other documents as the Board of Directors or any committee thereof may direct. The secretary shall have such other powers and shall perform such other duties as may from time to time be assigned to him or her by the Board of Directors or the president. ARTICLE V INDEMNIFICATION OF DIRECTORS AND OFFICERS Section 5.01. Indemnification. (a) The corporation shall indemnify and hold harmless any person (and the heirs, executors or administrators of such person) who was or is a party or is threatened to be made a party to, or is involved in, any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he, his testator, or intestate is or was a director or officer of the corporation, or is or was serving at the request of the corporation as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust or other enterprise, or as a member of any committee or similar body, to the fullest extent permitted by the laws of Delaware as they may exist from time to time. The right to indemnification conferred in this Article V shall also include the right to be paid by the Corporation the expenses incurred in connection with any such proceeding in advance of its final disposition to the fullest extent permitted by the laws of Delaware as they may exist from time to time. (b) The corporation may, by action of its Board of Directors, provide indemnification to such of the employees and agents of the corporation to such extent and to such affect as the Board of Directors shall determine to be appropriate and authorized by the laws of Delaware as they may exist from time to time. Section 5.02. Insurance. The proper officers of the corporation, without further authorization by the Board of Directors, may in their discretion purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent for another corporation, partnership, joint venture, trust or other enterprise, against any liability. 11 12 Section 5.03. ERISA. To assure indemnification under this Article of all such persons who are or were "fiduciaries" of an employee benefit plan governed by the Act of Congress entitled "Employee Retirement Income Security Act of 1974", as amended from time to time, the provisions of this Article V shall, for the purposes hereof, be interpreted as follows: an "other enterprise" shall be deemed to include an employee benefit plan; the corporation shall be deemed to have requested a person to serve as an employee of an employee benefit plan where the performance by such person of his duties to the corporation also imposes duties on, or otherwise involves services by, such person to the plan or participants or beneficiaries of the plan; excise taxes assessed on a person with respect to an employee benefit plan pursuant to said Act of Congress shall be deemed "fines"; and action taken or omitted by a person with respect to an employee benefit plan in the performance of such person's duties for a purpose reasonably believed by such person to be in the interest of the participants and beneficiaries of the plan shall be deemed to be for a purpose which is not opposed to the best interests of the corporation. Section 5.04. Contractual Nature. The foregoing provisions of this Article V shall be deemed to be a contract between the corporation and each director and officer who serves in such capacity at any time while this Article is in effect. Neither any repeal or modification of this Article or, to the fullest extent permitted by the laws of Delaware, any repeal or modification of laws, shall affect any rights or obligations then existing with respect to any state of facts then or theretofore existing or any action, suit or proceeding theretofore or thereafter brought based in whole or in part upon any such state of facts. Section 5.05. Construction. For the purposes of this Article V, references to "the corporation" include in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers and employees or agents, so that any person who is or was a director or officer of such constituent corporation or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise or as a member of any committee or similar body shall stand in the same position under the provisions of this Article with respect to the resulting or surviving corporation as such person would have with respect to such constituent corporation if its separate existence had continued. ARTICLE VI DEPOSITORIES, CONTRACTS AND OTHER INSTRUMENTS Section 6.01. Depositories. The chairman of the board, the president, the treasurer, and any vice-president of the corporation whom the Board of Directors authorizes to designated depositories for the funds of the corporation are each authorized to designate depositories for the funds of the corporation deposited in its name and the signatories and conditions with respect thereto in each case, and from time to time, to change such depositories, signatories and conditions, with the same force and effect as if each such depository, the signatories and conditions with respect thereto and changes therein had been specifically designated or 12 13 authorized by the Board of Directors; and each depository designated by the Board of Directors or by the chairman of the board, the president, the treasurer, or any such vice-president of the corporation, shall be entitled to rely upon the certificate of the secretary or any assistant secretary of the corporation setting forth the fact of such designation and of the appointment of the officers of the corporation or of other persons who are to be signatories with respect to the withdrawal of funds deposited with such depository, or from time to time the fact of any change in any depository or in the signatories with respect thereto. Section 6.02. Execution of Instruments Generally. In addition to the powers conferred upon the chairman of the board in Section 4.1 and except as otherwise provided in Section 6.01 of this Article VI, all contracts and other instruments entered into in the ordinary course of business requiring execution by the corporation may be executed and delivered by the president, the treasurer, or any vice president and authority to sign any such contracts or instruments, which may be general or confined to specific instances, may be conferred by the Board of Directors upon any other person or persons. Any person having authority to sign on behalf of the corporation may delegate, from time to time, by instrument in writing, all or any part of such authority to any person or persons if authorized so to do by the Board of Directors. ARTICLE VII SHARES AND THEIR TRANSFER Section 7.01. Certificate for Shares. Every owner of one or more shares in the corporation shall be entitled to a certificate, which shall be in such form as the Board of Directors shall prescribe, certifying the number and class of shares in the corporation owned by him or her. When such certificate is counter-signed by an incorporated transfer agent or registrar, the signature of any of said officers may be facsimile, engraved, stamped or printed. The certificates for the respective classes of such shares shall be numbered in the order in which they shall be issued and shall be signed in the name of the corporation by the chairman of the board or the president or a vice president, and by the secretary or an assistant secretary or the treasurer or an assistant treasurer. A record shall be kept of the name of the person, firm, or corporation owning the shares represented by each such certificate and the number of shares represented thereby, the date thereof, and in case of cancellation, the date of cancellation. Every certificate surrendered to the corporation for exchange or transfer shall be canceled and no new certificate or certificates shall be issued in exchange for any existing certificates until such existing certificates shall have been so canceled. Section 7.02. Lost, Destroyed and Mutilated Certificates. If any certificates for shares in this corporation become worn, defaced, or mutilated but are still substantially intact and recognizable, the directors or authorized officers, upon production and surrender thereof, shall order the same canceled and shall issue a new certificate in lieu of same. The holder of any shares in the corporation shall immediately notify the corporation if a certificate therefor shall be lost, destroyed, or mutilated beyond recognition, and the corporation may issue a new certificate in the place of any certificate theretofore issued by it which is alleged to have been lost or destroyed or mutilated beyond recognition, and the Board of Directors may, in its discretion, 13 14 require the owner of the certificate which has been lost, destroyed, or mutilated beyond recognition, or his legal representative, to give the corporation a bond in such sum and with such surety or sureties as it may direct, not exceeding double the value of the stock, to indemnity the corporation against any claim that may be made against it on account of the alleged loss, destruction, or mutilation of any such certificate. The Board of Directors may, however, in its discretion, refuse to issue any such new certificate except pursuant to legal proceedings, under the laws of the State of Delaware in such case made and provided. Section 7.03. Transfers of Shares. Transfers of shares in the corporation shall be made only on the books of the corporation by the registered holder thereof, his legal guardian, executor, or administrator, or by his attorney thereunto authorized by power of attorney duly executed and filed with the secretary of the corporation or with a transfer agent appointed by the Board of Directors, and on surrender of the certificate or certificates for such shares properly endorsed or accompanied by properly executed stock powers and evidence of the payment of all taxes imposed upon such transfer. The person in whose name shares stand on the books of the corporation shall, to the full extent permitted by law, be deemed the owner thereof for all purposes as regards the corporation. Section 7.04. Regulations. The Board of Directors may make such rules and regulations as it may deem expedient, not inconsistent with these bylaws concerning the issue, transfer, and registration of certificates for shares in the corporation. It may appoint one or more transfer agents or one or more registrars, or both, and may require all certificates for shares to bear the signature of either or both. ARTICLE VIII SEAL The Board of Directors may provide a corporate seal, which shall be circular and contain the name of the corporation engraved around the margin and the words "corporate seal", the year of its organization, and the word "Delaware". 14 EX-10.1 6 FORM OF SERVICES AGREEMENT 1 Exhibit 10.1 FORM OF SERVICES AGREEMENT This Services Agreement (this "Agreement") is entered into as of _________, 1996, by and between AltaVista Internet Software, Inc., a Delaware corporation ("AltaVista"), and Digital Equipment Corporation, a Massachusetts corporation ("Digital"). RECITALS: WHEREAS, AltaVista is issuing shares of Class A Common Stock, $0.01 par value per share ("Class A Common Stock"), to the public in an offering (the "Initial Public Offering") registered under the Securities Act of 1933, as amended; WHEREAS, Digital beneficially owns all of the issued and outstanding AltaVista Class B Common Stock, par value $0.01 per share ("Class B Common Stock"); WHEREAS, Digital has heretofore directly or indirectly provided certain administrative, financial, management and other services to AltaVista and its Subsidiaries (as defined below); WHEREAS, on the terms and subject to the conditions set forth herein, AltaVista desires to retain Digital as an independent contractor to provide, directly or indirectly, certain of those services to AltaVista and its Subsidiaries after the Closing Date (as defined below); and WHEREAS, on the terms and subject to the conditions set forth herein, Digital desires to provide, directly or indirectly, such services to AltaVista and its Subsidiaries. AGREEMENTS: NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Digital and AltaVista, for themselves, their successors and assigns, hereby agree as follows: ARTICLE I DEFINITIONS 1.01. Definitions. As used in this Agreement, the following terms will have the following meanings, applicable both to the singular and the plural forms of the terms described: "Actions" has the meaning ascribed thereto in Section 4.04. 2 "Agreement" has the meaning ascribed thereto in the preamble hereto, as such agreement may be amended and supplemented from time to time in accordance with its terms. "AltaVista" has the meaning ascribed thereto in the preamble hereto. "AltaVista Entities" means AltaVista and its Subsidiaries and "AltaVista Entity" shall mean any of the AltaVista Entities. "AltaVista Indemnified Person" has the meaning ascribed thereto in Section 4.05. "Benefit Billing" has the meaning ascribed thereto in Section 3.01. "Benefits Services" has the meaning ascribed thereto in Section 3.05. "Change Notice" has the meaning ascribed thereto in Section 3.07. "Class A Common Stock" has the meaning ascribed thereto in the recitals to this Agreement. "Class B Common Stock" has the meaning ascribed thereto in the recitals to this Agreement. "Closing Date" means the date of the closing of the initial sale of Class A Common Stock in the Initial Public Offering. "Common Stock" means the Class B Common Stock, the Class A Common Stock and any other class of AltaVista capital stock representing the right to vote generally for the election of directors. "Cost Plus Billing" has the meaning ascribed thereto in Section 3.01. "Customary Billing" has the meaning ascribed thereto in Section 3.01. "Digital" has the meaning ascribed thereto in the preamble hereto. "Digital Entities" means Digital and its Subsidiaries (excluding the AltaVista Entities, unless otherwise required by the context) and "Digital Entity" shall mean any of the Digital Entities. "Digital Indemnified Person" has the meaning ascribed thereto in Section 4.03. "Digital Plans" has the meaning ascribed thereto in Section 3.05. "Employee Welfare Plans" has the meaning ascribed thereto in Section 4.02. -2- 3 "Initial Public Offering" has the meaning ascribed thereto in the recitals to this Agreement. "Pass-Through Billing" has the meaning ascribed thereto in Section 3.01. "Payment Date" has the meaning ascribed thereto in Section 3.06(b). "Percent of Sales Billing" has the meaning ascribed thereto in Section 3.01. "Person" means any individual, partnership, limited liability company, joint venture, corporation, trust, unincorporated organization, government (and any department or agency thereof) or other entity. "Schedule I" means the first schedule hereto which lists the Services (other than Services relating to certain commercial services and to employee plan and benefit matters) to be provided by Digital to AltaVista and sets forth the related billing methodology. "Schedule II" means the second schedule attached hereto which describes certain commercial services that may be provided by Digital to AltaVista and sets forth the related billing methodology. "Schedule III" means the third schedule attached hereto which lists the Services relating to employee plans and benefit arrangements to be provided by Digital to AltaVista and sets forth the related billing methodology. "Schedules" has the meaning ascribed thereto in Section 3.01. "SEC" means the United States Securities and Exchange Commission. "Service Costs" has the meaning ascribed thereto in Section 3.01. "Services" has the meaning ascribed thereto in Section 2.01. "Subsidiary" means, as to any Person, any corporation, association, partnership, joint venture or other business entity of which more than 50% of the voting capital stock or other voting ownership interests is owned or controlled directly or indirectly by such Person or by one or more of the Subsidiaries of such Person or by a combination thereof. Subsidiary, when used with respect to Digital or AltaVista, shall also include any other entity affiliated with Digital and AltaVista, as the case may be, that Digital and AltaVista may hereafter agree in writing shall be treated as a "Subsidiary" for the purposes of this Agreement. 1.02. Internal References. Unless the context indicates otherwise, references to Articles, Sections and paragraphs shall refer to the corresponding articles, sections and paragraphs in this Agreement and references to the parties shall mean the parties to this Agreement. -3- 4 ARTICLE II PURCHASE AND SALE OF SERVICES Section 2.01. Purchase and Sale of Services. (a) On the terms and subject to the conditions of this Agreement and in consideration of the Service Costs described below, Digital agrees to provide to AltaVista, or procure the provision to AltaVista of, and AltaVista agrees to purchase from Digital, the services described in Schedules I, II and III (the "Services"). Unless otherwise specifically agreed by Digital and AltaVista, the Services to be provided or procured by Digital hereunder shall be substantially similar in scope, quality, and nature to those provided to, or procured on behalf of, the AltaVista Entities prior to the Closing Date. (b) It is understood that (i) Services to be provided to AltaVista under this Agreement will, at AltaVista's request, be provided to Subsidiaries of AltaVista and (ii) Digital may satisfy its obligation to provide or procure Services hereunder by causing one or more of its Subsidiaries to provide or procure such Services. With respect to Services provided to, or procured on behalf of, any Subsidiary of AltaVista, AltaVista agrees to pay on behalf of such Subsidiary all amounts payable by or in respect of such Services. Section 2.02. Additional Services. In addition to the Services to be provided or procured by Digital pursuant to Section 2.01, if requested by AltaVista, and to the extent that Digital and AltaVista may mutually agree, Digital shall provide additional services (including services not provided by Digital to the AltaVista Entities prior to the Closing Date) to AltaVista. The scope of any such services, as well as the term, costs, and other terms and conditions applicable to such services, shall be as mutually agreed by Digital and AltaVista. ARTICLE III SERVICE COSTS; OTHER CHARGES Section 3.01. Service Costs Generally. (a) Schedules I and II hereto (collectively, the "Schedules") indicate, with respect to each Service listed therein, whether the costs to be charged to AltaVista for such Service or program are determined by (i) the customary billing method ("Customary Billing"), (ii) the pass-through billing method ("Pass-Through Billing"), (iii) the cost-plus-fixed-fee billing method ("Cost Plus Billing") or (iv) based upon a calculation of certain costs relating to employee benefit plans and benefit arrangements ("Benefit Billing"). The Customary Billing, Pass-Through Billing, Cost Plus Billing and Benefit Billing methods applicable to Services provided to AltaVista are collectively referred to herein as the "Service Costs". AltaVista agrees to pay to Digital in the manner set forth in Section 3.06 the Service Costs applicable to each of the Services provided by Digital. (b) As provided herein, Digital shall permit eligible AltaVista employees to participate in certain of the Digital Plans. In addition to reimbursing Digital for the Services as set forth herein, AltaVista shall reimburse Digital for Digital's costs (including any contributions and premium costs and including certain third-party expenses and allocations of certain Digital personnel expenses), subject to Section 3.05 hereof, relating to participation by AltaVista -4- 5 employees in the Digital Plans. It is the express intent of the parties that Service Costs relating to the administration of AltaVista employee plans and the performance of related Services will not exceed reasonable compensation for such Services as defined in 29 CFR Section 2550.408c-2. Section 3.02. Customary Billing. The costs of Services determined by the Customary Billing method shall be comparable to the costs charged from time to time to other businesses and subsidiaries operated by Digital for comparable services. Section 3.03. Pass-Through Billing. The costs of Services determined by the Pass-Through Billing method shall be equal to the third-party costs and expenses incurred by Digital or any of its Subsidiaries on behalf of any AltaVista Entity. If Digital incurs costs or expenses on behalf of AltaVista or any of its Subsidiaries as well as other businesses operated by Digital, Digital will allocate any such costs or expenses in good faith between the various businesses on behalf of which such costs or expenses were incurred as Digital shall determine in the exercise of Digital's reasonable judgment. Digital shall apply usual and accepted accounting conventions in making such allocations and Digital or its agents shall keep and maintain such books and records as may be reasonably necessary to make such allocations. Digital shall make copies of such books and records available to any business upon request and with reasonable notice. Section 3.04. Cost Plus. The costs of Services determined by the Cost Plus Billing method shall be equal to the costs and expenses incurred by Digital or any of its Subsidiaries on behalf of any AltaVista Entity, plus the fixed percentage of such costs and expenses set forth on Schedule II. If Digital incurs costs or expenses on behalf of AltaVista or any of its Subsidiaries as well as other businesses operated by Digital, Digital will allocate any such costs or expenses in good faith between the various businesses on behalf of which such costs or expenses were incurred as Digital shall determine in the exercise of Digital's reasonable judgment. Digital shall apply usual and accepted accounting conventions in making such allocations and Digital or its agents shall keep and maintain such books and records as may be reasonably necessary to make such allocations. Digital shall make copies of such books and records available to any business upon request and with reasonable notice. Section 3.05. Benefit Billing. (a) Prior to the Closing Date, certain employees of AltaVista participated in certain benefit plans sponsored by Digital. On and after the Closing Date, AltaVista employees shall continue to be eligible to participate in certain Digital Plans, as specified by Digital prior to the Closing Date ("Digital Plans"), subject to the terms of the governing plan documents as interpreted by the appropriate plan fiduciaries. On and after the Closing Date, subject to regulatory requirements and the provisions of Section 4.01 hereof, Digital will continue to provide Benefits Services to and in respect of AltaVista employees with reference to such Digital Plans as it administered them prior to the Closing Date. (b) The costs payable by AltaVista for Services relating to employee plans and benefit arrangements ("Benefits Services") may be charged on the basis of Customary Billing, Pass-Through Billing or Benefit Billing. In addition, costs associated with certain plans and programs identified in Schedule III will be paid principally through employee payroll -5- 6 deductions for such plans and programs. Benefit Services consists of those categories of Services which are more fully described on Schedule III attached hereto. (c) Each party to this Agreement may request changes in the applicable terms of or services relating to Digital Plans, approval of which shall not be unreasonably withheld; provided, however, that approval of changes in the terms of any of Digital Plans shall be in the sole discretion of Digital. (d) Digital and AltaVista agree to cooperate fully with each other in the administration and coordination of regulatory and administrative requirements associated with Digital Plans. Such coordination, upon request, will include (but is not limited to) the following: sharing payroll data for determination of highly compensated employees, providing census information (including accrued benefits) for purposes of running discrimination tests, providing actuarial reports for purposes of determining the funded status of any plan, review and coordination of insurance and other independent third party contracts, and providing for review of all summary plan descriptions, requests for determination letters, insurance contracts, Forms 5500, financial statement disclosures and plan documents. Section 3.06. Invoicing and Settlement of Costs. (a) Digital will invoice or notify AltaVista for the Service Costs on a monthly basis, in arrears, either directly or through Digital's intracompany billing system, in a manner substantially consistent with the billing practices used in connection with services provided to the AltaVista Entities prior to the Closing Date (except as otherwise agreed). In connection with the invoicing described in this Section 3.06(a), Digital will provide to AltaVista the same billing data and level of detail as it customarily provided to the AltaVista Entities prior to the Closing Date and as it customarily provides to other businesses and subsidiaries operated by Digital and such other data as may be reasonably requested by AltaVista. (b) AltaVista agrees to pay on or before 30 days after the date on which Digital invoices or notifies AltaVista of the Service Costs after the Closing Date (or the next Business Day, if such day is not a Business Day) (each, a "Payment Date"), at Digital's option upon reasonable notice to AltaVista, through Digital's intra-company billing system, cash management systems, or, if requested by Digital, by wire transfer of immediately available funds payable to the order of Digital and without set off, all amounts invoiced by Digital pursuant to paragraph (a) during the preceding calendar month (or since the Closing Date, in the case of the first Payment Date). If AltaVista fails to pay any monthly payment within 90 days of the relevant Payment Date, AltaVista shall be obligated to pay, in addition to the amount due on such Payment Date, interest on such amount at the prime, or best rate announced by [Name of bank] plus __% per annum compounded monthly from the relevant Payment Date through the date of payment. (c) Except as otherwise provided in the Schedules or agreed in writing by the parties, AltaVista shall take such action as is necessary to establish bank accounts (to be funded by AltaVista) or to otherwise fund all wage and salary payments to AltaVista employees and to fund all medical, retirement and other benefit claims payable to or on behalf of AltaVista -6- 7 employees and their dependents to the extent not covered by third party insurance. Payroll services and benefit claims processing activities performed by Digital or Digital's subcontractors shall be coordinated to facilitate payments. Following prior written notice of not less than 15 business days, Digital shall be relieved of any obligation to deliver benefit and payroll services under this Agreement to the extent that such bank accounts or other funding arrangements are not established at the time drafts are presented for payment, or at any time when there are insufficient funds in the relevant account or such other arrangements fail to satisfy a properly presented claim. Section 3.07. Amended Schedules. (a) Prior to the end of Digital's fiscal year in each year for so long as the relevant Services continue to be provided under this Agreement, Digital shall prepare and deliver to AltaVista updated versions of Schedules I, II and III (to the extent applicable), setting forth with respect to the Services described in such schedules, any proposed changes in billing methodology and, to the extent available, the Service Costs estimated to be payable for such Services for the next fiscal year. Except as AltaVista and Digital may otherwise agree, and except as specifically described in this Agreement (including the Schedules), the method of allocating and charging the costs reflected on Schedules I, II and III, and any updated versions of such schedules, shall be consistent with Digital's prior practices with respect to the allocation of costs for services to the AltaVista Entities immediately prior to the Closing Date; provided that if Digital changes the method of allocating and charging such costs to Digital businesses generally, such revised method shall also be applied to AltaVista and AltaVista shall be notified in writing not less than 60 days in advance of implementing such revised method (a "Change Notice"). If a revised method of allocating and charging costs for particular Services would result in a significant increase in the amount of Service Costs that AltaVista would be obligated to pay under this Agreement as compared to those that would be payable were such method not revised, then, notwithstanding Article VI, AltaVista shall have the right during the 45-day period following receipt of Digital's Change Notice to terminate such Services upon written notice to Digital, and such termination shall be effective on the implementation date of the change in methodology. Such change in allocation method shall be deemed accepted by AltaVista if no such notice of termination is received by Digital during such 45-day period, and thereafter any termination shall be governed by the provisions of Article VI. For purposes of this paragraph (a), a "significant increase" means, with respect to any amount, an aggregate increase of more than the greater of (i) 10% of the base amount of Service Costs applicable to all such Services and (ii) $100,000. ARTICLE IV THE SERVICES Section 4.01. General Standard of Service. Except as otherwise agreed with AltaVista or as described in this Agreement, and provided that Digital is not restricted by contract with third parties or by applicable law, Digital agrees that the nature, quality and standard of care applicable to the delivery of the Services hereunder will be substantially the same as that of the Services which Digital provides from time to time throughout its businesses; provided that in no event shall such standard of care be less than the standard of care that Digital has customarily provided to the AltaVista Entities with respect to the relevant Service prior to the Closing Date. Digital -7- 8 shall use its reasonable efforts to ensure that the nature and quality of Services provided to AltaVista employees either by Digital directly or through administrators under contract shall be undifferentiated as compared with the same services provided to or on behalf of Digital employees under Digital Plans. Section 4.02. Delegation. Subject to Section 4.01 above, AltaVista hereby delegates to Digital final, binding, and exclusive authority, responsibility, and discretion to interpret and construe the provisions of employee welfare benefit plans in which AltaVista has elected to participate and which are administered by Digital under this Agreement (collectively, "Employee Welfare Plans"). Digital may further delegate such authority to plan administrators to: (i) provide administrative and other services; (ii) reach factually supported conclusions consistent with the terms of the Employee Welfare Plans; (iii) make a full and fair review of each claim denial and decision related to the provision of benefits provided or arranged for under the Employee Welfare Plans, pursuant to the requirements of ERISA, if within sixty days after receipt of the notice of denial, a claimant requests in writing a review for reconsideration of such decisions. The administrator shall notify the claimant in writing of its decision on review. Such notice shall satisfy all ERISA requirements relating thereto; and (iv) notify the claimant in writing of its decision on review. Section 4.03. Limitation of Liability. AltaVista agrees that none of Digital and its Subsidiaries and their respective directors, officers, agents, and employees (each, a "Digital Indemnified Person") shall have any liability, whether direct or indirect, in contract or tort or otherwise, to AltaVista for or in connection with the Services rendered or to be rendered by any Digital Indemnified Person pursuant to this Agreement, the transactions contemplated hereby or any Digital Indemnified Person's actions or inactions in connection with any such Services or transactions, except for damages which have resulted from such Digital Indemnified Person's gross negligence or willful misconduct in connection with any such Services, actions or inactions. Section 4.04. Indemnification of Digital by AltaVista. AltaVista agrees to indemnify and hold harmless each Digital Indemnified Person from and against any damages, and to reimburse each Digital Indemnified Person for all reasonable expenses as they are incurred in investigating, preparing, pursuing, or defending any claim, action, proceeding, or investigation, whether or not in connection with pending or threatened litigation and whether or not any Digital Indemnified Person is a party (collectively, "Actions"), arising out of or in connection with Services rendered or to be rendered by any Digital Indemnified Person pursuant to this Agreement, the transactions contemplated hereby or any Digital Indemnified Person's actions or inactions in connection with any such Services or transactions; provided that AltaVista will not -8- 9 be responsible for any damages of any Digital Indemnified Person that have resulted from such Digital Indemnified Person's gross negligence or willful misconduct in connection with any of the advice, actions, inactions, or Services referred to above. Section 4.05. Indemnification of AltaVista by Digital. Digital agrees to indemnify and hold harmless AltaVista and its Subsidiaries and their respective directors, officers, agents, and employees (each, an "AltaVista Indemnified Person") from and against any damages, and will reimburse each AltaVista Indemnified Person for all reasonable expenses as they are incurred in investigating, preparing, or defending any Action, arising out of the gross negligence or willful misconduct of any Digital Indemnified Person in connection with the Services rendered or to be rendered pursuant to this Agreement. Section 4.06. Further Indemnification. To the extent that any other Person has agreed to indemnify any Digital Indemnified Person or to hold a Digital Indemnified Person harmless and such Person provides services to Digital or any affiliate of Digital relating directly or indirectly to any employee plan or benefit arrangement for which Benefit Services are provided under this Agreement, Digital will exercise reasonable efforts (x) to make such agreement applicable to any AltaVista Indemnified Person so that each AltaVista Indemnified Person is held harmless or indemnified to the same extent as any Digital Indemnified Person or (y) otherwise make available to each AltaVista Indemnified Person the benefits of such agreement. Section 4.07. Reports. Digital shall provide or shall cause to be provided to AltaVista with data or reports requested by AltaVista relating to (i) benefits paid to or on behalf of AltaVista employees under Digital Plans, including but not limited to financial statements, claims history, and census information, and (ii) other information relating to the Services that is required to satisfy any reporting or disclosure requirement of ERISA or the Code. Digital will provide such information within a reasonable period of time after it is requested. The costs for reports which are substantially similar to reports prepared by Digital or on behalf of Digital generally for its businesses shall be billed as part of the Benefit Costs. The cost for additional reports shall be billed as incremental costs in accordance with Section 3.06. ARTICLE V ADDITIONAL AGREEMENT Section 5.01. Notice. Unless otherwise agreed in writing by the parties, AltaVista agrees to provide Digital with at least two months prior written notice of any material change in the eligible AltaVista employees and retirees covered by Digital Plans, and any change in the scope of Services to be provided by Digital with respect thereto. Notwithstanding the preceding sentence, if AltaVista provides Digital with less than two months notice of any such change and Digital is nonetheless able, with reasonable efforts, to effectuate such change with such shorter notice, than Digital shall implement the requested change. -9- 10 ARTICLE VI TERM AND TERMINATION Section 6.01. Term. Except as otherwise provided in this Article VI or in Section 7.05 or as otherwise agreed in writing by the parties, this Agreement shall have an initial term of two years from the Closing Date, and will be renewed automatically thereafter for successive one-year terms unless either AltaVista or Digital elects not to renew this Agreement upon not less than 90 days' written notice. Section 6.02. Termination. (a) After the initial two-year term, AltaVista may from time to time terminate this Agreement with respect to one or more of the Services, in whole or in part, upon giving at least 90 days' prior notice to Digital. (b) This Agreement will be subject to early termination by either AltaVista or Digital upon 90 days' written notice if Digital ceases to own shares of Common Stock representing more than 50% of the combined voting power of the Common Stock of AltaVista. (c) Digital may, at its option, terminate this Agreement as it relates to any given Service if Digital would otherwise not be required to provide such Service with respect to any employee benefit plan or program that is substantially similar to a corresponding plan or program of Digital (as such plans and programs of Digital exist from time to time) or if the method of delivering such Service would no longer be substantially similar to the manner in which such Service was delivered to the AltaVista Entities, as such delivery may change from time to time. (d) Digital may terminate any affected Service at any time if AltaVista shall have failed to perform any of its material obligations under this Agreement relating to any such Service, Digital has notified AltaVista in writing of such failure, and such failure shall have continued for a period of 60 days after receipt of AltaVista of notice of such failure. (e) AltaVista may terminate any affected Service at any time if Digital shall have failed to perform any of its material obligations under this Agreement relating to any such Service, AltaVista has notified Digital in writing of such failure, and such failure shall have continued for a period of 60 days after receipt by Digital of notice of such failure. (f) Each of AltaVista and Digital agrees that prior to exercising its rights under this Section 6.02 it will consult for a reasonable period with the other party in advance of such termination as to its implementation. (g) Notwithstanding this Section 6.02 either Digital or AltaVista may terminate coverage of AltaVista under Digital's umbrella liability, property, casualty or fiduciary insurance policies (as more fully described in Schedule I) at any time on 90 days written notice prior to the anniversary day of the policy; provided that termination of coverage by AltaVista may only be for nonpayment and only if a replacement policy, acceptable to Digital, is entered into by AltaVista. -10- 11 (h) AltaVista may terminate any affected Service pursuant to Section 3.07 hereof. Section 6.03. Effect of Termination. (a) Other than as required by law, upon termination of any Service pursuant to Section 6.01 or Section 6.02, and upon termination of this Agreement in accordance with its terms, Digital will have no further obligation to provide the terminated Service (or any Service, in the case of termination of this Agreement) and AltaVista will have no obligation to pay any fees relating to such Services or make any other payments hereunder; provided that notwithstanding such termination, (i) AltaVista shall remain liable to Digital for fees owed and payable in respect of Services provided prior to the effective date of the termination; (ii) Digital shall continue to charge AltaVista for administrative and program costs relating to benefits paid after but incurred prior to the termination of any Service and other services required to be provided after the termination of such Service and AltaVista shall be obligated to pay such expenses in accordance with the terms of this Agreement; and (iii) the provisions of Articles IV, V, VI and VII shall survive any such termination. All program and administrative costs attributable to AltaVista employees for Digital Plans that relate to any period after the effective date of any such termination shall be for the account of AltaVista. (b) Following termination of this Agreement with respect to any Service, Digital and AltaVista agree to cooperate in providing for an orderly transition of such Service to AltaVista or to a successor service provider. Without limiting the foregoing, Digital agrees to (i) provide, within 90 days of the termination, copies in a format designated by Digital, all records relating directly or indirectly to benefit determinations of AltaVista employees, including but not limited to compensation and service records, correspondence, plan interpretive policies, plan procedures, administration guidelines, minutes, or any data or records required to be maintained by law and (ii) work with AltaVista in developing a transition schedule. ARTICLE VII MISCELLANEOUS Section 7.01. Other Agreements. In addition to the services described herein, Digital is providing AltaVista with certain additional services pursuant to a Facilities Agreement and an Intercompany Distribution, Strategic Development and Services Agreement. Section 7.02. Future Litigation and Other Proceedings. In the event that AltaVista (or any of its officers or directors) or Digital (or any of its officers or directors) at any time after the date hereof initiates or becomes subject to any litigation or other proceedings before any governmental authority or arbitration panel with respect to which the parties have no prior agreements (as to indemnification or otherwise), the party (and its officers and directors) that has not initiated and is not subject to such litigation or other proceedings shall comply, at the other party's expense, with any reasonable requests by the other party for assistance in connection with such litigation or other proceedings (including by way of provision of information and making available of employees as witnesses). In the event that AltaVista (or any of its officers or directors) and Digital (or any of its officers and directors) at any time after the date hereof initiate or become subject to any litigation or other proceedings before any governmental authority or -11- 12 arbitration panel with respect to which the parties have no prior agreements (as to indemnification or otherwise), each party (and its officers and directors) shall, at their own expense, coordinate their strategies and actions with respect to such litigation or other proceedings to the extent such coordination would not be detrimental to their respective interests and shall comply, at the expense of the requesting party, with any reasonable requests of the other party for assistance in connection therewith (including by way of provision of information and making available of employees as witnesses). Section 7.03. No Agency. Nothing in this Agreement shall constitute or be deemed to constitute a partnership or joint venture between the parties hereto or, except to the extent provided in Section 4.02, constitute or be deemed to constitute any party the agent or employee of the other party for any purpose whatsoever and neither party shall have authority or power to bind the other or to contract in the name of, or create a liability against, the other in any way or for any purpose. Section 7.04. Subcontractors. Digital may hire or engage one or more subcontractors to perform all or any of its obligations under this Agreement, provided that, subject to Section 4.03, Digital will in all cases remain primarily responsible for all obligations undertaken by it in this Agreement with respect to the scope, quality and nature of the Services provided to AltaVista. Section 7.05. Force Majeure. (a) For purposes of this Section , "force majeure" means an event beyond the control of either party, which by its nature could not have been foreseen by such party, or, if it could have been foreseen, was unavoidable, and includes without limitation, acts of God, storms, floods, riots, fires, sabotage, civil commotion or civil unrest, interference by civil or military authorities, acts of war (declared or undeclared) and failure of energy sources. (b) Neither party shall be under any liability for failure to fulfill any obligation under this Agreement, so long as and to the extent to which the fulfillment of such obligation is prevented, frustrated, hindered, or delayed as a consequence of circumstances of force majeure, provided always that such party shall have exercised all due diligence to minimize to the greatest extent possible the effect of force majeure on its obligations hereunder. (c) Promptly on becoming aware of force majeure causing a delay in performance or preventing performance of any obligations imposed by this Agreement (and termination of such delay), the party affected shall give written notice to the other party giving details of the same, including particulars of the actual and, if applicable, any estimated continuing effects of such force majeure on the obligations of the party whose performance is prevented or delayed. If such notice shall have been duly given, and actual delay resulting from such force majeure shall be deemed not to be a breach of this Agreement, and the period for performance of the obligation to which it relates shall be extended accordingly, provided that if force majeure results in the performance of a party being delayed by more than 60 days, the other party shall have the right to terminate this Agreement with respect to any Service effected by such delay forthwith by written notice. Section 7.06 Entire Agreement. This Agreement (including the Schedules constituting a part of this Agreement) and any other writing signed by the parties that specifically references -12- 13 this Agreement constitute the entire agreement among the parties with respect to the subject matter hereof and supersede all prior agreements, understandings and negotiations, both written and oral, between the parties with respect to the subject matter hereof. The Agreement is not intended to confer upon any Person other than the parties hereto any rights or remedies hereunder. Section 7.07. Information. Subject to applicable law and privileges, each party hereto covenants and agrees to provide the other party with all information regarding itself and transactions under this Agreement that the other party reasonably believes are required to comply with all applicable federal, state, county and local laws, ordinances, regulations and codes, including, but not limited to, securities laws and regulations. Section 7.08. Confidential Information. AltaVista and Digital hereby covenant and agree to hold in trust and maintain confidential all Confidential Information relating to the other party. "Confidential Information" shall mean all information disclosed by either party to the other in connection with this Agreement whether orally, visually, in writing or in any other tangible form, and includes, but is not limited to, economic and business data, business plans, and the like, but shall not include (i) information which becomes generally available other than by release in violation of the provisions of this Section 7.08, (ii) information which becomes available on a nonconfidential basis to a party from a source other than the other party to this Agreement provided the party in question reasonably believes that such source is not or was not bound to hold such information confidential, (iii) information acquired or developed independently by a party without violating this Section 7.08 or any other confidentiality agreement with the other party and (iv) information that any party hereto reasonably believes it is required to disclose by law, provided that it first notifies the other party hereto of such requirement and allows such party a reasonable opportunity to seek a protective order or other appropriate remedy to prevent such disclosure. Without prejudice to the rights and remedies of either party to this Agreement, a party disclosing any Confidential Information to the other party in accordance with the provisions of this Agreement shall be entitled to equitable relief by way of an injunction if the other party hereto breaches or threatens to breach any provision of this Section 7.08. Section 7.09. Notices. Any notice, instruction, direction or demand under the terms of this Agreement required to be in writing will be duly given upon delivery, if delivered by hand, facsimile transmission, intercompany mail, or mail, to the following addresses: (a) If to AltaVista, to: AltaVista Internet Software, Inc. 30 Porter Road Littleton, MA 01460 Attention: Chief Financial Officer Fax: 617- (b) If to Digital, to: -13- 14 Digital Equipment Corporation 111 Powdermill Road Maynard, MA 01754-1418 Attention: Treasurer Fax: 617- or to such other addresses or telecopy numbers as may be specified by like notice to the other parties. Section 7.10. Governing Law. This Agreement shall be construed in accordance with and governed by the substantive internal laws of the Commonwealth of Massachusetts. Section 7.11. Severability. If any provision of this Agreement shall be invalid or unenforceable, such invalidity or unenforceability shall not render the entire Agreement invalid. Rather, the Agreement shall be construed as if not containing the particular invalid or unenforceable provision, and the rights and obligations of each party shall be construed and enforced accordingly. Section 7.12. Amendment. This Agreement may only be amended by a written agreement executed by both parties hereto. Section 7.13. Counterparts. This Agreement may be executed in separate counterparts, each of which shall be deemed an original and all of which, when taken together, shall constitute one agreement. [Remainder of page intentionally left blank] -14- 15 IN WITNESS WHEREOF, the parties have caused this Agreement to be signed by their duly authorized representatives. ALTAVISTA INTERNET SOFTWARE, INC. By:________________________________ Name: Title: DIGITAL EQUIPMENT CORPORATION By:________________________________ Name: Title: -15- 16 Services Agreement - Schedule I General Corporate Services(1) SERVICE PART I -- CORPORATE AND SHARED SERVICES. The billing methodology for each of the following services is "Customary Billing" and shall be based on Digital's internal apportionment formulas Travel administration Property administration Office of the Chief Information Officer Office of the President Shared Service Centers (transaction processing and accounting) Treasury Department (money and banking and other treasury services) Corporate Controller's Headquarters (financial planning and analysis) Human resource services--baseline, corporate, shared and transition services Development and learning--company-wide and executive training, Digital Management Institute and administration Corporate general and administrative purchasing and "core group" purchasing Law Department (legal services) Environmental health and safety Trade (import/export and shipping services) Corporate security Ethics Credit and collection "SAP Project" (management reporting system) Corporate communications--baseline, public relations, employee communications, customer communications, corporate advertising and trade shows Insurance Policies (liability, property, casualty and fiduciary) Tax return preparation - -------- (1) In each case, third-party costs incurred by Digital on behalf of AltaVista will be billed using the Pass-Through Billing methodology. -16- 17 PART II -- COMPUTING AND COMMUNICATIONS SERVICES. The billing methodology for each of the following services is "Customary Billing" and shall be based on actual usage Global data processing Voice/data transmission services Timesharing (computer resources) Personal computer and workstation (maintenance and repair services) Contracts--fixed price (contract administration) Global telecommunications and network services -17- 18 Services Agreement - Schedule II Commercial Services Commercial services to be provided under this Agreement shall include any commercial services that Digital provides from time to time to third parties on a fee basis, in each case as requested by AltaVista to be provided by Digital, unless Digital determines in its reasonable discretion that the provision of such requested services would not be economic or would be otherwise unfeasible. All such services shall be provided in accordance with the Cost Plus Billing method, with the percentage of costs and expenses to be negotiated by the parties in good faith. -18- 19 Services Agreement - Schedule III Benefits Services
SERVICE BILLING METHODOLOGY The billing methodology for each of the following services is "Customary Billing" (except as noted) and shall be based on apportioned customary Digital "fringe rate" allocations. MEDICAL/DENTAL PROGRAMS Benefits/Claims - - Claims costs for AltaVista Employees participating in Digital Plans and Customary Billing programs Administration - - Administration of AltaVista plans and programs, including: Customary Billing - - maintenance of eligibility files upon AltaVista's notification of status changes - - claim adjudication under the terms of applicable plans - - maintenance of toll-free telephone lines for inquiries, etc. - - support services (internal and external, including COBRA) Participant Contributions - - Participant contributions for deductions above plans or direct bill to Participant payroll employees/retirees OTHER BENEFIT PLANS - - Life Insurance Customary Billing Life insurance for AltaVista Employees (including Accidental Death and Dismemberment) - - Savings/Retirement Plans - Company match/retirement contribution Customary Billing - Participant Contributions Payroll Deduction - - Long-Term Disability Plans - Employer contributions Customary Billing - Employee contributions Payroll Deduction Other Benefit Support Services
-19- 20 - - Audit, Legal, Actuarial Fees and related recoveries Customary Billing - - Payroll support of benefits administration (insurance, savings, other Customary Billing benefit plans and statutory requirements) Payroll Services Customary Billing
-20- EX-10.2 7 FORM OF FACILITIES AGREEMENT 1 EXHIBIT 10.2 FORM OF FACILITIES AGREEMENT THIS FACILITIES AGREEMENT (this "Agreement"), dated as of August __, 1996, is made by and between Digital Equipment Corporation, a Massachusetts corporation ("Digital"), and AltaVista Internet Software, Inc., a Delaware corporation ("ALTV"). The terms "ALTV" and "Digital" shall include any subsidiary or affiliate of ALTV and Digital, respectively. A "subsidiary or affiliate" of ALTV or Digital is a company or operating entity in which ALTV or Digital, as the case may be, now or in the future, directly or indirectly, owns more than 50% of the shares. W I T N E S S E T H: WHEREAS, Digital and ALTV have executed and delivered an Asset Purchase Agreement dated the date hereof (the "Asset Purchase Agreement") pursuant to which Digital has agreed to sell to ALTV, and ALTV has agreed to purchase from Digital, certain tangible and intangible property and assets of Digital relating to a portion of the business heretofore conducted by the Internet Software Business Unit ("ISBU") of Digital (the "Internet Business"); WHEREAS, Digital and ALTV desire to provide ALTV with the right to use certain portions of facilities owned or leased, as applicable, by Digital including but not limited to those locations identified on Schedule I hereto (the "Facilities") on the terms and conditions set forth herein for certain periods specified herein, unless sooner terminated pursuant to the terms of this Agreement (the Facilities and any and all walkways, parking areas and landscaped areas appurtenant thereto referred to collectively as "Sites"); and WHEREAS, the parties understand that the Facilities are currently and, at Digital's election, will continue to be occupied and used by Digital for the conduct of Digital's business and that the joint use of the Facilities and the Sites as contemplated by this Agreement will require mutual cooperation and accommodation by the parties; NOW, THEREFORE, in consideration of the premises and mutual covenants and agreements herein contained, the sufficiency of which is hereby acknowledged, Digital and ALTV agree as follows: 2 1. Premises and Terms. 1.1 Subject to all of the terms and conditions hereof, ALTV shall have the right to use certain portions of the Facilities (the "Premises"); 1.2 Notwithstanding anything in this Agreement to the contrary, the term during which ALTV may use any of the Premises shall end on the earliest of (a) the expiration or termination for any reason of the underlying lease for any of the Premises that are leased and not owned by Digital or (b) the sale, abandonment or vacation of any of the Premises that are owned by Digital. Digital shall give ALTV as much advance notice as is reasonably practicable in connection with any planned early termination of any leased Premises or the sale, abandonment or vacation by Digital of any of the owned Premises. 1.3 Subject to Section 1.2 hereof, the initial term of this Agreement shall be for two years (the "Initial Term"). So long as ALTV is not in default under the terms of this Agreement, Digital does hereby grant to ALTV the right and option to extend and renew any terms of this Agreement for additional period(s) of one year each (herein the "Renewal Term(s)" and together with the Initial Term, the "Term"), beginning the date immediately following the designated termination date, upon the same terms, conditions, covenants and provisions as are provided in this Agreement. Unless Digital or ALTV notifies the other party, at least thirty (30) days prior to the expiration of the Initial Term or Renewal Term then in effect, of its intent not to extend and renew the term of this Agreement, ALTV shall be deemed to have exercised its Renewal Option in respect of that Renewal Term. If the Renewal Option is exercised as provided herein, then this Agreement shall be amended to reflect the changes which will result from such extension of the term of this Agreement. 2 . Relocation from Premises. ALTV agrees to take all reasonable actions to accommodate Digital's real estate objectives, including, without limitation, vacating Premises where Digital plans to terminate its own lease or operations at that particular Premises. 3. Right to Use Premises. 3.1 ALTV's right to use any of the Premises shall include a nonexclusive right to use such interior common areas as may exist with respect to the Facility in which the Premises is located and as designated by Digital, which may include circulation corridors, stairwells, lobbies, library, cafeteria, restrooms and conference rooms, if any, and exterior common areas serving the Facilities, including parking areas and sidewalks, if any (which -2- 3 designated interior common areas and exterior common parking and other such exterior common areas within the Site are herein collectively referred to as the "Common Areas"). Digital reserves the right to limit access to any part of any Facility for confidentiality purposes, so long as access to the Premises is not unreasonably restricted. 3.2 ALTV shall not be entitled to enter in or on any other portions of the Facilities, including without limitation all non-ALTV office areas and laboratory spaces, unless with express written permission from Digital and in the company of an authorized Digital employee. Except (a) in connection with the performance of its obligations under this Agreement or any underlying lease, (b) for purposes of inspecting the Premises for compliance with ALTV's obligations under this Agreement, (c) to show the Facility to any prospective purchaser or mortgagor, (d) to make alterations, additions, repairs or improvements pursuant to Section 5.3 below, or (e) in an emergency, Digital shall not be entitled to enter in the Premises unless with express written permission from and in the company of an ALTV employee. 4. Payment for Premises. 4.1 Monthly payment to Digital for each such Premises shall be equal to Digital's Cost Center Charge (as hereinafter defined) for such Premises from time to time for the balance of the term. Any adjustment thereto shall be effective as of the date of adjustment of Digital's Cost Center Charge as set forth in a written notice from Digital to ALTV. Any increase in payments for any portion of a term that has expired at the time that ALTV receives such a notice from Digital of an increase in Digital's Cost Center Charge for a given Premises shall be due and payable within thirty (30) days after ALTV receives the notice from Digital. 4.1.1 For purposes of this Agreement, "Digital's Cost Center Charge" for any given Premises shall mean the cost of Digital's occupancy of a given Facility charged as an allocated cost item each month to each Digital cost center on a per square foot basis based on the amount of space allocated to the cost center in the Facility, determined in a manner consistent with Digital's past practices in determining such charge. Digital's Cost Center Charge generally consists of Digital's annual estimates of all costs of operating a Facility, including the costs of Facility management, depreciation of the building (or lease charges), utilities charges, etc. The number of square feet of each Premises for purposes of determining Digital's Cost Center Charge for any Premises hereunder shall be determined on the same basis that Digital uses to determine the number of square feet allocated to Digital's cost centers from time to time. -3- 4 4.1.2 Such payments shall be made monthly in arrears during the Term with respect to each Premises and such payment shall be delivered to the location designated by Digital from time to time for each Premises (or if no location is so designated, to the address for notices in this Agreement) and in the local currency of the country in which such Premises is located. 4.1.3 If the first or last months of any term of use are partial months, the monthly charge shall be prorated based upon the actual number of days in such partial month. 4.1.4 In the event any monthly payment is not received by Digital by the tenth day of the following month, ALTV shall make an additional payment to Digital equal to 5 % of said overdue monthly payment at the time of and in addition to the monthly payment as a late payment charge. 5. Use 5.1 ALTV specifically agrees that its right to use each of the Premises is limited to each of the Premises and the Common Areas in its existing condition "as-is" and "where-is" and acknowledges that, in entering into this Agreement, ALTV does not rely on, and, Digital does not make, any express or implied representations or warranties as to any matters including, without limitation, any characteristics of any of the Sites, Facilities or the Premises, the suitability of any of the Premises for ALTV's intended use, or the compliance or noncompliance of the Premises or the Sites, the Facilities or any use thereof with any Applicable Laws (as defined below). ALTV has inspected the Premises and has found it to be in satisfactory condition. 5.2 ALTV shall not make any alterations or improvements to any of the Premises whatsoever, including without limitation, placing any sign or identification of any kind whatsoever in or on any of the Facilities or Sites, without the prior written consent of Digital, which may be withheld in Digital's sole discretion, except that Digital's consent shall not be unreasonably withheld as to alterations or improvements that are not material and that are not inconsistent with Digital's local space allocation policies and interior decor. Failure of Digital's landlord to consent to or approve the alterations or improvements, where required by an underlying lease, shall be a reasonable grounds for Digital to withhold consent under this Section and Section 6.2. -4- 5 5.3 Digital reserves the right, at any time, and from time to time, to make alterations, additions, repairs or improvements to or in, or to decrease the size or area of all or any part of any Site or Facility, including, without limitation, building partitions around, and establishing separate access to, any of the Premises for security purposes, provided that any such alterations shall not materially and adversely affect ALTV's use of the Premises located therein and provided any alterations to any Facility which would materially affect ALTV's use of the Premises located therein shall not be made without reasonable notice to ALTV. 5.4 ALTV shall use each of the Premises only for general office and related incidental purposes for which they have historically been used by Digital and for no other use or purpose whatsoever. In no event shall ALTV use or permit the use of any of the Premises or the Common Areas for any purpose or use that is inconsistent with or interferes in any way with the conduct of other business operations in the respective Facilities or on the respective Sites. 5.5 ALTV shall be responsible for and shall supervise and control all of its officers, agents, employees, licensees, contractors, customers and other invitees (collectively "Personnel") so as to assure compliance with all of the terms and conditions of this Agreement. ALTV shall comply with all present and future security measures implemented by Digital in each of the Facilities, including, without limitation, prohibitions on access to certain Facilities and Premises to competitors of Digital. Without limitation of the foregoing, ALTV shall ensure that no Personnel enter onto an space other than the Premises or the Common Areas except with express written permission from Digital and in the company of an authorized Digital employee, that all Personnel comply with all Applicable Laws, and do not conduct any illegal activities or activities resulting in any nuisance or which may constitute harassment of any kind. All Personnel shall be clearly identified as affiliated with ALTV and ALTV shall require each person to comply with any applicable dress code and wear appropriate name badges or other easily visible identification approved by Digital at all times while on any of the Premises, Facilities and/or Sites. 6. Maintenance; Compliance with Laws, Rules and Regulations; Hazardous Materials 6.1 ALTV shall not cause or permit any damage to any of the Premises, Facilities or Sites and shall maintain each of the Premises in a clean, safe and sanitary condition, reasonable wear and tear associated with normal office usage excluded. ALTV shall not make any repairs to any of the Premises or Facilities, without the prior written consent of Digital, which may be withheld in Digital's sole discretion. If Digital determines that it is -5- 6 necessary to repair any damage attributable to ALTV's use, ALTV shall reimburse Digital for the cost of all such repairs within thirty (30) days of receipt by ALTV of an invoice from Digital. ALTV shall not permit or suffer any injury, waste or nuisance in or to any of the Premises, Facilities or Sites. 6.2 ALTV, at ALTV's sole cost and expense, shall comply in all material respects with all Applicable Laws relating to ALTV's use of each of the Premises provided that if structural or capital improvements are required, either Digital or ALTV may terminate this Agreement with respect to any such Premises. Notwithstanding the foregoing, ALTV shall not make any physical change to the Premises in order to comply with Applicable Laws without the prior written consent of Digital, which may be withheld in Digital's sole discretion, except that Digital's consent shall not be unreasonably withheld as to changes that are not structural or capital improvements and are required in order to comply with Applicable Laws. If Digital consents to any changes, at Digital's election, Digital may make such changes. As used herein, the term "Applicable Laws" means all applicable laws, codes, ordinances, rules and regulations of all foreign, federal, state, county, municipal or other governmental authorities or instrumentalities. 6.3 ALTV shall comply with the requirements of Digital's property, liability and workers compensation insurance carriers and all rules and regulations of the Facilities and/or the Sites as are established from time to time including, without limitation, all Facility and/or Site security procedures and requirements. 6.4 ALTV shall comply with all provisions of any underlying lease for any of the Premises that are leased and not owned by Digital, to the extent that such requirements are or have been communicated to ALTV employees. Either party may request that the other party enter into a specific sublease or similar arrangement with respect to any Premises and the parties shall negotiate in good faith such a sublease or other arrangement on terms customary for the location of the Premises and consistent with the terms of this Agreement. At the request of Digital, ALTV shall use diligent efforts to satisfy the requirements of any underlying lease with respect to ALTV's use of the Premises, including, but not limited to, executing and delivering such documents and taking such other actions as reasonably may be required by the landlord under the terms of any underlying lease (including terminating this Agreement with respect to the Premises and vacating the Premises, provided that Digital and ALTV will cooperate in good faith to vacate in a manner so as to minimize any disruption of ALTV's business and any cost to ALTV) or to prevent or cure a default -6- 7 under any underlying lease, as well as any other actions reasonably requested by Digital with respect thereto; 6.5 ALTV shall not cause or permit any Hazardous Material to be used, stored, discharged, released or disposed of in, from, under or about any of the Premises, Facilities or Sites. As used herein, the term "Hazardous Material" means any substance or material which has been determined by any applicable foreign, federal, state, county, municipal or other governmental authority to be capable of posing a risk of injury to health or safety or damage to the environment. ALTV shall not undertake any hazardous or other activity at any of the Premises which could result in an increase in Digital's insurance premiums. 7. Insurance; Condemnation. 7.1 At all times during ALTV's use of any of the Premises under this Agreement, ALTV shall procure at its cost and expense and keep in effect comprehensive general liability insurance, including contractual liability with a combined single limit of liability of not less than two million dollars ($2,000,000). 7.1.1 Such coverage shall be in a commercial or comprehensive general liability form with at least the following coverages: (i) including employees as additional insureds, and (ii) providing for blanket contractual coverage, broad form property damage coverage and products and completed operations coverage. Such coverage may be provided by a combination of primary and umbrella liability coverage. 7.1.2 Such insurance shall be issued by financially reputable insurance companies acceptable to Digital, shall name Digital as an additional insured, shall include contractual liability coverage insuring the liability assumed hereunder by ALTV, shall provide that it is primary insurance and not excess over or contributory with any other valid, existing and applicable insurance covering the same loss carried by Digital or any other party, shall provide for severability of interests, shall further provide that an act or omission of one of the named insureds which would void or otherwise reduce coverage shall not reduce or void the coverage as to any insured, shall afford coverage for all claims based on acts, omissions, injury or damage which occurred or arose (or the onset of which occurred or arose) in whole or in part during the policy period, and shall provide that Digital will receive thirty (30) days' written notice from the insurer prior to any cancellation or change of coverage. -7- 8 7.2 ALTV shall also maintain Worker's Compensation Insurance in the amounts and coverages required under worker's compensation, disability and similar employee benefit laws applicable to the states and countries where each of the Premises is located and Employer's Liability Insurance, with limits customary to the state or country where each Premises is located. 7.3 ALTV shall maintain automobile liability insurance in the amounts and coverages required by the states and countries where each of the Premises is located, with limits customary to the state or country where each Premises is located, for bodily injury and property damage combined. Coverage shall include owned (if any), leased (if any) and non-owned, hired automobiles. 7.4 ALTV shall bear all risk to its property at each of the Premises and may maintain at its sole expense such fire and other property insurance on the property of ALTV in the Facilities as it deems desirable for its protection. If any of the Premises or Facilities shall be damaged or destroyed by fire or any other casualty howsoever caused or by any other cause whatsoever, ALTV agrees to give prompt notice thereof to Digital. Digital shall have no obligation to ALTV whatsoever to repair any damage done to the Premises or the Facilities or replace any property of ALTV located therein. If a casualty occurs such that the underlying lease with respect to any Premises is terminated, by Digital or the landlord, or Digital otherwise elects to cease using the Facility as a result of the casualty, the provisions of Section 1. 2 above shall apply, and this Agreement shall terminate with respect to such Premises. If a casualty occurs such that ALTV's use of a Premises is materially adversely affected and the damage is not repaired within one hundred twenty (120) days, ALTV shall have the right to terminate this Agreement with respect to such Premises by written notice to Digital within thirty (30) days thereafter. 7.6 If all or any part of any of the Premises or Facilities or any material portion of any of the Sites shall be taken as a result of the exercise of the power of eminent domain or any transfer in lieu thereof, this Agreement shall terminate as to the property so taken as of the date of taking, and, in the case of a partial taking, either Digital or ALTV shall have the right to terminate this Agreement with respect to such Premises by written notice to the other within thirty (30) days after such date. 7.6.1 In the event of any taking, Digital shall be entitled to any and all compensation, damages, income, rent, awards, or any interest herein whatsoever which may be paid or made in connection therewith, and ALTV shall have no claim against Digital for the value of any -8- 9 unexpired term of this Agreement or otherwise; provided that Digital shall have no claim to any portion of the award that is specifically allocable to ALTV's relocation expenses or the interruption of or damage to ALTV's business. 7.6.2 In the event of a partial taking that does not result in a termination of this Agreement, the amount payable under Section 4 shall be proportionately reduced for such Premises. 8. Utilities and Services. 8.1 During the use by ALTV of any Premises in accordance with this Agreement, if Digital owns the Facility, subject to force majeure (including any cause beyond Digital's commercially reasonable control), Digital shall furnish to ALTV such services and utilities as are furnished currently at each such Premises, each in such amounts, on average, as have been customarily furnished to equivalent space in the respective Facilities, it being understood and agreed that Digital shall not be required to make any improvements to the respective Facilities or the Facilities systems or provide any greater services to the applicable Premises than the greater of such services as (a) are currently furnished or (b) Digital reasonably determines from time to time to be necessary or appropriate for the conduct of Digital's business in the respective Facilities. During the use by ALTV of any Premises in accordance with this Agreement, if Digital leases the Facility, Digital shall use reasonable efforts to cause the landlord of the leased Facility to furnish to or for the benefit of the Premises the services and utilities that the landlord is obligated to provide under the underlying lease, it being understood and agreed that Digital shall not be required to make any improvements or provide any services to these Premises. 8.2 ALTV's rights, if any, with respect to computers or networks available in the Facilities, shall be the subject of a separate agreement. The foregoing notwithstanding, ALTV shall not use any computer terminal in any of the Facilities other than those owned by ALTV unless with express written permission from Digital and in the company of an authorized Digital employee. Digital shall have no liability hereunder to ALTV for any computer crash, system programming error, virus or other hardware software malfunction of any kind which results in ALTV being unable to use any computer, network or system or which results in a loss of data or the destruction or degradation of any programs or source codes. 9. Termination. -9- 10 9.1 ALTV shall have the right to terminate this Agreement with respect to any of the Premises for any reason before the end of the respective term, the termination to be effective thirty (30) days after written notice of termination from ALTV is received by Digital. In the event of any such termination of this Agreement with respect to any such Premises by ALTV, ALTV's obligations to make payments to Digital pursuant to Section 4 hereof with respect to any such Premises which it will no longer use as of the effective date of termination shall cease as the last day of the month in which such effective date of termination occurred. 9.2 This Agreement will be subject to early termination by either ALTV or DIGITAL upon six months' written notice if Digital ceases to own shares of Common Stock representing more than 50% of the combined voting power of the Common Stock of ALTV. 9.3 If either ALTV or Digital shall default in the performance or observance of any material covenant or condition under this Agreement, the other party may give written notice to such defaulting party of its intent to terminate this Agreement, which notice shall be effective thirty (30) days after the date of such notice if such default remains uncured at the end of such thirty (30)-day period if the default by its nature can be cured within thirty (30) days, or, if the default by its nature cannot be cured within thirty (30) days, if such default remains uncured at the end of such longer period as may be required to cure the default, so long as the cure is commenced within the thirty (30) day period and thereafter diligently prosecuted to completion; provided, however, that if the notice is from Digital, the maximum cure period shall not in any event exceed whatever cure period may remain under the underlying lease for Digital to prevent or cure a default. Upon such termination, ALTV shall immediately vacate and surrender the Premises to Digital in accordance with Section 9.6 below. In the event of any such termination by ALTV, ALTV's right to terminate shall be ALTV's sole and exclusive remedy in the event of any default on the part of Digital hereunder, except as follows. If Digital fails to provide services or utilities to ALTV in a Facility owned by Digital pursuant to Section 8.1 or fails to use reasonable efforts to cause the landlord of a leased Facility to furnish to or for the benefit of the Premises the services and utilities that the landlord is obligated to provide under the underlying lease pursuant to Section 8. 1 and fails to cure any such default after notice within the cure period provided for above, ALTV shall be entitled to ALTV's actual damages for such default. 9.4 In addition to the foregoing rights to terminate, Digital shall be entitled to exercise all other rights and remedies under this Agreement and under Applicable Laws (which shall be cumulative and not exclusive), specifically including the right to summary dispossession of ALTV. -10- 11 9.5 Digital shall be entitled to perform any obligation of ALTV hereunder the performance of which is not commenced within five (5) business days after notice from Digital or which obligation is not thereafter diligently prosecuted to completion, and in such event ALTV shall reimburse Digital for all actual costs and expenses incurred by Digital in performing such obligation. 9.6 Upon the expiration or termination of this Agreement for whatever reason with respect to any of the Premises, ALTV shall surrender the applicable Premises to Digital in good order and repair, free and clear of all occupancies, liens and encumbrances and shall remove all of its personal property. 9.6.1 Any items of ALTV's personal property that remain on any Premises after the expiration or termination of this Agreement with respect to such Premises, may, at the option of Digital, be deemed abandoned, and, in such case, may either be retained by Digital as its property or disposed of, without accountability, at ALTV's expense in such manner as Digital may see fit. 9.6.2 ALTV shall not hold over beyond the expiration or termination of this Agreement with respect to any Premises without the express written consent of Digital. 9.7 ALTV's obligations under this Section 9 shall survive the expiration or termination of this Agreement. 10. Release. 10.1 ALTV acknowledges and agrees that, anything set forth in this Agreement to the contrary notwithstanding, other than the last sentence of Section 9.3, Digital shall not be responsible for or liable to ALTV and ALTV hereby waives and releases, to the fullest extent permitted by Applicable Laws, all claims against Digital for any injury, loss or damage to any person or property in or about the Premises, the Facilities or the Sites by or from any cause whatsoever including, without limitation, acts or omissions of persons using adjoining premises or any part of the Facilities or areas in the vicinity of the Premises, the Facilities or the Sites; theft; burst, stopped or leaking water, gas, sewer or steam pipes; or interruption or failure of utility or other services for, or existence of, gas, fire, oil or electricity in, on or about the Premises, the Facilities or the Sites. Further notwithstanding anything to the contrary set forth in this Agreement, in no event shall Digital be liable for any consequential damages, including -11- 12 without limitation, lost profits, lost opportunity or interference with ALTV's business, arising out of a breach of this Agreement. 10.2 ALTV agrees to indemnify, protect and defend Digital against, and save and hold Digital harmless from, any and all losses, costs, liabilities, claims, damages and expenses, including, without limitation, reasonable attorneys' fees and expenses, incurred in connection with any injury, loss or damage to any person or property arising from the use or occupancy or manner of use or occupancy of any of the Premises, the Facilities or the Sites by ALTV or ALTV's contractors, agents, servants, employees, visitors or licensees. This Section 10.2 shall survive expiration or termination of this Agreement. 12. Taxes. ALTV acknowledges and agrees that real and personal property taxes relating to the Premises will be paid as provided in the Services Agreement. ALTV shall pay all such taxes attributable to the Premises in accordance with the terms and conditions of the Services Agreement immediately upon request by ALTV, of a written statement from Digital detailing the cost thereof. 13. Miscellaneous. 13.1 This Agreement may not be amended except by an instrument in writing, executed by Digital and ALTV. 13.2 Whenever this Agreement requires or permits consent or agreement by or on behalf of any party hereto, such consent or agreement shall be given in writing. 13.3 ALTV's rights under this Agreement are personal to ALTV and ALTV shall not assign, sublet or otherwise transfer any right or interest under this Agreement to any other party. Subject to the foregoing, this Agreement and all of the provisions hereof shall be binding upon and inure to the benefit of, and be enforceable by, the parties hereto and their respective heirs, administrators, executors, successors, and permitted assigns. 13.4 This Agreement constitutes the entire agreement and understanding between the parties hereto with respect to the subject matter hereof and supersede all prior agreements, understandings or representations pertaining to the subject matter hereof. 13.5 Any notice hereunder by either party shall be given in writing and shall be sufficient in all respects if (i) delivered personally, (ii) mailed by registered or certified mail, return receipt requested and postage prepaid, (iii) sent via a nationally recognized overnight courier service, or (iv) sent -12- 13 via facsimile confirmed in writing to the recipient, in each case to the other party at its address set forth below or at such other address designated by notice in the manner provided in this subparagraph. Such notice shall be deemed to have been received upon the date of actual delivery if personally delivered or, in the case of mailing, five (5) business days after deposit in the mail, or, in the case of overnight courier, one business day after delivered to such courier, or, in the case of facsimile transmission, when confirmed by the facsimile machine report. If to Digital: Digital Equipment Corporation 111 Powdermill Road Maynard, MA 01754-1418 Attn: Paul J. Milbury, Treasurer Tel: (508) 493-7824 Fax: (508) 496-7419 EMAIL: Milbury@MSO.MTS.DEC.COM with a copy to: Digital Equipment Corporation Law Department 111 Powdermill Road Maynard, MA 01754-1418 Attn: Gail S. Mann, Vice President, Assistant General Counsel, Secretary and Clerk Tel: (508) 493-2206 Fax: (508) 493-7310 EMAIL: Gail.Mann@MSO.MTS.DEC.COM If to ALTV: AltaVista Internet Software, Inc. 30 Porter Road Littleton, MA 01460 Attn: Tel: Fax: EMAIL: with a copy to: -13- 14 13.6 This Agreement shall be governed by, and construed and enforced in accordance with the laws of the Commonwealth of Massachusetts, without regard for the conflict of laws provisions thereof. 13.7 Neither party is hereby designated or appointed an agent for the other and neither party shall have any authority, either express or implied, to assume any agency or obligation on behalf of or in the name of the other. 13.9 If a jurisdiction outside the United States in which a Premises is located requires that this Agreement be registered or filed with any governmental office in order for this Agreement to be enforceable against Digital in that jurisdiction, Digital shall not unreasonably refuse to cooperate with such filing or registration, provided that the registration or filing will not give rise to a default under an underlying lease or unreasonably increase the likelihood of an exercise of remedies for default under an underlying lease or create a cloud on title to any Site. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] -14- 15 IN WITNESS WHEREOF, this Facilities Agreement has been duly executed and delivered by the duly authorized officers of Digital and ALTV under seal as of the date first above written. DIGITAL EQUIPMENT CORPORATION By: ________________________________ Name: Title: ALTAVISTA INTERNET SOFTWARE, INC. By: ______________________________________ Name: Title: -15- 16 Schedule I Facility 30 Porter Road Littleton MA 1825 South Grant Avenue San Mateo, CA 130 Lytton Avenue Palo Alto, CA 529 Bryant Avenue Palo Alto, CA 250 University Avenue Palo Alto, CA Digital Equipment Co. Limited Digital Park Imperial Way Worton Grange Reading, Berkshire RG2 OTE United Kingdom Digital Equipment Corporation Research and Development Centre Burnet Place Bond Unviersity Quennsland, Australia 4229 -16- EX-10.3 8 FORM OF TAX-SHARING AGREEMENT 1 EXHIBIT 10.3 FORM OF TAX SHARING AGREEMENT This Tax Sharing Agreement ("Agreement") is entered into as of ____________, 1996 by and between AltaVista Internet Software, Inc., a Delaware corporation ("AltaVista"), and Digital Equipment Corporation, a Massachusetts corporation ("Digital"). RECITALS: WHEREAS, Digital is the common parent corporation of an affiliated group of corporations within the meaning of Section 1504(a) of the Internal Revenue Code of 1986, as amended (the "Code"); WHEREAS, Digital beneficially owns all of the issued and outstanding AltaVista Class B Common Stock, par value $.01 per share, and AltaVista is a member of Digital's consolidated group for federal income tax purposes; WHEREAS, the parties are contemplating the possibility that AltaVista will issue shares of Class A Common Stock, $.01 par value per share, to the public in an offering (the "Initial Public Offering") registered under the Securities Act of 1933, as amended; WHEREAS, the Digital Group (as defined below) has filed and intends to file consolidated federal income tax returns as permitted by Section 1501 of the Code, and certain members of the AltaVista Group (as defined below) and certain members of the Digital Sub-Group (as defined below) have filed and intend to file returns relating to Combined State Taxes (as defined below); WHEREAS, AltaVista desires to engage Digital to provide certain services, and Digital desires to provide certain services, relating to federal, state, local and foreign taxes; and WHEREAS, Digital and AltaVista desire to agree upon a method for determining the financial consequences to each party and their subsidiaries resulting from the filing of a consolidated federal income tax return and the filing of returns relating to Combined State Taxes. 2 -2- AGREEMENTS: NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Digital and AltaVista, for themselves, their successors, and assigns, hereby agree as follows: ARTICLE I DEFINITIONS 1.1 Definitions. For purposes of this Agreement, the terms set forth below shall have the following meanings. "AltaVista Combined State Tax Liability" shall mean, with respect to any taxable year and any jurisdiction, an amount of Combined State Taxes determined in accordance with the principles set forth in the definition of AltaVista Federal Tax Liability; provided, however, that the total amount of the AltaVista Combined State Tax Liability shall also include, to the extent not included after application of the principles set forth in the definition of AltaVista Federal Tax Liability, any actual income, franchise or similar state or local tax liability (a "State Liability") owed in a jurisdiction (a "Combined Jurisdiction") in which a member of the AltaVista Group files tax returns with a member of the Digital Sub-Group, on a consolidated, combined or unitary basis, to the extent the Combined State Tax liability exceeds the amount of such liability that would have been owed had no member of the AltaVista Group been included in such returns. "AltaVista Federal Tax Liability" shall mean, with respect to any taxable year, the sum of the AltaVista Group's Federal Tax liability and any interest, penalties and other additions to such taxes for such taxable year, computed as if the AltaVista Group were not and never were part of the Digital Group, but rather were a separate affiliated group of corporations filing a consolidated federal income tax return pursuant to Section 1501 of the Code; provided, however, that transactions with members of the Digital Sub-Group shall be reflected according to the provisions of the consolidated return regulations promulgated under the Code governing intercompany transactions, and that Deconsolidation will trigger any deferred amounts, excess loss accounts or similar items. Such computation shall be made (A) without regard to the income, deductions (including net operating loss and capital loss deductions) and credits in any year of any member of the Digital Group that is not a member of the AltaVista Group, (B) by taking account of any Tax Asset of the AltaVista Group other than (I) any such Tax Asset that produces a Tax Savings to Digital in accordance with Section 2.1(c)(iii) hereof and (II) any such Tax Asset from a tax period (or portion thereof) ending on or before the date of the Initial Public Offering and arising solely due to treating the AltaVista Group as if it were never part of Digital Group, (C) as though the highest rate of tax specified in subsection (b) of Section 11 of the Code (or any other similar rates applicable to specific types of income) were the only rate set forth in that subsection, and with other similar adjustments as described in Section 1561 of the Code, (D) reflecting the positions, elections and accounting methods used by Digital in preparing the consolidated federal income tax return for the Digital Group and (E) by not permitting the AltaVista Group any compensation deductions arising in respect of the issuance by Digital of Digital stock to any employee of the AltaVista Group. 3 -3- "AltaVista Group" shall mean, at any time, AltaVista and any direct or indirect corporate subsidiaries of AltaVista that would be eligible to join with AltaVista, with respect to Federal Taxes, in the filing of a consolidated federal income tax return and, with respect to Combined State Taxes, in the filing of a consolidated, combined or unitary income or franchise tax return if AltaVista were not consolidated, combined or filing on a unitary basis with any member of Digital Sub-Group. "Combined State Tax" means, with respect to each state or local taxing jurisdiction, any income, franchise or similar tax payable to such state or local taxing jurisdiction in which a member of the AltaVista Group files tax returns with a member of the Digital Sub-Group, on a consolidated, combined or unitary basis for purposes of such income or franchise tax. "Deconsolidation" means any event pursuant to which AltaVista ceases to be a subsidiary corporation includible in a consolidated tax return of the Digital Group for Federal Tax purposes. "Digital Group" shall mean, at any time, Digital and each direct and indirect corporate subsidiary eligible to join with Digital in the filing of a consolidated federal income tax return. "Digital Sub-Group" shall mean, at any time, Digital and each of its direct and indirect corporate subsidiaries other than those subsidiaries that are members of the AltaVista Group. "Federal Tax" means any tax imposed under Subtitle A of the Code. "Final Determination" shall mean (i) with respect to Federal Taxes, a "determination" as defined in Section 1313(a) of the Code or execution of an Internal Revenue Service Form 870AD and, with respect to taxes other than Federal Taxes, any final determination of liability in respect of a tax that, under applicable law, is not subject to further appeal, review or modification through proceedings or otherwise, (ii) any final disposition of a tax issue by reason of the expiration of a statute of limitations or (iii) the payment of tax by Digital with respect to any item disallowed or adjusted by any taxing authority where Digital determines in good faith that no action should be taken to recoup such payment. "Post-Deconsolidation Tax Period" means (i) any tax period beginning and ending after the date of Deconsolidation and (ii) with respect to a tax period that begins before and ends after the date of Deconsolidation, such portion of the tax period that commences on the day immediately after the date of Deconsolidation. "Pre-Deconsolidation Tax Period" means (i) any tax period beginning and ending before or on the date of Deconsolidation and (ii) with respect to a period that begins before and ends after the date of Deconsolidation, such portion of the tax period ending on and including the date of Deconsolidation. 4 -4- "Tax Asset" means any net operating loss, net capital loss, investment tax credit, foreign tax credit, charitable deduction or any other deduction, credit or tax attribute which could reduce taxes (including, without limitation, deductions and credits related to alternative minimum taxes). "Tax Savings" means the actual amount of reduction in taxes payable (including refunds actually received) to a taxing authority with respect to a tax period as a result of a Tax Asset as compared to the taxes that would have been payable to a taxing authority for that tax period in the absence of such Tax Asset; provided, however, Tax Savings shall not include any reduction in alternative minimum tax. 1.2 Internal References. Unless the context indicates otherwise, references to Articles, Sections and paragraphs shall refer to the corresponding articles, sections and paragraphs in this Agreement and references to the parties shall mean the parties to this Agreement. ARTICLE II TAX SHARING 2.1 Tax Sharing. (a) General. For each taxable year of the Digital Group during which income, loss, or credit against tax of the AltaVista Group are includible in the consolidated Federal Tax return of the Digital Group, AltaVista shall pay to Digital an amount equal to the AltaVista Federal Tax Liability and for each taxable period during which income, loss or credit against tax of any member of the AltaVista Group are includible in a return relating to a Combined State Tax, AltaVista shall pay Digital an amount equal to the AltaVista Combined State Tax Liability for such taxable period, each as shown on the Pro Forma Returns (as defined in paragraph (c) below). (b) Estimated Payments. For each taxable period, Digital may determine the amount of the estimated tax installment of the AltaVista Federal Tax Liability (corresponding to Digital's estimated Federal Tax installment), as determined under the principles of Section 2.1(a) of this Agreement. If Digital makes such a determination, AltaVista shall, within five (5) days of receipt of such determination, pay to Digital the amount so determined. For each taxable period, Digital may determine under provisions of applicable law the amount of the estimated tax installment of the AltaVista Combined State Tax Liability (corresponding to the relevant estimated Combined State Tax installment), as determined under the principles of Section 2.1(a) of this Agreement. If Digital makes such a determination, AltaVista shall, within five (5) days of receipt of such determination, pay to Digital the amount so determined. (c) Payment of Taxes at Year-End. (i) Within thirty (30) days after the date the Digital Group's consolidated Federal Tax return is filed, Digital shall make available to AltaVista a pro forma Federal Tax return (a "Pro Forma Federal Return") of the AltaVista Group reflecting the AltaVista Federal Tax Liability. Within thirty (30) days after the date the last Combined State Tax return is filed for the fiscal year to which such returns relate, 5 -5- Digital shall make available to AltaVista the relevant pro forma Combined State Tax Returns (each a "Pro Forma Combined State Return" and together with the Pro Forma Federal Return, the "Pro Forma Returns") of the AltaVista Group reflecting the relevant AltaVista Combined State Tax Liability. The Pro Forma Returns shall be prepared in good faith in a manner generally consistent with past practice. (ii) Within five (5) days of receipt of the Pro Forma Federal Return, AltaVista shall pay to Digital, or Digital shall pay to AltaVista, as appropriate, an amount equal to the difference, if any, between the AltaVista Federal Tax Liability reflected on the Pro Forma Federal Return for such year and the aggregate amount of the estimated installments of the AltaVista Federal Tax Liability for such year made pursuant to Section 2.1(b). Within five (5) days of receipt of the Pro Forma Combined State Return, AltaVista shall pay to Digital, or Digital shall pay to AltaVista, as appropriate, an amount equal to the difference, if any, between the AltaVista Combined State Tax Liability reflected on the relevant Pro Forma Combined State Tax Return and the aggregate amount of the estimated installments paid with respect to the corresponding AltaVista Combined State Tax Liability pursuant to Section 2.1(b). (iii) If a Pro Forma Return reflects a Tax Asset that, under applicable law and consistent with this Agreement, produces a Tax Savings for any member of the Digital Sub-Group, Digital shall pay to AltaVista an amount equal to the Tax Saving attributable to such Tax Asset, if and when realized by Digital, and the future Pro Forma Returns of the AltaVista Group shall be adjusted to reflect such use. (iv) In the event that Digital makes a cash deposit with a taxing authority in order to stop the running of interest or makes a payment of tax and correspondingly takes action to recoup such payment (such as suing for a refund), AltaVista shall pay to Digital an amount equal to AltaVista's share of the amount so deposited or paid (calculated in a manner consistent with the determinations provided in this Article 2). Upon receipt by Digital of a refund of any amounts paid by it in respect of which AltaVista shall have advanced an amount hereunder, Digital shall pay to AltaVista the amount of such refund, together with any interest received by it on such refund. If and to the extent that any claim for refund or contest based thereupon shall be unsuccessful, the payment by AltaVista under Section 2.1(c)(iv) shall be credited toward AltaVista's obligations under this Section 2(c)(iv) and any other payment obligation of AltaVista under Section 2(d) below. (d) Treatment of Adjustments. If any adjustment is made in a Federal Tax return of the Digital Group or in a return relating to a Combined State Tax, after the filing thereof, in which income or loss of the AltaVista Group (or any member thereof) is included, then at the time of a Final Determination of the adjustment, AltaVista shall pay to Digital or Digital shall pay to AltaVista, as the case may be, the difference between all payments actually made under Section 2.1 with respect to the taxable year or period covered by such tax return and all payments that would have been made under Section 2.1 taking such adjustment into account, together with any penalties actually paid and interest for each day until the date of Final 6 -6- Determination calculated at the rate determined, in the case of a payment by AltaVista, under Section 6621(a)(2) of the Code and, in the case of a payment by Digital, under Section 6621(a)(1) of the Code. (e) Preparation of Returns and Contests. So long as the Digital Group elects to file (i) consolidated Federal Tax returns as permitted by Section 1501 of the Code or (ii) any Combined State Tax return as permitted by applicable state law, AltaVista shall consent to the filing of such returns with Digital. Digital shall prepare and file such returns and any other returns, documents or statements required to be filed with the Internal Revenue Service with respect to the determination of the Federal Tax liability of the Digital Group and with the appropriate taxing authorities with respect to the determination of a Combined State Tax liability. With respect to such return preparation, Digital shall act in good faith with regard to all members included in an applicable return. Digital shall have the right with respect to any consolidated Federal Tax returns or returns relating to a Combined State Tax that it has filed or will file to determine in good faith (i) the manner in which such returns, documents or statements shall be prepared and filed, including, without limitation, the manner in which any item of income, gain, loss, deduction or credit shall be reported, (ii) whether any extensions should be requested, and (iii) the elections that will be made by any member of the Digital Group. In addition, Digital shall have the right, in good faith, to (i) contest, compromise or settle any adjustment or deficiency proposed, asserted or assessed as a result of any audit of any Federal Tax return or return relating to a Combined State Tax, (ii) file, prosecute, compromise or settle any claim for refund, and (iii) determine whether any refunds shall be received by way of refund or credited against tax liabilities. In addition, Digital shall prepare and file ruling requests, and take all other actions on behalf of any member of the Digital Group that it deems appropriate in providing tax services to the members of the Digital Group. Digital shall, to the extent such information is available, advise AltaVista of any significant AltaVista tax issue being contested by the federal, state, local or other relevant taxing authorities, and shall keep AltaVista informed with respect to any contest, compromise or settlement thereof. (f) Foreign Tax Returns. AltaVista shall not be required to consent to the filing of any foreign tax return to be filed on a combined, consolidated or unitary basis with the Digital Sub-Group unless and until this Agreement is modified to take into account the allocation of such foreign tax liability between the Digital Sub-Group and the AltaVista Group. The allocation of such foreign tax liability shall be in accordance with the principles set forth in this Agreement. 2.2 Reimbursement for Certain Services. Digital shall provide services in connection with this Agreement, including but not limited to, (i) those services relating to the preparation of returns (including Pro Forma Returns) described in paragraphs 2.1(b), 2.1(c) and 2.1(e) and (ii) services relating to the other activities described in paragraph 2.1(e). As compensation for these services, AltaVista shall pay Digital a fee calculated on a basis such that Digital is reimbursed for all direct and indirect costs and expenses incurred with respect to AltaVista's share of the overall costs and expenses incurred by Digital with respect to tax related services. Digital shall calculate the fee payable, invoice AltaVista for the fee and AltaVista will pay the 7 -7- invoiced amount in a manner consistent with the invoice and payment procedures provided for in the intercompany Services Agreement. 2.3 Additional Services. Digital will provide the tax services described in this Article II with respect to all of the separate state, local and foreign taxes of any members of the AltaVista Group that do not relate to consolidated Federal Taxes or Combined State Taxes. Digital will provide these services in a manner consistent with the principles contained in Article II and be compensated in the same manner as described in Section 2.2. ARTICLE III POST-DECONSOLIDATION 3.1. Additional Rights and Liabilities Post-Deconsolidation. (a) AltaVista covenants that on or after a Deconsolidation it will not, nor will it cause or permit any member of the AltaVista Group to make or change any tax election, change any accounting method, amend any tax return or take any tax position on any tax return, take any other action, omit to take any action or enter into any transaction that results in any increased tax liability or reduction of any Tax Asset of the Digital Group or any member thereof (immediately after the Deconsolidation) in respect of any Pre-Deconsolidation Tax Period, without first obtaining the written consent of an authorized representative of Digital. (b) In the event of a Deconsolidation, Digital may, at its option, elect, and AltaVista shall join Digital in electing (if necessary), (i) to reattribute to itself certain Tax Assets of the AltaVista Group pursuant to Treasury Regulations Section 1.1502-20(g) and, if Digital makes such election, AltaVista shall comply with the requirements of Treasury Regulations Section 1.1502-20(g)(5)), and (ii) to ratably allocate items (other than extraordinary items) of the AltaVista Group in accordance with relevant provisions of the Treasury Regulations Section 1.1502-76. (c) Digital agrees to pay to AltaVista the Tax Savings received by the Digital Group from the use in any Pre-Deconsolidation Tax Period of a carryback of any Tax Asset of the AltaVista Group from a Post-Deconsolidation Tax Period, if and when such Tax Savings are realized. (d) Any amounts owed by Digital to AltaVista pursuant to Section 3.1(c) shall be paid within 90 days of the filing of the applicable tax return for the taxable year in which such Tax Savings are realized. If, subsequent to the payment by Digital to AltaVista of any such amount, there shall be (A) a Final Determination which results in a disallowance or a reduction of any Tax Asset of AltaVista or (B) a reduction in the amount of the Tax Savings realized by the Digital Group as a result of any other Tax Asset of Digital that arises in a Post-Deconsolidation Tax Period, AltaVista shall repay to Digital, within 90 days of such event described in (A) or (B) (an "Event" or, collectively, the "Events") any amount which would not have been payable to AltaVista pursuant to this Section 3.1 had the amount of the Tax Savings calculated in Sections 8 -8- 3.1(c) been determined in light of the Events. AltaVista shall hold Digital harmless for any penalty or interest payable by any member of the Digital Group, as a result of any Event. Any such amount shall be paid by AltaVista to Digital within 90 days of the payment by Digital or any member of the Digital Group of any such interest or penalty. Nothing in this Agreement shall require Digital to file a claim for refund of Federal Taxes or Combined State Taxes which Digital, in its sole discretion, determines lacks substantial authority, as defined in the Code and the regulations thereunder. ARTICLE IV MISCELLANEOUS 4.1. Limitation of Liability. Neither Digital nor AltaVista shall be liable to the other for any special, indirect, incidental or consequential damages of the other arising in connection with this Agreement; provided, however, that in the event that (i) the Internal Revenue Service (or other competent taxing authority) asserts a tax liability directly against AltaVista or any member of the AltaVista Group, pursuant to its authority under Treasury Regulation Section 1.1502-6 (or other similar provision of state or local law), (ii) AltaVista has made all payments and performed all of its obligations otherwise required of it under this Agreement with respect to such liability or otherwise, and (iii) Digital was given the opportunity to contest, settle or compromise such liability pursuant to Section 2.1(e) of this Agreement, Digital shall indemnify AltaVista for actual payments made after a Final Determination with respect to such liability to the extent that such payments exceed AltaVista's share of such liability (calculated in a manner that avoids double-counting under this Agreement), such share determined in accordance with Article II of this Agreement. 4.2. Subsidiaries. (a) Performance. Digital agrees and acknowledges that Digital shall be responsible for the performance of the obligations of each member of the Digital Sub-Group hereunder applicable to such subsidiary. AltaVista agrees and acknowledges that AltaVista shall be responsible for the performance by each member of the AltaVista Group of the obligations hereunder applicable to such member. (b) Application to Present and Future Subsidiaries. This Agreement is being entered into by Digital and AltaVista on behalf of themselves and each member of the Digital Sub-Group and the AltaVista Group, respectively. This Agreement shall constitute a direct obligation of each such member and shall be deemed to have been readopted and affirmed on behalf of any corporation which becomes a member of the Digital Sub-Group or the AltaVista Group in the future. 4.3. Cooperation. Digital and AltaVista shall cooperate fully in the implementation of this Agreement, including but not limited to, providing promptly to the requesting party such assistance and documentation as may be reasonably requested by such party in connection with any of the activities described in Article II or Article III. In addition, Digital and AltaVista shall retain all relevant tax records for relevant open periods in accordance with past practice. 9 -9- 4.4 Agent. Each member of the AltaVista Group hereby irrevocably appoints Digital as its agent and attorney-in-fact to take any action as Digital may deem necessary or appropriate to effect Section 2.1 including, without limitation, those actions specified in Treasury Regulation Section 1.1502-77(a). 4.5. Amendments. This Agreement may not be amended or terminated orally, but only by a writing duly executed by or on behalf of the parties hereto. Any such amendment shall be validly and sufficiently authorized for purposes of this Agreement if it is signed on behalf of Digital and AltaVista by any of their respective presidents or vice presidents. 4.6. Term. Subject to Article III, this Agreement shall expire upon the date of Deconsolidation with respect to all Post-Deconsolidation periods; provided, however, that all rights and obligations arising hereunder with respect to a Pre-Deconsolidation Tax Period shall survive until they are fully effectuated or performed and, provided, further, that notwithstanding anything in this Agreement to the contrary, all rights and obligations arising hereunder with respect to a Post-Deconsolidation Tax Period shall remain in effect and its provisions shall survive for the full period of all applicable statutes of limitation (giving effect to any extension, waiver or mitigation thereof). 4.7. Effective Date. This Agreement shall be effective as of the date that the Initial Public Offering is consummated ("effective date"), shall govern all open taxable periods and shall supersede all prior agreements as to the allocation of federal income tax liability between the parties to this Agreement for all such open taxable years and for all subsequent taxable years. As of the effective date, all such prior agreements are hereby canceled with respect to members of the AltaVista Group. 4.8. Severability. If any provision of this Agreement or the application of any such provision to any party or circumstances shall be determined by any court of competent jurisdiction to be invalid, illegal or unenforceable to any extent, the remainder of this Agreement or such provision or the application of such provision to such party or circumstances, other than those to which it is so determined to be invalid, illegal or unenforceable, shall remain in full force and effect to the fullest extent permitted by law and shall not be affected thereby, unless such a construction would be unreasonable. 4.9. Notices. All notices and other communications required or permitted hereunder shall be in writing, shall be deemed duly given upon actual receipt, and shall be delivered (a) in person, (b) by registered or certified mail, postage prepaid, return receipt requested, or (c) by facsimile or other generally accepted means of electronic transmission (provided that a copy of any notice delivered pursuant to this clause (c) shall also be sent pursuant to clause (b), addressed as follows: (a) If to AltaVista, to: AltaVista Internet Software, Inc. 30 Porter Road 10 -10- Littleton, MA 01460 Attention: Chief Financial Officer Fax: 617- (b) If to Digital, to: Digital Equipment Corporation 111 Powdermill Road Maynard, MA 01754-1418 Attention: Treasurer Fax: 617- or to such other addresses or telecopy numbers as may be specified by like notice to the other parties. 4.10. Further Assurances. Digital and AltaVista shall execute, acknowledge and deliver, or cause to be executed, acknowledged and delivered, such instruments and take such other action as may be necessary or advisable to carry out their obligations under this Agreement and under any exhibit, document or other instrument delivered pursuant hereto. 4.11 Entire Agreement. This Agreement constitutes the entire understanding of the parties hereto with respect to the subject matter hereof. 4.12. Successors. This agreement shall be binding on and inure to the benefit of any successor, by merger, acquisition of assets or otherwise, to any of the parties hereto (including but not limited to any successor of Digital and AltaVista succeeding to the tax attributes of such party under Section 381 of the Code), to the same extent as if such successor had been an original party hereto. 4.13. Authorization, etc. Each of the parties hereto hereby represents and warrants that it has the power and authority to execute, deliver and perform this Agreement, that this Agreement has been duly authorized by all necessary corporate action on the part of such party that this Agreement constitutes a legal, valid and binding obligation of each such party and that the execution, delivery and performance of this Agreement by such party does not contravene or conflict with any provision of law or of its charter or bylaws or any agreement, instrument or order binding on such party. 4.14. Section Captions. Section captions used in this Agreement are for convenience and reference only and shall not affect the construction of this Agreement. 4.15. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS WITHOUT GIVING EFFECT TO LAWS AND PRINCIPLES RELATING TO CONFLICTS OF LAW. 11 -11- 4.16. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same Agreement. IN WITNESS WHEREOF, each of the parties hereto has caused this agreement to be executed by a duly authorized officer as of the date first above written. ALTAVISTA INTERNET SOFTWARE, INC. By:________________________________ Name: Title: DIGITAL EQUIPMENT CORPORATION By:________________________________ Name: Title: EX-10.4 9 FORM OF CORPORATE AGREEMENT 1 EXHIBIT 10.4 FORM OF CORPORATE AGREEMENT This Corporate Agreement ("Agreement") is entered into as of ________, 1996, by and between AltaVista Internet Software, Inc., a Delaware corporation ("AltaVista"), and Digital Equipment Corporation, a Massachusetts corporation ("Digital"). RECITALS: WHEREAS, Digital beneficially owns all of the issued and outstanding AltaVista Class B Common Stock, par value $0.01 per share ("Class B Common Stock"), and AltaVista is a member of Digital's "affiliated group" of corporations ("Digital Group") for federal income tax and certain state tax purposes; WHEREAS, AltaVista issued shares of Class A Common Stock, $0.01 par value per share ("Class A Common Stock"), to the public in an offering (the "Initial Public Offering") registered under the Securities Act of 1933, as amended; and WHEREAS, the parties desires to enter into this Agreement to set forth their agreement regarding (i) Digital's rights to purchase additional shares of Class B Common Stock to permit Digital to maintain its then current percentage ownership interest in AltaVista, (ii) Digital's rights to purchase shares of non-voting classes of capital stock of AltaVista to permit Digital to own 80 percent of the number of shares of each class of such stock outstanding, (iii) certain registration rights with respect to Class B Common Stock (and any other securities issued in respect thereof or in exchange therefor) and (iv) certain representations, warranties, covenants and agreements applicable to AltaVista so long as it is a subsidiary of Digital. AGREEMENTS: NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Digital and AltaVista, for themselves, their successors and assigns, hereby agree as follows: ARTICLE I DEFINITIONS 1.1 Definitions. As used in this Agreement, the following terms will have the following meanings, applicable both to the singular and the plural forms of the terms described: "Affiliate" means, with respect to any Person, any Person controlling, controlled by or under common control with such Person. For purposes of this definition, "control" (including, with correlative meanings, the terms "controlled by" and "under common control 2 -2- with"), as applied to any Person, means the possession, directly or indirectly, of the power to vote a majority of the securities having voting power for the election of directors (or other Persons acting in similar capacities) of such Person or otherwise to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise. "Agreement" has the meaning ascribed thereto in the preamble hereto, as such agreement may be amended and supplemented from time to time in accordance with its terms. "AltaVista" has the meaning ascribed thereto in the preamble hereto. "AltaVista Entities" means AltaVista and its Subsidiaries and "AltaVista Entity" shall mean any of the AltaVista Entities. "Applicable Stock" means at any time the (i) shares of Class B Common Stock owned by the Digital Entities that were owned on the date hereof, plus (ii) shares of Class B Common Stock owned by the Digital Entities that were purchased by the Digital Entities pursuant to Article II of this Agreement, plus (iii) shares of Common Stock that were issued to the Digital Entities in respect of shares described in either clause (i) or clause (ii) in any reclassification, share combination, share subdivision, share dividend, share exchange, merger, consolidation or similar transaction or event. "Class A Common Stock" has the meaning ascribed thereto in the recitals to this Agreement. "Class B Common Stock" has the meaning ascribed thereto in the recitals to this Agreement. "Class B Common Stock Option" has the meaning ascribed thereto in Section 2.1(a). "Class B Common Stock Option Notice" has the meaning ascribed thereto in Section 2.2. "Common Stock" means the Class B Common Stock, the Class A Common Stock, any other class of AltaVista capital stock having the right to vote generally for the election of directors or otherwise treated as a class of stock entitled to vote for purposes of Section 368(c) of the Internal Revenue Code of 1986, as amended (the "Code"), and, for so long as AltaVista continues to be a subsidiary corporation includible in a consolidated federal income tax return of the Digital Group, any other security of AltaVista treated as voting stock for purposes of Section 1504 of the Code. "Company Securities" has the meaning ascribed thereto in Section 3.2(b). "Digital" has the meaning ascribed thereto in the preamble hereto. 3 -3- "Digital Entities" means Digital and Subsidiaries of Digital (other than AltaVista) and "Digital Entity" shall mean any of the Digital Entities. "Digital Group" has the meaning ascribed thereto in the recitals to this Agreement. "Digital Ownership Reduction" means any decrease at any time in the Ownership Percentage to less than 50%. "Digital Transferee" has the meaning ascribed thereto in Section 3.9. "Disadvantageous Condition" has the meaning ascribed thereto in Section 3.1(a). "Holder" means Digital and any Transferee. "Holder Securities" has the meaning ascribed thereto in Section 3.2(b). "Initial Public Offering" has the meaning ascribed thereto in the recitals to this Agreement. "Initial Public Offering Date" means the date of completion of the initial sale of Class A Common Stock in the Initial Public Offering. "Issuance Event" has the meaning ascribed thereto in Section 2.2. "Issuance Event Date" has the meaning ascribed thereto in Section 2.2. "Market Price" of any shares of Class A Common Stock on any date means (i) the average of the last sale price of such shares on each of the five trading days on the principal national securities exchange or automated interdealer quotation system on which such shares are traded or (ii) if such sale prices are unavailable or such shares are not so traded, the value of such shares on such date determined in accordance with agreed-upon procedures reasonably satisfactory to AltaVista and Digital. "Nonvoting Stock" means any class of AltaVista capital stock not having the right to vote generally for the election of directors or not treated as a class of stock entitled to vote within the meaning of Section 368(c) of the Code, or, for so long as AltaVista continues to be a subsidiary corporation includible in a consolidated federal income tax return of the Digital Group, any other security of AltaVista treated as stock other than voting stock for purposes of Section 1504 of the Code. "Nonvoting Stock Option" has the meaning ascribed thereto in Section 2.1(b). "Other Holders" has the meaning ascribed thereto in Section 3.2(c). 4 -4- "Other Securities" has the meaning ascribed thereto in Section 3.2. "Ownership Percentage" means, at any time, the fraction, expressed as a percentage and rounded to the next highest thousandth of a percent, whose numerator is the aggregate value of the Applicable Stock and whose denominator is the sum of the aggregate Value of the then outstanding shares of Common Stock of AltaVista plus Repurchased Shares; provided, however, that any shares of Common Stock issued by AltaVista in violation of its obligations under Article II of this Agreement shall not be deemed outstanding for the purpose of determining the Ownership Percentage. For purposes of this definition and the definition of Repurchased Shares, "Value" means, with respect to any share of stock, the value of such share determined by Digital under principles applicable for purposes of Section 1504 of the Code. "Person" means any individual, partnership, limited liability company, joint venture, corporation, trust, unincorporated organization, government (and any department or agency thereof) or other entity. "Registrable Securities" means Class B Common Stock and any stock or other securities into which or for which such Class B Common Stock may hereafter be changed, converted or exchanged and any other shares or securities issued to Holders of such Class B Common Stock (or such shares or other securities into which or for which such shares are so changed, converted or exchanged) upon any reclassification, share combination, share subdivision, share dividend, share exchange, merger, consolidation or similar transaction or event or pursuant to the Nonvoting Stock Option. As to any particular Registrable Securities, such Registrable Securities shall cease to be Registrable Securities when (i) a registration statement with respect to the sale by the Holder thereof shall have been declared effective under the Securities Act and such securities shall have been disposed of in accordance with such registration statement, (ii) they shall have been sold in accordance with Rule 144, (iii) subsequent disposition of them in any manner shall not require registration or qualification of them under the Securities Act or any state securities or blue sky law then in effect or (iv) they shall have ceased to be outstanding. "Registration Expenses" means any and all expenses incident to performance of or compliance with any registration of securities pursuant to Article III, including, without limitation, (i) the fees, disbursements and expenses of AltaVista's counsel and accountants and the reasonable fees and expenses of counsel selected by the Holders in accordance with this Agreement in connection with the registration of the securities to be disposed of; (ii) all expenses, including filing fees, in connection with the preparation, printing and filing of the registration statement, any preliminary prospectus or final prospectus, any other offering document and amendments and supplements thereto and the mailing and delivering of copies thereof to any underwriters and dealers; (iii) the cost of printing or producing any agreements among underwriters, underwriting agreements, and blue sky or legal investment memoranda, any selling agreements and any other documents in connection with the offering, sale or delivery of the securities to be disposed of; (iv) all expenses in connection with the qualification of the securities to be disposed of for offering and sale under state securities laws, including the fees 5 -5- and disbursements of counsel for the underwriters or the Holders of securities in connection with such qualification and in connection with any blue sky and legal investment surveys; (v) the filing fees incident to securing any required review by the National Association of Securities Dealers, Inc. of the terms of the sale of the securities to be disposed of; (vi) transfer agents' and registrars' fees and expenses and the fees and expenses of any other agent or trustee appointed in connection with such offering; (vii) all security engraving and security printing expenses; (viii) all fees and expenses payable in connection with the listing of the securities on any securities exchange or automated interdealer quotation system or the rating of such securities; (ix) any other fees and disbursements of underwriters customarily paid by the issuers of securities, but excluding underwriting discounts and commissions and transfer taxes, if any; and (x) other reasonable out-of-pocket expenses of Holders other than legal fees and expenses referred to in clause (i) and (iv) above. "Repurchased Shares" mean the aggregate Value of shares of AltaVista's Common Stock that are, from and after the date hereof, repurchased by AltaVista from its stockholders, less the aggregate Value of shares of Common Stock (up to the aggregate Value so repurchased) that are re-issued from and after the date hereof upon the exercise of stock options or otherwise. "Rule 144" means Rule 144 (or any successor rule to similar effect) promulgated under the Securities Act. "Rule 415 Offering" means an offering on a delayed or continuous basis pursuant to Rule 415 (or any successor rule to similar effect) promulgated under the Securities Act. "SEC" means the United States Securities and Exchange Commission. "Securities Act" means the Securities Act of 1933, as amended, or any successor statute. "Selling Holder" has the meaning ascribed thereto in Section 3.4(e). "Subsidiary" means, as to any Person, any corporation, association, limited liability company, partnership, joint venture or other business entity of which more than 50% of the voting capital stock or other voting ownership interests is owned or controlled directly or indirectly by such Person or by one or more of the Subsidiaries of such Person or by a combination thereof. "Transferee" has the meaning ascribed thereto in Section 3.9. 1.2 Internal References. Unless the context indicates otherwise, references to Articles, Sections and paragraphs shall refer to the corresponding articles, sections and paragraphs in this Agreement, and references to the parties shall mean the parties to this Agreement. 6 -6- ARTICLE II OPTIONS 2.1 Options. (a) AltaVista hereby grants to Digital, on the terms and conditions set forth herein, a continuing right (the "Class B Common Stock Option") to purchase from AltaVista, at the times set forth herein, such number of shares of Class B Common Stock as is necessary to allow the Digital Entities to maintain the then-current Ownership Percentage. The Class B Common Stock Option shall be assignable, in whole or in part and from time to time, by Digital to any Digital Entity. The per share exercise price for the shares of Class B Common Stock purchased pursuant to the Class B Common Stock Option shall be the Market Price of a share of Class A Common Stock as of the date of first delivery of notice of exercise of the Class B Common Stock Option by Digital (or its permitted assignee hereunder) to AltaVista. (b) AltaVista hereby grants to Digital, on the terms and conditions set forth herein, a continuing right (the "Nonvoting Stock Option" and, together with the Class B Common Stock Option, the "Options") to purchase from AltaVista, at the times set forth herein, such number of shares of Nonvoting Stock as is necessary to allow the Digital Entities to own 80 percent of the total number of shares of each class of outstanding Nonvoting Stock. The Nonvoting Stock Option shall be assignable, in whole or in part and from time to time, by Digital to any Digital Entity. The per share exercise price for the shares of Nonvoting Stock purchased pursuant to the Nonvoting Stock Option shall be the per share price at which such Nonvoting Stock is then being sold to third parties or, if no Nonvoting Stock is being sold, the fair market value thereof as determined in good faith by the Board of Directors of AltaVista. 2.2. Notice. (a) At least 10 business days prior to the issuance of any shares of Common Stock or the first date on which any event could occur that, in the absence of a full or partial exercise of the Class B Common Stock Option, would result in a reduction in the Ownership Percentage, AltaVista will notify the Corporate Tax Director of Digital in writing (a "Class B Common Stock Option Notice") of any plans it has to issue such shares or the date on which such event could first occur. At least 10 business days prior to the issuance of any shares of Nonvoting Stock or the first date on which any event could occur that, in the absence of a full or partial exercise of the Nonvoting Stock Option, would result in the Digital Entities owning less than 80 percent of the total number of shares of each class of outstanding Nonvoting Stock, AltaVista will notify the Corporate Tax Director of Digital in writing (a "Nonvoting Stock Option Notice" and, together with a Class B Common Stock Option, an "Option Notice") of any plans it has to issue such shares or the date on which such event could first occur. Each Option Notice must specify the date on which AltaVista intends to issue such additional shares or on which such event could first occur (such issuance or event being referred to herein as an "Issuance Event" and the date of such issuance or event as an "Issuance Event Date"), the number of shares AltaVista intends to issue or may issue and the other terms and conditions of such Issuance Event. (b) Notwithstanding the provisions of Sections 2.2(a), if, after the issuance of Common Stock or Nonvoting Stock pursuant to the exercise of an option to acquire such shares, (i) AltaVista would continue to be a member of the Digital Group and (ii) Digital would continue 7 -7- to control AltaVista within the meaning of Section 368(c) of the Code, then the Option Notice required with respect to the issuance of such shares shall be given to the Corporate Tax Director of Digital within 10 business days after the issuance of such shares. 2.3. Option Exercise and Payment. The Class B Common Stock Option may be exercised by Digital (or any Digital Entity to which all or any part of the Class B Common Stock Option has been assigned) for a number of shares equal to or less than the number of shares that are necessary for the Digital Entities to maintain, in the aggregate, the Ownership Percentage. The Nonvoting Stock Option may be exercised by Digital (or any Digital Entity to which all or any part of the Nonvoting Stock Option has been assigned) for a number of shares equal to or less than the number of shares that are necessary for the Digital Entities to own, in the aggregate, 80 percent of the total number of shares of each class of outstanding Nonvoting Stock. Each Option may be exercised at any time after receipt of an applicable Option Notice and within twenty business days after the applicable Issuance Event Date by the delivery to AltaVista of a written notice to such effect specifying (i) the number of shares of Class B Common Stock or Nonvoting Stock (as the case may be) to be purchased by Digital, or any of the Digital Entities, and (ii) a calculation of the exercise price for such shares. Upon any such exercise of either Option, AltaVista will, simultaneously with the issuance of Class B Common Stock, Class A Common Stock or Nonvoting Stock in connection with an Issuance Event, deliver to Digital (or any Digital Entity designated by Digital), against payment therefor, certificates (issued in the name of Digital or its permitted assignee hereunder, or as directed by Digital) representing the shares of Class B Common Stock or Nonvoting Stock (as the case may be) being purchased upon such exercise. Payment for such shares shall be made by wire transfer or intrabank transfer to such account as shall be specified by AltaVista, for the full purchase price for such shares. 2.4 Effect of Failure to Exercise. Any failure by Digital to exercise either Option, or any exercise for less than all shares purchasable under either Option, in connection with any particular Issuance Event shall not affect Digital's right to exercise the relevant Option in connection with any subsequent Issuance Event; provided, however, that, in the case of the Class B Common Stock Option, the Ownership Percentage following such Issuance Event in connection with which Digital so failed to exercise such Option in full or in part shall be recalculated as set forth in Section 1.1. 2.5 Initial Public Offering. Notwithstanding the foregoing, Digital shall not be entitled to exercise the Class B Common Stock Option in connection with the Initial Public Offering of the Class A Common Stock., including any exercise of the underwriters' over-allotment option with respect thereto. 2.6 Termination of Options. The Options shall terminate upon the occurrence of the first Issuance Event that results in the Ownership Percentage being less than 60%, other than any Issuance Event in violation of this Agreement. Each Option, or any portion thereof assigned to any Digital Entity other than Digital, also shall terminate in the event that the Person to whom such Option, or such portion thereof has been transferred, ceases to be a Digital Entity for any reason whatsoever. 8 -8- 2.7 Additional Obligation of AltaVista. This Article II is intended, in part, (i) to cause AltaVista to continue to be a member of the Digital Group, and (ii) to allow Digital to maintain "control" of AltaVista within the meaning of Section 368(c) of the Code. Notwithstanding anything to the contrary in this Agreement or any other agreement, without the express written consent of Digital, AltaVista shall not take or fail to take any action that would (i) cause AltaVista to cease to be a member of the Digital Group or (ii) result in Digital losing control of AltaVista within the meaning of Section 368(c) of the Code. ARTICLE III REGISTRATION RIGHTS 3.1 Demand Registration - Registrable Securities. (a) Upon written notice provided at any time after the Initial Public Offering Date from any Holder of Registrable Securities requesting that AltaVista effect the registration under the Securities Act of any or all of the Registrable Securities held by such Holder, which notice shall specify the intended method or methods of disposition of such Registrable Securities, AltaVista shall use its best efforts to effect the registration under the Securities Act and applicable state securities laws of such Registrable Securities for disposition in accordance with the intended method or methods of disposition stated in such request (including in a Rule 415 Offering, if AltaVista is then eligible to register such Registrable Securities on Form S-3 (or a successor form) for such offering); provided that: (i) with respect to any registration statement filed, or to be filed, pursuant to this Section 3.1, if AltaVista shall furnish to the Holders of Registrable Securities that have made such request a certified resolution of the Board of Directors of AltaVista (adopted by the affirmative vote of a majority of the directors not designated by the Digital Entities) stating that in the Board of Director's good faith judgment it would (because of the existence of, or in anticipation of, any acquisition or financing activity, or the unavailability for reasons beyond AltaVista's reasonable control of any required financial statements, or any other event or condition of similar significance to AltaVista) be significantly disadvantageous (a "Disadvantageous Condition") to AltaVista for such a registration statement to be maintained effective, or to be filed and become effective, and setting forth the general reasons for such judgment, AltaVista shall be entitled to cause such registration statement to be withdrawn and the effectiveness of such registration statement terminated, or, in the event no registration statement has been filed, shall be entitled not to file any such registration statement, until such Disadvantageous Condition no longer exists (notice of which AltaVista shall promptly deliver to such Holders). Upon receipt of any such notice of a Disadvantageous Condition, such Holders shall forthwith discontinue use of the prospectus contained in such registration statement; provided, that the filing of any such registration statement may not be delayed for a period in excess of six months due to the occurrence of any particular Disadvantageous Condition; (ii) after the occurrence of the Digital Ownership Reduction, if any, the Holders of Registrable Securities may collectively exercise their rights under this 9 -9- Section 3.1 on not more than three occasions (it being acknowledged that prior to the Digital Ownership Reduction, if any, there shall be no limit to the number of occasions on which such Holders (other than any of the Digital Transferees and their Affiliates (other than the Digital Entities )) may exercise such rights); and (iii) the Holders of Registrable Securities shall not have the right to exercise registration rights pursuant to this Section 3.1 in any six-month period following the registration and sale of Registrable Securities effected pursuant to a prior exercise of the registration rights provided in this Section 3.1. (b) Notwithstanding any other provision of this Agreement to the contrary, a registration requested by a Holder of Registrable Securities pursuant to this Section 3.1 shall not be deemed to have been effected (and therefore, not requested for purposes of paragraph (a) above), (i) unless it has become effective, (ii) if after it has become effective such registration is interfered with by any stop order, injunction or other order or requirement of the SEC or other governmental agency or court for any reason other than a misrepresentation or an omission by such Holder and, as a result thereof, the Registrable Securities requested to be registered cannot be completely distributed in accordance with the plan of distribution set forth in the related registration statement or (iii) if the conditions to closing specified in the purchase agreement or underwriting agreement entered into in connection with such registration are not satisfied or waived other than by reason of some act or omission by such Holder of Registrable Securities. (c) In the event that any registration pursuant to this Section 3.1 shall involve, in whole or in part, an underwritten offering, the Holders of a majority of the Registrable Securities to be registered shall have the right to designate an underwriter or underwriters as the lead or managing underwriters of such underwritten offering reasonably acceptable to AltaVista and, in connection with each registration pursuant to this Section 3.1, such Holders may select one counsel to represent all such Holders. (d) AltaVista shall have the right to cause the registration of additional equity securities for sale for the account of any Person (including, without limitation, AltaVista and any existing or former directors, officers or employees of the AltaVista Entities) in any registration of Registrable Securities requested by the Holders pursuant to paragraph (a) above; provided, that if such Holders are advised in writing (with a copy to AltaVista by a nationally recognized investment banking firm selected by such Holders reasonably acceptable to AltaVista (which shall be the lead underwriter or a managing underwriter in the case of an underwritten offering) that, in such firm's good faith view, all or a part of such additional equity securities cannot be sold or the inclusion of such additional equity securities in such registration would be likely to have an adverse effect on the price, timing or distribution of the offering and sale of the Registrable Securities then contemplated by any Holder, the registration of such additional equity securities or part thereof shall not be permitted. The Holders of the Registrable Securities to be offered may require that any such additional equity securities be included in the offering proposed by such Holders on the same conditions as the Registrable Securities that are included therein. In the event that the number of Registrable Securities requested to be included in a registration statement by the Holders thereof exceeds the number which, in the good faith view 10 -10- of such investment banking firm, can be sold without adversely affecting the price, timing, distribution or sale of securities in the offering, the number shall be allocated pro rata among the requesting Holders on the basis of the relative number of Registrable Securities then held by each such Holder (provided that any number in excess of a Holder's request may be reallocated among the remaining requesting Holders in a like manner). 3.2 Piggyback Registration. In the event that AltaVista at any time after the Initial Public Offering Date proposes to register any of its Common Stock, any other of its equity securities or securities convertible into or exchangeable for its equity securities (collectively, including Common Stock, "Other Securities") under the Securities Act, whether or not for sale for its own account, in a manner that would permit registration of Registrable Securities for sale for cash to the public under the Securities Act, it shall at each such time give prompt written notice to each Holder of Registrable Securities of its intention to do so and of the rights of such Holder under this Section 3.2. Subject to the terms and conditions hereof, such notice shall offer each such Holder the opportunity to include in such registration statement such number of Registrable Securities as such Holder may request. Upon the written request of any such Holder made within 15 days after the receipt of AltaVista's notice (which request shall specify the number of Registrable Securities intended to be disposed of and the intended method of disposition thereof), AltaVista shall use its best efforts to effect, in connection with the registration of the Other Securities, the registration under the Securities Act of all Registrable Securities which AltaVista has been so requested to register, to the extent required to permit the disposition (in accordance with such intended methods thereof) of the Registrable Securities so requested to be registered; provided, that: (a) if, at any time after giving such written notice of its intention to register any Other Securities and prior to the effective date of the registration statement filed in connection with such registration, AltaVista shall determine for any reason not to register the Other Securities, AltaVista may, at its election, give written notice of such determination to such Holders and thereupon AltaVista shall be relieved of its obligation to register such Registrable Securities in connection with the registration of such Other Securities, without prejudice, however, to the rights of the Holders of Registrable Securities immediately to request that such registration be effected as a registration under Section 3.1 to the extent permitted thereunder; (b) if the registration referred to in the first sentence of this Section 3.2 is to be an underwritten registration on behalf of AltaVista, and a nationally recognized investment banking firm selected by AltaVista advises AltaVista in writing that, in such firm's good faith view, the inclusion of all or a part of such Registrable Securities in such registration would be likely to have an adverse effect upon the price, timing or distribution of the offering and sale of the Other Securities then contemplated, AltaVista shall include in such registration: (1) first, all Other Securities AltaVista proposes to sell for its own account ("Company Securities"), (ii) second, up to the full number of Registrable Securities held by Holders constituting the Digital Entities that are requested to be included in such registration (Registrable Securities that are so held being sometimes referred to herein as "Holder Securities") in excess of the number of Company Securities to be sold in such offering which, in the good faith view of such investment banking firm, can be sold without adversely affecting such offering and the sale of the Other 11 -11- Securities then contemplated (and (x) if such number is less than the full number of such Holder Securities, such number shall be allocated by Digital among such Digital Entities and (y) in the event that such investment banking firm advises that less than all of such Holder Securities may be included in such offering, such Digital Entities may withdraw their request for registration of their Registrable Securities under this Section 3.2 and 90 days subsequent to the effective date of the registration statement for the registration of such Other Securities request that such registration be effected as a registration under Section 3.1 to the extent permitted thereunder), (iii) third, up to the full number of Registrable Securities held by Holders (other than the Digital Entities) of Registrable Securities that are requested to be included in such registration in excess of the number of Company Securities and Holder Securities to be sold in such offering which, in the food faith view of such investment banking firm, can be so sold without so adversely affecting such offering (and (x) if such number is less than the full number of such Registrable Securities, such number shall be allocated pro rata among such Holders on the basis of the number of Registrable Securities requested to be included therein by each such Holder and (y) in the event that such investment banking firm advises that less than all of such Registrable Securities may be included in such offering, such Holders may withdraw their request for registration of their Registrable Securities under this Section 3.2 and 90 days subsequent to the effective date of the registration statement for the registration of such Other Securities request that such registration be effected as a registration under Section 3.1 to the extent permitted thereunder), and (iv) fourth, up to the full number of the Other Securities (other than Company Securities), if any, in excess of the number of Company Securities and Registrable Securities to be sold in such offering which, in the good faith view of such investment banking firm, can be sold without so adversely affecting such offering (and, if such number is less than the full number of such Other Securities, such number shall be allocated pro rata among the holders of such Other Securities (other than Company Securities) on the basis of the number of securities requested to be included therein by each such holder); (c) if the registration referred to in the first sentence of this Section 3.2 is to be an underwritten secondary registration on behalf of holders of Other Securities (the "Other Holders"), and the lead underwriter or managing underwriter advises AltaVista in writing that in their good faith view, all or a part of such additional securities cannot be sold and the inclusion of such additional securities in such registration would be likely to have an adverse effect on the price, timing or distribution of the offering and sale of the Other Securities then contemplated, AltaVista shall include in such registration the number of securities (including Registrable Securities) that such underwriters advise can be so sold without adversely affecting such offering, allocated pro rata among the Other Holders and the Holders of Registrable Securities on the basis of the number of securities (including Registrable Securities) requested to be included therein by each Other Holder and each Holder of Registrable Securities; provided, that if such registration statement is to be filed at any time after the Digital Ownership Reduction, if any, and if such Other Holders have requested that such registration statement be filed pursuant to demand registration rights granted to them by AltaVista, AltaVista shall include in such registration (1) first, Other Securities sought to be included therein by the Other Holders pursuant to the exercise of such demand registration rights, (2) second, the number of Holder Securities sought to be included in such registration in excess of the number of Other Securities sought to be included in such registration by the Other Holders which in the good faith view of such investment banking 12 -12- firm, can be so sold without so adversely affecting such offering (and (x) if such number is less than the full number of such Holder Securities, such number shall be allocated by Digital among such Digital Entities and (y) in the event that such investment banking firm advises that less than all of such Holder Securities may be included in such offering, such Digital Entities may withdraw their request for registration of their Registrable Securities under this Section 3.2 and 90 days subsequent to the effective date of the registration statement for the registration of such Other Securities request that such registration be effected as a registration under Section 3.1 to the extent permitted thereunder) and (3) third, the number of Registrable Securities sought to be included in such registration by Holders (other than the Digital Entities) of Registrable Securities in excess of the number of Other Securities and the number of Holder Securities sought to be included in such registration which, in the good faith view of such investment banking firm, can be so sold without so adversely affecting such offering (and (x) if such number is less than the full number of such Registrable Securities, such number shall be allocated pro rata among such Holders on the basis of the number of Registrable Securities requested to be included therein by each such Holder and (y) in the event that such investment banking firm advises that less than all of such Registrable Securities may be included in such offering, such Holders may withdraw their request for registration of their Registrable Securities under this Section 3.2 and 90 days subsequent to the effective date of the registration statement for the registration of such Other Securities request that such registration be effected as a registration under Section 3.1 to the extent permitted thereunder); (d) AltaVista shall not be required to effect any registration of Registrable Securities under this Section 3.2 incidental to the registration of any of its securities in connection with mergers, acquisitions, exchange offers, subscription offers, dividend reinvestment plans or stock option or other executive or employee benefit or compensation plans; and (e) no registration of Registrable Securities effected under this Section 3.2 shall relieve AltaVista of its obligation to effect a registration of Registrable Securities pursuant to Section 3.1. 3.3 Expenses. Except as provided herein, AltaVista shall pay all Registration Expenses with respect to a particular offering (or proposed offering). Notwithstanding the foregoing, each Holder and AltaVista shall be responsible for its own internal administrative and similar costs, which shall not constitute Registration Expenses. 3.4 Registration and Qualification. If and whenever AltaVista is required to effect the registration of any Registrable Securities under the Securities Act as provided in Sections 3.1 or 3.2, AltaVista shall as promptly as practicable (a) prepare, file and use its best efforts to cause to become effective a registration statement under the Securities Act relating to the Registrable Securities to be offered; (b) prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to 13 -13- keep such registration statement effective and to comply with the provisions of the Securities Act with respect to the disposition of all Registrable Securities until the earlier of (A) such time as all of such Registrable Securities have been disposed of in accordance with the intended methods of disposition set forth in such registration statement and (B) the expiration of six-months after such registration statement becomes effective; provided, that such six-month period shall be extended for such number of days that equals the number of days elapsing from (x) the date the written notice contemplated by paragraph (f) below is given by AltaVista to (y) the date on which AltaVista delivers to the Holders of Registrable Securities the supplement or amendment contemplated by paragraph (f) below; (c) furnish to the Holders of Registrable Securities and to any underwriter of such Registrable Securities such number of conformed copies of such registration statement and of each such amendment and supplement thereto (in each case including all exhibits), such number of copies of the prospectus included in such registration statement (including each preliminary prospectus and any summary prospectus), in conformity with the requirements of the Securities Act, such documents incorporated by reference in such registration statement or prospectus, and such other documents as the Holders of Registrable Securities or such underwriter may reasonably request, and a copy of any and all transmittal letters or other correspondence to or received from, the SEC or any other governmental agency or self-regulatory body or other body having jurisdiction (including any domestic or foreign securities exchange) relating to such offering; (d) use its best efforts to register or qualify all Registrable Securities covered by such registration statement under the securities or blue sky laws of such jurisdictions as the Holders of such Registrable Securities or any underwriter to such Registrable Securities shall request, and use its best efforts to obtain all appropriate registrations, permits and consents in connection therewith, and do any and all other acts and things which may be necessary or advisable to enable the Holders of Registrable Securities or any such underwriter to consummate the disposition in such jurisdictions of its Registrable Securities covered by such registration statement; provided, that AltaVista shall not for any such purpose be required to qualify generally to do business as a foreign corporation in any such jurisdiction wherein it is not so qualified or to consent to general service of process in any such jurisdiction; (e) (i) use its best efforts to furnish to each Holder of Registrable Securities included in such registration (each, a "Selling Holder") and to any underwriter of such Registrable Securities an opinion of counsel for AltaVista addressed to each Selling Holder and dated the date of the closing under the underwriting agreement (if any), (or if such offering is not underwritten, dated the effective date of the registration statement), and (ii) use its best efforts to furnish to each Selling Holder a "cold comfort" letter addressed to each Selling Holder and signed by the independent public accountants who have audited the financial statements of AltaVista included in such registration statement, in each such case covering substantially the same matters with respect to such registration statement (and the prospectus included therein) as are customarily covered in opinions of issuer's counsel and in accountants' letters delivered to underwriters in underwritten public offerings of securities and such other matters as the Selling 14 -14- Holders may reasonably request, and, in the case of such accountants' letter, with respect to events subsequent to the date of such financial statements; (f) as promptly as practicable, notify the Selling Holders in writing (i) at any time when a prospectus relating to a registration pursuant to Sections 3.1 or 3.2 is required to be delivered under the Securities Act of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, and (ii) of any request by the SEC or any other regulatory body or other body having jurisdiction for any amendment of or supplement to any registration statement or other document relating to such offering, and in either such case, at the request of the Selling Holders prepare and furnish to the Selling Holders a reasonable number of copies of a supplement to or an amendment of such prospectus as may be necessary so that, as thereafter delivered to the purchasers of such Registrable Securities, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they are made, not misleading; (g) if reasonably requested by the lead or managing underwriters, use its best efforts to list all such Registrable Securities covered by such registration on each securities exchange and automated inter-dealer quotation system on which a class of common equity securities of AltaVista is then listed; (h) to the extent reasonably requested by the lead or managing underwriters, send appropriate officers of AltaVista to attend any "road shows" scheduled in connection with any such registration, with all out-of-pocket costs and expense incurred by AltaVista or such officers in connection with such attendance to be paid by AltaVista; and (i) furnish for delivery in connection with the closing of any offering of Registrable Securities pursuant to a registration effected pursuant to Sections 3.1 or 3.2 unlegended certificates representing ownership of the Registrable Securities being sold in such denominations as shall be requested by the Selling Holders or the underwriters. 3.5 Conversion of Other Securities, Etc. In the event that any Holder offers any options, rights, warrants or other securities issued by it or any other Person that are offered with, convertible into or exercisable or exchangeable for any Registrable Securities, the Registrable Securities underlying such options, rights, warrants or other securities shall continue to be eligible for registration pursuant to Sections 3.1 and 3.2. 3.6 Underwriting; Due Diligence. (a) If requested by the underwriters for any underwritten offering of Registrable Securities pursuant to a registration requested under this Article III, AltaVista shall enter into an underwriting agreement with such underwriters for such offering, which agreement will contain such representations and warranties by AltaVista and such other terms and provisions as are customarily contained in underwriting agreements with 15 -15- respect to secondary distributions, including, without limitation, indemnification and contribution provisions substantially to the effect and to the extent provided in Section 3.7, and agreements as to the provision of opinions of counsel and accountants' letters to the effect and to the extent provided in Section 3.4(e). The Selling Holders on whose behalf the Registrable Securities are to be distributed by such underwriters shall be parties to any such underwriting agreement and the representations and warranties by, and the other agreements on the part of, AltaVista to and for the benefit of such underwriters, shall also be made to and for the benefit of such Selling Holders. Such underwriting agreement shall also contain such representations and warranties by such Selling Holders and such other terms and provisions as are customarily contained in underwriting agreements with respect to secondary distributions, including, without limitation, indemnification and contribution provisions substantially to the effect and to the extent provided in Section 3.7. (b) In connection with the preparation and filing of each registration statement registering Registrable Securities under the Securities Act pursuant to this Article III, AltaVista shall give the Holders of such Registrable Securities and the underwriters, if any, and their respective counsel and accountants, such reasonable and customary access to its books and records and such opportunities to discuss the business of AltaVista with its officers and the independent public accountants who have certified the financial statements of AltaVista as shall be necessary, in the opinion of such Holders and such underwriters or their respective counsel, to conduct a reasonable investigation within the meaning of the Securities Act; provided, that such Holders and the underwriters and their respective counsel and accountants shall use their reasonable best efforts to coordinate any such investigation of the books and records of AltaVista and any such discussions with AltaVista's officers and accountants so that all such investigations occur at the same time and all such discussions occur at the same time. 3.7. Indemnification and Contribution. (a) In the case of each offering of Registrable Securities made pursuant to this Article III, AltaVista agrees to indemnify and hold harmless, to the extent permitted by law, each Selling Holder, each underwriter of Registrable Securities so offered and each Person, if any, who controls any of the foregoing Persons within the meaning of the Securities Act and the officers, directors, partners, affiliates, employees and agents of each of the foregoing, against any and all losses, liabilities, costs (including reasonable attorney's fees and disbursements), claims and damages, joint or several to which they or any of them may become subject, under the Securities Act of otherwise, including any amount paid in settlement of any litigation commenced or threatened, insofar as such losses, liabilities, costs, claims and damages (or actions or proceedings in respect thereof, whether or not such indemnified Person is a party thereto) arise out of or are based upon any untrue statement by AltaVista or alleged untrue statement by AltaVista of a material fact contained in the registration statement (or in any preliminary or final prospectus included therein) or in any offering memorandum or other offering document relating to the offering and sale of such Registrable Securities prepared by AltaVista or at its direction, or any amendment thereof or supplement thereto, or in any document incorporated by reference therein, or any omission by AltaVista or alleged omission by AltaVista to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading; provided, that AltaVista shall not be liable to any Person in any such case to the extent that any such loss, liability, cost, claim or damage arises out of or 16 -16- relates to any untrue statement or alleged untrue statement, or any omission, if such statement or omission shall have been made in reliance upon and in conformity with information relating to a Selling Holder or any other holder of securities including in such registration statement furnished to AltaVista by or on behalf of such Selling Holder, other holder or underwriter, as the case may be, specifically for use in the registration statement (or in any preliminary or final prospectus included therein), offering memorandum or other offering document, or any amendment thereof or supplement thereto. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of any Selling Holder or any other holder and shall survive the transfer of such securities. The foregoing indemnity agreement is in addition to any liability that AltaVista may otherwise have to each Selling Holder, other holder or underwriter of the Registrable Securities or any controlling person of the foregoing and the officers, directors, partners, affiliates, employees and agents of each of the foregoing; provided, further, that, in the case of an offering with respect to which a Selling Holder has designated the lead or managing underwriters (or a Selling Holder is offering Registrable Securities directly, without an underwriter), this indemnity does not apply to any loss, liability, cost, claim or damage arising out of or relating to any untrue statement or alleged untrue statement or omission or alleged omission in any preliminary prospectus or offering memorandum if a copy of a final prospectus or offering memorandum was not sent or given by or on behalf of any underwriter (or such Selling Holder or other holder, as the case may be) to such Person asserting such loss, liability, cost, claim or damage at or prior to the written confirmation of the sale of the Registrable Securities as required by the Securities Act and such untrue statement or omission had been corrected in such final prospectus or offering memorandum. (b) In the case of each offering made pursuant to this Agreement, each Selling Holder, by exercising its registration rights hereunder, agrees to indemnify and hold harmless, and to cause each underwriter of Registrable Securities included in such offering (in the same manner and to the same extent as set forth in Section 3.7(a)) to agree to indemnify and hold harmless, AltaVista, each other underwriter who participates in such offering, each other Selling Holder or other holder with securities included in such offering and in the case of an underwriter, such Selling Holder or other holder, and each Person, if any, who controls any of the foregoing within the meaning of the Securities Act and the officers, directors, affiliates, employees and agents of each of the foregoing, against any and all losses, liabilities, costs, claims and damages to which they or any of them may become subject, under the Securities Act or otherwise, including any amount paid in settlement of any litigation commenced or threatened, insofar as such losses, liabilities, costs, claims and damages (or actions or proceedings in respect thereof, whether or not such indemnified Person is a party thereto) arise out of or are based upon any untrue statement or alleged untrue statement by such Selling Holder or underwriter, as the case may be, of a material fact contained in the registration statement (or in any preliminary or final prospectus included therein) or in any offering memorandum or other offering document relating to the offering and sale of such Registrable Securities prepared by AltaVista or at its direction, or any amendment thereof or supplement thereto, or any omission by such Selling Holder or underwriter, as the case may be, or alleged omission by such Selling Holder or underwriter, as the case may be, of a material fact required to be stated therein or necessary to make the statements therein not misleading, but in each case only to the extent that such untrue statement of a material fact is contained in, or such material fact is omitted from, information relating to 17 -17- such Selling Holder or underwriter, as the case may be, furnished to AltaVista by or on behalf of such Selling Holder or underwriter, as the case may be, specifically for use in such registration statement (or in any preliminary or final prospectus included therein), offering memorandum or other offering document. The foregoing indemnity is in addition to any liability which such Selling Holder or underwriter, as the case may be, may otherwise have to AltaVista, or controlling persons and the officers, directors, affiliates, employees, and agents of each of the foregoing; provided, that, in the case of an offering made pursuant to this Agreement with respect to which AltaVista has designated the lead or managing underwriters (or AltaVista is offering securities directly, without an underwriter), this indemnity does not apply to any loss, liability, cost, claim, or damage arising out of or based upon any untrue statement or alleged untrue statement or omission or alleged omission in any preliminary prospectus or offering memorandum if a copy of a final prospectus or offering memorandum was not sent or given by or on behalf of any underwriter (or AltaVista, as the case may be) to such Person asserting such loss, liability, cost, claim or damage at or prior to the written confirmation of the sale of the Registrable Securities as required by the Securities Act and such untrue statement or omission had been corrected in such final prospectus or offering memorandum. (c) Each party indemnified under paragraph (a) or (b) above shall, promptly after receipt of notice of a claim or action against such indemnified part in respect of which indemnity may be sought hereunder, notify the indemnifying party in writing of the claim or action; provided, that the failure to notify the indemnifying party shall not relieve it from any liability that it may have to an indemnified party on account of the indemnity agreement contained in paragraph (a) or (b) above except to the extent that the indemnifying party was actually prejudiced by such failure, and in no event shall such failure relieve the indemnifying party from any other liability that it may have to such indemnified party. If any such claim or action shall be brought against an indemnified party, and it shall have notified the indemnifying party thereof, unless in such indemnified party's reasonable judgment a conflict of interest between such indemnified party and indemnifying parties may exist in respect of such claim, the indemnifying party shall be entitled to participate therein, and, to the extent that it wishes, jointly with any other similarly notified indemnifying party, to assume the defense thereof with counsel satisfactory to the indemnified party. After notice from the indemnifying party to the indemnified party of its election to assume the defense of such claim or action, the indemnifying party shall not be liable to the indemnified party under this Section 3.7 for any legal or other expenses subsequently incurred by the indemnified party in connection with the defense thereof other than reasonable costs of investigation. Any indemnifying party against whom indemnity may be sought under this Section 3.7 shall not be liable to indemnify an indemnified party if such indemnified party settles such claim or action without the consent of the indemnifying party. The indemnifying party may not agree to any settlement of any such claim or action, other than solely for monetary damages for which the indemnifying party shall be responsible hereunder, the result of which any remedy or relief shall be applied to or against the indemnified party, without the prior written consent of the indemnified party, which consent shall not be unreasonably withheld. In any action hereunder as to which the indemnifying party has assumed the defense thereof with counsel satisfactory to the indemnified party, the indemnified party shall continue to be entitled to participate in the defense thereof, with counsel of its own choice, but 18 -18- the indemnifying party shall not be obligated hereunder to reimburse the indemnified party for the costs thereof. (d) If the indemnification provided for in this Section 3.7 shall for any reason be unavailable (other than in accordance with its terms) to an indemnified party in respect of any loss, liability, cost, claim or damage referred to therein, then each indemnifying party shall, in lieu of indemnifying such indemnified party, contribute to the amount paid or payable by such indemnified party as a result of such loss, liability, cost, claim or damage (i) as between AltaVista and the Selling Holders on the one hand and the underwriters on the other, in such proportion as shall be appropriate to reflect the relative benefits received by AltaVista and the Selling Holders on the one hand and the underwriters on the other hand or, if such allocation is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits but also the relative fault of AltaVista and the Selling Holders on the one hand and the underwriters on the other with respect to the statements or omissions which resulted in such loss, liability, cost, claim or damage as well as any other relevant equitable considerations and (ii) as between AltaVista on the one hand and each Selling Holder on the other, in such proportion as is appropriate to reflect the relative fault of AltaVista and of each Selling Holder in connection with such statements or omissions as well as any other relevant equitable considerations. The relative benefits received by AltaVista and the Selling Holders on the one hand and the underwriters on the other shall be deemed to be in the same proportion as the total proceeds from the offering (net of underwriting discounts and commissions but before deducting expenses) received by AltaVista and the Selling Holders bear to the total underwriting discounts and commissions received by the underwriters, in each case as set forth in the table on the cover page of the prospectus. The relative fault of AltaVista and the Selling Holders on the one hand and of the underwriters on the other shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by AltaVista and the Selling Holders or by the underwriters. The relative fault of AltaVista on the one hand and of each Selling Holder on the other shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by such party, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission, but not by reference to any indemnified party's stock ownership in AltaVista. The amount paid or payable by an indemnified party as a result of the loss, cost, claim, damage or liability, or action in respect thereof, referred to above in this paragraph (d) shall be deemed to include, for purposes of this paragraph (d), any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. AltaVista and the Selling Holders agree that it would not be just and equitable if contribution pursuant to this Section 3.7 were determined by pro rata allocation (even if the underwriters were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to in this paragraph. Notwithstanding any other provision of this Section 3.7, no Selling Holder shall be required to contribute any amount in excess of the amount by which the total price at which the Registrable Securities of such Selling Holder were offered to the public exceeds the amount of any damages which such Selling Holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged 19 -19- omission. Each Selling Holder's obligations to contribute pursuant to this Section 3.7 are several in proportion to the proceeds of the offering received by such Selling Holder bears to the total proceeds of the offering received by all the Selling Holders and not joint. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of any such fraudulent misrepresentation. (e) Indemnification and contribution similar to that specified in the preceding paragraphs of this Section 3.7 (with appropriate modifications) shall be given by AltaVista, the Selling Holders and underwriters with respect to any required registration or other qualification of securities under any state law or regulation or governmental authority. (f) The obligations of the parties under this Section 3.7 shall be in addition to any liability which any party may otherwise have to any other party. 3.8 Rule 144 and Form S-3. Commencing 90 days after the Initial Public Offering Date, AltaVista shall use its best efforts to ensure that the conditions to the availability of Rule 144 set forth in paragraph (c) thereof shall be satisfied. Upon the request of any Holder of Registrable Securities, AltaVista will deliver to such Holder a written statement as to whether it has complied with such requirements. AltaVista further agrees to use its reasonable efforts to cause all conditions to the availability of Form S-3 (or any successor form) under the Securities Act of the filing of registration statements under this Agreement to be met as soon as practicable after the Initial Public Offering Date. Notwithstanding anything contained in this Section 3.8, AltaVista may deregister under Section 12 of the Securities Exchange Act of 1934, as amended, if it then is permitted to do so pursuant to said Act and the rules and regulations thereunder. 3.9 Transfer of Registration Rights. Any Holder may transfer all or any portion of its rights under Article III to any transferee of a number of Registrable Securities owned by such Holder exceeding three percent (3%) of the outstanding class or series of such securities at the time of transfer (each transferee that receives such minimum number of Registrable Securities, a "Transferee"); provided, that each Transferee of Registrable Securities to which Registrable Securities are transferred, sold or assigned directly by a Digital Entity (such Transferee, a "Digital Transferee"), together with any Affiliate of such Digital Transferee (and any subsequent direct or indirect Transferees of Registrable Securities from such Digital Transferee and any Affiliates (other than the Digital Entities) thereof, shall be entitled to request the registration of Registrable Securities pursuant to Section 3.1 only once. Any transfer of registration rights pursuant to this Section 3.9 shall be effective upon receipt by AltaVista of (i) written notice from such Holder stating the name and address of any Transferee and identifying the number of Registrable Securities with respect to which the rights under this Agreement are being transferred and the nature of the rights so transferred and (ii) a written agreement from such Transferee to be bound by the terms of this Article III and Sections 5.3, 5.4, 5.9, 5.10, and 5.11 of this Agreement. The Holders may exercise their rights hereunder in such priority as they shall agree upon among themselves. 20 -20- 3.10 Holdback Agreement. If any registration pursuant to this Article III shall be in connection with an underwritten public offering of Registrable Securities, each Selling Holder agrees not to effect any public sale or distribution, including any sale under Rule 144, of any equity security of AltaVista (otherwise than through the registered public offering then being made), within 7 days prior to or 180 days (or such lesser period as the lead or managing underwriters may permit) after the effective date of the registration statement (or the commencement of the offering to the public of such Registrable Securities in the case of Rule 415 offerings). ARTICLE IV CERTAIN COVENANTS AND AGREEMENTS 4.1 No Violations. (a) For so long as the Ownership Percentage is equal to or greater than 50%, AltaVista covenants and agrees that it will not take any action or enter into any commitment or agreement which may reasonably be anticipated to result, with or without notice and with or without lapse of time or otherwise, in a contravention or event of default by any Digital Entity of (i) any provisions of applicable law or regulation, including but not limited to provisions pertaining to the Internal Revenue Code of 1986, as amended, or the Employee Retirement Income Security Act of 1974, as amended, (ii) any provision of Digital's certificate of incorporation or bylaws, (iii) any credit agreement or other material instrument binding upon Digital, or (iv) any judgment, order or decree of any governmental body, agency or court having jurisdiction over Digital or any of its assets. (b) AltaVista and Digital agree to provide to the other any information and documentation requested by the other for the purpose of evaluating and ensuring compliance with Section 4.1.(a) hereof. (c) Notwithstanding the foregoing Sections 4.1(a) an 4.1(b), nothing in this Agreement is intended to limit or restrict in any way the ability of Digital to effect, restrict or limit any action or proposed action of AltaVista, including, but not limited to, the incurrence by AltaVista of indebtedness, based upon Digital's internal policies or other factors. ARTICLE V MISCELLANEOUS 5.1 Limitation of Liability. Neither Digital nor AltaVista shall be liable to the other for any special, indirect, incidental or consequential damages of the other arising in connection with this Agreement. 5.2 Subsidiaries. Digital agrees and acknowledges that Digital shall be responsible for the performance of each Digital Entity of the obligations hereunder applicable to such Digital Entity. 21 -21- 5.3 Amendments. This Agreement may not be amended or terminated orally, but only by a writing duly executed by or on behalf of the parties hereto. Any such amendment shall be validly and sufficiently authorized for purposes of this Agreement if it is signed on behalf of Digital and AltaVista by any of their respective presidents or vice presidents. 5.4 Term. This Agreement shall remain in effect until all Registrable Securities held by Holders have been transferred by them to Persons other than Transferees; provided, that the provisions of Section 3.7 shall survive any such expiration. 5.5 Severability. If any provisions of this Agreement or the application of any such provision to any party or circumstances shall be determined by any court of competent jurisdiction to be invalid, illegal or unenforceable to any extent, the remainder of this Agreement or such provision of the application of such provision to such party or circumstances, other than those to which it is so determined to be invalid, illegal or unenforceable, shall remain in full force and effect to the fullest extent permitted by law and shall not be affected thereby, unless such a construction would be unreasonable. 5.6 Notices. All notices and other communications required or permitted hereunder shall be in writing, shall be deemed duly given upon actual receipt, and shall be delivered (a) in person, (b) by registered or certified mail, postage prepaid, return receipt requested, or (c) by facsimile or other generally accepted means of electronic transmission (provided that a copy of any notice delivered pursuant to this clause (c) shall also be sent pursuant to clause (b), addressed as follows: (a) If to AltaVista, to: AltaVista Internet Software, Inc. 30 Porter Road Littleton, MA 01460 Attention: Chief Financial Officer Fax: (b) If to Digital, to: Digital Equipment Corporation 111 Powdermill Road Maynard, MA 01754-1418 Attention: Treasurer Fax: or to such other addresses or telecopy numbers as may be specified by like notice to the other parties. 5.7 Further Assurances. Digital and AltaVista shall execute, acknowledge and deliver, or cause to be executed, acknowledged and delivered, such instruments and take such 22 -22- other action as may be necessary or advisable to carry out their obligations under this Agreement and under any exhibit, document or other instrument delivered pursuant hereto. 5.8 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original instrument, but all of which together shall constitute but one and the same agreement. 5.9 Governing Law. This Agreement and the transactions contemplated hereby shall be construed in accordance with, and governed by, the laws of the Commonwealth of Massachusetts. 5.10 Entire Agreement. This Agreement constitutes the entire understanding of the parties hereto with respect to the subject matter hereof. 5.11 Successors. This Agreement shall be binding upon, and shall inure to the benefit of, the parties hereto and their respective successors and assigns. Nothing contained in this Agreement, express or implied, is intended to confer upon any other person or entity any benefits, rights or remedies. 5.12 Specific Performance. The parties hereto acknowledge and agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. Accordingly, it is agreed that they shall be entitled to an injunction or injunctions to prevent breaches of the provisions of this Agreement and to enforce specifically the terms and provisions hereof in any court of competent jurisdiction in the United States or any state thereof, in addition to any other remedy to which they may be entitled at law or equity. IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day and year first above written. ALTAVISTA INTERNET SOFTWARE, INC. By: _____________________________________ Name: Title: DIGITAL EQUIPMENT CORPORATION By: _____________________________________ Name: Title: EX-10.5 10 FORM OF STRATEGIC ALLIANCE AGREEMENT 1 EXHIBIT 10.5 FORM OF STRATEGIC ALLIANCE AGREEMENT This Strategic Alliance Agreement dated as of ______ __, 1996 is entered into between DIGITAL EQUIPMENT CORPORATION, having a principal place of business at 111 Powdermill Road, Maynard, Massachusetts 01754-1418 (together with all subsidiary and affiliated companies collectively referred to as "DIGITAL") and AltaVista Internet Software, Inc., having a principal place of business at 30 Porter Road, Littleton, Massachusetts 01460 (together with all subsidiary and affiliated companies collectively referred to as "ALTV"). WHEREAS, ALTV has developed or acquired the rights to computer programs; WHEREAS, DIGITAL has established procedures for evaluating and distributing computer programs and for delivering services to users of computer programs; WHEREAS, both parties desire that DIGITAL distribute ALTV's computer program(s) and provide services to ALTV customers. NOW, THEREFORE, in consideration of the mutual covenants and promises contained herein, the parties, intending to be legally bound hereby, agree as follows: 1.0 DEFINITIONS 1.1 Program means the computer programs related to the Products, Documentation, Demonstration Programs, and all future Revisions, enhancements and modifications to such programs. 1.2 Object Code means machine readable code commonly referred to as binary code or executable code. 1.3 Documentation means a functional description of a Program, directions for installation, verification of installation, and use, and any other explanatory material necessary for a user to perform all of the functions of a Program. 1.4 Demonstration Program means an illustrative version(s) of a Program, in Object Code form, which demonstrates its key features. 1.5 Revision means any correction, modification, update, enhancement, and new version of a Program, Documentation, and Demonstration Program. 2 1.6 Products mean now existing or later created ALTV Programs in Object Code form, including Documentation, Demonstration Programs, and Revisions. 1.7 Source Code means code which may be printed out or displayed in a form readable and understandable by a programmer of ordinary skill, and which cannot be executed on a computer system without first being assembled or compiled. 1.8 DIGITAL's Service Provider(s) means DIGITAL authorized dealers, distributors and/or other third parties who are authorized by DIGITAL to provide warranty, maintenance and/or other support services for the Product. 1.9 Service Agreement(s) means agreements between DIGITAL and end-user customers and agreements between DIGITAL's Service Providers and end-user customers under which DIGITAL or DIGITAL's Service Providers offer end-user software product services, including services such as telephone support, electronic access to problem/solution information, critical on-site support, rights to new versions of the Product, and Documentation updates for the Products. 1.10 DIGITAL-ALTV Fee Schedule means the then current schedule of fees and prices relating to the Products and services hereunder as agreed upon by DIGITAL and ALTV. 2.0 LICENSES 2.1 ALTV grants to DIGITAL a non-exclusive, royalty-free license to execute the Product, and to load, copy or transmit the Programs and/or Demonstration programs in whole or in part, for the purposes of evaluation, marketing and promotional activities related to the Product in connection with the distribution of the Product and the provision of Services hereunder to end-users of the Product. 2.2 ALTV grants DIGITAL a non-exclusive, royalty-free license to make copies of each Program and/or Product to be used for the purposes of customer evaluation at customer facilities. 2.3 ALTV grants DIGITAL a non-exclusive, worldwide license to (i) each Product, (ii) load, copy or transmit such Product, and (iii) market, demonstrate and distribute directly or by means of sublicenses and grant to its sublicensees the right to sublicense, market, distribute and demonstrate the Product to its customers. Distribution shall be subject to ALTV's then current applicable software license agreement(s). The license granted 2 3 under this Section 2.3 shall be subject to a fee set forth in the DIGITAL-ALTV Fee Schedule. 2.4 ALTV grants to DIGITAL, a non-exclusive, worldwide license to execute the Products for internal end use purposes, and to load, copy or transmit the Products to the extent necessary for such execution. The license granted under this Section 2.4 shall be subject to a fee set forth in the DIGITAL-ALTV Fee Schedule. 2.5 To the extent necessary to give effect to this Agreement, the licenses granted to DIGITAL shall include rights under any applicable patents, copyrights, trademarks, trade secrets and any other intellectual property rights belonging to ALTV or which ALTV has acquired or may acquire from any third party other than DIGITAL. 2.6 DIGITAL shall not decompile, or reverse assemble any Product, or analyze or otherwise examine the Product for the purpose of reverse engineering, except as authorized by law. 2.7 ALTV grants Digital, a non-exclusive, worldwide license to market and distribute the Product in combination with or bundled together with DIGITAL products or systems integration services by means of sublicenses and grant to its sublicensees the right to sublicense, market and demonstrate such combined Product to its customers. Distribution shall be subject to ALTV's then current applicable software license agreement(s). The license granted under this Section 2.7 shall be subject to a fee set forth in the DIGITAL-ALTV Fee Schedule. 2.8 Upon DIGITAL's request and on terms, including fees payable to DIGITAL, satisfactory to DIGITAL and ALTV, ALTV shall grant DIGITAL the non-exclusive, royalty-free license to manufacture the Product, and shall provide DIGITAL with all materials necessary to do so, including Product masters. 3.0 STRATEGIC DEVELOPMENT 3.1 For so long as ALTV (a) adapts its Products, and any subsequent product offerings, to run on the DIGITAL Unix operating system and (b) simultaneously releases its Products and any subsequent product offerings in a form adapted to run on the DIGITAL Unix operating system, DIGITAL shall provide to ALTV, at no charge, by loan or otherwise, certain DIGITAL hardware and software products for use by ALTV for product development. 3 4 3.2 DIGITAL shall sell ALTV hardware equipment for use at its public WEB service sites at its then prevailing inter-company rate for such equipment for so long as ALTV identifies such sites in all of its marketing, advertising and other publications as being supported by DIGITAL. 3.3 Subject to the prior written consent of ALTV with respect to any Program and Product, ALTV grants DIGITAL a non-exclusive, worldwide license to combine, incorporate or embed the Program and the Product, including the right to modify the Source Code and Object Code of any such Product, into DIGITAL's or any other products or programs, or as a new product, and to distribute the new product pursuant to Section 2.3 hereof. Such new product shall be considered a derivative work, and all right, title and interest in the derivative work shall be owned by Digital, subject to the ownership by ALTV of any of the Programs, Source Code or Object Code incorporated therein. The license granted under this Section 3.3 shall be subject to a fee based on Digital's then prevailing inter-company rate for such products. 3.4 DIGITAL represents that it will provide to ALTV certain hardware and software products for internal use at a rate set forth in the DIGITAL-ALTV Fee Schedule. 4.0 ACCEPTANCE 4.1 DIGITAL shall evaluate each Product and shall give written notice to ALTV if such Product does not operate in conformance with the applicable Documentation. 4.2 If DIGITAL determines not to accept or distribute any one or all of the Products for any reason, it shall give written notice to ALTV and DIGITAL shall have the right to eliminate the specified Products from this Agreement or to terminate this Agreement in its entirety. In this event, DIGITAL shall, at its option, either return to ALTV or destroy copies of the eliminated Products in its possession. 5.0 PURCHASING REQUIREMENTS 5.1 Subject to acceptance and ALTV's performance of all of its duties and obligations hereunder, DIGITAL shall pay ALTV license fees, as hereafter described. 5.2 All shipments shall be F.O.B. Origin. Payments from DIGITAL to ALTV shall be due on a net 30-day basis from the date of ALTV's invoice. Prices do not include any shipping charges, or federal, state, county, local or other governmental taxes, duties, excise taxes now or hereafter imposed 4 5 on the storage, sale, transportation, licensing or use of the Products, which charges shall be borne by DIGITAL. Any taxes imposed by any federal, state, or municipal government, including any interest due thereon, if any, paid or payable in connection with ALTV sales to DIGITAL, shall be borne by DIGITAL. If ALTV supplies DIGITAL with a valid tax exemption certificate, DIGITAL shall not be liable for such taxes as are exempted. 5.3 Unless otherwise approved by ALTV, orders must be placed via the ALTV Internet Website, and request delivery within three (3) months. 5.4 DIGITAL may reschedule or cancel delivery of individual Purchase Orders, or portions thereof, upon at least thirty (30) days advance notice to ALTV prior to DIGITAL's required delivery date, subject to charges set forth on the DIGITAL-ALTV Fee Schedule. All rescheduling requests and cancellations shall be placed via the ALTV Internet Website unless otherwise approved by ALTV. 5.5 ALTV shall inspect all Product before shipment. DIGITAL may inspect the Product at its destination. Subject to Section 4.2 hereof, DIGITAL may return nonconforming Product to ALTV for credit, refund of purchase price or replacement at DIGITAL's option, with ALTV bearing all costs and risk of loss. ALTV authorizes DIGITAL to perform source inspection and quality assurance audits at ALTV's manufacturing facilities, but this shall in no way relieve ALTV of its obligation to deliver conforming Product or waive DlGITAL's right of inspection and acceptance at destination. 5.6 For each individual Product shipped, a packing slip is required specifying Purchase Order, DIGITAL Part Number, Quantity, and Date Shipped. The packing slip is to be attached to the outside of one of the cartons shipped. Each individual product shall be packaged individually inside an outer carton and labeled with the typewritten DIGITAL Part Number specified. Each carton is to be properly packaged and protected from shipping and handling hazards, and in compliance with applicable laws, regulations and requirements. DIGITAL may request ALTV to provide replacement packaging for those cartons that get damaged in transit. 5.7 If there is any conflict between terms and conditions, precedence shall be as follows: a) Terms of this Agreement, b) Terms written or typed by DIGITAL on the face of its Purchase Order c) Terms preprinted on a Purchase Order. 5 6 6.0 PRICE CHANGES 6.1 ALTV shall provide DIGITAL with three (3) months' prior written notice of any change in ALTV's list price or discount schedule. 6.2 If ALTV fails to give DIGITAL such notice: a) and the net price to DIGITAL including discounts is increased, the lower price shall remain in effect for a three (3) months' time period following such time as ALTV formally notifies DIGITAL of the price change in writing; b) and if the net price to DIGITAL including discounts is decreased, DIGITAL shall be credited with the net change for any Product ordered within the three (3) months' time period prior to the effective date of such change. 6.3 ALTV warrants that all the prices and terms it has granted herein are equal to or better than the prices and/or terms being offered by ALTV to any other similarly situated customer. If during the term of this Agreement, ALTV enters into a like arrangement with any other similarly situated customer which provides better prices or terms, this Agreement shall be deemed amended to provide the same to DIGITAL and notice of the such arrangement shall be given to DIGITAL immediately. 7.0 COPYRIGHT AND TRADEMARKS 7.1 ALTV agrees to secure and maintain copyright protection of the Product in the name of ALTV. 7.2 DIGITAL agrees to include ALTV's copyright notice on all copies of the Product in substantially the following form: Licensed to Digital Equipment Corporation, Maynard, Massachusetts Copyright (C) [ALTV] 19-. All rights reserved. 7.3 ALTV hereby grants to DIGITAL a non-exclusive license to use the ALTV tradenames, logos and other ALTV trademarks and service marks relating to the Products (the "ALTV Marks") in connection with DIGITAL's distribution, marketing and services activities under this Agreement. DIGITAL's use shall be in accordance with ALTV's policies regarding advertising and trademark usage as established from time to time by ALTV and as provided by ALTV. DIGITAL agrees to cooperate 6 7 with ALTV in facilitating ALTV's monitoring and control of the nature and quality of products and services bearing the ALTV Marks, and to supply ALTV with specimens of DIGITAL's use of the ALTV Marks upon request. In the event that ALTV determines that DIGITAL's use of ALTV Marks, or that the services in connection with which such ALTV Marks are used is inconsistent with ALTV's quality standards, then upon ALTV's written request, DIGITAL shall within a reasonable period thereafter conform such use or service to ALTV's standards. If DIGITAL fails to confirm such use or service, ALTV shall have the right to suspend such use of the ALTV Marks. 8.0 SUPPORT 8.1 ALTV designates DIGITAL as a non-exclusive Authorized Service Provider. DIGITAL shall pay ALTV a fee for support services as set forth on the DIGITAL-ALTV Fee Schedule. 8.2 DIGITAL, in its capacity as an Authorized Service Provider, shall provide training, documentation and technical support to ALTV customers, including the performance of service evaluations, installation and remedial support. 8.3 ALTV and DIGITAL agree to provide support and services to ALTV customers through WEB-based technologies, where commercially reasonable. 8.4 ALTV grants to DIGITAL a non-exclusive, royalty-free, worldwide license to execute the Products, and to load, copy or transmit the Programs and/or Demonstration Programs in whole or in part, and to copy, use and distribute the Product and the Program for the purpose of providing support and maintenance of the Programs, and the right to sublicense such support rights to DIGITAL and DIGITAL's Service Providers, authorized dealers, distributors and other third parties within their distribution chains; and to distribute product information and documentation, and any Revisions to Customers. 8.5 ALTV grants to DIGITAL a non-exclusive, royalty-free license to copy and use internally ALTV's training materials for each Product. Such training materials may be used for training, maintenance and other similar activities connected with DIGITAL's support of such Product. DIGITAL agrees to include ALTV's copyright notice on all copies of ALTV's training materials for such Product which DIGITAL makes. 7 8 8.6 Services shall be provided by DIGITAL subject to DIGITAL's Services Terms and Conditions, or such other Terms and Conditions as may be agreed to by the parties. 9.0 MARKETING 9.1 ALTV and DIGITAL will mutually agree on a joint marketing and public relations plan. The plan will be updated from time to time to ensure that it remains relevant and current. The marketing plan may include the following types of activities: (a) press releases and press conferences regarding the Products and Services; (b) consultant briefings; (c) production of marketing brochures, flyers, presentations, customer references, sales kits, etc. (c) participation at major trade shows and user conferences (e) creation of demonstration programs that highlight Product and Services features and benefits; (f) creation of white papers as technical proof points for the benefits of the Products and Services; (g) faxback programs; (h) business partner recruitment and promotional campaigns in both DIGITAL's and ALTV's Product and Services distribution channels; and (i) web-based communications 9.2 DIGITAL and ALTV will inform the sales and support personnel of each as to the availability, pricing, and positioning of the Products and Services consistent with the purposes of DIGITAL's role as reseller, including but not limited to appropriate information regarding DIGITAL's role in ALTV sales and marketing literature, Website, tradeshows, customer seminars, sales training, and other appropriate marketing/business development activities. 9.3 DIGITAL and ALTV will include the Products and Services in the appropriate sales and sales support training sessions. 8 9 10.0 RELATIONSHIP OF PARTIES 10.1 ALTV and DIGITAL are independent contractors acting for their own accounts and are not authorized to make any commitment or representation on the other's behalf unless authorized in writing. Each party is solely responsible for establishing its prices for the Product(s). 10.2 ALTV is authorized to use the designation "Digital Distributed Software." 11.0 WARRANTY AND INDEMNIFICATION 11.1 ALTV warrants that no security measures have been or will be incorporated in the Products which would impair their use and operation except such measures as are disclosed to DIGITAL in writing and approved by DIGITAL in writing. 11.2 ALTV warrants to DIGITAL that the Products do not and will not infringe or violate any patent, copyright, trademark, trade secret or other proprietary right of any third party. 11.3 ALTV warrants that any services performed by ALTV in connection with this Agreement shall be performed in a workmanlike manner and that in the event of a breach of this warranty ALTV shall perform the services to DIGITAL's satisfaction. 11.4 ALTV warrants that each Product: (1) is and shall remain free of all liens and title encumbrances; (2) is and shall remain free from defects in design, material and workmanship; and (3) conforms and shall continue to conform to applicable specifications. In the case of a breach of these warranties ALTV shall, at DIGITAL's option: (1) repair or replace nonconforming or unsuitable Product within thirty (30) days of notice of such condition; or (2) credit or refund to DIGITAL the purchase price for such Product. All expenses associated with the return to ALTV of such Product and the delivery to DIGITAL of repair or replacement Product shall be borne by ALTV. 11.5 The above warranties shall survive any delivery, acceptance, payment, termination or expiration of a Purchase Order and shall run to DIGITAL, its successors, assigns, customers and users of its products. 11.6 ALTV shall indemnity, hold harmless and defend DIGITAL and its customers from and against any and all suits, actions, damages, costs, losses, expenses (including settlement awards and reasonable attorney's fees) and other liabilities arising from or in connection with any claim that 9 10 ALTV does not have sufficient right, title or interest in the Product to enter into this Agreement, or that the Product infringes or violates any patent, copyright, trademark, trade secret, or other proprietary right of any third party. Without limiting ALTV's obligations as set forth above, ALTV, upon the request of DIGITAL, and at ALTV's expense, shall either procure for DIGITAL and its customers the right to continue using the Product, or, if such is not possible, replace or modify the Product so that it becomes noninfringing but functionally equivalent. 11.7 ALTV shall defend, at its expense, and shall pay all costs and damages awarded for any claim against DIGITAL to the extent that such claim is based upon a breach by ALTV of its warranties hereunder. 11.8 THE FOREGOING WARRANTIES OF ALTV ARE IN LIEU OF ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. 11.9 EXCEPT FOR AMOUNTS PAYABLE PURSUANT TO SECTION 12.6 HEREOF, NEITHER PARTY HERETO SHALL BE LIABLE FOR ANY SPECIAL, DIRECT, INCIDENTAL, OR CONSEQUENTIAL DAMAGES, EVEN IF ADVISED OF THE POSSIBILITY THEREOF. THE FOREGOING LIMITATIONS OF LIABILITY SHALL APPLY REGARDLESS OF THE CAUSE OF ACTION UNDER WHICH SUCH DAMAGES ARE SOUGHT, INCLUDING, WITHOUT LIMITATION, BREACH OF CONTRACT, NEGLIGENCE, STRICT LIABILITY, OR OTHER TORT. 12.0 EXPORT 12.1 DIGITAL and ALTV agree to comply with US laws and regulations governing the export of technology and products, including the Export Administration Act of 1979, as amended, any successor legislation, and the Export Administration Regulations issued by the Department of Commerce, Bureau of Export Administration. DIGITAL and ALTV agree to cooperate with each other, including, without limitation, providing required documentation and information, in order to obtain the necessary government authorizations prior to any export of technology or Products under this Agreement. 13.0 TERM AND TERMINATION 13.1 This Agreement shall extend for a period of two years from its effective date unless terminated sooner in accordance herewith; provided, however, 10 11 this Agreement shall be subject to early termination by either ALTV or DIGITAL upon six months' written notice if DIGITAL ceases to own shares of Common Stock representing more than 50% of the combined voting power of the Common Stock of ALTV. After the initial term, this Agreement shall automatically be renewed on a year-to-year basis unless terminated by either party upon written notice to the other at least sixty (60) days prior to the end of the initial term of this Agreement, or any renewal term. 13.2 Either party may terminate this Agreement a) if the other party breaches any warranty or fails to perform any material obligation hereunder, and such breach is not remedied within thirty (30) days after written notice thereof to the party in default; or b) at any time, if the other party shall become insolvent or make an assignment for the benefit of creditors, or if a receiver or similar officer shall be appointed to take charge of all or part of that party's assets. c) at any time, without cause, upon ninety (90) days' advance written notice. 13.3 Upon termination of this Agreement, the license provided in Paragraph 2.3 shall remain in effect for six (6) months from the effective date of termination to permit DIGITAL to liquidate its inventory of Products in existence as of the date of termination. However, ALTV shall have the option, either during or after the six (6) month period, to purchase any inventory in DIGITAL's at the purchase prices paid by DIGITAL, except for inventory necessary for DIGITAL to meet any outstanding contractual obligations to its customers. 13.4 The license granted to DIGITAL herein for support and maintenance purposes, the rights and sublicenses which DIGITAL has granted or agreed to grant under this Agreement (including DIGITAL's right to distribute the Product) and any warranties, indemnities, and irrevocable license grants made to DIGITAL shall survive any termination or expiration of this Agreement. After termination, DIGITAL's sole remaining obligation shall be to remit to ALTV any payments due. Sections 1, 11, 12, 13 and 14 shall survive any termination of this Agreement. 13.5 After termination, DIGITAL's sole remaining obligation shall be to remit to ALTV any payments due. 11 12 14.0 GENERAL 14.1 The rights and remedies of the parties provided in this Agreement shall not be exclusive and are in addition to any other rights and remedies provided at law or in equity. 14.2 This Agreement shall be binding upon and inure to the benefit of the successors and permitted assigns of the parties hereto. Neither party shall assign this Agreement or any rights or obligations under it without the prior written consent of the other party. 14.3 Nothing in this Agreement shall be construed as making either party the agent of the other. 14.4 Notices under this Agreement shall be addressed to DIGITAL at: DIGITAL EQUIPMENT CORPORATION 111 Powdermill Road Maynard, MA 01754 Attn.: Treasurer DIGITAL EQUIPMENT CORPORATION 111 Powdermill Road Maynard, MA 01754 Attn.: Law Department and to ALTV at the address given at the beginning of this Agreement unless otherwise specified. Notice shall be sent by registered or certified mail, postage prepaid, return receipt requested. The date of receipt shall be deemed to be the date on which such notice was actually received. Each party shall promptly give the other party written notice of any change of address. 14.5 If any provision of this Agreement is held illegal or unenforceable by any court of competent jurisdiction, such provision shall be deemed separable from the remaining provisions of this Agreement and shall not affect or impair the validity or enforceability of the remaining provisions of this Agreement. The parties hereto agree to replace any such illegal or unenforceable provision that has the most nearly similar permissible economic or other effect. 14.6 This Agreement shall be governed by the laws of the Commonwealth of Massachusetts, without regard to its conflicts of law principles. The 12 13 parties hereto exclude the United Nations Conventions on Contracts of the International Sale of Goods from this Agreement and any transaction between them that may be implemented in connection with this Agreement. 14.7 The failure of either party to enforce, in any one or more instances, any of the terms or conditions of the Agreement shall not be construed as a waiver of the future performance of any such term or condition. 14.8 Neither party shall be liable for its failure to perform any of its obligations hereunder during any period in which such performance is directly delayed by the occurrence of events beyond the control of the failing party such as fire, explosion, flood, storm or the acts of God, war, embargo, riot, or the intervention of any government authority, provided that the party suffering the delay immediately notifies the other party of the delay. 14.9 This Agreement supersedes all prior oral and written understandings and agreements between the parties concerning the subject matter hereof and may not be modified except in a writing signed by the authorized representatives of the parties hereto. 14.10 This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument. DIGITAL EQUIPMENT CORPORATION ALTAVISTA INTERNET SOFTWARE, INC. - ---------------------------------- ------------------------------- Authorized Signature Authorized Signature - ---------------------------------- ------------------------------- Name and Title Name and Title Date Date ------------------------------ --------------------------- 13 EX-10.6 11 FORM OF TECHNICAL ASSISTANCE AGREEMENT 1 EXHIBIT 10.6 FORM OF TECHNICAL ASSISTANCE AGREEMENT This Technical Assistance Agreement dated as of _____ is entered into between AltaVista Internet Software, Inc., having a principal place of business at 30 Porter Road, Littleton, Massachusetts 01460 (together with all subsidiary and affiliated companies collectively referred to as "ALTV") and Digital Equipment Corporation, having a principal place of business at 111 Powdermill Road, Maynard, Massachusetts 01754-1418 (together with all subsidiary and affiliated companies collectively referred to as "Digital"). WHEREAS, ALTV has developed or acquired the rights to certain computer software programs; WHEREAS, DIGITAL has certain expertise with respect to such programs; WHEREAS, ALTV desires to retain DIGITAL to perform certain consulting and technical expertise in connection with ALTV's use of such programs and DIGITAL desires to perform such services; NOW THEREFORE, in consideration of the mutual obligations specified in this Agreement, and any compensation paid to DIGITAL for its services, the parties agree to the following: I. PURCHASE ORDERS ALTV shall issue Purchase Orders containing a statement of the work to be performed by DIGITAL, DIGITAL's rate of payment for such work, and expenses to be paid in connection with such work. DIGITAL shall not be obligated to accept any Purchase Order under this Agreement, but shall not commence services without first obtaining an approved Purchase Order. II. CONFIDENTIAL INFORMATION Each party hereto acknowledges that during the course of this Agreement it will be entrusted with information of the other party that is identified by such other party as its confidential information. Each party hereto agrees to protect the confidentiality of the other party's confidential information with the same measures that it would use to protect its own similar information, but in no event shall such measures be less than reasonable in light of general industry practices. 2 -2- III. BACKGROUND TECHNOLOGY/OWNERSHIP. DIGITAL may use certain technology in performing services under this Agreement that is either owned solely by DIGITAL or licensed to DIGITAL with a right to sublicense. ("Background Technology"). DIGITAL shall use reasonable commercial efforts to disclose in writing the existence of such Background Technology to ALTV upon acceptance of any Purchase Order. Ownership of Background Technology (including, without limitation, all rights under applicable patents, copyrights, trademarks, and trade secrets) shall at all times remain with Digital and/or its licensors. Ownership of and rights to any and all ideas, improvements and inventions conceived, created or first reduced to practice in the performance of work under this Agreement shall be determined in writing between the parties as part of each Purchase Order accepted by Digital hereunder. To the extent that a party is entitled to ownership of work product created under this Agreement as specified in a Purchase Order, the other party agrees to execute all papers including, without limitation, assignments, and shall otherwise reasonably assist the party entitled to ownership as shall be required to perfect in such party the rights, title and other interests in applicable work product. This Section III shall survive the termination of this Agreement for any reason including expiration of term. IV. INDEMNIFICATION "DIGITAL shall indemnify, hold harmless, and defend ALTV and its customers from and against any and all suits, actions, damages, costs, losses, expenses (including settlement awards and reasonable attorney's fees) and other liabilities arising from or in connection with any third party claim that DIGITAL does not have sufficient right, title or interest in the Background Technology, or that the Background Technology infringes or violates any patent, copyright, trademark, trade secret, or other proprietary right of any third party. Without limiting DIGITAL's obligations as set forth above, DIGITAL, upon the request of ALTV, and at DIGITAL's expense, shall either procure for ALTV and its customers the right to continue using the Background Technology, or if such is not possible, replace or modify the Background Technology so that it becomes noninfringing but functionally equivalent. Such indemnification obligation shall not apply (a) unless DIGITAL is given prompt notice of any claim or threat after DIGITAL learns of such claim or threat; (b) unless DIGITAL is given the opportunity to control the defense in such action; (c) to ALTV's attorney fees after DIGITAL has assumed such defense; (d) to portions of Background Technology not developed or owned by DIGITAL; or (e) claims based on Background Technology combinations with other products or services. This Section states DIGITAL's entire liability, and ALTV's exclusive remedy, whether statutory, contractual, express, implied, or otherwise for claims of intellectual property infringement. 3 -3- V. TERMINATION Either DIGITAL or ALTV may terminate this Agreement in the event of a material breach of the Agreement which is not cured within ten (10) days of written notice to the other of such breach. DIGITAL may terminate this Agreement and/or any purchase order issued hereunder for convenience within ten (10) days' prior written notice. VI. COMPLIANCE WITH APPLICABLE LAWS DIGITAL warrants that the material supplied and work performed under this Agreement complies with or will comply with all applicable United States and foreign laws and regulations. VII. INDEPENDENT CONTRACTOR DIGITAL is an independent contractor, is not an agent or employee of ALTV and is not authorized to act on behalf of ALTV. VIII. GENERAL This Agreement may not be changed unless mutually agreed upon in writing by both parties. In the event any provision of this Agreement is found to be legally unenforceable, such unenforceability shall not prevent enforcement of any other provision of this Agreement The parties hereto agree to replace such illegal or unenforceable provision with a new provision that has the most nearly similar permissible economic or other effect. This Agreement shall be governed by the laws of the Commonwealth of Massachusetts, without regard to its conflicts of law principles. 4 -4- IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the Effective Date. DIGITAL EQUIPMENT CORPORATION: ALTAVISTA INTERNET SOFTWARE, INC. - ---------------------------------- ----------------------------------- Signature (Duly Authorized) Signature (Duly Authorized) EX-21.1 12 SUBSIDIARIES OF THE COMPANY 1 EXHIBIT 21.1 SUBSIDIARIES AltaVista Internet Software B.V. Jurisdiction of Organization: The Netherlands EX-23.1 13 CONSENT OF COOPERS & LYBRAND LLP 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the inclusion in this registration statement on Form S-1 (File No. 333- ) of our report dated August 26, 1996, on our audits of the financial statements of AltaVista Internet Software Products and of our report dated August 26, 1996, on our audit of the balance sheet of AltaVista Internet Software, Inc. We also consent to the reference to our firm under the caption "Experts." Coopers & Lybrand L.L.P. Boston, Massachusetts August 26, 1996 EX-27 14 FINANCIAL DATA SCHEDULE WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ALTAVISTA INTERNET SOFTWARE PRODUCTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS FOR THE PERIOD ENDED JUNE 29, 1996. 1,000 YEAR JUN-29-1996 JUL-02-1995 JUN-29-1996 1 0 0 1,086 76 45 1,055 14,372 8,496 7,508 1,950 0 45,322 0 0 (39,794) 7,508 3,602 3,632 1,110 1,110 32,390 0 0 (29,868) 0 (29,868) 0 0 0 (29,868) 0 0 THE FINANCIAL STATEMENTS REFLECT THE MOST RECENT FISCAL YEAR ENDED JUNE 29, 1996 FOR ALTA VISTA INTERNET SOFTWARE PRODUCTS. (DATA EXCLUDES IMMATERIAL BALANCE SHEET ELEMENTS (ASSETS OF ONE THOUSAND DOLLARS) OF THE NEWLY FORMED CORPORATE ENTITY, ALTAVISTA INTERNET SOFTWARE, INC.
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